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Pakistan’s Scarce Water Can Bring More Value to People and Economy

MD Staff

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Pakistan can get more economic, social and environmental benefits from its water, subject to urgent reforms to improve water use efficiency and service delivery, says a new report from the World Bank.

The report, Pakistan: Getting More from Water, states that while Pakistan, the sixth most populous country in the world, is well-endowed with water, water availability per person is comparatively low. Water wastage is high and agricultural yields are low compared to most countries.

Although climate change and transboundary issues are a significant hindrance for Pakistan’s water sector, the greatest challenges and opportunities are internal, not external, to Pakistan. So, improving water use efficiency and productivity, delivery of water services in cities and in irrigation, and addressing environmental sustainability are the most pressing needs, according to this new analysis.

“Water security in Pakistan is reaching a critical point that demands urgent attention and reform,” said Illango Patchamuthu, World Bank Country Director for Pakistan. “Boosting irrigation productivity, while paying more attention to the social and environmental aspects of water management, is critical. This will require strong collaboration between federal and provincial governments and other stakeholders. The objective must be to strengthen water governance and strategic water planning to build resilience in the face of a changing climate and growing water demands.”

While irrigation dominates water use in the country, the four major crops (rice, wheat, sugarcane and cotton) that use 80 percent of water contribute only 5 percent of Gross Domestic Product (GDP). Poor water management is conservatively estimated to cost 4 percent of GDP or around $12 billion per year. These costs are dominated by inadequate domestic water supply and sanitation, but also include the costs of floods and droughts. Poor sanitation and a lack of wastewater treatment cause water-borne diseases that kill 40,000 children each year. Rivers, lakes and the extensive Indus Delta are severely degraded undermining important ecosystem services.

“New dams can help improve water security but will not address the most pressing water problems that Pakistan faces,” says William Young, author of the report. “Irrigation systems need modernizing; hydromet systems should be expanded; and urban water infrastructure, especially for wastewater, requires major investment. The National Water Policy provides a sound basis for reform, but provincial water policies need much attention, and the underpinning legal framework is incomplete and needs strengthening.”

Reaching upper-middle income status as Pakistan turns 100 is an ambitious goal and will require significant change in the structure of the economy. However, water scarcity need not limit growth. Irrigation water use can increase to meet growing food demands if efficiency improvements are made. Changes in diet with increasing wealth will have significant impacts on commodity demands and crop choices. Agricultural subsidies must be reformed to reflect real value of commodity exports and of water. Without reform, irrigation water use will limit water access by industry and services sectors, constraining economic growth. Attention must be given to increasing flows below Kotri Barrage both for the health of the delta and for Karachi water supply.

The report was prepared by the World Bank with external contributions from local and international water experts, including the International Water Management Institute and the International Food Policy Research Institute.

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Portugal can use its economic recovery to build up resilience

MD Staff

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Portugal’s economic recovery is now well established, with GDP back to pre-crisis levels, a substantially lower unemployment rate and renewed investment and domestic consumption now joining a robust export sector to drive the economy. Efforts should now focus on reducing vulnerabilities to build resilience to future shocks, according to a new OECD report.

The latest OECD Economic Survey of Portugal forecasts GDP growth for 2019 and 2020 of 2.1% and 1.9% respectively. A drop in the unemployment rate to below 7% and rising earnings are driving consumption, adding to the economic lift from tourism and manufacturing, which were behind much of the 60% rise in export volumes that the Portuguese economy experienced from 2009 to 2017.

The Survey, presented in Lisbon by OECD Secretary-General Angel Gurría alongside Portuguese Minister Assistant to the Prime Minister and for the Economy Pedro Siza Vieira and Deputy Minister and Secretary of State of Finance Ricardo Mourinho Félix, says Portugal should now take the opportunity to further shore up its public finances and banking sector.

To improve living standards and address still-high levels of poverty and inequality, Portugal should also aim to raise productivity, which has stalled in recent years, and get the long-term unemployed back into jobs.

At around 120% of GDP, Portugal’s public debt is falling but still among the highest in the OECD, limiting the country’s ability to respond to external shocks. Reducing the debt will require ongoing fiscal consolidation and further measures to offset the rising costs of ageing, including optimising health spending and further reducing pathways to early retirement. On the revenue side, the tax base could be broadened by reducing consumption tax exemptions and expanding the use of environmental taxes.

In the banking sector, there is a need to reduce the share of non-performing loans, which have declined since a peak in 2016 but remain high by OECD standards.

“Portugal has made tremendous progress restoring its economy to health since the financial crisis, but challenges remain in public finances and the financial sector,” said OECD Secretary-General Angel Gurría. “The more Portugal can do to build up resilience while its economy is turning over nicely, the better it will be able to weather any future shock, ensuring the sustainability and inclusiveness of its economic recovery.”

External risks to Portugal’s outlook could include a slowdown in economic activity in major trading partners and future rises in Eurozone interest rates.

The Survey includes a thematic chapter on efficiency in the judicial system and its effect on productivity and economic performance. It notes that despite reforms to reduce the time needed to resolve a civil or commercial case in the court system, cases still typically run longer than in other OECD countries. The report also highlights the importance of continuing efforts to foster integrity and promote transparency in both the public and business sectors, as a key priority.

A second thematic chapter focuses on Portugal’s export performance. With exports still relatively low as a share of GDP, it recommends doing more to improve competitiveness on international markets, to open up to external trade and to participate in global value chains. This could include removing barriers to competition, to further encourage exporting firms to compete on price and quality, and making efforts to improve domestic infrastructure and skills.

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Navigating Sri Lanka’s Demographic Change

MD Staff

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The latest edition of the World Bank’s Sri Lanka Development Update (SLDU) finds the island in a challenging macroeconomic landscape. The post-conflict high growth momentum has decelerated. A volatile global environment and structurally weak competitiveness continue to weaken growth and external sector performance. High interest costs mask limited fiscal improvement.

The report’s special focus examines the challenges associated with a change in demographic composition and suggests that a multi-year program of policy reforms and institutional strengthening could help prepare Sri Lanka for the decades ahead.

The SLDU, which analyses key developments in Sri Lanka’s economy over the past six months, notes that while post-conflict growth has decelerated, the outlook remains stable, conditional on political stability and reform implementation.

Sri Lanka is stepping up to the plate at a time when the global environment remains turbulent. Key reforms, such as the implementation of the Inland Revenue Law, passing of the Active Liability Management Act, are helping to prepare for heightened external debt refinancing risks in 2019 and beyond.

It is important to consolidate on previous reforms to ensure maximum benefits,” says Fernando Im, an author of the SLDU and the senior country economist for Sri Lanka-Maldives. He explains that future reforms could yield high development impacts, such as further strengthening public finance management and supporting the implementation of a social registry to improve coverage and targeting of social safety nets.

Below are some of the recent developments highlighted in the report:

Sri Lanka’s debt portfolio carries significant risks

At an estimated 83 percent of its Gross Domestic Product, Sri Lanka’s central government debt level is high. As the country approached upper middle-income status, it has been borrowing on more commercial terms with increased cost and risk.

The majority of foreign currency denominated debt is now largely made up of market borrowings including International Sovereign Bonds (ISBs) and Sri Lanka Development Bonds (SLDBs), which in 2017 accounted for 53 percent, up from just 3 percent of total foreign currency denominated debt in 2000.

In total, maturities of bullet repayments on Eurobonds from 2019 to 2023 and from 2025 to 2028 alone amount to USD 12.15 billion. The SLDU notes that this is new territory for the country and could expose the island nation to refinancing risks.

In response, the government has adopted policies designed to address these risks, however, the slow progress of key structural reforms remains a cause for concern. It is hoped that improvements in debt management will help manage costs and risks of the portfolio, develop the domestic financial market and improve access to finance.

Despite the fast poverty reduction, there remain areas with significant poverty

Over the past two decades, Sri Lanka’s economy expanded at a rapid pace and the country has done much to address extreme poverty with a decline from 15.4 percent in 2013 to 9.7 percent in 2016, as measured against the World Bank’s international poverty line of $3.20 per day for lower middle-income countries.

Measures, such as the expansion of the Samurdhi programme in 2015, offered dividends although better targeting of social assistance would have resulted in larger gains. However, it is vital to note that a large number of people remain just a small shock away from falling back into poverty, says the report, noting that adverse weather conditions have become increasingly influential in recent years.

Critically, there is a disparity between various districts, with the highest poverty headcount being reported in the Northern and Eastern provinces, where regions like Ratnapura, Kandy and Badulla account for more than a quarter of the poor population combined. It is clear, Sri Lanka must design different strategies to address the varied issues around human capital, basic services, the availability of jobs and access to markets.

Sri Lanka is undergoing profound demographic change – the country needs to do more to prepare

Like many other countries in the world, Sri Lanka is staring down a dramatic demographic shift – Sri Lanka’s share of working-age population peaked in 2005 and it is expected to gradually decline over time. This has implications for labor supply, service delivery in sectors such as health and education, and of course for pensions, employment and public finances overall.

A particular concern are the limited savings and instructional support mechanisms in place to support this rapidly expanding elderly population. Increasing costs mean that programs such as the Public Servants Pension Scheme (PSPS) could struggle to deliver on their benefit promises over the long run, while the EPF – the employer-based defined contribution saving scheme for formal private sector workers – appears inadequate to meet the costs associated with over two decades of retirement.

As can be expected formidable challenges exist, but improving various aspects of delivery systems will prove critical to broadening worker coverage. By prioritising educational attainment, addressing the skills mismatch that hurts new graduates in the market, and nurturing entrepreneurship, younger people could be encouraged to participate in the workforce. Finally, improving female labour force participation could also help buffer the adverse impacts of demographic factors on growth.

World Bank

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Poor working conditions are main global employment challenge

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Poor quality employment is the main issue for global labour markets, with millions of people forced to accept inadequate working conditions, according to a new report from the International Labour Organization (ILO).

New data gathered for the World Employment and Social Outlook: Trends 2019  (WESO) show that a majority of the 3.3 billion people employed globally in 2018 had inadequate economic security, material well-being and equality of opportunity. What’s more, progress in reducing unemployment globally is not being reflected in improvements in the quality of work.

The report, published by the ILO, cites the persistence of a number of major deficits in decent work, warning that, at the current rate of progress, attaining the goal of decent work for all, as set out in the Sustainable Development Goals  (SDGs), particularly SDG 8 , seems unrealistic for many countries.

“SDG 8 is not just about full employment but the quality of that employment,” said Deborah Greenfield, ILO Deputy Director-General for Policy. “Equality and decent work are two of the pillars underpinning sustainable development.”

The report cautions that some new business models, including those enabled by new technologies, threaten to undermine existing labour market achievements – in areas such as improving employment formality and security, social protection and labour standards – unless policy-makers meet the challenge.

“Being in employment does not always guarantee a decent living,” said Damian Grimshaw, ILO Director of Research. “For instance, a full 700 million people are living in extreme or moderate poverty despite having employment.”

Among the issues highlighted is the lack of progress in closing the gender gap in labour force participation. Only 48 per cent of women are in the labour force, compared to 75 per cent of men. Women also make up far more of the potential, underutilized, labour force. Another issue is the persistence of informal employment, with a staggering 2 billion workers – 61 per cent of the world’s workforce – categorized as such. Also of concern is that more than one in five young people (under 25) are not in employment, education or training, compromising their future employment prospects.

The annual report also highlights some pockets of progress. Should the world economy manage to avoid a significant downturn, unemployment is projected to decline further in many countries. There has also been a great decrease in working poverty in the last 30 years, especially in middle-income countries, and a rise in the number of people in education or training.

Main regional findings

Africa

Only 4.5 per cent of the region’s working age population is unemployed, with 60 per cent employed. However, rather than indicating a well-functioning labour market, this is because many workers have no choice but to take poor quality work, lacking security, decent pay and social protection.

The labour force is projected to expand by more than 14 million per year. Economic growth rates until 2020 are expected to be too low to create enough quality jobs for this fast-growing labour force.

Northern America

Unemployment is expected to reach its lowest level, 4.1 per cent in 2019.

Both employment growth and economic activity are projected to begin declining in 2020.

People with basic education are more than twice as likely to be unemployed as those with advanced education.

The sub-region is a leader in digital labour platforms. Close monitoring of such work is a growing issue for policy-makers.

Latin America and the Caribbean

Despite rebounding economic growth, employment is expected to rise by only 1.4 per cent per year in 2019 and 2020.

The relatively slow fall in regional unemployment figures is a result of different labour market conditions in individual countries.

Informality and poor job quality remain pervasive in all types of employment.

Arab States

Regional unemployment is projected to remain stable at 7.3 per cent until 2020, with unemployment in non-Gulf Cooperation Council (GCC) countries reaching double that of the GCC.

Migrant workers account for 41 per cent of total regional employment, and in GCC countries more than half of all workers are migrants, on average.

The women’s unemployment rate, at 15.6 per cent, is three times that of men. Youth are also disproportionately affected and the youth unemployment rate is four times the adult rate.

Asia and the Pacific

Economic growth continues, albeit at a slower rate than in previous years.

The regional unemployment rate is projected to remain at around 3.6 per cent until 2020, below the global average.

Structural transformation has moved workers out of agriculture, but this has not created significant improvements in job quality; a large proportion of workers lack job security, written contracts and income stability.

While social protection has been significantly extended in some countries, it remains extremely low in those countries with the highest poverty rates.

Europe and Central Asia

In Northern, Southern and Western Europe, unemployment is at its lowest in a decade and is set to continue falling until 2020.

In Eastern Europe the number of people in employment is expected to shrink by 0.7 per cent in both 2019 and 2020, but a simultaneously shrinking labour force means the unemployment rate will fall.

Long-term unemployment is as high as 40 per cent in some countries.

Informality remains widespread, at 43 per cent, in Central and Western Asia.

Working poverty, poor job quality and persistent labour market inequalities remain concerns.

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