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Ambitious Reforms for Stronger Economic Growth in Ukraine

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Economic growth in Ukraine picked up to 3.6 percent in the first half of 2019 and 4.2 percent in the third quarter driven by a strong agricultural harvest and consumption growth from higher wages, remittances, and a resumption of consumer lending, according to the World Bank’s latest Ukraine Economic Update. At the same time, investment growth has not yet picked up to levels needed for stronger and sustained economic growth.

“Delivering on the ambitious reform agenda of the new government to boost investment and economic growth will help create jobs and improve living standards,” said Satu Kahkonen, World Bank Country Director for Belarus, Moldova and Ukraine. “The key reforms include establishing a transparent and efficient agricultural land market, demonopolizing the gas sector through ownership unbundling of Naftogas, and increasing the efficiency of bank lending to the private sector by reducing non-performing loans in state-owned banks.”

If the key reforms move forward expeditiously, economic growth is projected at 3.6 percent in 2019, 3.7 percent in 2020, and 4.2 percent in 2021.

Sound fiscal and monetary management, including efforts to keep current public expenditures under control, are helping reduce public debt, inflation, and interest rates in 2019. Public and publicly guaranteed debt is projected to decline to 52 percent in 2019 from a peak of 81 percent in 2016. Inflation declined to 6.5 percent in October 2019 from 9.8 percent at end-2018, which has allowed the National Bank of Ukraine to reduce the key policy rate to 15.5 percent in October from 18 percent in April.

Continuing the prudent fiscal management going forward by addressing expenditure pressures from wages and social benefits will be important to further reduce inflation and interest rates and support stronger economic growth and higher living standards.

It will also be important to mobilize adequate external financing to meet significant public debt repayments in 2019-2021.

Establishing a land market for agricultural growth

According to the World Bank’s Special Focus Note, lifting the moratorium on agricultural land sales and establishing a transparent and efficient market for agricultural land has the potential to boost economic growth in Ukraine by 0.5 to 1.5 percent per year over a 5-year period.

Ukraine has the largest endowment of arable land in Europe, but agricultural productivity in Ukraine is a fraction of that in other European countries.

The moratorium on agriculture land sales is a major impediment to attracting investment and unlocking productivity in agriculture. The moratorium undermines the security of land tenure and incentives to undertake productivity enhancing investments such as irrigation, move into higher value-added crops, and adopt new technologies.

“The Draft Land Turnover Law passed the first reading in Rada last week in an important breakthrough,” said Faruk Khan, World Bank Lead Economist for Belarus, Moldova, and Ukraine. “Enactment of the land turnover law, along with complementary legislation needed to safeguard transparency and efficiency, will be a major milestone in strengthening Ukraine’s growth prospects going forward.

Access to financing for small, credit-constrained farmers will be important to enable them to participate in the market and improve their productivity.  Financing instruments should be effective and sustainable, which means targeting them to small farmers and designing them in a manner that provides incentives to improve productivity and adopt higher value-added crops and new technologies, at an affordable fiscal cost.

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Mongolia: World Bank Mobilizes $2.2 Million to Strengthen Medical Diagnostic Services

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The World Bank mobilized US$2.2 million to help strengthen Mongolia’s hospital services in the wake of the COVID-19 pandemic. The funding will be used to purchase the most needed medical diagnostic equipment in the country.

This immediate financing is being provided under the ongoing E-health project which seeks to improve integration and utilization of health information and e-health solutions for better health service delivery in selected pilot sites.

This immediate financing will help Mongolia safeguard its people from the potential COVID-19 outbreak in the country and make sure that they have access to early diagnosis and care,” – said the World Bank Country Manager for Mongolia Andrei Mikhnev.

Diagnostic equipment procured under this funding include 15 stationary and 12 mobile digital X-ray equipment and 41 ultrasound machines. Deliveries are expected in the beginning of April.

“We believe that this additional  equipment would strengthen the country preparedness to deal with disease outbreaks like COVID-19,” – said Dinesh Nair, Senior Health Specialist of the World Bank. “We will continue actively engaging with the government to help strengthen health systems, disease surveillance, and diagnosis.

On March 17, the World Bank Group also    pledged  $14 billion in immediate support to assist countries coping with the health and economic impacts of COVID-19. This financing is designed to help member countries, among them Mongolia, take effective action to respond to, and, where possible, lessen the tragic impacts posed by the global pandemic.

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Peru Will Receive US$ 50M from the World Bank to Strengthen Key Social Protection

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The World Bank Board of Directors today approved a US$ 50 million loan to strengthen key policies and strategies to increase human capital accumulation in Peru, particularly in the most vulnerable social sectors.

The Human Capital Development Program will focus on improving the delivery of social protection and early childhood development services, especially at the local level, and in strengthening professional development and management systems in education. Guaranteeing access to quality social protection, health and education services throughout the lifecycle is crucial for ensuring that individuals can develop the basic knowledge and skills they need to become productive members of society.

Over the past two decades, Peru has sharply reduced its poverty and inequality rates. It has also made significant strides in education and learning, as well as in decreasing chronic malnutrition and in implementing early childhood development policies. Notwithstanding, the country needs to reinforce its investments in human capital to further narrow inequality gaps and to guarantee that prosperity reaches all social sectors.

“The Peruvian government has undertaken the challenge of making multisector efforts to guarantee that all children reach their enormous potential and that they can become key players in the country’s development,” saidMarianne Fay, the World Bank Director forBolivia, Chile, Ecuador and Peru. The World Bank is accompanying Peru in this effort. “We provide technical and financial assistance for development policies that invest in people and that help to unlock and accelerate the generation of human capital, as well as to create synergies in the investments made in early childhood development to maximize results,” she added.

To this end, the program seeks to improve the comprehensive delivery of social protection and early childhood development services, as well as education quality and management. It will also support priority political and institutional reforms in the social sector and the linkage of policies implemented by the Ministry of Development and Social Inclusion and the Ministry of Education.

The Ministry of the Economy and Finance will implement the program using a multisectoral and territorial approach, in close coordination with the Ministry of Development and Social Inclusion and the Ministry of Education.

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AIIB To Scale Up Public Health Infrastructure in Wake of COVID-19

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Recognizing that countries with fragile infrastructure have less capacity to handle health crises, the Asian Infrastructure Investment Bank (AIIB) is working to scale up infrastructure investment—including in public health, healthcare and information and communications technology (ICT)—to better serve members impacted by COVID-19.

AIIB President and Chair of the Board, Jin Liqun, said: “There has never been a greater need for a multilateral and truly global coordinated effort to ease the economic burden experienced by all.”

He continued, “We have a responsibility to our members who face tremendous pressure to maintain the health and safety of their citizens while managing the impact of an economic downturn. It is our duty to be flexible and responsive in a time of crisis so our members can continue investing in sanitation, healthcare and technology-enabled infrastructure.”

Recent analysis by AIIB1 highlights a direct correlation between quality of overall infrastructure and health security, indicating that infrastructure development is a key part of health security and epidemic preparedness. The COVID-19 virus has exposed the critical need for countries to also ensure preparedness for the needs of an aging population.

Lower income countries are particularly vulnerable as they are already struggling to keep up with their infrastructure needs. Layering an economic downturn and additional fiscal stresses from COVID-19 on top, many of them will fall short of the 6 percent to 10 percent GDP investment needed to maintain economic growth.

Continues President Jin, “We will work with our Board of Directors, members and partners to adjust to this new reality, providing scaled up and targeted investment in critical sustainable infrastructure to protect the people we serve and the generations that follow.”

AIIB will announce a number of public health infrastructure financing options for its members in the coming days and weeks, to help build up economic resilience and mitigate the impact of future health crises.

Comments Dr. Ngozi Okonjo-Iweala, Chairperson of the Board of GAVI: “Multilateral banks like AIIB will play a critical role in supporting countries, helping them address challenges presented by COVID-19 as they build towards sustainable long-term infrastructure development.”

“The support that a bank such as AIIB can provide its members is invaluable, reducing risks, absorbing longer-term exposures and cushioning the impact from increases in borrowing costs.”

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