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r residential real estate market again, he concluded.

2.4. THE POSSIBLE OUTCOMES

The current world concern is to anticipate the possible results of banking failures and reductions in domestic lending, reductions in export earnings, and reductions in financial flows to developing countries. It is anticipated that this will result in reducing private sector investments and household consumption. Government expenditures will be reduced as governments will now face the higher costs of raising funds coupled with less tax income. Low investment, consumption and government expenditures could sell higher unemployment and poverty across the developing world.

The IMF forecasts average world growth to decline to 3.0 per cent in 2009, down from 5 per cent in 2007 (IMF 2008) (Naude and Wim, 2009). The United Nations baseline forecast for world growth projects a decline from 2.5 per cent in 2008 to 1 per cent in 2009. Their worst-case scenario sees a contraction of 0.4 per cent in the world economy in 2009.

As far as developing countries are concerned, the World Bank has revised its estimate for growth downwards from 6.4 to 4.5 per cent for 2009 (World Bank 2008). For Africa, home too many of the least developed countries, growth expectations are also down, given the continent’s dependence on exports and commodities. However, as Harsch (2009) shows, many of these countries are more resilient than before, and expectations are that African countries will continue with good growth in 2009, of around 4.7 per cent according to the IMF forecasts and 4.1 per cent according to UN-DESA forecasts ( Naude and Wim, 2009). Also, the expectations of GDP growth of two of the largest economies, China and India, are also down, although these countries are still expected to continue growing at high rates of around 7 to 8% in 2009 (Naude and Wim, 2009).

Thus, developing countries are paying an enormous economic price for a crisis that evolved at the center of the world's financial system. They have to study carefully how to protect themselves from external financial shocks. In addition, most developing countries are striving hard to build a more functionally efficient financial system. Therefore, this crisis should be seized as an opportunity to expose the hidden risks of financial development and how more sophisticated financial systems require more, not less, regulation.

During 2008, the United States stock market lost about 35 per cent of its value. Compared with other industrial countries and with the largest emerging markets, it did relatively well. All large emerging markets had dollar returns which were well below those of the United States (United Nations Conference on Trade & Development, 2009).

2.4.1 FINANCIAL DEVELOPMENT REQUIRES MORE AND BETTER REGULATION

The financial system of the developing countries is less efficient than that of the developed ones. Recognizing the importance of finance for investment in fixed capital and growth, many developing countries adopted ambitious structural reform programs which aim at modernizing and improving their own financial systems. However, there are serious doubts as to whether these pro-market policies were successful in their aim of increasing the social efficiency of their financial sector (UNCTAD, 2008).

The financial system of developing count