Global Economic Prospects: World Bank | 03 Jun 2020

Why in News

Recently, the World Bank has released a part of the Global Economic Prospects (GEP) June 2020 report.

• The report highlighted that the Covid-19 pandemic will be having a “severe” short and long term effects on economic growth.

Key Findings

• Impact on Global Poverty:
  
  • The Covid-19 pandemic and economic shutdowns have devastated the poor around the world which is unprecedented in modern times.
  • It has been estimated 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.
  • These economic lockdowns have also damaged the multiple channels, including lower investment and innovation, erosion of the human capital and a retreat from global trade and supply linkages.
    
    • It has also lowered the potential growth and labor productivity.
• Emerging Market and Developing Economies (EMDEs):
  
  • EMDEs are most vulnerable and may face health crises, restrictions and external shocks like falling trade, tourism and commodity prices, as well as capital outflows.
  • These countries are expected to have a 3-8% output loss in the short term. But in the long term these countries will experience a drop in the level of output with a lowering of potential output growth.
  • Growth is likely to slow more in commodity-exporting EMDEs than in commodity-importing ones.
• Spillover Effect over EMDEs:
  
  • EMDEs are also expected to witness the spillover effects of the U.S., the Euro Area and China, which represent almost half of global output.
  • As these countries are unlikely to return to pre-pandemic levels of output before the end of 2021.
• Issue of Loan Repayments:
  
  • Earlier, G20 countries and commercial creditors had agreed to freeze loan repayments for low income countries (starting 1^st May, 2020) till year-end. But these creditors had not yet implemented the same.
  • The delay by commercial creditors to freeze loan repayment is deepening poverty in the debtor country.
    
    • Most creditors are in advanced economies like the U.S., Europe, Japan, China and the Gulf.
• Energy-Exporting Emerging Market and Developing Economies (EMDEs):
  
  • The Energy-Exporting Emerging Market and Developing Economies (EMDEs) are facing a dual problem of the public health crisis with strained fiscal positions due to the recent collapse in oil revenues.
  • The collapse in oil demand due to the worldwide economic lockdowns and a surge in oil inventories have made steepest one-month decline in oil prices on record.
  • Additionally, the low oil prices are unlikely to buffer the effects of the pandemic, though it may provide some initial support for the global recovery.

Steps Taken

• Some of the policy choices being implemented worldwide include greater debt transparency to invite new investment.
  
  • Greater transparency is expected to assist borrowers, creditors and the official sector in the ongoing assessment of debt dynamics and debt sustainability.
• The economies have also fastened their digital connectivity, and have also implemented an expansion of cash safety nets for the poor which intends to limit the damage and build a stronger recovery.

Suggestions

• Short Term Steps:
  
  • Address Health Emergencies:
    
    • The countries should try to moderate the short-term impact of the pandemic on economic activity and employment.
    • Initially, countries need to address health emergencies and secure core public services to revive the economy.
  • Allocation of New Capital:
    
    • The worldwide economies should allow an orderly allocation of new capital toward sectors that would be productive in the new post-pandemic structures that emerge.
    • It has also suggested to fasten the adjustment of the capital and labour.
• Long Term Steps:
  
  • Business and Governance:
    
    • The economies worldwide need to implement policies such as improving the environment for business, improving governance, and enhancing the outcomes of education.
    • It also includes public health investments ,encouraging the new types of businesses, jobs and governance systems in the post-pandemic world.
  • Financing and Productive Infrastructure.
    
    • Countries need to speed litigation and the resolution of bankruptcies and reform the costly subsidies, monopolies.
    • They also need to relook into the protected state-owned enterprises that have slowed development.

Way Forward

• The pandemic and the subsequent economic shutdowns have caused a severe blow to the global economy, especially poorer countries. There is a need to rebuild the economy, and make growth more robust, resilient and sustainable.
• There is also a need to make future economies more resilient to such economic shocks and capable of retaining more human and physical capital during the recovery.
  
  • It will help to fulfill the post-pandemic need for the creation of the new types of jobs, businesses and governance systems.

Source:TH