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Uncertainties Delaying Economic Recovery in the Pacific

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Growth in the Pacific is expected to remain weak in 2018, as economic and political uncertainties, fiscal challenges, and natural disasters hold back some of the region’s larger economies. The outlook projects a slow recovery, with growth picking up only in 2019, says a new Asian Development Bank (ADB) report launched today.

The Asian Development Outlook (ADO) 2018, ADB’s flagship annual economic publication, projects that Pacific economies will, on average, grow 2.2% in 2018—the same rate as last year. However, expected recovery in Papua New Guinea (PNG) and strong growth in Timor-Leste should contribute to regional growth picking up to 3.0% in 2019.

“Several Pacific countries face heightened economic uncertainty and the impacts of extreme weather events and disasters, highlighting the need to build resilience across the region,” said Carmela Locsin, Director General of ADB’s Pacific Department. “Climate-proofing infrastructure, maintaining fiscal buffers, and investing in education to expand economic opportunities are all vital for more resilient economies in the Pacific.”

PNG—the Pacific’s largest economy—was adversely affected by a major earthquake in late February this year, which will hold back growth in oil and gas production, and slow economic growth to 1.8%. However, the Asia-Pacific Economic Cooperation meetings in 2018 is expected to provide economic stimulus. The ADB report says the medium-term outlook for PNG remains positive with GDP growth likely to reach 2.7% in 2019.

After a steep growth slowdown in Fiji in the wake of Cyclone Winston in 2016, reconstruction spending, improved agricultural output, and tourism growth spurred recovery. With most cyclone reconstruction ending soon, economic growth is expected to decelerate slightly from 3.9% in 2017 to 3.6% in 2018 and 3.3% in 2019—with tourism, construction, and agriculture likely to be the main contributors.

In Timor-Leste, the economy contracted in 2017 as political uncertainty held back public spending and private investment. The 3.0% and 5.5% projected growth rates for 2018 and 2019, respectively, hinge on a solid public expenditure program after the election of a new government expected in May. A new treaty with Australia to pave way for the development of the Greater Sunrise oil field will boost the growth outlook in the long term. The report says renewed emphasis on skills development and a supportive approach to labor migration would give young people better access to employment.

Slower growth in Solomon Islands is expected in 2018 and 2019 as new construction will only partly offset a likely further decline in logging. Progress is being made in implementing a national transport plan, but challenges remain.

Growth will moderate in Vanuatu in 2018 and 2019, due to the completion of several large infrastructure projects. Vanuatu’s ambitious infrastructure pipeline is supporting its current and future prospects, but a rise in public debt poses challenges for fiscal management.

The economic outlook for the North Pacific economies is mixed, with tourism expected to recover in Palau, but capacity constraints could limit infrastructure investment-driven growth in the Federated States of Micronesia and Marshall Islands. The report notes that improving education can equip a young labor force with better skills to fill domestic employment over the long term.

Moderate growth in the South Pacific economies of Cook Islands, Samoa, and Tonga is seen this year and the next. Damage caused by Cyclone Gita which hit Tonga in February 2018 is projected to push the economy into a slight contraction. Growth in Samoa will fall sharply this year as one of the country’s biggest employers—a manufacturing plant—closes operations. The Cook Islands’ economy is expected to expand by 3.5% in 2018, supported by tourism.

Economic prospects for the small island economies of Kiribati, Nauru, and Tuvalu are weakening. Growth is projected to decelerate slightly in Kiribati and Tuvalu, but more significantly in Nauru due to the winding down of the Regional Processing Centre for asylum seekers. Public investments financed by development partners are expected to drive economic growth in these countries throughout 2018 and 2019.

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Zero emission economy will lead to 15 million new jobs by 2030 in Latin America and Caribbean

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In a new groundbreaking study , the Inter-American Development Bank (IDB) and the International Labour Organization (ILO) show that the transition to a net-zero emission economy could create 15 million net new jobs in Latin America and the Caribbean by 2030. To support a sustainable recovery from the COVID-19 pandemic , the region urgently needs to create decent jobs and build a more sustainable and inclusive future.

The report finds that the transition to a net-zero carbon economy would end 7.5 million jobs in fossil fuel electricity, fossil fuel extraction, and animal-based food production. However, these lost jobs are more than compensated for new employment opportunities: 22.5 million jobs are created in agriculture and plant-based food production, renewable electricity, forestry, construction, and manufacturing.

The report is also the first of its kind to highlight how shifting to healthier and more sustainable diets, which reduce meat and dairy consumption while increasing plant-based foods, would create jobs and reduce pressure on the region’s unique biodiversity. With this shift, LAC’s agri-food sector could expand the creation of 19 million full-time equivalent jobs despite 4.3 million fewer jobs in livestock, poultry, dairy and fishing.

Moreover, the report offers a blueprint on how countries can create decent jobs and transition to net-zero emissions. This includes policies facilitating the reallocation of workers, advance decent work in rural areas, offer new business models, enhance social protection and support to displaced, enterprises, communities and workers.

Social dialogue between the private sector, trade unions, and governments is essential to design long-term strategies to achieve net-zero emissions, which creates jobs, helps to reduce inequality and delivers on the Sustainable Development Goals .

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Women Gain Key Economic Benefits from Greater Trade

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Trade increases women’s wages and helps close the wage gap between men and women while creating better jobs for women, a new World Bank Group report concludes. Countries that are open to international trade tend to grow faster, innovate, improve productivity, and provide higher income and more opportunities to their people. Countries that are more open to trade, as measured by the trade-to-GDP ratio, have higher levels of gender equality.

The report, produced in collaboration with the World Trade Organization, marks the first major effort to quantify how women are affected by trade using a new gender-disaggregated dataset. The dataset, developed by the World Bank Group, allows researchers to understand how women are employed, in which industries they work, how much they earn, and whether or not they are involved in global trade. This analysis helps governments see how trade policies can affect women and men differently.

“Over the past 30 years trade has been the engine of poverty reduction. This report shows that, provided the right policies are in place, it can also provide an engine to reduce the gender gap,” said World Bank Managing Director Mari Pangestu. “Trade can expand women’s role in the economy and decrease disparities with men by giving women more and better employment opportunities. Seizing these opportunities will be even more important in a post-COVID-19 world.”

The report, Women and Trade: The Role of Trade in Promoting Women’s Equality, offers several key findings. Firms that are part of global value chains (GVCs) employ a greater percentage of women (33 percent) relative to non-GVC firms (24 percent). When countries open themselves to trade, women’s share of wages in the manufacturing sector increase by 5.8 percentage points on average. When women are employed in sectors with high exports, they are more likely to be formally employed. Formal employment means better job benefits, training, and job security.

The report also highlights the importance of addressing discrimination against women in trade policy. Although no country overtly imposes tariffs according to gender, implicit biases can amount to “pink tariffs” that put women at an economic disadvantage. The report shows that products specifically consumed by women face a higher tariff burden than men’s products. In the textile sector, for instance, tariffs on women’s apparel are US$2.77 billion higher than on men’s clothing, a consumption gap that grew about 11 percent in real terms between 2006 and 2016. Disparities like this can hurt women consumers all over the world.

Targeted policies can help women maximize the benefits of trade. These include removing trade barriers that impede women’s access to international markets and improving women’s access to education, financial services, and digital technologies. Governments can design trade facilitation measures that remove gender-specific barriers to trade. These measures could address burdensome customs requirements, limited access to trade finance, and exposure to extortion or physical harassment at borders.

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Amid economic slowdown, strategic approach needed for Nepal’s resilient recovery

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Economic growth is estimated to contract sharply to 2.1% in FY2021 from the COVID-19 pandemic and related lockdown, despite efforts by the government to curb the economic fallout from the crisis, states the World Bank’s latest Nepal Development Update. Transitioning the economy from the relief stage through to restructuring and resilient recovery requires a strategic approach to get the country back on a sustainable and inclusive growth path.

As per the report, economic activity in the tourism sector will remain weak and remittances inflows will be moderate. Supply chain disruptions will keep industrial and agricultural production low. Low economic activity and oil prices will also keep imports low and below the pre-crisis levels, leading to a projected narrowing of the current account deficit to 6.5 percent of GDP. Lower imports will continue to limit revenue collection. However, fiscal measures announced as part of the FY2021 budget, including a revision of custom duties, will provide some support to the budget as spending levels on relief and recovery efforts remain elevated. Taken together, the fiscal deficit is projected to marginally decline to 6.6 percent of GDP in FY2021.

While the government has adopted various relief measures to contain the pandemic, reduce the impact on households and provide economic support to the most vulnerable firms, the report highlights the importance of reforms to support a resilient recovery.

For a resilient recovery and inclusive growth, economic support measures to firms and workers in the informal sector will be important,” said Dr. Kene Ezemenari, World Bank Senior Economist and author of the update. “Incentives to agribusiness-based and forest-based SMEs, with a focus on returnee migrants and youths, could help increase employment and food security. Inclusive growth could be further promoted through entrepreneurship support programs and grants to small and medium enterprises,” she added.

The report outlines four pillars in the areas of health, social support, economic support and cross-cutting priorities including fiscal sustainability and focus on digital and green economies. This includes measures to strengthen the health system and scale up social protection systems, including the adoption of a social registry to make these systems more resilient against future shocks. Enhanced school sanitation and health protocols including health screening, water and sanitation facilities would be needed to enable a return to schooling for children.

In the rapidly unfolding global scenario brought by COVID-19, insights from the Nepal Development Update on Nepal’s outlook, challenges and way forward is very helpful. We need to address the crisis with macroeconomic and sectoral policy focused on fiscal sustainability, financial sector stability, a digitally-oriented green economy and resilient public services,” stated Honorable Minister of Finance, Dr. Yuba Raj Khatiwada. “I appreciate the rapid action taken by our development partners including the World Bank, Asian Development Bank, IMF and others for providing us with tangible resources and support to maintain our fiscal balance and accelerate growth and inclusive development.”

Expansionary fiscal and monetary policies will be important in the initial relief stage to support banking sector liquidity and provide relief to households and firms. From restructuring through to resilience, expansionary and monetary policies will help pave the way for strengthening financial sector stability in the long run while also building resilient public services and green growth through sustainable and resilient infrastructure, strengthened solid waste management and air and water pollution control.

Related investments and reforms would be critical to expand coverage of digital services and infrastructure to support e-services and help promote e-commerce. This would also help expand the reach and coverage of mobile banking and digital financial services to underpin development of e-commerce. However, digitization is also limited across the economy. Addressing this will require removal of access restrictions to any under-utilized fiber optic backbone managed by the governments and public utilities and the introduction of appropriate rules to manage conditions of access, capacity allocation, and access pricing. This would also help expand access in rural and remote areas.

For Nepal to emerge stronger from the crisis, it is important to adapt quickly to the new reality,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka. “We are encouraged to note the early start made by the government with the development of Nepal’s Relief, Restructuring and Resilience plan and are committed to work together with multilateral development banks and development partners in helping the country build back greener and better.”

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