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More efforts needed to boost trust in business and finance

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Policy makers should step up their efforts to bolster public trust in finance to reduce the risks of contagion if economic growth and financial returns continue to fall, according to a new OECD report.

The 2008 global financial crisis marked a turning point in the way governments considered the role and importance of trust in policymaking. The policy responses to the crisis – unprecedented in their scope and cost – had one underlying goal: to restore trust in the financial sector and the wider business community.

Governments were largely successful in fending off a full-scale global depression, but more than a decade on, business has still not fully recovered the trust lost in the crisis. Today, a series of important social, financial and economic trends have placed trust in business and finance once again at the front of mind for political and business leaders alike.

Strengthened public trust in business and finance is essential to encourage the productive investment and commerce that contribute to inclusive and sustainable economic growth.

The OECD Business and Financial Outlook 2019 explores potential risks that could erode trust in the financial sector in the future. These include the abundant issuance of sovereign, corporate and bank debt, which has supported post-crisis growth but has raised concern over potential risks of excessive debt as the credit cycle matures.

The Outlook provides policy makers with concrete considerations for action in five areas: financial markets; financial institutions—such as banks and pension funds; company liability—that is, trust in companies to obey the law; the level playing field, focusing on the rising importance of state-owned enterprises and their associated conduct risks; and online markets.

The OECD Business and Finance Outlook 2019 is available at http://www.oecd.org/finance/oecd-business-and-finance-outlook-26172577.htm

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Palestinian Economy Struggles as Coronavirus Inflicts Losses

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An abrupt decline in economic activities and pressure on the Palestinian Authority (PA)’s finances have placed Palestinian livelihoods at high risks, as the impact of the Coronavirus (COVID-19) continues to hit the economy hard. After growth of a mere 1% in 2019, the economy is projected to contract by at least 7.6% in 2020. Beyond the immediate crisis, lifting restrictions on the development of digital infrastructure and fostering better regulations could play an important role in stimulating an already faltering economy.

With the COVID-19 pandemic in its third month, the crisis is affecting Palestinian lives and livelihoods. The Palestinian Authority has acted early and decisively to save lives. However, several years of declining donor support and the limited economic instruments available have turned the ability of the government to protect livelihoods into a monumental task. Hence, external support will be critical to help grow the economy during this unprecedented period,” said Kanthan Shankar, World Bank Country Director for West Bank and Gaza.

The new World Bank economic monitoring report* highlights critical challenges facing the Palestinian economy. The economy may shrink by at least 7.6%, based on a gradual return to normality from the containment, and by up to 11% in the case of a slower recovery or further restrictions. The PA’s fiscal situation is expected to become increasingly difficult, due to a decline in revenues and substantial increase in public spending on people’s medical, social and economic needs. Even with reallocations of some expenditures, the financing gap could increase alarmingly, from an already high $800 million in 2019 to over $1.5 billion in 2020 to adequately address these needs.

Even prior to the Coronavirus pandemic, more than a quarter of Palestinians lived below the poverty line. The share of poor households is now expected to increase to 30% in the West Bank and to 64% in Gaza. Even more striking is the youth unemployment rate of 38%, well beyond the Middle East & North Africa’s regional average. The economy’s potential remains confined by restrictions on the movement of people and goods. The report makes a case for developing a digital economy to help bridge this divide and create high-end jobs.

The digital economy can overcome geographic obstacles, foster economic growth and create better job opportunities for Palestinians. With its tech-savvy young population, the potential is huge. However, Palestinians should be able to access resources similar to those of their neighbors’, and they should be able to rapidly develop their digital infrastructure as well,” added Shankar.

The report emphasizes that digital infrastructure is foundational to the development of a digital economy. At a time when other countries are contemplating the use of 5G, the Palestinian territories are among the last places in the Middle East to launch 3G in the West Bank and 2G in Gaza. The operators are at a competitive disadvantage, facing restrictions on access to spectrum, sites for network coverage and import of certain telecom equipment. They compete against operators who can offer unlicensed 4G/LTE services in the West Bank and 3G in Gaza for those in proximity to Israeli networks (through pre-paid SIM cards).

The World Bank report recommends specific reforms to be made in collaboration with Israel, including the revival of the Joint Telecommunications Committee to resolve bilateral issues, agreeing on a timeframe for the allocation of 4G spectrum and ultimately 5G, lifting restrictions on equipment needed to introduce new technologies, and mitigating the effect of unauthorized telecom activity in the Palestinian territories.

It also calls on the PA to act on developing a comprehensive strategy for the sector, establishing an independent regulator and prioritizing the passing of a new telecommunications law in line with international best practice. The role of the donors is vital to provide support for the institutional development needed in the telecom sector, help with innovative financing schemes to mitigate the political risks and increase private sector investment.

*The report will be presented to the Ad Hoc Liaison Committee (AHLC) during a virtual meeting on June 2, 2020. This will be a policy-level meeting for development assistance to the Palestinian people.

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How to promote the resilience of the food production sector during a pandemic

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A scientific roundtable, organized through a webinar, gathered food regulators and representatives of the food production sector from Asia, Europe, South America and the Middle East. It was co-hosted by the International Union of Food Science and Technology (IUFoST), the Sustainable Food Systems Division of the United Nations Industrial Development Organization (UNIDO) and the Food Risk Analysis and Regulatory Excellence Platform(PARERA) of Université Laval, Québec, Canada. 

The roundtable enabled participants to share perspectives of the food production sector and  food regulators on the challenges they face, some of the solutions they have developed and the lessons learnt as part of their efforts to prevent the disruption of food production and to contribute to maintaining the safety of products and consumer confidence.

The roundtable highlighted key enablers to the food supply chain’s ability to cope with the pandemic, in particular the ability to adapt to the constraints of limited transportation and to diversify suppliers by introducing more local and/or regional providers, and to prevent and mitigate food and ingredient shortages while encouraging and supporting the local production sectors minimally affected by the consequences of the pandemic. 

Participants highlighted the importance of collaboration and partnerships established amongst regulators and between regulators and food producers to support each other in the development and dissemination of guidance related to COVID-19 mitigation measures and how they can be adapted and applied in the context of food production settings. The development of innovative solutions to execute food regulatory functions such as remote audits, inspections and assessments have contributed to limiting the constraints associated with the current pandemic. 

The roundtable concluded with agreement on the need to continue investments to address food production sector deficiencies, such as making available more localized processing operations in order to create more opportunities for the primary production sector and to contribute to its resilience. It also highlighted the need to further examine food supply chains towards a better redistribution between global and local/regional supply, while supporting additional efforts towards innovative operationalization of food regulatory requirements and functions by regulators and food producers alike.

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ADB, JICA to Strengthen Collaboration to Help Asia in Fight Against COVID-19

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Asian Development Bank (ADB) President Masatsugu Asakawa and Japan International Cooperation Agency (JICA) President Shinichi Kitaoka today reaffirmed their commitment to strengthen collaboration to assist ADB’s developing member countries (DMCs) in their response to the novel coronavirus disease (COVID-19) pandemic.

“ADB and JICA have a long history of collaboration and partnership in a number of key areas including supporting DMCs to accelerate progress toward achieving universal health coverage (UHC) and cofinancing on quality infrastructure,” said Mr. Asakawa. “COVID-19 poses serious health, social, and economic threats to the region. It is important that we find ways to enhance our collaboration, including cofinancing, to help developing member countries address the pandemic.”

In their call, the two presidents discussed the economic and social status of Asian and Pacific economies in the wake of the pandemic and their organization’s respective assistance packages.

ADB announced a $20 billion assistance package on 13 April to address the needs of its DMCs as they respond to the COVID-19 pandemic. The package includes $13 billion for quick and affordable budget support to help DMCs counter the severe macroeconomic impacts arising from the pandemic with countercyclical expenditure with the focus on the poor and the vulnerable. Some $2.5 billion of the package is available as concessional and grant resources, and about $2 billion is earmarked for loans and guarantees to the private sector to rejuvenate trade and supply chains. ADB will expand its technical assistance to DMCs in designing, improving, implementing, and monitoring health and other sector actions against COVID-19.

JICA is preparing a COVID-19 crisis response emergency support loan program to strengthen countries’ capacity to respond to COVID-19 and revitalize economic activities in those hit hard by the pandemic. Its assistance will be provided as standalone loans or cofinancing with multilateral development banks, including ADB.

ADB and JICA have a strategic partnership to cofinance $10 billion in quality public infrastructure investment between 2016 and 2020. The two organizations also established in 2016 the $1.5 billion Leading Asia’s Private Sector Infrastructure (LEAP) Trust Fund to promote private financing for infrastructure development, including through public-private partnerships.

The two organizations are also collaborating at country and regional levels in the areas of health security, UHC, and specific health issues concerning the elderly under a partnership signed in May 2017.

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