Making most of scarcer aid will be vital: World Bank's Mulyani

Tue Nov 22, 2011 11:45pm EST
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By Lesley Wroughton

WASHINGTON Nov 22 (Reuters) - Developing nations face weaker growth over the next two years as the euro zone debt crisis deepens and making the most of scarcer aid dollars will be vital, a senior World Bank official said on Tuesday.

World Bank Managing Director Sri Mulyani Indrawati told Reuters the biggest challenge for developing countries now was how to minimize the fallout from the euro zone crisis, which is likely to be felt through a decline in trade, workers' remittances and investment.

She said ending uncertainty around the euro zone crisis, which was driving up borrowing costs across the world, should be the focus of European policymakers.

"Ending this uncertainty is so important," Indrawati said.

"For many developing countries the choice is tougher for them because they have to choose between defending their fiscal soundness and sustainability," she added.

Indrawati said fiscal space in developing countries was already limited because current crisis was following so soon after the last global financial meltdown of 2009, which drained resources of poor nations.

She was speaking ahead of a meeting next week in Busan, South Korea, on aid effectiveness.

With budgets of rich but often highly-indebted Western donors under pressure, Indrawati said it was important that aid be made to work better through more transparency and results driven anti-poverty programs.   Continued...