DUSHANBE, June 8, 2011, Asia-Plus  -- The World Bank has advised developing countries to move away from crisis-fighting attitude to policies that will tackle specific challenges to sustain growth.

In its June 2011 edition of the Global Economic Prospects (GEP), which was released on June 7, the World Bank said “developing countries need to focus on tackling country-specific challenges such as achieving balanced growth through structural reforms, coping with inflationary pressures, and dealing with high commodity prices.”  According to the Bank, on the contrary, prospects for high-income countries and many of Europe’s developing countries remain clouded by crisis-related problems such as high unemployment, household and banking-sector budget consolidation, and concerns over fiscal sustainability among other factors.

In the report, the World Bank projects that as developing countries reach full capacity, growth will slow from 7.3% in 2010 to around 6.3% each year from 2011 to 2013.  High-income countries, the Bank says will see growth slow from 2.7% in 2010 to 2.2 percent in 2011 before picking up to 2.7% and 2.6% in 2012 and 2013 respectively.

Inflation in developing countries reached almost 7% year-over-year in March 2011, more than 3 percentage points higher than the low point in July 2009.  Inflation in high-income countries has also picked up reaching 2.8% in April 2011.  

High oil prices and production shortfalls due to bad weather have contributed to higher food prices, which has negative consequences for the poor who spend a high proportion of their income on food. Although domestic food prices in most developing countries rose much less than international prices during the 2010/11 spike (7.9% since June 2010 versus 40% for international prices), local prices may rise further as international price changes slowly pass through into domestic markets.  In addition, if the 2011/12 crop year disappoints, food prices may rise further, placing additional pressures on the incomes, nutrition, and health of poor families.

The GEP says GDP growth in developing Europe and Central Asia rebounded to an estimated 5.2% in 2010, following a 6.5% contraction in 2009.  Limited credit growth, the deleveraging of household-sector balance sheets, and continued industrial sector restructuring (following the easy-credit fueled excesses of the boom period) are projected to continue weighing on GDP, which is expected to increase by a relatively subdued 4.7% in 2011 and 4.5% in both 2012 and 2013.  These aggregate figures hide significant variation across countries within the region, with outturns in those countries that were most caught up in the boom period performing least well.  High commodity prices will boost incomes of resource-rich economies in the region, contributing to strong import demand and remittance flows, which will benefit other countries in the region with the closest trade and migration ties with them.

In Central Asia, GDP in Kazakhstan (over two thirds of the sub-regional GDP) is set to expand by around 5.7 percent yearly during the next three years on the back of high commodity prices and deepening links with other developing Asian economies.  The sub-region will do even better, growing by 6.1 percent. Strong commodity prices should contribute to improved public and external balances among the sub-regional resource exporters — Kazakhstan, Turkmenistan and Uzbekistan (Tajikistan is also a significant cotton exporter). Kyrgyzstan and Tajikistan are projected to make inroads into their large external and fiscal deficits, thanks in part to significant remittances receipts and official aid, linked in Kyrgyzstan to post-conflict reconstruction efforts.

In Tajikistan, GDP is expected to rise 5-5.7 percent yearly during the next three years