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.
She said the World Bank was adopting a scorecard that could help governments in poorer countries measure aid spending and its impact on reducing poverty.
"Donors are facing a real choice between maintaining or continuing their international aid commitments," she said. "You have to be accountable for each dollar to taxpayers as well as beneficiaries, which are the poor people in developing countries," said Indrawati, a former Indonesian finance minister.
She said the arrival of new donors from fast-growing emerging powers like China or Brazil meant more focus should be put on better coordinating development program to avoid overlap.
Traditional donors have long worried that new donors will repeat mistakes they have long struggled to fix, such as the billions of dollars in debt amassed by poor countries during the 1970s and 1980s that have since been canceled .
"The strength of these new donors is not from their money but their experience and knowledge" in fighting poverty, Indrawati said. She pointed at social programs that target the poor in Brazil and Mexico that have radically reduced poverty and been replicated in Peru and even in New York City.
But Indrawati said the new donors, including private sector-led initiatives to fight malaria and HIV/AIDS, had also forced institutions like the World Bank to modernize.
"We don't want to be out of the game and want to be seen as providing global leadership in development goals and convening and coordinating across donor agencies," she said. (Editing by Kim Coghill)