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World Bank Approves $350M Loan to Support Reforms for Economic Recovery in Ukraine

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The World Bank’s Board of Executive Directors today approved a $350 million First Economic Recovery Development Policy Loan (DPL) for Ukraine in support of reforms that are critical to economic recovery and to help mitigate the impact of the COVID-19 pandemic.

The key reforms supported by the DPL include: (i) strengthening land and credit markets by creating a transparent and efficient market for agricultural land and resolving non-performing loans in state owned banks; (ii) fostering de-monopolization and anti-corruption institutions including by restructuring the gas sector; and (iii) bolstering the social safety net for the vulnerable elderly population to cushion the impact of the COVID-19 pandemic.

“The COVID-19 pandemic is resulting in a sharp economic downturn that is hurting the incomes of ordinary Ukrainians and small businesses, and straining the government’s budget,” said Arup Banerji, incoming World Bank Country Director for Belarus, Moldova, and Ukraine. “This development policy loan provides $350 million to support budget expenditures at a difficult time. The World Bank welcomes the Government’s commitment to these reforms to prepare the economy for recovery, including the significant steps taken to end the moratorium on agricultural land sales, and to bolster benefits for the vulnerable elderly population.”

Restructuring the gas sector by creating an independent gas transmission system operator is already helping safeguard Ukraine’s gas transit revenues. Strengthening Ukraine’s anti-corruption institutions is intended to help establish a level playing field in the private sector and bolster investor confidence. Resolving non-performing loans in state-owned banks will help increase the efficiency and flow of credit to Ukrainian firms.

“Ukraine has taken a historic first step towards establishing a transparent and efficient market for agricultural land and unlocking investment in agriculture with the approval of the land turnover law supported by this development policy loan,” said Faruk Khan, World Bank Lead Economist for Belarus, Moldova, and Ukraine. “To ensure that the land market will be transparent and efficient, it will be important to approve and implement additional legislation to strengthen land management, streamline land transfer procedures, enhance access to finance for small farmers, and widen participation in the market.”

This DPL is the first of two planned operations, with the second DPL expected to support the additional important land reform legislation and further strengthen pension benefits for the elderly population.

The development policy loan is part of the World Bank’s stepped-up support to Ukraine to address the impacts of COVID-19 and complements the approval of additional financing of $135 million for the Serving People, Improving Health Project and $150 million for the Social Safety Nets Modernization Project.  Additional support to directly cushion the most vulnerable population from the impact of the pandemic is also under preparation.

The World Bank is a major development partner of Ukraine. Since Ukraine joined the World Bank in 1992, the Bank’s commitments to the country have totaled about $14 billion for more than 80 projects and programs.

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How to Develop a National Green Taxonomy for Emerging Markets

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The World Bank today published a guide outlining the processes that financial regulators can use to develop a green taxonomy. The publication Developing a National Green Taxonomy: A World Bank Guide will help regulators in emerging economies who seek to “green” their countries’ financial systems.

The lack of clarity about which activities and assets can be defined as green has long posed a barrier to scaling up green finance. A green taxonomy identifies the activities or investments that deliver on environmental objectives, helping drive capital more efficiently toward priority environmentally sustainable projects. The guide can help banks and other financial institutions originate and structure green banking products (e.g., loans, credits, and guarantees). It can also help investors identify opportunities that comply with sustainability criteria for impact investments.

“As a pioneering issuer of green bonds, the World Bank has played a key role in developing sustainable capital markets and facilitating innovative transactions,” said Anshula Kant, Managing Director and World Bank Group Chief Financial Officer. “We are delighted to share this guide that financial regulators could use to support their efforts to scale up green finance. We hope that the methodology and recommended approach will benefit emerging markets as they seek pathways to build a more environmentally sustainable future.”

Given the diverse needs and contexts of emerging economies, this guide avoids one-size-fits-all definitions and standards. Instead, it presents ways to develop a taxonomy based on the environmental objectives relevant to a country’s sustainable development priorities and agenda. A key recommendation is for regulators to provide a technically sound justification for the activities and investments considered green.

This Guide was prepared by the World Bank in response to a request by the Malaysian central bank, Bank Negara Malaysia, to develop a common language on environmental issues by the financial sector and to support decisions related to climate risk in fundraising, lending, and investment activities.

“Bank Negara Malaysia is glad to partner with the World Bank to facilitate global knowledge sharing on green and sustainable finance through the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia,” said Datuk Nor Shamsiah Mohd Yunus, Governor of Bank Negara Malaysia. “Central banks and supervisors have an important role to play in scaling up green finance. We hope this guide developed by World Bank experts will encourage central banks and supervisors to develop a taxonomy of activities that will help green the financial system.”

The recommended approach is based on the World Bank Group’s experience in supporting similar initiatives in several countries, including Colombia, Malaysia, Mongolia, and South Africa. To help countries understand and learn from the varied approaches already being taken, the guide also includes an overview of existing green taxonomies, including those developed by Bangladesh, China, Mongolia, the European Union, and the Climate Bonds Initiative.

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Human Rights

How to ensure the poor and vulnerable don’t shoulder the cost of the COVID-19 crisis

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Child farmers help to level fields in Balkh Province, Afghanistan., by World Bank/Ghullam Abbas Farzami

In the wake of the unprecedented COVID-19 crisis, tax systems should be reformed, and tax avoidance and evasion reduced, to ensure an economic recovery in which everyone pays their share, says the International Monetary Fund (IMF).

Taxes pay for many of the things that are fundamental to functioning societies across the world, such as schools, health care, and social services. Money raised through taxation is crucial to ensuring that these services are maintained during the COVID-19 crisis. But, when businesses shut down, and millions lose their jobs, as has happened during the current crisis, tax revenue plummets.

In the short-term, governments have put together stimulus packages, and a wide array of measures to help businesses and citizens get back on their feet. The IMF is tracking these efforts, which range from a $540 billion European Union package, which includes funding to help the hardest-hit states; to a ‘cash for work’ program in Cambodia; and, in Samoa, a six-month reduction in private utility bills.

Damage control

At the same time, the IMF has made emergency COVID-19 funding available, particularly to those countries with developing economies. The IMF has made some $250 billion available, in the form of financial assistance and debt service relief, to some 77 member countries.

For example, In April, the IMF approved Afghanistan’s request for an emergency assistance package of approximately $220 million, to help the country cope with the disruption to trade, which has led to heavy damage to the economy.

Bangladesh, which has been badly hit by plummeting demand for one of its main exports, clothing, received emergency assistance worth some $732 million in May. Also in May, to avoid what the IMF characterized as “immediate and severe economic disruption” resulting from the pandemic, Egypt received a package of more than $2.7 billion, to help alleviate some of the most pressing financing needs, including for spending on health, social protection, and supporting the most impacted sectors and vulnerable groups.

But, in the longer-term, these stop-gap measures will not be enough to fix many of the underlying problems of the global economy, which include growing inequality within countries, and the ability of multinational enterprises to legally minimise corporate taxes.

The progressive approach

Victoria Perry, Deputy Director of the IMF’s Fiscal Affairs Department, and an expert on taxation, told UN News that, in planning the post-pandemic recovery, countries should look at dealing with inequality by implementing more progressive tax systems: “this means that the average tax rate rises, along with income. The extent of the tax burden for richer people is for each country to decide, but it is certainly problematic when effective tax rates for better off people are lower than for poorer ones. It is also often the case that better off people, with access to tax advice and more complex financial affairs, can make better use of exceptions or loopholes in the tax system than those who rely only on wages. Closing such options can make for a more equitable system and — depending on the country — can be more important than structural reforms of tax rates.” 

Before the COVID-19 pandemic, the growing gap between rich and poor was already a cause for concern. Whilst inequality has fallen between countries, with some countries, such as China, making huge strides in raising overall income levels in recent decades, inequality within countries appears to be rising. For Ms. Perry and the IMF, personal income taxes play a leading role, when it comes to determining the progressivity of the tax system. 

Ms. Perry adds that another option for some developing countries, which have trouble raising and enforcing a personal income tax, is to look at taxing property: “whilst income is relatively easy to hide, luxury homes are very visible, and a tax-free threshold means that owners of cheaper homes can be exempt or relieved from paying it”.

Income inequality differs widely across countries, but studies show that creating a fairer society, is not only about redistributing wealth, but, as Ms. Perry explains, putting in place policies that help people to gain sustainable, decent work: “Globalization has affected all open economies, but countries with effective redistributive tax and benefit systems have been able to avoid sharply rising inequality. However, redistribution on its own is not enough. It has to go hand-in-hand with a host of other measures, such as retraining, and job support”. In thinking about equity, then, it is important to look at both sides of the equation—not only taxes, but how the money is spent to improve lives. 

Getting to the source of the issue

Some studies have calculated that, in richer countries, some 10 per cent of corporate tax revenue is lost to tax avoidance by multinationals. Developing countries are estimated to lose even more, in proportion to the national incomes.

“Another problem is that the international tax system may shift the tax base away from the ‘source’ country, says Ms. Perry. “So, if a mining company has its headquarters (residence) in a richer country, but operates mines in a less-developed economy (the source), the source country may not get the lion’s share of the tax revenue. When we talk about ‘fair and equitable distribution’, many observers are talking about ensuring that source countries get a better deal. The current international debate over taxing major digital tech companies, many of which are headquartered in the US, is similar, but the “digital” economy is even harder to address. Even though they’re doing business and making money all over the world, where the presence is virtual rather than physical, countries are not allowed to collect tax revenue on the income, under the current system”. 

“We are going through this huge economic crisis, and countries are having to make major adjustments to their economies. But inequality is also a kind of huge global problem in itself. This is also then an opportunity to change tax systems for the better, to make them fairer and more equitable, and to promote economic activity that is less polluting, less dominated by industry with a large carbon footprint, and more sustainable.”

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Environment

Russia Says Pollution in Arctic Tundra is Not Above Limit

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Recent studies of water and soil have shown that the oil pollution level at the Arctic Ambarnaya River, located near the thermal power plant in Norilsk where a massive fuel spill occurred in late May, have not exceed the maximum permissible values, said local authorities in russian Krasnoyarsk region.

“Over 600 water and soil samples were studied. According to the latest data, oil pollution at the mouth of the Ambarnaya River does not exceed threshold limit value. Nevertheless, the work has not been stopped,” Yuri Lapshin, the head of the Krasnoyarsk regional government, said during a session in the local parliament on Thursday, adding that now “the key phase in the aftermath of the accident ends.”

Earlier in June, scientists linked what happened in the Russian Arctic with global warming.

Much of Siberia had high temperatures this year that were beyond unseasonably warm. From January through May, the average temperature in north-central Siberia has been about 8 degrees Celsius (14 degrees Fahrenheit) above average, according to the climate science non-profit Berkeley Earth.

Siberia is in the Guinness Book of World Records for its extreme temperatures. It’s a place where the thermometer has swung 106 degrees Celsius (190 degrees Fahrenheit), from a low of minus 68 degrees Celsius (minus 90 Fahrenheit) to now 38 degrees Celsius (100.4 Fahrenheit).

The increasing temperatures in Siberia have been linked to prolonged wildfires that grow more severe every year, and the thawing of the permafrost is a huge problem because buildings and pipelines are built on them. Thawing permafrost also releases more heat-trapping gas and dries out the soil, which increases wildfires, said Vladimir Romanovsky, who studies permafrost at the University of Alaska Fairbanks.

The warming climate in Siberia will cause permafrost to melt, which may cause the destruction of cities in this region, writes the Swedish newspaper Svenska Dagbladet, citing climatologist Johan Kuylenstierna.

According to climatologists, such hot weather in Siberia is a link in the overall chain and calls for tracking the overall trend. If permafrost begins to melt faster, it will hit the infrastructure hard. The soil will become unstable and it will affect cities and dams (Siberia), he said. Recall earlier, BNN Bloomberg reported that a fuel leak due to damage to a reservoir in Norilsk was caused by melting permafrost in the Arctic region.

It was also claimed that the infrastructure of the region is collapsing in this regard, and the accident is likely to damage permafrost in the region in the long term.

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