World Bank says countries can take steps now to rebuild from COVID-19Wednesday, June 03, 2020
WASHINGTON, DC, United States (CMC) — The World Bank yesterday said countries, including those in the Caribbean, can take steps now to speed recovery after the worst of the health crisis caused by COVID-19 has passed, and thus blunt long-term adverse effects.
A new report released by the World Bank Group's Global Economic Prospects notes that short-term response measures to address the health emergency and secure core public services will need to be accompanied by comprehensive policies to boost long-term growth, including by improving governance and business environments, and expanding and improving the results of investment in education and public health.
“To make future economies more resilient, many countries will need systems that can build and retain more human and physical capital during the recovery — using policies that reflect and encourage the post-pandemic need for new types of jobs, businesses and governance systems.”
The analysis has been released ahead of the June 8 issuance of the full report, which will include the bank group's latest forecasts for the global economy.
“The scope and speed with which the COVID-19 pandemic and economic shutdowns have devastated the poor around the world are unprecedented in modern times. Current estimates show that 60 million people could be pushed into extreme poverty in 2020. These estimates are likely to rise further, with the reopening of advanced economies the primary determinant,” said World Bank Group President David Malpass.
He said policy choices made today, including greater debt transparency to invite new investment, faster advances in digital connectivity, and a major expansion of cash safety nets for the poor, will help limit the damage and build a stronger recovery.
“The financing and building of productive infrastructure are among the hardest-to-solve development challenges in the post-pandemic recovery. We need to see measures to speed litigation and the resolution of bankruptcies, and reform the costly subsidies, monopolies and protected State-owned enterprises that have slowed development.”
The Washington-based financial institution said that deep recessions associated with the pandemic will likely exacerbate the multi-decade slowdown in economic growth and productivity — the primary drivers of higher living standards and poverty reduction.
It said adding to the inequality problem from slow trend growth, the poor and vulnerable are among the hardest hit by the pandemic and economic shutdown – including through infection, school closures and lower remittance flows.
Measures needed to protect public health have undercut an already fragile global economy, causing deep recessions in advanced economies and emerging market and developing economies (EMDEs) alike. EMDEs that have weak health systems, those that rely heavily on global trade, tourism, or remittances from abroad, and those that depend on commodity exports will be particularly hard hit, the analysis notes.
In the long term, the World Bank said the pandemic will leave lasting damage through multiple channels, including lower investment, erosion of physical and human capital due to closure of businesses and loss of schooling and jobs, and a retreat from global trade and supply linkages.
It said these effects will lower potential output — the output an economy can sustain at full employment and capacity — and labour productivity well into the future. Pre-existing vulnerabilities, fading demographic dividends, and structural bottlenecks will amplify the long-term damage of deep recessions associated with the pandemic.
“When the pandemic struck, many emerging and developing economies were already vulnerable due to record-high debt levels and much weaker growth. Combined with structural bottlenecks, this will amplify the long-term damage of deep recessions associated with the pandemic,” said Ceyla Pazarbasioglu, World Bank Group vice-president for equitable growth, finance and institutions.
“Urgent measures are needed to limit the damage, rebuild the economy, and make growth more robust, resilient and sustainable.”
Policies to rebuild both in the short and long term entail strengthening health services and putting in place very targeted stimulus measures to help reignite growth. This includes efforts to maintain the private sector and get money directly to people so that we may see a quicker return to business creation after this pandemic has passed.
During the mitigation period the World Bank said countries should focus on sustaining economic activity, with targeted support to provide liquidity to households, firms and government essential services. At the same time, policymakers should remain vigilant to counter potential financial disruptions.
“During the recovery period, countries will need to calibrate the winding down of public support and should be targeting broader development challenges.”
The analysis discusses the importance of allowing an orderly allocation of new capital toward sectors that are productive in the new post-pandemic structures that emerge. To succeed in this, countries will need reforms that allow capital and labour to adjust relatively fast — by speeding the resolution of disputes, reducing regulatory barriers, and reforming the costly subsidies, monopolies and protected State-owned enterprises that have slowed development.
The World Bank notes that in the short-term, while restrictions on transport and travel remain in place, low oil prices are unlikely to provide much support for growth and may, instead, compound the damage wrought by the pandemic by further weakening the finances of producers. Low oil prices are likely to provide, at best, marginal support to global activity early in the recovery.
“Oil-exporting, emerging and developing economies entered the current crisis with eroded fiscal positions after having drawn on them to weather the 2014-16 oil price drop. In addition to the unprecedented public health crisis, these economies are now experiencing sharp economic downturns as their export revenues nosedive,” said Ayhan Kose, director of the World Bank's Prospects Group.
“Even if oil prices rise as global oil demand recovers, the recent plunge in prices is another reminder for oil-exporting countries of the urgency to continue with reforms to diversify their economies.”
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