In a background paper prepared for G20 summit entitled “Recovery at the crossroads: Role and implications for developing countries,” the World Bank estimates that just a half percentage point decline in developing country growth—perhaps due to higher capital costs and lower investment from the crisis—would result in 80 million additional people in poverty in ten years. Supporting a pro-growth strategy is especially critical to improve the prospects for low-income countries that rely heavily on commodity exports, remittances, foreign direct investment, and development aid.

At the same time, developing countries offer numerous possibilities for high-return investments that could support high paying jobs in the developed world. Every dollar spent on investment goods in developing countries can yield 35 cents worth of demand for capital goods produced in high-income countries, precisely the kind of high-value goods that generate well-paying jobs. “Promoting multiple growth poles in developing countries can make an important contribution to the structural rebalancing of global growth so necessary for its sustainability,” said the World Bank paper

While there was recognition of the growing pressures for fiscal consolidation, this is only half the story. “The world needs robust growth. Without it, fiscal adjustment will be more painful and politics more unmanageable. What we are seeing is not just 'financial crisis, part two', it is 'sustainable growth challenge, part one',” said the paper.

The paper notes that the sovereign debt crisis in Europe, which began with Greece, had so far not unduly affected the access of developing countries to capital markets. Nevertheless, many developing countries may come under increasing financial strain because of slow growth in high-income countries, modest capital inflows and limited development aid. Developing countries also risk being crowded out of capital markets by the borrowing of high-income countries that amounted to more than $2.5 trillion in 2009 — more than seven times the net capital flows to developing countries.

While developing countries had made great advances in recent years in overcoming poverty, the paper highlights concerns that these gains may be reversed. The global economic crisis could undermine efforts to achieve the internationally agreed Millennium Development Goals (MDGs) by their target year of 2015. “The emerging evidence confirms that the crisis has slowed, and could potentially reverse, recent progress toward the MDGs. Adverse outcomes could persist long after the global economy rebounds,” said the paper. By 2010, the crisis has already trapped an additional 64 million people in developing countries in poverty, living on less than $1.25 a day. Among the MDGs, least progress had been made in reducing maternal mortality, with the majority of the shortfall borne by those living in Sub-Saharan Africa and South Asia.

“In this environment, the development community must fulfill its commitments to provide adequate international assistance and investment and trade opportunities,” the Bank said. “These efforts are also an opportunity to build stronger, more sustainable and balanced global growth.” Developing countries should target their efforts at investing in infrastructure, supporting private sector growth, reducing bottlenecks in agriculture, and promoting social spending through stronger and more targeted social safety nets. More financing is only part of the answer. Improvements in governance, regulation, and cost recovery in developing countries are a core part of the agenda, as are sustained investments in human capital.