ISLAMABAD, Nov 9: Phenomenal rise in food prices between 2005 and 2007 has increased “extreme poverty” in South Asia, East Asia and the Middle East by one percentage point, a setback equivalent to the progress made by countries in regions over the past seven years in meeting the poverty-related Millennium Development Goal (MDG) of the United Nations.

The impact on the urban poor was particularly acute, increasing the incidence of poverty by more than 1.5 percentage points in these regions and also in Sub-Saharan Africa, says a report of the World Bank titled “global financial crisis and challenge for the developing countries”.

It says that despite recent declines in global food and fuel prices, countries with high pre-existing levels of malnutrition and “double-digit” food inflation are the worst victims. Pakistan is in the list of countries with double-digit food inflation and high level of malnutrition.

For the very poor, reducing consumption from already very low levels, even for a short period, can have important long-term consequences.

The poorest households may have had to reduce the quantity and/or quality of food, schooling, and basic services they consumed, leading to irreparable damage to health and education of millions of children.

Poor households forced to switch over to cheaper and less nutritional foodstuff, or cut back on total caloric intake, face weight loss and severe malnutrition.

“Already during 2008, higher food prices may have increased the number of children suffering permanent cognitive and physical injury due to malnutrition by 44 million in developing countries,” the report observes.

As a result of the food and fuel crises, the number of extremely poor was estimated to have increased by at least 100 million in developing countries.

The poverty deficit (the annual cost of lifting the incomes of all of the poor to the poverty line) rose by $38 billion or 0.5 per cent of developing country Gross Domestic Product (GDP), the report says.

The increase in the number of poor because of the food crisis, it says, is only part of the story. Equally worrisome is the fact that many of those already poor are slipping even more deeply into poverty.

Recent estimates of poverty depth (i.e., the gap in consumption between the average poor household and the poverty line) show that poverty is deepening, with the extreme poor being hit the hardest.

Eighty-eight per cent of the increase in urban poverty depth from rising food prices is from poor households becoming poorer and only 12 per cent from households falling into poverty.

The report says that financial conditions have become much tighter, capital flows to developing countries have dried up, and huge amounts of capital have been withdrawn, leading to sharp falls in equity valuations and increases in bond spreads. As of mid-October, developing country equity markets had given up almost all of their gains since the beginning of 2008 and initial public offerings had disappeared. Spreads on sovereign bonds and commercial debt, which until recently was the most important source of developing-country finance, have risen sharply.

Bank lending is also down and foreign direct investment inflows are expected to decline in the final quarter of the year.

The report notes that investment was the main driving force for developing-country growth over the past five years, contributing almost half of the increase in domestic demand.