World Bank official warns over oil prices

A senior World Bank official warned on Tuesday of the "substantial" impact of continuing high oil prices on developing countries. Francois Bourguignon, the bank's chief economist, said that precious foreign exchange reserves were being depleted by as much as one third and families were paying more for goods. "With the same amount of money people will not be able to buy the same amount of goods as before," Bourguignon, who is on a six-day visit to Ethiopia, told journalists in the capital, Addis Ababa. "The drop in the real purchases made by those people is around two to five percent of GDP," he added. Bourguignon said some countries had seen their foreign exchange reserves depleted by as much as 30 percent as they struggled to pay for oil. He blamed the high prices - oil now fetches over US $50 a barrel on world trading markets - on global events including the war in Iraq. He said that experts from the World Bank estimated that oil prices had risen by around $10 a barrel on average from the previous year. "The impact of that on oil consuming countries is substantial," added Bourguignon, who has been holding talks with Ethiopian officials on global anti-poverty targets. "We have an impact of between two percent and five percent of GDP depending on the oil dependency and dependency on other sources of energy. This doesn't mean that GDP has been going down by between two and five percent. This is a welfare cost of having to pay more for oil," Bourguignon said. He said that currently, oil dependent countries were "absorbing the shock" through their foreign exchange reserves. "For the moment the impact on low income oil consuming countries has been limited but it is clear that if prices remain high for the next year then reserves will not be enough," he said. Bourguignon questioned calls for rich nations to wipe out third world debt. African countries are also saddled with $305 billion in debts. "The idea of zero debt is a myth. If you write off debt countries will still borrow. Writing off the debt everywhere and without any additional statement is a red herring," he said. "The issue is how do we manage the debt so that it does not get too high. I prefer to think in terms of making sure the debt is sustainable and manageable and it is possible," he noted.