WASHINGTON, DC – As the world struggles with the most serious financial turmoil of the post-war era, attention has focused on the advanced and emerging-market economies most immediately affected. But the impact on poor countries is far more severe.
Weak global growth is shrinking export markets, and many commodity prices are plunging. The combination of tighter credit conditions in the advanced economies and dimmer economic prospects in low-income countries is hitting investment flows. And workers’ remittances, which now eclipse aid as the biggest financial flows to low-income countries, are also falling.
Sub-Saharan Africa depends heavily on commodity exports, so it is especially vulnerable to the global downturn. Many African countries have used the past decade to put in place sound and sustainable economic policies that have delivered robust growth and low inflation. Together with debt relief, these policies have resulted in low levels of public debt, relatively sound financial systems, and – most important – rising living standards.
These gains are now at risk. The high food and fuel prices that prevailed until recently have taken a heavy toll on the finances of many African economies. Now they face a second blow from the global recession.