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Supporting Bhutan to Strengthen Fiscal Management and Job Creation

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The World Bank today approved a $30 million project to help Bhutan realize its development goals through improving fiscal management and supporting policies to create more job to increase prosperity.

Bhutan has made impressive progress in poverty reduction and economic growth over the past decade. At the same time, high levels of investment in the hydropower sector have increased pressures on the country’s fiscal balance and external accounts.

The First Fiscal Management and Private Sector Employment Opportunities (DPC1) is the first of three operations to support Bhutan’s current and future Five-Year Plans’ goals promoting green socio-economic development and achieving self-reliance. It strengthens policies to improve fiscal management and promotes private sector employment opportunities.

Bhutan’s record in reducing poverty and promoting shared prosperity is strong. A key challenge going forward is to put in place policies that will help the private sector to grow and create more and better jobs,”
said Qimiao Fan, the World Bank’s Country Director for Bangladesh, Bhutan and Nepal. “Through thoughtful and well-executed policies that strengthen fiscal sustainability, increase access to credit, and improve the investment climate, Bhutan has a strong opportunity to realize its full development potential.”

The policy reforms supported by DPC1 are expected to mobilize domestic revenue, increase the number of cottage and small industries under the incubation centers, increase access to finance, expand the number of teachers that meet new teachings standards and reduce the energy consumption in terms of oil consumption.

“The Royal Government of Bhutan will be using the proposed operation to support institutional strengthening measures in some key areas, building on the momentum and lessons learnt from the past budget support operations to accelerate development in Bhutan,” said Namgay Dorji, the Royal Government of Bhutan’s Finance Minister.  

The development policy series will be funded by credit from the International Development Association (IDA) – the World Bank’s concessionary lending arm with 0% interest rate and 40-year repayment period.

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New $25 Million Support Will Help Djibouti Grow its Economy and Improve Access to Services

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The World Bank’s Board of Executive Directors approved on May 29, 2020, two new projects totaling US$25 million in credit from the International Development Association (IDA), the World Bank’s arm for the poorest countries. The new financing will help Djibouti address vulnerability, foster inclusive economic growth and improve service delivery. 

The first operation, the US$15 million Economic Management and Statistics Development for Policy Making project, will support the Government of Djibouti to fill data gaps, improve the quality and reliability of key official statistical products and processes, make data more accessible and enhance dissemination practices, and contribute to strengthening the institutional and technical capacity as well as the infrastructure of the National Institute of Statistics of Djibouti (INSD).

High-quality data are critical to measure progress in growing the economy, reducing poverty and fostering shared prosperity,” said Ilyas Moussa Dawaleh, Minister of Economy and Finance, in charge of Industry. “Djibouti took a major leap and placed itself at the forefront of the open data agenda, but more needs to be done to ensure statistical data are current and updated regularly in order to make the right decisions. Our public policies must impact the daily lives of our citizens and therefore must be based on reliable data. To succeed, we will make a qualitative leap by using the latest technologies, such as artificial intelligence and big data.”

Addressing data deficiencies has the potential to drive better decision making and lasting change. In Djibouti, the lack of reliable data remains a critical roadblock to the country’s understanding of poverty, welfare and economic developments. This operation will support the long-awaited Population Census, the first ever Economic Census, preparation of national accounts and a program of economic and household surveys to update statistics and produce data in a sustained manner. 

Through this project, we will gain a better understanding of the economic situation in the country and help support evidence-based planning and decision making that better meets the needs of the population, including vulnerable groups,” said Marina Wes, World Bank Country Director for Egypt, Yemen and Djibouti.

New waves of displacement from Ethiopia, Eritrea, Somalia and Yemen have further exacerbated Djibouti’s already fragile public services. Moreover, most recently, the crisis of COVID-19 and the locust outbreak have resulted in significant public health and economic impacts, threatening food security and livelihood opportunities.

In response, the additional financing of US$10 million approved today under the Development Response to Displacement Impacts Project in the Horn of Africa will help address these vulnerabilities. The operation will improve access to social and economic services so that the country can adapt to the changing context and create economic opportunities for both refugees and the communities hosting them. The project will also include a Contingent Emergency Response Component (CERC) to support Djibouti’s emergency preparedness and response capacity.

The burden of displacements falls largely on host countries,” said Boubacar-Sid Barry, World Bank Resident Representative in Djibouti. “Our program will help Djibouti strengthen economic and social conditions in areas welcoming refugees and assist both refugees and host communities.”

The World Bank’s portfolio in Djibouti consists of 14 IDA-funded projects totaling US$209 million. The portfolio is focused on education, health, social safety nets, energy, rural community development, urban poverty reduction, modernization of public administration, governance and private sector development, with emphasis on women and youth.

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Greater investment in clean, secure and sustainable electricity systems amid Covid-19 crisis

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Energy ministers and electricity industry CEOs from around the world took part in a roundtable discussion today about the impact of the Covid-19 crisis on the electricity sector and the need to mobilise investments for secure and sustainable power systems. The high-level virtual meeting was co-hosted by the International Energy Agency and the Government of the United Kingdom.

The discussion focused on the implications of the Covid-19 crisis for investments in the power sector that are needed to support clean energy transitions, as well as the opportunities for international co-operation and collaboration. The participants recognised the critical importance of the electricity sector in the response to the Covid-19 pandemic to keep essential services running, hospitals open, and communication flowing. They applauded the efforts of electricity companies and their employees in keeping the lights on despite the health risks involved.

Participants included 11 government ministers and 9 company CEOs, representing 5 continents and 60% of the global electricity system. The discussion was co-chaired by Dr Fatih Birol, the IEA Executive Director, and Kwasi Kwarteng, the United Kingdom’s Minister for Business, Energy and Clean Growth. The list of high-profile attendees and a link to the Chairs’ Summary can be found below.

“Resilient electricity systems are vital for modern societies today and for a sustainable energy future, but they need much greater investment,” Dr Birol said. “It was highly encouraging to see so many global energy leaders focused on this critical issue today. The IEA’s World Energy Investment 2020 report this week highlighted that global investment in the power sector is set to fall 10% this year, compounding previous declines. The drop in investment in electricity grids, an essential but often overlooked part of the shift to cleaner energy, is set to be even steeper. Renewables like wind and solar won’t be able to fulfil their great promise without robust infrastructure that reliably delivers the power they produce to consumers.”

Today’s roundtable discussion on electricity systems was one in a series leading up to the IEA Clean Energy Transitions Summit, which will take place on 9 July.

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EU Politics

Explainer: The proposed InvestEU Programme

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Why do we need InvestEU for the post-coronavirus recovery?

InvestEU is the EU’s proposed flagship investment programme to kick-start the European economy. It is well-placed to provide long-term funding and to support Union policies in the recovery from a deep economic and social crisis. This has been shown with the successful implementation of the European Fund for Strategic Investments and other EU financial instruments in the wake of the past financial crisis.

In the current coronavirus crisis, the market allocation of financial resources is not fully efficient and perceived risk impairs private investment significantly. Deep uncertainty currently compromises the quality of financial market information and lenders’ ability to assess the viability of companies and investment projects. If left unchecked, this can create pervasive risk aversion towards private investment projects and contribute to a ‘credit crunch’. Under such circumstances, the key feature of InvestEU of de-risking projects to crowd in private finance is particularly valuable and should be utilised.

An enhanced InvestEU programme thanks to Next Generation EU will be able to provide crucial support to companies and to ensure a strong focus of investors on the Union’s medium- and long-term policy priorities, such as the European Green Deal and the digitalisation transition and greater resilience. To address all of these challenges, the Commission is updating its original InvestEU proposal from 2018 to make sure it can better respond tothe current economic crisis.

What are the main changes to InvestEU?

The new proposal contains two main changes to the InvestEU Programme as partially agreed between co-legislators in April 2019:

  • An increase of the InvestEU budget to reflect the higher investment needs and an environment of increased risk. The financial envelope for the sustainable infrastructure window is doubled, in line with the President’s Communication “Europe’s moment: Repair and Prepare for the Next Generation”.
  • A broadened scope through the addition of a fifth window – the strategic European investment window – in order to cater for the future needs of the European economy and to promote and secure EU strategic autonomy in key sectors.

What will the new strategic European investment window finance?

The outbreak of the pandemic has shown the interconnectivity of global supply chains and exposed some vulnerabilities, such as the over-reliance of strategic industries on non-diversified external supply sources. Such vulnerabilities need to be addressed, to improve the Union’s emergency response as well as the resilience of the entire economy, while maintaining its openness to competition and trade in line with its rules. The new strategic European investment windowwill focus on building stronger European value chains in line with the strategic agenda of the Union and the New Industrial Strategy for Europe, as well as supporting activities in critical infrastructure and technologies

This reinforcement is of particular importance in the post-crisis situation, as some Member States might not have sufficient financial capacity to support these projects with national State aid. Moreover, many of these projects are cross-border and require a European approach.

How will the new window complement the pre-existing windows?

In the current context, the strategic European investment window would bring value added to the original windows, as it focuses on recipients or projects based on their high European strategic importance.

The new window would both target specific projects (e.g. supporting large consortia or public-private partnerships aimed at developing a specific technology and building critical infrastructure) and provide diffused financing, for instance by supporting the emergence of whole ecosystems of entrepreneurs active in the targeted sectors (e.g. innovative SMEs working on technologies of potential relevance to industrial biotechnology and pharmaceuticals).

The additionality requirements under this window would also differ from those envisaged for the other windows. For instance, the additionality of the support under the new window to large corporates would be in maintaining and developing their production within the Union or under the control of European investors and in scaling up the deployment of innovative technologies, rather than in purely risk-related considerations of the InvestEU support.

What are the changes in budgetary terms[1]?

The new proposal foresees an increase of the original financial envelope. This includes a doubling of the guarantee amount allocated to the sustainable infrastructure window under the InvestEU Fund as well as the allocation of an additional guarantee amount to the new window. More concretely:

  • Sustainable infrastructure window: €20 bn
  • Research, innovation and digitisation window: €10 bn
  • SME window: €10 bn
  • Social investment and skills window: €3.6 bn
  • Strategic European investment window: €31 bn

The new proposal also foresees an increase of the financial envelope allocated to the InvestEU Advisory Hub by an amount of €200 million to cater for the needs of the new window as well as the increasing needs of the other four windows.

How will InvestEU work?

The main principle of how InvestEU will function does not change. The InvestEU Fund will mobilise public and private investment through an EU budget guarantee of €75 billion that will back the investment projects of implementing partners such as the European Investment Bank (EIB) Group and others, and increase their risk-bearing capacity.

Under the new proposal, the guarantee will be provisioned at 45%, meaning that €34 billion of the EU budget is set aside in case calls are made on the guarantee. The size of the provisioning is based on the type of envisaged financial products and the riskiness of the portfolios, taking into account the experience under the EFSI and current financial instruments, as well as the likely changes in market circumstances following the coronavirus crisis.

What is the role of the EIB Group in the new proposal?

Given its role under the Treaties, its capacity to operate in all Member States and the existing experience under the current financial instruments and the EFSI, the European Investment Bank Group will remain a privileged implementing partner for the InvestEU. It will implement 75% of the EU guarantee.

The EIB Group will also play a central role in implementing advisory support under the InvestEU Advisory Hub. Moreover, it will advise the Commission and perform operational tasks in relation to the Hub.

Is the new window open to other implementing partners than the EIB Group?

Yes. The new window is open to other implementing partners than the EIB Group, including national promotional banks and institutions, as well as international financial institutions such as the European Bank for Reconstruction and Development or the Council of Europe Development Bank.

The Commission will continue the discussions with potential implementing partners to ensure a swift and efficient deployment of the instrument, which is even more crucial under the current circumstances.

Are there any changes to the InvestEU governance?

An Investment Committee composed of independent experts will remain responsible for approving the individual requests. As the Investment Committee will operate in different configurations corresponding to the InvestEU policy windows, a fifth configuration has been added to the proposal.

Are there any changes to the InvestEU eligibility criteria?

The policy areas eligible for financing and investment operations under the existing four windows remain the same as proposed and negotiated in annex II to  the InvestEU Regulation. However, for the strategic European investment window, new intervention areas are introduced, as referenced above.

In case a financing or investment operation proposed to the Investment Committee falls under more than one policy window, it will be attributed to the policy window under which its main objective or the main objective of most of its sub-projects falls. The Investment Guidelines will specify the criteria for the allocation of financial products (under which financing and investment operations will be submitted) to specific windows.

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