AusAID's response to the global recession

The global recession has slowed development and progress towards achieving the Millennium Development Goals (MDGs). The International Monetary Fund estimates that the global economy contracted by 0.6 per cent in 2009 ¹and the implications of this have been severe for many. Economic growth in developing countries was only 1.7 per cent in 2009 compared with 8.1 per cent in 2007 ². However, if China and India are excluded, the economies of developing countries actually contracted by 1.8 per cent ³. The World Bank has estimated that an additional 64 million people will be living in extreme poverty on less than US$1.25 a day by the end of 2010 as a result of the global recession. ⁴

The capacity of developing countries to respond to the crisis varied considerably. Countries with a heavy reliance on export revenue and foreign investment were most exposed to the impacts of the downturn. Those with stronger economies and more financial resources were able to implement effective policy responses to support the economy and weathered the global recession relatively well. Others, including many of the Pacific Island countries, had less capacity to respond.

Although uncertainty remains, the global recovery is underway, with major developing economies such as China, India, Indonesia and Vietnam leading the way. The World Bank estimates that developing economies will expand by 6.2 per cent and 6.0 per cent in 2010 and 2011 respectively. ⁵ The key challenge now for the Australian aid program is to help our developing country partners build long-term economic resilience and regain momentum towards achieving the MDGs.

Shared and sustained economic growth remains the most powerful long-term solution to reducing poverty and is a central theme of Australia's aid program. Economic growth creates jobs and income, and generates government revenues which can be invested back into communities, schools and health facilities. This is important because health and education are themselves critical drivers of sustained economic growth. The Australian government is committed to helping developing countries ensure the benefits of economic growth are equitably distributed, environmentally sustainable and contribute to progress towards the MDGs.

Although recovery from the global recession is underway, there continue to be significant challenges to progressing growth in developing countries. The Australian Government is therefore providing a range of growth enhancing initiatives in such areas as infrastructure investment ($562 million in 2010–11), rural development ($292 million in 2010–11), and has recently doubled support for microfinance and financial services to $18–20 million per year (compared to 2007–08). These initiatives are designed to assist our developing country partners to achieve inclusive growth, build economic resilience and accelerate progress towards achieving the MDGs.

Footnotes

1. International Monetary Fund (2010), World Economic Outlook
2. World Bank (2010), Global Economic Prospects: Fiscal Headwinds and Recovery
3. Ibid.
4. Ibid.
5. Ibid.