A World Bank report titled "Global Economic Prospects and Developing Countries 2000" warns that the biggest risk to the global economy is likely to come from the developments in the US economy.
The report, released here yesterday, says that certain features of global economic growth are unsustainable. It points to the 40 per cent growth in US imports, which it says is unsustainable. This feature of global growth is likely to have strong implications for the other countries as their growth rates cannot be sustained for long.
The report says that though developing countries have started recovering from the East Asian crisis, there are several weaknesses in their recovery trends. Private capital flows, it says, continue to be depressed and volatile, while poverty reduction is expected to be slower than projected.
Overall private capital flows is likely to be modest, as the risk perception of developing countries, vis-a-vis the developed world, is high.
The drop in commercial lending rates is the sharpest in the developing countries, it says.
The report points out that inequalities are likely to be a prominent feature of global economy and policy in the coming years as the growth prospects for the low income countries remains poor. Poverty will be significant if inequalities are not addressed, it says.
The countries likely to be worst hit by this are those in sub-Sahara Africa and Latin America.
The report puts forward several scenarios for poverty projections. With a growth rate of 4.5 per cent for the least developed countries, there will be a significant drop in poverty levels. However, with growth rates averaging 3.5 per cent, there might be modest increase in inequality but its effect will be significant, the report says.
While dwelling on the East Asian crisis, the World Bank report points out that the role of the government in the funding of corporate restructuring programmes is limited. However, the its role lies in allocating the losses arising out of this crisis. Several years of policy intervention lies ahead for these countries, it adds.
There is a deep structural challenge in these economies though the response to the crisis is good in terms of the mechanism which has been put in place to tackle the problems. Referring to the dangerous trends in some Southeast Asian countries, the report says that the amount of fiscal responsibility decreases as the ratio of debt to gross domestic product (GDP) rises.
The report reveals that the long term growth prospects for low- and middle-income countries are placed at 5 per cent, which is lower then that for the previous period. Whereas the growth rates for Europe and the G-7 countries is likely to be higher than the previous one.