EARLY IMPACT ASSESSMENT OF THE GLOBAL FINANCIAL CRISIS ON EDUCATION FINANCING

The impact of the crisis on government financing

In 2008, the world entered into a period of slow economic growth, triggered by food, fuel and financial crises. Countries across the world suffered from increased international food and fuel prices and high inflation during the first half of 2008, while in the second half of 2008, they were hit by an economic meltdown triggered by a global financial crisis. It is expected that the world will enter an era of slower expansion; world economic growth is expected to fall from 3.2% in 2008 to -1.3% in 2009, while growth in developing countries is expected to slow down from 6.1% in 2008 to 1.6% in 2009 (IMF, 2009). As a consequence, governments are facing severe fiscal constraints due to declining revenue. This, in turn, affects the progress of educational development. The unexpected collapse of the macroeconomic environment has placed national plans for achieving the Millennium Development Goals (MDGs) at risk, especially in many developing countries. The prospect of external aid is also likely to be affected given that the slowdown has impacted many developed countries as well. The global financial crisis slowed national economic activities, which in turn affect public revenue. While each country in the assessment was negatively affected by the economic slowdown, the impacts were varied depending on existing national economic structure, connections to the global economy, pre-crisis macroeconomic and fiscal conditions, geographical and economic regions, etc. Some economies took a hard hit, while other countries were able to better absorb the external shock. Overall, countries have been forced to lower their expectations on revenue collection, which is determined by transmission channels of the impact within national economic structures. While not all countries face decreased revenues, the government ordinary (tax) revenues in general are reduced as a result of slowed economies and decreased household incomes. A widely observed cause of declining public revenue is a sharp drop in the volume of international trade and commodity prices. Between September 2008 and March 2009, the world dollar value of trade goods declined by about 30%. Much of the decline reflected weaker trade in manufactured goods, the dollar value of which dropped 33% over the same period (World Bank, 2009a). Due to decreased external demand, countries exporting manufactured goods, such as Bangladesh, were impacted significantly by the crisis. A combination of weaker external demand and a collapse of international commodity prices also affected commodity exporting countries, such as Guatemala, Timor-Leste and Yemen. The government revenue outlook for tax collection from export industries, as well as sales of resources, were adjusted negatively as a result. Furthermore, a decline in the volume of international trade has had an effect on import tax revenues. A combination of lowered domestic demands and weak national currencies resulted in a decline in the volume and value of imports, despite a collapse of international commodity prices in mid-2008. Consequently, countries which rely heavily on import taxes for their revenue collection were severely impacted, as observed in Namibia, Sri Lanka and Swaziland download