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The Impact of the Global Financial Crisis on
Developing Countries
Neil McCulloch
28 January 2009
Voices from the South: The
Impact of the Financial Crisis on
Developing Countries
www.ids.ac.uk/go/financial-crisis-impact
How do the poor respond?
Immediately responses
• Using savings
• Borrowing from friends/neighbors
Responses that do long-term damage
• Pulling children out of school (especially
girls)
• Reduced nutritional intake (especially girls)
• Selling valuable (often productive) assets
Policy Options
For rich countries
• Expand official financing
– Ensure that financial flows are
available, especially to
vulnerable countries suffering
sudden stops in private flows
• Don’t cut aid
– The EU countries are already
well behind meeting their
Gleneagles commitments of
0.51% GNI by 2010
• Conclude the Doha Round
For poor countries
• Protect social expenditure
– Especially access to health
and education services
• Expand existing well
targeted social protection
schemes
– E.g. cash transfers/workfare
• Where feasible, maintain
productive capital
expenditure
The Impact of the Financial Crisis
on Aid Flows
What we promised
Source: OECD-DAC (2008)
Are we getting there?
Source: OECD-DAC (2008)
How does crisis affect aid?
Source: Roodman (2008)
How much does aid matter?
Average Share
(2000-06)
Private flows
ODA
Other official flows
Total
Developing
Countries
84.9
19.5
-4.4
100.0
Source: Authors’ calculations from GDF (2008)
Sub-Saharan
Africa
38.4
65.5
-3.9
100.0
It matters much more in some places
Source: Authors’ calculations from WDI (2008)