Political Risk Latin America Blog @PolRiskLatam

Low-Income Countries Coped Well During Crisis, IMF Study Finds

Posted in News and Articles, Political Risk by politicalrisklatam on November 15, 2010

by the International Monetary Fund, November 10th, 2010.

The world’s low-income countries coped much better during the global financial crisis than in past global downturns, according to a new IMF study covering 64 countries in sub-Saharan Africa, the Middle East and Europe, Asia, and Latin America and the Caribbean.

Unlike previous crises, real per capita GDP growth stayed positive in two-thirds of low-income countries during this crisis, remaining well above growth in richer countries.

Fiscal response

The report finds evidence that growth was supported by a robust domestic countercyclical fiscal policy response.

“Low-income countries entered the crisis with lower inflation, more manageable fiscal and current account deficits, higher international reserves, and lower debt than in previous downturns,” said Stefania Fabrizio, the lead author of the paper. “This gave them much more room for maneuver to let their fiscal automatic stabilizers operate and increase real spending. This is a welcome change from the past, when most low-income countries tended to tighten fiscal policy during global downturns.”

Thomas Baunsgaard, co-author of the paper, added: “Our analysis shows that this countercyclical fiscal response allowed vital spending to be preserved, in particular on social sectors and infrastructure. This in turn helped mitigate the negative impact of the global crisis on economic growth and the poor.” (continue reading… )

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