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Europe and Central Asia: Health Systems, Safety Nets, and Support to Businesses All Critical

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Decisive policy measures that prioritize investments in health care systems and provide safety nets for people, especially the most vulnerable, are critical to mitigating the impacts of the COVID-19 (coronavirus) pandemic in Europe and Central Asia, says the Spring 2020 Economic Update for the region.

In addition, countries in the region can help sustain economic activity by supporting the private sector with temporary business credits, tax cuts, or tax payment deferrals. Small and medium enterprises that are impacted could benefit significantly from targeted government subsidies.

“During these exceptionally difficult times, it is imperative for policymakers to act decisively,” says Cyril Muller, World Bank Vice President for Europe and Central Asia. “This means moving rapidly to strengthen health systems and social safety nets, supporting the private sector, and preserving financial stability and confidence — all critical to people’s lives.”

Projections of the economic implications of COVID-19 are subject to significant uncertainty. Therefore, the report produces simulation exercises to illustrate the range of growth outcomes that may materialize as a result of the pandemic. *Scenarios suggest regional growth will fall into a recession in 2020, contracting to between −4.4 and −2.8 percent, held back by the coronavirus pandemic, before rebounding in 2021 as policy measures are introduced, global commodity prices gradually recover, and trade strengthens.

“Social distancing and closing of non-essential businesses and schools are necessary measures to contain the spread of the pandemic and save lives,” says Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia. “At the same time, policies must seek to minimize the economic costs of these measures and ensure the recovery is quick rather than prolonged, once the pandemic is over.”

Supportive measures such as cash transfers or healthcare subsidies, to help vulnerable people and families, and temporary business credit, and tax breaks to businesses will be critical to cushion the downturn and preserve jobs, says the report.

The COVID-19 pandemic is occurring at an already fragile time for the region. Growth in the emerging market and developing economies of Europe and Central Asia decelerated to 2.2 percent in 2019. Since February, the region has faced an increasingly uphill battle to cope with both the immediate health crisis and the long-term challenges brought about by the global pandemic.

The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs. It is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.

* Due to the COVID-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The analysis in this report is based on the latest country-level data available as of 20 March 2020.

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Major Opportunities in Decarbonizing Maritime Transport

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The World Bank today published new research on decarbonizing the maritime transport sector with findings that indicate significant business and development opportunities for countries, including for developing and emerging economies.

To lower and ultimately eliminate its climate impact, maritime transport needs to abandon the use of fossil-based bunker fuels and turn toward ‘zero-carbon bunker fuels’, namely shipping fuels which emit zero or at most very low greenhouse (GHG) emissions across their lifecycles. The first report being launched today, “The Potential of Zero-Carbon Bunker Fuels in Developing Countries”, identifies two alternative fuels – ammonia and hydrogen – as the most promising zero-carbon bunker fuels for shipping at present, more scalable and cost-competitive than other biofuel or synthetic carbon-based options.

The second report, “The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping”, finds that liquefied natural gas (LNG) is likely to play a limited role in the decarbonization of the shipping sector, noting its specific niche applications on pre-existing routes or in specific vessel types. The research further recommends that countries should avoid new public policy that supports LNG as a bunker fuel, reconsider existing policy support, and continue to regulate methane emissions.

By transitioning toward zero-carbon shipping, many countries, especially those with large renewable energy resources, can break into a future zero-carbon fuel market, while modernizing their own domestic energy and industrial infrastructure. The reports evaluate which developing and developed countries may be well positioned to take advantage of this emerging investment opportunity, and present initial case studies for Brazil, India, Mauritius and Malaysia.

“The maritime community, particularly in developing countries, has a unique opportunity in the context of these emerging zero-carbon bunker fuels.” said Bernice Van Bronkhorst, Global Director for Climate Change at the World Bank. “Not only will they help decarbonize shipping, but they can also be used to boost domestic infrastructure needs and chart a course for low-carbon development more generally.”

The global maritime transport sector produces around three percent of global GHG emissions and an estimated 15 percent of the world’s air pollution annually. The International Maritime Organization’s (IMO) Initial Strategy on the Reduction of GHG Emissions from Ships mandates that shipping’s GHG emissions be reduced by at least 50% below 2008 levels by 2050, and to be fully phased out as quickly as possible within this century.

Zero-carbon fuels will need to represent at least five percent of the bunker fuel mix by 2030 to put shipping on a GHG trajectory consistent with the Initial IMO GHG Strategy, as well as the Paris Agreement’s temperature goals, ” said Binyam Reja, World Bank Acting Global Director for Transport. “This means they need to be scaled up rapidly. These reports will be critical to help accelerate their targeted development and deployment.”

“It is vital that we address the impacts of maritime transport on ocean health, which is at the heart of the Bank’s transition to a Blue Economy. These reports offer policymakers useful tools to achieve a triple win – a healthier ocean, improved air quality and reduced GHG emissions,” said Karin Kemper, Global Director for Environment, Natural Resources and the Blue Economy.

The research makes the case that strategic policy interventions are needed to hasten the sector’s energy transition and seize opportunities for wider economic, energy, and industrial development in developing countries. For instance, the introduction of a meaningful carbon price would create a level playing field for the development and utilization of zero-carbon bunker fuels. Revenue generated by such a market-based measure can help support developing countries in their energy transitions and accelerate crucial research, development, and deployment of these fuels. Business should also focus on “no-regret” options, such as increased energy efficiency and maximum fuel flexibility. Constructive collaboration between industry stakeholders and policymakers, both at the IMO and on a national/regional level, can also create greater certainty on the availability, pricing, and timing of zero-carbon bunker fuels which can further boost their rapid uptake from 2030.

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COVID-19 spending helped to lift foreign aid to an all-time high in 2020

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Photo: MINUSCA

Foreign aid from official donors rose to an all-time high of USD 161.2 billion in 2020, up 3.5% in real terms from 2019, boosted by additional spending mobilised to help developing countries grappling with the COVID-19 crisis, according to preliminary data collected by the OECD.

Within total Official Development Assistance (ODA) provided by members of the OECD’s Development Assistance Committee in 2020, initial estimates indicate that DAC countries spent USD 12 billion on COVID-19 related activities. Some of this was new spending and some was redirected from existing development programmes, according to an OECD survey carried out in April and May 2020. Most providers said they would not discontinue programmes already in place.

Total ODA equated to around 1% of the amount countries have mobilised over the past year in economic stimulus measures to help their own societies recover from the COVID crisis. Meanwhile the global vaccine distribution facility COVAX remains severely underfunded, OECD Secretary-General Angel Gurría said during a virtual presentation of the aid data.

“Governments globally have provided 16 trillion dollars’ worth of COVID stimulus measures yet we have only mobilised 1% of this amount to help developing countries cope with a crisis that is unprecedented in our lifetimes,” Mr Gurría said. “This crisis is a major test for multilateralism and for the very concept of foreign aid. We need to make a much greater effort to help developing countries with vaccine distribution, with hospital services and to support the world’s most vulnerable people’s incomes and livelihoods tobuild a truly global recovery.”

Foreign aid rose in a year that saw all other major flows of income for developing countries – trade, foreign direct investment and remittances – decline due to the pandemic, and domestic resources under increased pressure. Total external private finance to developing countries fell 13% in 2020 and trade volumes declined by 8.5%. (See the OECD’s Global Outlook on Financing for Sustainable Development 2021.)

The rise in 2020 ODA was also affected, however, by an increase in loans by some donors. Of gross bilateral ODA, 22% was in the form of loans and equity investments, up from around 17% in previous years, with the rest provided as grants.

The 2020 ODA total is equivalent to 0.32% of DAC donors’ combined gross national income, up from 0.30% in 2019 but below a target of 0.7% ODA to GNI. Part of the rise in the ratio was due to the fact that GNI fell in most DAC countries. Six DAC members – Denmark, Germany, Luxembourg, Norway, Sweden and the United Kingdom – met or exceeded the 0.7% target. Among non-DAC donors, whose assistance to developing countries is not included in the ODA total, Turkey provided aid equivalent to 1.12% of its GNI.

ODA rose in 16 DAC countries, with some substantially increasing their aid budgets to help developing countries respond to the pandemic. The largest increases were in Canada, Finland, France, Germany, Hungary, Iceland, Norway, the Slovak Republic, Sweden and Switzerland. ODA fell in 13 countries, most notably in Australia, Greece, Italy, Korea, Luxembourg, Portugal and the United Kingdom. G7 donors provided 76% of total ODA and DAC-EU countries 45%. ODA provided by EU Institutions jumped by 25.4% in real terms as they mobilised funds for COVID-19 related activities and increased sovereign lending by 136% over 2019. 

Short-term support to help with the COVID-19 crisis focused on health systems, humanitarian aid and food security, according to the OECD survey. Aid providers indicated they would focus in the medium-term on making diagnostics and vaccines available to countries in need, as well as offering support to address the economic and social repercussions of the pandemic.

“At the outset of the pandemic, DAC donors said that they would strive to protect ODA volumes. I am grateful and proud to say that they have done that and more. Donor countries have stepped up to support developing countries struggling with the health and economic fallout of COVID-19, even as their own economies and societies have been battered,” said DAC Chair Susanna Moorehead. “The next few years will be tough and the finance we provide must work harder than ever. If we really are going to build forward better and greener, we must focus on the most vulnerable countries and the most vulnerable people in them, especially women and girls.”

Bilateral ODA to Africa and least-developed countries rose by 4.1% and 1.8% respectively. Humanitarian aid rose by 6%. Excluding aid spent on hosting refugees within donor countries – which was down 9.5% from 2019 to USD 9.0 billion and mainly concerned Canada, Iceland and the Netherlands – ODA rose by 4.4% in real terms in 2020.

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Export competitiveness key to Nepal’s green, resilient, and inclusive recovery

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After contracting for the first time in 40 years in FY2020, Nepal’s economy is projected to grow by 2.7 percent in FY2021, driven primarily by services as social distancing measures continue to be relaxed and vaccines rolled out for priority populations. Agriculture is also expected to perform well, on the back of recent favorable monsoons. Exports could be a powerful platform to boost post-pandemic recovery and enable Nepal to transition towards green, resilient, and inclusive development, states the World Bank’s latest Nepal Development Update.

The update notes that the tourism sector may not fully recover without reforms to readjust to a post-COVID-19 tourism market. The current account deficit is expected to widen marginally in FY2021 to 1.2 percent of GDP as imports and remittances recover modestly while exports remain tepid. Revenue performance is also expected to remain weak. This coupled with additional spending on economic relief measures, vaccinations, and the resumption of project implementation should contribute to increase the fiscal deficit close to 7 percent of GDP in FY2021.

While the government has outlined a program to address the impacts of COVID-19 to mitigate the attendant risks to the outlook, the Nepal Development Update highlights the importance of improving export competitiveness for a resilient economic recovery.

Nepal’s untapped export potential is estimated to be around US$9.2 billion, 12 times its actual annual merchandise exports,” said Dr. Kene Ezemenari, World Bank Senior Economist and lead author of the update. “This export potential represents an opportunity to create an estimated 220,000 new jobs, with significant implications for productivity growth. Realizing that potential is not unrealistic in the medium term.”

The report outlines six key priorities for Nepal to achieve its export potential. These include reforming the tourism sector for a quick and resilient recovery; simplifying and streamlining processes to attract more FDI; modernizing export promotion and upgrading exporters’ capabilities; reducing trade costs; investing in phytosantary and quality control-related infrastructure; and boosting digital trade and e-commerce for more opportunities linked to global value chains.

Nepal’s economy is on the path to recovery amid the severe impacts of the global COVID-19 pandemic which affected people lives and livelihoods, and businesses,” stated Honorable Finance Minister, Mr. Bishnu Prasad Paudel. “The recommendations that can help harness the potential of exports in supporting Nepal’s economic recovery are in line with the government’s policies and priorities. The Government of Nepal is working together with development partners and the private sector on a green, resilient and inclusive development agenda to help Nepal build back better and greener from the pandemic.”

The Government of Nepal’s relief, restructuring and resilience plan addresses the pandemic’s impacts from the immediate to the long term with a focus on a green, resilient, inclusive recovery. The first stage of the plan is focused on relief support to businesses and households most affected by COVID-19. In the restructuring phase or medium-term, the focus is on recovery through investments to promote and create green jobs that sustain the country’s natural capital base. In the long term, the plan focuses on sustainability and resilience for inclusive growth.

We welcome the government’s planned reforms to support Nepal’s green, resilient, and inclusive development. This will be the foundation for Nepal to emerge stronger from the crisis,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “We look forward to continued collaboration with the government and development partners in this effort, particularly on investments that harness Nepal’s export potential to support a sustainable and resilient recovery.”

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