Crisis hit region hard, says the World Bank

TIRANA, Dec. 2 – The global financial crisis is having a devastating impact on families in emerging Europe and Central Asia, with the risk of the region giving back a fifth of the poverty reduction gains of the past decade, according to a new World Bank report.
By 2010, there could be over 10 million more poor people in the region, and close to an additional 25 million more who were almost middle class but now just above the poverty line (relative to pre-crisis projections) with the potential of losing their homes, jobs, and basic services, according to the World Bank.
The new report, The Crisis Hits Home – Stress-Testing Households in Europe and Central Asia, takes a unique look at the impacts of the global financial crisis at the household level in this region. According to the report, families are being hit by credit market shocks, the increasing prices of goods and services, and rising unemployment.
“The global financial crisis risks reversing the substantial gains and improvements in living standards achieved by the Europe and Central Asia region over the last few years,” said Luca Barbone, Director for Poverty Reduction and Economic Management in the World Bank’s Europe and Central Asia Region. “One of the tragic impacts of the crisis has been that the middle income countries that had turned the corner are the ones hardest hit. Across countries in the region, unemployment levels have risen while economic activities have collapsed. Poverty will rise. Families are being stretched to the limit.”
The report says that stress tests recently conducted by the World Bank on household loans show that ongoing macroeconomic shocks to interest rates, exchange rates, and household income may increase the numbers of families that are unable to pay back their debt. For example, up to 20 percent more families with mortgages and other loans in Lithuania and Hungary could be at risk of defaulting on their loans.
The food and fuel crisis may not be over. International commodity price levels have not returned to pre-2007 levels. In addition, falling currencies in some countries are resulting in a new round of price increases. Because food represents a very large share of the poor’s total consumption – in some of the low-income countries of Europe and Central Asia, the food share of consumption among the poor is 70 to 80 percent – the poorest consumers will again be vulnerable.
According to the report, lessons from the region’s own experiences with previous crises suggest that temporary economic shocks have a lasting impact on human development, as families cut back their education and health investments in response to a banking or exchange rate crisis.
Compared to past crises, the scope for households in Europe and Central Asia to fall back on their traditional coping strategies – from secondary employment and money transfers from friends and family to working abroad – is much more limited.