Latin America and the Caribbean (LAC) suffered more health and economic damage from the COVID 19 pandemic than any other region, although there is potential for significant transformation in key sectors as the region begins to rebound, according to a new World Bank Report.
Because of the pandemic, Gross Domestic Product (GDP) in the Latin America and Caribbean region (excluding Venezuela) fell 6.7% in 2020. A return to growth of 4.4% is expected in 2021. That compares to the Bank’s late 2020 forecast of a 7.9% GDP decline in 2020, and 4% expansion in 2021.
The immense disruption from the pandemic may lay the groundwork for higher productivity through economic restructuring and digitization. Other growth opportunities stem from innovations in the electricity sector, according to the World Bank LAC Semiannual report Renewing with Growth.
“The damage has been severe and we’re seeing a lot of suffering, particularly among the most vulnerable,” said Carlos Felipe Jaramillo, World Bank Vice President for the Latin America and the Caribbean Region. “But we must always look ahead and seize on this opportunity to embrace the transformations needed to ensure a brighter future.”
The sharp contraction last year because of the pandemic had huge economic and social costs. Unemployment rates have generally increased and poverty rates shot up, although in some countries massive social transfers did much to cushion the social impact of the crisis.
The Covid-19 crisis will have a long-lasting impact on the economies of the region. Less learning and lower employment are bound to reduce future earnings, while high public and private debt may create stress for in financial sector and slow the recovery.
Despite the challenges, there are some bright spots. Global trade in goods held up relatively well, despite the sharp drop of trade in services, especially tourism. Most commodity prices are now higher than before the Covid-19 crisis, partly due to China’s quick rebound. This is good for exporters of agricultural and mining products. Remittances to the region are up compared to before the pandemic, which is very important to several countries in the Caribbean and Central America.
In addition, capital markets remained open to most countries in the region. Borrowing from abroad actually increased, which helped mitigate the economic and social impact of the Covid-19 crisis. Most countries in the region ran substantial budget deficits since the beginning of the pandemic, with the additional spending devoted to strengthening health systems, providing transfers to households, and helping firms. At the same time proactive measures helped debtors and reduced the risk of financial crises.
“As economies rebound this year, some sectors and firms will gain and others will lose,” said Martín Rama, World Bank Chief Economist for the Latin America and the Caribbean region. “The pandemic has triggered a process of creative destruction that may lead to faster growth but may also amplify inequality within and across countries in the region.”
For example, hospitality and personal services may suffer long-term damage, but information technology, finance and logistics will expand. In the medium term, the gains could be larger than the losses. The biggest transformation could come from accelerated digitization, which could lead to greater dynamism in financial intermediation, international trade and labor markets.
Technology also brings the opportunity to transform the power sector. Latin America and the Caribbean has the cleanest electricity generation matrix of all developing regions, mainly due to the abundance of hydropower. The region should have the cheapest electricity in the developing world, but instead has the most expensive, mostly due to inefficiencies.
Firms and households in the region pay substantially more for the electricity they consume than it would cost to produce it. Inefficiencies are reflected in frequent power outages, technical and commercial losses, over-staffed state-owned utilities, and abuse of market power by private generators.
With the right institutional framework, technology could increase competition in the sector, bringing electricity prices down and increasing the share generated from renewable sources. For example, distributed generation could allow firms and households to rely on their own power sources, such as solar panels, to sell electricity to the grid or to buy from it depending on the hour of the day. In addition, increased cross-border electricity trade could capitalize on differences in installed capacity, generation cost and the timing of peak demand to generate mutual gains. However, these efficiency gains will only materialize if electricity can be sold and bought at the right price.
While there are signs that the economies of the region are rebounding and hopes that the disruption could have some positive outcomes, the outlook for this year remains uncertain. Vaccine rollout has been slow in most the region, and herd immunity may not be attained before the end of 2021 at the earliest. In addition, new waves of infection may come as new variants of the virus emerge. While actively preparing to build back better, protecting lives and livelihoods remains the priority.
Better Targeting of Social Protection Programs can Significantly Reduce Poverty in Bangladesh
Social Protection Programs remain central to Bangladesh’s sustainable development policy and are progressively benefitting the poorer households. By improving targeting of the social protection programs, the country can further reduce poverty. Reallocating existing transfers to the poorest could reduce poverty from 36 percent to 12 percent, says a new World Bank report launched today.
The report titled ‘Bangladesh Social Protection Public Expenditure Review’ reflects on Bangladesh’s continued investment towards social protection and how it can improve on its existing framework including planning, designing, programming, and delivery of the various social protection programs and projects.
The report finds that the social protection programs are mostly focused in rural areas. But, with almost 1 in 5 of the urban population living in poverty, and half of the households at the risk of falling into poverty, there is a need for rebalancing geographic allocations between rural and urban areas. About 11 percent of people in urban areas are covered by social protection whereas 19 percent of urban population is poor. The coverage in rural areas is higher than the poverty rate, with programs reaching 36 percent of people, while 26 percent live in poverty. Using a social registry, such as the National Household Database can improve targeting of both programs and households at a reduced cost.
“Over the last decades, Bangladesh expanded its coverage of social protection programs that now reach three in every 10 households in the country,” said Dandan Chen, World Bank Operations Manager for Bangladesh and Bhutan. “The COVID-19 pandemic has accentuated the need for a more robust, efficient, and adaptive social protection system. Going forward, well-targeted and less fragmented social protection programs that consider the demographic change, unplanned urbanization, labor market vulnerability, and frequent shocks will help the country continue with its success of poverty reduction.”
In FY 20, Bangladesh spent about 2.6 percent of GDP in social protection, which is in line with countries with similar income levels. However, some risk groups remain underserved, in particular there are gaps in programing for early years and for the economic inclusion of poor and vulnerable youth and adults. For example, in every eight poor persons, one is a young child. Yet, the poor young children receive only 1.6 percent of social protection expenditures. Spending will be more effective if the allocations are aligned with the share of the poor in different categories, and with the different functions played by programs.
“Investing in early childhood helps a child grow healthier and be more productive in adult life and thus break the cycle of poverty across generations,” said Aline Coudouel, World Bank Lead Economist and a co-author of the report. “The country has taken innovative programs, reflecting the life-cycle approach. As patterns of risk change in different phases of life, the life-cycle approach needs to encompass support from pregnant mothers to old age, persons with disabilities, as well as from households facing shocks to those in chronic poverty.”
To boost the quality and efficiency of service delivery, Government to Person (G2P) and mobile financial services should be scaled up. It takes about two months to transfer the funds from treasury to the beneficiary. The G2P scheme can cut processing time to 10 days.
This also needs to be paired with increased allocations for staffing, capacity-building training including digital literacy, and improved equipment, which will facilitate enhanced implementation of programs at the local level.
Women in Albania to Gain Greater Access to Global Digital Jobs Market
“Digital Jobs Albania” is a new World Bank initiative that will help women in Albania gain better access to online work opportunities and connect with the global economy. The initiative will provide intensive 3-month training in digital skills for women aged 16-35 years, empowering them to access online freelancer job opportunities in graphic design, web development and digital marketing.
The emergence of online freelancer job markets is creating new opportunities for Albanians to connect with the global economy. Websites such as Upwork, Fiverr and People Per Hour allow Albanians with the right skills to access online project work commissioned by companies and individuals anywhere in the world, while staying in their local communities.
Women in particular stand to gain. The female labor force participation in Albania is still 14.6 percentage points lower than for males. The gender pay gap remains 6.6 percent, according to 2020 data from the Albanian National Statistical Authority (INSTAT). The emerging online freelancing work model can play an important role in narrowing these gaps. Flexible work hours and the ability to work from home can help more women with the right skills stay in the labor market and gain financial independence.
The Digital Jobs Albania initiative, implemented in partnership with the Government of Albania, Coderstrust (an international digital skills training provider), and EuroPartners Development (a local consulting company), will provide an online training program to equip selected participants with in-demand technical skills. It will also provide mentorship to participants and help them develop the soft skills needed to successfully compete for project work on online freelancer websites.
“This initiative offers an exciting new opportunity for Albanian women to acquire digital skills and join the online economy – a blueprint to inspire future projects in this space,” says Emanuel Salinas, World Bank Country Manager for Albania. “No one can afford to be left behind in the ongoing digital transformation.”
The initiative is part of broader ongoing World Bank engagement in Albania to help the country leverage the economic opportunities associated with digital trade in goods and services.
“Albania has recognized the importance of digital markets as an opportunity for economic development. We have mobilized a team from across the World Bank to support this effort, through this new initiative and others in the future,” says Christoph Ungerer, the World Bank task team leader for the Albania Digital Trade Project.
World Economic Forum Plans 2022 Annual Meeting in Davos-Klosters
The World Economic Forum plans to convene the world’s foremost leaders for the Annual Meeting 2022 in Davos-Klosters, Switzerland. Taking place in person from 17-21 January, the Annual Meeting 2022 will be the first global leadership event to set the agenda for a sustainable recovery.
The pandemic has exacerbated fractures across society. It is a critical year for leaders to come together and shape necessary partnerships and policies. The meeting will bring together forward-thinking leaders to drive multistakeholder collaboration and address the world’s most pressing economic, political and societal challenges. Further details will be announced in due course.
The wellbeing of our participants, staff, service providers and hosts is a priority. Therefore, the World Economic Forum is working closely with the Swiss authorities, as well as with experts, national and international health organizations to put in place measures for the Annual Meeting 2022 that are appropriate and adapted to the context.
Klaus Schwab, Founder and Executive Chairman, World Economic Forum said “The pandemic has brought far-reaching changes. In a world full of uncertainty and tension, personal dialogue is more important than ever. Leaders have an obligation to work together and rebuild trust, increase global cooperation and work towards sustainable, bold solutions.”
Progressing cooperation on tackling climate change, building a better future for work, accelerating stakeholder capitalism, and harnessing the technologies of the Fourth Industrial Revolution will be important topics on the agenda.
Ahead of the Annual Meeting 2022, the Forum will host the fifth Sustainable Development Impact Summit to take place virtually from 20 to 23 September 2021 in the context of the United Nations General Assembly. The summit will convene under the theme Shaping an Equitable, Inclusive and Sustainable Recovery. It will welcome almost leaders from government, business and civil society who will work together to drive action and build momentum for a more sustainable and inclusive future.
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