For the first time since World War II in the 1940s, the global economy will shrink. With the First World nations now reeling at the sudden change of economic tide, the World Bank foresees tougher times for developing countries with the lack of financing usually sourced from industrialized countries.
The poorest countries (all 129 of them) are expected to see a huge shortfall in their coffers and there will not be enough cash to go around to offer these countries loans and other financing options. This would, in turn, affect how these developing nations would be allocating their national budgets. It is highly likely that social services would get hit by this short fall – a common concern for these countries.
The World Bank used to provide lower interest and longer-term loans for these countries. With the bleak economic outlook, the World Bank might only be able to supply funds with higher interest rates and lower cash flow. They are currently asking richer nations for cooperation in creating a global solution to the problem.
In a report by MSNBC World Bank Chief Economist and Senior Vice President Justin Yifu Lin said:
Clearly, fiscal resources do have to be injected in rich countries that are at the epicenter of the crisis, but channeling infrastructure investment to the developing world where it can release bottlenecks to growth and quickly restore demand can have an even bigger bang for the buck and should be a key element to recovery.
