RP is ‘highly exposed’ to rising poverty - WB

By Cai U. Ordinario, BusinessMirror | 02/16/2009

The Philippines is among the “highly exposed” developing countries to increasing poverty levels and decelerating growth due to the global economic slowdown, according to a policy note recently released by the World Bank.

The bank said the global economic crisis is exposing households in almost all developing countries to increased risk of poverty and hardship. And, it added, almost 40 percent of developing countries are highly exposed to the effects of the crisis on poverty, with both declining growth rates and high poverty levels.

The Washington-based lender also said an additional 56 percent of countries are moderately exposed—meaning, will face either decelerating growth or high poverty levels, while only less than 10 percent face little risk.

The World Bank said the Philippines was classified a “highly exposed” country because its real per-capita economic growth is expected to be lower in 2008 and 2009 compared with the period of 2004 to 2007; and it is a place where 20 percent or more of households were below the $1.25 poverty line in 2005.

The bank said in highly exposed countries like the Philippines, poverty was already a large problem before the crisis, and an adverse impact on economic growth is expected. In the short term, the bank expects the nonpoor to be the most affected by the crisis. Experience from past economic and financial crises suggests that the adverse impacts are likely to spread in the medium-term to poor households.

“Poor household have fewer assets, more limited risk-coping mechanisms, and less access to capital markets to help them cope with economic fluctuations. Countries where there is a greater proportion of poor households have a larger share of the population that will be vulnerable to shocks in the medium term,” the bank said.

On a positive note, the bank also classified the Philippines as among those highly exposed countries that has “some fiscal space” to weather the crisis.

The bank said it will be critical to protect households in exposed countries through the help of the government. Governments, the bank said, must have the ability to cope with the fallout and finance programs that create jobs, ensure the delivery of core services and infrastructure, and provide safety nets.

As one of the countries with some fiscal space with medium capacity, the Philippines has more options to rapidly and effectively increase spending. The World Bank said the government should provide targeted support to exposed groups and regions, as well as support to protect core service delivery and infrastructure maintenance using development-policy operations in addition to investment financing.

“Combining both dimensions of vulnerability, the countries in most critical need of external financial and technical assistance are those with high initial poverty and growth decelerations, as well as low fiscal and institutional capacity,” said the Bank.

Earlier, World Bank president Robert Zoellick said developing countries should set aside .07 percent of their gross dometic product (GDP) in their stimulus package as a vulnerability fund.

Zoellick said the fund can be used for World Bank, United Nations and regional development bank safety-net programs that give the poor access to health, education and nutrition services; build infrastructure such as roads, bridges and low-carbon technology projects; and support small and medium-size businesses and microfinance institutions that lend to the poor.

An “unprecedented” fall in global production and a 5-percent decline in world GDP in the fourth quarter of 2008 point to an outright fall in world GDP in 2009, even if there is a modest rebound in the second half of the year, according to the World Bank.

World trade volumes are now contracting sharply and are expected to fall in 2009 for the first time in 27 years. Investment growth in the developing world is projected to fall from 13 percent in 2007 to 3.5 percent in 2009, due to tighter credit conditions and less appetite for risk.