	Background

Since 2007, a series of overlapping food, fuel, and financial crises have  negatively affected the world economy, prompting the IFIs to respond. Economic Growth Slowed and Inflation Increased

While the average annual growth rate in real gross domestic product  (GDP), or national income, for the 38 LICs remained positive during the  crisis period, it declined by an average of about 1 percentage point,  dropping from an average of 7.1 percent during the pre-crises period to  an average of 6.2 percent during the crises period. 3.) The slowdown in the growth rate of real GDP in LICs was milder than the  downturn in real GDP growth experienced by advanced economies during  the crises, which declined from 2.7 percent in 2007 to -3.4 percent in  2009. However, IFIs have reported that lower growth rates caused by the crises  could lead to increases in poverty in LICs. IFIs Increased Funding and Met Many Disbursement Goals, but the Impact of Their Actions on LIC Government Spending Has Been Difficult to Establish

In response to the crises, we found that IDA met its goal to increase the  amount of financial assistance and partly met its goal to increase the  speed of disbursements to LICs, but the impact of IDA’s actions on LIC  government spending has been difficult to establish. The five initiatives are:  the Global Food Crisis Response Program (food program),  established in May 2008 to help countries reduce the impact of high  food prices on the poor by providing rapid financial assistance, policy  advice, and social protection services such as food stamps and  school feeding programs for the most vulnerable;  the IDA Fast Track Facility, established in December 2008 to help  countries offset the impacts of the financial crisis on governments’  budget expenditures, including social and infrastructure programs;  the Rapid Social Response Program (social protection program),  established in April 2009 to help countries mitigate the impacts of  crises by promoting social protection programs through rapid  financing of immediate interventions in safety nets and other areas,  and by improving capacity needed to establish and implement  effective safety net systems;  the Infrastructure Recovery and Assets Platform (infrastructure  program), established in March 2009 to help countries mitigate the  impacts of the crises by supporting critical infrastructure investments  and new project development and implementation, and;  the Pilot Crisis Response Window, established in November 2009 to  help reduce the need for countries to make tradeoffs between  financing crises response efforts or long-term development programs  by providing new financing that was additional to countries’ existing  IDA funds. 9). Disbursement rates,  which vary over time, depend on a number of factors, including recipient  country capacity, need, and governance, and the type of lending. IFC Increased Assistance to LICs, but Its Response Was Limited by Capacity Constraints

The IFC responded to the food and fuel crises through lending in the  agriculture and energy sectors and responded to the financial crisis  through existing and new initiatives and by enhancing coordination with  donors, but its response was limited by capacity constraints. Our review of these DSAs is  nongeneralizable and meant to be illustrative, not representative. IMF and World Bank Did Not Lower Debt Distress Ratings Due to Crises

Although the crises adversely impacted LICs’ economies, the IMF and  World Bank did not change any country’s debt distress rating as a result  of the crises, indicating that they did not expect the crises to adversely  impact LIC economies enough to significantly impair their ability to repay  debt. Concluding Observations

The food, fuel, and financial crises resulted in slower economic growth,  higher deficits, and increased inflation for LICs. For example, our previous work shows that many  LICs were experiencing protracted food emergencies and had severe and  widespread malnourishment even prior to the onset of the crises. The IMF increased lending to LICs more than  sixfold to almost $5 billion. The World Bank committed $18.1 billion  through regular lending and five new crises response initiatives that  committed $12.2 billion in financial assistance to LICs, including $1.4  billion in new funding. The World Bank provided funding as a mix of loans  and grants, depending on the performance and debt vulnerability of each  country. According to the World Bank and IMF, the crises did not significantly  impair the countries’ ability to repay their future debt, because they  expected the world economy to reestablish its pre-crises growth levels  and the LICs to implement reforms necessary to achieve projected future  growth levels. We included this information in our  report. At that time, we will send copies to Members of Congress;  U.S. Treasury, the IMF, and the World Bank. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine (1) the economic impact of the crises on  low-income countries (LIC), (2) international financial institutions’ (IFI)  responses and reported results, and (3) IFIs’ assessment of the impact of  the crises on LICs’ ability to repay their debt. To evaluate whether the World Bank’s crisis response was consistent  with the institution’s stated goals of increasing the speed of  disbursements, we analyzed World Bank data on financial commitments  and disbursements made to LICs between 2005 and 2010. Appendix IV: Comments from the U.S. Department of the Treasury

	GAO Comments

1. Appendix VI: Comments from the International Monetary Fund

	GAO Comments

1. 3. In August  2011, the IMF reported renewed risks to the global recovery, which  means that projections for future export growth could be too  optimistic.
Why GAO Did This Study

The 40 poorest countries in the world, known as low-income countries (LICs), have been negatively impacted by successive food, fuel, and financial crises since 2007. In response, international financial institutions (IFI), including the World Bank and International Monetary Fund (IMF), have taken actions to increase financial assistance for affected countries. Between 2008 and 2010, Congress appropriated $3.3 billion to the World Bank's International Development Association, which funds development programs in LICs. Congress also authorized the U.S. representative at the IMF to vote to approve the sale of some of the IMF's gold to increase lending to LICs. LICs' ability to repay debt remains important as financing levels rise and decisions are made about the mix of loans and grants they receive. GAO was asked to examine (1) the economic impact of the crises on LICs, (2) IFIs' responses and reported results, and (3) IFIs' assessment of the impact of the crises on LICs' ability to repay their debt. GAO analyzed documents and information from the World Bank and the IMF, including data on macroeconomic indicators, financial commitments, and debt analyses. GAO interviewed staff from the World Bank, IMF, and U.S. Treasury. GAO selected three African countries for more thorough analysis, a sample that is meant to be illustrative, not representative..

What GAO Found

In LICs, the recent food, fuel, and financial crises resulted in slower economic growth, higher deficits, and higher inflation, but the macroeconomic impacts were less than experienced by the advanced economies. The crises also slowed foreign direct investment in LICs, which had been growing steadily since 2000. During the crises period, LICs' average economic growth slowed from 7.1 percent in 2007 to 5.3 percent in 2009. IFIs have reported that lower growth rates caused by the crises could lead to increases in poverty in LICs, and our previous work shows that many LICs were experiencing protracted food emergencies and had severe and widespread malnourishment even prior to the onset of the crises. During the crises, food and fuel prices rose significantly, then declined, and have risen again in 2011 to levels experienced during the crises. In response to the crises, IFIs increased funding and disbursed some funds more quickly to LICs, but the impact of these actions on LIC government spending has been difficult to establish. Between 2008 and 2010, the World Bank committed $18.1 billion through regular lending and five crisis response initiatives, an increase of 39 percent from the pre-crises period. Total first year disbursements also increased by 12.7 percent. Three of four of the initiatives designed to increase the speed of disbursements met their goal. However, the proportion of committed funds that have been disbursed in the first year following project approval declined, as compared to the pre-crises period. Disbursement rates depend on several factors, including recipient country capacity, need, and governance; and the type of lending. The World Bank's International Finance Corporation responded to the crises through investments, trade initiatives, and enhanced coordination with donors, but its response was limited by the availability of resources and recipient countries' limited ability to implement programs quickly. The IMF boosted lending to LICs more than sixfold to $4.9 billion, which governments could use to bolster their reserves or make international payments. While most LIC governments' spending increased during the crises, we found that the impact of World Bank and IMF actions on spending has been difficult to establish. According to IFIs' analysis, the crises did not significantly impair LICs' ability to repay their future debt, and thus did not necessitate an increase in their access to grants, which do not have to be repaid, relative to loans. The reliability of this analysis depends on the realism of IFIs' projections, which include quick economic recovery, implementation of policy reforms, and low inflation. According to IFIs' projections, the ability of six LICs to repay their debt improved during the crises, and thus they received more loans instead of grants. However, the IMF subsequently reported renewed risks to the global economic recovery, meaning that projections for future export growth, government revenue, and inflation might be too optimistic. This report contains no recommendations. The World Bank, IMF, and U.S Treasury generally agreed with our findings but identified areas to provide greater context.