Analysing the Impacts of the Global Financial Crisis and Appropriate Policy Responses





At the onset of the global financial crisis, there was considerable debate as to the eventual repercussions it might have on the developing countries. Strong voices emerged to suggest that weak integration in the global economy, particularly in the case of Africa, would protect these countries from the worst effects of the crisis. Yet, as the crisis evolved, falling world export demand, foreign direct investment, remittances and, more recently, aid flows inexorably drew these countries into the global slump. Furthermore, weak fiscal situations and lack of access to a severely constrained global credit market denied these countries the most important tools – stimulation spending – that developed countries used to weather the storm.  
How much individual countries were affected and how the losses were shared within the population depended, and continue to depend, on the specific global links (particularly trade, investment, remittances and aid) of the country and the policies put in place to respond. The Poverty and Economic Policy (PEP) research network was fortunate in having a large number of well-trained and experience local researchers throughout the developing world to draw upon to monitor and analyze how the global crisis impacted their respective countries.

Anticipating national impacts and designing appropriate responses

Among the PEP Network’s crisis-related projects, several MPIA researchers were mobilized in a multi-country research initiative - sponsored by AUSAID, IDRC, IFPRI and PEP -  to provide an evidence base for policymakers in developing countries to face this new challenge. These researchers used models of their national economies to first predict the impacts of the crisis and then explore various policy responses in nine countries of Asia (Bangladesh, Pakistan and the Philippines), Africa (Senegal and South Africa) and Latin America (Bolivia, Colombia, Ecuador and Uruguay).
Indeed, country results vary substantially. If the channels of impact seem to be relatively similar in all case studies – essentially through the reduction in world demand and resulting fall of export volumes and prices – national economies are affected to varying degrees. Initial levels of economic performance, fiscal balance and/or integration to the global economy are obviously determining, not only of the impacts on the country’s economic well-being, but also of the states’ capacity to undertake initiatives to withstand or counter the crisis’ negative effects.

In a country like Bolivia for example, external revenues had been significantly increased prior to the crisis, due to an important export commodity price boom, leading to the first recorded fiscal surpluses in the country’s history (from 2006 to 2009). So far, with the exception of the drop in the world mining export prices, it seems that the crisis’ main transmission channels would have relatively mild effects on the Bolivian economy. Other countries are not so lucky; in South Africa for example, where export volume have fallen by 19.5% (excluding gold) and imports by 7%, gross domestic product, investment and the government deficit all deteriorated and the forecasts are less optimistic than for Bolivia. Given the fall in production for most sectors, followed by a drop in investments in the long-run, the impact on socioeconomic well-being in South Africa will be much greater at the household level.

Naturally, anticipated long-term poverty impacts reflect the same variations, as they ensue directly from these national-level contingencies and prospects, especially through employment. In all cases, however, PEP research teams have drawn specific conclusions on the best policy options that governments should apply to sensibly reduce these effects on households and protect the most vulnerable from greater strain. 



Several projects are still awaiting publication of their final conclusions in the form of working papers and/or policy briefs, after and from which PEP will draw and publish regional assessments and outlook reports.
For the moment, preliminary reports from individual case studies can be found through the following links to the nine country projects
MPIA-12268 Assessing the Impact of the Global Financial and Economic Crisis in Developing Countries: The case of Uruguay.
Cecilia Llambi (Uruguay)
MPIA-12264 Impact de la crise financière internationale sur l’économie sénégalaise.
Joseph François Cabral (Senegal)
MPIA-12263 The International Economic Crisis and the Colombian Economy.
Ricardo Arguello (Colombia)
MPIA-12262 The Impact of the Economic Crisis in South Africa.
Margaret Chitiga (South Africa)
MPIA-12241 Effects of the Global Financial and Economic Crisis on the Bolivian Economy: A CGE Approach.
Carlos Gustavo Machicado (Bolivia)
MPIA-12261 Ecuador: Impact of the Global Economic Crisis.
Sara Wong (Ecuador)
MPIA-12236 Global Economic Crisis and the Philippine Economy: A Quantitative Assessment.
Erwin Corong (Philippines)
MPIA-12237 Impact of the Global Financial Crisis in a Small Open Economy: the Case of Pakistan.
Vaqar Ahmed (Pakistan)
MPIA-12238 Implications of the Global Economic Crisis for the Bangladesh Economy.
Selim Raihan (Bangladesh)

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