1 World Bank Group Response to the Financial Crisis

1. This paper summarizes the World Bank Group's operational response to the economic crisis. It presents the context and the overall framework for the response as well as particular initiatives including a detailed discussion of the Vulnerability Financing Facility.
Crisis Context
2. The current global economic crisis is severely hitting developing countries. Growth prospects for emerging and developing countries have been revised downward by a magnitude similar to that for advanced economies. Low-income countries (LICs) , initially shielded from the direct impact of the sudden stop in private capital flows, are now being affected as the crisis effects have spread through other channels, at a time when many LICs are still coping with the impact of the earlier food crisis. The impact could set back the global fight against poverty, and jeopardize the progress made towards achievement of the MDGs. Recent World Bank analysis suggests that the crisis will result in 53 million more people living in extreme poverty (below $1.25 a day) in 2009, or 65 million more if the $2 a day measure is used; 200,000-400,000 more infants will die every year and many poor children will lose the opportunity to attend school. Crisis Context 3. There is a clear need for additional support for developing countries . President Zoellick has proposed a vulnerability fund, A Call to Action that developed countries pledge an amount equivalent to 0.7 percent of their stimulus packages as additional aid, over and above existing ODA commitments, for the low income countries and the poor and vulnerable in the developing countries. This does not involve creating a new entity: donors can choose where and how to channel their additional monies using existing mechanisms, be it through their own bilateral aid agencies; UN agencies such as the World Food Program, FAO or UNICEF; the World Bank Group and other multilateral development banks; or non-governmental organizations. Crisis support is not only about protecting poor and vulnerable families and long-term development goals. It is also a critical part of the overall global response agenda - developing countries need assistance to raise global aggregate demand, maximize the impact of the global stimulus, safeguard future growth and limit the potential for civil unrest.download