RTTNews - The world economy is likely to contract at an even faster pace this year than previously estimated, with developing countries more likely to be the hardest hit, the World Bank said in a report Friday.

World Bank forecasts the global economy to shrink close to 3% this year, higher than its earlier estimate of a 1.7% fall. However, it noted that although the growth is expected to revive during the course of next year, the pace of recovery is uncertain.

Most developing country economies will contract this year and face increasingly bleak prospects unless the slump in their exports, remittances, and foreign direct investment is reversed by the end of 2010, Robert Zoellick, the World Bank president said.

The World Bank pointed out that low countries have limited borrowing capacities due to lower reserves and drained budgets, and therefore would face great difficulties in getting sufficient finance over the next few years. In this regard, institutions like the World Bank, IMF and other sources would play a crucial role, the report said. Moreover, the recovery strategy has to come from private sources as there was not enough public money to solve the crisis, the Bank stated.

Waves of economic pain continue to hurt the developing world's poor, who have less cushion to protect themselves. There is much more we need to do in the coming months to mobilize resources to ensure that the poor do not pay for a crisis that is not of their making, Zoellick said.

According to the World Bank's estimates, the overall financing gap for developing countries will be between $350 billion to $635 billion this year, which is lower than initial estimates owing to improved current account balances, but was still a high amount.

For the fiscal year 2009, grants and interest free loans of the International Developmental Association or IDA, a division of the World Bank, is expected to total more than $13 billion, a record high, and an increase over last year's $11.2 billion.

In the meantime, the World Bank emphasized the need to restore domestic lending and international flow of capital in the G8 meetings to be organized this month and the next.

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