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Emerging, Developing Economies to Face Challenges if Global Inflation Rises

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Further upward acceleration of global inflation from record low levels may impair efforts in emerging and developing economies to sustain the low inflation environment achieved over the past several decades, the World Bank said in a groundbreaking examination of inflation in the emerging and developing world.

The adverse effects of high inflation can fall disproportionately on the poor, who hold most of their assets in cash and rely heavily on wage income, welfare benefits, and pensions, the World Bank said in Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies. High inflation has historically also been associated with slower economic growth, making efforts to maintain low and stable inflation crucial for reducing poverty and inequality, the World Bank said.

“Recent research into inflation, its causes and characteristics has largely ignored its impact on emerging and developing economies. This work fills that gap,” said Acting World Bank Chief Economist and Senior Director for Development Economics Shanta Devarajan. “The new study will be extremely valuable in designing policies that will protect the most vulnerable people and economies from the regressive effects of high inflation.”

To investigate the impact of inflation on emerging and developing economies, the World Bank’s Prospects Group has produced the first wide-ranging analysis of inflation and its implications for these economies in a long time. The new study also includes a global inflation dataset that covers more than 175 countries over 1970-2017.

The study documents the confluence of structural and policy factors that have fostered low global inflation over the past five decades. Foremost among these has been unprecedented international trade and financial market integration. The adoption of more resilient monetary, exchange rate and fiscal policy frameworks among some emerging and developing economies has facilitated better control of inflation. However, external factors that have held inflation at bay over the past decades may lose momentum or be rolled back.

“Many emerging and developing economies have recorded an extraordinary decline in inflation over the past five decades. This is a monumental achievement,” said World Bank Development Economics Prospects Group Director Ayhan Kose, a co-editor of the volume. “However, in a highly integrated global economy, maintaining low inflation can be as great a challenge as achieving low inflation. These economies need to be ready for sudden changes in global inflation by strengthening monetary, fiscal and financial policy frameworks.”

With a focus on the emerging and developing world, the study looks into the evolution of inflation and the global and domestic factors that drive it; how inflation expectations affect price stability; and how exchange rate fluctuations can pass through to cause inflation. The study further looks specifically at how monetary policy and food price movements affect inflation in low-income countries.

“A nuanced policy approach is necessary to mitigate the impact of global food price shocks on poverty without adverse side-effects,” said World Bank Development Economics Prospects Group Manager Franziska Ohnsorge, a co-editor of the volume. “The use of certain trade policies to insulate domestic markets from food price shocks may compound the volatility of global prices and may ultimately be counterproductive in protecting the most vulnerable people. Instead, storage policies and targeted safety net interventions can mitigate the negative impact of these shocks while avoiding the broader distortionary impacts of other policies.”

Read Inflation in Emerging and Developing Economies: Evolution, Drivers and Policies

The research’s key findings include:

A global inflation cycle appears to have emerged over the 2000s. Since 2001, movements in global inflation have accounted for a substantial share of inflation variation in advanced and emerging market and developing economies. The influence of this global inflation cycle has been most prominent in countries that are more developed and more integrated into the global economy.

The global inflation cycle has fluctuated with movements in global demand and abrupt swings in oil prices.

Inflation expectations in emerging market and developing economies are more sensitive to global and domestic developments than inflation expectations in advanced economies. Emerging market and developing economies with lower public debt and greater trade openness tend to experience better-anchored inflation expectations.

Exchange rate movements can amplify the impact of global forces on national inflation in emerging markets and developing economies. Greater central bank credibility and independence have been associated with significantly lower pass-throughs of exchange rate fluctuations to inflationary pressures. The downward trend of exchange rate pass-through in the last 20 years may in part reflect improved central bank policies and a firmer anchoring of inflation expectations.

The improved inflation performance of low-income countries appears, to a considerable extent, to have reflected external forces. If global inflation rises, low income countries may see rising inflationary pressures as well.

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Investments in Gender Equality in Croatia Will Increase Opportunities for All

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image source: World Bank

Croatia has made significant progress on including gender equality both institutionally and legally in its policy agenda, with indicators such as equitable primary and secondary school enrollment for boys and girls, remaining strong. However, according to a World Bank report presented today, several areas need to be improved to advance gender relations and opportunities for people living in Croatia, regardless of gender, sexual orientation, ethnicity or place of residence.

The World Bank report: Investing in Opportunities for All: Croatia Country Gender Assessment looks at the state of equality between man and women and found that most severe gaps are in access to economic opportunities, which are impacted by gaps in education, health, and care services. Women also have a limited role in the work force and less opportunities for entrepreneurship given gender roles and socioeconomic constraints.

Men in Croatia earn significantly more than women with the average monthly salary for women amounting to about 88.7% of that for men, making working women worse off throughout life and leading to a pension gap later in life. Female poverty among the elderly is 35 percent greater than that of elderly males.

Croatian women do well in education at all levels, but this does not translate into higher levels of female participation in labor markets. Compared to 71 percent of active men being employed, only 61 percent of active women have paid jobs with the rate dropping as women age.

Women are far less likely than men to be entrepreneurs in Croatia, a country with one of the lowest rates of female entrepreneurship in the European Union. Only 7 percent of employed women aged 35-39 years are entrepreneurs, only 12 percent of firms have women in top-management positions, and only one-third of Croatian firms are owned by women.

“Gender equality requires inclusive education and health services and social norms so that women can be empowered to make the necessary choices for themselves and their families,” said Elisabetta Capannelli, World Bank Country Manager for Croatia. “Providing women and men equal opportunities will further help Croatia compete in the global economy of the future.”

“There is an urgent need to encourage and accelerate the process of achieving real gender equality. Women still face barriers in employment, they are paid less for the same work, and they face discrimination based on pregnancy and maternity. Women also  carry a double burden of managing  household, family and business obligations, are underrepresented in the economic and political decision-making and predominantly represent victims of domestic and sexual violence,” stated Višnja Ljubičić, Ombudswoman for Gender Equality of the Republic of Croatia. “Society must overcome these and all other aspects of inequality which stem from deep-rooted and persistent stereotypes and prejudices.”

Gender inequality also has an ethnic element with women in Roma population – the most excluded minority group. Inequalities for Croatian Roma girls start early and intensify during their adult life, with only 6 percent of Roma women graduating from high school.

Place of residence plays an important role in determining welfare outcomes among both men and women in Croatia, with rural women faring the worst in terms of poverty, employment, education, and access to services, childcare, and elder care.

The report also offers actionable recommendations which can complement existing policies or initiate new ones related to learning, developing a healthful lifestyle, starting work, starting a family, active and healthy aging, and exercising citizenship and agency. It proposes, among other things, investing in lifelong learning opportunities that are relevant and improve livelihoods and income opportunities for the elderly, particularly elderly rural women. Encouraging entrepreneurial activities for women and providing business support services and exploring flexible hours/part-time arrangements. Providing publicly funded, good quality childcare so that both parents can work in all regions. Investing in civic engagement among women, to support their involvement in national politics. And increasing awareness of and facilitating access to anti-discrimination legislation and services.

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Conflict and mass displacement increase child labour

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A new multi-organizational report finds that conflict and war over the past decade has coincided with an increase in child labour among refugee children, the internally displaced and other populations across the region.

Commissioned by the League of Arab States (LAS) and the Arab Council for Childhood Development (ACCD), the “Child Labour in the Arab Region: A Quantitative and Qualitative Analysis ” report is the first to provide an overview of the profile and trends of child labour in the League’s 22 member states. “Over the past ten years, during which the region has witnessed high levels of armed conflict resulting in the mass displacement of populations – both within and between countries – the situation has certainly worsened,” the report states.

A dearth of systematically and comprehensively-collected regional data from previous years means that exact figures on the recent rise of child labour among different population groups are difficult to assess, explained Frank Hagemann, Deputy Regional Director for Arab States from the International Labour Organization (ILO). The ILO is the lead UN agency that oversaw production of the study, in partnership with the Food and Agriculture Organization of the United Nations (FAO).

“Yet the report makes clear that the effects of recent economic shocks, political turmoil, conflict and war have worsened pre-existing levels of child labour, and have also reversed much of the progress Arab countries made in combatting child labour through policy development and practical measures,” Hagemann said. “As is the case across the globe, conflict has hit women and children disproportionately hard in the region. In consequence, child labour has emerged as perhaps the most critical child-protection issue in the region, requiring our urgent attention and action,” Hagemann said.

Worst forms of child labour

The study reports that children in parts of the Arab region “have been increasingly drawn into the worst forms of child labour and face serious and worrying exploitation, abuse and violation of their rights.”

“Refugee and displaced children work in different sectors of activity, with a notable rise in street work, bonded labour, early marriages, and commercial sexual exploitation. Child labour among refugee and displaced children is mainly a coping mechanism for their families who face extreme poverty or where adults are unemployed,” the study states.

The case of hazardous work in agriculture

“The worst forms of child labour include the kinds of hazardous work found in the agriculture sector, in which most children in the Arab region work in both paid and unpaid labour,” said Abdessalam Ould Ahmed, FAO assistant Director-General and Regional Representative for the Near East and North Africa. “Such labour takes place mostly in rural areas, and represents a cheap workforce for small-scale farming – mostly non-mechanized labour-intensive methods of production involving high risks.”

Conflicts and mass displacement had a toll on agriculture and food security. Building resilient rural livelihoods is essential to child labour reduction in this sector, which generally involve high level of work related fatalities, non-fatal accidents and occupational diseases.

“Agriculture accounts for more than half of children in employment in countries such as Yemen, Sudan and Egypt. The predominance of agriculture calls for special attention since this sector is characterized by early entry into work compared to other sectors,” Ould Ahmed added.

Mass displacement and armed conflict

The worst forms of child labour are also found in services and industry, and includes the multiple dangers associated with working on the streets.

They also include direct and indirect involvement in armed conflict and in situations associated with armed conflict.

The study reports that over half of Arab countries are currently affected by conflicts or inflows of refugees and internally displaced persons (IDPs). These include Iraq, Jordan, Lebanon, Libya, Somalia, Sudan, Syria, Tunisia, the Palestinian West Bank and Gaza Strip, and Yemen.

The study reports a rise in the recruitment and use of children by armed groups, both among local and refugee populations, especially in Yemen, Syria and Iraq.

“The majority of recruited children are generally boys. However, there is an emerging tendency to recruit more girls and children below the age of 15. Hundreds of children across the Arab region are also held in detention and even tortured on grounds of being involved in armed groups,” the report states.

Children in parts of the region are being forced into new types of activities relating to situations of armed conflict, such as smuggling goods across the border or between fighting zones, collecting oil waste, performing funerary work (collecting body parts for burial), as well as fetching water or collecting food from fields and landfills littered with explosive remnants of war, the report adds.

Children’s involvement in employment varies substantially across the Arab region, with Sudan and Yemen showing the highest rates of child employment (19.2 per cent and 34.8 per cent respectively.)
Child employment rates are higher among boys. The report cautions, however, “surveys might fail to capture hidden forms of child labour among girls, such as domestic work and unpaid household services, which merit further research and enquiry.” Unpaid work is also higher amongst the younger age group, and in rural areas.

Endorsement and recommendations

The report was presented to LAS member states, who had previously endorsed the report, at the League’s headquarters in Cairo on 7 March. LAS commissioned the report to provide an understanding of the main trends of child employment as a first step towards designing better-targeted policies and interventions to address the problem of child labour. The commission was based on a recommendation of the 20th Session of the Arab Childhood Committee (ACC) of November 2014.

The report stresses, “There is an urgent and immediate need to safeguard children in the Arab region, whether their serious exploitation is a result of pure economic issues or in combination with conflict and displacement. Arab countries need to realize that child labour poses immediate and future challenges not only to the children themselves, but also to their nations and communities, as well as the broader economy.”
“It is now urgent to address both the root causes and repercussions of child labour, and to ultimately eliminate it, especially in its worst forms,” the report states.

The study concludes with recommendations to the 22 LAS member states to improve their governance frameworks, especially by aligning national legislation with international legal standards, and ensuring the effective enforcement of child labour laws and regulations.

It recommends, secondly, protecting children from economic and social vulnerability by improving the socio-economic circumstances of families so that they do not resort to child labour to generate income for households where adults suffer from poverty and unemployment. Achieving this requires improved labour market policies, social protection, access to basic services including education, and awareness-raising programmes.

The study recommends, thirdly, protecting children from the impact of armed conflict through humanitarian programmes and aid for refugees and the displaced, protecting children from recruitment and use in armed conflict, and rehabilitating and reintegrating children used in armed conflicts.

ILO

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Portugal’s pension system needs to prepare for rapid population ageing

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Portugal needs to reform its pensions system to address the challenges of a fast-shrinking workforce and high levels of old-age inequality, according to a new OECD report.

The OECD Reviews of Pension Systems: Portugal says the country’s rapidly ageing population, a result of low fertility and rising life expectancy, is putting pressure on pension finances. The total population recently started to shrink and is projected to fall below 9 million by 2050 from a peak of 10.7 million in 2009, due to a sharp decrease in the number of young people and working-age adults.

The working-age population decline will be among the steepest among OECD countries, with the number of 20-64 year-olds set to fall by 30% by 2050 compared with an average drop of 5% on average in the OECD area. There will be 7 people older than 65 years for 10 people of working-age in 2050, against slightly more than 1 in 3 now and 1 in 5 in 1975. This could have a major impact on the labour market, economic growth and pension finances, according to the report.

“Portugal has profoundly reformed its pension system over the past decades and made it more financially sustainable,” said Stefano Scarpetta, OECD Director for Employment, Labour and Social Affairs, launching the report in Lisbon with Portugal’s Minister of Labour, Solidarity and Social Security, José António Vieira da Silva. “Now the focus should be on strengthening the incentives and ability of older people to stay longer in the labour market, simplifying the old-age safety-net and pension system, and improving its design to better cope with longer lives.”

Recent major pension reforms in Portugal have included aligning the retirement age between women and men; linking the retirement age to life expectancy; increasing the period to calculate the reference wage; and gradually integrating the scheme for civil servants with the general regime. However, the current pension system can still be improved.

Income inequality among older people is high in Portugal, even though safety-net provisions reduce the risk of old-age poverty, which is below the OECD average. However, access to these provisions is not always straightforward. Administrative complexity generates costs and contributes to long waiting times, and some people may be discouraged to apply for benefits. At the same time, non-contributory benefits should be simplified to avoid the multiplication of instruments with similar objectives. In particular, the old-age social pension, the complement (CES), and the top-up (CSI) should be merged while the CSI’s means testing to children’s income should be removed.

The current link between the statutory retirement age and changes in life expectancy is needed to ensure the financial sustainability of pension systems. That link should be extended to the minimum age of early retirement. Moreover, while longer working lives should be encouraged, the sustainability factor, which was reformed in 2014, only generates a very large penalty in case of early retirement. While appropriate financial penalties for early retirement are needed, the sustainability factor should rather be used to adjust pension benefits across the board as an ultimate instrument to ensure financial sustainability.

Incentives to contribute to voluntary pension schemes should also be improved and occupational plans promoted to increase coverage. Pension fund regulation should be enhanced.

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