Slow Economic Growth Worries World Bank
Byline: LESLEY WROUGHTON Reuters
WASHINGTON - Slower global economic growth has increased risks for developing countries, especially if the record levels of private capital that has flowed into these markets is reversed, the World Bank said on Tuesday.
In its annual Global Development Finance report, the bank said higher interest rates and emerging capacity constraints would slow the rapid growth of developing countries, with global growth falling to around 3.5 percent in 2009 from 4 percent in 2006.
In developing countries, growth is likely to moderate gradually to about 6 percent in 2009 from 7.3 percent in 2006, the report said.
The World Bank believes the transition to slower growth would be relatively smooth, but cautioned: "This realignment could also temper some of the positive global financial conditions that have prevailed in many developing countries over the past four years."
The report said net private capital flows to developing countries reached a record $647 billion in 2006, although their rate of growth slowed to 17 percent from 34 percent in 2005.
"Looking ahead, the key challenge facing developing countries is to manage the transition by taking preemptive measures aimed at lessening the risk of a sharp, unexpected reversal in capital flows," it added.
That should include economic and institutional reforms, the report's main author, Mansoor Dailami, said in an interview.
"Basically, they do need to maintain and strengthen investor confidence in their policy apparatus," he added.
Dailami said the large foreign exchange reserves in many developing countries, especially in Asia, could be used as buffers in the event of financial shocks. …