Emerging and developing economies in the Europe and Central Asia region are expected to grow by 3.6 percent this year, as a recovery in exports and stabilizing industrial commodity prices partly offset a resurgence of the pandemic late in 2020 and a recent flareup in new cases, says the latest edition of the World Bank’s Economic Update for the region, released today.
The modest growth in 2021 follows a contraction of 2 percent in 2020 due to COVID-related disruptions. The contraction was smaller than anticipated due to a stronger than forecast recovery in Turkey and resilience in Russia, the region’s largest economies. Rebounding industrial production, increased export external demand, higher commodity prices and fiscal and monetary support contributed to this outcome. Hardest hit are economies that are heavily dependent on services and tourism, since social distancing measures and mobility restrictions led to sustained weaknesses.
Regional growth is expected to strengthen to 3.8 percent in 2022, as the effects of the pandemic gradually wane and trade and investment gather momentum. The outlook remains highly uncertain, however, and growth can be weaker if the pandemic takes longer than expected to fade; there are delays in vaccination; external financing conditions worsen due to a rise in global interest rates or deterioration in investor sentiment; or due to geopolitical tensions.
After suffering the sharpest collapse among the subregions of Europe and Central Asia in 2020, amid conflict and high COVID-19 infection and fatality rates, growth in the South Caucasus is projected to rise to 3.1 percent in 2021 and to accelerate to 4.2 percent in 2022.
The COVID-19 pandemic has hit Georgia hard. Mobility restrictions, a sudden halt to international tourist arrivals, and weak external demand drove an estimated economic contraction of 6.2 percent in 2020. The poverty rate increased by an estimated 5.4 percentage points. Job and income losses were severe. The fiscal deficit and public debt rose above statutory levels as the crisis put pressure on fiscal and external balances.
Georgia’s economy is projected to expand to 4 percent in 2021 and then to firm to 5 percent in 2022. Despite this improvement, output is unlikely to recover to pre-COVID levels until late 2022, in part owing to a subdued outlook for international tourism over the forecast horizon. The recovery is subject to considerable downside risks, including from delayed vaccinations, additional or extended COVID-19 restrictions, tightening global financial conditions, and prolonged political tensions.
“The pace of Georgia’s recovery beyond 2021 will be contingent on vaccine rollout and the restoration of international trade and investment,” said Sebastian Molineus, World Bank Regional Director for the South Caucasus. “For a sustained and resilient recovery, Georgia will need a continued focus on slowing the spread of COVID-19 infections, large-scale vaccination, and addressing longer-term challenges, including human capital, strengthening institutions and promoting a digital and green recovery.”
The pandemic is expected to erase at least five years of per capita income gains in several of the region’s economies and raise the poverty headcount, largely due to job losses. Overall, despite the rebound in growth, the recovery in per capita gross domestic product (GDP) of the region is subdued and below pre-pandemic trends.
“The pandemic continues to cast a shadow on economic activity in Europe and Central Asia. However, as policymakers grapple with the short term impacts on health, education and the economy, they should seize the opportunity to address the long term challenges of boosting productivity, building a more vibrant private sector, improving institutions and moving towards low-carbon, greener and inclusive economies,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region.”
Fundamental to achieving these long-term development goals is good governance. The pandemic has underscored the need for good governance given the important role governments around the world have played in mitigating the health, economic and social impacts of the virus. The range of measures have included restrictions on movement to control the spread of the infection to vaccination programs, relief packages to protect individuals and businesses from the economic fallout of the pandemic, and devising ways for virtual learning for millions of school children.
In Europe and Central Asia, good governance is all the more important given the historically large role governments play in shaping the economy. Government expenditures in the region represent nearly 40 percent of the economy and governments employ more than a quarter of the region’s most educated and productive workers, with women constituting 57 percent of public sector employees. And the role of government in the region’s countries is likely to further increase in the coming years, driven largely by the need for expansion of health and long-term care for aging populations and public support for government interventions to tackle inequality and, in the face of COVID, improve health and education systems.
In a special analysis on ‘Data, Digitalization, and Governance in Europe and Central Asia’, the report examines the potential role of data and digitalization in improving governance in the region.
“To effectively address the challenges brought on by COVID-19, improving governance has assumed an even greater importance in the region,” said Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia. “Digital technology and the data revolution offer the potential to increase efficiency, transparency, responsiveness, and citizen trust, all of which directly improve the quality of government.”
Data lay the ground for improved decision making, optimized government functioning, and more effective resource allocation, while digitalization strengthens these processes and enables greater efficiency and transparency.
To expand the impact of the data revolution, enhancing government digitalization and coordination of decentralized data systems across institutions are necessary. The quality of government is increasingly informed by the extent to which governments harness digital tools and apply technology to government practices to improve management, service delivery and overall state capacity. Governments should implement incentive structures to encourage the adoption and adaptation of data systems within the civil service.
The data revolution and digitalization also offer an opportunity to strengthen trust by fostering effective collaboration between governments and civil society. One of the most promising mechanisms for doing so is Open Government Data, which reduces the transaction costs of gathering, analyzing, and disseminating public sector data and allows for a more comprehensive understanding of the quality of governance. Enabling open access to government data could also help counter the spread of misinformation and disinformation across social media channels. Promoting direct feedback mechanisms between citizens and government not only improves provision of public services, but also builds trust and legitimacy.
Post-COVID-19, regaining citizen’s trust should be a priority for governments
The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.
Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”
Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.
Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:
Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.
It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.
Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.
Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.
Sweden: Invest in skills and the digital economy to bolster the recovery from COVID-19
Sweden’s economy is on the road to recovery from the shock of the COVID-19 crisis, yet risks remain. Moving ahead with a labour reform to facilitate adaptation in a fast-changing economic environment, and investing in digital skills and infrastructure, will be crucial to revive employment and build a sustainable recovery, according to the latest OECD Economic Survey of Sweden.
The pandemic triggered a severe recession in Sweden, despite mild distancing measures and swift government action to protect people and businesses. GDP fell by less than in many other European economies in 2020, thanks to reinforced short-time work, compensation to firms for lost revenue and measures to prop up the financial system, but unemployment still rose sharply. Solid public finances provided room for further stimulus in 2021 to buttress the recovery.
The Survey recommends maintaining targeted support to people and firms until the pandemic subsides, then focusing on strengthening vocational training and skills and increasing investment in areas like high-speed internet and low-carbon transport. Addressing regional inequality, which is low but rising, should also be a priority as the recovery takes hold.
The Survey shows that Sweden has been among the most resilient OECD countries in the face of a historic shock. Yet, like other economies, it faces challenges from demographic changes and the shift to green, digital economies. Investments in education and training, and labour reforms along the lines negotiated by the social partners, will support job creation and strengthen economic resilience. Building on Sweden’s leadership in digital innovation and diffusion will also be key for driving productivity.
After a 3% contraction in 2020, interrupting several years of growth, the Survey projects a rebound in activity with 3.9% growth in 2021 and 3.4% in 2022 as industrial production resumes and exports recover. The recovery in world trade is bolstering the Swedish economy, however the country remains vulnerable to potential disruptions in global value chains.
|The pandemic has aggravated a mismatch in Sweden’s job market, with unfilled vacancies for highly qualified workers coinciding with high unemployment for low-skilled workers and immigrants. The public employment service needs strengthening to provide better support to jobseekers, including immigrants and women, and labour policies should strike the right balance between supporting businesses and workers and supporting transitions away from declining businesses towards growing sectors.|
A rising share of youths and older people in the population, especially in remote areas, is affecting the finances of local governments, which provide the bulk of welfare services. Strengthening local government budgets and ensuring equal welfare provision across the country will require providing tax income to poorer regions more efficiently and raising the economic growth potential across regions through investments in innovation. Improving coordination between government entities and reinforcing the role of universities in local economic networks would help achieve that aim.
Fewer women than men will regain work during COVID-19 recovery
Fewer women will regain jobs lost to the COVID-19 pandemic during the recovery period, than men, according to a new study released on Monday by the UN’s labour agency.
In Building Forward Fairer: Women’s rights to work and at work at the core of the COVID-19 recovery, the International Labour Organization (ILO) highlights that between 2019 and 2020, women’s employment declined by 4.2 per cent globally, representing 54 million jobs, while men suffered a three per cent decline, or 60 million jobs.
This means that there will be 13 million fewer women in employment this year compared to 2019, but the number of men in work will likely recover to levels seen two years ago.
This means that only 43 per cent of the world’s working-age women will be employed in 2021, compared to 69 per cent of their male counterparts.
The ILO paper suggests that women have seen disproportionate job and income losses because they are over-represented in the sectors hit hardest by lockdowns, such as accommodation, food services and manufacturing.
Not all regions have been affected in the same way. For example, the study revealed that women’s employment was hit hardest in the Americas, falling by more than nine per cent.
This was followed by the Arab States at just over four per cent, then Asia-Pacific at 3.8 per cent, Europe at 2.5 per cent and Central Asia at 1.9 per cent.
In Africa, men’s employment dropped by just 0.1 per cent between 2019 and 2020, while women’s employment decreased by 1.9 per cent.
Throughout the pandemic, women faired considerably better in countries that took measures to prevent them from losing their jobs and allowed them to get back into the workforce as early as possible.
In Chile and Colombia, for example, wage subsidies were applied to new hires, with higher subsidy rates for women.
And Colombia and Senegal were among those nations which created or strengthened support for women entrepreneurs.
Meanwhile, in Mexico and Kenya quotas were established to guarantee that women benefited from public employment programmes.
To address these imbalances, gender-responsive strategies must be at the core of recovery efforts, says the agency.
It is essential to invest in the care economy because the health, social work and education sectors are important job generators, especially for women, according to ILO.
Moreover, care leave policies and flexible working arrangements can also encourage a more even division of work at home between women and men.
The current gender gap can also be tackled by working towards universal access to comprehensive, adequate and sustainable social protection.
Promoting equal pay for work of equal value is also a potentially decisive and important step.
Domestic violence and work-related gender-based violence and harassment has worsened during the pandemic – further undermining women’s ability to be in the workforce – and the report highlights the need to eliminate the scourge immediately.
Promoting women’s participation in decision-making bodies, and more effective social dialogue, would also make a major difference, said ILO.
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