Low income countries to be hit by global slowdown

The International Monetary Fund (IMF) expects the global financial crisis to have a major impact on low-income countries, especially in sub-Saharan Africa.

The crisis is projected to increase the financing needs of low-income countries by at least $25 billion (£17.6 billion) in 2009.

In a report, the IMF says that 26 countries appear particularly vulnerable to the unfolding crisis. These include countries heavily dependent on commodity exports such as oil, as well as fragile states with little room for maneuver.

More external assistance will be essential to mitigate the crisis, says the IMF. The fund is using its own financing facilities while trying to sustain and increase funds from other institutions and donor countries.

Funding for low-income countries has already increased: new financing arrangements jumped from a total disbursement of $0.6 billion in 2007 to $5.4 billion in 2008.

The IMF says that because many countries are commodities exporters, they will be hit by falling demand for commodities and the resulting price declines. Many have also been hit by lower remittances and foreign direct investment, while aid flows are under threat.

Banks in low-income countries have little if any exposure to complex financial instruments. However, those which had started to access international financial markets have seen this access almost entirely removed because of the financial crisis.

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