Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Spring Meetings 2022 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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Macro Poverty Outlook Spring Meetings 2022 5 41 87 East Asia Europe and Latin America and the Pacific Central Asia and the Caribbean 6 Cambodia 42 Albania 88 Argentina 8 Central Pacific Islands 44 Armenia 90 Bahamas, The 10 China 46 Azerbaijan 92 Barbados 12 Fiji 48 Belarus 94 Belize 14 Indonesia 50 Bosnia and Herzegovina 96 Bolivia 16 Lao PDR 52 Bulgaria 98 Brazil 18 Malaysia 54 Croatia 100 Chile 20 Mongolia 56 Georgia 102 Colombia 22 Myanmar 58 Kazakhstan 104 Costa Rica 24 North Pacific Islands 60 Kosovo 106 Dominica 26 Papua New Guinea 62 Kyrgyz Rep. 108 Dominican Rep. 28 Philippines 64 Moldova 110 Ecuador 30 Solomon Islands 66 Montenegro 112 El Salvador 32 South Pacific Islands 68 North Macedonia 114 Grenada 34 Thailand 70 Poland 116 Guatemala 36 Timor-Leste 72 Romania 118 Guyana 38 Vietnam 74 Russian Federation 120 Haiti 76 Serbia 122 Honduras 78 Tajikistan 124 Jamaica 80 Turkey 126 Mexico 82 Ukraine 128 Nicaragua 84 Uzbekistan 130 Panama 132 Paraguay 134 Peru 136 St. Lucia 138 St. Vincent and the Grenadines 140 Suriname 142 Uruguay MACRO POVERTY MPO 2 Apr 22 145 185 203 Middle East Sub-Saharan and North Africa South Asia Africa 146 Algeria 186 Afghanistan 204 Angola 148 Bahrain 188 Bangladesh 206 Benin 150 Djibouti 190 Bhutan 208 Botswana 152 Egypt, Arab Rep. 192 India 210 Burkina Faso 154 Iran, Islamic Rep. 194 Maldives 212 Burundi 156 Iraq, Rep. 196 Nepal 214 Cabo Verde 158 Jordan 198 Pakistan 216 Cameroon 160 Kuwait 200 Sri Lanka 218 Central African Rep. 162 Lebanon 220 Chad 164 Libya 222 Comoros 166 Morocco 224 Congo, Dem. Rep. 168 Oman 226 Congo, Rep. 170 Palestinian territories 228 Côte d'Ivoire 172 Qatar 230 Equatorial Guinea 174 Saudi Arabia 232 Eritrea 176 Syrian Arab Rep. 234 Eswatini 178 Tunisia 236 Ethiopia 180 United Arab Emirates 238 Gabon 182 Yemen, Rep. 240 Gambia, The 242 Ghana 244 Guinea 246 Guinea-Bissau 248 Kenya 250 Lesotho 252 Liberia 254 Madagascar 256 Malawi 258 Mali 260 Mauritania 262 Mauritius 264 Mozambique 266 Namibia Spring Meetings 2022 268 270 Niger Nigeria 272 Rwanda 274 São Tomé and Principe OUTLOOK 276 Senegal 278 Seychelles 280 Sierra Leone 282 Somalia 284 South Africa 286 South Sudan 288 Tanzania 290 Togo 292 Uganda 294 Zambia 296 Zimbabwe MPO 3 Apr 22 The Macro Poverty Outlook is jointly produced by the Poverty and Equity and the Macroeconomics, Trade and Investment Global Practices of the World Bank Group. The cutoff date for information for most countries was April 04, 2022. East Asia and the Pacific Cambodia Malaysia Solomon Islands Central Pacific Islands Mongolia South Pacific Islands China Myanmar Thailand Fiji North Pacific Islands Timor-Leste Indonesia Papua New Guinea Vietnam Lao PDR Philippines MPO 5 Apr 22 dustries, as well as agriculture, have fully recovered. In contrast, the important travel CAMBODIA Key conditions and and tourism sector - one of Cambodia’s main growth drivers, accounting for about challenges 2 million jobs and a quarter of GDP during the pre-pandemic period - remained sub- Table 1 2021 COVID-19 infections have resurged since dued. Labor market pressures have been Population, million 16.9 February 2022, caused primarily by the magnified by an increased number of mi- GDP, current US$ billion 28.5 Omicron variant. About 83 percent of the grant workers who have returned home GDP per capita, current US$ 1686.4 population have received two doses of from abroad. a 105.4 School enrollment, primary (% gross) coronavirus vaccine. Cambodia has shifted Cambodia’s total goods (excluding gold) a 69.8 to a strategy for “living with COVID-19” exports accelerated to 22.8 percent in 2021, Life expectancy at birth, years Total GHG Emissions (mtCO2e) 69.7 enabling a broad-based economic recovery driven mainly by surging goods exports Source: WDI, Macro Poverty Outlook, and official data. to take shape. While strong domestic eco- to the United States which expanded 42.4 a/ WDI for School enrollment (2020); Life expectancy nomic momentum continues, a general percent (figure 2). The trade (and current (2019). slowdown in global demand is looming. account) deficit, however, significantly Financial market tightening in the United widened, largely caused by rising imports States, changes in the growth and compo- of a few major items, especially gold used Under the baseline scenario, the growth sition of economic activity, especially in as a hedge against volatility. projection for 2022 remains at 4.5 per- China, and the war in Ukraine, will neg- Inflation has edged up further, reaching atively affect the external environment. In 4.1 percent in January 2022. Supported by cent, as a stronger domestic recovery addition, an unmanageable resurgence of central bank open market operations, the supported by the rollback of mobility re- Omicron or new variants could disrupt nominal exchange rate continued to be strictions is offset by worsening global economic recovery. Rising energy and broadly stable, hovering at riel 4,100 per demand and rising commodity prices. food prices could dampen consumer confi- U.S. dollar. Gross international reserves, The recovery is expected to remain un- dence and worsen people’s welfare, nega- however, declined marginally, reaching tively impacting poverty reduction. In ad- US$ 19.7 billion (9 months of imports) in derpinned by domestic economic activity dition, high credit growth and concentra- December 2021, down from US$21.2 bil- and agricultural commodity exports, tion of domestic credit in the construction lion at the end of 2020. while Cambodia’s export-oriented manu- and real estate sector remain a key risk to Monetary conditions continued to be ac- facturing is expected to face headwinds. Cambodia’s financial stability. commodative. Broad money growth accel- erated to 16.3 percent in 2021, compared to Inflationary pressures are projected to 15.3 percent in 2020. Thanks to improved increase, led by rising food and oil confidence in the banking system and con- prices triggered by the war in Ukraine . Recent developments tinued capital inflows, deposit growth out- Risks to baseline forecast are broadly paced its pre-pandemic growth rate, in- balanced and Cambodia maintains poli- The economic recovery has held up but creasing at 17.2 percent, while domestic remains uneven. Traditional growth dri- credit grew 24.1 percent in December 2021. cy space that it could deploy should vers, especially the garment, travel goods, The annual budget for 2022 is character- these risks materialize. footwear, and bicycle manufacturing in- ized by continued (countercyclical) fiscal FIGURE 1 Cambodia / Real GDP growth and contributions FIGURE 2 Cambodia / Merchandise (excluding gold) exports to sectoral growth Percent, percentage points US$ million YTD, y/y, percent change 8 2,500 30 Projections GTF Non-GTF Exports (rhs) 6 25 2,000 4 20 1,500 15 2 10 0 1,000 5 -2 0 -4 500 2011 2013 2015 2017 2019 2021e 2023p -5 Agriculture Industry Services Net Taxes on Production 0 -10 Real growth Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Source: Cambodian authorities and World Bank staff projections. Notes: e = es- Source: Cambodian authorities. Note: GFT = garment, travel goods, and timate; p = projection. footwear (and other textile products). MPO 6 Apr 22 support with the fiscal deficit expected to down the pace of poverty reduction as it widen to 6.0 percent of GDP. Expenditure weighs on household budgets. is budgeted to reach 26.7 percent of GDP, Outlook Over the medium term, the economy is driven by continued fiscal support to mit- expected to trend back to potential, grow- igate the impacts of the pandemic and Despite a general slowdown in global de- ing at around 6 percent. The new Law expansion of public investment. External mand, growth is projected to hold up at 4.5 on Investment, the Cambodia-China and borrowing is expected to finance about 60 percent this year under the baseline sce- Cambodia-Republic of Korea free trade percent of the deficit, while the rest is nario, thanks to the rollback of mobility agreements and the Regional Comprehen- to be financed by a drawdown of gov- restrictions made possible by Cambodia’s sive Economic Partnership are expected ernment deposits (fiscal reserves) which high vaccination rate. The recovery is ex- to help boost investment and trade in the stood at 17.4 percent of GDP in December pected to remain underpinned by domes- coming years. On the upside, a less per- 2021, down from 23.7 percent of GDP at tic economic activity and agricultural com- sistent global shock could improve the the end of 2020. modity exports. Under the downside sce- outlook for Cambodia. The cash transfer program has been the nario, growth is projected to reach only However, the negative impacts of the coro- largest component of the government’s 3.8 percent in 2022. The downside scenario navirus on jobs and welfare are expected support package. As of February 2022, it assumes a deterioration in domestic eco- to continue as the services sector, especial- covered 690,000 households (2.7 million nomic conditions caused by rising infla- ly the travel, tourism, and hospitality in- individuals) or approximately 19 percent tion, while external conditions worsen dustries, are facing persistent headwinds. of households. The program has dis- caused by a marked slowdown in external It is crucial to implement structural re- bursed US$ 593 million since the launch demand. Cambodia’s export-oriented forms embedded in the economic recovery in June 2020, thus far mitigating some manufacturing is expected to face head- plan to improve Cambodia’s external com- of the negative impacts for the poor and winds in the coming months, with a less petitiveness. Addressing supply side bot- vulnerable households. favorable external environment which is tlenecks by reducing costs of doing busi- The official poverty rate measured at the being reshaped by cyclical slowdown in ness, logistic, and energy, while eliminat- national poverty line declined by 1.6 per- the U.S and structural slowdown in China. ing rigidities in major labor market regula- centage points per year over the period In addition, the energy and food prices tions that prevent a robust recovery of the 2009-2019/20, driven substantially by ris- hike due to the economic consequences of job market remains key to a sustained eco- ing labor (especially wage) earnings. the war in Ukraine is expected to slow nomic recovery and job creation. TABLE 2 Cambodia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.1 -3.1 3.0 4.5 5.8 6.6 Private Consumption 7.0 -0.8 1.3 1.3 1.4 1.5 Government Consumption 10.0 12.5 -28.3 7.2 14.2 16.6 Gross Fixed Capital Investment 6.9 11.2 -11.8 4.0 9.6 9.0 Exports, Goods and Services 7.8 1.1 14.9 16.5 17.2 18.5 Imports, Goods and Services 6.0 7.3 21.7 12.0 13.5 14.8 Real GDP growth, at constant factor prices 6.8 -3.1 2.8 4.5 5.8 6.5 Agriculture -0.5 0.4 1.1 1.3 1.5 1.5 Industry 11.3 -1.4 7.4 8.6 9.1 9.2 Services 6.2 -6.2 -1.0 1.6 4.1 5.6 Inflation (Consumer Price Index) 3.2 2.9 3.5 6.5 4.5 4.0 Current Account Balance (% of GDP) -15.2 -12.0 -28.5 -15.8 -13.6 -13.2 Net Foreign Direct Investment (% of GDP) 13.2 13.0 12.7 12.9 13.9 15.0 Fiscal Balance (% of GDP) 1.5 -4.3 -5.7 -6.0 -4.9 -3.7 Debt (% of GDP) 28.2 34.4 34.8 35.6 35.8 36.7 Primary Balance (% of GDP) 1.9 -3.7 -5.2 -5.5 -4.3 -3.1 GHG emissions growth (mtCO2e) 2.6 -1.5 -0.4 1.5 2.5 2.5 Energy related GHG emissions (% of total) 23.0 22.2 22.1 23.3 25.0 26.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 7 Apr 22 the population were below the national poverty line, and high shares of the pop- CENTRAL Key conditions and ulation were deprived of non-monetary needs, such as access to clean water, san- challenges PACIFIC ISLANDS itation, and electricity. Nauru faces the challenge of adjusting Until the emergence of the highly trans- to reduced fiscal revenues and finding missible Omicron variant, the Central Pa- new sources of economic growth and Table 1 2020 cific countries had been spared from se- jobs over the medium term. Economic Population, million vere health impacts due to the pandemic. growth, employment and public revenues Kiribati 0.12 However, in January 2022 an outbreak have been highly dependent on activity Nauru 0.01 took hold in Kiribati’s capital, with the associated with Australia’s Regional Pro- Tuvalu 0.01 GDP, US$, billion virus managing to evade the strict quar- cessing Centre (RPC) for asylum seekers, Kiribati 0.19 antine protocols for inbound travelers. phosphate mining and fishing. However, Nauru 0.11 Nauru and Tuvalu remain COVID-free phosphate resources have now been fully Tuvalu 0.05 thus far, but may have to grapple with exploited, and the RPC is now transi- GDP per capita, current US$ the rapid spread of the virus as they re- tioning to a new ‘enduring capability’ Kiribati 1671 open their borders. In the long term, the arrangement with Australia, which will Nauru 8867 Central Pacific faces major development see the facility continue to operate on a Tuvalu 4663 challenges due to extreme vulnerability significantly reduced scale. Sources: WDI, World Bank staff estimates. to climate change, small size, remoteness, In Tuvalu, fishing license fees are projected heavily reliance on external grants, near- to decline as the El Nino cycle wanes. total dependence on imports for foods Strengthening public financial manage- Growth rates in Kiribati, Nauru and Tu- and fuel, and limited sources of revenue. ment is a priority, in particular reining in valu remain far below pre-pandemic lev- All three countries have invested in trust the elevated fiscal costs of overseas health funds in order to stabilize volatile rev- care and improving procurement proce- els. While Tuvalu and Nauru remain enues and provide long-term develop- dures to ensure more cost-effective capital COVID-free, the fast spread of ment financing, but fiscal sustainability spending. Though no recent data on COVID-19 in Kiribati in January 2022 remains an important challenge. poverty is available, in 2010 an estimated highlighted the need to reinforce pre- In recent years, Kiribati’s growing rev- 26 percent of the population lived below enues from fisheries have allowed the the national poverty line. paredness. Higher commodity prices, ex- government to rapidly increase public acerbated by the Ukraine-Russia war, will spending to tackle the country’s high add to inflationary pressures and hold rates of poverty and deprivation. How- back growth. A narrow economic base ever, with the available fiscal space now Recent developments and vulnerability to climate change are exhausted, Kiribati will now need to fo- cus on the quality of public spending – Kiribati experienced a modest economic key challenges for growth and poverty re- rather than the quantity – in order to recovery in 2021, with estimated 1.5 per- duction in the Central Pacific. achieve further development gains. Ac- cent growth. COVID-19 border closures cording to a 2019 survey, 21.9 percent of had resulted in a 0.5 percent contraction FIGURE 1 Central Pacific Islands / Sources of revenue, FIGURE 2 Central Pacific Islands / Sovereign wealth fund 2016-2021 balances Percent of GDP Fund balance, % of GDP (lines) Per capita value, A$ (bars) 200 500 25000 450 150 400 20000 350 100 300 15000 50 250 200 10000 0 150 100 5000 50 Kiribati Nauru Tuvalu 0 0 Fishing license fees Regional Processing Centre .TV domain Other revenue 2016 2017 2018 2019 2020 Grants Kiribati Nauru Tuvalu Sources: Country authorities, and World Bank and IMF staff estimates and projec- Sources: Country authorities, and World Bank and IMF staff estimates and pro- tions. Notes: Nauru data are June years; Kiribati and Tuvalu are calendar years. jections. Notes: Nauru data are June years; Kiribati and Tuvalu are calendar years. The Nauru Trust Fund was established in 2016. MPO 8 Apr 22 in 2020, with major disruption to business school reconstruction. Buoyant fishing li- now launching a vaccine campaign for un- travel, development projects, and fresh cense revenues, the country’s main source der-18s. The highly successful vaccination fish exports. However, increased public of revenue, rose to an estimated 56 percent campaign has allowed for the gradual re- spending on social benefits in 2021 out- of GDP in 2020, much higher than expect- turn of international travel, with quaran- weighed the ongoing effects of the border ed. The fiscal deficit is expected to widen tine requirements now removed for vac- measures, and supported a modest return to 7 percent of GDP in 2021 due to a 20 per- cinated travelers from Australia. Nonethe- to growth. This included a new unemploy- cent fall in fishing license fees and an in- less, modest growth of only around 1 per- ment benefit for all 18–60-year-olds with- crease in expenditures, including addition- cent is expected in FY22, due to the ex- out a formal job. This is expected to help al COVID related spending and planned pected wind-down of RPC activity in the reduce poverty given that more than three air service investment. The total stock of second half of the year. However, a re- quarters of Kiribati’s adult population are sovereign wealth funds for Tuvalu, com- turn to more robust growth of around 2.5 eligible to receive support, but the broad prising the Tuvalu Trust Fund (TTF), the percent in FY23 and the medium term is coverage of the program dilutes the ben- Consolidated Investment Fund (CIF), and projected, once the new port infrastruc- efits to the Bottom 40. At an annual cost the Tuvalu Survival Fund (TSF), is around ture comes online. Although the RPC of 12 percent of GDP, the benefit has also 292 percent of GDP at end-2021. wind-down will place growing pressure introduced significant fiscal pressures. on government finances over the medium Nonetheless, a 14.5 percent of GDP draw- term, a balanced budget is projected for down from the sovereign wealth fund lim- FY22. This is due to off-budget RPC in- ited the 2021 fiscal deficit to an estimated Outlook come from previous years being recog- at 3.7 percent of GDP. As of end 2021, the nized as revenues, cushioning the impact value of the sovereign wealth fund stood at In Kiribati, moderate growth of about 1.8 of the RPC wind-down, as well as strong 490 percent of GDP. percent is projected in 2022. Although a fisheries revenue performance. In Nauru, growth is projected to have lockdown in the first quarter has subdued Tuvalu, with nearly 90 percent of adults reached 1.5 percent in FY21, with stronger activity, supportive fiscal policy measures fully vaccinated, is considering options than expected activity related to the RPC and the expected gradual return of inter- for a gradual reopening of the borders and a major port redevelopment project national construction projects from the sec- with key countries, such as Fiji (the main helping to offset the effects of border clo- ond half of 2022 will help to safeguard the hub for Tuvalu). Growth is therefore pro- sures. In FY21, the fiscal cost of COVID-19 recovery. After a slow start, the double jected to rebound to 3.5 percent in 2022 amounted to 5 percent of GDP, including dose vaccination rate has now reached 77 and to climb steadily to 4 percent by funding for the vaccine rollout and subsi- percent of adults (as of 3 March 2022), 2024. The fiscal deficit will reach 2.9 per- dies to maintain vital air and sea freight opening up the possibility that quarantine cent of GDP in 2022 as expenditures fall links. However, with better-than-expected measures could be relaxed later this year. back closer to pre-COVID levels while revenues from the RPC, Nauru was still Meanwhile, inflationary pressures are ex- revenues are projected to fall by over 10 able to achieve an estimated surplus of 11 pected to build in 2022, in line with inter- percent of GDP. Fishing license fees are percent of GDP. With this surplus and a national trends in food and fuel prices. The expected to fall to 41.5 percent of GDP drawdown on cash reserves, Nauru made fiscal deficit is expected to reach 6.0 per- in 2022 from 43.5 percent in 2021. On the a contribution worth 19 percent of GDP to cent of GDP in 2022, after accounting for other hand, tuna transshipment in Funa- its Intergenerational Trust Fund in FY21, budget support grants and a 7.8 percent of futi, reinstated in February 2022 after a bringing the fund balance to 109 percent of GDP drawdown on the sovereign wealth two-year ban due to COVID-19, is expect- GDP. Meanwhile, in the first two quarters fund. Kiribati’s ample cash reserves mean ed to bring additional revenues amount- of FY22, RPC activity continued to exceed that projected deficits can be sustainably fi- ing to 2 percent of GDP. Over the medi- expectations. This, along with strong fish- nanced over the medium term, but further um-term, the fiscal deficit is projected to eries revenue receipts, has generated a fis- expenditure growth would put this assess- remain below 3 percent of GDP. cal surplus for the year to-date. ment at risk. The authorities’ fiscal anchors Risks to the Central Pacific outlook are In Tuvalu, the pandemic impacted travel on sovereign wealth fund drawdowns and substantial and include the unpredictabil- and trade but the country avoided a re- maintaining adequate cash reserves pro- ity of the pandemic; volatility in revenue cession. The economy grew an estimated vide important sustainability safeguards. flows, including budget support from de- 2.5 percent in 2021, supported by the infra- In Nauru, 96 percent of eligible adults are velopment partners; and the ever-present structure projects linked to the airport and fully vaccinated, and the government is threat of climate-related natural disasters. TABLE 2 Central Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021f 2022f 2023f 2024f Real GDP growth, at constant market prices Kiribati -0.5 -0.5 1.5 1.8 2.5 2.3 Nauru 1.0 0.7 1.5 0.9 2.6 2.4 Tuvalu 13.9 1.0 2.5 3.5 3.8 4.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) Kiribati 16.2 17.8 17.6 17.4 17.2 16.8 Sources: World Bank and IMF. e = estimate; f = forecast. Note: Country authorities and World Bank and IMF staff estimates. Nauru data are based on the fiscal year ended June. Kiribati and Tuvalu are calendar years. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 9 Apr 22 rapidly and remained below potential since the second half of 2021, as significant CHINA Key conditions and fiscal policy and regulatory tightening, a downturn in the housing market, and fre- challenges quent COVID outbreaks weighed on eco- nomic activities. Table 1 2021 After a swift rebound, China’s economic The surveyed urban unemployment rate Population, million 1412.4 recovery lost momentum in the second returned to 2019 levels and about 12.7 mil- GDP, current US$ billion 17755.1 half of last year. Domestic demand has lion new jobs were created in 2021, exceed- GDP per capita, current US$ 12571.2 slowed, and the global economic environ- ing China’s annual target of 11 million new a 0.1 International poverty rate ($1.9) ment has worsened significantly with the urban jobs. After a marked slowdown in a 1.7 war in Ukraine. In addition, COVID in- 2020, disposable household income grew Lower middle-income poverty rate ($3.2) a 15.8 cursions have become more frequent and strongly in 2021 by 8.1 percent y/y with Upper middle-income poverty rate ($5.5) Gini index a 38.2 widespread. China is currently experienc- faster growth among rural households. School enrollment, primary (% gross) b 103.2 ing the largest COVID wave since the With rising household income, per capita b 76.9 end of the national lockdown in March consumption expenditure also accelerated Life expectancy at birth, years 2020 with more than 50,000 cases since by 12.6 percent y/y. As overall conditions Total GHG Emissions (mtCO2e) 12892.3 the start of 2022. improved, the poverty rate resumed its Source: WDI, Macro Poverty Outlook, and official data. Over the medium term, China’s potential pre-pandemic declining trend, and is ex- a/ Most recent value (2019), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy growth is decelerating due to structural pected to fall below 12.3 percent in 2021 (2019). factors. The economy has embarked on a when considering the upper-middle in- structural slowdown reflecting adverse de- come countries’ poverty line of $5.50/day mographics, tepid productivity growth per person (2011 PPP). and rising constraints to a growth model Although activity data for the first two With rising external headwinds and do- that relies excessively on investment. To months point to a robust start in 2022, avert a sharper slowdown China needs to COVID outbreaks, a challenging external mestic challenges, economic growth is revive productivity growth and rebalance environment, housing market downturn projected to slow to 5.0 percent y/y in the economy along multiple dimensions: and a still-sluggish consumption recovery 2022. By 2022, 10.8 percent of the popu- from exports and investment to greater re- hint at further downside pressure on near- lation in China are expected to fall below liance on domestic consumption, from term economic activity. Faced with grow- state-led to more market-driven growth, ing downside pressure on growth, policy- the $5.50/day per person poverty line and from high to low-carbon growth. makers have shifted to a more accom- (2011 PPP). The near-term outlook is modative monetary and fiscal policy highly uncertain with risks tilted to the stance. While the government set the 2022 downside amid frequent COVID out- quota for special local government bond breaks, an ongoing housing market cor- Recent developments issuance to finance infrastructure projects at RMB 3.65 trillion, the actual quota might rection, and the war in Ukraine. Full-year GDP growth in 2021 accelerated be substantially higher at about RMB 4.7 to 8.1 percent y/y. After a strong rebound trillion due to the carryover of last year’s in the first half of 2021, growth cooled bond proceeds. In addition, the State FIGURE 1 China / Real GDP growth and contributions to real FIGURE 2 China / Actual and projected poverty rates and GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 9 30 90000 8 80000 7 25 70000 6 20 60000 5 4 50000 15 3 40000 2 10 30000 1 20000 0 5 10000 -1 2013 2015 2017 2019 2021e 2023f 0 0 Private consumption Government consumption 2016 2018 2020 2022 Gross capital formation Net Exports International poverty rate Lower middle-income pov. rate Statistical Discrepancy GDP Upper middle-income pov. rate Real GDP pc Source: China’s National Bureau of Statistics; World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 10 Apr 22 Council extended some of the tax and fee Private investment growth is expected to consumer confidence and trigger larger reduction policies for SMEs to the end of weaken as manufacturing investment and more prolonged economic disrup- 2023. The PBOC has implemented multiple slows owing to weaker external demand, tions. Meanwhile, more severe financial policy easing measures since last Decem- and real estate investment remains sub- stress among property developers could ber including cuts in various interest rates dued with the authorities maintaining create negative spillovers to upstream and regulators have finetuned housing their focus on reining in financial risks in sectors and weigh on investment and con- policies in recent months to support the re- the property sector. The growth projection sumption. On the external side, risks al estate sector. assumes substantial loosening of fiscal pol- could transmit through a stronger than icy to stem these headwinds which are ex- expected slowdown in global demand pected to lead to accelerated infrastructure and a longer lasting shock to commodity investment. Given the projected economic prices. In a downside scenario with a Outlook growth for 2022, the poverty rate mea- more dominant COVID shock growth sured at $5.50/day per person is expected could slow to 4.0 percent in 2022. While On the back of increasing headwinds, Chi- to fall to 10.8 percent, with more than a China has policy space to act, using ex- na’s GDP growth is expected to slow to third of the poor residing in urban areas. cessive stimulus to boost investment 5.0 percent in 2022. The recent and wide- The decline represents 22 million fewer could further aggravate domestic imbal- spread Omicron wave will further delay poor people than in 2021. ances and delay the shift towards high the recovery in private consumptions and The outlook is highly uncertain with risks quality growth. In light of these consider- service-led activities. On the external side, tilted to the downside. The key downside ations, should China face further negative China is expected to face a decline in its risk are more severe and protracted shocks, policy makers may want to set- terms of trade as well as a decline in export COVID outbreaks, which could impair tle for lower growth and maintain policy demand, with the growth contribution of production and domestic supply chains buffers rather than jeopardize hard-won net exports likely turning negative in 2022. with knock on effects on investor and rebalancing gains. TABLE 2 China / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.0 2.2 8.1 5.0 5.2 5.1 Private Consumption 6.5 -1.8 12.2 5.6 6.6 6.5 Government Consumption 6.0 3.2 4.3 7.1 4.1 4.4 Gross Fixed Capital Investment 5.3 3.2 2.7 4.2 5.1 4.8 Exports, Goods and Services 2.2 1.4 17.5 3.8 3.1 3.0 Imports, Goods and Services -1.7 -1.7 9.9 5.8 4.3 4.3 Real GDP growth, at constant factor prices 6.0 2.2 8.1 5.0 5.2 5.1 Agriculture 3.1 3.1 7.1 3.2 3.1 3.1 Industry 4.9 2.5 8.2 4.8 4.6 4.5 Services 7.2 1.9 8.2 5.4 6.0 5.8 Inflation (Consumer Price Index) 2.9 2.5 0.9 2.2 2.0 1.9 Current Account Balance (% of GDP) 0.7 1.9 1.8 1.3 1.2 1.1 Net Foreign Direct Investment (% of GDP) 0.4 0.7 1.2 0.9 0.9 0.8 a Fiscal Balance (% of GDP) -4.6 -8.6 -4.4 -7.1 -5.5 -4.3 Debt (% of GDP) 38.5 45.4 45.1 49.3 51.4 52.3 Primary Balance (% of GDP) -3.6 -7.4 -3.2 -5.8 -4.1 -3.0 b,c International poverty rate ($1.9 in 2011 PPP) 0.1 0.1 0.1 0.0 0.0 0.0 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.7 1.5 1.0 0.8 0.6 0.5 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.8 15.0 12.3 10.8 9.3 7.9 GHG emissions growth (mtCO2e) 2.5 1.5 5.8 2.3 1.7 1.2 Energy related GHG emissions (% of total) 81.8 81.9 82.0 81.8 81.7 81.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ The adjusted fiscal balance adds up the public finance budget, the government fund budget, the state capital management fund budget and the social security fund budget. b/ Last grouped data available to calculate poverty is for 2019 provided by NBS.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2021 to 2024. c/ Projections based on GDP growth estimates, using a neutral distribution assumption with pass through 0.85 to per capita household consumption. MPO 11 Apr 22 goals, leading to a sharp increase in public debt. The compound effect of lost liveli- FIJI Key conditions and hoods across sectors and asset damage from the natural disasters exposed a sig- challenges nificant proportion of the population to in- creased poverty and vulnerability. Exclud- Table 1 2021 Fiji is a small island nation in the South ing the impact of the COVID assistance Population, million 0.9 Pacific Ocean with a population of about measures, poverty rate based on the up- GDP, current US$ billion 4.7 900,000. Remoteness, natural hazards, and per-middle income poverty line is estimat- GDP per capita, current US$ 5163.1 climate change represent major obstacles ed to have increased by 11 percentage a 2.6 International poverty rate ($1.9) to development. Tourism is the main dri- points in 2020 from the pre-pandemic lev- a 17.8 ver of the economy and a major source of el. The Government introduced several Lower middle-income poverty rate ($3.2) a 55.5 foreign exchange, contributing nearly 40 measures to mitigate these impacts, in- Upper middle-income poverty rate ($5.5) School enrollment, primary (% gross) b 116.5 percent of GDP, prior to COVID-19. In re- cluding top-ups through existing social Life expectancy at birth, years b 67.4 cent years to 2019, growth was under- programs and the National Provident pinned by robust tourism, rising house- Fund unemployment assistance. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. hold consumption, and extensive recon- b/ Most recent WDI value (2019). struction after major natural disasters. Be- fore the onset of the global pandemic, Fiji’s poverty rate was 17.8 percent and 55.5 per- Recent developments Reopening of Fiji’s borders to tourism in cent based on the lower and upper middle- December 2021 marked a major step to- income poverty lines, respectively. Reopening of Fiji’s borders to tourism in The COVID-19 pandemic presented Fiji December 2021 after a 21-month closure wards economic recovery. The economy is with an economic crisis of unprecedented marked a major step towards economic re- expected to reach the pre-pandemic level scale. The country recorded one of the covery. Border reopening was enabled by a by 2024, supported by private consump- steepest economic contractions in the COVID-19 vaccination rate of over 90 per- tion and investment. The outlook remains world and the worst in its history. Follow- cent and the adoption of best-practice ing the onset of the pandemic and border COVID-19 control policies and protocols. highly uncertain as the tourism sector closures in 2020, the tourism sector col- Tourists and visitors have begun returning may recover slower than expected. Risks lapsed with a ripple effect on all segments from the country’s traditional source mar- also include re-emergence of COVID-19, of the economy. Real GDP contracted by kets, especially Australia. The initial fig- cyclones and floods, and the impact of the 15.2 percent in 2020 and a further 4.1 per- ures show the arrivals to be around 45 per- cent in 2021 in the wake of the Delta vari- cent of pre-COVID-19 levels. However, Russia-Ukraine war. Speeding up eco- ant outbreak. The country was also hit by while this is a positive sign, recovery is nomic recovery will require structural re- Tropical Cyclone (TC) Harold and TC Yasa likely to be slow and risks remain due to forms while fiscal consolidation is needed in 2020, and TC Ana in 2021 with extensive the emergence of potential new variants, to ensure that the public debt returns to a damage to agriculture, public buildings, a highly vulnerable population given the downward trajectory. and tourism facilities. These shocks aggra- high prevalence of non-communicable dis- vated pre-existing fiscal vulnerabilities eases, and the risk of cyclones and floods. and upended the authorities’ fiscal policy The high dependence on tourism adds to FIGURE 1 Fiji / Real GDP growth and contributions to real FIGURE 2 Fiji / Actual and projected poverty rates and real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 80 14000 5 70 12000 60 0 10000 50 -5 8000 40 6000 -10 30 4000 -15 20 10 2000 -20 2017 2018 2019 2020 2021 2022 2023 2024 0 0 Private Consumption Government Consumption 2019 2021 2023 Capital Formation Net Exports International poverty rate Lower middle-income pov. rate GDP Growth Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy, and IMF and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 12 Apr 22 the vulnerability of sustained recovery 2020, reflecting the drop in the service poorest and most vulnerable as food ac- and highlights the need for diversified balance. Tourism receipts in 2021 fell by counts for about 40 percent of their con- sources of growth. The structural reform 94 percent from the pre-pandemic level. sumption basket. The Government is com- agenda includes building climate re- Pressure on the balance of payments has mitted to fiscal consolidation with the fis- silience and creating a more supportive en- been cushioned by the influx of external cal deficit projected to fall to 4.0 percent vironment for private-sector-led growth. financing through loans and grants from of GDP in 2024 from 12.1 percent in 2022. Attracting more FDI and expanding the multilateral and bilateral creditors. This is This will be achieved through efforts to role of the private sector in the economy supplemented by strong growth in per- mobilize domestic revenues, including will require modernizing the legal and sonal remittances, which rose by 42 per- through the revenue measures announced regulatory framework. cent in 2021 from 2019, the sale of Energy in the Revised Budget in March. In par- A steep fall in revenue and rise in expen- Fiji Limited (EFL) shares abroad and the allel, spending will be contained through ditures due to fiscal stimulus to mitigate additional 2021 IMF SDR allocation. Re- strict wage bill control and a reduction in the impact of the pandemic widened the serves remained stable, US$1,570 million operating subsidies and capital outlays. fiscal deficit to 8.1 percent of GDP in 2020 (9.9 months of prospective imports) at The risk of debt distress has heightened and 12.8 percent in 2021. As a result, the end-December 2021. with the debt-to-GDP ratio projected to public debt-to-GDP ratio increased to 87 climb to 90.9 percent of GDP in 2022, re- percent in 2021 from 51.6 percent in 2019. flecting borrowing to counter the impact Monetary policy was eased to counter the of COVID-19 and the contraction in nom- impact of COVID-19 and remains accom- Outlook inal GDP. Public debt is assessed as sus- modative. The Central Bank cut the tainable over the medium-term, contingent overnight policy rate from 0.50 to 0.25 per- Outlook is subject to considerable uncer- on fiscal consolidation, the resumption of cent in the first quarter of 2020. Inflation tainty and hinges on the tourism sector’s growth and commitment to borrow pri- fell to a historic low of -2.8 percent at end- performance. Growth is projected to recov- marily on concessional terms. The current December 2020, in the context of a sub- er to 6.3 percent in 2022 and rise to 7.7 per- account deficit is expected to narrow to 8.8 stantial output gap, and on account of low- cent by 2023 driven by increased private percent of GDP in 2022 and converge to 6.8 er food and fuel prices as well as reduced consumption and investment supported percent of GDP by 2024 due to increases in tariffs and taxes (implemented to mitigate by tourism and remittances. Poverty is ex- the services and secondary income balance the impact of the pandemic). Inflation re- pected to follow a downward trend, al- on account of higher anticipated tourism merged in the second half of 2021 due to though it is not anticipated to return to and remittance inflows. Risks to growth in- the surge in global commodity prices and pre-pandemic levels by 2024. The Russia- clude a drop in tourism appetite, a new continued supply chain disruptions, reach- Ukraine war is likely to add to inflationary wave of COVID-19 in Fiji or Australia and ing 3 percent at year-end. The current ac- pressures and dampen external account New Zealand, impacts of adverse natural count deficit widened to 15.6 percent of and may also impact tourism. Higher food disasters, and the economic consequences GDP in 2021, relative to 13.2 percent in and energy prices will especially harm the of the Russia-Ukraine war. TABLE 2 Fiji / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.4 -15.2 -4.1 6.3 7.7 5.6 Inflation (Consumer Price Index) -0.9 -2.8 3.0 4.5 3.0 2.7 Current Account Balance (% of GDP) -12.6 -13.2 -15.6 -8.8 -7.0 -6.8 Fiscal Balance (% of GDP) -4.3 -8.1 -12.8 -12.1 -6.4 -4.0 a,b International poverty rate ($1.9 in 2011 PPP) 2.6 4.9 5.9 4.9 3.7 3.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 17.8 25.4 28.0 25.2 21.5 20.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 55.5 66.2 69.0 65.9 61.9 59.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Calculations based on EAPPOV harmonization, using 2019-HIES.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 13 Apr 22 public consumption and exports. This came on the back of a counter-cyclical INDONESIA Key conditions and fiscal and monetary response to the pan- demic, higher commodity prices, and a challenges pick-up in external demand. On the sup- ply side, more than 60 percent of the Table 1 2021 Sound macro fundamentals prior to the contribution to growth in 2021 came Population, million 276.4 pandemic allowed Indonesia to build fi- from the manufacturing, wholesale & GDP, current US$ billion 1186.1 nancial and fiscal buffers to respond to the trade, construction, and telecom sectors GDP per capita, current US$ 4291.8 crisis. However, the country faces several reflecting growing demand especially in a 2.2 International poverty rate ($1.9) long-term structural challenges that can af- sectors less affected by COVID-19 restric- a 18.0 fect the recovery phase. Prudent macro tions. Leading indicators in February al- Lower middle-income poverty rate ($3.2) a 50.2 management has been constrained by low so pointed to sustained recovery in do- Upper middle-income poverty rate ($5.5) Gini index a 37.3 tax effort, shallow financial markets and mestic demand, with Purchasing Manag- School enrollment, primary (% gross) b 106.4 competitiveness challenges. Indonesia has er Index, consumer confidence and retail b 71.7 responded well to the crisis, including in sales improving. Life expectancy at birth, years terms of addressing these challenges Price pressures remained low despite in- Total GHG Emissions (mtCO2e) 1755.8 through structural reforms to boost taxa- flation reaching a 20-month high of 2.1 per- Source: WDI, Macro Poverty Outlook, and official data. tion and investment. cent (yoy) in February. This reflects rising a/ Most recent value (2021), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy Indonesia faces short-term cyclical chal- food prices due to restrained supply, high- (2019). lenges that can weigh on the recovery. As er commodity prices, and in line with the COVID-19 may become endemic, a strat- narrowing output gap. Higher tobacco du- egy for accelerating the vaccination pro- ties and adjustment in non-subsidized Indonesia’s economy is recovering sup- gram over a protracted period is needed. LPG prices also raised administered ported by growing commodities exports Risks from US monetary tightening could prices. Nevertheless, the inflation rate re- also increase the cost of external financing, mains within Bank of Indonesia’s target and accommodative fiscal policy. This and rising tensions in Europe is worsening range (2-4 percent). helped reduce poverty closer to pre-pan- the external environment. Meanwhile, em- The external position remained sound demic levels. Medium term growth will ployment and incomes have not returned despite tightening global monetary be supported by rising private consump- to pre-pandemic levels, especially among conditions. Indonesia ended the year vulnerable households, and social assis- with a small current account surplus tion and investment as aggregate de- tance program coverage among targeted of 0.3 percent of GDP, the first since mand picks up and structural reforms groups remains low. 2011. This follows a solid performance start paying off. Downside risks remain by exports (up 46.1 percent) driven by elevated and could derail recovery, in- commodities and manufactured goods. cluding worsening global conditions and The position was supported by a sta- renewed COVID-19 outbreaks. Recent developments ble Real Effective Exchange Rate (REER) and capital flows as well as Growth rebounded from -2.1 percent in improvement in the secondary income 2020 to 3.7 percent in 2021, supported by balance due to government grants for FIGURE 1 Indonesia / Real GDP growth and contributions FIGURE 2 Indonesia / Poverty rate is declining albeit at a to real GDP growth slower pace than pre-pandemic years Percent, percentage points Percent 8 100 PPP USD $1.9 Poverty Rate 6 PPP USD $3.2 Poverty Rate 4 PPP USD $5.5 Poverty Rate 80 2 0 60 -2 -4 40 -6 -8 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 20 Private consumption Government consumption Investment Net exports Stat. discrepancy Change in inventories 0 GDP 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Sources: National Statistics Agency and World Bank. Sources: National Statistics Agency and World Bank. Note: Forecast is from 2021 onwards. MPO 14 Apr 22 COVID-19 support. Foreign reserves are 2022 in line with strengthening growth adequate covering 7.2 months of imports prospects. The recently approved Tax Har- by end 2021. Outlook monization Law will increase tax rates, Fiscal policy has been accommodative to broaden the tax base, facilitate tax compli- offset the pandemic’s fallout. The fiscal A recovery in private consumption and in- ance, and introduce a carbon tax. package has focused on health, social as- vestment supported by structural reforms Poverty is projected to continue falling as sistance, and firms support. This was are expected to boost growth to 5.3 percent the recovery fuels private consumption. made possible by commodity and oil in the medium-term. Net exports will par- However, the pace of decline, based on low- price windfalls that boosted fiscal rev- tially offset this as domestic demand boosts er-middle income countries poverty line of enues to 11.8 percent. The fiscal deficit imports, while exports ease following mod- $3.2 per day in PPP terms, will be halved narrowed from 6.1 to 4.6 percent of GDP eration in external demand. As the output from -3.0 pp/year in pre-pandemic years in 2020-2021. Monetary policy has also gap closes further, inflation is expected to 2014-2019 to -1.5 pp/year going forward been accommodative thus far but may increase over the medium term to 3.3 per- (2019-2024). Whether this progress is tighten going forward in line with tighter cent by 2024, slightly below the upper band achieved depends on the degree to which global financial conditions. The authori- target of the central bank. With improve- the recovery is inclusive of vulnerable ties announced a rise in the reserve re- ments in domestic demand, the outlook groups. Meanwhile, strengthened efforts quirements ratio starting in March 2022, projects a return to a current account deficit. are needed to mitigate the pandemic’s long- although the policy rate has remained However, external financing needs will re- term scarring impacts on productivity and unchanged since February 2021. Private main moderate at 2.2 percent of GDP (aver- inequality through the human capital chan- sector credit increased slightly in recent age 2022-2024) aligned with an increase in nel. Projections indicate large losses in life- months but has remained weak through- FDI. As such, foreign reserves are expected time earnings due to learning losses during out the pandemic. to exceed 7.8 months of imports. widespread school closures in 2020-2021. Poverty continued to decline, getting clos- The fiscal stance is expected to tighten with the Downside risks to the outlook remain ele- er to its pre-pandemic level. In September 2022 fiscal deficit projected at 3.7 percent of vated. Risks are stemming from faster-than- 2021, the poverty headcount rate, based GDP. Consistent with its previous announce- expected global financial tightening and on the national poverty line, fell to 9.7 ments, the government is committed to return contagion effects from EMs that can render percent after peaking at 10.2 percent in tothelegallymandated3percentofGDPdeficit external financing more expensive, pan- 2020. Progress was observed in both ur- by 2023. The consolidation path will be an- demic-related fiscal shocks that could derail ban and rural areas, stemming from em- chored on scaling back the economic recovery pro-growth programs, further scarring with ployment growth in manufacturing, program and on boosting domestic revenue implications on productivity and competi- wholesale & trade, as well as in the food mobilization. The recovery spending will ease tiveness, and changing global demand and and accommodation sectors. from4.0percentofGDPin2021to2.6percentin inflation related to the Russia-Ukraine war. TABLE 2 Indonesia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -2.1 3.7 5.1 5.3 5.3 Private Consumption 5.2 -2.7 2.0 4.7 5.0 5.2 Government Consumption 3.3 2.0 4.2 1.4 1.5 4.4 Gross Fixed Capital Investment 4.5 -5.0 3.8 5.6 6.4 6.5 Exports, Goods and Services -0.5 -8.1 24.0 14.7 10.3 8.3 Imports, Goods and Services -7.1 -16.7 23.3 14.9 11.0 10.0 Real GDP growth, at constant factor prices 5.0 -1.6 3.3 5.2 5.3 5.3 Agriculture 3.6 1.8 1.8 3.8 3.9 3.9 Industry 3.8 -2.8 3.4 4.1 4.4 4.4 Services 6.4 -1.5 3.6 6.6 6.4 6.5 Inflation (Consumer Price Index) 2.8 2.0 1.6 2.7 3.1 3.3 Current Account Balance (% of GDP) -2.7 -0.4 0.3 -0.9 -1.4 -1.9 Net Foreign Direct Investment (% of GDP) 1.8 1.3 1.4 1.6 1.8 1.9 Fiscal Balance (% of GDP) -2.2 -6.1 -4.6 -3.7 -3.0 -3.0 Debt (% of GDP) 30.0 39.3 40.7 42.9 43.2 43.4 Primary Balance (% of GDP) -0.5 -4.1 -2.6 -1.5 -0.6 -0.5 a,b International poverty rate ($1.9 in 2011 PPP) 2.7 2.3 2.2 1.7 1.4 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 19.9 18.8 18.0 16.0 14.2 12.6 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 52.2 51.0 50.3 47.9 45.5 43.2 GHG emissions growth (mtCO2e) 2.4 -0.8 1.4 1.9 1.9 1.8 Energy related GHG emissions (% of total) 34.5 34.0 34.7 35.7 36.7 37.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2011-SUSENAS and 2021-SUSENAS.Actual data: 2021. Forecastss are from 2022 to 2024. b/ Projection using annualized elasticity (2011-2021) with pass-through = 1 based on GDP per capita in constant LCU. MPO 15 Apr 22 (especially fuel) and additional exchange rate depreciation pressures, which would LAO PDR Key conditions and increase inflation. Moreover, a slower- than-expected economic recovery in key challenges trading and investment partners may cur- tail external demand. However, high min- Table 1 2021 Unaddressed debt challenges can hamper eral prices and the opening of the Lao- Population, million 7.4 medium-term economic growth. High China railway (in December 2021) will GDP, current US$ billion 18.7 public debt levels and rising debt service likely support merchandise exports and GDP per capita, current US$ 2539.0 obligations pose liquidity and solvency the domestic services sector – especially a 18.3 National Official Poverty Rate problems that compound other macroeco- transport and logistics services. a 10.0 nomic vulnerabilities – such as low rev- Domestic and external uncertainty affects International poverty rate ($1.9) a 37.4 enue collection and limited foreign re- economic prospects. COVID-19 vaccina- Lower middle-income poverty rate ($3.2) Gini index a 38.8 serves. A positive conclusion of ongoing tion rates have improved, with 58 percent School enrollment, primary (% gross) b 98.8 debt renegotiations will be vital for of the population fully vaccinated, but a b 67.9 restoring macroeconomic stability. Grow- large Omicron outbreak could still under- Life expectancy at birth, years ing debt service requirements, in a con- mine economic activity. Tightening global Total GHG Emissions (mtCO2e) 42.3 text of declining revenues and expendi- macroeconomic conditions and geopoliti- Source: WDI, Macro Poverty Outlook, and official data. ture consolidation, have narrowed the fis- cal tensions could impact Lao PDR a/ National Statistics Office. Most recent value (2018). b/ WDI for School enrollment (2020); Life expectancy cal space for investments in human and through higher commodity prices (espe- (2019). physical capital that are essential for cially fuel) and additional exchange rate long-term growth. While the financial sec- depreciation pressures, which would in- tor provided some support to mitigate the crease inflation. Moreover, a slower-than- The economic recovery is expected to con- impacts of COVID-19, vulnerabilities are expected economic recovery in key trading tinue in 2022, mainly supported by in- high and forbearance measures impede a and investment partners may curtail exter- clear assessment of bank balance sheets. nal demand. However, high mineral prices dustry and services, with growth project- Improved connectivity and trade integra- and the opening of the Lao-China railway ed to accelerate to 3.8 percent. However, tion present an opportunity for greater (in December 2021) will likely support growing macroeconomic vulnerabilities – economic dynamism, but need to be ac- merchandise exports and the domestic ser- mainly stemming from a high debt bur- companied by structural reforms to en- vices sector – especially transport and lo- hance export competitiveness. gistics services. den – and external shocks may affect the Domestic and external uncertainty affects outlook. Labor market conditions remain economic prospects. COVID-19 vaccina- subdued, while rising fuel and food prices tion rates have improved, with 58 percent are threatening poverty and food security. of the population fully vaccinated, but a Recent developments Addressing macroeconomic imbalances large Omicron outbreak could still under- mine economic activity. Tightening global GDP growth is estimated to have rebound- will be critical to laying the foundation ed to 2.5 percent in 2021, driven by indus- macroeconomic conditions and the Russ- for sustained economic growth and sup- ian invasion of Ukraine could impact Lao try (particularly mining, energy and some port poverty reduction. PDR through higher commodity prices manufacturing subsectors) and agriculture FIGURE 1 Lao PDR / Real GDP growth and contributions to FIGURE 2 Lao PDR / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 8 100 25 90 6 80 20 70 4 60 15 50 2 40 10 0 30 20 5 -2 10 2015 2016 2017 2018 2019 2020 2021 2022 0 0 Agriculture Industry 2007 2009 2011 2013 2015 2017 2019 2021 2023 Services Net Taxes on Production International poverty rate Lower middle-income pov. rate Real GDP growth Upper middle-income pov. rate Real GDP pc Sources: Lao Statistics Bureau and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 16 Apr 22 – both of which were supported by solid burden on households. The share of – owing to the difficult fiscal situation. Pri- external demand. However, the services adults employed fell from 76 percent in vate investment and exports will provide sector continued to struggle. Inflation in- Q2 2021 to 69 percent in Q4 2021, follow- an important stimulus to the economy, al- creased from less than 2 percent in Febru- ing an outbreak of COVID-19. Disrup- though higher imports will partly offset ary 2021 to 7.3 percent in February 2022 tions to economic activities led to a de- these trends. Existing macroeconomic vul- (year-on-year), mainly driven by fuel cline in household income, with 63 per- nerabilities and a less conducive external prices and a sharp depreciation against the cent of households experiencing a fall in environment – due to tighter macroeco- US dollar. Nevertheless, the annual aver- household income between Q2 and Q4 nomic conditions and the war in Ukraine age inflation rate declined from 5.1 percent 2021, of which 21 percent saw their in- – will avert a faster economic recovery. In in 2020 to 3.8 percent in 2021. come reduced by more than half. In- a downside scenario where domestic and The fiscal deficit declined significantly in come losses combined with rising food external risks materialize, economic 2021, owing to a recovery in revenue and ex- prices present a threat to poverty and growth could slow to 3.3 percent in 2022. penditure cuts. Revenue collection re- food insecurity. Constrained by limited Domestic labor market conditions are ex- boundedmainlyduetonon-taxrevenueand fiscal space, government assistance pro- pected to improve gradually following consumption taxes. Expenditure curbs con- grams were limited and mainly targeted the growth rebound, although permanent tinued with the postponement of new capi- formal workers. The poverty headcount job losses and business closures induced talprojects–whichledtoa24percentdecline rate (measured at the lower-middle-in- by COVID-19 will continue to put pres- in capital spending. With limited access to come poverty line or $3.2 (2011 PPP) a sure on household income. Rising food international capital markets, financing day) is estimated to have marginally de- and fuel prices undermine households’ needs were met through strong short-term clined from 36.9 percent in 2020 to 36.8 purchasing power and, without adequate domestic bank borrowing at the end of 2021. percent in 2021. relief measures, put them at risk of falling The current account deficit improved, into poverty. partly due to a large merchandise trade Addressing internal and external imbal- surplus. Merchandise exports grew by 22 ances will be key to accelerate economic percent – owing to electricity, minerals, Outlook growth and improve welfare. The deterio- and several agricultural and manufac- rating public debt situation is a main con- tured products – supported by strong Economic activity is expected to recover cern, with external debt repayments aver- external demand and commodity prices. gradually to 3.8 percent in 2022, support- aging around $1.3 billion a year over Merchandise imports also increased, dri- ed by merchandise exports and the ser- 2022-2025 – about half of the average do- ven by fuel, vehicles, and machinery. vices sector – especially transport and lo- mestic revenue. Upside risks to the outlook Nonetheless, trade in services remained gistics services (linked to the new rail- include a positive outcome from the ongo- subdued and external debt service pay- way) as well as wholesale and retail activ- ing debt renegotiations – providing much- ments are elevated. High demand for for- ities. In contrast, tourism will likely take needed fiscal space for growth-enhancing eign currency (especially to service exter- longer to rebound. Infrastructure con- expenditures – and a fast and effective im- nal debts) coupled with limited reserve struction (including power projects and plementation of planned revenue-enhanc- buffers contributed to a strong deprecia- highway extensions) is also expected to ing measures. A strengthened legal frame- tion against the US dollar – 22 percent as contribute to the recovery. From the de- work for foreign currency management of February 2022 (year-on-year). mand side, private consumption will in- may enhance foreign reserve buffers, while The labor market remains subdued, and crease, although public consumption and business environment reforms would help rising food prices place an additional public investment will remain constrained boost growth and job creation. TABLE 2 Lao PDR / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 0.5 2.5 3.8 4.0 4.2 Real GDP growth, at constant factor prices 5.5 0.5 2.5 3.8 4.0 4.2 Agriculture 1.2 3.2 2.3 2.2 2.5 2.6 Industry 5.6 4.0 7.6 5.2 4.0 3.4 Services 7.0 -3.5 -2.2 2.9 4.4 5.7 Inflation (Consumer Price Index) 3.3 5.1 3.8 6.0 5.5 5.0 Current Account Balance (% of GDP) -8.1 -1.5 1.3 -2.7 -4.6 -5.4 Fiscal Balance (% of GDP) -3.3 -5.2 -1.4 -2.9 -2.6 -2.3 Debt (% of GDP) 59.0 62.3 77.9 79.0 79.3 79.2 Primary Balance (% of GDP) -1.6 -3.7 -0.1 -0.1 0.1 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 9.7 9.8 9.7 9.5 9.3 9.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 36.8 36.9 36.7 36.4 35.9 35.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 69.8 70.0 69.8 69.4 69.0 68.5 GHG emissions growth (mtCO2e) 1.9 3.2 4.1 4.4 5.0 4.7 Energy related GHG emissions (% of total) 48.0 48.5 49.5 50.6 51.9 53.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2012-LECS and 2018-LECS.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2012-2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 17 Apr 22 MALAYSIA Key conditions and Recent developments challenges For the year 2021, the economy grew at 3.1 percent (2020: -5.6 percent). Overall, Table 1 2021 Malaysia is gradually emerging from the recovery in 2021 was driven by im- Population, million 32.8 the worst wave of the pandemic. With provement in both private and public GDP, current US$ billion 372.7 vaccination program making impres- spending. On the supply side, the econo- GDP per capita, current US$ 11371.2 sive progress, most economic and so- my was supported by the rebound in the a 0.0 International poverty rate ($1.9) cial sectors are now allowed to oper- manufacturing, services, and mining sec- a 0.3 ate. Nearly 100 percent of adults are tors. Nevertheless, it is important to note Lower middle-income poverty rate ($3.2) a 2.9 fully vaccinated, and 64 percent have that the economic performance in 2021 re- Upper middle-income poverty rate ($5.5) Gini index a 41.1 received their booster (third dose) in mains below pre-pandemic levels. School enrollment, primary (% gross) b 104.4 early March 2022. The government has Conditions in the labor market have im- b 76.2 also announced its plans to transition proved. The unemployment rate declined Life expectancy at birth, years into endemicity, which include the re- to 4.3 percent in 4Q 2021 (4Q 2020: 4.8 Total GHG Emissions (mtCO2e) 358.5 opening of international borders be- percent), partly driven by the various la- Source: WDI, Macro Poverty Outlook, and official data. ginning April 2022. As such, this is ex- bor market incentives. Wages for manu- a/ Most recent value (2015), 2011 PPPs. b/ Most recent WDI value (2019). pected to contribute to the recovery of facturing and services grew at 4.7 percent the economy. and 1.2 percent respectively in 4Q 2021. Nonetheless, key challenges remain. Employment was less volatile in the sec- Fiscal space is expected to remain con- ond half of 2021, according to the World strained, limiting the room for fiscal Bank High-Frequency (HiFy) Phone Sur- The economy is projected to expand by policy to play a bigger redistributive vey. As a result, more than half of house- 5.5 percent in 2022, supported by a role. Gaps in the social protection sys- holds who fell into lower-income brackets recovery in domestic demand and an tem remain/persist, leaving out several by June 2021 have recovered to pre-pan- expansion in exports. Downside risks vulnerable groups such as youth and demic levels by November 2021. Howev- informal workers. In addition, the er, disruptions to employment and labor to growth remains, with the military triple shocks of COVID-19, food in- income remain greater among the poor conflict in Ukraine emerging as a key flation, and floods may deplete poor and vulnerable, including younger and risk. While the economy is projected to and vulnerable Malaysians’ resilience less educated workers. be on a recovery path, COVID-19, toward future shocks, and in turn, Inflation has been on an upward trend, food inflation, and floods are expected widen socioeconomic inequalities consistent with a closing output gap. The among Malaysians. Recognizing this, CPI rose to 3.2 percent in December 2021 to weigh down progress on wellbeing the government’s top priorities are to (Nov: 3.3 percent). The upward trend is of the poor and vulnerable. ensure effective fiscal policies and de- mainly due to the rise in food and fuel velop inclusive social protection as prices, and base effects. Higher food prices stated in the Twelfth Malaysia Plan were largely due to supply-related factors (2021-2025) and the Budget 2022. including adverse weather conditions and FIGURE 1 Malaysia / Real GDP growth and contributions to FIGURE 2 Malaysia / Actual and projected poverty rates and real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 20 20 35000 15 18 30000 10 16 5 14 25000 0 12 20000 -5 10 8 15000 -10 -15 6 10000 -20 4 5000 -25 2 Q1-2017 Q2-2018 Q1-2019 Q4-2019 Q3-2020 Q2-2021 0 0 Private Consumption Public Consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 GFCF Change in Inventory International poverty rate Lower middle-income pov. rate Net Exports Real GDP,y/y Upper middle-income pov. rate Real priv. cons. pc Sources: Department of Statistics Malaysia and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 18 Apr 22 higher prices of animal feed stocks. The exposure to Russia and Ukraine is mini- Fiscal space is expected to remain limited government announced that it has taken mal. In the exchange rate market, the ring- in 2022 highlighting the need to rebuild fis- steps to stabilize prices on crucial food git is on a depreciating trend. Between 1 cal buffers over the medium-term. A rise items such as rice and meat, including to January to 28 February 2022, the real ef- in commodity prices provides only tem- extend the price controls on selected items fective exchange rate (REER) depreciated porary fiscal relief. Government revenue and provide additional subsidies. Going by 0.4 percent, and is slightly undervalued has been on a downward trend since 2012, forward, the central bank expects average relative to fundamentals. and operating expenditures have grown inflation to remain moderate and core in- markedly over time, resulting in signifi- flation to be modest. Reflecting this, mon- cant budget rigidity. However, in the ab- etary policy stance is expected to remain sence of a fiscal rule for commodities, the unchanged in the near term. Outlook risk of fiscal policy pro-cyclicality increas- In late 2021, 11 states were hit with floods es. The government has proposed intro- displacing an estimated 70,000 people; re- The economy is expected to recover this ducing a Fiscal Responsibility Act (FRA) sulting in devastating losses of RM6.1 bil- year, with growth projected at 5.5 percent, which could establish a path for medium- lion (0.4 percent of GDP). Households in supported by a rebound in domestic de- term fiscal consolidation. the Klang Valley areas were hardest hit, mand and continued expansion in exports. The welfare of poor and vulnerable house- involving damages to dwellings and ve- The external sector will continue to lend holds remains precarious given multiple hicles. The Malaysian Family Flood Aid its support especially electric and electron- shocks. Findings from the HiFy survey worth RM1.4 billion (0.1 percent of GDP) ic (E&E) goods and medical rubber gloves. show that, even after receiving government was allocated to alleviate the burden on While economic recovery remains under- assistance, more than 60 percent of lower- households and businesses. way in early 2022, the balance of risks re- income households with monthly income In January 2022, the central bank kept its mains tilted to the downside. The unfold- RM4,000 or below (USD$958 current prices) overnight policy rate (OPR) at 1.75 percent, ing developments surrounding the self-assessed having inadequate financial and reiterated its view that monetary pol- Ukraine military conflict has emerged as a resources to cover their basic needs in icy remained accommodative. In the do- key risk. Other risks include weaker-than- late-2021. Meanwhile, one-quarter of mestic financial markets, there has been an expected global growth, a worsening in households reported having savings that increased in volatility given the Ukraine supply chain disruptions, and the emer- will last only for three months or less, while military conflict. However, direct portfolio gence of more severe COVID-19 variants. 16 percent do not have savings at all. TABLE 2 Malaysia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.4 -5.6 3.1 5.5 4.5 4.4 Private Consumption 7.7 -4.3 1.9 8.5 6.2 5.9 Government Consumption 1.8 3.9 6.6 1.8 0.5 0.5 Gross Fixed Capital Investment -2.1 -14.5 -0.9 6.9 2.8 2.8 Exports, Goods and Services -1.0 -8.9 15.9 4.3 4.3 4.2 Imports, Goods and Services -2.4 -8.4 18.5 4.5 4.4 4.3 Real GDP growth, at constant factor prices 4.5 -5.6 3.1 5.5 4.5 4.4 Agriculture 2.0 -2.2 -0.2 4.1 3.2 2.7 Industry 2.6 -6.2 5.7 4.2 3.7 3.6 Services 6.2 -5.7 1.9 6.7 5.2 5.2 Inflation (Consumer Price Index) 0.7 -1.1 2.5 2.7 2.0 1.9 Current Account Balance (% of GDP) 3.5 4.2 3.5 4.1 3.7 3.7 Net Foreign Direct Investment (% of GDP) 0.4 0.2 2.1 1.7 1.8 1.8 Fiscal Balance (% of GDP) -3.4 -6.2 -6.4 -5.9 -5.3 -4.6 Debt (% of GDP) 52.4 62.1 63.5 65.1 66.2 67.2 Primary Balance (% of GDP) -1.2 -3.8 -3.9 -3.8 -3.3 -2.6 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.1 0.1 0.1 0.1 0.1 0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.4 1.6 1.6 1.2 1.1 0.9 GHG emissions growth (mtCO2e) -1.4 -6.6 0.2 1.3 1.0 1.3 Energy related GHG emissions (% of total) 58.7 56.3 56.2 56.5 56.7 57.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2011-HIS and 2015-HIS.Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2011-2015) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 19 Apr 22 imported inputs and consumer goods, re- inforcing the need for structural reforms. MONGOLIA Key conditions and challenges Table 1 2021 Recent developments Mongolia’s recovery remained subdued in Population, million 3.3 2021 despite high commodity prices, as After a strong economic rebound in early GDP, current US$ billion 15.5 COVID-related restrictions on cross-bor- 2021, the recovery stalled in the last three GDP per capita, current US$ 4647.3 der traffic imposed by China especially quarters due to trade disruptions. Growth a 28.4 National Official Poverty Rate during H2 weighed on exports and dis- consequently was disappointing, reaching a 32.7 rupted imports of production inputs and only 1.4 percent following the contraction Gini index b 103.4 consumer goods. While domestic activities of 4.4 percent in 2020. Economic growth School enrollment, primary (% gross) Life expectancy at birth, years b 69.9 were supported by continued fiscal relief was mainly supported by a strong re- Total GHG Emissions (mtCO2e) 62.4 and stimulus measures as well as a roll- bound of coal mining in Q1, significant im- back of mobility restrictions enabled by provement in copper ore grade, and recov- Source: WDI, Macro Poverty Outlook, and official data. a/ National Statistics Office. Most recent value (2018). high vaccination rates, the economy re- ery in the services sector. In contrast, the b/ Most recent WDI value (2019). mains below its pre-pandemic level and manufacturing sector stagnated, and con- far from its potential. Meanwhile, sus- struction contracted significantly, amid tained policy support has eroded fiscal supply shortages caused by border disrup- After posting 1.4 percent real GDP space, and public debt – already high be- tions. Agriculture also contracted reflect- growth in 2021, growth will remain mod- fore COVID-19 – has increased sharply, ing an outbreak of foot-and-mouth disease now standing at 92 percent of GDP (in- and harsh weather conditions. est at 2.5 percent this year. Despite con- cluding the central bank’s liability under Despite continued income support, private tinued policy support and higher com- the People’s Bank of China swap line). consumption declined as COVID-19 re- modity prices, the recovery is dragged Public debt risks are further aggravated by strictions constrained mobility, rising in- down by protracted logistical bottlenecks sizable contingent liabilities including the flation weighed on real incomes, and Development Bank of Mongolia’s external households increased precautionary sav- and the effects of the war in Ukraine. Ad- bond (US$800 million). External pressures ing amid persistent uncertainty. Invest- ditional significant risks include infla- could be compounded by rising fuel prices ment recovered strongly, but this was tionary pressures, dwindling fiscal space, associated with the war in Ukraine as well mainly driven by a build-up of coal in- and widening external imbalances. Amid as tighter global financing conditions that ventories as exports to China were stalled could complicate the rollover of upcoming due to border frictions. FDI and subsidized the modest recovery, poverty will only fall large foreign debt repayments. Rapidly ac- loans under the government stimulus pro- back to pre-COVID levels in 2023. celerating inflation and the appreciation of gram also supported private investment in real exchange rate are further constraining the mining and services sectors. available policy space. The pandemic ex- Following two years of expansionary fiscal acerbated vulnerabilities associated with policies, policy space has eroded with per- Mongolia’s limited diversification of trade sistent fiscal imbalances threatening sus- and trading partners and overreliance on tainability. Public spending increased in FIGURE 1 Mongolia / Real GDP growth and contributions to FIGURE 2 Mongolia / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 25 40 10 20 9 35 15 8 30 10 7 25 6 5 20 5 0 15 4 -5 3 -10 10 2 -15 5 1 -20 0 0 2017 2018 2019 2020 2021 2022f 2023f 2024f 2010 2012 2014 2016 2018 2020 2022 2024 Final consumption Gross capital formation International poverty rate Lower middle-income pov. rate Net exports Real GDP growth Upper middle-income pov. rate Real GDP pc Sources: National Statistics Office and World Bank. Source: World Bank. Notes: see Table 2. MPO 20 Apr 22 2021 mostly driven by the generous but to above 6 percent in 2023-2024, as the un- poorly targeted Child Money Program derground mining phase of OT becomes (CMP). The headline budget deficit Outlook operational during H2 2023. Poverty mea- nonetheless narrowed to 3.1 percent of sured at the poverty line recommended for GDP amid a one-off tax arrears collection Economic growth is projected to remain lower-middle income countries ($3.20 (2.3 percent of GDP). The budget deficit is modest at 2.5 percent in 2022. This forecast PPP) is projected to return to the pre- projected to increase in 2022, driven by in- reflects the impact of the war in Ukraine COVID level in 2023. creases in capital spending, the continua- through higher prices of imported food, Risks are significant and tilted to the tion of some COVID-related stimulus mea- fuel and fertilizers coupled with lingering downside. In a downside scenario, eco- sures, and a discretionary pension increase border frictions with China. Coal exports nomic growth could fall to 0.7 percent in (of around 1.5 percent of GDP). Mean- are expected to only recover towards the 2022 if border restrictions with China per- while, the financing of the CMP through end of the year when border frictions with sist throughout the year, and if the war the Future Heritage Fund has weakened China may ease, following investments in in Ukraine leads to persistently higher en- the fiscal framework and long-term sus- upgrading border crossing and logistics fa- ergy prices and tighter global liquidity. tainability. Public debt is expected to in- cilities and an anticipated gradual loosen- Moreover, rising food inflation pressure crease and fiscal buffers to further erode. ing of COVID-related restrictions. As labor could prompt poverty to remain above the Inflation accelerated sharply to 14.2 per- market conditions improve with the re- pre-COVID level as the urban poor spends cent (y/y) by February 2022, due to supply opening of the economy, domestic de- nearly 40 percent of their consumption on bottlenecks amid border closures as well mand is expected to recover driven by con- food. Heightened risks put a premium on as accelerating credit growth. Substantial tinued government support, rising invest- preserving macroeconomic policy space. real exchange rate appreciation and weak ment and strengthening household con- Better targeting fiscal measures to the poor exports led to a widening current account sumption. The recent agreement with Rio would help contain fiscal imbalances and deficit and the erosion of gross internation- Tinto over Mongolia’s largest copper mine, preserve valuable policy space in view of al reserves from over 7 months (in Oyu Tolgoi (OT), will continue to support significant risks. Once the recovery is more mid-2021) to 3.7 months of imports as of steady FDI inflows. While the anticipated entrenched, Mongolia should shift to- February 2022. The erosion of confidence drop in the quality of OT mining output wards fiscal consolidation to ensure exter- related to the war in Ukraine and the per- - following last year’s improvement - will nal and public debt sustainability. Struc- sistent border frictions fueled increasing weigh on mining output this year, the ac- tural reforms, including measures to re- demand for foreign exchange, prompting celeration of investments will provide duce trade and transport costs, and facil- banks to ration FX liquidity. This has start- short-term support to the construction and itate foreign investment and domestic en- ed to affect some import payments. To services sectors and expand mining capac- trepreneurship, would help lay the foun- stem these pressures the central bank ity in the long run. Over the medium-term, dation for more diversified and hence raised its policy rate by 250 basis points. economic growth is expected to accelerate more resilient growth in the medium term. TABLE 2 Mongolia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 -4.4 1.4 2.5 5.8 6.8 Private Consumption 5.8 2.1 -6.5 8.9 7.6 7.0 Government Consumption 12.3 14.6 5.3 5.3 5.8 6.1 Gross Fixed Capital Investment 14.0 -21.1 14.0 16.3 17.5 16.2 Exports, Goods and Services 12.0 -5.3 -14.5 4.0 18.0 17.1 Imports, Goods and Services 8.6 -15.5 9.6 5.7 17.5 17.8 Real GDP growth, at constant factor prices 5.1 -3.9 0.0 2.5 5.8 6.8 Agriculture 5.2 5.8 -5.5 3.0 4.1 5.5 Industry 3.1 -4.4 -2.8 1.2 7.9 6.1 Services 6.4 -6.5 3.6 3.0 5.1 7.6 Inflation (Consumer Price Index) 7.3 3.7 7.1 10.5 7.5 6.8 Current Account Balance (% of GDP) -15.2 -4.3 -12.7 -15.6 -13.8 -11.6 Net Foreign Direct Investment (% of GDP) 16.4 12.2 13.1 12.6 11.8 11.1 Fiscal Balance (% of GDP) 1.4 -9.4 -3.1 -4.8 -4.8 -4.4 a Debt (% of GDP) 68.4 77.3 79.5 83.6 81.7 80.0 Primary Balance (% of GDP) 3.6 -6.8 -1.1 -2.8 -1.9 -1.1 b,c International poverty rate ($1.9 in 2011 PPP) 0.5 0.6 0.6 0.6 0.6 0.6 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.6 5.5 5.5 5.4 4.9 4.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 26.0 26.9 26.9 26.7 25.4 24.0 GHG emissions growth (mtCO2e) 6.9 1.3 3.5 4.3 5.3 5.6 Energy related GHG emissions (% of total) 41.7 40.8 41.7 42.1 43.3 44.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Debt excludes contingent liabilities (DBM bond of 5% of GDP) and central bank's liability under the PBOC swap line (12% of GDP) by 2021. b/ Calculations based on EAPPOV harmonization, using 2016-HSES and 2018-HSES.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. c/ Projection using annualized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 21 Apr 22 The official kyat reference rate has depre- ciated by around a quarter against the US MYANMAR Key conditions and dollar since January 2021, and the spread between the official reference rate and the challenges rates available on the market has increased sharply, indicating persistent exchange Table 1 2021 A further wave of COVID-19 cases has in- rate pressures. CPI inflation picked up to Population, million 54.8 creased health risks and economic chal- almost 10 percent (year-on-year) in Octo- GDP, current US$ billion 64.3 lenges. Reported COVID-19 cases rose ber 2021, reflecting exchange rate depreci- GDP per capita, current US$ 1173.4 rapidly in February before declining in ation, supply constraints and increases in a 14.9 Lower middle-income poverty rate ($3.2) March. Although this recent outbreak ap- transport costs. Local fuel prices have a 54.3 pears to have been less severe than initially more than doubled over the past year, in Upper middle-income poverty rate ($5.5) b 112.3 expected, testing has remained limited and part due to increases in global oil prices. School enrollment, primary (% gross) Life expectancy at birth, years b 67.1 there has likely been significant underre- Surveys indicate that rising input costs are Total GHG Emissions (mtCO2e) 219.0 porting of cases. Moreover, the pandemic a severe constraint to production across continues to pose health and economic the economy. In recent weeks, electricity Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017), 2011 PPPs. risks given that only 38 percent of the pop- outages have also become increasingly fre- b/ WDI for School enrollment (2018); Life expectancy ulation was fully vaccinated as at the end quent and long-lasting, negatively impact- (2019). of February and treatment options are dif- ing households and critically affecting the ficult to access. ability of businesses to operate. Indicators of conflict suggest that the se- Following the estimated 18 percent con- curity environment has deteriorated traction in FY21, GDP is projected to ex- markedly since mid-2021, including in pand by 1 percent in FY22, consistent states and regions which have historically Recent developments been relatively peaceful. At the same time with some stabilization in the economy as demand has fallen, firms have needed While some real-time indicators have im- but at a very low level. A deteriorating to devote scarce resources to dealing with proved in recent months, they remain con- security environment, elevated inflation- security-related operating constraints and sistent with a much lower level of economic ary pressures and worsening power out- ensuring the safety of their staff and cus- activity than prior to the February coup. tomers. Logistics have been hampered by Mobility has recovered to pre-coup levels ages are exacerbating the severe supply- an increase in the presence of security after falling 70 percent below pre- and demand- side constraints associated checkpoints and roadblocks, increasing COVID-19 baseline levels in July, though with the aftermath of the February 2021 transport times and costs. The ongoing mobility at retail, recreation and transport military coup. Livelihoods remain under threat of conflict has also affected busi- venues remains 30–40 percent below pre- severe strain and poverty is expected to nesses’ confidence, and appetite to hire COVID-19 levels. Manufacturing survey staff and invest. data indicate that the rate of contraction in have more than doubled in 2022 com- An additional rise in fuel prices due to the output, employment, and new orders has pared with pre-COVID levels. conflict in Ukraine is exacerbating the severe eased since mid-2021. But the Purchasing supply-side constraints already affecting Managers’ Index dipped in early 2022 due agricultural producers and manufacturers. to conflict-related disruptions, raw material FIGURE 1 Myanmar / Real GDP growth and contributions to FIGURE 2 Myanmar / Manufacturing purchasing managers’ real GDP growth by sector index (PMI) / Mobility (month average) Percent, percentage points PMI Index value Percent deviation from baseline 10 55 -20 50 -30 5 45 -40 0 40 -50 -5 35 -60 -10 30 -70 -15 25 -80 20 -90 -20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 2018 2019 2020 2021f 2022f Headline_PMI Retail and recreation (rhs) Agriculture Industry Services Real GDP growth Public Transport (rhs) Sources: Ministry of Planning and Finance and World Bank staff estimates. Sources: Google COVID-19 Community Mobility Reports and IHS Markit. MPO 22 Apr 22 shortages, higher input prices, and elec- of some basic food items increasing the associated rise in global gas prices tricity outages. sharply, and agricultural production con- would have a positive impact on govern- Agriculture and manufacturing exports strained by higher input costs, in Decem- ment revenues and overall economic ac- have picked up in recent months. Some ber the UN estimated that some 12 million tivity in Myanmar. But the positive GDP border crossings with China have re- people (about 22 percent of the popula- impacts of higher gas prices are unlikely opened – after closing in mid-2021 due to tion) are moderately food insecure in to benefit most of the population and will the third wave of COVID-19 – although Myanmar, with an additional 1.2 million likely be more than offset by the nega- cross-border trade remains subject to re- severely food insecure. tive GDP impacts of higher fuel prices on strictions. Foreign direct investment (FDI) other sectors. commitments have risen modestly since Downside risks are elevated. A further es- mid-2021, as has the number of company calation in conflict would reduce demand, registrations. But several large internation- Outlook disrupt logistics and supply chains, and in- al firms have announced their withdrawal crease the constraints faced by businesses. from Myanmar over the same period. Following the estimated 18 percent con- If recent sharp increases in global oil prices Economic deterioration continues to dam- traction in FY21, GDP is projected to in- persist, it would exacerbate broader infla- age livelihoods, which for many have been crease by 1 percent in FY22, consistent tionary pressures, stretching household under severe strain since early 2020. Many with some stabilization but at a very low budgets further and increasing firms' households are experiencing declines in level. Continued export demand for gar- costs. Continued power outages would se- real income due to employment losses ments and a modest resumption of con- verely restrict the operating capacity of and/or reduced work hours and wages, struction work are expected to support businesses, with higher fuel prices making combined with higher prices. While there overall activity. On the other hand, the the use of back-up generators less viable. is considerable uncertainty around these agriculture sector is expected to contract Additional waves or new variants of estimates, micro-simulations imply that due to credit and logistics constraints and COVID-19 remain a risk, particularly in the share of Myanmar's population living increases in fuel and fertilizer prices, the context of still low vaccination rates. A in poverty in 2022 (using national poverty which will be further exacerbated by the further contraction in economic activity is lines) has more than doubled compared to conflict in Ukraine. With gas export earn- possible in FY22 to the extent that one or levels before COVID-19 hit. With the price ings of around 5 percent of GDP in FY21, more of these downside risks materialize. TABLE 2 Myanmar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2017 2018 2019 2020 2021e 2022f Real GDP growth, at constant market prices 5.8 6.4 6.8 3.2 -18.0 1.0 Real GDP growth, at constant factor prices 5.8 6.4 6.8 3.2 -18.0 1.0 Agriculture -1.5 0.1 1.6 1.7 -12.5 -3.2 Industry 8.7 8.3 8.4 3.8 -20.3 3.3 Services 8.1 8.7 8.3 3.4 -18.9 1.4 Inflation (Consumer Price Index) 4.7 5.9 8.5 5.8 3.6 10.0 Current Account Balance (% of GDP) -3.1 -4.7 -2.8 0.1 -2.7 0.7 a Fiscal Balance (% of GDP) -2.7 -2.9 -3.7 -6.6 -8.8 -8.0 Debt (% of GDP) 34.4 38.4 37.5 41.6 57.2 62.5 a Primary Balance (% of GDP) -1.3 -1.7 -2.4 -5.2 -7.0 -6.6 GHG emissions growth (mtCO2e) 3.9 0.7 0.3 -0.7 -5.1 0.1 Energy related GHG emissions (% of total) 14.7 15.1 15.4 15.0 12.9 12.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (October 1st -September 30th). MPO 23 Apr 22 physical viability of numerous islands, particularly in RMI. Finally, governments NORTH PACIFIC Key conditions and need to implement structural reforms to ensure sustainable economic recovery that challenges ISLANDS supports livelihood of the bottom 40 per- cent of households. However, the lack of More than 95 percent of the population in recent household data makes it challeng- Palau is fully vaccinated from COVID-19, ing to monitor development progress and Table 1 2021 and almost 70 percent of the population impacts of shocks while also limits the po- Population, million has received a third booster dose. The vac- tential for evidence-based policy. Federated States of Micronesia 0.12 cination rate is relatively lower in FSM and Republic of the Marshall Islands 0.06 RMI. Palau’s border is now open for fully Palau 0.02 vaccinated international travelers. Howev- North Pacific GDP, US$, billion 0.19 er, tourist arrivals are yet to recover with Recent developments Federated States of Micronesia 0.40 monthly arrival per end-January was only Republic of the Marshall Islands 0.24 6% of pre-COVID number. In the short The economic impact of the pandemic Palau 0.22 term, the key challenges facing the North drove FSM and RMI into the second year North Pacific 0.86 Pacific are: (1) The vaccine rollout and of consecutive recession in FY21. Output is GDP per capita, current US$ management of the pandemic, to pave the estimated to have contracted by a further Federated States of Micronesia 3475 way for relaxed border restrictions and 3.2 percent in FSM and 2.5 percent in RMI Republic of the Marshall Islands 4337 gradual recovery of international arrivals. in FY21. Ongoing strict border closures Palau 12405 (2) To support a sustainable and inclusive and related trade disruptions have cur- North Pacific 4433 economic recovery while managing fiscal tailed construction activity, transport and Sources: WDI, World Bank staff estimates. risks (particularly in Palau). domestic consumption. Large parts of FSM Over the medium term, the key challenge and RMI government revenues have been is the scheduled expiry of Compact-related relatively protected from the downturn in COVID-19 has led to recessions in the Fed- grants and programs in 2023-2024. This domestic activity, particularly donor erated States of Micronesia (FSM), Repub- poses a key structural risk to long-term fis- grants and fishing revenues. Grants, com- lic of the Marshall Islands (RMI) and Palau. cal sustainability, considering the limited bined with substantial fiscal buffers in space for additional debt. This is exacer- FSM, provided fiscal space for stimulus, A gradual recovery is projected from FY22. bated by the fact that the projected annual which was rolled out during FY20 and In the short term, moderate fiscal surpluses distributions from the nations’ Compact- FY21. FSM and RMI registered fiscal sur- are projected for FSM and RMI, while related trust funds are not sufficient to ful- pluses of 1.3 percent and 2.8 percent of Palau’s fiscal deficit will remain sizable. ly offset the expiring fiscal transfers. Given GDP in FY21, respectively. Medium-term fiscal risks are substantial, this risk, reform-based fiscal adjustments, In Palau, the pandemic has severely impact- such as domestic revenue mobilization ed the economy. The tourism industry and primarily due to the scheduled expiry of US and expenditure rationalization, are criti- its related business activities (around 40 Compact-related fiscal transfers, highlight- cal to cover fiscal gaps. Natural disasters percent of GDP) have been curtailed and ing the importance of structural reforms. and climate change also pose a threat to trade flows are severely disrupted. GDP is livelihoods. Sea level rise threatens the estimated to have contracted further by 17.1 FIGURE 1 North Pacific Islands / Overall fiscal balance FIGURE 2 North Pacific Islands / Formal sector (share of GDP) employment (Index, 2017=100) Percent of GDP Index 30 110 Palau 25 Republic of the Marshall Islands 20 105 Federated States of Micronesia 15 100 10 5 95 0 Palau -5 90 -10 Republic of the Marshall Islands -15 85 -20 Federated States of Micronesia -25 80 FY17 FY18 FY19 FY20(e) FY21(e) FY22(f) FY23(f) FY24(f) FY17 FY18 FY19 FY20(e) FY21(e) FY22(f) Sources: National sources via EconMap and World Bank projections. Sources: National sources via EconMap and World Bank projections. MPO 24 Apr 22 percent in FY21, after more than 90 per- arrival. The Palauan economy is project- percent of GDP in FY20 to 2.2 percent of cent drop in tourist arrivals. The fiscal ed to grow by 7.2 percent, on the back of GDP by FY24. Palau is projected to have deficit widened to over 18 percent in gradual recovery of the tourist arrivals to a fiscal deficit of 2.6 percent of GDP in 2021 driven by a decline in non-grant around one-third of the pre-crisis level. FY23 before return to a balance in FY24 revenues and a rise in health spending However, strong resurgence of the virus due to increase in tourism receipt and full and relief measures for firms and house- globally or local outbreaks could neces- implementation of tax reform bill. holds. This deficit has been financed by sitate a significant tightening of contain- Poverty in the North Pacific is expected external borrowing, which is estimated to ment measures and delays in reopening, to have risen relative to pre-crisis levels. have raised general government debt to which can derail the recovery and damp- The sharp economic contraction in FY20 around 85 percent of GDP from around en growth prospects. Fiscal surpluses of and FY21 led to formal-sector job losses 39 percent in FY19. 2.8 percent and 2.5 percent of GDP are and lower demand for goods in the infor- projected in FSM and RMI, as tax rev- mal economy. The rebound in formal sec- enues recover in line with economic ac- tor jobs in FY22 is expected to be slow. tivity. Another large deficit of 12.1 per- For Palau, the severe impacts on econom- Outlook cent is projected in Palau, as non-grant ic activity and jobs have led to increased revenues remain around 7 percent below vulnerability for substantial number of The timing and shape of the economic pre-crisis levels. households that predominantly work in recovery in the North Pacific depends GDP is not expected to recover to pre- the tourism sector. For FSM and RMI, on when international arrivals can fully crisis levels until FY23 in RMI and FY24 many households rely on annual remit- resume and the fallout of the Russia- in FSM. For Palau, GDP is projected to tance inflows (around 6 percent and 13 Ukraine war. For FSM and RMI, easing remain on a relatively lower trajectory, percent of GDP, respectively) that border restrictions will facilitate entry compared to pre-pandemic level, until dropped in FY21 and is estimated to re- of foreign workers, merchandise imports tourist arrivals fully recover in FY24. For main depressed in FY22 due to the im- and business travels, while for Palau, in- all three countries, the negotiation with pacts of the pandemic on US labor market crease in international arrivals will boost the U.S on Compact-related fiscal trans- conditions. There are only recent poverty the tourism recovery. Conditional on the fers is ongoing, and the terms and timing estimates for RMI, in which poverty is easing of restrictive arrivals by mid-2022 remain uncertain. Fiscal risks are tilted predicted to fall slightly in FY22, if eco- and a recovery in global economy, a to the downside with potential reduction nomic growth materializes. In FSM, the rebound is projected in FY22. The in grant revenues. Under current policies, country with the highest poverty rate in economies of the FSM and RMI are pro- the FSM will face a fiscal cliff in FY24 and the North Pacific, poverty reduction is jected to grow by 0.4 percent and 3.0 per- projected fiscal deficit of 4-5 percent of likely to be slower, given the huge share cent, due to the expected pick-up in con- GDP from FY24 onwards. In RMI, the fis- of informal sector and lower rebound of struction, tourists, and foreign workers cal surplus is projected to decline from 5 economic growth in FY22. TABLE 2 North Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020e 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices Federated States of Micronesia 1.2 -1.8 -3.2 0.4 3.2 1.9 Republic of the Marshall Islands 6.6 -2.2 -2.5 3.0 2.4 2.6 Palau -1.9 -9.7 -17.1 7.2 16.2 4.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) Republic of the Marshall Islands 22.5 24.0 26.7 24.5 24.1 23.0 Sources: ECONMAP, IMF, and Worldbank. e = estimate; f = forecast. Note: Values for each country correspond to their fiscal years ending September 30. (a) Calculations based on EAPPOV harmonization, using 2019-HIES. (b) Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 25 Apr 22 surveys conducted by the World Bank and UNICEF in mid-2021, more than half of PAPUA NEW Key conditions and households reported relying on subsis- tence agriculture as their main source of challenges GUINEA employment. More than two-thirds of households reported at least one episode The COVID-19 crisis has come on top of of food insecurity in the previous 30 days, PNG’s structural economic challenges, no- while nearly 40 percent of households re- Table 1 2021 tably the boom-and-bust cycles driven by ported insufficient access to water for Population, million 9.1 swings in natural resource sector exports. drinking and handwashing. GDP, current US$ billion 25.3 These cycles have been exacerbated by GDP per capita, current US$ 2773.8 sub-optimal fiscal and public expenditure a 39.9 management as expenditure goes up dur- National Poverty Rate Gini index a 41.9 ing booms, followed by spending cuts Recent developments b when the boom ends. Pandemic-related School enrollment, primary (% gross) 116.0 b global and domestic travel restrictions On the back of a strong global economic re- Life expectancy at birth, years 64.5 have weakened external and domestic de- covery, PNG reversed its downward eco- Total GHG Emissions (mtCO2e) 65.7 mand. In 2020, this has led to an economic nomic growth trajectory in 2021. The econ- Source: WDI, Macro Poverty Outlook, and official data. contraction, a sizable fiscal deficit, and omy contracted by 3.5 percent in 2020 be- a/ Most recent value (2009/10). National values b/ Most recent WDI value (2019). higher unemployment, and these out- fore returning to positive growth of 1 per- comes were only partially reversed in 2021. cent in 2021. The impact of COVID-19 on PNG has a highly dispersed and frag- economic output has been smaller than in mented population, low level of urban- many other EAP economies. The reasons The economy rebounded modestly in ization, significant gender disparities, for this include: low tourism exposure, 2021, supported by agriculture in the high exposure to natural disasters, high good performance of the agriculture sec- context of limited COVID-19 mobility degree of resource dependence, and in- tor, a time lag in the spread of COVID-19 restrictions. Rising fiscal deficit and ter-communal violence in some regions. within the country, fiscal stimulus, and the Weak governance severely constrains the recovery of commodity prices. However, the economic contraction placed the ability to effectively manage this chal- growth has lagged global and regional av- country at high risk of debt distress, lenging context. Fragility-related risks are erages. Economic performance in 2021 was requiring a fiscal consolidation. After exacerbated by the socio-economic im- constrained by falling gold and liquefied two years of contraction, the extractive pact of exogenous shocks, such as earth- natural gas (LNG) production that result- sector is projected to be the main dri- quakes and COVID-19. ed in a decline in extractive sector output Socio-economic development is lagging for for a second consecutive year. ver of GDP growth in 2022. With low large sections of the population in PNG. The Despite reversing the trajectory of the vaccination rates, limited fiscal space, last available nationally representative widening fiscal deficit, it remained large at and general elections in mid-2022, un- household survey, from 2010, suggested over 7 percent GDP in 2021. Public debt ex- certainty remains high. that about 38 percent of the population was ceeded 50 percent of GDP, and the coun- living below the US$1.90 per day (2011 PPP try is now classified at high risk of debt terms) poverty line. According to phone distress, according to the World Bank–IMF FIGURE 1 Papua New Guinea / Real GDP growth and FIGURE 2 Papua New Guinea / Key fiscal and debt contributions to real GDP growth indicators Percent, percentage points Percent of GDP 6 60 4 50 40 2 30 0 20 -2 10 -4 0 -6 -10 2018 2019 2020e 2021e 2022f 2023f 2024f 2017 2018 2019 2020e 2021e 2022f 2023f 2024f Extractive sector Non-extractive economy Revenue Expenditure Real GDP growth Overall balance Public debt, net Source: World Bank staff estimates and forecast. Source: World Bank staff estimates and forecast. MPO 26 Apr 22 Debt Sustainability Analysis. Contingent 2020. Employment and income levels in Meanwhile, uncertainty remains high. on prudent fiscal policies to be implement- mid-2021 were largely unchanged com- The Omicron variant of COVID-19 has ed, debt remain sustainable. The Bank of pared to December 2020. Preliminary been spreading fast in PNG, the least vac- PNG maintained the Kina Facility Rate at 3 analysis from the December 2021 survey cinated country in the EAP region. Less percent. Despite an accommodative mon- shows that most households continued us- than 6 percent of the adult population etary policy, private sector lending re- ing detrimental coping strategies such as received at least one vaccine dose, with mained flat due to subdued economic con- selling assets or drawing down on savings. 4 percent fully vaccinated. There is lit- ditions. Parliament passed amendments to Overall, the survey results are consistent tle prospect of a rapid increase in vacci- the Central Bank Act in December 2021 with a stall in economic recovery. nation rates, given high rates of vaccine that expanded its mandate beyond main- hesitancy. Combined with the low capac- taining price stability to also promoting ity of the public health system, this pos- employment and economic growth. The es a risk of higher casualties and a nega- current account surplus remained substan- Outlook tive impact on domestic economic activi- tial owing to depressed imports and high ty. Meanwhile, after the recent widening commodity prices. However, due to the In 2022, PNG is navigating a fragile re- of fiscal deficits, the government is ex- large debt repayments of the extractive covery. On the positive side, the extractive pected to implement a gradual fiscal con- sector, shortages of foreign currency re- sector is projected to rebound, driven by solidation. The fiscal space for a signif- main a key challenge. the planned reopening of the Porgera gold icant policy response in case of an eco- The impact of COVID-19 on livelihoods mine. Extractive sector growth is projected nomic shock is limited. The repercussions of the poor and vulnerable households to be the main driver of overall GDP of the Russia–Ukraine war might imply was severe, according to four rounds of growth in 2022 at 4.0 percent. High com- short-term gains from higher commod- a World Bank mobile phone survey con- modity prices will amplify this effect, sup- ity prices. However, the medium-term ducted between June 2020 and December porting the external accounts and provid- growth impact is likely to be negative due 2021. More than one-quarter of those ing (potentially) higher dividends to the to higher global uncertainty and lower working in January 2020 were estimated state-owned companies that hold shares in growth. Additionally, general elections in to have stopped working by December joint projects in the resource sector. mid-2022 heighten political uncertainties. TABLE 2 Papua New Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020e 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 -3.5 1.0 4.0 2.7 2.5 a Extractive sector 11.3 -8.4 -6.2 6.8 2.9 2.4 Non-extractive economy 1.4 -1.1 4.2 2.9 2.6 2.6 Inflation (Consumer Price Index), period average 3.7 4.9 5.1 7.2 5.1 4.9 Current account balance (% GDP) 22.1 19.5 20.5 21.9 21.5 20.8 a Extractive sector 26.1 21.3 21.0 22.8 22.9 22.4 Non-extractive economy -4.0 -1.8 -0.5 -0.9 -1.4 -1.6 Overall fiscal balance (% of GDP) 5.0 -8.6 -7.6 -6.0 -4.9 -3.9 Non-resource primary balance (% of non-extractive GDP) -6.1 -10.4 -8.8 -6.9 -5.2 -3.6 Public debt, net (% of GDP) 40.2 48.9 52.3 52.4 53.7 53.6 Sources: World Bank staff estimates and forecast. e = estimate; f = forecast. (a) The extractive sector comprises mining, quarrying, petroleum and gas production. MPO 27 Apr 22 The new administration to take office in June 2022 would have to carefully manage PHILIPPINES Key conditions and rising vulnerabilities on the macroeconom- ic policy front, accelerate physical and hu- challenges man capital investments, and pursue structural reforms to strengthen long-term Table 1 2021 The Philippines swiftly contained its recovery. Rebuilding a narrowing fiscal Population, million 111.0 largest COVID-19 outbreak in early 2022. space can be achieved by carefully pursu- GDP, current US$ billion 392.5 Metro Manila and other key regions were ing fiscal consolidation. Ensuring inclusive GDP per capita, current US$ 3534.3 placed under Alert Level 1 since March and quality growth matters as the coun- a 2.7 International poverty rate ($1.9) 1, allowing for unimpeded cross-border try pursues its Ambisyon Natin objective a 17.0 travel and a return to full-capacity in of reaching middle class society by 2040. Lower middle-income poverty rate ($3.2) a 46.9 workspaces, establishments, and public Upper middle-income poverty rate ($5.5) Gini index a 42.3 transportation. Progress in mass vaccina- School enrollment, primary (% gross) b 99.1 tion, amid declining vaccine hesitancy, Life expectancy at birth, years b 71.2 continues to help drive domestic activity Recent developments as nearly 60 percent of the population are Total GHG Emissions (mtCO2e) 214.4 fully vaccinated, with about 13.0 percent The economy expanded by 5.6 percent year- Source: WDI, Macro Poverty Outlook, and official data. having received boosters. Current macro- on-year in 2021, fueled by a faster-than-ex- a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). economic policies remain supportive of pected recovery in the second half of the growth, although policy space continues year. However, output remained below to narrow given rising public debt and in- pre-pandemic level by around 5.0 percent, Following a deep contraction in 2020, the creasing inflationary expectation. whereas many regional peers have closed Risks remain tilted to the downside the gap. Strong external demand buoyed economy rebounded in 2021 supported by with significant implications on the manufacturing exports, while public in- strong manufacturing and public invest- macroeconomic policy setting. Foremost vestment drove growth in construction. The ment. Economic policies have been sup- is the possibility of new COVID-19 vari- relaxation of containment measures, espe- portive of the recovery, but policy space is ants which could lead to a resurgence cially towards the end of the year, drove a in infections, possible re-introduction of rebound in services. However, agriculture narrowing. Poverty has likely improved containment measures, and additional struggled with a contraction in livestock between 2020 and 2021, but remains burden on fiscal support. In addition, production due to the African Swine Fever. above pre-pandemic levels. The economy the upcoming national election raises On the expenditure side, private consump- is projected to grow by about 5.6 percent uncertainty on policy continuity and tion was a key growth engine. Public invest- per year over the medium term, anchored priorities of the next administration. On ment accelerated, but uncertainty and weak the external front, the Russia-Ukraine confidence dampened private investment. on more robust domestic activities. How- war heightens the inflationary pressure Goods exports benefitted from a supportive ever, the outlook is subject to downside already experienced in global markets, external environment. risks from external and domestic sources. which could accelerate the tightening The fiscal deficit rose to 8.6 percent of GDP of the monetary policy in advanced in 2021 fueled by an acceleration in public economies and in the Philippines. spending and a sharp decline in non-tax FIGURE 1 Philippines / Real GDP growth and contributions FIGURE 2 Philippines / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 70 200000 180000 60 5 160000 50 140000 0 40 120000 100000 -5 30 80000 Net exports 20 60000 -10 Discrepancy 40000 Investments 10 20000 -15 Government Consumption Household Final Consumption Expenditure 0 0 GDP Growth 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021 Upper middle-income pov. rate Real GDP pc Source: Philippines Statistics Authority. Source: World Bank staff calculations. MPO 28 Apr 22 revenues. Public spending increased by 2.3 slows in view of fiscal consolidation. Capi- percent of GDP, anchored on public invest- tal growth may be tempered by rising inter- ment growth, and fiscal support measures. Outlook est rates and lingering uncertainty from the The central government debt increased external environment. from 54.6 percent of GDP in 2020 to 60.5 The economy is projected to grow at 5.7 Poverty incidence is estimated at 18.3 percent of GDP in 2021. percent in 2022 and 5.6 percent on average percent in 2021, based on the lower mid- The central bank kept the key policy rate in 2023-24. Growth will draw strength dle-income poverty line of 3.2 dollars a at 2.0 percent despite headline inflation from the domestic environment with de- day, 2011 PPP. Following current growth breaching the 2-4 percent target in 2021. clining COVID-19 cases, looser restric- projections, poverty incidence will de- The uptick in headline inflation was due tions, and wider reopening. The strong do- crease to 16.2 percent in 2022, and contin- to rising global oil prices and a surge in mestic condition will help compensate for ue to decline through 2024. The Russia- food inflation as a result of food produc- the weak external environment, reeling Ukraine war may induce inflation spikes tion challenges from the African Swine from a global growth deceleration, rising that may slowdown the decline in pover- Fever and weather-related disturbances. inflation, and geopolitical turmoil. ty, mainly through the knock-on effect of Labor force participation is 60.5 percent in The reopening will benefit the contact-in- fuel price increases on food prices that January 2022, the same rate in January tensive services sector, while public invest- disproportionately hurt the poor and eco- 2021. Female participation notably in- ment will support construction and indus- nomically vulnerable. creased by 1.2 percentage points, while un- try. Agriculture is expected to grow mod- Significant risks emanate from the exter- employment decreased to 6.4 percent from estly as structural weaknesses persist. On nal environment. Central banks in ad- 8.8 percent in the same period. The labor the expenditure side, private consumption vanced economies have signaled immi- market improvement may have helped will expand with recovering employment nent interest rate hikes, which could lead lower poverty between 2020 and 2021, but and remittances, boosted by election-relat- to financial volatility in emerging mar- it remains above pre-pandemic levels. ed spending. Consumption growth could kets. Rising global commodity and ener- There are danger signs of the low quality have been higher if not for the Russia- gy prices will intensify inflationary pres- of jobs generated with workers moving to Ukraine war driving inflationary pressure sure. Domestically, the political transition self-employment and low-skilled wage oc- on fuel and food. Public consumption is ex- risks policy discontinuity that may under- cupation, which can jeopardize future pected to grow in line with the bigger na- mine market confidence. While the coun- poverty reductions. The labor shift and hu- tional budget, while public infrastructure try has entered a benign phase of the man capital deterioration have increased investments will contribute to capital for- pandemic, threat of a new variant-driven inequality. The Gini coefficient is estimat- mation growth. Net exports will be weaker surge hangs over the outlook. Neverthe- ed to increase from 42.3 percent in 2018 to amid a subdued external environment. In less, the country has adopted systems 45.0 percent in 2021, and would have been 2023-2024, private consumption will be sup- that allow more public mobility and lo- higher without the social assistance given ported by sustained remittances and do- calized responses to outbreaks, reducing at the height of the pandemic. mestic activities, while public consumption adverse economic impacts. TABLE 2 Philippines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.1 -9.6 5.6 5.7 5.6 5.6 Private Consumption 5.9 -7.9 4.2 5.5 5.6 5.6 Government Consumption 9.1 10.5 7.0 9.2 7.8 6.5 Gross Fixed Capital Investment 3.9 -27.5 9.6 12.3 10.1 9.4 Exports, Goods and Services 2.6 -16.3 7.8 7.6 7.3 7.0 Imports, Goods and Services 2.3 -21.6 12.9 12.3 10.3 9.0 Real GDP growth, at constant factor prices 6.1 -9.6 5.6 5.7 5.6 5.6 Agriculture 1.2 -0.2 -0.3 1.0 1.1 1.1 Industry 5.5 -13.2 8.2 6.5 6.2 5.9 Services 7.2 -9.2 5.3 6.0 6.1 6.1 Inflation (Consumer Price Index) 2.4 2.4 3.9 4.2 3.5 3.3 Current Account Balance (% of GDP) -0.8 3.2 -1.8 -4.0 -3.5 -3.3 Net Foreign Direct Investment (% of GDP) 2.3 1.9 2.7 2.8 3.0 3.0 Fiscal Balance (% of GDP) -3.4 -7.6 -8.6 -7.1 -6.0 -5.1 General Government Debt (% of GDP) 34.1 48.1 54.6 56.2 56.9 57.0 Primary Balance (% of GDP) -1.5 -5.5 -6.4 -4.6 -3.5 -2.6 a,b International poverty rate ($1.9 in 2011 PPP) 2.2 3.7 3.1 2.6 2.1 1.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 15.0 20.4 18.3 16.3 14.6 12.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 44.2 50.8 48.5 46.0 43.4 40.9 GHG emissions growth (mtCO2e) 3.3 -12.2 0.6 2.3 2.1 2.0 Energy related GHG emissions (% of total) 58.8 54.8 55.1 54.8 54.4 54.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2018-FIES.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 29 Apr 22 non-agricultural income during the period January-June 2021. Food insecurity re- SOLOMON Key conditions and mains prevalent, as more than two thirds of households had at least one episode of challenges ISLANDS food insecurity in the month leading up to the survey. Common coping strategies, Solomon Islands is a country with 700,000 such as reducing food consumption or sell- people dispersed across 90 inhabited is- ing assets, could make those households Table 1 2021 lands. The country faces large economic, further vulnerable. Population, million 0.7 development and governance challenges Strong and timely containment measures GDP, current US$ billion 1.6 shaped by its geographical dispersion, re- had been successful in preventing local GDP per capita, current US$ 2322.0 moteness to international markets, and transmission of the coronavirus until 2022, National Basic Needs Poverty Rate a 12.7 vulnerability to natural disasters. In ad- when a community outbreak rapidly b 104.3 dition to the socio-geographic character- spread through a largely unvaccinated pop- School enrollment, primary (% gross) b istics, capacity constraints, as well as a ulation. At the end of February 2022 about Life expectancy at birth, years 73.0 fragile political landscape pose a contin- 30 percent of the population had received at Total GHG Emissions (mtCO2e) 46.4 uous threat to sustainable development. least one dose. The country expects to re- Source: WDI, Macro Poverty Outlook, and official data. These challenges make the planning, de- open its borders in the second half of 2022. a/ Solomon Islands National Statistics Office. Most recent value (2013). livery and management of infrastructure b/ Most recent WDI value (2019). systems challenging and this has resulted in a large infrastructure gap. The need for economic diversification is urgent given Recent developments The economy is expected to shrink by economy’s over-reliance on the logging sector. The government’s attempt to find The economy was set to grow by 0.4 per- -2.9 percent in 2022, reflecting the neg- new sources of economic growth is con- cent in 2021. However, at the end of No- ative impact of the recent civil unrest strained by several impediments, includ- vember 2021, protests at the Parliament and widespread community transmis- ing limited human capital and an unfa- building escalated into looting and riot- sion of the coronavirus. These events vorable business environment. ing, causing severe damage and losses have broad-based economic impacts and Development challenges have been fur- to buildings and goods, estimated at 7 ther exacerbated by the COVID-19 pan- percent of GDP. The civil unrest, driven create pressure on the fiscal accounts. demic which caused a sharp economic by a complex web of local grievances Risks to the outlook include a further contraction and adversely affected peo- and a lack of economic opportunities, re- spread of the coronavirus, higher im- ple’s livelihoods. According to a mobile duced the economic growth rate by 0.3 ported inflation, a return of social un- phone survey collected from June to Au- percentage points in 2021 (to 0.1 percent), gust 2021, there is no sign of employ- with knock-on effects in 2022. This re- rest, and climate-related disasters. ment recovery. To the contrary, the sur- flects lower economic activity in the retail vey indicates a decline in the share of and wholesale sector, which accounted working individuals since the start of the for half of all the civil unrest damage. pandemic. More than half of all house- The fiscal deficit deteriorated to 5.4 percent holds experienced reductions in their of GDP in 2021. In the month of December FIGURE 1 Solomon Islands / Real GDP growth, actual, FIGURE 2 Solomon Islands / Fiscal balance pre-unrest trend and post-unrest forecast Percent Index US$ billion LCU Percent of GDP 8 160 6 6 6 140 4 5 4 120 2 4 2 100 0 3 0 80 -2 -2 60 2 -4 -4 40 1 -6 -6 Real GDP (post-unrest), % change 20 Real GDP (pre-unrest), Index (2013=100) (rhs) 0 -8 Real GDP (post-unrest), Index (2013=100) (rhs) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -8 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total expenditure Total revenue Fiscal balance (rhs) Source: World Bank staff estimates. Source: World Bank staff estimates. MPO 30 Apr 22 2021, the revenue loss due to riots is esti- represents a sharp deterioration compared by a further drawdown on the cash buffers mated at 0.6 percent of GDP. In response, to the pre-unrest projection for 2022 (4.5 per- and a combination of domestic and exter- the government introduced austerity mea- cent growth). Investments to replace dam- nal lending. An expected rebound of eco- sures limiting payments to payroll, essen- aged productive capacity caused by the ri- nomic activity and spending consolidation tial items and COVID-19 related expendi- ots are unlikely to gain pace until later in the will lead to a narrowing of the fiscal deficit tures, though this only partially offset the year. Furthermore, the lockdown to contain in 2023-2024. Similarly, the current account revenue loss. The remaining fiscal gap in COVID-19 is likely to dent output in con- deficit will shrink over the medium term 2021 was financed by a reduction in cash tact-intensive sectors, including services, reflecting smaller fiscal deficit and reduc- buffers, which stood 3 percent of GDP at which represents about 55 percent of out- tion in construction-related imports. the end of 2021. put. Following a contraction in 2022, COVID-19 remains a major risk to the eco- The current account deficit widened to 5.2 growth is projected to rebound to 5.3 per- nomic outlook. A low vaccination in- percent of GDP in 2021, reflecting a large cent of GDP in 2023 and to moderate to 3.8 take—particularly among low-educated trade deficit which was partially offset by percent in 2024. Infrastructure investment, and female populations— may lead to the current transfers. The trade deficit was a return of business tourism and increased maintenance of a closed border policy, mainly driven by an increase in imports of mining activity are expected to support while a further community transmission machineries, fuel and basic manufactures growth over the medium-term. may have human capital implications and and export of fish and agricultural prod- The deficit in both external and fiscal ac- hamper economic recovery. The Russia- ucts, as well as minerals. counts will widen in 2022, to 18.3 per- Ukraine war may lead to sustained high cent and 7.7 percent of GDP, respectively. commodity prices – especially fuel, which High demand for imported construction would have inflationary effects and nega- materials and machinery will drive cur- tive implications on the external accounts Outlook rent account deficit. A combination of (refined petroleum constitutes 20 percent of lower economic activity and elevated imports). A further deterioration of domes- Output is projected to contract by 2.9 per- spending on COVID-response and busi- tic economic conditions may lead to a return cent in 2022, reflecting the impact of the ness recovery will increase the fiscal of social unrest, while natural disasters re- civil unrest and COVID-19 lockdown. This deficit. The deficit, in turn, will be financed main a significant risk for Solomon Islands. TABLE 2 Solomon Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.2 -4.3 0.1 -2.9 5.3 3.8 Real GDP growth, at constant factor prices 1.3 -4.3 0.1 -2.9 5.3 3.8 Agriculture -4.4 -2.3 -0.6 -6.6 2.2 -1.2 Industry 6.3 -12.7 6.8 -1.9 18.7 17.7 Services 2.8 -2.7 -1.4 -1.4 2.9 1.5 Inflation (Consumer Price Index) 1.6 3.0 -0.2 8.8 3.5 3.5 Current Account Balance (% of GDP) -9.8 -1.6 -5.2 -18.3 -17.7 -14.0 Net Foreign Direct Investment (% of GDP) -1.8 -0.4 -1.5 -2.9 -3.1 -2.8 Fiscal Balance (% of GDP) 0.7 -4.9 -5.4 -7.7 -4.9 -4.5 Debt (% of GDP) 8.3 14.0 20.6 23.7 25.6 26.8 Primary Balance (% of GDP) 1.2 -4.2 -5.1 -7.3 -4.4 -4.0 GHG emissions growth (mtCO2e) 0.0 0.0 0.0 0.1 0.1 0.1 Energy related GHG emissions (% of total) 0.9 0.9 0.9 0.9 0.9 1.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 31 Apr 22 balance between catalyzing a sustainable and inclusive economic recovery and SOUTH PACIFIC Key conditions and maintaining macroeconomic balance in the face of several competing pressures. With challenges ISLANDS limited fiscal space and low capacity to carry debt, governments need to prioritize Natural disasters and external shocks pose strategic measures that lay the foundation a constant threat to livelihoods, economic for the economic recovery, while also sup- Table 1 2021 growth, and fiscal sustainability in the porting livelihoods for the bottom 40 per- Population, million South Pacific. Enhancing resilience to exter- cent of households. Effective implementa- Samoa 0.20 nal shocks is crucial to supporting long-run tion of structural reforms will be critical to Tonga 0.10 growth and achieving sustainable improve- ensure a sustainable economic recovery. Vanuatu 0.31 GDP, US$, billion ments in living standards and poverty re- Samoa 0.79 duction. Economic activity may remain de- Tonga 0.50 pressed for another six to nine months as au- Vanuatu 1.00 thorities remain cautious about border re- Recent developments GDP per capita, current US$ opening to prevent overburdening their Samoa 3954 weak public health systems. The delayed re- Border closures helped temporarily con- Tonga 4993 covery creates significant potential for scar- tain the pandemic but created economic Vanuatu 3253 ring effects in the longer term, particularly downturns. Substantial donor funding Sources: WDI, World Bank staff estimates. in the tourism sector. Lost firms and jobs cushioned the negative impact on fiscal create adverse structural changes to the and external balances. While the economy that are not reversed when aggre- COVID-19 vaccination roll-out has been The economies of Samoa, Tonga and Van- gate demand recovers. These changes progressing well in Samoa and Tonga with uatu have been hit by natural disasters would disproportionately affect the lower approximately 90 percent of the adult pop- educated, whose skills may not be as trans- ulation fully vaccinated as at end-February and the COVID-19 pandemic. These ferable to other sectors. The economic 2022, it has been relatively slow in Van- South Pacific countries just recorded their shocks and slow recovery also greatly in- uatu. It lags with only 48 percent of the first COVID outbreaks. Tonga’s outbreak crease the risk of poverty, particularly as adult population fully vaccinated. was amid a volcanic eruption and subse- households deplete savings and assets to The Samoan economy recorded a histor- cope with lost incomes. ical-high recession in FY21. While border quent tsunami. Strict travel restrictions The main immediate challenge for all three closure prevented domestic transmission have hit tourism-related activity with countries is to contain the domestic of COVID-19, it resulted in a sharp con- negative spillovers on the rest of the econ- COVID-19 outbreak. In addition, Vanuatu traction of tourism and related industries, omy. Governments need to continue sup- needs to sustain its recent uptick in vacci- and hindered construction activity. De- porting the vulnerable and embark on nations to minimize health and economic spite policy support and robust remit- impacts from the outbreak while Tonga tances, real GDP declined by 8.1 percent. structural reforms to support inclusive needs to prioritize response and recovery Poverty is likely to have risen from the pre- economic recovery. from the recent tsunami. The near-term pandemic level, with urban areas affected challenge will be to strike an appropriate more due to the higher concentration of FIGURE 1 South Pacific Islands / Overall fiscal balance FIGURE 2 South Pacific Islands / Current account balance Percent of GDP Percent of GDP 8 20 Samoa 6 15 Tonga 4 10 2 Vanuatu 5 0 0 -2 -5 -4 -10 -6 -8 -15 Samoa Tonga Vanuatu -10 -20 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Sources: National sources and World Bank projections. Sources: National sources and World Bank projections. MPO 32 Apr 22 jobs in the service sector. Substantial de- The twin deficits are expected to narrow velopment partner grants, spending un- over the medium-term consistent with the der-execution and favorable tax revenue Outlook economic recovery. outturn, reflecting improved tax compli- In Tonga, the economy is expected to con- ance and the phased rollout of the Tax In- The near-term outlook remains dependent tract by 1.6 percent in FY22, reflecting the voice Monitoring System (TIMS) helped on the duration of COVID-19 related travel impact of the recent tsunami on agricultur- attain a fiscal surplus of 1.9 percent of restrictions and the economic fallout from al production, the commercial sector and GDP. The current account recorded a sub- the Russia-Ukraine war. Among others, tourism, aggravating the COVID-related stantial deficit (15.3 percent of GDP) as achieving herd immunity through vaccina- impact. Borders are expected to remain tourism receipts came to a standstill. tion is a key trigger for border reopening. closed until end of FY22 as the country bat- The Tongan economy is estimated to have Most of the adult population are expected to tles its first COVID-19 outbreak. Growth is contracted by 0.8 percent in FY21, due to the be fully vaccinated by end-March 2022 in expected to rebound to 3.2 percent in FY23 impacts of COVID-19 and TC Harold—a Samoa and Tonga. In Vanuatu, vaccination and FY24 driven by reconstruction activi- category 5 cyclone that struck the country in demand has increased substantially due to ty, recovery in agriculture production, and April 2020. These shocks have resulted in a the community transmission of the gradual pick-up in tourism receipts. The slowdown in the tourism, retail, and agri- COVID-19. Tourism activity is expected to fiscal and current account deficits are pro- culture sectors. However, a severe contrac- be sluggish in the near-term and gain mo- jected to remain elevated in FY23-24 as re- tion was avoided due to the fiscal stimulus mentum over the medium-term. While pre- construction activities and recovery efforts implementation, ramp-up of reconstruction mature border reopening could have impli- take place, before narrowing over the activities from TC Gita (2018) and TC cations on the domestic COVID situation, medium term. Harold, and buoyant remittance inflows. A economic activity will be constrained for as In Vanuatu, GDP growth is expected to marginal fiscal deficit of 0.4 percent of GDP long as international travel restrictions re- accelerate to 3-4 percent between was recorded, supported by relatively high main in place. The implication is that pover- 2022-2024, supported by a gradual pick grants and better-than-expected domestic ty rates across the three countries will grad- up in tourism and cyclone reconstruction revenue collections. Robust remittances and ually decline as economic activity picks up activity. In tandem, the poverty rate is lower service imports helped attain a cur- and jobs become available but will remain projected to gradually decline from 36.6 rent account surplus (5 percent of GDP). higher than pre-pandemic levels until full percent in 2022 to 35.9 percent in 2024. In Vanuatu, following a deep economic re- economic recovery is achieved. In the near term, the community trans- cession in 2020, growth is estimated to In Samoa, an economic contraction of 0.3 mission of COVID-19 is negatively affect- have recovered to 1.2 percent in 2021. The percent is projected in FY22, reflecting the ing growth. The fiscal deficit is projected economic recovery was underpinned by global growth slowdown and COVID-relat- to deepen in 2022 – due to lower ECP rev- continued fiscal stimulus, which support- ed impact but is projected to accelerate to 3.8 enues and increased COVID-spending but ed livelihoods and funded reconstruction percent by FY24. The recovery is expected to narrow onwards. A balanced budget is ex- activity related to TC Harold. A sizeable be driven by a gradual resumption of tourist pected by 2024 as the recently passed Tax fiscal deficit of 6 percent of GDP was activity from FY23, spillovers to other sec- Administration Act helps boost tax rev- recorded in 2021, driven by a fall in sov- tors and ramping up of capital projects. The enues and the COVID stimulus is gradual- ereign rents, particularly lower Economic fiscal balance is projected to record a ly withdrawn. These are expected to out- Citizenship Program (ECP) receipts, deficit of 2.9 percent of GDP as develop- weigh the projected decline in ECP rev- alongside increased expenditures. The cur- ment partner grants normalizes and capi- enues. Similarly, the current account rent account recorded a deficit of 8 percent tal expenditure picks up pace. With the de- deficit is projected to gradually narrow to of GDP, predominantly driven by subdued layed recovery in tourism, the current ac- approximately 4.4 percent of GDP by 2024, tourism receipts. count deficit is projected to persist in FY22. driven by a recovery in travel receipts. TABLE 2 South Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices Samoa 4.4 -2.6 -8.1 -0.3 2.5 3.8 Tonga 0.7 0.7 -0.8 -1.6 3.2 3.2 Vanuatu 3.9 -6.8 1.2 2.0 4.1 3.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) Vanuatu 32.3 37.6 36.9 36.6 36.1 35.9 Sources: World Bank and IMF. e = estimate; f = forecast. Note: Financial years for Samoa and Tonga are July-June, for Vanuatu it is January-December. (a) Calculations based on EAPPOV harmonization, using 2019-NSDP. (b) Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 33 Apr 22 sheets would reduce potential output over the longer-term. THAILAND Key conditions and The Ukraine-Russia war is likely to have a substantial impact on domestic oil prices challenges and consumer prices as Thailand is a net commodity importer. High consumer Table 1 2021 The economy is on a recovery path fol- prices will weigh on household welfare. As Population, million 70.0 lowing the reopening of borders and re- the economic recovery is expected to be GDP, current US$ billion 506.0 laxation of lockdown measures. Growth is gradual, continued but scaled-down social GDP per capita, current US$ 7233.4 projected to reach 2.9 percent in 2022 after assistance and government relief programs a 6.4 Upper middle-income poverty rate ($5.5) expanding by just 1.6 percent in 2021. are necessary to mitigate the welfare impact a 35.0 However, risks to growth are skewed to of rising prices on household livelihoods. Gini index b 102.2 the downside as several uncertainties School enrollment, primary (% gross) Life expectancy at birth, years b 77.2 cloud the outlook. The global trajectory of Total GHG Emissions (mtCO2e) 392.2 the pandemic remains unpredictable and Source: WDI, Macro Poverty Outlook, and official data. the probability of future new vaccine-re- Recent developments a/ Most recent value (2020), 2011 PPPs. sistant strains of coronavirus could affect b/ WDI for School enrollment (2020); Life expectancy domestic consumption and border restric- The economy expanded by 1.6 percent in (2019). tions. The recovery will in part depend on 2021 as a surge in COVID-19 cases hit eco- continued progress with the vaccination nomic activity. This followed a contraction rollout and booster shots, the ongoing im- of 6.2 percent in 2020 - the worst since the The economy expanded by just 1.6 percent plementation of other preventive and test- Asian Financial Crisis. Private consump- in 2021 as tourism remained dormant and ing/tracing measures, and the sustained re- tion weakened due to the COVID-19 out- a surge in COVID-19 cases hit economic opening of international borders. break and the containment measures in The pandemic shock is expected to inflict 2021. Goods exports were the main source activity. Economic activity is expected to lasting scars on productivity and socioeco- of growth, following the pickup in global return to pre-pandemic levels by early nomic development in Thailand. A decline demand. The economy gained traction in 2023 supported by private consumption in capital investment in 2020 diminished the fourth quarter, growing by 1.9 percent and services exports. The pace of recovery is potential output, exacerbating the adverse (yoy), up from -0.2 percent in the previous effects of demographic aging and slow fac- quarter. Contributing factors included the expected to remain protracted and hinges tor reallocation. Employment and learning relaxation of lockdown measures, the re- on the evolution of COVID-19 infections, losses were uneven with vulnerable groups opening of borders for vaccinated visitors, the resumption of tourism, and the fallout disproportionately affected, worsening in- and continued COVID-19 relief measures. from the Ukraine-Russia war. Goods ex- equalities in income and human capital ac- The central government fiscal deficit ports are likely to be affected by weakening cumulation. Meanwhile, increasing levels widened significantly in FY21 (year ended of corporate and household debt could pose September) to 8.7 percent of GDP due to global demand. Government relief mea- risks, including risks to the financial sector further increases in pandemic-response sures are expected to gradually decline, once existing forbearance measures expire. spending. Expenditures rose to 26.4 per- amid ongoing fiscal consolidation. On the other hand, a deferral of productive cent of GDP, up from 23.5 percent in FY20. investments due to weakened firm balance Public debt increased to 57.8 percent of FIGURE 1 Thailand / Real GDP growth and contributions to FIGURE 2 Thailand / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8 30 180000 6 160000 25 4 140000 2 20 120000 0 100000 15 -2 80000 -4 10 60000 -6 40000 5 20000 -8 2017 2018 2019 2020 2021 2022f 2023f 2024f 0 0 Private consumption Government consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross Fixed Investment Net exports International poverty rate Lower middle-income pov. rate Change in inventories* GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank staff calculations and NESDC. Note: * Includes statistical Source: World Bank. Notes: see Table 2. discrepancy. MPO 34 Apr 22 GDP. The central bank continued to pur- peers. The poverty headcount rate (based Ukraine-Russia war. However, second- sue accommodative monetary policy and on the upper middle-income poverty line round inflation pressures are projected to the targeted distribution of liquidity sup- of 5.5 dollars a day, 2011 PPP) was esti- remain contained due to the remaining port to SMEs. The current account balance mated to have declined from 6.4 percent in output gap, price administration, and an- turned negative for the first time in 8 years 2020 to 6.2 percent in 2021 due to signifi- chored inflation expectations. at 2.2 percent of GDP, reflecting the widen- cant fiscal support to households. The pace of recovery will hinge on the ing service exports deficit due to muted evolution of COVID-19 infections and the tourism receipts and soaring freight costs. resumption of tourist arrivals. Despite the The Real Effective Exchange Rate (REER) reopening of borders, the pace of the depreciated by 4.8 percent in 2021, the sec- Outlook tourism recovery is likely to be gradual ond worst-performing currency in Asia af- due to the ongoing Omicron wave, con- ter the Japanese yen. The economy is expected to return to pre- tinued travel restrictions by China, and Employment has picked up following the pandemic levels by early 2023. Growth is the Ukraine–Russia war. relaxation of lockdown measures and the projected to reach 2.9 percent in 2022 and 4.3 Labor market conditions are expected to reopening of borders, but labor market percent in 2023, driven by increased private gradually improve as the tourism sector conditions remained weaker than before consumption and services exports. But continues to recover. Social assistance in- the pandemic. The unemployment rate de- weakening global demand will slow come is expected to rise due to an expan- clined to 1.6 percent in Q4 2021 but re- growth in goods exports. The fallout from sion of eligible beneficiaries of the state mained above the level of 1.0 percent in the Ukraine-Russia war will weigh on do- welfare card scheme from 13.5 million in 2019. Average household income grew 4.5 mestic consumption, external demand, and 2021 to 20 million in 2022. Following the percent per year (in nominal terms) during tourism. Government relief measures are growth rebound, the expansion of the so- 2019 – 2021, driven by incomes from social expected to gradually decline amid fiscal cial assistance programs, and the continu- assistance and COVID-19 relief measures. consolidation. Headline inflation is expect- ation of the COVID-19 recovery programs, Household debt surged during the same ed to rise markedly to 3.7 percent in 2022 household income is expected to increase period, reaching 89.3 percent of GDP in due to supply-side driven factors, including and the poverty headcount rate is project- 2021, which is high compared to regional the surge in global oil prices following the ed to decline to 5.8 percent in 2022. TABLE 2 Thailand / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -6.2 1.6 2.9 4.3 5.1 Private Consumption 4.0 -1.0 0.3 3.8 4.1 3.7 Government Consumption 1.6 1.4 3.2 0.9 2.5 2.9 Gross Fixed Capital Investment 2.0 -4.8 3.4 4.0 4.9 3.3 Exports, Goods and Services -3.0 -19.7 10.4 6.7 5.7 7.8 Imports, Goods and Services -5.2 -14.1 17.9 6.5 5.1 5.3 Real GDP growth, at constant factor prices 2.2 -5.6 1.6 2.8 4.3 5.1 Agriculture -0.5 -3.2 1.3 1.3 1.2 1.2 Industry -0.7 -5.3 3.4 4.8 3.9 3.9 Services 4.2 -6.0 0.6 1.9 4.9 6.3 Inflation (Consumer Price Index) 0.7 -0.8 1.2 3.7 0.9 1.1 Current Account Balance (% of GDP) 7.0 4.2 -2.2 -2.4 0.2 2.2 Net Foreign Direct Investment (% of GDP) -1.0 -4.8 0.6 0.5 0.5 0.5 Fiscal Balance (% of GDP) 0.4 -4.5 -7.8 -3.9 -2.2 -2.0 Debt (% of GDP) 40.9 50.1 57.7 62.6 63.2 61.8 Primary Balance (% of GDP) 1.4 -3.6 -6.5 -2.8 -0.9 -0.8 a,b International poverty rate ($1.9 in 2011 PPP) 0.1 0.0 0.0 0.1 0.1 0.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.3 0.3 0.3 0.3 0.2 0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 6.2 6.4 6.2 5.8 5.3 4.7 GHG emissions growth (mtCO2e) 0.0 -6.0 1.8 -0.7 1.8 3.6 Energy related GHG emissions (% of total) 61.3 59.5 60.1 59.4 59.6 60.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2014-SES, 2019-SES, and 2020-SES.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2014-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 35 Apr 22 structural reform agenda includes creat- ing a more supportive environment for TIMOR-LESTE Key conditions and private-sector-led growth and building a more climate-resilient economy. challenges Table 1 2021 Economic growth driven by public spend- Population, million 1.3 ing has generated low returns in the past Recent developments GDP, current US$ billion 1.7 and is fiscally unsustainable going forward. GDP per capita, current US$ 1283.8 Between 2013 and 2020, GDP growth aver- After a relatively slow start, the vaccination a 22.0 International poverty rate ($1.9) aged 0.3 percent per year, well below the campaign has accelerated rapidly. As of a 65.9 EAP average of 6.0 percent. Public spending March, 21, 2022, 72.5 percent of eligible Lower middle-income poverty rate ($3.2) a 28.6 skyrocketed in 2007-2016 and remained one adults are fully vaccinated while more than Gini index School enrollment, primary (% gross) b 112.5 of the highest in the world (71.2 percent of 85 percent adults have received at least one Life expectancy at birth, years b 69.5 GDP in 2020). But high public spending did dose. The government has started vaccinat- Total GHG Emissions (mtCO2e) 6.5 not boost growth as expected and led to a ing children and adolescents aged between large fiscal deficit of 18.2 percent of GDP in 12 and 18 years old. Booster shots have been Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014), 2011 PPPs. 2020. The fiscal deficit can be financed using made available since early this year. Timor- b/ Most recent WDI value (2019). the Petroleum Fund (about 19 times 2021 Leste is in the early phase of the third wave GDP) in the short to medium term. Howev- of transmission primarily driven by Omi- er, the Petroleum Fund will be depleted by cron. Also, of concern is the surge of Dengue The economy is showing signs of moder- 2032 under current spending trajectories. cases. There have been some 20 deaths and Timor-Leste has had eight different gov- more than 3 000 reported cases of dengue ate recovery from the dual COVID-19 ernments since independence twenty years fever since January 2022. and natural disaster shocks in 2021. The ago. Recent political instabilities, particu- The country had a challenging year in 2021 economy is projected to grow by 2.4 per- larly in 2018 and 2020, have caused con- as the economy was adversely impacted by cent in 2022 on the back of public spend- siderable delays in the approval, promul- the surge of COVID-19 cases and major ing and a strong COVID-19 vaccination gation, and execution of the state budgets. flooding caused by Tropical Cyclone Seroja. Public investment declined by 17.9 percent High spending to respond these shocks has campaign. Risks to the outlook include and 49.1 percent in 2019 and 2020, respec- led to a budget deficit of 44.2 percent of GDP the recurrence of COVID-19 outbreaks tively. A political consensus around key in 2021, but authorities were only able to ex- and political uncertainty due to the up- policy and regulatory reforms to support ecute 71 percent of the allocated budget. The coming Presidential election. Long-term economic recovery and overcome socio- 2022 budget was opportunely approved economic challenges is urgently needed. and promulgated on time in December 2021 growth prospects remain contingent on Timor-Leste is vulnerable to natural haz- and January 2022, respectively. the ability of the Government to promote ards and ranked 20th amongst countries The dual shocks in 2021 might also increase private sector growth and to build a more with the highest disaster risks. The April poverty. Measured by an international climate-resilient economy. 2021 natural disasters and related recov- poverty line of US$1.90 per day per capita ery costs have eroded fiscal space and (2011 PPP), poverty was estimated to have undermined macroeconomic stability. The increased from 24 to 27 percent between FIGURE 1 Timor-Leste / Real GDP growth and contributions FIGURE 2 Timor-Leste / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 90 1600 80 1400 5 70 1200 60 0 1000 50 800 -5 40 600 30 -10 20 400 10 200 -15 0 0 2018 2019 2020 2021e 2022f 2023f 2024f 2007 2009 2011 2013 2015 2017 2019 2021 2023 Private consump. Public consump. Investment International poverty rate Lower middle-income pov. rate Net exports Growth Real GDP pc Sources: Ministry of Finance and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 36 Apr 22 2019 and 2021. It is difficult to capture the COVID-19 infection rates. On the demand should help narrow the current account impact of COVID-19 at the household level side, a gradual rebound in private con- deficit. The financial account surplus will due to very limited data as the latest Timor- sumption, supported by public sector expand, although mainly due to divest- Leste Survey of Living Standard was in wages and personal benefit transfer, and ments of the Petroleum Fund used to cover 2014. According to the nationally represen- higher execution of Government expen- both the fiscal and current account deficits. tative Socio-Economic Impact Assessment diture will drive economic growth. Yet, Consumer price inflation is projected to (SEIA) 2.0 survey conducted by the General it is concerning to note that the sustain- gradually pick up, reflecting the increase Directorate of Statistics, Ministry of Finance able sources of revenue for the 2022 bud- in higher Government spending and the and the UNDP in July-August 2021, around get are set considerably below what is re- global energy prices. 40 percent of the employed population lost quired to cover even the recurrent spend- The presidential vote is scheduled on their jobs since the COVID-19 pandemic ing. Without major revenue reforms, fis- March 19 with a potential runoff for the outbreak in March 2020. As of March 2021, cal deficit is projected to hover at around two top candidates on April 19. There 90 percent of them reported that they were 40 percent of GDP in the medium term. is also a possibility of an early Par- back in employment. But this is character- Net exports will continue to be a drag liamentary elections in case the elected ized by informal work arrangements with on growth due to structural external sec- President is from the opposition. As the unstable earnings and low productivity. tor imbalances (lack of diversified exports country moves into an electoral period, and high import demand). policymaking and reform processes can External pressures will persist in the short be stalled. term, owing in part to import-intensive in- Risks to the forecast are skewed to the Outlook frastructure projects. Border re-openings, downside. Worsening of the political en- if carefully managed, will gradually sup- vironment, new waves of COVID-19, and The economy is projected to expand by 2.4 port the tourism sector. High oil prices and impact of climate changes and natural dis- percent in 2022 with the decline of slightly higher oil and gas production aster events could slow the recovery. TABLE 2 Timor-Leste / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.1 -8.6 1.6 2.4 2.8 3.0 Private Consumption 3.7 -2.5 1.6 2.9 3.7 3.8 Government Consumption 3.2 4.9 3.1 4.9 1.5 1.5 Gross Fixed Capital Investment -17.4 -42.5 19.5 12.3 13.1 14.0 Exports, Goods and Services -17.2 -51.1 13.1 11.8 13.8 14.0 Imports, Goods and Services -6.5 -8.5 5.6 9.8 6.4 7.0 Real GDP growth, at constant factor prices 2.0 -8.3 1.6 2.4 2.8 3.2 Agriculture 2.5 5.1 2.9 2.9 2.9 -1.2 Industry 4.8 -28.5 2.4 2.4 2.4 16.7 Services 1.2 -7.1 1.1 2.2 2.9 2.0 Inflation (Consumer Price Index) 0.9 0.5 3.8 2.5 2.6 2.3 Current Account Balance (% of GDP) 7.8 -19.3 -33.5 -42.7 -49.1 -55.4 a Fiscal Balance (% of GDP) -29.9 -26.1 -44.2 -46.2 -47.6 -51.6 b,c International poverty rate ($1.9 in 2011 PPP) 23.6 27.0 27.2 27.0 26.6 26.2 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 67.4 70.5 70.6 70.4 70.1 69.8 GHG emissions growth (mtCO2e) 1.5 -5.7 1.8 3.2 3.8 3.9 Energy related GHG emissions (% of total) 9.7 9.5 9.6 9.7 9.7 9.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ The ESI is part of total revenue, while excess withdrawals from the PF is a financing item. b/ Calculations based on EAPPOV harmonization, using 2007-TLSLS and 2014-TLSLS.Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. c/ Projection using annualized elasticity (2007-2014) with pass-through = 1 based on GDP per capita in constant LCU. MPO 37 Apr 22 market outcomes for women and infor- mal workers were more adversely im- VIETNAM Key conditions and pacted than men’s. challenges Table 1 2021 The economy is recovering from extensive Recent developments Population, million 98.2 Q3-2021 lockdowns associated with the GDP, current US$ billion 362.6 April 2021 COVID-19 outbreak. The vac- Vietnam’s economy grew by 2.6 percent in GDP per capita, current US$ 3693.7 cination of over 78 percent of population 2021, well below its pre-pandemic trend of a 1.8 International poverty rate ($1.9) facilitated adoption of a “Living with 7.0 percent. After a strong expansion in the a 6.6 COVID-19” strategy and the opening of first semester, the April 2021 COVID out- Lower middle-income poverty rate ($3.2) a 22.4 the economy in Q4-2021. However, Viet- break led to extensive lockdowns in ma- Upper middle-income poverty rate ($5.5) Gini index a 35.7 nam is experiencing a surge in infections jor economic centers and a 6.2 percent (y/y) School enrollment, primary (% gross) b 117.2 related to the OMICRON variant in contraction of GDP in Q3. As restrictions b 75.4 Q1-2022 and will be affected by global ef- were being lifted, the economy bounced Life expectancy at birth, years fects of the war in Ukraine. back strongly, growing by 5.2 percent (y/ Total GHG Emissions (mtCO2e) 419.7 In the medium term, Vietnam’s vision to y) in Q4. Industrial production rebounded Source: WDI, Macro Poverty Outlook, and official data. become an upper-middle income econo- quickly once Q3-2021 restrictions were re- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy my will depend on its ability to evolve moved, growing by 4.0 percent thanks to (2019). from its current growth model to a pro- strong external demand. Because of their ductivity and innovation led growth sensitivity to social distancing measures, model. The government’s institutional ca- services were hit hardest, growing by only Vietnam’s economy is expected to grow pacity to shepherd major structural re- 1.2 percent, much lower than its pre-pan- by 5.3 percent in 2022, given the policy forms will be a key lever in this transi- demic growth rates. tion, which will need to focus on building The April 2021 COVID-19 outbreak and of living with COVID, strong perfor- a digitally transformed, greener and more ensuing measures to contain it had signifi- mance by export-oriented manufacturing resilient economy. cant negative impacts on the labor market and domestic demand recovery. Poverty In 2021, inequality in both monetary and in Q3-2021. About 60 percent of the labor is expected to decline in 2022, but at a non-monetary dimensions is expected to force reported experiencing negative labor increase, compounding the increase in market impacts, which ranged from loss of slower pace than pre-COVID. Over 78 inequality that occurred because of the jobs to reduced hours, temporary business percent of the population is fully vacci- COVID-19 crisis in 2020. Households in closures, and reduced pay. By Q4-2021, nated, but the economy still faces seri- the bottom 20% of the population expe- major indicators showed signs of recovery ous downside risks from possible new rienced the slowest income recovery in- as economic activities resumed in major variants, the global ripple effects of the to Q1-2021 even before the Q3-2021 lock- hub, but not yet to their pre-outbreak lev- downs. Poor households were less able els. Poverty reduction is estimated to have Russian invasion of Ukraine, rising stagnated in 2021 under assumptions that to cope with the impact from income commodity prices and economic slow- shocks and were more reliant on external the population experienced these impacts down in its major export markets. sources such as borrowing. The labor uniformly across the distribution, or there FIGURE 1 Vietnam / Real GDP growth and contributions to FIGURE 2 Vietnam / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 25 90 50 20 80 45 15 70 40 10 35 60 5 30 50 0 25 40 -5 20 30 -10 15 20 10 -15 10 5 -20 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. MPO 38 Apr 22 was no increase in inequality (Figure 2). which has been slow, highlighting con- However, it is likely crisis impacted more sumers and investors uncertainty. The cur- those at the bottom of the distribution. Outlook rent surge in infections may lead to tempo- Widening inequality of even two percent rary labor supply and production disrup- would lead to a rise in poverty. Vietnam’s GDP is expected to grow by 5.3 tions. Since a strong economic rebound was While monetary policy was relatively ac- percent growth in 2022 and thereafter to sta- underway at the start of the year, if the gov- commodative, the impact of the COVID bilize at around 6.5 percent in a scenario ernment deploys a strong fiscal policy sup- shock in 2020 and 2021 was compounded with eased mobility restrictions domestical- port, the impact on economic growth could by lack of an effective countercyclical fis- ly and internationally. The services sector is be mitigated. Monetary policy will need to cal policy. The State Bank of Vietnam expected to gradually recover during the remain accommodative, with continued kept refinancing rate at 4.0 percent (below year as consumer confidence is restored and vigilance to contain financial sector risks. pre-pandemic rate), encouraged banks to foreign tourism is expected to gradually re- Additional shocks could lead to a low case waive or reduce interest payment, and sume from mid-2022 onward. Manufactur- scenario where GDP grows 4 percent in provided guidance on forbearance, ensur- ing exports is expected to grow at a slower 2022, recovering to 6 percent and 6.5 percent ing ample liquidity in the market. On the pace mirroring moderating growth in Viet- in 2023 and 2024, respectively. other hand, the government’s fiscal re- nam’s main export markets (the United Poverty reduction is expected to resume in sponse was modest and piecemeal, de- States, European Union, and China). 2022 assuming GDP growth recovery to spite availability of ample fiscal space. However, the outlook is subject to height- pre-COVID rates, but the impact of the crisis The support packages, which totaled ened risks to the downside. Slowing may have longer term effects on rising in- about 2.0 percent of GDP in 2021, were growth in major trading partners and equality. Higher inequality can have eco- largely composed of tax and land rent de- terms-of-trade shock due to the Russian in- nomic and human capital consequences for ferrals but included limited social assis- vasion of Ukraine and associated sanctions the country. Sold assets cannot produce fu- tance. Public investment, which was suc- may affect recovery. This could be com- ture income while the uneven quality and cessfully ramped up to support economy pounded by new COVID-19 variants. Eco- continuity of education during COVID-19 recovery in 2020 also experienced slower nomic recovery will also hinge on the re- crisis has consequences for human capital execution in 2021. covery of the domestic private demand, formation and lifetime earning potentials. TABLE 2 Vietnam / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.2 2.9 2.6 5.3 6.5 6.5 Private Consumption 7.4 0.5 2.0 3.9 6.0 7.0 Government Consumption 5.8 6.2 2.9 5.6 5.4 5.2 Gross Fixed Capital Investment 8.3 4.1 4.0 6.0 8.2 8.5 Exports, Goods and Services 6.7 5.0 14.0 9.2 8.6 8.1 Imports, Goods and Services 9.5 3.4 16.2 8.2 8.4 8.4 Real GDP growth, at constant factor prices 7.6 3.4 2.6 5.3 6.5 6.5 Agriculture 2.0 2.7 2.9 2.0 2.0 2.0 Industry 9.6 4.7 4.0 6.2 7.9 7.9 Services 7.5 2.6 1.2 5.4 6.3 6.4 Inflation (Consumer Price Index) 2.8 3.2 1.8 3.6 4.0 4.0 Current Account Balance (% of GDP) 3.7 3.7 -0.8 0.8 1.1 0.9 Net Foreign Direct Investment (% of GDP) 4.7 4.5 4.2 4.3 4.3 4.4 Fiscal Balance (% of GDP) -0.4 -3.9 -3.8 -3.5 -2.8 -2.3 Debt (% of GDP) 43.6 44.1 45.5 46.4 45.2 44.0 Primary Balance (% of GDP) 1.0 -2.6 -2.5 -2.2 -1.3 -0.9 a,b International poverty rate ($1.9 in 2011 PPP) 1.7 1.0 1.0 0.9 0.9 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 6.0 5.0 4.9 4.6 4.2 3.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 18.8 18.6 17.4 16.1 14.9 GHG emissions growth (mtCO2e) 9.6 2.6 2.4 8.1 9.4 9.5 Energy related GHG emissions (% of total) 64.9 64.6 64.3 65.7 67.4 69.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2014-VHLSS and 2018-VHLSS.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2014-2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 39 Apr 22 Europe and Central Asia Albania Kazakhstan Russian Federation Armenia Kosovo Serbia Azerbaijan Kyrgyz Republic Tajikistan Belarus Moldova Turkey Bosnia and Herzegovina Montenegro Ukraine Bulgaria North Macedonia Uzbekistan Croatia Poland Georgia Romania MPO 41 Apr 22 stronger revenue mobilization. At the same time, despite a 3.3 percent average GDP ALBANIA Key conditions and growth rate over 2015-2019, private invest- ment continues to be discouraged by low challenges firm productivity, an unskilled labor force, limited access to finance, burdensome lo- Table 1 2021 Albania’s growth was robust in 2021. It av- gistics and poor market integration. How- Population, million 2.8 eraged 10.4 percent over the first three ever, at 28.4 percent of GDP, public rev- GDP, current US$ billion 17.2 quarters, fully offsetting the losses caused enues provide little space to increase GDP per capita, current US$ 6089.5 by the pandemic-induced recession. much-needed investment in public infra- a 32.4 Upper middle-income poverty rate ($5.5) Growth was driven by continued accom- structure and human capital. A Medium- a 36.0 modative monetary and fiscal policies, re- Term Revenue Strategy is under prepara- Gini index b 100.2 construction investment, abundant hydro- tion, which has the potential to increase School enrollment, primary (% gross) Life expectancy at birth, years b 78.6 electric production early in the year, and revenues over the medium run. Total GHG Emissions (mtCO2e) 9.2 the tourism recovery, all of which boosted private demand. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. For 2022, prospects are uncertain with b/ WDI for School enrollment (2020); Life expectancy many downside risks. The war in Recent developments (2019). Ukraine and continuing sanctions could push energy, food, and commodity prices Higher consumer confidence, increased even higher, shrinking households’ pur- demand for Albanian exports, and fiscal A robust recovery took place in 2021 chasing power and consumption. Addi- stimulus supported the strong growth re- thanks to policy stimulus and resurgence tional risks include new, vaccine- resis- covery in 2021. Growth in trade and con- of travel, construction, and extractive ac- tant Covid-19 variants, tighter global fi- struction—the latter connected to recon- nancial and trade conditions, and re- struction and new infrastructure pro- tivity. Private investment, consumption, newed travel restrictions. jects—contributed the most. Favorable and public spending drove growth, while Public debt increased further in 2021, reach- hydrologic conditions have boosted ex- public debt remained high. Poverty is ex- ing 78.4 percent of GDP. The government tractives and energy production and pected to have declined below pre-pan- suspended the fiscal rule of a declining tourism exports. debt-to-GDP ratio and issued a Eurobond of Jobs did not increase in 2020/2021. There demic levels, despite a sluggish labor mar- EUR650 million, benefitting from the coun- were over 16 thousand fewer employed ket. Growing inflation and the war in try’s stable B+ rating. At its current level, the people in 2021 than in 2019. Employment Ukraine threaten economic and poverty high government debt is at significant grew only in ICT, construction, transport, prospects in 2022. rollover risk. Given the current inflation and retail and wholesale, and utilities. At the expected monetary policy tightening in same time, labor force participation fell high-income economies, reducing Alba- for the second consecutive year among all nia’s public debt and strengthening its fiscal age groups. As a result, the unemploy- policy credibility are vital. ment rate was stable at 11.5 percent. The Productivity-enhancing public investment formal real wage increased by 3.7 percent is crucial to boost growth but will require in 2021, close to the 2019 increase, while FIGURE 1 Albania / Headline inflation and core inflation FIGURE 2 Albania / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 4 45 650000 630000 40 3 610000 35 590000 2 570000 30 550000 1 25 530000 20 510000 0 490000 15 470000 -1 Inflation (CPI) Core inflation 10 450000 2016 2018 2020 2022 2024 -2 Upper middle-income pov. rate Real GDP pc Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Sources: INSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 42 Apr 22 the minimum wage increased by 13.1 per- high infrastructure investment and subse- cent in real terms. quent demand for imports. Still, given the strong growth in GDP per Outlook In the baseline scenario, public debt is ex- capita in 2021, poverty is estimated to have pected to decline slightly to 78.1 percent dropped significantly from 31.4 percent in As of March 2022, the baseline scenario of GDP in 2022, and more significantly 2020 to 22 percent in 2021. projects economic activity to expand at its over the medium term. However, the fis- Inflation rose rapidly during the fourth pre-pandemic, pre-earthquake historical cal balance could further deteriorate in quarter, reaching 3.7 percent in December rate. However, the war in Ukraine could a worsening international context, forcing 2021. Rising food, energy, transport and further increase inflation, disrupt supply the government to cut capital spending to commodity prices risk undermining do- chains, disturb financial markets and un- prevent a hike in the debt-to-GDP ratio. mestic demand and increasing vulnerabil- dermine confidence; all of which could Given Albania’s growing reliance on ex- ity. Food prices increased by 3.9 percent dim Albania’s growth prospects. In turn, ternal financing, the exchange rate, inter- in 2021, close to double the increase of the a sluggish job market combined with di- est rate, and refinancing related risks re- overall basket. This will hurt the bottom 40 minished purchasing power could damp- main elevated. percent, whose food consumption is over en poverty reduction. Consistent with the baseline scenario in half of total consumption. The Central Government spending is expected to de- the years following, private consumption Bank kept the policy rate unchanged but cline gradually, in line with fiscal consol- is projected to return as the primary dri- recently announced an expected tighten- idation plans. However, higher spending ver of GDP growth. Private investment ing through 2022. may be needed to guarantee energy sup- could provide further support to growth Higher tax revenues and new debt al- ply through more costly energy imports if business climate reforms are imple- lowed the government to increase infra- and support to the fragile energy SOEs. mented. A key medium-term reform pri- structure spending. The government also Service exports, including tourism and ority is the need to boost revenue col- raised subsidies to the energy State- fast-expanding business-process opera- lection and achieve fiscal consolidation, Owned Enterprises (SOEs) to ensure en- tions should return to their pre-pandemic while allowing for significant growth-en- ergy supply during the last quarter of growth trends. The current account deficit hancing spending. 2021. Contingent liabilities from SOEs is expected to reach 7.9 percent of GDP on- pose major risks for the budget. ly in 2024, as terms of trade worsen due to TABLE 2 Albania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.1 -4.0 8.6 3.2 3.4 3.5 Private Consumption 3.2 -2.4 3.7 2.6 2.7 2.9 Government Consumption 2.9 1.6 9.4 6.9 -1.0 2.6 Gross Fixed Capital Investment -3.7 -2.0 18.5 -0.9 1.7 3.4 Exports, Goods and Services 2.6 -25.6 29.2 4.8 8.0 6.2 Imports, Goods and Services 2.3 -19.9 18.5 1.9 3.3 4.1 Real GDP growth, at constant factor prices 2.4 -3.4 8.6 3.1 3.4 3.5 Agriculture 0.6 0.3 -0.2 0.2 0.3 0.5 Industry 0.9 -3.5 10.8 5.0 5.0 5.0 Services 3.8 -4.7 10.9 3.2 3.6 3.7 Inflation (Consumer Price Index) 1.4 2.2 2.6 5.0 4.0 3.0 Current Account Balance (% of GDP) -7.9 -8.8 -8.3 -9.6 -8.7 -7.9 Net Foreign Direct Investment (% of GDP) 7.5 6.8 6.4 6.5 6.6 6.6 Fiscal Balance (% of GDP) -1.9 -6.8 -5.8 -5.2 -2.8 -2.7 Debt (% of GDP) 67.4 77.2 78.4 78.1 76.4 75.1 Primary Balance (% of GDP) 0.1 -4.7 -3.8 -2.5 0.0 0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 28.1 31.3 22.0 19.4 16.9 14.7 GHG emissions growth (mtCO2e) -1.5 -6.5 1.6 -1.2 -1.0 -0.8 Energy related GHG emissions (% of total) 47.4 45.4 46.2 45.7 45.2 44.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2016-SILC-C and 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using customized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 43 Apr 22 The fifth wave of COVID-19 infections abated in Armenia by end-February. After ARMENIA Key conditions and a slow start, the pace of vaccination picked up in late 2021, after mandatory require- challenges ments were introduced for workers to pro- duce proof of vaccination or to submit to Table 1 2021 Prudent macroeconomic policies, includ- weekly testing. Still, only 43 percent of the Population, million 3.0 ing a more-effective inflation targeting adult population was fully vaccinated as of GDP, current US$ billion 13.9 regime, a robust fiscal rule, sound financial March 13, 2022. GDP per capita, current US$ 4670.2 sector oversight, and pro-competition re- After a prolonged period of low inflation, a 0.4 International poverty rate ($1.9) forms helped Armenia weather the twin price levels picked up in late 2020 and re- a 6.9 crises in 2020 with a lower-than expected mained elevated in 2021. Inflation peaked Lower middle-income poverty rate ($3.2) a 44.7 increase in poverty rates. at 9.6 percent yoy in November before Upper middle-income poverty rate ($5.5) Gini index a 25.2 While domestic political uncertainty has moderating to 6.5 percent yoy in February School enrollment, primary (% gross) b 91.2 subsided since snap elections in mid-2021, 2022. Food inflation peaked at 17 percent b 75.1 Armenia still faces significant structural in November 2021, driving two-thirds of Life expectancy at birth, years constraints, such as weak connectivity, overall inflation. In response, the Central Total GHG Emissions (mtCO2e) 9.8 closed borders and no economic relations Bank of Armenia (CBA) increased the pol- Source: WDI, Macro Poverty Outlook, and official data. with two of its four neighbors and chal- icy rate nine times by a cumulative 500 a/ Most recent value (2020), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy lenges related to high unemployment, skills basis points between December 2020 and (2019). mismatches and firm competitiveness. March 2022. The budget deficit declined from 5.1 per- cent of GDP in 2020 to 4.3 percent in The impact of the war in Ukraine and 2021. Revenues were up 8 percent yoy sanctions on Russia is likely to be sig- Recent developments due to higher VAT and state duties, fol- lowing the introduction of a new export nificant given Armenia’s strong eco- After contracting in 2020 by 7.4 percent duty for minerals. Expenditure was up 5 nomic links with Russia. The economy yoy, the Armenian economy started to re- percent yoy driven by current expendi- rebounded by 5.7 percent year on year cover in 2021, growing at 5.7 percent yoy. tures. Public debt to GDP declined to 63.4 (yoy) in 2021 but is forecast to grow at Growth was driven by private and public percent as at end-2021 from 67.4 percent consumption with smaller contributions a year earlier. only 1.2 percent yoy in 2022, with an from investment and net exports. The external balance improved due to a uncertain outlook subject to high down- On the production side, services rebound- quicker rebound in exports than imports, side risks. Lower growth and remit- ed from a sharp slump in 2020, and in- and a sharp increase in remittances. FDI al- tances are likely to slow poverty reduc- dustry and construction contributed mod- so rebounded, albeit from a low base. The tion and increase vulnerability. estly to growth. Agriculture contracted exchange rate stabilized following the de- for the sixth straight year, reflecting un- cline in political uncertainty in mid-2021 reformed land markets, uneven access to and reached pre-COVID levels in February irrigation and low resilience to changing 2022. However, the onset of the war in weather patterns. Ukraine brought fresh volatility. FIGURE 1 Armenia / GDP growth, fiscal and current account FIGURE 2 Armenia / Actual and projected poverty rates and balances real GDP per capita Percent Poverty rate (%) Real GDP per capita (millions constant LCU) 8 70 3 60 4 2 50 0 2 40 -4 30 1 20 -8 1 10 -12 0 0 2017 2018 2019 2020 2021e 2022f 2023f 2024f 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Real GDP growth, % change CAB, % of GDP International poverty rate Lower middle-income pov. rate Fiscal balance, % of GDP Upper middle-income pov. rate Real GDP pc Sources: Statistical Committee of Armenia; Central Bank of Armenia; World Bank Source: World Bank. Notes: see Table 2. staff projections. MPO 44 Apr 22 The national absolute poverty rate rose to with fuel imports accounting for 9 per- an increased tourism revenues associated 27 percent in 2020 from 26.4 percent in cent of imports in 2021. with an inflow of Russian citizens follow- 2019. Existing social protection and social The growth forecast has been downgrad- ing the onset of the war. assistance mechanisms (pensions and the ed for 2022 from 5.3 percent pre-war to Higher commodity prices will keep infla- Family Benefits Program) provided a crit- 1.2 percent, with lower remittances and tionary pressures elevated in 2022, but ical buffer preventing a further increase real wages impacting consumption; CBA’s inflation targeting is expected to an- in poverty. heightened uncertainty impacting invest- chor inflation in the medium-term as exter- ment; and exports contracting due to the nal price pressures subside. projected contraction in Russia and slow- Based on the forecasted macroeconomic ing global and regional growth. On the impact, poverty (using the upper middle Outlook production side, agriculture will continue income poverty line) could reach 39.6 to be weighed down by structural chal- percent of the population in 2022, which The impact of Russia’s invasion of Ukraine lenges; industry will be impacted severely represents a 3 percentage points increase on Armenia’s economy is likely to be sig- by uncertainty; and services will slow relative to a counter-factual scenario in nificantly negative, although the magni- along with consumption. In the medium- the absence of the war. Vulnerability tude remains uncertain. term, growth is expected to pick up in may increase due to decreased remit- Armenia has strong economic links with 2023 and 2024, but at a slower pace than tances, increased utility bills and in- Russia, which accounted for 28 percent projected pre-war. creased food prices. of Armenia’s exports and 30 percent of In line with slower growth, revenue collec- The forecast is uncertain, with possible its imports on average from 2018-2021 tion is expected to decline, and spending downgrades, given the evolving global and is the source of all of Armenia’s pressures are expected to rise, particularly and regional environment. Risks include wheat and gas imports. In 2021, remit- through increased social assistance, lead- protracted conflict in Ukraine, a pro- tances from Russia amounted to 5 per- ing to a delay in fiscal consolidation. This longed and more significant slowdown cent of GDP, 41 percent of net FDI will push up the debt to GDP to about 67 in Russia, further disruption in global stock was associated with Russian enti- percent of GDP at the end of 2022, further commodity markets, and still unresolved ties, and Russian tourists accounted for away from statutory limits. geopolitical issues around Armenian bor- 40 percent of all tourist arrivals. In ad- The current account deficit is projected ders. On the upside, the inflow of persons dition, Armenia will also be impacted to widen due to lower exports and net from Russia, if sustained, may have a by elevated global food and fuel prices, remittances. Exports may be boosted by positive impact of the economy. TABLE 2 Armenia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.6 -7.4 5.7 1.2 4.6 4.9 Private Consumption 11.5 -13.8 3.4 -1.3 5.4 5.7 Government Consumption 12.9 15.2 5.0 -1.2 1.7 1.0 Gross Fixed Capital Investment 4.4 -8.6 7.7 -0.9 7.5 9.1 Exports, Goods and Services 16.0 -33.4 16.5 -8.5 6.5 7.7 Imports, Goods and Services 11.6 -31.4 10.9 -12.0 8.0 9.3 Real GDP growth, at constant factor prices 7.7 -7.1 5.4 1.2 4.6 4.9 Agriculture -5.8 -4.1 -1.4 0.2 0.8 1.0 Industry 10.5 -3.0 3.8 -1.1 2.9 3.1 Services 9.7 -9.8 7.9 2.6 6.3 6.5 Inflation (Consumer Price Index) 1.4 1.2 7.2 9.8 7.5 6.8 Current Account Balance (% of GDP) -7.4 -3.8 -3.3 -3.7 -4.9 -5.4 Net Foreign Direct Investment (% of GDP) 1.7 0.6 2.6 1.6 1.8 2.3 Fiscal Balance (% of GDP) -0.8 -5.1 -4.3 -5.8 -4.9 -3.3 Debt (% of GDP) 53.7 67.4 63.4 66.9 67.6 66.6 Primary Balance (% of GDP) 1.6 -2.4 -1.7 -3.0 -2.0 -0.4 a,b,c International poverty rate ($1.9 in 2011 PPP) 1.1 0.4 0.3 0.2 0.2 0.2 a,b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 6.9 5.7 5.4 4.8 4.0 a,b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 44.0 44.7 40.4 39.6 36.2 32.7 GHG emissions growth (mtCO2e) 6.4 -10.9 9.5 5.2 7.8 7.2 Energy related GHG emissions (% of total) 62.9 61.1 64.8 65.4 66.5 67.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2020-ILCS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on GDP per capita in constant LCU. c/ The poverty rates for 2019 are not strictly comparable with 2018 due to revisions on the ILCS starting in 2019. MPO 45 Apr 22 declined by 7.3 percent in 2021, with a 9.6 percent drop in non-energy sec- AZERBAIJAN Key conditions and tor investment, driven largely by lower private investment. challenges Rebounding domestic demand, rising global commodity prices, and increased Table 1 2021 Azerbaijan faces structural challenges in administrative prices pushed CPI inflation Population, million 10.2 developing a vibrant non-energy private to 6.7 percent in 2021, overshooting the GDP, current US$ billion 54.6 sector. These include a large state foot- central bank’s target range of 4±2 percent GDP per capita, current US$ 5358.1 print, institutional challenges, an undiver- and prompting a 150-basis point policy a 95.8 School enrollment, primary (% gross) sified asset mix with a low and stagnant rate increase since August 2021, pushing it a 73.0 level of investment in human capital, the to 7.75 percent in March 2022. Life expectancy at birth, years Total GHG Emissions (mtCO2e) 79.9 lack of a level playing field, and shallow Soaring energy prices boosted external Source: WDI, Macro Poverty Outlook, and official data. financial markets. This, in turn, has con- revenues, and the current account record- a/ WDI for School enrollment (2020); Life expectancy tributed to low private investment in the ed a surplus of 15.2 percent of GDP. This (2019). non-energy sector. was offset by financial outflows (9.2 per- Following military tension with Armenia cent of GDP). Yet the overall balance of in 2020, a tripartite statement on armistice payments was in surplus at 5.6 percent of Russia’s invasion of Ukraine poses was signed between the two countries and GDP in 2021. downside risks to Azerbaijan’s economic Russia in November 2020. The reconstruc- Rapid economic recovery and high State tion effort has progressed in 2021, even as Oil Fund (SOFAZ) revenues supported outlook, particularly in the non-energy the situation remains fragile, especially fiscal revenues, which jumped 38.7 per- sector. This follows a strong rebound in along the border. cent, while fiscal spending increased by 2021, as recovering domestic and exter- 2.8 percent in 2021. As a result, the fiscal nal demand supported growth in both balance recorded a surplus of 4.2 percent energy and non-energy sectors, while of GDP in 2021. rising global energy prices aided exter- Recent developments According to official data, the unemploy- ment rate fell to 6 percent in 2021, from 7.2 nal and fiscal balances. Soaring energy Azerbaijan experienced a strong econom- percent in 2020, but was still above pre-pan- prices will provide a short-term wind- ic rebound in 2021, with output recover- demic trends. The official national poverty fall, but mounting inflationary pressures ing to pre-COVID-19 levels by end-year. rate reached 6.2 percent in 2020, on a rise of The energy sector grew by 1.8 percent, 1.4 percentage points from 2019. Rural and lower remittances are expected to with production constrained by OPEC+ poverty increased disproportionately, as weigh on poverty. quotas for some parts of the year. Non- households experienced job and income energy sectors’ growth was more robust losses in the COVID-19 induced crisis peri- at 7.2 percent, led by services (especially od. The economic rebound in 2021, and in- transport, hospitality, and retail trade) creased public wages and pensions, likely and manufacturing. led to improved household income in 2021, On the demand side, consumption re- although in real terms, this was offset partly bounded strongly, while investment by higher inflation. FIGURE 1 Azerbaijan / Non-oil GDP growth and oil price FIGURE 2 Azerbaijan / Official poverty rate and unemployment rate US$/bbl Percent Percent of population Percent 120 12 10 10 10 100 8 8 8 80 6 6 6 4 60 2 4 4 40 0 -2 20 2 2 -4 0 -6 0 0 2012 2014 2016 2018 2020 2022 2024 2010 2012 2014 2016 2018 2020 Average Brent oil price (LHS) Non-oil GDP growth (RHS) Official poverty rate (LHS) Unemployment rate (RHS) Sources: State Statistical Committee of Azerbaijan, World Bank, and World Bank Source: State Statistical Committee of Azerbaijan. Note: The World Bank has not staff estimates. reviewed the official poverty rates for 2013–20. MPO 46 Apr 22 production stabilizes and the non-energy prices eases and global monetary condi- sectors face headwinds from low invest- tions tighten. Outlook ment levels, subdued agriculture yields The external balance is expected to record (due to still stressed water supplies) and a sizable surplus in the medium-term, sup- Economic growth is currently forecast remaining spillover effects from regional ported by high energy prices. Imports are at 2.7 percent in 2022, which represents supply chain disruptions. projected to grow in 2022, in line with the a 0.9 percentage point downgrade from On the demand side, consumption will continued recovery in domestic demand, the baseline forecast prior to the inva- remain the principal driver of growth in and moderate in the medium term as sion of Ukraine. 2022, as there is still some pent-up de- growth slows. A short-term increase in oil and gas pro- mand accumulated from 2020 and early The fiscal balance is estimated to be in duction would propel growth in the en- 2021. Investment is expected to remain surplus in the medium term, averaging at ergy sector in 2021, but this increase is subdued with public investment stable 4.7 percent of GDP, supported by higher expected to subside beyond 2023. After and private investment anemic amid per- oil and gas prices even as spending re- a strong rebound in 2021, growth in the sisting structural challenges. External de- mains elevated. non-oil/gas sectors is expected to moder- mand is likely to moderate, as growth The negative impact on poverty in 2022 is ate in 2022. At the same time, spillovers in major trading partners declines. Non- expected to be amplified by higher infla- from Russia’s invasion of Ukraine and as- energy exports, even though relatively tion and reduced remittances from Rus- sociated sanctions on Russia are expected small, will be hard hit as Russia was the sia. Even though these remittances ac- to adversely affect export-oriented non- destination for 32 percent of these exports counted for only about 1 percent of GDP energy sectors, especially agriculture and in 2021 (2.5 percent of GDP). in 2021, they disproportionally benefit the tourism. Other sectors, e.g., manufactur- Inflation is projected to stay elevated in poor, especially those in small towns and ing, are also expected to face difficul- 2022, above the central bank’s target, rural areas. ties in accessing critical imports such as due to higher import prices. Food prices This forecast is subject to uncertainty given wood, steel, and fertilizers. are forecast to continue rising, as dis- the evolving global and regional environ- In the medium term, assuming a stabiliza- ruptions to global commodity markets ment, with elevated downside risks tion of the geopolitical situation, growth is linger. In the medium-term, inflation is around protracted war and disruption to projected to average at 2.4 percent during projected to moderate, as consumption global commodity markets. 2022-24, close to its potential, as oil and gas growth slows, pressure from imported TABLE 2 Azerbaijan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.5 -4.3 5.6 2.7 2.2 2.3 Private Consumption 4.2 -5.1 7.0 4.0 4.1 4.2 Government Consumption 7.9 4.8 3.8 3.9 3.2 2.3 Gross Fixed Capital Investment -2.4 -7.1 -6.0 -3.6 -1.4 -1.0 Exports, Goods and Services 1.5 -8.1 5.6 2.7 1.7 1.8 Imports, Goods and Services 2.2 -10.5 2.5 2.6 2.7 2.7 Real GDP growth, at constant factor prices 2.5 -4.4 5.6 2.7 2.2 2.3 Agriculture 7.3 1.9 3.3 1.1 1.8 3.2 Industry 0.4 -5.2 4.1 2.6 1.1 1.1 Services 5.1 -4.4 8.6 3.2 4.0 4.0 Inflation (Consumer Price Index) 2.7 2.8 6.7 9.0 6.6 6.0 Current Account Balance (% of GDP) 9.1 -0.5 15.2 22.7 16.5 12.3 Net Foreign Direct Investment (% of GDP) -2.9 -1.5 -4.1 -1.7 -1.2 -1.2 Fiscal Balance (% of GDP) 9.0 -6.5 4.2 6.4 4.2 3.5 Debt (% of GDP) 18.8 18.4 16.2 16.1 16.2 15.8 Primary Balance (% of GDP) 9.7 -5.7 4.8 6.8 4.7 3.9 GHG emissions growth (mtCO2e) 1.6 -2.3 2.7 0.7 0.3 1.0 Energy related GHG emissions (% of total) 42.9 44.1 46.6 48.1 49.3 50.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 47 Apr 22 the EU countries. In case the disruption of trade with Ukraine and restrictions on BELARUS Key conditions and potash trading are taken into account, up to one-third of merchandize exports is af- challenges fected. Although the price for natural gas imported from Russia will remain at the Table 1 2021 In recent years, Belarus’s economy has en- 2021 level of US$128.5 per 1,000 cubic Population, million 9.4 countered major headwinds as its growth meters, this preference will only partial- GDP, current US$ billion 68.4 trajectory remains shaped by external fac- ly cushion the impact of external shocks. GDP per capita, current US$ 7279.8 tors. This is due to structural rigidities, an As a result, real GDP could decline by at a 0.1 Upper middle-income poverty rate ($5.5) outsized and unreformed public sector, least 6.5 percent in 2022. The forecasting a 24.4 and reliance on deepening economic and is subject to uncertainties related to the Gini index b 100.5 financial integration with Russia. The external circumstances, depending on the School enrollment, primary (% gross) Life expectancy at birth, years b 74.2 economy has been left vulnerable to re- course and the outcome of the Ukraine- Total GHG Emissions (mtCO2e) 60.7 gional and global shocks, such as the Russia war. COVID-19 pandemic. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2011 PPPs. Disputed 2020 elections led to sectoral b/ WDI for School enrollment (2018); Life expectancy economic sanctions, which had limited ef- (2019). fects. Export earnings increased, helping Recent developments to maintain a stable exchange rate and achieve a current account surplus in 2021. In 2021, real GDP grew 2.3 percent y/y on The Ukraine-Russian war has brought Public debt pressures were alleviated the back of improved external demand and substantial challenges to the Belarusian through a combination of refinancing and higher export prices. Sectoral economic economy related to new sectoral sanc- spending of foreign reserves, while their sanctions imposed since mid-2021 had lim- level has been boosted by the August ited effects, while the Ukrainian market (a tions, the disruption of trade with 2021 IMF SDR allocation. Nevertheless, destination for more than 13 percent of Ukraine, and negative spillovers from the banking sector pressures persist, as with- merchandize exports) remained accessible. Russian economy. While in 2022 debt to drawal of FX deposits by households has Despite a broadly stable BYN/US$ ex- the major creditors could be restructured, continued throughout 2020-2021. A bank change rate, consumer price inflation ac- run has been prevented by a high share celerated to 9.97 percent y/y. This is due the ability to meet the 2023 Eurobond re- of term deposits: about two thirds of all to an increase in administratively regulat- payment looks questionable. Household household deposits, and more than 60 ed prices, imposition of VAT for selected incomes are expected to fall and poverty percent of FX deposits. medicines, and imported inflation, as aver- to increase as unemployment grows and Fresh sectoral economic sanctions intro- age import prices went up by 21.3 percent. recession deepens. duced on March 2, 2022, seek to prevent Expenditure cuts of 1.5 pp of GDP amid exports of tobacco, petroleum, fuels, a tiny increase of revenues by 0.3 pp potash fertilizers, metals, iron, and rubber of GDP allowed balancing the general products to the EU. These restrictions government budget. Public debt repay- cover at least 13 percent of merchandize ment pressures have been alleviated by exports, or more than a half of exports to refinancing from Russia for US$1bn and FIGURE 1 Belarus / FX deposits and gross international FIGURE 2 Belarus / Actual and projected poverty rates and reserves, 2008-2022 real private consumption per capita US$ bn US$ bn Poverty rate (%) Real private consumption per capita (constant LCU) 15 10.0 18 6000 16 12 8.0 5000 14 12 4000 9 6.0 10 3000 6 4.0 8 6 2000 3 2.0 4 1000 2 0 0.0 2008 2010 2012 2014 2016 2018 2020 2022 0 0 Corporates: FX deposits, US$ bn (Jan- 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Households: FX deposits, US$ bn Feb) Upper middle-income pov. rate Real priv. cons. pc Gross international reserves, US$ bn rhs Source: NBRB. Source: World Bank. Notes: see table 2. MPO 48 Apr 22 issuing of FX-denominated government percent, while real pensions decreased by will likely be attempts to redirect sales out- bonds by US$1.2bn, along with spend- 3.1 percent –the first decrease in five years. side the EU market and increase exports ing of foreign reserves in Q1 2021 of However, the national poverty rate fell to Russia in a bid to fill the void caused US$0.5bn. from 4.8 percent in Q4 2020 to 3.9 percent by foreign companies discontinuing sales The consequences of the Ukraine-Russia in Q4 2021. and/or leaving the Russian market. war are yet to materialize. By mid-March, Even so, Belarus’s exports are expected to these have been limited to a 20-percent decline heavily: coupled with tighter mon- nominal exchange rate depreciation of etary and fiscal policy and lower house- BYN vis-à-vis US$, with commercial banks Outlook hold consumption, this is projected to lead imposing restrictions on FX operations, to a real GDP decline of at least 6.5 percent while the NBRB increased its policy rate by The growth outlook is clouded by extreme in 2022. 2.25 pp to 12 percent p.a. As the stock of uncertainties as economic sanctions con- Given that in 2022 more than 40 percent of FX-denominated loans exceeds 60 percent tinue to widen, and as Russia – Belarus’s repayments fall on Russia and the Russia- of the total, depreciation weakens corpo- major trade and financing partner – is fac- controlled EFSD, the debt burden will be rate balance sheets. The price of Belarus’s ing a slew of far-reaching economic and fi- eased through bilateral debt restructuring. 2023 sovereign bonds collapsed to below nancial sector restrictions. Various sectoral However, this is not an option in case of 20 percent of their nominal value. sanctions against the Belarusian economy 2023 Eurobond repayments for US$ 800 m. Business sentiment has continued to affect up to one-third of its merchandise Falling GDP will increase poverty and worsen, with IT companies relocating exports, stemming from blocking sales of household vulnerability. Broadening of abroad, and selected foreign companies a broad range of commodities. Earnings price controls could have limited effect, restrict their supplies, affecting manufac- from potash exports – estimated to be leading instead to shortages of certain turers in Belarus. equal to 3.7 percent of 2021 GDP – are to consumer goods, also due to the scarcity By the end of 2021, household disposable fall considerably as major transportation of FX in the economy and related restric- income growth decelerated from 3.9 to 2 routes are sealed. On the other hand, there tions on imports. TABLE 2 Belarus / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.4 -0.9 2.3 -6.5 1.5 1.6 Private Consumption 5.1 -1.4 2.6 -4.8 1.5 1.8 Government Consumption 0.4 -1.1 -0.5 -0.3 -1.0 1.3 Gross Fixed Capital Investment 6.2 -6.8 -5.6 -18.7 6.2 4.3 Exports, Goods and Services 1.0 -3.2 9.5 -14.2 4.1 3.7 Imports, Goods and Services 5.2 -7.9 5.8 -18.6 5.1 4.8 Real GDP growth, at constant factor prices 1.5 -0.9 2.3 -6.5 1.5 1.6 Agriculture 3.0 4.9 -4.2 -1.8 2.8 3.3 Industry 1.4 -0.7 6.5 -9.4 3.2 5.8 Services 1.3 -2.0 0.2 -4.9 0.0 -2.1 Inflation (Consumer Price Index) 4.7 7.4 10.0 21.1 11.9 7.2 Current Account Balance (% of GDP) -1.8 -0.2 2.6 -0.8 -1.3 -1.1 Net Foreign Direct Investment (% of GDP) 2.0 2.1 1.7 0.6 0.6 0.5 Fiscal Balance (% of GDP) 2.5 -1.7 0.0 -1.1 -0.3 0.0 Debt (% of GDP) 37.5 41.1 36.0 36.4 35.5 34.9 Primary Balance (% of GDP) 4.3 0.0 1.6 0.5 1.2 1.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 0.2 0.2 0.2 0.3 0.3 0.2 GHG emissions growth (mtCO2e) -3.1 -2.7 -3.5 -6.8 -1.0 -0.5 Energy related GHG emissions (% of total) 86.1 85.9 85.6 85.4 85.7 85.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-HHS. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 49 Apr 22 account deficits, financed largely by net FDI inflows. BOSNIA AND Key conditions and Steady, albeit low, economic growth has not translated into more and better jobs, challenges HERZEGOVINA with a large share of the workforce active in the informal sector and stalled poverty BiH has been a potential EU candidate reduction according to the latest official since 2016. Yet, little progress has been data from 2015. Implementation of much Table 1 2021 made in competitiveness-enhancing prod- needed structural reforms remains slug- Population, million 3.3 uct market reforms and in improving the gish due to political frictions, pressures GDP, current US$ billion 21.3 business environment. The internal market from frequent elections, corruption that GDP per capita, current US$ 6513.1 and the state institutional set-up are still pervades all levels of society, and fragmen- Life expectancy at birth, years a 77.4 highly fragmented, while country-wide tation of responsibilities between the two Total GHG Emissions (mtCO2e) 28.3 supervisory and regulatory institutions re- entities and Cantons. As a result of the po- main weak. litical impasse and welfare prospects, BiH Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent WDI value (2019). Macroeconomic stability was maintained exhibits the highest stock of emigration over the last decade largely facilitated by across the Balkans. the currency board peg to the euro, which, together with the EU membership Real GDP growth is expected to deceler- prospects remain a critical economic an- ate to 2.9 percent in 2022 after rebound- chor. Despite real income growing roughly Recent developments ing to 6.5 percent in 2021. Meanwhile, over 3 percent per annum since 2015, per inflation surged to 7 percent in January capita GDP continues to hover around The rebound in economic growth esti- one-third of the EU27 average. A more mated at 6.5 percent in 2021 was an ex- 2022 (yoy) compared to the annual rate of pronounced convergence toward the EU27 ceptional performance, which helped real 2 percent last year. Delayed structural re- average will be difficult to achieve with GDP exceed the pre-crises level. Real forms impede EU accession and potential low investment rates and a growth model growth was driven by a surge in exports, output growth. The war in Ukraine will that relies on private consumption. and robust growth in private consump- likely aggravate price pressures resulting The pandemic has inflicted a significant tion. Meanwhile, inflation accelerated to cost on BiH’s economy, yet a full recovery 7 percent in January 2022 (yoy) and to- in an inflation rate of 4.8 percent in 2022. to the 2019 real income level has been taled 2 percent in 2021 compared to a achieved in 2021. That said, BiH is un- 1.1 percent deflation in 2020. The sharply likely to catch up with the pre-pandemic rising prices during the last quarter of growth trajectory, unless political bottle- 2021 and in January 2022 were caused necks are resolved. by stronger consumer demand, continu- BiH built fiscal buffers prior to the pan- ing supply chain problems, and a high demic by running fiscal surpluses between passthrough effect given the currency 1 and 3 percent of GDP from 2015 to 2019. board arrangement. Food and transport These surpluses helped rein in the current prices accelerated to 12 percent and 13.6 FIGURE 1 Bosnia and Herzegovina / Real GDP growth and FIGURE 2 Bosnia and Herzegovina / Labor market sectoral contributions to real GDP growth indicators, 2020-2021 Percent, percentage points Percent 8 50 44.1 2015 2016 2017 2018 45 42.1 6 40 34.3 35 31.9 4 27.7 30 25 22.6 2 18.4 20 15.2 0 15 10 Agriculture Industry -2 5 Services GDP 0 -4 Activity rate Emp. rate Unemp. rate Long-term 2019 2020 2021f 2022f 2023f 2024f unemp. Rate Sources: BiH Agency for Statistics (BHAS), World Bank staff calculations Sources: LFS 2020 - 2021 report, World Bank staff calculations. MPO 50 Apr 22 percent in January 2022 (yoy), likely dis- from IFIs. The extent of this financial sup- barring the implementation of changes to proportionally affecting the less well-off. port will depend on the de-escalation of the VAT law. Despite a renewed acceleration in political tensions, which have risen signifi- With the global energy market disrupted Covid-19 cases toward the end of 2021 and cantly over the past ten months. due to the war in Ukraine, inflationary in January-February 2022, improvements pressures are assumed to last longer than in the labor market participation and em- initially expected, leaving inflation at ployment rate continued through the end around 4.8 percent. of 2021 (Figure 2). Outlook Several risks tilt the outlook to the down- A surge in tax revenues was not fully offset side. First, protracted effects of the war in by higher spending, which resulted in a Real GDP is projected to decelerate to 2.9 Ukraine would have a negative impact on return to fiscal surpluses estimated at 0.5 percent in 2022 and stabilize below 3.5 per- aggregate demand in BiH through lower percent of GDP in 2021 , after a deficit of cent over the medium term. Growth is ex- business and consumer confidence. Sec- 1.8 percent of GDP in 2020. Higher public pected to be driven by a further pick up ond, war-related uncertainties and sanc- wages, and additional spending on goods in private consumption fueled by remit- tions will dampen the recovery in the EU, and services as well as higher social bene- tances, tightening labor market, and do- adversely impacting demand for BiH ex- fits were aimed at softening the effects of mestic lending in the short term. Invest- ports. However, price and volume effects the pandemic. ment in energy and infrastructure will add for BiH’s exports of iron and steel products The sharp rise in exports narrowed the to the growth stimulus over the medium and aluminium could in part offset the traditionally large merchandise deficit term. Higher exports are likely to be offset negative effects of a slowdown in EU and helped narrow the current account by higher imports mainly for infrastruc- growth. Third, slower growth in the EU shortfall to 3.2 percent of GDP in 2021 ture projects. As the impact of the pandem- could also limit remittances, on which the compared to 3.9 percent in 2020. External ic subsides, and the political paralysis is country is dependent (close to 8 percent of financing largely entailed net FDI in- overcome, the Socio-Economic Program , GDP). Finally, these risks would be further flows, mainly into the foreign-owned fulfilling priorities for EU accession, is ex- aggravated, if geopolitical tensions shift to banking sector, which remained stable pected to gain attention. BiH and exacerbate already significant po- during the pandemic. The fiscal deficit in 2022 is likely to be litical frictions. Without access to international markets, driven by pre-election spending activities. the authorities continue relying on support A return to surplus may occur in 2023, TABLE 2 Bosnia and Herzegovina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.7 -3.1 6.5 2.9 3.1 3.5 Private Consumption 2.8 -4.5 4.0 2.7 3.1 3.5 Government Consumption 2.6 0.5 6.1 2.8 3.0 3.0 Gross Fixed Capital Investment 1.9 -20.2 2.5 -2.3 4.4 3.9 Exports, Goods and Services -0.3 -8.5 28.0 9.0 7.0 8.0 Imports, Goods and Services 0.2 -13.4 17.0 6.0 6.5 7.0 Real GDP growth, at constant factor prices 2.8 -3.1 6.5 2.9 3.1 3.5 Agriculture 2.9 -1.5 3.4 3.0 2.9 2.9 Industry 1.9 -3.0 2.0 2.6 3.2 3.2 Services 3.2 -3.3 8.7 3.0 3.1 3.7 Inflation (Consumer Price Index) 1.2 2.0 2.0 4.8 0.9 0.2 Current Account Balance (% of GDP) -2.9 -3.9 -3.2 -2.4 -3.2 -4.0 Net Foreign Direct Investment (% of GDP) 3.5 2.0 3.3 3.5 3.3 3.2 Fiscal Balance (% of GDP) 1.9 -1.8 0.5 -0.8 0.3 1.1 Debt (% of GDP) 34.3 39.9 37.8 37.4 36.9 36.3 Primary Balance (% of GDP) 2.8 -0.5 1.8 0.1 1.2 1.9 GHG emissions growth (mtCO2e) -2.4 -5.6 4.8 2.3 3.1 3.9 Energy related GHG emissions (% of total) 89.0 88.7 89.1 89.2 89.4 89.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 51 Apr 22 against 2011 to 6.52mn people. Significant outmigration since the start of the transi- BULGARIA Key conditions and tion period, driven by large income gaps and search for better quality of life, has challenges been the main factor behind Bulgaria’s rapid loss of population. Table 1 2021 The long-term structural challenges facing Population, million 6.9 Bulgaria include negative demographic GDP, current US$ billion 77.5 trends, coupled with institutional and gov- GDP per capita, current US$ 11276.0 ernance weaknesses. Institutional gaps Recent developments a 0.9 International poverty rate ($1.9) have been mirrored by suboptimal public a 2.6 service delivery, hindering private sector According to preliminary data for 2021, Lower middle-income poverty rate ($3.2) a 6.2 expansion and undermining inclusive GDP growth accelerated to 4.2% though Upper middle-income poverty rate ($5.5) Gini index a 40.3 growth and shared prosperity. High rates real output is yet to recover to its pre-pan- School enrollment, primary (% gross) b 85.9 of inequality of opportunity limit access to demic level. Final consumption and robust b 74.9 key public services, constraining the abili- growth of exports were the main drivers Life expectancy at birth, years ty of individuals to escape poverty and re- of the recovery. Export expansion was out- Total GHG Emissions (mtCO2e) 44.6 sult in persistently high income inequali- paced by import growth, leading to widen- Source: WDI, Macro Poverty Outlook, and official data. ty. Poverty and inequality are reinforced ing trade and current account (CA) deficits. a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). by inadequacies in the targeting, coverage Investment, however, continued to decline and generosity of the social security sys- throughout 2021. The pandemic, combined tem, limiting its role as a redistributive with a domestic political crisis in most of Following a stronger-than-projected re- mechanism and fiscal stabilizer. 2021, increased investors’ risk aversion, The pace of convergence to average EU while the delayed approval of the national covery in 2021, growth is likely to income levels has been slower than the Recovery and Resilience Plan put addition- slow down in 2022 given higher infla- one observed in other new EU members, al drag on public investment. On the sup- tionary pressures, the war in Ukraine, and Bulgaria continues to rank last in ply side, industry, finance and IT were key and supply chain disruptions. Off the terms of GDP per capita in PPP in the sectoral drivers of growth. EU, at 55 percent of the EU average in Similar to most European countries, Bul- back of a decline in 2021, poverty is 2020. Economic growth and convergence garia saw a rapid acceleration of inflation expected to increase amidst rising food to average EU income levels across the since the summer of 2021, reaching 10.0 and energy prices. The draft 2022 NUTS-3 regions – ranging between 24 percent yoy in February 2022. Imported oil budget suggests that consolidation will percent of the EU average in Silistra to price inflation with its second-round ef- be postponed to 2023 with a continua- 120 percent in Sofia in 2019 – has been fects was the key factor behind the infla- increasingly uneven, widening in-country tionary spike. Effective mid-December, tion of support measures. disparities. As a result, some areas are regulated prices of electricity, heating and being depopulated at a rapid pace, with water were frozen until end-March, 2022, the first results of the 2021 census show- partially cushioning the inflationary shock ing the fastest between-census decline of on households. Businesses, in turn, have the population since 1985, by 11.5 percent been receiving government subsidies for FIGURE 1 Bulgaria / Real GDP growth and contributions to FIGURE 2 Bulgaria / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 30 18000 10 16000 25 14000 5 20 12000 0 10000 15 8000 -5 10 6000 -10 4000 5 -15 2000 2013 2015 2017 2019 2021 2023f 0 0 Imports Exports 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross fixed capital formation Private consumption International poverty rate Lower middle-income pov. rate Public consumption GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank, Bulgarian National Statistical Institute. Source: World Bank. Notes: see table 2. MPO 52 Apr 22 electricity costs since October 2021, which with Bulgaria’s GDP growth in 2022 re- conservative stance adhered to in the has kept many firms afloat despite the en- vised by 1.2pp against our earlier fore- past two decades. The fiscal deficit is ergy price spike. Electricity price subsidies cast, to 2.6%. Risks remain titled to the likely to exceed the government’s plan are expected to be fiscally neutral, as they downside and further downward revi- for 4.1% of GDP as the latter rests on will be financed out of profits of the state- sions are likely to follow in case of a a fairly optimistic official growth pro- owned nuclear power plant. prolonged military conflict, or new dis- jection of 4.8%. A government-sponsored Despite the boost in fiscal revenues in 2021 ruptive Covid waves amidst low vac- accommodation programme for displaced (+18.1% yoy) on robust economic growth cination rates. Moreover, the delay in Ukrainian nationals will also weigh on and inflation, expenditure grew at a simi- the approval of the national Recovery the expenditure side. More than 58 000 lar rate (+17.6%), due primarily to the con- and Resilience Plan and the operational Ukrainian nationals have remained in tinued support to businesses and individ- programmes for EU funds (2021-2027) Bulgaria as of March 29, with some 40 uals. As a result, the fiscal deficit stood at jeopardizes the government’s plan to in- 000 of them being sheltered at govern- 2.9% of GDP. The banking sector remained crease substantially public investment in ment-subsidised hotel accommodation. In solid, with after-tax profits rising by 74% 2022, further undermining the growth addition, a budget revision - that is likely to BGN 1.42bn in 2021, and non-perform- prospects. Over the medium run, growth to boost expenditure further - is already ing loans inching up modestly, by 1.4pp is expected to be fueled by EU-funded planned for the summer. The CA balance y/y to 6% as of end-2021. public investment and improved private is expected to return to positive territory, Amidst the recovery of the economy and investor sentiment on the near-term albeit remain below 1% of GDP, in continued, albeit more targeted, govern- prospect of eurozone entry. 2022-2024. ment support, poverty is projected to have The acceleration of domestic inflation since On a positive note, the political crisis that slightly declined from 6.3 percent in 2020 to late 2021 is likely to remain in place at least dominated the national landscape since 6.2 percent in 2021 using the upper middle in H1/ 2022, as energy and food price infla- early 2021 has been overcome, after a four- income poverty line of US$5.50 per day. tion is exacerbated by the ongoing war in party coalition took office after the Nov Ukraine. This will result in a further ero- 14, 2021 elections. There are high expecta- sion of purchasing power, a likely increase tions from the new government to under- in poverty and a higher fiscal cost, if cur- take structural reforms in a number of ar- Outlook rent measures in support of businesses and eas, including the judiciary and the control individuals are extended beyond Q1. of corruption. The ongoing war in Ukraine has provoked Overall, the draft 2022 budget suggests a revision of growth forecasts globally, that fiscal policy will depart from the TABLE 2 Bulgaria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.0 -4.4 4.2 2.6 4.3 3.7 Private Consumption 6.0 -0.4 8.0 3.3 4.5 3.6 Government Consumption 2.0 8.3 4.0 4.1 0.3 0.7 Gross Fixed Capital Investment 4.5 0.6 -11.0 5.4 8.5 6.6 Exports, Goods and Services 4.0 -12.1 9.9 3.4 7.1 6.3 Imports, Goods and Services 5.2 -5.4 12.2 5.1 6.9 5.9 Real GDP growth, at constant factor prices 3.7 -4.5 4.2 2.6 4.3 3.7 Agriculture 4.1 -3.3 6.1 1.2 1.8 1.1 Industry -0.1 -8.2 6.6 2.5 5.2 4.3 Services 5.2 -3.2 3.2 2.7 4.2 3.6 Inflation (Consumer Price Index) 3.1 1.7 3.3 9.3 3.4 2.0 Current Account Balance (% of GDP) 1.9 -0.3 -2.3 0.1 0.9 0.4 Net Foreign Direct Investment (% of GDP) -2.0 -3.5 -1.3 -1.7 -1.7 -1.7 Fiscal Balance (% of GDP) -1.0 -2.9 -2.9 -4.4 -3.0 -2.3 Debt (% of GDP) 20.1 24.8 25.1 28.5 28.8 27.2 Primary Balance (% of GDP) -0.4 -2.4 -2.5 -4.1 -2.6 -2.0 a,b International poverty rate ($1.9 in 2011 PPP) 0.9 1.1 0.9 0.8 0.8 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 2.6 2.9 2.6 2.5 2.4 2.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 6.2 6.3 6.2 6.2 6.1 6.0 GHG emissions growth (mtCO2e) -2.7 -3.1 -0.9 -0.9 -0.9 -0.9 Energy related GHG emissions (% of total) 82.7 86.1 85.8 85.5 85.1 84.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 53 Apr 22 the real purchasing power of households, especially the poor and vulnerable. Fur- CROATIA Key conditions and thermore, although the country’s direct trade and financial linkages with Russia challenges are limited, there could be significant indi- rect trade and investment effects via other Table 1 2021 Croatia’s economic recovery in 2021 was EU countries. In addition, while the num- Population, million 3.9 unexpectedly strong and output reached ber of new COVID-19 cases has recently GDP, current US$ billion 64.6 its pre-crisis levels by mid-2021, largely started to decline, relatively low vaccina- GDP per capita, current US$ 16619.4 due to the reopening of the economy and tion rate and the potential emergence of a 0.3 International poverty rate ($1.9) fiscal and monetary support schemes. Fur- new virus variants might impede recovery. a 0.6 thermore, the relatively favorable epidemi- Over the medium term, EU structural and Lower middle-income poverty rate ($3.2) a 1.8 ological situation during summer months investment funds as well as the new EU Upper middle-income poverty rate ($5.5) Gini index a 29.0 and the country’s proximity to its main initiatives represent an opportunity for School enrollment, primary (% gross) b 93.2 tourism originating markets resulted in a Croatia to accelerate the income conver- b 78.4 significant increase in tourist arrivals. Al- gence with the rest of the EU. Life expectancy at birth, years so, Croatia was relatively less affected by Total GHG Emissions (mtCO2e) 16.4 global supply chain bottlenecks given its Source: WDI, Macro Poverty Outlook, and official data. export structure. Together with the strong a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). global recovery, this led to a marked rise Recent developments in exports of goods. However, underlying long-term growth remains relatively low. Following a contraction of 8.1 percent in After a pronounced economic contraction Results from the recent census suggest a 2020, real GDP in Croatia increased by 10.4 decline in the total population. This means percent in 2021. Private consumption and in 2020, the Croatian economy strongly stronger potential long-term growth will investment activity provided strong sup- rebounded in 2021, posting a double-digit hinge upon increase in productivity re- port to overall growth, underpinned by an growth rate. In addition to domestic de- quiring improvements in business envi- increase in consumer and business confi- mand, economic activity was under- ronment, public administration, education dence, favorable financing conditions and system and judiciary. inflow of EU funds. However, domestic pinned by a sharp revival of tourism and While growth is set to remain relatively demand lost some steam in the last quar- sizable exports of goods. Poverty is esti- strong over the medium term, uncertain- ter, which can be partly linked to the wors- mated to have declined to 1.6 percent in ties related to inflation developments and ening of the epidemiological situation and 2021. Over the medium term, growth is the Russian invasion of Ukraine represent buildup of inflation pressures. Contribu- expected to moderate but remain relative- a significant risk for economic activity and tion of net exports in 2021 was positive due public finances in the near- term. In early to a sharp, albeit still partial, recovery of ly strong. However, downside risks to 2022, the government adopted a mitigation tourism and increase in exports of goods growth remain significant. package worth around 1 percent of GDP by one fifth compared to 2020. On the sup- for easing rising prices but the war in ply side, growth was also broad based Ukraine might put additional pressure on with the services sector contributing the inflation with associated risks of depleting most to the rise in real gross value added. FIGURE 1 Croatia / Real GDP growth and contributions to FIGURE 2 Croatia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 16 8 140000 14 12 7 120000 10 8 6 100000 6 4 5 80000 2 0 4 -2 60000 3 -4 -6 40000 2 -8 -10 1 20000 2015 2016 2017 2018 2019 2020e 2021e 2022f 2023f 2024f 0 0 Final consumption Gross fixed capital formation 2009 2011 2013 2015 2017 2019 2021 2023 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: CROSTAT, World Bank. Source: World Bank. Notes: see Table 2. MPO 54 Apr 22 Favorable economic trends were followed consumption will be partly offset by high- by an increase in employment and er inflation. Overall, inflation in 2023 and wages, and in some sectors, notably con- Outlook 2024 is projected to slow down due to the struction, worker shortages became more easing of global supply bottlenecks and pronounced and were mitigated by for- Growth is set to moderate over the medi- tightened financial conditions. However, eign labor. Inflation gradually intensified um-term but will remain above the pre- commodity price levels will remain elevat- towards the end of the year, fueled by pandemic trend. While global uncertainty ed. General government deficit is likely to food and energy prices, and it continued related to the war in Ukraine is high, the fall below 3 percent of GDP as of 2023. Al- to increase in 2022, reaching 6.3 percent Croatian economy could grow on average, so, public debt to GDP ratio is expected to in February. The general government by 3.5 percent, a year, over 2022-2024. continue declining, reaching 73.9 percent deficit is estimated to have more than However, there are significant downside of GDP at the end of 2024. halved, to around 3.5 percent of GDP and risks related to the pandemic and the war Intensifying conflicts in the region is public debt at the end of November 2021 in Ukraine. Investment activity under- putting additional pressure on food and stood at 80 percent of GDP, declining pinned by the inflow of EU funds is ex- energy prices which were already on the by 7.3 percentage points compared to the pected to pick-up strongly in 2022 and rise. While the government has promptly end of 2020. moderate thereafter. However, this pri- introduced mitigation measures to cap The strong economic and employment re- marily depends upon the implementation gas price increases, it is still expected to bound raised labor income. However, of government investment plans. Exports rise on average by 20 percent. Moreover, spikes in food prices in recent months put of goods and services are projected to sup- regional political uncertainty and glob- a burden on the most poor and vulnerable port growth, but the pace of growth is ex- al supply disruptions can have implica- as they spend nearly 50 percent of their pected to ease as tourism returns to pre- tions for the economies of host countries budget on necessities. Poverty, measured crisis levels and foreign demand moder- of Croatian migrants. This can potentially as the share of Croatian population living ates. Personal consumption growth might have adverse impacts on remittances and on less than $5.5 a day at 2011 revised PPP remain around 2.5 percent amid rising em- income of Croatians at home. Neverthe- prices, is estimated to have declined to 1.6 ployment and wages. However, positive less, poverty is expected to fall to 1.3 per- percent in 2021. effects of the increase in wages on personal cent by 2024. TABLE 2 Croatia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.5 -8.1 10.4 3.8 3.4 3.1 Private Consumption 4.1 -5.3 10.0 2.2 2.5 2.7 Government Consumption 3.3 4.1 3.0 2.6 2.5 2.4 Gross Fixed Capital Investment 9.8 -6.1 7.6 10.5 5.3 3.2 Exports, Goods and Services 6.8 -22.7 33.3 6.6 5.3 5.1 Imports, Goods and Services 6.5 -12.3 14.7 6.9 4.7 4.4 Real GDP growth, at constant factor prices 3.6 -6.3 8.9 3.8 3.4 3.1 Agriculture 1.8 3.6 5.5 3.6 3.6 3.6 Industry 4.8 -1.6 6.7 4.0 3.0 3.0 Services 3.3 -8.4 9.9 3.7 3.5 3.1 Inflation (Consumer Price Index) 0.8 0.2 2.6 6.1 2.2 1.9 Current Account Balance (% of GDP) 3.0 -0.1 3.7 2.0 2.4 2.6 Net Foreign Direct Investment (% of GDP) 6.1 1.3 2.5 2.5 2.4 2.4 Fiscal Balance (% of GDP) 0.3 -7.4 -3.6 -3.2 -2.9 -2.6 Debt (% of GDP) 71.1 87.3 80.7 78.3 76.0 74.0 Primary Balance (% of GDP) 2.5 -5.4 -2.0 -1.7 -1.5 -1.4 a,b International poverty rate ($1.9 in 2011 PPP) 0.3 0.4 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.6 0.7 0.6 0.6 0.5 0.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.8 2.4 1.6 1.5 1.5 1.3 GHG emissions growth (mtCO2e) -1.1 -12.8 4.3 1.7 0.6 1.3 Energy related GHG emissions (% of total) 86.8 85.1 84.7 84.2 83.5 82.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 55 Apr 22 2020, with output surpassing pre- COVID-19 levels by late-2021. Economic GEORGIA Key conditions and recovery also supported a reduction in poverty, with projections suggesting a de- challenges cline to pre-pandemic levels in 2021. However, the recovery was uneven, with Table 1 2021 Georgia has had a successful devel- output in certain sectors, such as hospi- Population, million 3.7 opment record, underpinned by pru- tality, remaining considerably below pre- GDP, current US$ billion 18.7 dent economic management, over the pandemic levels. The fifth wave of the GDP per capita, current US$ 5030.3 past decade. Growth averaged 4 per- COVID-19 pandemic abated in late Feb- a 4.2 International poverty rate ($1.9) cent per annum between 2011 and ruary, with new cases falling to 6 percent a 17.0 2021. The poverty rate measured by of peak levels on March 10th. Lower middle-income poverty rate ($3.2) a 46.6 the international upper-middle-income Inflation remained elevated in 2021, aver- Upper middle-income poverty rate ($5.5) Gini index a 34.5 line ($5.50 per capita per day, 2011 aging 9.6 percent and reflecting higher School enrollment, primary (% gross) b 99.4 PPP) declined from 59 percent in 2011 commodity prices and pass-through from b 73.8 to 42 percent in 2021. earlier depreciation. Food and fuel prices Life expectancy at birth, years Nevertheless, critical structural challenges contributed over five percentage points to Total GHG Emissions (mtCO2e) 16.3 remain, particularly weak productivity overall inflation. In response, the National Source: WDI, Macro Poverty Outlook, and official data. and the creation of high-quality jobs. Many Bank of Georgia (NBG) tightened mone- a/ Most recent value (2020), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy Georgians remain in rural areas engaged tary policy by 250 basis points in 2021. (2019). in low productivity agriculture. Human Foreign trade increased with the deficit capital outcomes remain weak, with poor widening in 2021. Exports grew by 27 per- learning outcomes and a lack of linkages of cent yoy and imports by 25 percent yoy The Russian invasion of Ukraine will ad- education to private sector needs. as the trade deficit widened by 26 percent versely impact Georgia’s economy. The In addition, Georgia’s trade openness, yoy. Still, a gradual recovery in tourism and reliance on income from tourism, and substantial transfers from abroad impact is felt through trade, remittances, make it vulnerable to external and global helped narrow the current account deficit. FDI, commodity prices, and logistics. shocks. High dollarization and persistent The banking sector remained healthy. The This follows a robust recovery from the reliance on external savings further am- sector’s return on assets (ROA) and return pandemic in 2021, with the economy plify risks. Still, the swift post-pandemic on equity (ROE) had improved by end-Jan- rebound has demonstrated the growing uary 2022 to 4.2 percent and 32.6 percent, growing at 10.4 percent and surpassing maturity and resilience of Georgia’s eco- respectively. Non-performing loans re- its pre-COVID output. The poverty im- nomic institutions. mained low at 2.3 percent. pact is expected to be significant and fis- The fiscal deficit narrowed in 2021 to 7.1 cal pressures from rising social assistance percent of GDP (excluding sales of non-fi- are expected to increase. nancial assets), from 9.8 percent in 2020, Recent developments and in line with the plan to return to deficit levels prescribed by the fiscal rule (around GDP increased by 10.4 percent in 2021 3 percent of GDP) by 2023. Public debt to following the 6.8 percent contraction of GDP declined to 52 percent of GDP as of FIGURE 1 Georgia / Real GDP growth and contributions to FIGURE 2 Georgia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 15 70 14000 10.4 10 60 12000 4.8 4.8 5.0 5.5 5.0 5 2.9 2.5 50 10000 0 40 8000 30 6000 -5 -6.8 20 4000 -10 10 2000 -15 2016 2017 2018 2019 2020 2021e 2022p 2023p 2024p 0 0 Gov. consumption Net Exports 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Investments Prv. Consumption International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: Geostat and World Bank staff estimates. Source: World Bank. Notes: see table 2. MPO 56 Apr 22 end-2021, considerably below the 62 per- 20 percent of total remittances. Those are Due to higher commodity prices and re- cent registered in 2020, reflecting the at risk of declining sharply because of gional supply disruptions, inflationary strong GDP recovery and the strengthen- economic contraction in the host coun- pressures are likely to increase. This may ing of the lari. tries, depreciation of the ruble, and chal- be mitigated partly by long-term fixed- lenges in conducting payment transfers price contracts for gas supply and a shared from Russia. border with Russia that will maintain basic Lastly, elevated commodity prices will al- supply flows. On the upside, recent devel- Outlook so affect Georgia. Oil and food prices opments provide an opportunity for Geor- have increased sharply since the begin- gia to strengthen the transit potential of the The war in Ukraine is likely to impact the ning of the war due to uncertainty and Caucasus Transport Corridor. Georgian economy adversely through sev- disrupted commodity supplies from Rus- The conflict in Ukraine will also likely eral channels. sia and Ukraine. have significant impact on poverty and The first channel is goods trade. Both Rus- These impacts will cause a slowdown in vulnerability through the tourism, remit- sia and Ukraine are among Georgia’s top growth, higher inflation, and widening ex- tances, and higher energy and food prices 10 trading partners and a key destination ternal balances. Georgia’s growth forecast (especially wheat) channels. for exports, including wine and beverages. for 2022 has been downgraded to 2.5 per- Georgia is well placed to manage the eco- There is limited potential to divert some of cent from 5.5 percent projected pre-war, nomic fallout of the war. Buffers remain the affected exports to alternative markets with considerable scope for further down- reasonable; the macro-financial frame- in the short term. In addition, Georgia is grades if the war continues for much work is credible; and the banking sector reliant on Ukraine and Russia for key im- longer. The baseline outlook envisions is entering the crisis in relatively strong ports such as cereals. growth recovery from 2023 onward, as eas- shape, albeit with the vulnerability of The second key channel is tourism. The ing monetary policy, recovery of tourism, high dollarization. Fiscal discipline has expected dramatic drop in the arrival of and the restoration of economic links are been maintained over the past decade, Russian and Ukrainian tourists, who to- partly offset by the gradual withdrawal of although planned post-COVID consolida- gether accounted for 21 percent of vis- the fiscal stimulus. tion may decelerate due to the economic itors in 2021, will put further strain on On the external side, due to weaker ex- slowdown. Still, government deposits are a sector that is still reeling from the ports and higher import prices, the current sizeable, and debt is likely to remain be- COVID-19 pandemic. account deficit is expected to widen. Lari low the 60 percent statutory level under The third channel is remittances, with volatility has also increased following the the fiscal rule. Russia and Ukraine accounting for over onset of the war. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -6.8 10.4 2.5 5.5 5.0 Private Consumption 7.2 8.8 8.7 3.0 3.8 4.8 Government Consumption 5.7 7.1 7.7 -4.7 6.0 2.2 Gross Fixed Capital Investment -0.1 -16.5 -7.6 -4.6 -0.5 2.2 Exports, Goods and Services 9.8 -37.6 30.5 -4.0 11.0 13.0 Imports, Goods and Services 6.6 -16.6 12.8 -5.0 5.0 9.0 Real GDP growth, at constant factor prices 5.1 -6.6 10.3 2.5 5.5 5.0 Agriculture 0.7 8.1 0.1 3.0 5.0 4.0 Industry 2.7 -6.8 5.9 2.0 5.0 4.0 Services 6.3 -8.1 12.9 2.6 5.7 5.4 Inflation (Consumer Price Index) 5.0 5.2 9.6 11.0 6.6 3.8 Current Account Balance (% of GDP) -5.5 -12.4 -10.5 -13.0 -9.6 -8.2 Net Foreign Direct Investment (% of GDP) 6.0 3.5 5.9 3.9 5.8 6.8 Fiscal Balance (% of GDP) -3.4 -9.8 -7.1 -4.7 -3.6 -3.0 Debt (% of GDP) 41.8 60.1 49.4 48.8 46.4 46.2 Primary Balance (% of GDP) -2.2 -8.2 -5.8 -3.3 -2.3 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 3.8 4.2 3.4 3.2 2.9 2.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 14.8 17.0 14.1 13.9 12.1 10.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 41.9 46.6 40.6 39.8 36.4 33.3 GHG emissions growth (mtCO2e) 1.6 -7.5 2.4 9.0 0.8 -2.9 Energy related GHG emissions (% of total) 52.9 49.2 49.8 53.5 53.6 51.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2020-HIS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 57 Apr 22 COVID-19 containment measures during the first half of 2021, robust activity in the KAZAKHSTAN Key conditions and second half supported real GDP growth of 4 percent for the year. challenges Growth was driven by continued fiscal expansion, strong consumer credit Table 1 2021 Since independence in 1991, Kazakhstan growth, and reduced COVID-19 restric- Population, million 19.0 has experienced rapid growth, fueled by tions. Due to a strong recovery in house- GDP, current US$ billion 202.9 investments in extractive industries. hold consumption, retail trade rose by 6.5 GDP per capita, current US$ 10693.5 Growth, in turn, has reduced poverty and percent and retail loans, including mort- a 0.0 International poverty rate ($1.9) transformed the country into an upper- gages, by 40 percent in 2021. After con- a 0.2 middle-income economy. tracting by 3.4 percent in 2020, total cap- Lower middle-income poverty rate ($3.2) a 4.6 However, the achievement masks underly- ital investment rose modestly by 2.6 per- Upper middle-income poverty rate ($5.5) Gini index a 27.8 ing vulnerabilities and the unevenness of cent, driven by solid growth in hous- School enrollment, primary (% gross) b 100.3 the country’s progress. Key challenges in- ing construction. Reopening the economy b 73.2 clude slow productivity growth, wealth in- has increased activity in face-to-face ser- Life expectancy at birth, years equality, rising living costs, limited job op- vices and manufacturing industries main- Total GHG Emissions (mtCO2e) 301.1 portunities, and weak institutions. These ly aimed at the domestic market. Source: WDI, Macro Poverty Outlook, and official data. challenges were amplified by the A sharp increase in global oil prices sub- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy COVID-19 pandemic and prompted the stantially improved Kazakhstan’s trade (2019). largest protests in the country’s history balance and reduced the current account earlier in the year. deficit to 3 percent of GDP in 2021 (from Reforms are needed to raise living stan- 3.8 percent in 2020). FDI inflows and high- Russia’s invasion of Ukraine is likely to dards and human capital, reduce corrup- er foreign borrowing by state enterprises reduce growth to 1.5 percent in 2022. tion, reverse productivity stagnation, im- financed this deficit. prove competition and private sector With heightened uncertainty during the This figure follows 4 percent growth in growth, and accelerate the low-carbon eco- January events and the recent plunge in 2021, driven by a rebounding economy, nomic transition. Following the protests in the Ruble, the tenge has depreciated by consumption growth, and supportive fis- January, which were marred by violence about 17 percent against the US Dollar. To cal policy. Higher food and energy prices and attempts at destabilization, the gov- reduce tenge volatility, the central bank ernment has announced its intentions to scaled up FX interventions and increased have accelerated inflation. The poverty tackle these constraints through wide- its policy rate by 2.25 p.p. to 13.5 percent in rate is expected to fall in 2022 but remain reaching reforms. March 2022. FX reserves, however, remain above pre-pandemic levels. Inflation will comfortable at US$33.5 billion. also remain elevated due to supply dis- Fiscal policy in 2021 remained accom- ruptions arising from the war in Ukraine. modative to the impact of COVID-19 on Recent developments the economy. Budgetary support measures continued for households and businesses Economic activity returned to pre-pan- facing hardship while public investment demic levels in 2021. Despite an increase in priorities shifted from pandemic response FIGURE 1 Kazakhstan / Movement in real GDP (Q4 FIGURE 2 Kazakhstan / Poverty rate $5.5 a day PPP 2019=100) Index, 2019Q4=100 Percent 104 50 102 40 100 actual forecast 30 98 96 20 Real GDP, s.a. 94 Q4 2019 Real GDP 10 92 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 Sources: Statistical Office of Kazakhstan; World Bank staff estimates. Source: World Bank estimates, calculations based on ECAPOV harmonization, us- ing 2018-HBS. MPO 58 Apr 22 to recovery. Higher oil revenues helped re- a government package of social reforms. welfare and sustaining the business envi- duce the budget deficit to 3 percent of GDP The poverty rate is estimated to have de- ronment. Measures include increased so- from 4 percent in 2020. The public debt-to- creased to 12.4 percent in 2021 due to cial assistance, rental subsidies, and com- GDP ratio remained broadly unchanged at broader economic recovery. pensation for businesses affected by the 24.5 percent of GDP. January protests. At 8.7 percent year-on-year in February A small current account balance is project- 2022, inflation remained above the central ed in 2022, supported by higher oil prices bank target of 4-6 percent. Food and ener- Outlook and lower demand for imports. gy prices were the main drivers. The gov- The national poverty rate is projected to ernment established price caps on certain Spillovers from Russia’s economic collapse fall to 12.0 percent by end-2022, though food and fuel products and utility tariffs in will disrupt Kazakhstan’s supply chains this may change if inflation is higher and response to January’s mass protests. and dent its growth prospects. Real GDP growth slips further. As loan guarantees and forbearance mea- growth is expected to slow to 1.5-2.0 per- These projections bear significant down- sures continued to support households cent in 2022. Kazakhstan also relies on side risks: spillovers from sanctions that and businesses affected by the pandemic, Russia for 40 percent of its imports. Trade further weaken trade flows and investor the share of NPLs in the banking system disruptions, lower business confidence, confidence; more prolonged suspensions decreased to 3.3 percent in 2021 from 6.9 and increased currency volatility will also of Black Sea oil exports; risks of wage-price percent in 2020. Sanctions on banks and lower growth. spirals linked to economywide wage in- transaction restrictions thus far have not Growth will also be lower due to the clo- creases, and potential capital flight amidst stressed the local branches of Russian sure (due to storm damage) in March of heightened uncertainty and tighter global banks (15 percent of banking sector assets). Kazakhstan’s main oil pipeline (to Russia’s financial markets. However, vulnerabilities could emerge Black Sea), through which about 80 per- Events since January clearly urge faster from large financial outflows, sustained cent of Kazakhstan’s oil is exported. Based progress on reforms to achieve sustain- supply chain disruptions, and risks of sec- on current repair timeframes (up to a able growth and shared national prosper- ondary sanctions effects given Kaza- month), oil export volumes could fall by ity. In that regard, the authorities plan khstan’s significant trade, investment, and about 5-6 percent in 2022. to take a stronger stand against corrup- people linkages to Russia. Further exchange rate depreciation, rising tion and improve the rule of law, having The employment rate has reverted to pre- food prices, and wage increases will keep announced steps to increase competition pandemic levels, and real wages in- inflation high in 2022. Monetary policy is and the quality of human capital, and ad- creased by 5.7 percent annually in Q3 expected to remain tight in response. dress government inefficiency. 2021. In January 2022, the minimum wage Fiscal policy will continue accommodating was increased by 41 percent as part of public spending to improve household TABLE 2 Kazakhstan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 -2.5 4.0 1.8 4.0 3.5 Private Consumption 6.1 -3.8 7.0 2.7 4.2 3.7 Government Consumption 15.5 12.8 0.5 1.2 0.8 0.8 Gross Fixed Capital Investment 13.8 -0.3 1.2 0.8 4.0 3.0 Exports, Goods and Services 2.0 -12.1 -0.2 -0.4 6.2 4.5 Imports, Goods and Services 14.9 -10.7 5.9 1.2 4.9 3.4 Real GDP growth, at constant factor prices 4.5 -2.5 4.1 1.8 4.1 3.6 Agriculture -0.1 5.6 -2.4 2.5 2.8 2.9 Industry 4.1 -0.4 4.3 1.2 5.4 4.8 Services 5.2 -4.5 4.6 2.1 3.4 2.8 Inflation (Consumer Price Index) 5.3 6.8 8.0 10.5 7.2 5.5 Current Account Balance (% of GDP) -4.0 -3.7 -3.0 0.6 -0.1 -0.3 Net Foreign Direct Investment (% of GDP) 3.1 3.4 2.1 1.7 3.0 2.7 Fiscal Balance (% of GDP) -1.3 -3.3 -3.0 -2.7 -1.9 -0.8 Debt (% of GDP) 19.6 24.8 24.6 28.3 29.0 29.0 Primary Balance (% of GDP) -0.3 -2.2 -1.7 -1.6 -0.7 0.3 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.2 0.2 0.2 0.2 0.1 0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 4.0 14.2 12.4 12.0 10.3 9.2 GHG emissions growth (mtCO2e) 2.2 7.0 1.5 0.8 1.5 1.8 Energy related GHG emissions (% of total) 80.2 81.1 81.0 80.8 80.8 80.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2018-HBS. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 59 Apr 22 could disrupt international travel. Mean- while, the Russian invasion of Ukraine and KOSOVO Key conditions and associated sanctions could generate further inflationary pressure, especially for energy challenges and food, undermining consumption. Ris- ing energy costs pressuring public finances Table 1 2021 Kosovo’s GDP grew by 9.1 percent in 2021, since late 2021, given the vulnerability of Population, million 1.8 following a contraction of 5.3 percent in aged power-generation infrastructure. GDP, current US$ billion 9.0 2020. From Q2 of 2021, vaccination accel- Under the changing external conditions, GDP per capita, current US$ 5057.7 erated, and travel resumed, bolstering eco- maintaining fiscal space to support the a 24.4 Upper middle-income poverty rate ($5.5) nomic activity. Consumption and diaspo- economy is crucial. Furthermore, Kosovo a 29.0 ra-driven service exports remain key needs to build on the recent export growth Gini index b 72.5 growth drivers. momentum by further improving the reg- Life expectancy at birth, years Source: WDI, Macro Poverty Outlook, and official data. Private investment contributes increasing- ulatory environment and by investing on a/ Most recent value (2017), 2011 PPPs. ly but consists mostly of construction, with productivity-enhancing human capital b/ Most recent WDI value (2019). limited productivity spillovers. Positively, and infrastructure. merchandise exports increased significant- ly from pre-pandemic levels and, though Kosovo’s economy experienced a strong still low, are an encouraging sign of private recovery in 2021, supported by a rebound sector growth. The trade deficit, however, Recent developments remains high. in domestic demand and record export Low labor force participation, especially Strong credit growth, remittances, and for- growth. Inflation also intensified, driven for women, remains a pressing constraint eign direct investment (FDI), combined by increases in import prices. Growth is to growth. Overall, 1 in 3 working-age with a direct 3.2 percent-of-GDP fiscal expected to decelerate to 3.9 percent in adults was employed before the recovery stimulus and the spillover from quasi- 2022. The medium-term outlook remains accelerated; women’s employment in- monetary measures in 2020, restored confi- creased by 14 percent, but still only 16 per- dence and boosted domestic demand, dri- positive, but prone to elevated risks; with cent adult women were employed by Q1 ving an exceptional 9.1 percent real output the war in Ukraine significantly increas- 2021. Positively, formal employment in- growth in 2021. Meanwhile, trade in- ing inflationary pressures. Further re- creased throughout 2021. creased substantially. On the production forms to enhance competitiveness would Kosovo, a Euroized economy, has a good side, services and industry contributed the track record of headline fiscal manage- most, while agriculture contributed nega- help sustain Kosovo’s export momentum. ment. However, without access to inter- tively to growth. national financial markets, concessional Until Q1 2021, labor force participa- financing remains a significant source to tion and employment increased only close the infrastructure gap. for women (under 25 especially) and GDP growth is expected to reach 3.9 per- slightly fell for men. However, tax- cent in 2022, but there are significant risks. registered employment rose by near- While the pandemic appears to recede, ly 10 percent throughout 2021. Pover- risks of new vaccine-resistant variants ty is estimated to have decreased by FIGURE 1 Kosovo / Index of merchandise exports in USD, FIGURE 2 Kosovo / Actual and projected poverty rates and 2019Q4=100 percent real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 250 70 5000 4500 60 4000 200 50 3500 40 3000 2500 150 30 2000 20 1500 1000 100 10 500 Pre-covid 5 year Exports Merchandise trend 0 0 Actual Exports Merchandise 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 50 Upper middle-income pov. rate Real GDP pc 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 Sources: Kosovo agency of statistics and World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 60 Apr 22 about 4 percentage points in 2021 to supporting the recovery through double- Headline inflation is expected to rise to under 20 percent. digit credit growth. 5.4 percent in 2022 but the negative im- Consumer price inflation jumped from 0.2 pact of the war in Ukraine on global trade percent in 2020 to 3.4 percent in 2021, and prices could increase inflation fur- reaching 7.5 percent in February 2022. Im- ther. As a net importer of food, agricul- port prices of energy, food and commodi- Outlook tural inputs, and energy, Kosovo is di- ties fueled inflation. rectly affected by global price surges of Manufacturing exports rose by almost As of March 2022, growth is projected to these goods, despite minor direct trade 70 percent year-on-year. Services’ exports reach 3.9 percent by year end, but there are links with Russia and Ukraine. Food and more than doubled as diaspora travel significant downside risks. While the post- energy inflation could affect the most vul- bounced back in 2021. Remittances also COVID recovery furthers economic activ- nerable households disproportionately, as increased by 26 percent y-o-y. However, ity, the consequences of the Russian inva- they devote large budget shares to these the recovery also increased import de- sion of Ukraine are still unfolding and items. Rising electricity costs might in- mand by almost 50 percent, resulting in could dampen economic prospects. crease fiscal pressures. On the other hand, a deterioration of the current account Private investment growth, from higher base metals’ export revenues could in- deficit (CAD). construction and export-related invest- crease from higher global demand. The fiscal deficit fell from 7.6 percent ment, is expected to support growth in Tax revenue collection is expected to re- of GDP in 2020 to 1.4 percent in 2021, 2022. Improved execution in public invest- main strong in 2022, however, expendi- thanks to a record 29 percent increase in ment should accelerate its recovery. How- ture should outpace revenues due to a re- tax revenues. Tax revenues were boosted ever, a positive contribution from invest- bound in capital expenditure and higher by the economic recovery, higher infla- ment hinges on the strength of diaspora current expenditures from energy subsi- tion, and formalization. Nominal current demand for real estate, a moderation in dies and social transfers. As a result, the expenditure grew by 7 percent, mostly construction input prices, and the ability of fiscal deficit is expected to widen to 2.2 due to the fiscal stimulus program. Nom- the Government to maintain current capi- percent of GDP and remain within the inal public capital expenditure increased tal budgeting against higher pressures for fiscal rule over the medium term. PPG but remains below its pre-pandemic share energy and social transfers. The current ac- debt is expected to reach 24.3 percent of of GDP. Public and publicly guaranteed count deficit is projected to exceed 9 per- GDP in 2022. (PPG) debt remained stable at 22.5 percent cent of GDP, as imports continue to rise of GDP. The financial sector strengthened, due to higher domestic demand. TABLE 2 Kosovo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.8 -5.3 9.1 3.9 4.3 4.2 Private Consumption 5.6 2.5 7.0 1.7 1.8 1.8 Government Consumption 10.1 2.1 0.7 2.3 6.8 3.1 Gross Fixed Capital Investment 2.9 -7.6 10.5 9.0 7.5 7.7 Exports, Goods and Services 7.6 -29.1 69.1 5.0 5.5 6.0 Imports, Goods and Services 4.5 -6.0 27.9 3.4 3.6 3.5 Inflation (Consumer Price Index) 2.7 0.2 3.4 5.4 1.6 2.2 Current Account Balance (% of GDP) -5.6 -7.0 -9.1 -9.7 -9.0 -8.0 Net Foreign Direct Investment (% of GDP) -2.7 -4.2 4.2 4.2 4.0 4.0 Fiscal Balance (% of GDP) -2.9 -7.6 -1.4 -2.2 -2.6 -2.5 Debt (% of GDP) 17.0 22.0 22.1 24.0 25.3 26.9 Primary Balance (% of GDP) -2.6 -7.1 -1.0 -1.7 -2.2 -2.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 21.1 23.2 19.4 17.6 15.8 14.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2017-HBS. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2017) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 61 Apr 22 activity. The gold sector grew by 1 per- cent, and fewer pandemic restrictions KYRGYZ Key conditions and spurred economic activity and remittance inflows. However, in the first two months challenges REPUBLIC of 2022, annual growth slowed to 2 per- cent on lower gold production and weak- The economy remains heavily dependent er services growth. on gold production (about 10 percent of The 2021 current account deficit was Table 1 2021 GDP and 35 percent of exports), remit- about 3.3 percent of GDP against a 4.8 Population, million 6.7 tances (30 percent of GDP), and foreign percent surplus in 2020. The main driver GDP, current US$ billion 8.5 aid. The country has witnessed significant was a sharper trade deficit of 24.8 percent GDP per capita, current US$ 1275.9 political and governance changes over the of GDP, compared to 18.5 percent in 2020. International poverty rate ($1.9) a 1.1 past two years, accompanied by policy un- Exports (in US dollars) rose 40 percent a 16.2 certainty. Overall, the economic situation while imports climbed 49 percent, reflect- Lower middle-income poverty rate ($3.2) a was further complicated by security con- ing higher imports of machinery, chemi- Upper middle-income poverty rate ($5.5) 58.1 a cerns arising from border conflicts. cals, and textiles; and increased food and Gini index 29.0 Strong and sustainable growth needs a fuel prices. b 102.6 School enrollment, primary (% gross) larger private sector, more international Inflation increased to 11.2 percent in De- b 71.6 Life expectancy at birth, years trade, and a conducive macroeconomic en- cember 2021 from 9.7 percent a year ago Total GHG Emissions (mtCO2e) 10.3 vironment. However, large infrastructure but has since fallen to 10.8 percent in Feb- Source: WDI, Macro Poverty Outlook, and official data. gaps, the weak rule of law and governance, ruary 2022. This was due to higher food a/ Most recent value (2020), 2011 PPPs. a poor business environment, onerous reg- and fuel prices which grew by 13.3 and b/ WDI for School enrollment (2020); Life expectancy (2019). ulations, and financially unsustainable en- 74.8 percent, respectively in 2021. ergy sector policies are constraining In response to higher inflation, the central growth. The poor condition of the energy bank raised its policy rate four times, by sector - the result of below-cost recovery a cumulative 350 basis points, in 2021 and Spillovers from Russia’s invasion of tariffs that have endured for years - and early 2022, to 8.5 percent. To mitigate in- Ukraine are expected to reverse the noncompliance with WTO and Eurasian flation risks and smooth exchange rate progress made by the Kyrgyz economy in Economic Union regulatory standards are volatility, the central bank sold $689 mil- recovering from the COVID pandemic in especially binding constraints. lion in foreign reserves in 2021. 2021 when annual GDP growth was 3.6 Following Russia’s invasion of Ukraine, the som depreciated by 23 percent percent. The economy is now projected to against the US Dollar but has since re- contract by 5 percent in 2022, and infla- Recent developments gained about half of its lost value. In tion is likely to exceed 15 percent, creat- March, the central bank raised its policy ing significant further pressure on fiscal The Kyrgyz economy was hit hard by the rate twice more by a total of 550 basis pandemic in 2020 but began recovering in points to 14 percent. Credit growth in and debt management as well as pushing 2021 as GDP grew by 3.6 percent. Strong the economy remained robust at 10 per- more people into poverty. industry and services growth helped off- cent in December 2021, although slightly set subdued agriculture and construction slower than in 2020. FIGURE 1 Kyrgyz Republic / Headline, food and fuel FIGURE 2 Kyrgyz Republic / GDP growth and poverty rate inflation Percent Poverty rate, percent Percent 100 35 15 80 30 10 60 25 20 5 40 20 15 0 0 10 -5 5 -20 0 -10 -40 2007 2009 2011 2013 2015 2017 2019 2021 e 2023 f Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Headline Food Fuel GDP growth, RHS $3.2/day PPP, LHS Source: Kyrgyz authorities. Sources: Kyrgyz authorities and World Bank staff. MPO 62 Apr 22 The government’s fiscal position improved outlook for the Kyrgyz economy, which alongside a recovering economy and a re- significantly in 2021. The deficit fell to 0.3 is projected to contract by 5 percent vival in exports. percent of GDP from 4.2 percent in 2020 in 2022. This is mainly due to a fall The fiscal deficit is expected to widen to on improved revenue collection and re- in private consumption and investment 5.3 percent of GDP in 2022 as the govern- strained public spending growth. Total spending from an anticipated 33 percent ment increases spending to offset domestic revenues increased to 31.3 percent of GDP decline in remittance inflows. The fiscal spillovers from the war in Ukraine. Expan- from 27.7 percent in 2020 on a surge in deficit is expected to again widen to 5 sions of social spending and public wages import tax receipts, rebounding domestic percent of GDP in 2022, and external are expected to help offset the impact of activity, and improved tax administration. trade is expected to shrink. Forecasts of the remittance shock and weaker economic Public spending increased marginally to weak agricultural output in 2022 and activity. The deficit is expected to narrow 34.3 percent of GDP from 33.7 percent in continued uncertainties around gold to 3 percent of GDP over 2023-24 as condi- 2020, with an increase in capital spending production will further constrain tions improve. offsetting sharply lower recurrent spend- growth. Growth is expected to recover Lower remittances, high food prices, few- ing. The fiscal improvement reduced pub- to 3.2 percent in 2023 and 4.0 percent er job opportunities domestically and lic debt to 60.3 percent of GDP, from 67.7 in 2024, assuming a stabilization in the abroad, and economic contraction will percent at end-2020. conflict and continued public investment likely increase and deepen poverty in The COVID-19 pandemic increased the growth. These projections also assume 2022. The impact of sanctions on Russia poverty rate (US$3.2 a day, 2011 PPP) from domestic political stability and further may sever a vital lifeline for Kyrgyz 9.7 percent in 2019 to 16.2 percent in 2020. easing of pandemic conditions. Howev- households reliant on remittances from It is estimated to have slightly deteriorated er, risks remain high of the outlook fur- Russia. The government’s anti-crisis mea- further in 2021 due to higher food prices ther worsening. sures, such as increased pensions and and fewer job opportunities. Inflation will increase to about 18 percent wages for government officials and social by end-2022, from further food and fuel assistance, will partly soften the negative price increases, before moderating to 8 per- impact on the poor. cent by end-2023. The current account Outlook deficit in 2022 is projected to widen to 11 percent of GDP, reflecting drops in remit- The spillovers of Russia’s invasion of tances and gold exports. The deficit is ex- Ukraine have significantly worsened the pected to narrow over the medium-term TABLE 2 Kyrgyz Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.6 -8.4 3.6 -5.0 3.2 4.0 Private Consumption 0.8 -8.3 2.4 -5.2 2.7 3.2 Government Consumption 0.5 0.9 1.9 1.7 0.3 0.3 Gross Fixed Capital Investment 7.1 -16.2 17.9 4.1 10.8 11.5 Exports, Goods and Services 16.2 -27.3 -1.4 1.1 8.0 7.2 Imports, Goods and Services 6.1 -28.0 11.1 9.0 11.3 10.5 Real GDP growth, at constant factor prices 3.6 -8.4 3.6 -5.0 3.2 4.0 Agriculture 2.5 1.1 0.0 -2.2 3.5 2.6 Industry 6.6 -7.5 -2.8 0.4 1.7 8.0 Services 3.2 -16.4 10.2 -9.9 3.6 3.5 Inflation (Consumer Price Index) 1.1 6.3 11.9 15.2 8.0 6.0 Current Account Balance (% of GDP) -12.1 4.8 -3.3 -11.4 -10.1 -10.0 Net Foreign Direct Investment (% of GDP) 3.8 -7.5 0.7 1.3 2.5 2.2 Fiscal Balance (% of GDP) -0.5 -4.2 -0.3 -5.3 -4.4 -3.0 Debt (% of GDP) 51.6 67.7 60.3 65.2 61.3 57.9 Primary Balance (% of GDP) 0.5 -2.9 1.3 -3.6 -2.9 -1.7 a,b International poverty rate ($1.9 in 2011 PPP) 0.6 1.1 1.1 1.1 1.1 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.7 16.2 18.3 28.7 27.7 26.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 52.6 58.1 58.7 56.7 57.2 58.0 GHG emissions growth (mtCO2e) -6.7 -20.1 -7.2 -4.8 -1.2 -0.6 Energy related GHG emissions (% of total) 71.7 64.4 61.3 58.1 56.3 54.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2017-KIHS and 2020-KIHS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2017-2020) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 63 Apr 22 refugees, the impact on revenues and on social spending to mitigate rising infla- MOLDOVA Key conditions and tion, squeezing fiscal space. Persistent inequality of opportunity lim- challenges its the ability of low-income households to access public services, reducing their Table 1 2021 Despite a solid economic performance resilience and cementing low intergen- Population, million 2.6 in the past two decades, the economic erational mobility. Due to the 2020 con- GDP, current US$ billion 13.7 model remains reliant on remittances-in- traction, poverty increased from 25.2 GDP per capita, current US$ 5199.9 duced consumption, with an associated percent in 2019 to 26.8 percent in 2020 a 0.0 International poverty rate ($1.9) low productivity growth resulting from (based on the national poverty line), a 0.5 persistent structural and governance marking the second consecutive year in Lower middle-income poverty rate ($3.2) a 13.3 weaknesses, significant state enterprises which poverty increased. Upper middle-income poverty rate ($5.5) Gini index a 26.0 footprint, low competition, uneven play- The government faces the challenge of School enrollment, primary (% gross) b 106.3 ing field, and tax distortions. The 2014 striking the balance between cyclical and b 71.9 bank fraud uncovered deep weaknesses structural problems, sustaining economic Life expectancy at birth, years in the financial sector. Extreme weather recovery with a stronger fiscal impulse Total GHG Emissions (mtCO2e) 12.6 events and the propagation of economic while ensuring fiscal sustainability, and Source: WDI, Macro Poverty Outlook, and official data. and financial crises from the main trad- implementing an ambitious structural re- a/ Most recent value (2019), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy ing partners have been a traditional risk forms program to improve competitive- (2019). for a small open economy like Moldova. ness and long-term growth. The COVID-19 pandemic has recently al- so raised concerns about the health sys- Growth is expected to be curtailed by tem’s stability. the unfolding crisis in Ukraine despite Recent developments in Ukraine pose Recent developments major threats to the economic prospects its swift recovery from COVID-19. of Moldova through trade (32 percent Economic activity bounced back by 13.9 Medium term growth hinges on the of imports and 14 percent of exports percent in 2021. A strong increase in containment of the war and of the are with Russia and Ukraine) and remit- wages, remittances and social transfers COVID-19 pandemic, as well as a suc- tances channels (70 percent of migrants contributed to private consumption and 25-30 percent of remittances are re- growth. Investments increased by 7 per- cessful management of the refugee crisis lated to Russia and Ukraine). Key in- cent on the back of favorable monetary and sustained fiscal support. Authorities frastructure networks are primarily con- conditions. Strong domestic demand and face policy trade-offs between the need nected to Ukraine despite recent efforts restocking after the lockdown led to sig- for mitigating shocks and the implemen- to better connect the country to the nificant drag on growth from net exports, tation of a broad-based reforms program EU. The potential disruption in the sup- albeit a strong increase of exports due to ply of food, energy and commodity im- high yields. All economic sectors recov- to support long term growth. ered after a sharp contraction in 2020, with ports is expected to further increase prices. The fiscal position is expected the agricultural sector leading (14.3 per- to be further weakened by inflows of cent) after the 2020 drought. FIGURE 1 Moldova / Projected macroeconomic indicators FIGURE 2 Moldova / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 16 45 60000 12 40 50000 8 35 30 40000 4 25 0 30000 20 -4 15 20000 -8 10 10000 5 -12 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 0 0 Real GDP, % change 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Current account balance, % GDP International poverty rate Lower middle-income pov. rate Fiscal deficit Upper middle-income pov. rate Real GDP pc Source: Author's calculations based on national statistics. Source: World Bank. Notes: see table 2. MPO 64 Apr 22 The accommodative monetary conditions of 2021, y/y. The Government almost dou- prices subside, the current account deficit throughout 2021 were reversed as infla- bled the minimum pension in 2021, in- is expected to improve. High inflationary tionary pressures began to pick up due to creasing disposable incomes for pension- pressures will persist throughout 2022 increasing global energy and food prices receiving households. However, rising en- with the inflation rate remaining well and strong domestic demand. Policy inter- ergy and food prices started affecting pur- above the upper bound of the central Bank est rate tightened to 10.5 percent from 2.5 chasing power of vulnerable households in target corridor of 5 percent (+/-1.5 percent). percent in 2021. In the first three quarters the last quarter of 2021. The fiscal deficit in the medium term is of 2021, the current account deficit almost expected to remain higher than in pre- doubled reaching 13 percent of GDP as im- Covid-19 years, as the economy will need ports expanded quicker than exports and to protect the disposable income of the remittances, financed primarily by cash Outlook population from increasing prices (par- and deposits in foreign currency. On the ticularly energy and food), support the back of higher GDP, external debt de- The unfolding war in Ukraine is expected refugees and increase investments as the creased by 4.5 percentage points to 66.1 to affect the economy through the trade ambitious reform program gains steam. percent of GDP. and remittances channels as well as prices As a result, public debt is expected to in- In 2021, health and social protection (35.4 and financial uncertainties. Even under an crease, while remaining relatively low by percent and 13 percent, y/y) were the main optimistic scenario of the resolution of the international standards. drivers of spending increase (+ 11.9 percent, conflict in Ukraine and reestablishment of Given the recovery in the labor market and y/y). Spending on non-financial assets in- the trade routes, subsiding pandemic risks, strong remittance receipts, poverty is ex- creased by 17.6 percent despite lower execu- a continuation of a broad-based govern- pected to have decreased from 15.7 percent tion of capital investments. Revenue collec- ment reform program, and sustained fiscal in 2020 to 10.8 percent in 2021, according tion rebounded strongly (+23.5 percent, y/ impulse, growth is expected to substantial- to US$5.50 PPP poverty line. Impacts of the y). The fiscal deficit, mainly financed ly decelerate to -0.4 percent in 2022. In an war in, including higher food and fuel in- through foreign debt, reached 2 percent of optimistic scenario of de-escalation of the flation, the potential for return migration GDP. Public and publicly guaranteed debt situation in Ukraine, growth is expected and lower remittances, as well as a weaker decreased to around 33 percent of GDP. rebound to 3.8 percent in 2023 and around labor market due to lower demand for ex- Employment recovered to its pre-pandem- 4.4 percent in 2024. As the economy gains ports, are forecasted to lead to a stagnation ic levels by Q4 of 2021 and wages grew steam and the trade routes are reestab- in poverty of 10.9 percent in 2022. by 13 percent in the first three quarters lished and higher global energy and food TABLE 2 Moldova / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.7 -7.4 13.9 -0.4 2.7 4.2 Private Consumption 3.2 -8.3 15.5 0.8 3.8 4.4 Government Consumption 1.3 3.1 3.8 2.6 1.3 2.1 Gross Fixed Capital Investment 11.9 0.4 1.7 -1.0 3.7 4.3 Exports, Goods and Services 8.2 -9.6 17.5 0.8 4.1 4.3 Imports, Goods and Services 6.2 -5.0 19.2 2.0 4.6 3.9 Real GDP growth, at constant factor prices 4.0 -7.6 15.6 -0.8 2.5 4.2 Agriculture -2.3 -26.4 18.7 5.0 2.0 7.0 Industry 7.1 -4.3 5.6 3.5 4.3 5.4 Services 4.3 -4.8 19.3 -3.4 1.9 3.2 Inflation (Consumer Price Index) 4.7 4.1 5.1 18.1 6.2 4.6 Current Account Balance (% of GDP) -9.3 -7.7 -11.1 -10.4 -9.0 -8.8 Net Foreign Direct Investment (% of GDP) 4.2 1.3 1.6 0.8 1.5 2.7 Fiscal Balance (% of GDP) -1.4 -5.3 -1.9 -6.1 -4.1 -3.1 Debt (% of GDP) 27.4 36.4 32.4 36.6 36.0 35.2 Primary Balance (% of GDP) -0.7 -4.5 -1.1 -4.9 -2.9 -2.1 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.8 0.4 0.4 0.4 0.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 13.3 15.7 10.8 10.9 10.0 8.6 GHG emissions growth (mtCO2e) -1.3 -9.6 6.0 -2.7 -0.7 -0.1 Energy related GHG emissions (% of total) 61.9 62.1 62.0 60.5 59.8 59.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2019-HBS. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 65 Apr 22 taxation, and increases the net monthly minimum wage from €250 to €450. The pro- MONTENEGRO Key conditions and gram has the potential to reduce inequali- ties and increase formal employment and challenges growth over the medium-term, especially if complemented by additional structural Table 1 2021 Montenegro’s small, open, and tourism- reforms, but also poses fiscal risks. The Population, million 0.6 dependent economy suffered the largest Parliament rejected several revenue mea- GDP, current US$ billion 5.6 contraction in Europe of -15.3 percent in sures, which will likely result in a wider- GDP per capita, current US$ 9011.0 2020, reversing several years of poverty re- than-planned fiscal deficit in 2022 and the a 16.9 Upper middle-income poverty rate ($5.5) duction and exposing Montenegro’s acute following years. a 36.9 vulnerabilities to external shocks. In February 2022, there was a vote of no Gini index b 101.7 From 2015-19, growth averaged 4 percent, confidence in the government. A turbulent School enrollment, primary (% gross) Life expectancy at birth, years b 76.9 driven by large public investments and political environment is adding to already Total GHG Emissions (mtCO2e) 3.6 strong growth in consumption. Over two- high uncertainty. Accelerating structural thirds of Montenegro’s jobs are in services, reforms and fiscal prudence are needed to Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. which account for over 70 percent of value mitigate increasing risks. b/ WDI for School enrollment (2020); Life expectancy added. The current account balance shows (2019). a large structural deficit and averaged 15 percent of GDP over 2015-19, financed by net FDI and external debt. Montenegro’s Recent developments Montenegro’s economic recovery in 2021 net international investment position at was robust, supported by tourism revival. negative 170 percent of GDP in 2019 is Montenegro’s economy posted a strong re- The labor market also responded to eco- amongst the largest in the world. Due to covery in 2021, estimated at 12.4 percent, weaker adherence to fiscal plans and debt- driven primarily by a rebound in interna- nomic recovery and the fiscal position sig- financed highway construction, public tional tourism receipts recovering to 70 nificantly improved. Montenegro adopted debt peaked at 105 percent of GDP in 2020. percent of their 2019 level from just 13 per- a landmark reform program “Europe Montenegro aspires to join the EU, but sig- cent in 2020. Tourism, employment Now” which carries many opportunities, nificant rule of law challenges have slowed growth, and household lending supported progress towards this goal and reflect a the strong private consumption rebound. but also significant fiscal risks. The out- key development constraint. Investments lingered driven by a slow- break of war in Ukraine is worsening the The economic rebound in 2021 was robust, down in public investments. otherwise positive outlook. This together supported by invigorating tourism. The fis- The labor market recovered as economic with rising inflation risks will impact liv- cal macro-fiscal stability has been preserved activity picked up. LFS data show an in- ing standards and poverty. as both the fiscal deficit and public debt crease in employment in the fourth quar- were significantly reduced. Montenegro ter by 20 percent compared to the first adopted a reform program “Europe Now”, quarter. Poverty (income below $5.5/day which abolishes healthcare contributions, in 2011PPP) is projected to decline from introduces personal income tax allowance, around 19.9 percent in 2020 to 16.2 per- progressive personal and corporate income cent in 2021. FIGURE 1 Montenegro / Real GDP growth and contributions FIGURE 2 Montenegro / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 26 5500 15 24 10 5000 22 5 20 4500 0 18 -5 16 4000 -10 -15 14 3500 -20 12 2015 2016 2017 2018 2019 2020 2021e 2022f 10 3000 Final consumption Gross fixed capital formation 2012 2014 2016 2018 2020 2022 2024 Change in inventories Net exports Upper middle-income pov. rate Real GDP pc GDP growth Sources: MONSTAT, World Bank. Source: World Bank. Notes: see table 2. MPO 66 Apr 22 In 2021, inflation averaged 2.4 percent, and The fiscal deficit fell to 2 percent of GDP The war decelerates household income peaked at 6.7 percent in February 2022, led in 2021 from 11 percent of GDP in 2020, growth particularly for those working in by food and oil prices, which constrains driven by a rebound in revenues, capital the tourism and hospitality sector. Rising purchasing power particularly for the budget underspending, and lower current energy and food prices will dispropor- poor. The financial sector has remained ro- spending. Public debt declined to 86 per- tionately hurt the poor. Poverty in 2022 is bust with outstanding loans and deposits cent of GDP. projected at 15.6 percent, though the out- reaching highs in 2021. The capital adequa- look is uncertain depending on the eco- cy was at 18.5 percent, while non-perform- nomic impacts of the conflict. ing loans increased to 6.8 percent of total Investments are expected to pick up as the loans from 5.9 percent in 2020. Outlook highway is being completed and other cap- In 2021, the current account deficit nar- ital spending increases, while private in- rowed to 9.2 percent of GDP, the lowest The outlook is fragile in an environment vestments in tourism and energy sectors since 2004. Growing by 95 percent, ex- of increasing uncertainties. The outbreak continue, but at a slower pace. As invest- ports of goods and services outpaced im- of the war in Ukraine and the associated ments resume, so will imports, which are port growth, narrowing the trade deficit developments have significantly wors- expected to remain at similar levels during to 19.5 percent of GDP. Strong net exports ened the outlook for Montenegro, reduc- 2022-24. The current account deficit is thus were supported by the tourism recovery, ing the GDP growth rate to 3.6 percent in expected to widen and remain at around metals and electricity exports, and lower 2022. The main direct transmission chan- 12 percent of GDP over the medium term. imports growth. Net remittances in- nel of the war to Montenegro’s economy The global inflationary pressures and, to a creased by 35 percent further reducing is tourism. The expected decline in lesser extent, domestic pressures from an the current account deficit which was en- tourism due to the war slows down ex- increase in wages will push inflation to an tirely financed by net FDI accounting for ports and private consumption, which is estimated 5 percent in 2022. Utmost fiscal 11.2 percent of GDP. In January 2022, in- expected to remain strong, however, due prudence is needed to return public debt ternational reserves covered 8 months of to the positive effects of higher disposable towards Montenegro’s fiscal rule of 60 per- merchandise imports. incomes and the employment recovery. cent of GDP. TABLE 2 Montenegro / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.1 -15.3 12.4 3.6 4.7 3.7 Private Consumption 3.1 -4.6 4.3 3.9 3.6 2.8 Government Consumption 1.0 0.8 1.5 1.4 0.3 0.6 Gross Fixed Capital Investment -1.7 -12.0 -10.3 5.3 6.8 7.5 Exports, Goods and Services 5.8 -47.6 81.1 2.2 7.4 5.8 Imports, Goods and Services 2.7 -20.1 13.7 3.8 5.5 5.2 Real GDP growth, at constant factor prices 4.2 -14.4 12.4 3.6 4.7 3.7 Agriculture -2.2 1.1 -5.0 0.1 0.5 0.5 Industry 5.6 -12.0 1.0 4.0 6.0 4.0 Services 4.5 -16.9 19.0 3.8 4.7 4.0 Inflation (Consumer Price Index) 0.4 -0.3 2.4 5.0 2.3 1.6 Current Account Balance (% of GDP) -14.3 -26.1 -9.2 -12.6 -12.1 -12.0 Net Foreign Direct Investment (% of GDP) 6.2 11.2 11.2 8.1 8.7 8.7 Fiscal Balance (% of GDP) -2.7 -11.0 -2.0 -5.2 -3.0 -1.7 Debt (% of GDP) 76.5 105.3 84.9 77.4 75.2 73.1 Primary Balance (% of GDP) -0.5 -8.3 0.4 -3.4 -1.4 -0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.6 19.9 16.2 15.6 14.8 14.3 GHG emissions growth (mtCO2e) 5.3 -22.0 15.2 2.1 0.0 1.3 Energy related GHG emissions (% of total) 70.7 65.9 69.8 70.6 70.8 71.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2012-SILC-C, 2015-SILC-C, and 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2012-2015) with pass-through = 0.87 and, for 2022 onward, 0.5 based on GDP per capita in constant LCU, reflecting impacts of rising prices. MPO 67 Apr 22 (GAP) may boost human capital devel- opment, accelerate the green transition NORTH Key conditions and and digitalization, helping to boost po- tential growth. challenges MACEDONIA With eroded fiscal space and rising public debt, the reform agenda in the near to Following a decade-long relative macro- medium term needs to focus on improved economic stability, in 2020 the economy targeting of crisis-related support, boost- Table 1 2021 plunged into a recession with the outbreak ing tax compliance, restructuring and Population, million 2.1 of the global pandemic. As the recovery reprioritizing spending towards the GAP, GDP, current US$ billion 13.9 took hold, on the back of buoyant domestic addressing long-term structural bottle- GDP per capita, current US$ 6696.8 and external demand, the energy crisis as necks and improving the efficiency of pub- Upper middle-income poverty rate ($5.5) a 17.9 well as the war in Ukraine in early 2022, lic investment management. The generous a 33.0 bring new challenges and seek continued fiscal transfers, untargeted subsidies, and Gini index b fiscal support despite elevated debt levels. broad tax exemptions, including frequent School enrollment, primary (% gross) 98.2 b Support measures introduced by the gov- changes of pension policy with sizeable fis- Life expectancy at birth, years 75.8 ernment (i.e., subsidies and social security cal implications are not sustainable and Total GHG Emissions (mtCO2e) 10.4 contributions to private firms and cash could derail the macroeconomic stability Source: WDI, Macro Poverty Outlook, and official data. benefits and vouchers for vulnerable peo- in the given context. a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy ple) helped alleviate the impact of the pan- (2019). demic on poverty in 2020. After an estimat- ed increase in 2020, poverty likely resumed decline in 2021 (using the upper middle in- Recent developments As the economy rebounded, the energy come class poverty line). The medium-term outlook remains pos- The real growth rebounded by 4 percent crisis and the war in Ukraine brought itive, but downside risks are elevated. in 2021, following a deep contraction new challenges. With rising public debt, The war in Ukraine, sanctions to Russia in 2020. The recovery was broad-based, the authorities need to replace Covid-19 and Belarus, prolonged supply chain driven by a boost in personal consump- support with targeted fiscal support to the disruptions, rising inflationary and min- tion, and a growing investment contri- most energy vulnerable households and imum wage pressures, weak political bution. Exports and imports bounced stability and the energy crisis continue back, but the trade balance worsened. firms. Monetary policy needs to strike a to weigh on the outlook. Heightened po- On the production side, growth was dri- balance between supporting a fragile re- litical uncertainty, and delayed EU ac- ven by services, as the industry strug- covery amidst rising inflation. The medi- cession negotiations, may lead to weaker gled with supply-chain blockages and um-term outlook remains positive, but reform effort needed to boost potential reduced external orders. growth and consolidate public finances. The labor market witnessed a slow im- short-term risks are all tilted downside Further, tightening financial conditions provement despite government support. and intensified. globally may affect options and costs The unemployment rate decreased to 15.2 to meet financing needs. On the posi- percent at end-2021, in part due to a small tive side, the Growth Acceleration Plan increase in the employment rate (at 47.3 FIGURE 1 North Macedonia / Fiscal performance FIGURE 2 North Macedonia / Labor market indicators, 2020-21 Percent of GDP Percent of GDP Percent 70 1 60 55.9 55.7 Q4 2020 0 60 Q4 2021 -1 50 47.3 46.8 50 -2 -3 40 40 -4 30 30 -5 20 -6 20 -7 16.1 15.2 10 -8 10 0 -9 2014 2015 2016 2017 2018 2019 2020 2021 Domestic debt Foreign debt 0 Guarantees Fiscal deficit (rhs) Activity rate Emp. rate Unemp. rate Sources: North Macedonia State Statistics Office, Ministry of Finance and World Source: World Bank calculations based on LFS 2020 and 2021. Bank staff calculations. MPO 68 Apr 22 percent), but also due to a lower activity improvements in the execution rate. Cur- 2022 to alleviate the energy crisis through rate (at 55.7 percent in Q4 2021). rent spending declined as crisis-related indirect tax cuts, supplemental social bene- Banking sector performance remained sol- support decelerated. In November 2021, fits to pensioners and low-income groups, id in 2021, with the liquidity ratio at 22 per- the government declared an energy crisis and concessional credit lines to firms. The cent, and an increase of capital adequacy and transferred sizeable budget funds to fiscal deficit will remain elevated in 2022 ratio to 17.3 percent. Credit growth con- cover the loses of energy companies and with further rise in public debt projected tinued, led by FX-denominated mortgage took over the private heating company. to above 62 percent of GDP. However, the lending, while non-performing loans ratio Public and publicly guaranteed debt stood Ukraine war, if prolonged, would further stood at 3.5 percent. The inflation acceler- at 60.8 percent of GDP, while arrears in- reduce external demand, increase key ated in the second half of 2021, to reach 7.6 creased to 3.3 percent of GDP by yearend. commodity and energy prices, hamper percent in February 2022. The surge is fu- mobility, and result in investment delays. eled by energy and food price hikes, but This scenario would result in even lower spillovers to core inflation widened. While growth and fiscal revenues, as well as ris- wage growth was service sector-led in Outlook ing requests for fiscal support and a surge 2021, in February 2022, government in- in financing costs. creased the minimum wage by 18.5 per- Growth is projected to decelerate to 2.7 In the medium term, the country needs to cent and subsequently provided a tempo- percent in 2022 affected by the economic set public finances back on a sustainable rary compensation to firms through the consequences of the Russian invasion, war path and shift its focus to resolving struc- contribution subsidy. in Ukraine, and associated sanctions. The tural challenges, including low and declin- The fiscal deficit declined to 5.4 percent inflationary pressures (particularly food ing human capital, weak regulatory frame- in 2021. Yet, payment arrears increased by and energy prices) will increase the cost of works, poor competition policy and judi- 0.6 pp of GDP. Tax revenues increased living and hurt the poor despite sizeable cial independence declining productivity, along with capital spending, which saw government support adopted in March and out-migration. TABLE 2 North Macedonia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.9 -6.1 4.0 2.7 3.1 3.2 Private Consumption 3.7 -4.5 5.9 2.8 2.5 3.3 Government Consumption 2.5 6.4 4.1 1.0 0.3 0.2 Gross Fixed Capital Investment 8.7 -14.8 6.8 6.0 8.0 8.0 Exports, Goods and Services 8.9 -10.9 12.3 7.2 7.0 6.0 Imports, Goods and Services 9.5 -10.0 12.9 6.5 6.2 6.0 Real GDP growth, at constant factor prices 3.8 -5.2 2.5 2.7 3.1 3.2 Agriculture 0.1 -3.2 -1.2 2.5 2.0 1.5 Industry 3.4 -9.1 -2.4 3.4 4.9 5.3 Services 4.4 -3.9 4.7 2.5 2.6 2.6 Inflation (Consumer Price Index) 0.8 1.2 3.2 5.5 2.0 1.8 Current Account Balance (% of GDP) -3.3 -3.4 -3.5 -4.0 -3.9 -3.4 Net Foreign Direct Investment (% of GDP) 3.2 1.5 3.7 3.8 3.8 3.9 Fiscal Balance (% of GDP) -2.1 -8.3 -5.4 -5.3 -4.7 -3.7 Debt (% of GDP) 49.2 61.0 60.8 62.7 64.3 64.1 Primary Balance (% of GDP) -1.0 -7.1 -4.1 -4.0 -3.5 -2.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 16.5 18.3 17.2 16.4 15.9 15.1 GHG emissions growth (mtCO2e) 4.7 -6.0 0.9 0.3 0.4 0.5 Energy related GHG emissions (% of total) 69.4 67.5 67.9 67.9 67.7 67.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 69 Apr 22 Over the medium term, a key challenge is a tightening labor supply made more acute by POLAND Key conditions and the aging population. The recent large influx ofdisplacedpeoplefromUkrainecouldhelp challenges address the labor market tightness. Achiev- ing decarbonization commitments is anoth- Table 1 2021 The well-diversified Polish economy has er challenge. Institutional strengthening is Population, million 37.9 proven to be one of the most resilient in the needed for sustained and inclusive growth GDP, current US$ billion 658.1 EU, with employment growth in 2020 de- and for narrowing regional disparities. GDP per capita, current US$ 17365.9 spite a relatively small contraction in GDP a 0.4 International poverty rate ($1.9) of 2.5 percent, the first output contraction a 0.5 since 1991. Lower middle-income poverty rate ($3.2) Upper middle-income poverty rate ($5.5) a 1.2 A sound macroeconomic framework, ef- Recent developments Gini index a 30.3 fective absorption of EU investment funds, School enrollment, primary (% gross) b 97.2 a sound financial sector, better access to The economy rebounded strongly from the b 77.9 long-term credit and access to European COVID-19-related recession, with output Life expectancy at birth, years labor markets have supported long-term expanding by 5.7 percent in 2021. Poorer Total GHG Emissions (mtCO2e) 321.7 inclusive growth and poverty reduction. workers, who saw sharper income impacts Source: WDI, Macro Poverty Outlook, and official data. Strong domestic labor markets and in- during the early stages of the pandemic that a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). creases in median and bottom 40 real in- fed into rising inequality, saw a rebound in comes have supported private consump- incomes. Even as the ample fiscal stimulus tion. With an improving business environ- provided in the wake of the crisis tapered off The Polish economy rebounded from the ment, Poland integrated well into regional in 2021, domestic demand expanded by 8.2 value chains (RVCs). Higher private in- percent, on account of robust household COVID-19 recession, expanding at its vestment, an improved innovation ecosys- consumption, a recovery in investment, and fastest pace since 2007. Easing of tem, and further upgrading of RVCs are rebuilding of inventories. COVID-related restrictions, robust in- needed to boost productivity and growth. A strong labor market supported wage vestment, and favorable labor market The full economic and social impact of growth, while high-capacity utilization COVID-19 remains uncertain as new vari- and strong corporate balance sheets sup- conditions supported the recovery. Infla- ants emerge amidst a vaccination rate of 66 ported investments. tion has accelerated markedly, fueled by percent of the adult population. Pent-up demand and continued income sharp increases in commodity prices and The unprecedented policy response to mit- growth fueled a 6.2 percent expansion in supply chain disruptions, feeding into igate the impacts of the COVID crisis and household consumption, translating into rising poverty. The war in Ukraine is inflationary pressures has narrowed avail- double-digit import growth. Robust export able fiscal space. demand from the EU supported the recov- impacting the economy, through com- Increased spending and tax expenditure ef- ery in the industrial sector and exports, modity prices and trade channels, confi- ficiency is needed to rebuild fiscal buffers, however the contribution of net exports to dence effects, and the large influx of dis- accommodate higher spending on health, growth was negative. placed Ukrainians. the green transition, and to prepare for the Inflation has accelerated markedly since growing fiscal burden arising from aging. mid-2021, to 8.5 percent in February 2022, FIGURE 1 Poland / Real GDP growth and contributions to FIGURE 2 Poland / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 10 70000 9 10 60000 8 7 50000 5 6 40000 5 0 30000 4 -5 3 20000 2 10000 -10 1 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: GUS, World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 70 Apr 22 well above the upper bound of the targeted resulted in an improvement in the general requested €23.9 billion in grants and €12.1 range. Strong increases in energy and agri- government deficit to 3.5 percent of GDP in billion of preferential loans under the cultural commodities, as well as continued 2021 from 7.1 percent of GDP in 2020. “Next Generation EU”, which is expected disruptions in supply chains fueled infla- The financial sector is well capitalized and to be approved in March. tion. A fiscal package aimed at limiting in- has limited direct exposure to Russia, Rising food and electricity prices are ex- flation (Anti-inflation Shield) and consist- Ukraine, or Belarus. pected to weigh heavily on poorer seg- ing of temporary cuts to VAT rates on elec- ments, who devote 50 percent of their tricity, heat energy, natural gas and basic monthly spending on food and energy. food products, abolition of excise tax on Minimum wage growth of 7.5 percent in electricity sold to households, lowering of Outlook 2022 is expected to be outstripped by in- excise tax on motor fuels, and compensa- flationary pressures, leading to a decline tion for natural gas distributors, is expect- Economic growth is expected to decelerate in the real minimum wage in 2022. While ed to shave off 2.1 percentage points from to 3.9 percent in 2022, as high inflation, measures under the Anti-inflation Shield CPI in 2022 compared to a business-as- monetary policy tightening, negative con- will soften the household impacts, the usual scenario. fidence effects related to the war in share of the population at risk of poverty is High inflation triggered a faster than ex- Ukraine, and slowing demand in key trad- expected to remain elevated through 2022 pected normalization in the monetary pol- ing partners weigh on growth. and 2023. icy stance, with the central bank raising its The spillover from the war in Ukraine is ex- Higher import prices, and higher primary reference rate by 300 basis points since Oc- pected to be significant, with key transmis- income outflows are expected to result in a tober 2021. sion channels including forced displace- deterioration in the current account deficit Since the start of the war in Ukraine, more ment, commodity prices, trade, and confi- to 2.5 percent of GDP in 2022, with a mod- than 2.3 million displaced Ukrainians ar- dence effects. While direct economic link- erate improvement over 2023-2024 as rived in Poland. The government has re- ages outside the energy sector are limited, terms of trade improve. acted rapidly, granting displaced popula- higher energy and food prices, increased The fiscal deficit is expected to remain tions the right of temporary residence and uncertainty, and disruptions to supplies to above the medium-term budgetary objec- access to key public services (health, edu- the auto industry will weigh on growth. tive, as a result of the structural tax reform cation), social assistance, and housing. A large infrastructure and local public in- (Polish Deal) and the temporary impact of The current account recorded a 0.4 percent vestment program, including through the the Anti-inflation Shield. The fiscal cost of deficit in 2021, as exports of passenger ve- National Recovery and Resilience Plan these packages is estimated at 0.7 percent hicles were affected while high global in- (NRRP), higher spending on health, and a and 1.1 percent of GDP, respectively in termediate goods prices fueled imports. boost to consumption related to the large 2022. Furthermore, there will be additional The unwinding of the large 2020 fiscal stim- influx of displaced people are expected to public spending to manage the large influx ulus and the strong increase in tax revenues support growth. To fund its NRRP Poland of displaced people from Ukraine. TABLE 2 Poland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.7 -2.5 5.7 3.9 3.6 3.7 Private Consumption 3.9 -2.9 6.2 3.9 3.3 3.2 Government Consumption 6.5 4.9 3.6 2.4 2.5 2.7 Gross Fixed Capital Investment 6.1 -9.0 8.0 5.3 5.1 5.4 Exports, Goods and Services 5.2 0.1 6.0 5.5 4.2 4.5 Imports, Goods and Services 3.0 -1.2 7.0 5.6 4.0 4.3 Real GDP growth, at constant factor prices 4.6 -2.6 5.7 3.9 3.6 3.7 Agriculture -0.8 13.8 1.3 2.0 1.0 1.0 Industry 2.2 -5.2 7.0 4.6 3.3 3.3 Services 6.0 -1.8 5.3 3.6 3.8 3.9 Inflation (Consumer Price Index) 2.3 3.4 5.1 9.6 7.5 4.0 Current Account Balance (% of GDP) 0.5 2.9 -0.4 -2.5 -1.6 -1.3 Net Foreign Direct Investment (% of GDP) -2.0 -2.1 -1.2 -1.1 -0.9 -0.9 Fiscal Balance (% of GDP) -0.7 -7.1 -3.5 -3.5 -3.6 -2.9 Debt (% of GDP) 45.6 57.4 57.0 54.5 51.9 49.5 Primary Balance (% of GDP) 0.6 -5.8 -2.5 -2.0 -2.3 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 0.3 0.4 0.3 0.4 0.3 0.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.5 0.5 0.6 0.6 0.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.1 1.2 1.2 1.6 1.4 1.3 GHG emissions growth (mtCO2e) -5.4 -6.0 1.4 -0.2 -0.5 -0.6 Energy related GHG emissions (% of total) 87.4 87.7 87.3 87.0 86.9 86.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-EU-SILC and 2018-EU-SILC. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection from 2019 to 2021 using point-to-point elasticity (2007-2018) with pass-through = 1 based on GDP per capita in constant LCU. Projection from 2022 based on estimates incorporating differential income growth among poorer households. MPO 71 Apr 22 debt levels. Moreover, maximal and effec- tive absorption of the EU Multiannual Fi- ROMANIA Key conditions and nancial Framework and Next Generation EU (NGEU) funds will be crucial for a sus- challenges tainable recovery. Table 1 2021 Prior to the COVID-19 pandemic, Romania Population, million 19.2 enjoyed strong economic growth. Howev- GDP, current US$ billion 266.7 er, the pandemic exposed the vulnerabil- Recent developments GDP per capita, current US$ 13902.1 ities of the economy, including persistent a 2.4 International poverty rate ($1.9) poverty and disparities in economic op- The Romanian economy grew by 5.9 per- a 4.4 portunity across regions and between ur- cent in 2021, but growth decelerated in Q4 Lower middle-income poverty rate ($3.2) a 9.5 ban and rural areas, structural rigidities in (2.4 percent yoy) amid supply disruptions, Upper middle-income poverty rate ($5.5) Gini index a 35.1 the product and labor markets, weakness- significant pick-up in inflation and a new School enrollment, primary (% gross) b 87.5 es in fiscal policy and significant institu- COVID-19 wave. Private consumption re- b 75.5 tional constraints hindering the efficient covered strongly in 2021 (7 percent yoy) Life expectancy at birth, years use of resources. led by robust demand for durable and Total GHG Emissions (mtCO2e) 80.5 Disruptions in the global supply chain household goods. Higher prices of raw Source: WDI, Macro Poverty Outlook, and official data. from the pandemic coupled with the im- materials, however, tempered investment a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). pact of the war in Ukraine have resulted growth (4 percent yoy). Trade volumes in rising food and energy prices. The were affected by global value chain dis- depleted real purchasing power and de- ruptions and cost-push inflation, while the Romania’s economy rebounded at 5.9 clining remittances impose a heavy bur- deterioration of the secondary income bal- den on the poor and marginalized pop- ance added to the current account pres- percent in 2021, despite supply disrup- ulation groups in Romania already dis- sures. On the supply side, growth was led tions, a significant pick-up in inflation proportionality affected by the prolonged by the ICT sector (13.4 percent yoy in 2021) and the effects of the pandemic. The pandemic. Despite the economic rebound, which benefited from increased remote economy is projected to modestly expand the share of the Romanian population liv- work needs. Industry growth decelerated ing on less than $5.5 a day at 2011 revised (5 percent yoy in 2021), as new industrial in 2022, although recession risks result- PPP prices is estimated to have declined orders declined in Q4. The economic re- ing from the Ukraine crisis are high. modestly to 10.1 percent in 2022 from 10.3 covery and labor supply constraints re- Despite some consolidation measures, percent in 2021. duced unemployment to 5.4 percent in De- the fiscal deficit will remain elevated in The key challenges in the short term are cember from 6 percent in January 2021. La- 2022, at around 6.6 percent of GDP. to contain the socio-economic effects of the bor shortages coupled with higher infla- conflict in the region and the COVID-19 tion led to wage increases, with nominal Poverty is anticipated to slightly decline crisis. Significant inflationary pressures net wages up by 7.2 percent yoy in De- to 10.1 percent in 2022. triggered a more hawkish stance from the cember 2021. Annual inflation accelerated National Bank of Romania (NBR). Once re- to 8.4 percent in January 2022 reflecting covery is firmly established, fiscal consoli- strong supply-side inflationary pressures, dation will be critical to limit increases in including recent spikes in energy prices. FIGURE 1 Romania / Real GDP growth and contributions to FIGURE 2 Romania / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 40 40 12000 30 35 10000 20 30 8000 10 25 20 6000 0 15 -10 4000 10 -20 2000 5 -30 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gov. cons. GFCF Private cons. International poverty rate Lower middle-income pov. rate Imports Exports GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see table 2. MPO 72 Apr 22 This prompted the NBR to further increase The fiscal deficit surged to 9.4 percent of 2026. However, low historical absorption the policy rate in mid-January and mid- GDP at the end of 2020 and remained rates reflect substantial headwinds to a February 2022 by 0.25 pp and 0.5 pp, re- high in 2021 at an estimated 7 percent on high absorption scenario. Significant infla- spectively, to 2.5 percent. Private credit the back of the COVID-19 related fiscal tionary pressures from the energy and sector growth remained high, up 15.1 per- stimulus. Higher revenues, up 17.7 per- food markets challenge the nascent recov- cent yoy in January 2022. cent yoy in 2021, supported by the eco- ery requiring a careful balancing act from An economic and employment rebound nomic recovery, offset the 8.8 percent yoy the NBR. meant that household income, in partic- increase in expenditure, but fiscal pres- A substantial reduction of the fiscal deficit ular labor income, also recovered. The sures remain significant. in 2022 is improbable, as the government Rapid Household Survey in December will have to support the economic recov- 2021 showed that most workers including ery process while also supporting macro- low-wage workers have returned to work, economic stabilization. Over the medium helping to bring household labor income Outlook term, the deficit will follow a downward close to the pre-crisis level. However, ris- trajectory but is likely to remain above 3 ing food and energy prices have depleted Romania’s economy is projected to grow percent of GDP. Renewed attention should households’ real purchasing power, espe- at 1.9 percent in 2022, with risks strongly be given to fiscal consolidation to avoid an cially among the poor and vulnerable, as tilted to the downside. The strength of the unsustainable increase in public debt over they spend nearly 65 percent of their bud- recovery will depend on the evolution of the medium term. get on these necessities. Moreover, the war new COVID-19 variants and the severity Poverty is projected to decline to the pre- in Ukraine and further disruption of the of the hostilities in the region. Romania’s crisis level by 2024. However, rising food global supply chain will continue to affect capacity to absorb the EU funds will be and energy prices, and declining remit- the economies of host countries for Ro- critical to a sustainable, green, and inclu- tance incomes could mean a longer recov- manian migrants, which will inevitably sive recovery process. According to Gov- ery process for vulnerable population seg- hamper income for Romanians at home. ernment estimations, in a scenario of 100 ments compared to others in the coming Thus, despite economic and employment percent absorption, the Resilience and Re- years. A protracted war in Ukraine may recovery, poverty is expected to have de- covery funds will, on average, add around however push growth into negative terri- clined modestly to 10.1 percent in 2022 yet one percentage point to Romania’s real tory and lead to an increase in poverty in remains above the pre-crisis level. GDP growth per year between 2022 and the short run. TABLE 2 Romania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.2 -3.7 5.9 1.9 4.1 4.3 Private Consumption 3.9 -5.1 7.0 3.8 6.1 6.3 Government Consumption 7.9 5.9 -2.8 1.2 4.6 5.2 Gross Fixed Capital Investment 12.9 4.1 4.0 4.7 8.1 8.2 Exports, Goods and Services 5.4 -9.4 11.1 5.9 7.0 7.3 Imports, Goods and Services 8.6 -5.2 13.7 7.0 8.2 8.4 Real GDP growth, at constant factor prices 4.0 -3.5 5.9 1.9 4.1 4.3 Agriculture -5.0 -14.9 13.5 2.8 3.9 3.9 Industry -1.3 -4.5 5.0 1.6 4.7 4.4 Services 7.9 -1.9 5.7 2.0 3.8 4.3 Inflation (Consumer Price Index) 3.8 2.6 5.1 9.8 5.3 3.2 Current Account Balance (% of GDP) -4.7 -5.0 -7.1 -7.2 -6.3 -5.7 Net Foreign Direct Investment (% of GDP) 2.2 0.9 2.3 1.8 2.3 2.3 Fiscal Balance (% of GDP) -4.4 -9.4 -7.0 -6.6 -5.3 -4.7 Debt (% of GDP) 35.3 47.4 49.4 52.0 53.9 54.1 Primary Balance (% of GDP) -3.2 -8.0 -5.4 -4.9 -3.7 -3.2 a,b International poverty rate ($1.9 in 2011 PPP) 2.4 2.7 2.6 2.6 2.5 2.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.4 5.0 4.8 4.7 4.5 4.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 9.5 10.8 10.3 10.1 9.7 9.2 GHG emissions growth (mtCO2e) -0.9 -8.7 3.2 -1.0 0.5 1.4 Energy related GHG emissions (% of total) 85.4 85.9 86.5 87.0 87.7 88.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-EU-SILC and 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection based off elasticities calibrated on 2007-2019 growth periods and rapid assessment data, allowing for elasticities to vary between periods of contraction, recovery and expansion. MPO 73 Apr 22 budget returned to a surplus of 0.8 per- cent of GDP. The current account surplus RUSSIAN Key conditions and expanded to US$120 billion – exceeding its 2019 level – as commodity prices in- challenges FEDERATION creased and outbound tourism remained muted. By the end of 2021, consumer Russia’s economic outlook has been rapid- price inflation had become a central con- ly overtaken by the fallout from its inva- cern, reaching 8.4 percent year-on-year Table 1 2021 sion of Ukraine. The strongest set of co- in December. The rise in inflation was a 144.1 ordinated economic sanctions, swiftly im- broad-based, reflecting a combination of Population, million GDP, current US$ billion 1775.9 posed, will severely impact Russia across robust demand for goods, increases in en- GNI per capita, Atlas method, current US$ a 10690.0 multiple dimensions. The sanctions ergy and food prices, and global supply Lower middle-income poverty rate ($3.2) b 0.3 amount to coordinated shocks to trade, ex- bottlenecks. The banking sector proved b 2.9 ternal financing, financial intermediation, resilient during the COVID-19 pandemic, Upper middle-income poverty rate ($5.5) b and confidence. The withdrawal of many with economic recovery and credit Gini index 36.0 c foreign enterprises from the Russian mar- growth helping to improve balance sheets School enrollment, primary (% gross) 104.2 c ket and a sharply deteriorated outlook will in 2021. Labor markets strengthened, too, Life expectancy at birth, years 73.1 leave Russia bereft of investment, while in 2021; the unemployment rate fell to Sources: WDI, MPO, Rosstat. pressure on households from fast-rising 4.8 percent, close to its pre-pandemic low. a/ Most recent WDI value (2020). b/ Most recent value (2020), 2011 PPs. prices and declining incomes will push The official poverty rate of 11.0 percent c/ Most recent WDI value (2019). consumption lower. A deleterious effect on by end-2021 was below year-end rates in households will, at best, only be partly off- 2020 and 2019. set by domestic policy responses. However, developments in Russia took a Due to its invasion of Ukraine Russia Looking further ahead, Russia’s pre-exist- sharp turn for the worse beginning with ing challenge of raising medium-term Russia’s invasion of Ukraine. Sanctions faces the largest coordinated economic growth sufficiently to support improved imposed on Russia severely restrict ac- sanctions ever imposed on a country. living standards for its population is now cess to international capital markets, the Russia’s economy will be hit very hard, far more daunting. Yet, given the adverse capacity to conduct international transac- with a deep recession looming in 2022. shock it now faces, this challenge is all the tions, the imports of certain goods, and GDP is expected to contract by 11.2 per- more important. access to international and fiscal reserves. Several large Russian financial organiza- cent, with little recovery in the ensuing tions were sanctioned. Sanctions have two years. Households will be deeply im- materially increased risks to banks' asset pacted by the crisis, with a projected addi- Recent developments quality, solvency, funding and liquidity tional 2.6 million people falling below the profiles, while limiting the CBR’s capacity Before the invasion of Ukraine and the to absorb shocks. national poverty line. ensuing sanctions, Russia’s economy was The imposition of sanctions has led to a recovering well. Growth in 2021 reached precipitous drop in Russian asset prices 4.7 per cent, following a 2.7 percent de- and the ruble, with the latter depreciating cline in 2020. The general government by 30 percent against major currencies. In FIGURE 1 Russian Federation / Real GDP growth and FIGURE 2 Russian Federation / Actual and projected contributions to real GDP growth poverty rates and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 10 20 400000 18 350000 5 16 300000 0 14 12 250000 -5 10 200000 -10 8 150000 6 -15 100000 4 2 50000 -20 2019 2020 2021 2022 2023 2024 0 0 Consumption GFCF Inventories 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Export Import Stat. error Lower middle-income pov. rate Upper middle-income pov. rate GDP growth Real priv. cons. pc Sources: Rosstat, World Bank. Source: World Bank. Notes: see Table 2. MPO 74 Apr 22 response, the Russian authorities doubled will impede cross-border transactions, Households are expected to be impacted interest rates, announced a Rub 1 trillion leading to delays and cancellations. by the crisis via four channels – limited fiscal package, imposed capital controls, Announced bans and reductions in pur- access to goods and services (either be- and introduced forbearance measures and chases of Russian oil and gas are expect- cause of inflation, shortages or even ra- special regulations for financial markets ed to lead to a substantial fall in ship- tioning), falling labor incomes, asset price aimed at stemming the capital flight and ments this year, while larger slump in falls, and migrant workers likely to be easing pressure on the financial system. non-energy export volumes is expected. especially affected via falling remittances. However, the current account balance is The percentage of the population with in- expected to strengthen as the fall in ex- comes below the official poverty line (ap- ports will be more than offset by a con- proximately US$ 14/day) is projected to Outlook traction in imports. High levels of capi- increase to 12.8 percent in 2022 from 11.0 tal outflows are expected from Russia this percent in 2021 (an increase of 2.6 mil- Uncertainty over the forecasts is un- year. In 2023 and 2024, GDP growth is ex- lion people). The poverty rate using the precedentedly high, conditional on pected to rebound only gradually, at 0.6 World Bank poverty line (US$ 5.5/day) is Russia’s military actions in Ukraine and 1.3 percent respectively. expected to increase from 2.0 in 2021 to and the global response. The severe Overall, consumer price inflation is expect- 2.8 percent in 2022 (an increase of above impacts of sanctions already in place ed to rise from 9 percent in 2021 to 22 per- one million people) and practically re- are expected to drive Russia’s GDP cent in 2022, and to stay well above the main there through 2024. down by 11.2 percent in 2022, largely central bank target in the projection pe- Risks are skewed to the downside, as ad- due to a contraction in domestic de- riod. A decline in economic activity and ditional rounds of sanctions could further mand. High uncertainty, depreciation, higher expenditure needs are expected to impact Russia’s outlook. A disruption in disruptions to trade and business clo- turn the general government surplus into oil or gas receipts, or more severe dys- sures are expected to result in a 17 a substantial deficit in 2022. The adverse function in domestic financial markets, percent slump in investment. A de- impact of the shock on the financial sector could push growth lower and poverty cline in employment and real wages, makes a major credit crunch likely, while rates up. Still-low COVID-19 vaccination elevated outmigration and rising costs continued pressure on the corporates and rates and the prospect of new variants re- of living will weigh on private con- banks, combined with eroded buffers, mains another source of risk. sumption, which is expected to fall by spells a heightened risk of bank failures 8.5 percent. SWIFT and FX restrictions and systemic crisis in the sector. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.2 -2.7 4.7 -11.2 0.6 1.3 Private Consumption 3.8 -7.3 9.5 -8.5 0.5 1.3 Government Consumption 2.4 1.9 1.1 3.6 1.2 1.0 Gross Fixed Capital Investment 1.0 -4.4 7.0 -16.9 0.6 1.7 Exports, Goods and Services 0.7 -4.1 3.2 -30.9 -1.2 -0.9 Imports, Goods and Services 3.1 -12.1 16.7 -35.2 4.1 6.2 Real GDP growth, at constant factor prices 2.2 -2.5 4.6 -11.2 0.6 1.3 Agriculture 3.5 0.2 -1.3 1.0 1.0 1.0 Industry 1.5 -2.4 4.9 -8.8 0.5 0.9 Services 2.4 -2.7 4.8 -13.2 0.7 1.5 Inflation (Consumer Price Index) 4.5 3.4 6.7 22.0 13.0 8.0 Current Account Balance (% of GDP) 3.9 2.4 6.8 9.8 6.4 2.8 Net Foreign Direct Investment (% of GDP) 0.6 -0.2 -1.3 -7.5 -3.5 -2.8 a Fiscal Balance (% of GDP) 1.9 -4.0 0.8 -1.9 -1.8 -1.2 Debt (% of GDP) 14.3 20.0 17.9 19.8 20.3 20.6 a Primary Balance (% of GDP) 2.7 -3.2 1.7 -0.3 -0.1 0.5 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.3 0.3 0.2 0.3 0.3 0.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 3.0 2.9 2.0 2.8 2.8 2.6 GHG emissions growth (mtCO2e) 2.4 -3.6 1.1 -11.5 0.3 0.7 Energy related GHG emissions (% of total) 91.6 91.3 90.1 89.8 89.6 89.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Fiscal and Primary Balance refer to general government balances. b/ Calculations based on ECAPOV harmonization, using 2020-HBS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 75 Apr 22 SERBIA Key conditions and Recent developments challenges The economy grew by 7.4 percent in 2021 pushed by the consumption, pushed by a Table 1 2021 The focus of the Government of Serbia large increase in private consumption (up Population, million 6.9 in 2020 and 2021 was on supporting the 7.6 percent in real terms y/y), thanks to a GDP, current US$ billion 63.0 economy to recover from the impact of strong increase of salaries and consump- GDP per capita, current US$ 9168.9 the COVID-19 pandemic. The Serbian tion loans. The economic recovery in 2021 a 10.1 Upper middle-income poverty rate ($5.5) government approved a robust fiscal was broad based, with the exception of the a 34.5 stimulus program in both years and as agriculture sector, where output declined Gini index b 97.7 a result the economy experienced only a by 5.4 percent in real terms. School enrollment, primary (% gross) Life expectancy at birth, years b 75.7 mild recession (of -0.9 percent) in 2020 Poverty (defined as income under $5.5/ Total GHG Emissions (mtCO2e) 62.5 and rebounded by 7.4 percent in 2021. day in revised 2011 PPP) is estimated The impact of the program, however, to have declined slightly from 10.2 Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. came at considerable fiscal cost. The fiscal percent in 2020 to 9.8 percent in 2021. b/ WDI for School enrollment (2020); Life expectancy deficit reached 8.1 percent of GDP in 2020 The wage subsidy and cash transfers (2019). and public debt increased to around 58 to citizens in 2020 helped to avert a percent of GDP. spike in poverty. In 2021, poverty re- Over the medium term the Serbian duction slowly resumed due to strong The Serbian economy is recovering well economy is expected to return to the economic growth and improving labor from the impact of COVID-19 pandemic pre-pandemic growth levels. However, market conditions, though partly coun- by growing 7.4 percent in 2021 and Serbia still faces challenges that limit tered by an output decline in agricul- its potential growth both in the short ture, rising inflation at the end of the poverty incidence declined to an estimat- and medium to long terms. Most im- year, and the phasing out of govern- ed 9.8 percent. Growth is expected to de- portantly, Serbia needs to further re- ment support programs. celerate in 2022 and the risks to the move bottlenecks for private sector in- The labor market started improving growth outlook are clearly tilted to the vestment. These include a deteriorat- throughout 2021. In Q4 of 2021, the un- ing governance environment, lack of employment rate dropped to 9.8 percent. downside. Poverty reduction is expected infrastructure and an unreformed edu- Wages continued to go up, increasing by to stagnate in 2022 as income gains are cation sector, which creates skills mis- 9.6 percent in nominal terms in 2021. weakened by rising inflation risks. matches in the labor market. With lim- The consolidated fiscal deficit decreased ited space for future stimulus pack- significantly in 2021 to reach an estimated ages, structural reforms are needed to 4.1 percent of GDP. Despite the fact that bring the economy back to sustained government expenditures increased by growth, boost jobs and incomes and 10.1 percent (in nominal terms). Public strengthen resilience to shocks. The debt at end-December 2021 stood at 57.1 second big challenge is a large and percent of GDP, thus only marginally de- still not entirely reformed SOE sector. creasing since end-2020. FIGURE 1 Serbia / Real GDP and potential growth and FIGURE 2 Serbia / Actual and projected poverty rates and contributions to potential GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 7 30 900000 6 800000 25 5 700000 4 20 600000 3 500000 15 2 400000 1 10 300000 0 200000 5 -1 100000 -2 0 0 2000 2003 2006 2009 2012 2015 2018 2021 2024 2012 2014 2016 2018 2020 2022 2024 TFP Capital Labour Potential Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Note: see table 2. MPO 76 Apr 22 Starting in the summer, there was a grad- mind the significance of these flows, sound and viable. In addition, the gov- ual increase in inflation and the consumer growth for 2022 could be revised down- ernment should use the opening of new price index (CPI) reached 8.8 percent (y/ wards to 3.2 percent. Further revisions are chapters of the EU acquis to accelerate y) in February. Food inflation, higher than possible depending on the length of the reforms and align Serbian legal and in- in all EU countries in January 2022, hurt war and the scope of sanctions toward stitutional system to that of the EU. the poor. Household energy tariffs in Ser- Russia. Over the medium term, the econo- Poverty reduction is expected to stagnate bia are regulated and have been kept un- my is expected to grow steadily at around in 2022. The unfolding war in Ukraine changed so far despite rising energy costs. 3 percent annually. poses significant downside risk for house- The current account deficit (CAD) in- The outlook also crucially depends on hold welfare in Serbia. While Serbia’s creased to an estimated 4.4 percent of GDP the domestic reform agenda and its im- economy is expected to continue to grow, for 2021, up from 4.1 percent in 2020. plementation. The ongoing crisis in the contributing to income growth for house- domestic energy sector emphasized once holds, rising inflation will limit purchas- again the importance of improved man- ing power. Particularly rising energy agement of SOEs. In addition, contin- prices, if they are passed onto household Outlook gent liabilities could affect public fi- energy tariffs, would disproportionately nances, particularly those related to the hit the poor. Poverty in 2022 is projected The Serbian economy was expected to con- deterioration in the performance of at 9.6 percent, close to its 2021 level, tinue to grow at around 4-4.5 percent an- SOEs, as demonstrated recently by though could be revised upward depend- nually. However, the war in Ukraine and Telekom Srbija and Air Serbia. As a ing on the length and severity of the sanctions on Russia will certainly have an remedy, the government should embark war’s economic impacts. The pace of la- impact on Serbia’s exports, FDI, remit- on a comprehensive and thorough re- bor market recovery remains critical for tances and tourism revenues. Having in form of SOEs to make them financially resumed poverty reduction. TABLE 2 Serbia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.3 -0.9 7.4 3.2 2.7 2.8 Private Consumption 3.7 -1.9 7.6 6.1 4.2 3.7 Government Consumption 2.0 2.9 2.6 1.1 0.5 -0.6 Gross Fixed Capital Investment 17.2 -1.9 12.5 -1.0 0.3 2.1 Exports, Goods and Services 7.7 -4.2 19.4 5.4 5.2 5.4 Imports, Goods and Services 10.7 -3.6 19.3 5.7 4.8 4.7 Real GDP growth, at constant factor prices 4.4 -0.8 7.3 3.0 2.6 2.9 Agriculture -1.7 2.2 -5.4 5.7 4.5 3.4 Industry 5.9 -0.6 7.8 2.4 4.5 4.5 Services 4.4 -1.2 8.7 3.0 1.5 2.0 Inflation (Consumer Price Index) 1.9 1.6 4.0 7.0 4.0 3.7 Current Account Balance (% of GDP) -6.9 -4.1 -4.4 -6.4 -5.8 -5.1 Net Foreign Direct Investment (% of GDP) 7.7 6.3 6.8 5.8 5.9 5.9 Fiscal Balance (% of GDP) -0.2 -8.0 -4.1 -4.1 -3.0 -2.2 Debt (% of GDP) 52.8 57.8 57.2 58.2 58.9 56.8 Primary Balance (% of GDP) 1.8 -6.0 -2.4 -2.3 -1.0 -0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.1 10.2 9.8 9.6 9.3 9.0 GHG emissions growth (mtCO2e) -2.1 0.5 1.6 -0.4 -0.6 -0.8 Energy related GHG emissions (% of total) 75.4 75.7 76.1 76.0 75.8 75.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2013-EU-SILC, 2017-EU-SILC, and 2019-EU-SILC. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2013-2017) with pass-through = 0.2 and 0.3 based on GDP per capita in constant LCU, reflecting impacts of rising prices. MPO 77 Apr 22 recovery in remittance inflows, and a pickup in private investment and con- TAJIKISTAN Key conditions and sumption supported this rebound. Tajikistan's external position improved challenges considerably from higher export prices for metals and mineral products and remit- Table 1 2021 Tajikistan remains the poorest economy in tance inflows. The current account was in Population, million 9.8 Central Asia, with a narrow export base, surplus of about 1 percent of GDP in 2021, GDP, current US$ billion 8.7 structural bottlenecks for job creation, and compared to a surplus of 4.1 percent in GDP per capita, current US$ 896.9 high dependence on external financial aid. 2020. Precious metal exports reached $897 a 4.1 International poverty rate ($1.9) Per capita income (GNI, Atlas method) was million and were about 40 percent of total a 17.8 about US$1,100 in 2021–slightly above the merchandise exports. Increased remit- Lower middle-income poverty rate ($3.2) a 50.5 lower-middle-income threshold. The tances and foreign direct investment (FDI) Upper middle-income poverty rate ($5.5) Gini index a 34.0 poverty rate fell from 17.8 percent in 2015 inflows stimulated consumer and capital School enrollment, primary (% gross) b 100.9 to about 13.9 percent in 2021. goods imports. Higher Chinese mining b 71.1 Tajikistan's economy relies heavily on pri- sector investments doubled FDI to $62.3 Life expectancy at birth, years mary commodity production and exports, million (0.7 percent of GDP) during the Total GHG Emissions (mtCO2e) 16.9 with limited economic diversification. Do- first nine months of 2021. Strong foreign Source: WDI, Macro Poverty Outlook, and official data. mestic investment and consumption de- exchange inflows, including from the is- a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2017); Life expectancy pend heavily on migrant remittances, suance of new Special Drawing Rights (2019). which are about a third of GDP, thus leav- (SDR) by the IMF, supported a stable ex- ing the economy highly vulnerable to ex- change rate and allowed international re- ternal shocks. Sanctions on the Russian serves to grow to about 8 months of import The fallout from Russia's invasion of economy have exposed this vulnerability cover by end-2021. Ukraine will lead to an economic con- since Russia is the largest employer of Tajik After a fiscal expansion in 2020, the gov- migrant workers and is among the largest ernment began to consolidate spending in traction of about 2 percent in 2022. A trading partners. 2021. The fiscal deficit narrowed to 1.5 per- projected 40 percent fall in remittances, Reforms aimed at private sector cent of GDP from 3.1 percent in 2020. The higher food and energy prices, and fi- growth, public sector efficiency, and expiration of anti-pandemic tax reliefs, a nancial services and trade disruptions greater inclusion are vital to further rebound in economic activity, and high ex- economic development. port prices increased fiscal revenues. De- will lower household incomes and in- velopment partner loans for infrastructure crease poverty. Fiscal space, already con- projects helped bridge the fiscal gap. Al- strained by structural impediments to though a stable exchange rate and a re- private sector growth, is further limited Recent developments bounding economy helped reduce public by rising debt distress risks from a and publicly guaranteed debt to 42.9 per- Real GDP growth rebounded to about cent of GDP in 2021 (from about 50 percent weakening exchange rate. 9.2 percent in 2021, after slowing to 4.5 in 2020), Tajikistan remains at high risk of percent in 2020 due to COVID-19. A debt distress given its high vulnerability to sharp increase in precious metal exports, external shocks. FIGURE 1 Tajikistan / Fiscal balance and public debt FIGURE 2 Tajikistan / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) -1.5 50 80 900 -1.7 49 800 70 -1.9 700 48 60 -2.1 600 47 50 -2.3 500 -2.5 46 40 400 -2.7 45 30 300 -2.9 44 20 200 -3.1 43 10 100 -3.3 0 0 -3.5 42 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Fiscal Balance (LHS) Public Debt (RHS) Upper middle-income pov. rate Real GDP pc Sources: TajStat, World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 78 Apr 22 In response to rising food and fuel price in- poverty rate fell to 13.9 percent, and few- The poverty rate is expected to increase flation, the central bank increased its pol- er households reported cutting their food to 14.3 percent in 2022 from 13.9 percent icy rate four times from 10.75 at end-2020 consumption in 2021. in 2021, with the potential for significant to 13.25 percent by the end-2021. Never- To support the most vulnerable groups, further increases in poverty should more theless, average annual inflation rose from the government provided social assistance risks materialize. 8.6 percent in 2020 to 9 percent in 2021. to 238,000 families and provided extra one- The contraction of economic activity due Amidst lower remittances and a weaken- off emergency nutrition-sensitive transfers to the war in Ukraine and a new tax ing ruble following Russia's invasion of to over 164,000 families with children. code introduced at the beginning of the Ukraine, the authorities allowed the year are expected to lower tax revenues somoni to depreciate by 13 percent against in 2022. This, along with an anticipated the US dollar in March 2022. anti-crisis spending increase, is projected Financial sector performance improved in Outlook to increase the fiscal deficit to about 3.4 2021 - primarily due to liquidation being percent in 2022. initiated for four insolvent banks (includ- Russia's invasion of Ukraine will lead These projections are subject to substantial ing two state-owned banks). The share of to a contraction of Tajikistan's economy domestic and external downside risks. En- non-performing loans in the total lending by about 2 percent in 2022. The main during sanctions on Russia could create portfolio declined by 10 percentage points driver of this contraction is a projected significant challenges for migrant workers to 13.7 percent in 2021. 40 percent fall in remittances, which is and further reduce demand for Tajik ex- In the Fall 2021 round of the World expected to lead to sharply lower pri- ports. Other risks include the re-emer- Bank's Listening to Tajikistan survey, the vate consumption and investment. Oth- gence of new pandemic waves, new border share of households with at least one er factors, including high prices, disrup- conflicts with the Kyrgyz Republic, and labor migrant abroad went up from 29 tions to trade, and the financial system, the spillover of security risks from percent to 44 percent, remittance income are also expected to contribute to the Afghanistan. In addition, institutional from 10 percent to 18 percent, and wage contraction. High global food and fuel challenges to private sector development income from 11 percent to 21 percent prices are projected to lead to double- and job creation weigh heavily on the compared with 2020. As a result, the digit inflation in 2022. country's growth prospects. TABLE 2 Tajikistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.4 4.5 9.2 -1.8 3.2 3.8 Private Consumption 7.1 -4.4 4.6 -10.0 3.0 5.0 Government Consumption 3.5 0.4 7.8 -0.4 1.3 2.9 Gross Fixed Capital Investment -6.4 -6.6 4.0 -9.7 6.7 5.5 Exports, Goods and Services 3.5 9.6 18.3 0.0 3.5 3.7 Imports, Goods and Services 2.2 -2.8 11.5 -5.0 0.2 0.5 Real GDP growth, at constant factor prices 8.7 4.3 9.0 -1.3 3.4 3.9 Agriculture 7.1 8.8 6.6 4.5 3.0 3.4 Industry 13.6 9.7 22.0 5.5 3.6 4.1 Services 4.9 -4.0 -5.2 -16.0 3.5 4.0 Inflation (Consumer Price Index) 8.0 8.6 9.0 12.6 10.0 8.5 Current Account Balance (% of GDP) -2.2 4.1 1.0 -7.7 -4.4 -2.6 Net Foreign Direct Investment (% of GDP) 2.3 0.4 0.2 0.9 1.8 2.5 Fiscal Balance (% of GDP) -2.7 -3.1 -1.5 -3.4 -2.8 -2.3 Debt (% of GDP) 43.1 49.9 42.9 45.3 44.8 43.9 Primary Balance (% of GDP) -1.7 -2.2 -0.5 -2.1 -1.4 -1.0 a,b International poverty rate ($1.9 in 2011 PPP) 3.4 3.3 3.0 3.2 3.1 3.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 15.0 14.8 13.9 14.4 14.2 14.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 45.1 44.5 42.7 43.7 43.4 42.9 GHG emissions growth (mtCO2e) 9.9 7.8 9.6 5.2 7.1 7.5 Energy related GHG emissions (% of total) 40.9 43.1 46.3 46.7 48.2 49.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-TLSS, 2019-, and 2015-HSITAFIEN. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2007-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 79 Apr 22 The Russian invasion of Ukraine is ampli- fying the headwinds facing the Turkish TURKEY Key conditions and economy. Given Turkey’s close economic ties to both Russia and Ukraine, the war challenges is expected to disrupt Turkey’s energy and agricultural trade, tourist arrivals, and Table 1 2021 Turkey enjoyed high growth rates be- overseas construction activities. Price Population, million 84.1 tween 2002-17, which propelled the coun- spikes of essential commodity imports will GDP, current US$ billion 810.0 try to the higher reaches of upper-middle- directly affect households and industry GDP per capita, current US$ 9626.1 income status. But productivity growth and adversely impact the current account a 10.2 Upper middle-income poverty rate ($5.5) slowed as reform momentum waned over balance and inflation. Low-income house- a 41.9 the past decade and efforts turned to sup- holds in Turkey are especially affected as Gini index b 97.1 porting growth with credit booms and they spend nearly twice as much of their School enrollment, primary (% gross) Life expectancy at birth, years b 77.7 demand stimulus, exacerbating internal budgets as the wealthiest on necessities Total GHG Emissions (mtCO2e) 518.0 and external vulnerabilities. High private such as food and housing. sector debt, persistent current account Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. deficits financed by short-term portfolio b/ Most recent WDI value (2019). flows, high inflation, and high unemploy- ment have been exacerbated by macro- Recent developments financial instability since August 2018. Turkey’s economy grew 11 percent in Moreover, the economy’s high energy Turkey’s economy grew by 11 percent 2021, the fastest among G-20 countries, and carbon intensity make it vulnerable in 2021, supported by exports and ac- to global energy supply and price volatil- celerated domestic private consumption as COVID-19 related measures were ity and pose a challenge for Turkey’s ex- as COVID-19 measures were relaxed and gradually relaxed in Turkey and abroad. porters in the context of global and re- people brought forward some consump- While Turkey’s interest rate cuts from gional decarbonization policies. tion expenditures in fear of continued September supported demand, they also Turkey’s growth accelerated to the high- price rises. Turkey’s goods and services est rate among G20 countries in 2021 as exports were supported by buoyant ex- amplified macro-financial instability, COVID-19 related measures were grad- ternal demand, sharp nominal deprecia- which, combined with spillovers from ually relaxed in Turkey and abroad and tion of the Lira, and global supply chain the Ukraine-Russia war, will lower 2022 authorities loosened monetary policy. disruptions that diverted global demand growth to 1.4 percent. Rising energy However, monetary stimulus also to Turkey. caused deteriorating macro-finance con- Total employment and labor force par- and food price inflation will hurt the ditions. The Lira depreciated to record ticipation surpassed pre-pandemic levels poor the most, compromising a gradual lows and inflation rose to record highs. in 2021. However, the recovery has been employment-driven, post-pandemic External and fiscal buffers deteriorated uneven, with those with informal work poverty recovery. as the central bank supported the Lira, arrangements still lagging. On the other and the government deployed tax rate hand, the recovery was faster for reductions and fuel subsidies to dampen women than men. Between December headline inflation. 2020 and December 2021, female labor FIGURE 1 Turkey / Real GDP growth and contributions to FIGURE 2 Turkey / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 18 30 30000 16 14 12 25 25000 10 8 20 20000 6 4 2 15 15000 0 -2 10 10000 -4 -6 5 5000 -8 -10 2010 2012 2014 2016 2018 2020 2022 2024 0 0 Private cons. Gov cons. Investment 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Exports Imports Stocks Upper middle-income pov. rate Real GDP pc GDP Sources: Turkstat and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 80 Apr 22 force participation (FLFP) increased by offers an exchange rate guarantee from policy stance and high global commodity 14 percent, compared to 6 percent for the state budget. prices. In 2022 lower export growth and males– although this leaves Turkey’s The fiscal balance deteriorated in 2021 de- rising import prices are expected to widen FLFP still as the lowest among OECD spite rising revenues, as the Lira depreci- the current account deficit to 6.4 percent countries. Youth employment also recov- ation raised FX-denominated debt service of GDP. The general government deficit is ered, but 20.1 percent of youth are still costs and PPP outlays, and as government projected to widen to 5.2 percent and 5.1 unemployed. Poverty is expected to re- provided capital injections to shore up percent in 2022 and 2023, respectively, dri- treat due to the employment recovery, SOE balance sheets. The FX-protected de- ven by rising public consumption, interest but will be partially offset owing to high posit scheme also created a sizable con- expenses, and current transfers. inflation, keeping the poverty rate at tingent fiscal liability. General government Both external and domestic risks are tilted 11.3 percent in 2021. debt stock is estimated to have risen to 42.4 significantly to the downside. The Russia- Despite rising domestic inflation and percent of GDP by end-2021. However, Ukraine war has raised considerable un- tightening global monetary conditions, due to strong export growth, the current certainty around the outlook. The war Turkey’s Central Bank lowered interest account deficit narrowed to 1.8 percent of could: continue to increase commodity rates five times, by a total of 500 basis GDP in 2021, from 5 percent in 2020. Gross prices and exacerbate inflation, dispropor- points, between September 2021 and the FX reserves declined from $120bn to tionately impacting the poorest house- year-end. The move rapidly worsened $111bn in 2021 amid FX interventions. holds; undermine Turkey’s nascent macro-financial conditions and dented tourism recovery; and spill over into investor confidence. The Lira depreciat- Turkey’s financial sector by raising NPLs ed by roughly 120 percent in 2021 – in affected corporate sectors. Turkey is also the worst performance among emerging Outlook vulnerable to tightening global liquidity markets. This, coupled with rising glob- conditions, given its high external financ- al commodity prices, pushed year-on- Economic growth is expected to moderate ing requirements. The banking sector re- year CPI and PPI inflation to 54.4 per- to 1.4 percent in 2022 as macro-financial mains highly capitalized and with ade- cent and 123.8 percent, respectively, in volatility intensifies and the impacts of quate FX buffers. However, removing for- February 2022 – a two-decade high for Russia-Ukraine materialize, before return- bearance measures is likely to pressure both indices. Real interest rates moved ing to 3.2 percent and 4.0 percent in 2023 banks’ balance sheets. The slowdown in deep into negative territory and dol- and 2024, respectively. Net exports are ex- the economy and job creation in 2022, and larization accelerated. In response, the pected to drive growth in 2022, offsetting persistently high inflation mean that the authorities launched several fiscal mea- the drag from contractions in investment poverty rate is projected to reach 11 per- sures to stabilize the currency and and private consumption. Inflation is pro- cent by 2024. dampen the impact of inflation, includ- jected to accelerate further to 61 percent in ing a FX-protected deposit scheme that 2022, assuming no change in the monetary TABLE 2 Turkey / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.9 1.8 11.0 1.4 3.2 4.0 Private Consumption 1.5 3.2 15.1 -1.5 2.6 3.5 Government Consumption 4.1 2.2 2.1 3.6 3.9 2.0 Gross Fixed Capital Investment -12.4 7.2 6.4 -5.6 2.4 5.8 Exports, Goods and Services 4.6 -14.8 24.9 4.7 6.0 7.0 Imports, Goods and Services -5.4 7.6 2.0 -2.5 5.0 7.3 Real GDP growth, at constant factor prices 1.0 1.1 11.5 1.4 3.2 4.0 Agriculture 3.3 5.9 -2.2 1.0 2.0 2.0 Industry -2.9 1.0 12.5 2.0 3.5 4.8 Services 2.7 0.6 12.7 1.1 3.2 3.8 Inflation (Consumer Price Index) 15.2 12.3 19.6 61.0 27.0 20.0 Current Account Balance (% of GDP) 0.7 -4.9 -1.8 -6.4 -5.0 -3.4 Net Foreign Direct Investment (% of GDP) 0.9 0.6 1.0 1.0 1.0 1.2 Fiscal Balance (% of GDP) -3.0 -3.9 -3.1 -5.2 -5.1 -3.7 Debt (% of GDP) 32.7 39.8 42.4 44.5 43.0 40.3 Primary Balance (% of GDP) -0.5 -1.1 -0.1 -1.4 -1.2 -0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.2 12.2 11.3 11.3 11.2 11.0 GHG emissions growth (mtCO2e) 1.8 0.3 7.1 0.4 1.9 2.5 Energy related GHG emissions (% of total) 80.3 79.6 78.8 78.6 78.7 78.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2011-HICES and 2019-HICES. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2011-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 81 Apr 22 Critical priorities in the near-term remain macroeconomic stability, provision of es- UKRAINE Key conditions and sential public services and humanitarian relief. Over the medium-term, the damage challenges to productive and export capacity and loss of human capital are expected to have last- Table 1 2021 Ukraine’s economy had weathered the ing economic and social repercussions. A Population, million 42.2 COVID-19 pandemic better than antic- major reconstruction effort will be neces- GDP, current US$ billion 200.1 ipated thanks to earlier reforms that sary, complemented by institutional, struc- GDP per capita, current US$ 4741,7 strengthened macro-fiscal and financial tural and financial sector reforms to sup- a 99.0 School enrollment, primary (% gross) fundamentals. Fiscal financing needs port private sector-led growth, but is con- a 71.8 were managed through anchoring to the tingent on substantial external financing Life expectancy at birth, years Total GHG Emissions (mtCO2e) 237.2 IFIs’ financing programs and access to on concessional terms (which will also aid Source: WDI, Macro Poverty Outlook, and official data. external markets. Although some re- fiscal sustainability). Absent this, the re- a/ Most recent WDI value (2019). forms, including banking and SOEs, were covery would be even more protracted and incomplete and potential growth re- likely to be characterized by continued mained low due to demographic head- hardship and migrant outflows. winds, low productivity and investment rates, the historic opening of agricultural land markets in mid-2021 held the promise of unleashing stronger growth in Recent developments The Russian invasion is taking a severe the agricultural sector that already con- economic and humanitarian toll, reflected tributed 40 percent of export earnings The economy expanded by 3.4 percent in in fiscal financing pressures, disruptions and one-fifth of GDP. 2021 as easing COVID restrictions sup- Following the Russian invasion on Febru- ported domestic demand, and a bumper to trade, the displacement of millions, and ary 24, 2022, Ukraine has suffered a mas- harvest offset d rags from higher global heavy infrastructure damage with poten- sive economic and humanitarian crisis. As energy prices and a faster fiscal consol- tially long-lasting macroeconomic and so- of March 31, 4mn people had become idation. The external position was rel- cial repercussions. A 45 percent GDP refugees, and 6.5mn displaced internally. atively robust, with gross reserves at With food insecurity increasing, the Gov- US$30.9 bn, and a small current account contraction is anticipated in 2022 and a ernment banned the export of grains and deficit of 1.1 percent of GDP. This re- weak recovery thereafter. Depending on other staples. To support the economy and covery was upended by the onset of war the war’s duration, the share of the popu- ease pressures on FX reserves and banks, it in February 2022, which has fully dis- lation living below the actual Subsistence imposed an emergency (including capital rupted maritime trade (this amounted to controls and banking sector restrictions) half of the total trade and 90 percent of Minimum may reach 70 percent in 2022. and announced tax deferrals, while fully grain trade), heavily damaged critical in- meeting domestic and external debt oblig- frastructure and triggered a massive dis- ations. These measures have helped to pre- placement of people. vent a macro-fiscal and financial collapse Access to external capital markets remains during wartime. closed, with Eurobond spreads peaking at FIGURE 1 Ukraine / EMBI bond spreads FIGURE 2 Ukraine / Number of persons displaced and in need of humanitarian assistance Percent Millions 60 14 12 12 50 10 40 8 6.5 30 6 4 20 4 10 2 0 0 Refugees Internally displaced Needing humanitarian Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 aid Source: Bloomberg. Latest data point from March 30, 2022. Source: UNOCHA and UNHCR. Latest data point from March 30, 2022. MPO 82 Apr 22 over 50 percent in early March. A large fis- prices and the introduction of price caps After a significant widening, the non-pri- cal financing gap has opened amid a rapid- on essential consumer goods may restrain mary fiscal deficit is expected to narrow ly widening fiscal deficit (due to growing inflationary pressures in the short term. over the medium term as gradual fis- spending needs and declining revenues) cal consolidation and cuts to non-essen- and large debt repayments. Tax revenues tial spending offset increased public in- are expected to drop sharply due to the vestment. The CA should remain con- economic impacts of the war, as well as tax Outlook strained by sizable domestic import com- deferrals announced for key business, land pression in the near term but will widen and municipal taxes and the shift to a 2 Projections, given the ongoing conflict, in 2023 and 2024 due to reconstruction- percent turnover tax. In response, interna- are subject to great uncertainty and related investment imports (amid domes- tional partners have provided substantial large downside risks. In the baseline, as- tic supply constraints). funding through grants, loan guarantees, suming that war continues for several The poverty and social impacts of the and currency swap lines alongside major more months (albeit remains contained war will be massive. Simulations using financing packages by the IMF, EU, World to the geographical areas where it is the most recent macroeconomic projection Bank and some bilaterals. Bond spreads currently occurring), a 45 percent GDP show that the share of the population have since dropped 15 percentage points contraction is anticipated in 2022. This with incomes below the actual Subsis- to just above 30 percent. is predicated on massive declines in im- tence Minimum (the national poverty Compared to the 2014-15 crisis, the bank- ports and exports given trade disrup- line) may reach 70 percent in 2022, up ing system is more resilient but faces tions, a collapse in public and private from 18 percent in 2021. In the absence heightened operational, liquidity and sol- investments and a large drop in house- of a massive post-war support package, vency risks. In addition to capital and ex- hold spending reflecting the large dis- this indicator would still be higher than change controls, the central bank has es- placements of people, loss of incomes 60 percent by 2025. Based on the interna- tablished a new liquidity facility and in- and livelihoods. In coming years, a ma- tional upper middle-income poverty line troduced regulatory forbearance measures jor reconstruction effort is expected to (US$5.5 a day), poverty is projected to in- to support financial stability. FX reserves push growth to over 7 percent by 2025 crease to 19.8 percent in 2022, up from stood at US$27.5 bn (3.8 months of current amid a slow restoration of productive 1.8 percent in 2021, with an additional imports as of March 1). Inflation was stable and export capacity and gradual return 59 percent of people being vulnerable to at an average of 10 percent in the 8 months of refugees. Still, by 2025, GDP will be a falling into poverty. leading up to the war; regulated utilities third less than its pre-war level in 2021. TABLE 2 Ukraine / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 -3.8 3.4 -45.1 2.1 5.8 Private Consumption 10.9 1.7 7.7 -50.0 2.5 2.9 Government Consumption -13.6 -0.7 1.8 -10.0 3.0 2.0 Gross Fixed Capital Investment 11.7 -21.3 7.6 -57.5 68.5 34.3 Exports, Goods and Services 7.3 -5.8 -10.4 -80.0 30.0 35.0 Imports, Goods and Services 5.7 -6.4 12.7 -70.0 42.0 24.0 Inflation (Consumer Price Index) 4.1 5.0 10.0 15.0 19.0 8.4 Current Account Balance (% of GDP) -2.7 3.4 -1.1 -6.8 -16.8 -15.3 a Fiscal Balance (% of GDP) -2.1 -5.6 -4.0 -17.5 -21.6 -14.6 Debt (% of GDP) 50.2 60.4 50.7 90.7 .. .. a Primary Balance (% of GDP) 1.0 -2.7 -0.5 -13.8 -16.6 -12.8 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 2.5 2.5 1.8 19.8 18.5 17.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Note: Projections are as of March 28, 2022. a/ Fiscal Balance and Primary Balance are non-military balances from 2022 to 2024. b/ Calculations based on ECAPOV harmonization, using 2020-HLCS. c/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. MPO 83 Apr 22 Imports grew by 20 percent in 2021 from higher consumer demand and a resump- UZBEKISTAN Key conditions and tion of capital imports after a pandemic-in- duced slowdown. Exports grew by 10 per- challenges cent but were still below pre-pandemic levels, as demand remained weak in major Table 1 2021 After a wave of trade and price liberaliza- trading partners (Russia, Kazakhstan). Re- Population, million 34.9 tion reforms, the focus of reforms is shift- mittance inflows recovered, but only par- GDP, current US$ billion 69.2 ing to deeper structural constraints such as tially offset a large fall in gold sales (by GDP per capita, current US$ 1983.2 weak factor markets and dominant public 29 percent), leading to a wider current ac- a 100.1 School enrollment, primary (% gross) enterprises. These reforms are needed to count deficit of 6.6 percent of GDP in 2021, a 71.7 create a larger and more competitive pri- against 5 percent in 2020. Life expectancy at birth, years Total GHG Emissions (mtCO2e) 259.5 vate sector, which is key to addressing the The fiscal deficit increased to 6.2 percent of Source: WDI, Macro Poverty Outlook, and official data. economy’s legacy of state-led growth with GDP in 2021 from 4.5 percent in 2020, as a/ WDI for School enrollment (2020); Life expectancy weak job creation. expanded social assistance coverage and (2019). The government recognizes the need for a higher health and education spending off- more inclusive transition. About 7.5 per- set lower policy lending and higher tax cent of citizens lived below the World revenues from a rebounding economy. The Russia’s invasion of Ukraine will slow Bank’s lower-middle-income poverty line fiscal deficit was financed almost entirely Uzbekistan’s growth to 3.6 percent in in 2021. Many more live close to this line through new external debt, though the and are at high risk of poverty. One in government remained within its annual 2022, due to a halving of remittances, six households has a member working ceiling on new debt of $5.5 billion. Despite record global oil and food prices, trade, abroad, mostly in Russia. Reforms to ex- the drop in gold sales, international re- investment, and banking disruptions, and pand social assistance started during the serves increased by $0.2 billion in 2021 to the return of migrant workers. More so- COVID-19 pandemic will serve as an effec- about 51 percent of GDP. cial protection and labor market programs tive platform to expand safety nets and la- Inflation continued falling, averaging at bor market support programs to prevent 10.8 percent in 2021 (against 12.9 percent are needed to prevent increases in pover- a sharp rise in poverty—and enable struc- in 2020). Average annual inflation ty. Higher commodity revenues and lower tural reforms to continue. reached 9.8 percent at end-February 2022, public investment spending will create the first reversion to single-digits since fiscal space and, with tighter monetary 2017. Higher domestic and global food prices and shipping costs continued to policy, support macroeconomic stability. Recent developments drive inflation. In the three weeks fol- lowing Russia’s invasion of Ukraine, and Uzbekistan’s economy grew by 7.4 percent amidst lower remittance inflows and in 2021. Strong industrial and services heightened uncertainties, the som depre- growth helped temper still weak agricultur- ciated by about 6 percent against the US al growth. Robust household income and dollar. In mid-March 2022, in response investment growth and continued anti-cri- to exchange rate pressures and an un- sis fiscal support also supported growth. certain inflation outlook, the central bank FIGURE 1 Uzbekistan / GDP growth, inflation, FIGURE 2 Uzbekistan / Poverty, GDP per capita, and small unemployment business development Percent GDP per capita, US$ Percent 20 65.3 70 17.5 2,500 62.4 56.0 55.7 54.9 60 2,000 15 13.9 14.5 1,983 50 1,917 12.9 1,784 1,750 1,500 1,597 40 10.8 9.3 30 10 9.0 9.0 1,000 10.5 9.6 20 500 7.4 10 5 11.9 11.4 11 11.5 11 5.4 5.7 4.4 0 0 1.9 2017 2018 2019 2020 2021 0 Small business, % of GDP 2017 2018 2019 2020 2021 GDP per capita, US$, lhs GDP growth CPI inflation Unemployment rate National poverty rate, % of population, rhs Source: Uzbekistan official statistics. Source: Uzbekistan official statistics. MPO 84 Apr 22 (CBU) increased its policy rate by 300 ba- Higher revenues from commodity exports sis points to 17 percent. and privatization receipts and slower A reduction in subsidized lending and Outlook public investment spending are likely to high real interest rates slowed credit offset higher social spending to support growth to 18 percent in 2021 from 31 Russia’s invasion of Ukraine will slow remittance-dependent households and percent in 2020. Portfolio growth and growth to 3.6 percent in 2022, compared prevent an anticipated sharp rise in stronger risk regulations reduced the to pre-crisis estimates of about 6 per- poverty levels from falling remittances banking sector’s total capital adequacy ra- cent. An anticipated 50 percent fall in and the return of potentially large num- tio to 17.5 percent at end-2021 from 18.4 remittances (from a weaker ruble and bers of displaced migrant workers. As a percent at end-2020. the collapse of Russia’s economy) and result, the overall fiscal deficit is expected The banking system remains resilient, but higher oil, wheat, and cooking oil prices to fall to 4 percent of GDP in 2022. An non-performing loans rose from about 1-3 will sharply lower private consumption. anticipated fiscal consolidation by 2023 is percent of total loans between 2018 and Investment growth is also expected to now likely to be delayed. The govern- 2020 to 5.2 percent at end 2021—a result slow given the heavy reliance on Russ- ment is expected to continue adhering to of the pandemic. Capital and liquidity ian capital imports and bank financing its overall debt limits, and public debt is buffers remain above regulatory mini- for public and private investment pro- expected to peak at 42 percent of GDP in mums but could be tested as further effects jects. Although Uzbekistan will benefit 2022-23 and stabilize at about 40 percent of the pandemic, the war in Ukraine, and from high global commodity prices of GDP by end-2024. strong credit growth in recent years (gold, copper, and natural gas), an es- These projections remain subject to signif- emerge. To reduce banking dollarization, timated 6 percent of GDP fall in remit- icant further downside revisions depend- the CBU increased minimum reserves for tances will widen the current account ing on the duration of sanctions on Russia, foreign currency deposits from 14 to 18 deficit to 10 percent of GDP in 2022. potential global financial spillovers from percent in August 2021. With foreign investments from Russia US interest rate changes, further The unemployment rate declined to 9.6 expected to fall, FDI inflows will be sub- COVID-19 waves, and the impact of trade percent in 2021 from 10.5 percent in 2020. dued in 2022 and take time to recover. and logistics disruptions to Uzbekistan’s Employment has not yet returned to pre- As a result, the higher current account supply chains. pandemic levels and unemployment re- deficit is expected to be financed by new mains high for women and youth. public debt and the use of reserves. TABLE 2 Uzbekistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.7 1.9 7.4 3.6 5.3 5.5 Private Consumption 5.3 0.1 7.1 0.6 2.9 3.2 Government Consumption 5.7 1.4 1.1 15.8 2.5 4.5 Gross Fixed Capital Investment 38.1 -4.4 5.2 -0.4 7.1 7.2 Exports, Goods and Services 16.2 -20.0 4.8 13.1 13.8 15.1 Imports, Goods and Services 13.3 -15.0 5.8 1.0 8.9 11.1 Real GDP growth, at constant factor prices 5.7 1.9 7.4 3.6 5.3 5.5 Agriculture 3.1 2.9 4.0 3.7 3.6 3.9 Industry 8.3 2.5 8.3 3.9 6.4 6.7 Services 5.6 0.9 9.0 3.3 5.6 5.7 Inflation (Consumer Price Index) 14.5 12.9 10.8 11.9 10.6 9.0 Current Account Balance (% of GDP) -5.8 -5.0 -6.6 -10.2 -7.1 -5.7 Fiscal Balance (% of GDP) -3.9 -4.5 -6.2 -4.0 -2.9 -2.5 Debt (% of GDP) 29.7 39.0 38.1 42.0 42.1 40.3 Primary Balance (% of GDP) -3.4 -3.4 -5.0 -2.8 -1.7 -1.3 GHG emissions growth (mtCO2e) 0.4 -3.3 3.6 2.0 2.8 3.0 Energy related GHG emissions (% of total) 51.1 48.6 49.8 50.2 50.9 51.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 85 Apr 22 Latin America and the Caribbean Argentina Dominican Republic Nicaragua The Bahamas Ecuador Panama Barbados El Salvador Paraguay Belize Grenada Peru Bolivia Guatemala Saint Lucia Brazil Guyana Saint Vincent and the Grenadines Chile Haiti Suriname Colombia Honduras Uruguay Costa Rica Jamaica Dominica Mexico MPO 87 Apr 22 macro-stabilization, by restoring fiscal sus- tainability, halting deficit monetization, re- ARGENTINA Key conditions and ducing inflation, rebuilding the Central Bank foreign reserves, and helping regain challenges access to capital markets. Beyond the ur- gent need to stabilize the economy, Ar- Table 1 2021 Argentina’s economy has recovered faster gentina would benefit from a shift to a Population, million 45.8 than previously expected. Following a medium-to-long term perspective in order GDP, current US$ billion 480.6 3-year recession and almost a decade of to reverse the downward tendency of its GDP per capita, current US$ 10496.1 stagnation, GDP was already above pre- potential output and adopt reforms that a 1.6 International poverty rate ($1.9) covid levels by end-2021, although still 4 could deliver more sustainable and equi- a 5.8 percent below its previous cyclical peak at- table growth. Reforms to boost export per- Lower middle-income poverty rate ($3.2) a 18.2 tained in the last quarter of 2017. Higher formance, raise skills and compensate for Upper middle-income poverty rate ($5.5) Gini index a 42.3 commodity prices and trading partners’ lack of progress in education outcomes School enrollment, primary (% gross) b 109.5 growth, notably Brazil, combined with owing to COVID, as well as improving la- b 76.7 public investment and acquisition of good bor market matching should be prioritized Life expectancy at birth, years and services, are behind the robust recov- along with macro-stabilization to ensure Total GHG Emissions (mtCO2e) 435.0 ery in growth. strong and sustained growth beyond a Source: WDI, Macro Poverty Outlook, and official data. Macroeconomic imbalances have widened. cyclical recovery. a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). The fiscal deficit remains sizeable and has been completely monetized by the Central Bank, in the absence of access to interna- Bolstered by favorable external condi- tional markets and a shallow domestic Recent developments market. This has pushed up inflation, tions, Argentina’s economy recovered which combined with tight currency con- Economic activity gained pace rapidly and from the COVID-19 crisis at a fast pace, trols, has added pressure to the gap be- reached pre-pandemic levels by Q3-2021. reaching pre-pandemic activity levels by tween the official and parallel exchange Investment and exports have been the end-2021. Growth is poised to continue, rates and dragged down reserves. The main drivers of the recovery. Investment Central Bank net reserve assets are at his- was propelled by agricultural machinery driven by private consumption and in- torically low levels (less than a third of and equipment, as well as residential con- vestment. High inflation, tight FX con- monthly merchandise imports), while in- struction, a means to store value given trols will inhibit strong growth in the flation is running at more than 50 percent high inflation and low levels of activity medium term. Implementing a sound annual rate (with core inflation even high- during 2020. Industrial exports benefited macro-stabilization plan to restore fiscal er), eroding purchasing power and hurting from strong growth in Brazil and high those with low incomes disproportionally. commodity prices also supported a small sustainability, reduce inflation and sup- High inflation acts as a counteracting force current account surplus. port FX reserves accumulation will set to improvements in the labor market, lim- Labor markets indicators remain weak. Al- the basis for broad-based growth, robust iting poverty reduction. though the employment rate reached its job creation and poverty alleviation. The IMF program provides Argentina a pre-pandemic level in 2021, job creation time-window of 3 to 4 years to achieve has mainly occurred among informal FIGURE 1 Argentina / Net international reserves and FIGURE 2 Argentina / Actual and projected poverty rates exchange rate premium and real private consumption per capita US$bn Percent Poverty rate (%) Real private consumption per capita (constant LCU) 50 130 30 14000 45 110 12000 40 25 35 90 10000 20 30 8000 70 25 15 50 6000 20 10 15 30 4000 10 5 2000 10 5 0 0 0 -10 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2011 2013 2015 2017 2019 2021 International poverty rate Lower middle-income pov. rate Net reserves (lhs) Alternative FX Premium (rhs) Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 88 Apr 22 salaried, self-employed job segments and extremely low levels by early-2022, on the medium-term, strong investment will re- public sector employees. Underemploy- eve of an agreement with the IMF. main inhibited by a still high inflationary ment remains high, at 12.2 percent in environment, controls to imports, prices 2021Q3, contrasting with 10.8 percent in and capital movements, as well as limited the previous cyclical peak. fiscal space. The economic recovery had a differentiat- Outlook The recent surge in commodity prices can ed regional impact on household incomes dampen growth and deteriorate the trade and poverty incidence under the national GDP is projected to grow by 3.6 percent and fiscal balances, hindering also foreign poverty line. In Greater Buenos Aires, the in 2022, given the strong 2021-Q4 carry reserve accumulation. The increase in the nation’s most populous region, and in over effect. The implementation of the value of agricultural exports can be com- Patagonia, poverty declined in the first se- Extended Fund Facility, agreed with the pletely offset by higher oil and gas im- mester of 2021, although it increased in all IMF, is expected to contribute to a more ports, or even exceed it, as Argentina re- other regions. The northeast and north- stable environment for growth by avoid- mains a net importer of energy. The hike west regions continue to register the high- ing a default, setting a path for fiscal in energy prices can put pressure on fiscal est levels of poverty. consolidation and eliminating deficit accounts via higher energy subsidies and The withdrawal of the emergency support monetization. However, beyond the car- maintaining the EFF fiscal targets may lead spending has been the largest contributor ry over effect, growth is expected to to a reallocation of spending. to the reduction of the fiscal deficit in 2021, be modest in 2022, as a more con- Downside risks remain high. A prolonged supported in part by extraordinary rev- tractionary fiscal and monetary policy war in Ukraine could lead to a deteriora- enues from a one-time wealth tax and the takes hold and growth in trade partners tion in the terms of trade for a net energy windfall revenue from the increase in com- slows. In 2022, the poverty rate is pro- importer such as Argentina, and lower ex- modities prices. As the economy recov- jected at 16.3 percent of the population ports as trade partners are also hit, ham- ered, the government was able to remove under the international poverty line of pering progress in fiscal consolidation. As most of this spending, but despite price $5.5 per day. The possibilities for faster with most nations, an intensification of the controls, tariff freezes, and a real appreci- poverty reduction in the medium term Covid-19 pandemic cannot be ruled out, ation of the Peso, its entire monetization will depend on the dynamism of job and more adverse climatic conditions, par- fueled inflation. The debt-to-GDP ratio de- creation, especially private formal jobs, ticularly extended drought impacting agri- clined in 2021 as a consequence of a large and the evolution of inflation. culture productivity and hydrology in real appreciation. Growth is expected to moderate over the both the Upper Parana River basin and via Despite the boom in commodity prices and forecast horizon. Substantial increases in the glacial melt that feeds hydroelectric SDR allocation, Central Bank net reserves the investment rate over several years are output is expected to limit the substitution are on a declining trend, as a result of high- needed to boost productivity and real in- of imports of energy and will continue to er debt repayments (to IMF and other IFIs) comes and promote the transition towards tilt the risks of sustainable economic and interventions on FX markets, reaching a low carbon economy. In the short- and growth to the downside. TABLE 2 Argentina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -2.0 -9.9 10.3 3.6 2.5 2.5 Private Consumption -7.3 -13.8 10.2 3.4 2.6 2.5 Government Consumption -1.2 -3.3 7.0 2.4 1.4 1.1 Gross Fixed Capital Investment -16.1 -12.7 32.5 5.9 4.7 5.0 Exports, Goods and Services 9.1 -17.3 9.0 5.2 5.0 4.9 Imports, Goods and Services -19.0 -17.9 21.5 5.3 4.9 4.8 Real GDP growth, at constant factor prices -1.7 -9.9 10.3 3.6 2.5 2.5 Agriculture 21.3 -7.1 0.0 1.9 2.2 2.1 Industry -4.8 -9.4 14.5 3.0 2.5 2.3 Services -3.1 -10.6 10.1 4.1 2.6 2.7 Current Account Balance (% of GDP) -0.8 0.8 1.2 0.7 0.6 -0.1 Net Foreign Direct Investment (% of GDP) 1.1 0.7 0.9 1.0 1.1 1.2 a Fiscal Balance (% of GDP) -4.7 -8.1 -4.9 -4.6 -4.0 -3.2 a Debt (% of GDP) 98.5 106.4 89.1 84.6 82.8 80.1 a Primary Balance (% of GDP) -0.5 -5.6 -3.0 -2.5 -1.8 -0.9 b,c International poverty rate ($1.9 in 2011 PPP) 1.3 1.6 1.3 1.3 1.3 1.2 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.8 5.8 5.2 4.8 4.6 4.4 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 14.5 18.2 16.3 16.0 15.5 15.0 GHG emissions growth (mtCO2e) 6.3 -3.4 7.1 2.8 2.4 2.5 Energy related GHG emissions (% of total) 41.3 40.8 42.2 42.4 42.5 42.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal data refer to the general government. b/ Calculations based on SEDLAC harmonization, using 2020-EPHC-S2.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 89 Apr 22 Report of 2016, the national unemploy- ment rate was 12.75 percent. Unemploy- THE BAHAMAS Key conditions and ment was 4 percentage points higher for women than for men, and 15 percentage challenges points higher for youth below 25 years than among adults 25 years and older. Table 1 2021 The Bahamas is a high-income service Vulnerability to climate change and global Population, million 0.4 economy heavily dependent on tourism health risks jeopardize the country’s devel- GDP, current US$ billion 11.5 and financial services. GDP has risen opment trajectory. Sea-level rise associat- GDP per capita, current US$ 29087.8 steadily over the past 3 decades, with an- ed with increasing temperatures threatens a 96.1 School enrollment, primary (% gross) nual growth averaging 1.4 percent in real The Bahamas’ low-lying islands in addi- a 73.9 terms. Nonetheless, the country’s econom- tion to the severe impacts of disasters such Life expectancy at birth, years Total GHG Emissions (mtCO2e) 2.3 ic position remains vulnerable due to its as Hurricane Dorian in 2019. Source: WDI, Macro Poverty Outlook, and official data. small size, lack of economic diversification The COVID-19 pandemic led to a steep a/ Most recent WDI value (2019). and vulnerability to natural disasters. The decline in tourism arrivals and the re- Bahamas relies significantly on foreign in- sulting job losses have been particularly vestment, especially related to tourism. felt by vulnerable populations, such as Tourism, together with tourism-driven low-income households, informal work- construction and manufacturing, accounts ers, and women. School closures are like- for approximately 60 percent of GDP and, ly to have impacted learning, with poten- GDP is estimated to have expanded by directly or indirectly, employs about half tial longer-term impacts on human capital 5.6 percent in 2021, as tourist arrivals of the country's workforce. and potential earnings. to the islands rebounded thanks to vac- Economic growth in recent decades has The pandemic also negatively impacted cination efforts in The Bahamas and eas- not been distributed evenly across all seg- women’s day-to-day lives in The Ba- ments of the population. According to the hamas. Women’s workload in the house- ing travel restrictions in main tourism 2013 Household Expenditure Survey, 12.8 hold increased more than that of men, markets. Tourism remains the country’s percent of the population lived below the as related to homeschooling for example, main economic activity and source of national poverty line. Moreover, inequality 62.8 percent of women and only 25.8 per- revenue, with over 50 percent of the la- was well above the average of high-income cent of men are dealing with the addi- economies, with a Gini index of 41.4. tional workload of supporting children bor force employed in the sector. The While no official poverty indicators have with schoolwork. current account deficit remains high but been produced since 2013, The Bahamas narrowed to 19.3 percent of GDP. Fiscal has exhibited improvements in other areas, accounts deteriorated in 2021, but the such as education and life expectancy, as country is expected to restore the fiscal reflected by the 2 percent increase in the Recent developments Human Development Index (HDI) in the consolidation and reconstruction efforts past two decades. GDP expanded by 5.6 percent in 2021, fol- following Hurricane Dorian. Similar to economic growth, economic op- lowing a 14.5 percent contraction in 2020. portunities have not been inclusive. Ac- Tourist arrivals to the islands grew at a cording to the Labor Force and Household faster pace during the second half of 2021, FIGURE 1 The Bahamas / Real GDP growth and FIGURE 2 The Bahamas / Fiscal balances and public debt contributions to real GDP growth Percent, percentage points Percent of GDP Percent of GDP 10 120 4 102.8 2 87.3 5 100 91.3 0 85.2 74.1 -2 0 80 59.7 -4 -5 60 -6 -8 40 -10 -10 -12 20 -15 -14 2019 2020 2021e 2022f 2023f 2024f 0 -16 Private Consumption Government Consumption 2019 2020 2021e 2022f 2023f 2024f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of The Bahamas; IMF and World Bank staff estimates. Sources: Government of The Bahamas; IMF and World Bank staff estimates. MPO 90 Apr 22 totaling nearly 2 million for the entire year. total public debt jumped to 102.8 percent of record a primary surplus in FY2023/24. This is still below the record inflow of 7.2 GDP in 2021, compared to 74.1 percent of Public debt is projected to decrease once million tourists in 2019. The hotel occu- GDP in 2020. the economy is back on the growth path, pancy rate averaged 50 percent in 2021. The external sector was particularly hit by as revenues rebound, and pandemic-re- Tourism-related FDI projects, together the COVID-19 pandemic, as net travel re- lated expenditures are wound down but with post-hurricane rebuilding efforts sup- ceipts make the largest contribution to the will remain above 85 percent of GDP in ported the construction sector output. current account balance. In fact, the ser- the medium term. Unemployment increased 5 percentage vices account balance posted deficits from The current account deficit is expected to pointsin2020asaresultofthepandemic,set- the second quarter of 2020 to the third decrease to 18.1 percent of GDP in 2022, ting the labor market back to the 2009 level, quarter of 2021. The current account deficit as tourism receipts expand. An improve- with an estimated 14.4 percent unemploy- was 19.3 percent of GDP in 2021, an im- ment of the account deficit is also ex- ment rate. Estimates suggest that unem- provement from 23.5 percent of GDP in pected for 2023 and 2024, with projec- ployment fell to 13.2 percent in 2021, and it is 2020. It was financed through borrowing tions of 12.6 percent of GDP and 8.6 per- predicted to fall below 13percent in 2022. from capital markets and IFIs as well as cent of GDP, respectively. Outlook is sub- The Bahamas was hit by two coronavirus through decreasing international reserves. ject to significant uncertainty related to waves in 2021, in August and end-Decem- the possibility of new travel restrictions ber. Vaccination started in March 2021 and worldwide affecting tourist arrivals to the only 40 percent of the population was fully country; there are also global geopolitical vaccinated by February 2022. As a com- Outlook risks, as well as the risk of natural disas- plement to vaccination efforts, the govern- ters. Higher oil prices and imported infla- ment launched free COVID-19 testing this The economy is expected to grow by 6.0 tion due to global geopolitical risks may year and announced the elimination of percent in 2022 and 4.1 percent in 2023, trigger higher consumer prices with im- curfews and lockdowns, enhancing the as tourism flows to the island continue to plications for the poorest. The govern- prospects for economic recovery. revert to pre pandemic levels. The vacci- ment will continue to finance the rebuild- CPI inflation is estimated at 3.2 percent for nation campaign will continue with sup- ing of public and private buildings to in- 2021. The highest increases were registered port from PAHO/WHO donations. The in- crease their resilience to natural disasters in food, beverages, and clothing, dispro- flation rate is projected to significantly in- as well as to implement a mitigation pol- portionately affecting the purchasing pow- crease to 7.3 percent in 2022, pushed by en- icy for climate change. er of the poor and vulnerable. ergy and oil prices, and to average around The pandemic will erase some of the Public finances continued to deteriorate 3.6 percent in the medium-term. The pri- progress in recent years in terms of human during FY 2020/21 to a 9.4 percent of GDP mary and overall fiscal deficits will im- development and is expected to increase primary deficit and 13.6 percent of GDP prove in FY2021/22 to 2.7 percent of GDP poverty and inequality, widening the di- overall deficit, after recording a 3.9 percent and 6.7 percent of GDP respectively. They vide for women, youth, informal workers, of GDP primary deficit and a 7.0 percent of are expected to steadily improve in the fol- and other vulnerable populations. Recov- GDP overall fiscal deficit in FY 2019/20. lowing two years in response to the gov- ery efforts need to support these groups In part due to the government’s comprehen- ernment’s expenditures reduction efforts decisively and allow for more diversifica- sive response to the COVID-19 pandemic, as well as needed tax reforms, and will tion of income sources. TABLE 2 The Bahamas / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.7 -14.5 5.6 6.0 4.1 3.0 Real GDP growth, at constant factor prices 0.7 -14.5 6.0 5.9 4.1 3.0 Agriculture -0.8 -8.8 -1.3 3.6 4.8 4.8 Industry -1.0 -2.0 1.7 3.5 1.4 1.7 Services 1.0 -16.4 6.8 6.3 4.5 3.2 Inflation (Consumer Price Index) 2.5 0.0 3.2 7.3 4.5 3.3 Current Account Balance (% of GDP) 4.0 -23.5 -19.3 -18.1 -12.6 -8.6 Net Foreign Direct Investment (% of GDP) 2.0 2.2 2.2 2.4 2.8 2.6 a Fiscal Balance (% of GDP) -1.6 -7.0 -13.6 -6.7 -3.5 -3.1 a Debt (% of GDP) 59.7 74.1 102.8 91.3 87.3 85.2 a Primary Balance (% of GDP) 1.3 -3.9 -9.4 -2.7 0.2 0.9 GHG emissions growth (mtCO2e) 1.2 -15.3 2.1 11.1 4.0 3.5 Energy related GHG emissions (% of total) 87.6 86.7 86.2 86.9 86.9 86.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 91 Apr 22 families (27.9 percent) had at least one member who had lost their job between BARBADOS Key conditions and March and June 2020; the less well-off were hit particularly hard, as 39 per- challenges cent of households classified as poor in the baseline survey of 2016/17 re- Table 1 2021 Barbados is a high-income service econo- ported a family member becoming un- Population, million 0.3 my, built on tourism and financial sector employed in the period. Notably, the GDP, current US$ billion 4.8 services. However, the country’s economic share of middle-income households un- GDP per capita, current US$ 16665.8 achievements remain vulnerable due to its able to meet their financial commitments a 99.7 School enrollment, primary (% gross) small size, its dependence on tourism at (60 percent) was greater than the share a 79.2 17 percent of GDP, and considerable ex- of low-income households (43 percent) Life expectancy at birth, years Total GHG Emissions (mtCO2e) 3.5 posure to climate change risks. Besides the as of April 2020. Source: WDI, Macro Poverty Outlook, and official data. COVID-19 pandemic, natural disasters Poverty levels were likely still elevated a/ Most recent WDI value (2019). such as Hurricane Elsa and the eruption in 2021. There are no official poverty es- of the volcano La Soufriere disrupted eco- timates since 2017 when 17.2 percent of nomic activity in 2021. The additional vul- households and 25.7 percent of con- Barbados’s economy rebounded in 2021 nerability stems from the high level of sumers were under the basic needs line. public debt, which is currently over 135 Nevertheless, GDP was lower in 2021 in line with international travel and eas- percent of GDP, an increase compared to than in 2017, with greater impacts to the ing containment measures but was nega- 124.8 percent in 2019 when a successful bottom of the income distribution. Non- tively affected by natural disasters such debt restructuring was completed. monetary poverty dimensions, such as as the eruption of the volcano La The BERT plan, which included the debt food security, indicate persistent depriva- Soufriere and Hurricane Elsa. Its current restructuring and is supported through a tion during the pandemic. Hunger rates four-year IMF Extended Fund Facility, is in Barbados rose from 5.8 percent in Jan- account deficit is estimated at 11.4 per- aimed at restoring macroeconomic stabili- uary 2020 to 6.9 percent in October 2020. cent of GDP. Unemployment decreased to ty while safeguarding the financial and so- Households categorized as extremely 12.4 percent in 2021. The pandemic cial sectors. The government has made sig- poor in 2016/17 still experience the great- curbed the reform efforts made in the con- nificant fiscal efforts to gradually reduce est shares of food insecurity, but the in- the debt burden; and under the macroeco- crease was larger among those who were text of the Barbados Economic Recovery nomic framework of the IMF program, identified as vulnerable to poverty. and Transformation (BERT) plan to sus- debt is expected to reach 60 percent of tain primary surpluses and reduce exter- GDP by FY 2035/36. nal vulnerabilities. The Barbados COVID-19 Survey under- taken by the Inter-American Develop- Recent developments ment Bank revealed severe consequences to welfare from the pandemic; average GDP growth for 2021 is estimated at 1.4 household total income and spending percent, a mild recovery after the 13.7 per- dropped by 20 percent and 29 percent cent contraction in 2020. Economic activity respectively. More than one quarter of rebounded after the second quarter of 2021 FIGURE 1 Barbados / Real GDP growth and contributions to FIGURE 2 Barbados / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 15 160 8 124.9 146.7 135.8 10 140 6 121.1 113.9 5 120 4 107.8 0 100 2 -5 80 0 -10 60 -2 -15 40 -4 -20 20 -6 2019 2020 2021e 2022f 2023f 2024f 0 -8 Agriculture Industry 2019 2020 e 2021 f 2022 f 2023 f 2024 f Services Net taxes on production Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of Barbados; IMF and World Bank staff estimates. Sources: Government of Barbados; IMF and World Bank staff estimates. MPO 92 Apr 22 as lockdown measures eased, although account deficit is estimated to have overall fiscal deficit is projected to remain GDP remained well below pre-pandemic widened to 11.4 percent of GDP, pushed at 3.4 percent of GDP. Fiscal accounts levels. Moderate growth was driven main- by expanding imports and reduced re- are expected to improve in FY 2023/24, ly by private sector consumption. Tourism ceipts. Increasing fuel prices explain half achieving a robust 3.6 percent of GDP exhibited a lackluster performance during the difference in the value of imports. primary surplus and an overall deficit 2021, with arrivals at only 20 percent of Gross international reserves stood at of 1.0 percent of GDP. The authorities 2019 levels. Tourism flows to the country US$3.1 billion, equivalent to an import are expected to resume fiscal consolida- were affected by travel restrictions in the cover of 40 weeks by end-December 2021, tion efforts after the pandemic that will main tourism markets of the US, UK, and these reserves increased during 2021 include state-owned enterprise (SOE) re- Canada which make up 75-80 percent of thanks to borrowing from IFIs and the al- forms and a reform of the civil service arrivals. Total arrivals stood at 143,500 in location of new SDR by the IMF. pension system. The fiscal balance is ex- 2021 compared to 714,650 in 2019. Two After recording a 0.8 percent of GDP pri- pected to turn positive in FY 2024/25. waves of COVID-19 cases hit Barbados in mary deficit and a 4.8 percent of GDP fiscal The inflation rate is projected to reach 5.9 2021, at end-August and end-December. deficit in FY 2020/21, the government is ex- percent in 2022 and then average around By February 2022, 50 percent of the popu- pecting a 1 percent primary deficit and 4.9 2.5 percent in the medium-term. The in- lation was fully vaccinated. percent overall deficit in FY 2021/22. Con- crease in energy and oil prices may pose The lower demand for agricultural prod- tinuing contingent health and disaster re- significant challenges for the external ac- ucts from subdued tourism combined with lief related expenditures, combined with counts, although this will be compensated the impact of the eruption of La Soufriere subdued revenues from tourism explain for by a recovery in tourism receipts. The volcano and the global supply chain dis- these results. current account deficit for 2022 is projected ruptions of key agricultural inputs result- to reach to 12.1 percent of GDP and then ed in a 4 percent contraction of agricultural narrow to 8.8 percent of GDP in 2023. production in 2021. Meanwhile, the man- Robust growth in 2022 will likely be ac- ufacturing sector expanded by over 4 per- Outlook companied by an improvement in the liv- cent driven by production in the food and ing standards, although this is subject to beverages sector. GDP growth is expected to reach 11.2 per- significant uncertainty related to the possi- Employment and earnings were negative- cent in 2022 when the tourism sector is ex- bility of new travel restrictions worldwide, ly affected by the pandemic. The unem- pected to largely recover, and 4.9 percent in and the risk of natural disasters. Higher ployment rate stood at 12.4 percent in 2023. However, the outlook is still uncer- oil prices and imported inflation due to the third quarter of 2021, compared to tain, and it will depend to a great extent on global geopolitical risks may trigger higher 17.6 in 2020. However, employment is progress with respect to vaccination in Bar- consumer prices with implications for the still below its 2019 level and gender dis- bados, the number of COVID-19 cases in the poorest. Returning to pre-pandemic levels parities persist. country, and international travel restric- of employment and income will take The 12-month inflation stood at 5 percent tions. Lagging construction activity and re- longer and will heavily depend on the re- in December 2021, while average inflation newed fiscal consolidation efforts are ex- covery of the tourism sector. Additional during the year was 3 percent, with the pected to moderate growth prospects. The support for the most vulnerable will be highest increases registered in transporta- primary balance is expected to reach 1 per- necessary to attain the welfare levels ob- tion, and food and beverages. The current cent of GDP surplus in FY 2022/23 while the served over last decade. TABLE 2 Barbados / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -1.3 -13.7 1.4 11.2 4.9 3.0 Real GDP growth, at constant factor prices -1.2 -13.7 1.3 11.3 5.0 3.1 Agriculture -4.5 -4.8 -4.0 1.1 0.5 0.5 Industry -1.9 -3.9 4.0 4.2 3.5 3.0 Services -1.0 -15.7 0.9 13.0 5.4 3.2 Inflation (Consumer Price Index) 4.1 2.9 3.0 5.9 2.7 2.5 Current Account Balance (% of GDP) -3.1 -7.0 -11.4 -12.1 -8.8 -6.8 Fiscal Balance (% of GDP) 3.8 -4.8 -4.9 -3.4 -1.0 0.4 Debt (% of GDP) 124.9 146.7 135.8 121.1 113.9 107.8 Primary Balance (% of GDP) 6.2 -0.8 -1.0 1.0 3.6 5.1 GHG emissions growth (mtCO2e) 0.0 -6.0 -0.9 -10.0 -10.4 -11.1 Energy related GHG emissions (% of total) 31.0 27.3 27.4 28.1 28.3 27.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 93 Apr 22 indirect effects of containment and mitiga- tion measures on manufacturing. A World BELIZE Key conditions and Bank phone survey from mid-2021 indicat- ed that two out of three households had challenges experienced a decline in income since the start of the pandemic. School participation, Table 1 2021 Tourism is the most important source of for- already low compared to other countries Population, million 0.4 eign exchange in Belize, followed by agri- in the region, was significantly affected. GDP, current US$ billion 1.7 cultural commodities and, to a lesser extent, The EU Economic and Financial Affairs GDP per capita, current US$ 4175.4 crude oil. Remittance inflows, which ac- Council (ECOFIN) removed Belize from a 107.7 School enrollment, primary (% gross) count for about 5 percent of GDP, is another the EU grey list of non-cooperative tax ju- a 74.6 major foreign exchange source and pro- risdictions; however, gaps in financial sec- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 6.7 vides substantial support for consumption. tor supervision remain. Belize is looking to Source: WDI, Macro Poverty Outlook, and official data. Real GDP growth has been sluggish over finalize its National Risk Assessment in the a/ Most recent WDI value (2019). the past decade, averaging 1.8 percent be- months ahead, and to begin the implemen- tween 2009 and 2019. Inequality increased tation of the subsequent action plan. over the same period. A combination of inadequate fiscal policies and external shocks led to three debt restructurings be- tween 2006 and 2021. Recent developments After entering the COVID-19 pandemic Belize's reliance on oil imports makes it with high public debt, increased external vulnerable to fluctuations in energy prices. Belize experienced a peak in COVID-19 vulnerabilities, and low economic growth, Weak fiscal policies, an unfriendly busi- transmission rates in January 2022. As of Belize is experiencing a tourism-led re- ness climate and an infrastructure deficit, March 23, 2022, COVID-19 had affected lead to structurally high unemployment, a 14.4 percent of Belize's population, and bound. Tourism-related construction led wide trade deficit, and a significant foreign there were 165 deaths per 100,000 inhabi- to an increase in investments and tourist debt burden. With a reserve cover under 5 tants. While over 50 percent of the popula- arrivals, reversing some of the increase in months of imports, Belize is vulnerable to tion has been fully vaccinated, hesitancy to poverty and unemployment. Continued external shocks. get vaccinated is high. The latest official consumption poverty esti- Belize's economy is estimated to have ex- reforms to meet debt targets, improve- mates (2018) classified over half (52 percent) panded by 9.8 percent in 2021 fueled by ments to the business climate and infra- of Belize’s population as poor, 10 percent as a moderate resumption in tourism and structure, and protection of the vulnera- extreme poor, and 10 percent as vulnerable. tourism-related investments, with ble remain policy priorities. Growth is ex- There is a structural difference in employ- overnight arrivals increasing 51.9 percent ment and poverty outcomes by gender and over 2020. pected to be moderate, with significant ethnicity, with women and Mayans more Cruise ship passenger arrivals fell by 38.7 downside risks. likely to be self-employed and poor. percent in 2021 compared to 2020. The The social impact of the COVID-19 pan- government is making sure that cruise demic has been severe as a result of a re- tourism rules are consistent with the mar- duction in tourism activity as well as the itime conservation pledges made in the FIGURE 1 Belize / Real GDP growth and contributions to FIGURE 2 Belize / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 15 140 133.1 4 110.4 10 2 120 104.9 101.7 5 100.1 96.3 0 0 100 -5 -2 80 -10 -4 -15 60 -6 -20 40 -8 -25 -30 20 -10 2019 2020 2021 e 2022 f 2023 f 2024 f 0 -12 Private Consumption Government Consumption 2019 2020 2021 e 2022 f 2023 f 2024 f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Statistical Institute of Belize and World Bank staff calculations. Sources: Ministry of Finance and World Bank staff calculations. MPO 94 Apr 22 context of debt restructuring. With rising deficit from 10.9 percent of GDP to 0.7 between 2022 and 2024. Over the medium oil prices and global supply chain con- percent of GDP. These measures reduced term, inflation will average 3.6 percent due straints, inflation averaged 3.3 percent in debt from 133.1 percent of GDP in 2020 to stronger domestic demand combined 2021, rising to 5 percent by the end of to 110.4 percent of GDP in 2021. They with upward pressure from commodity the year. are complemented by reforms aiming to import prices, with implications for the The current account deficit (CAD) strengthen public expenditure manage- poorest. The rebound in economic activity widened to 8.9 percent of GDP in 2021, ment and to enhance procurement. and employment are expected to lead to a due to a slowdown in remittances and in- After a year-on-year decline of about 4.5 decrease in poverty in 2022. creased imports for capital spending on percentage points, the unemployment rate Over the medium term, the CAD is expect- tourism projects and public construction. was 9.2 percent in the fall of 2021. The ed to average 8.9 percent of GDP as the rise Foreign direct investment increased by 1.8 post-pandemic recovery in labor market in fuel prices increases the cost of imports, percentage points to 6.3 percent of GDP. outcomes continues to be stronger for men and as remittances level off. The CAD will By the end of 2021, international reserves than for women; labor force participation be funded through private inflows, dona- were up by 21 percent to US$420.1 million rates of women remain about 10 percent- tions, and multilateral lending, as well as (4.4 months of total imports). age points below pre-pandemic levels. by a drawdown of reserves. As imports in- Belize has reduced the principal amount Much of the recovery in labor market out- crease, international reserves may fall be- of its external indebtedness by approx- comes is driven by the tourism, real estate, low three months of imports, exacerbating imately US$250 million (or 12 percent and wholesale and retail sectors. Belize's external vulnerabilities. of GDP) through an innovative financial The fiscal deficit is expected to average 2.0 transaction refinancing its Superbond percent of GDP as tax collections improve with funding provided by The Nature with increased tourism activity and the gov- Conservancy (TNC), a global environ- Outlook ernment reduces transfers and capital ex- mental nonprofit. TNC’s Blue Bonds for penditures and continues the three-year Ocean Conservation program uses private Belize remains vulnerable to the pay freeze passed in 2021. This should bring capital to refinance public debt to support COVID-19 pandemic due to the impact of the public debt down to 100.1 percent of durable marine conservation efforts and viral spreads on tourist arrivals and broad- GDP by 2024. Debt dynamics will remain sustainable marine-based economic activ- er economic activity. Labor market out- vulnerable to shocks to growth, interest ity. This debt restructuring was comple- comes, and thus poverty rates, are not ex- rates, and the fiscal position, including nat- mented by a major fiscal consolidation ef- pected to return to pre-pandemic levels ural disasters and climate change. Other fort. Capital spending decreased by 3.4 until the tourism sector fully recovers. risks include exposure to extreme climate- percentage points of GDP to 6.6 percent Currently, the tourism industry is expect- related shocks, and social tensions. Activity in 2021 while transfer payments and ed to recover further in the medium term, could be disrupted by public sector workers wages were cut, reducing the overall with GDP growth averaging 3.7 percent protesting the reduction in wages. TABLE 2 Belize / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.0 -16.7 9.8 5.7 3.4 2.0 Private Consumption -1.3 -16.4 7.4 5.9 3.7 1.9 Government Consumption 2.7 6.4 -4.1 2.6 3.6 2.0 Gross Fixed Capital Investment 8.2 -24.1 13.4 12.4 7.0 6.5 Exports, Goods and Services 7.5 -65.8 54.0 8.2 6.7 6.2 Imports, Goods and Services 3.5 -53.1 26.0 10.2 8.6 7.9 Real GDP growth, at constant factor prices 1.4 -16.5 9.8 5.7 3.4 2.0 Agriculture -4.4 2.7 9.0 5.5 1.7 1.7 Industry -4.3 -5.9 1.8 2.6 2.1 2.1 Services 3.5 -21.4 11.9 6.4 4.0 2.0 Inflation (Consumer Price Index) 0.2 0.1 3.3 4.8 3.7 2.2 Current Account Balance (% of GDP) -9.5 -8.1 -8.9 -9.3 -8.9 -8.5 Net Foreign Direct Investment (% of GDP) 4.7 4.5 6.3 5.8 5.7 5.6 a Fiscal Balance (% of GDP) -4.7 -10.9 -0.7 -2.0 -1.9 -2.0 a Debt (% of GDP) 96.3 133.1 110.4 104.9 101.7 100.1 a Primary Balance (% of GDP) -1.4 -8.9 1.7 0.8 0.7 0.7 GHG emissions growth (mtCO2e) -0.5 -1.7 0.5 -0.6 -0.6 -0.6 Energy related GHG emissions (% of total) 10.3 9.4 10.5 10.8 11.0 11.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 95 Apr 22 export restrictions, and fostering environ- mentally and socially sustainable mining, BOLIVIA Key conditions and including lithium. Besides its high exposure to climate-relat- challenges ed risk, Bolivia is also exposed to volatile commodity prices, exacerbated by the Table 1 2021 Bolivia entered the pandemic with limited Russia-Ukraine conflict. Although high Population, million 11.8 policy space and suffered a deep recession. commodity prices may reduce macroeco- GDP, current US$ billion 40.4 An underdeveloped private sector, poorly nomic imbalances, they may also increase GDP per capita, current US$ 3416.1 targeted social programs, a weak health food inflation, hitting the poor and those a 4.4 International poverty rate ($1.9) system, and political polarization have vulnerable to falling into poverty the a 9.0 worsened the crisis and slowed recovery. most. Additionally, declining gas produc- Lower middle-income poverty rate ($3.2) a 21.6 After a one-year political transition, the tion and fuel subsidies could prevent Bo- Upper middle-income poverty rate ($5.5) Gini index a 43.6 new authorities have aimed to resume a livia from fully capitalizing on the up- School enrollment, primary (% gross) b 98.5 state-led development strategy, including surge in oil prices. Finally, with half of b 71.5 expenditure stimulus and import substitu- the population fully vaccinated as of Feb- Life expectancy at birth, years tion. However, with limited access to ex- ruary 2022, Bolivia is still exposed to new Total GHG Emissions (mtCO2e) 126.1 ternal financing, the Government has had waves of infection. Source: WDI, Macro Poverty Outlook, and official data. to moderate expenditure. a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). Given high public debt and exchange rigidity, a credible plan to address the fiscal imbalances is critical. Consolidation Recent developments The economy continues to recover from could rely on improving spending effi- ciency while supporting the most vulner- After falling 8.7 percent in 2020, the econ- the pandemic-induced recession. Growth able and improving access to quality ser- omy grew by an estimated 6.1 percent in and poverty reduction are expected to vices. Public expenditure efficiency could 2021 due to improving external conditions, slow down in the medium term as in- be enhanced by rationalizing public in- eased mobility restrictions, and recovering creasing public debt and declining inter- vestment, including in public enterprises, public investment. The recovery was led improving public procurement, strength- by mining exports and non-tradable sec- national reserves may restrict expansion- ening coordination across levels of gov- tors, such as construction and transport. ary efforts. Bolivia's medium-term ernment, and improving targeting of so- Urban unemployment declined from a prospects could be strengthened by ce- cial programs. peak of 11.6 percent in July 2020 to 5.4 per- menting confidence in macroeconomic Fostering private and foreign investment cent in December 2021, back to pre-pan- management, boosting public sector effi- will be critical to stabilize gas exports demic levels. The recovery in employment and ignite new medium-term sources helped reduce poverty in 2021, mainly dri- ciency to enhance service delivery and of growth and employment. The in- ven by rural areas, despite the end of emer- protect the poor and vulnerable, and fos- vestment climate could be improved by gency transfers in early 2021. tering private investment to ignite new reducing red tape, removing tax dis- By the second quarter of 2021, informality sources of growth and employment. tortions, modernizing labor regulations, remained high, particularly among youth, improving logistics, easing agricultural and 60 percent of households reported FIGURE 1 Bolivia / Public debt FIGURE 2 Bolivia / Actual and projected poverty rates and real private consumption per capita Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 100 60 3500 50 3000 80 2500 40 60 2000 30 1500 40 20 1000 10 500 20 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real priv. cons. pc Sources: Central Bank of Bolivia and Ministry of Economy and Public Finance. Source: World Bank. Notes: See Table 2. MPO 96 Apr 22 lower income than before the pandemic. annual inflation remained under 1.0 per- capital expenditure would be constrained Moreover, 23 percent of households indi- cent, below the regional standard, as the by limited access to external funding. In cated running out of food during the pre- economy continued to underperform, and the absence of substantial fiscal reforms, vious month, affecting the rural poor and fixed exchange rate and frozen fuel prices public debt is projected to increase from 81 families with children the most. repressed imported inflation. percent in 2021 to 85 percent by 2024. The fiscal deficit fell from a peak of 12.7 The Government is expected to support percent of GDP in 2020 to 9.3 percent in the fixed exchange rate regime, limiting its 2021 due to the rebound of tax and hy- expansionary efforts. High commodity drocarbon revenues and a lower-than-ex- Outlook prices will help achieve sizable current ac- pected recovery of public investment; the count surpluses despite the stagnation of introduction of a permanent wealth tax The economy is expected to grow 3.9 per- gas exports. However, capital outflows had limited impact. However, with limit- cent in 2022 as some sectors continue to and smuggling may continue to erode in- ed external funding, the Government con- recover. Although the Government man- ternational reserves. tinued to tap into Central Bank and pen- aged to refinance the bulk of 2022 and Declining international reserves and sion funds financing. 2023 bonds, limited access to additional emerging inflationary pressures, including Despite low gas export volumes, the trade external financing is expected to limit fis- those emerging from higher international balance reached a sizable surplus in 2021 cal spending which, combined with weak food prices in 2022, are expected to curb due to recovering mining exports and private and foreign investment, is expect- expansionary monetary policies, including higher commodity prices. Notwithstand- ed to push growth to below 3.0 percent Central Bank funding to the public sector. ing the trade surplus, increasing remit- in the medium term. Additionally, with The limited fiscal space and categorical de- tances, and the SDR allocation, interna- declining international reserves and the sign of social programs may undermine ef- tional reserves declined to a low of 5.1 Government requiring funding, domestic forts to protect the poor and vulnerable months of imports by the end of 2021 ow- credit to the private sector is projected to from a surge in food prices. ing to low foreign investment, smuggling, slow down. Long-term effects of the pandemic, in- and capital outflows. The fiscal deficit is projected to remain cluding human capital losses due to After a prolonged loan deferment, do- above 7.0 percent in 2022 as the increase school closures, remote learning, and mestic credit to the private sector re- in the fuel subsidy will partially offset food insecurity, are a concern and affect mained dampened partially due to uncer- the effect of higher hydrocarbon rev- the poor and vulnerable the most, limit- tainty in the private sector after the pan- enues. However, it is expected to con- ing reductions in inequality and upward demic. Despite increasing money supply, verge to 5.3 percent of GDP by 2024 as intergenerational mobility. TABLE 2 Bolivia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -8.7 6.1 3.9 2.8 2.7 Private Consumption 3.7 -7.9 5.3 4.1 2.9 2.8 Government Consumption 3.8 -2.8 5.4 4.2 -0.6 -0.3 Gross Fixed Capital Investment -3.5 -25.9 11.9 4.4 5.3 4.8 Exports, Goods and Services -1.8 -18.8 15.4 4.1 3.1 3.1 Imports, Goods and Services 1.5 -25.0 15.7 5.1 3.3 3.3 Real GDP growth, at constant factor prices 2.4 -8.4 6.4 3.5 2.5 2.7 Agriculture 5.3 3.1 1.8 4.0 4.0 4.0 Industry 0.1 -11.8 9.6 2.9 2.5 2.5 Services 3.4 -9.3 5.8 3.8 1.9 2.4 Inflation (Consumer Price Index) 1.8 0.9 0.7 3.9 3.5 3.5 Current Account Balance (% of GDP) -3.4 -0.4 2.5 2.8 1.5 0.6 Net Foreign Direct Investment (% of GDP) -0.6 -2.8 0.7 0.9 0.9 0.9 Fiscal Balance (% of GDP) -7.2 -12.7 -9.3 -7.1 -5.9 -5.3 Debt (% of GDP) 58.6 78.1 80.8 80.3 83.4 84.6 Primary Balance (% of GDP) -5.8 -11.2 -7.7 -5.4 -4.1 -3.5 a,b International poverty rate ($1.9 in 2011 PPP) 3.2 4.4 4.0 3.7 3.6 3.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 7.8 9.0 8.3 7.8 7.6 7.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 19.9 21.6 20.2 19.3 18.8 18.4 GHG emissions growth (mtCO2e) 0.3 -1.5 1.1 0.6 0.6 0.6 Energy related GHG emissions (% of total) 17.1 15.7 16.4 16.9 17.3 17.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2008-EH and 2020-EH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using average elasticity (2008-2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 97 Apr 22 levels, but this also increased households’ dependence on public transfers. The un- BRAZIL Key conditions and even labor market impacts increased pre- existing vulnerability profiles as higher job challenges losses were concentrated in low-skilled and highly insecure jobs. As the power of Table 1 2021 Structural bottlenecks and lack of govern- supervisory bodies has recently weakened, Population, million 214.0 ment capacity to pass critical reforms led to illegal forms of forest exploitation have be- GDP, current US$ billion 1608.8 a meagre GDP average growth (0.3 percent) come more frequent. Increasing deforesta- GDP per capita, current US$ 7518.1 over the last decade. Despite favorable de- tion in the Amazon puts additional pres- a 1.7 International poverty rate ($1.9) mographic conditions, the contribution of sure on land-use emissions, the main a 4.3 labor to GDP decreased 0.1 percent on aver- source of GHG emission in Brazil. Lower middle-income poverty rate ($3.2) a 13.1 age. Productivity growth also stalled, most- Upper middle-income poverty rate ($5.5) Gini index a 48.9 ly due to a complex tax system, a cumber- School enrollment, primary (% gross) b 112.0 some business environment that discour- Life expectancy at birth, years b 75.9 aged entrepreneurship, slow human capital Recent developments accumulation, ineffective sectoral state in- Total GHG Emissions (mtCO2e) 2514.6 tervention policies, low savings, and com- GDP grew at 4.6 percent GDP in 2021, pro- Source: WDI, Macro Poverty Outlook, and official data. pression of public investment to accommo- pelled by a strong recovery of 4.7 percent a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). date higher current spending and increas- in services, and thanks to the successful ing pension obligations. vaccination campaign (84.2 percent of the Improving fiscal sustainability is a critical population with at least one dose). While GDP grew 4.6 percent in 2021, thanks economic policy priority for Brazil. The industry grew strongly (4.5 percent), the long-term steady recurrent spending recovery was dragged down by shortage to strong services growth and a success- growth over the past 20 years has presented of inputs and higher production costs. ful vaccination campaign. Significant challenges. In response, the federal govern- The significant drop in poverty and in- downside risks remain in an uncertain ment adopted a primary expenditure ceil- equality rates from 2020 were short-lived. environment. The 2022 presidential elec- ing rule in 2016. Improvement in spending In 2021, labor force participation rates, efficiency and revenue collection are need- employment levels and the share of for- tion and the war in Ukraine are push- ed to put public debt on a solid downward mal workers had fallen below 2019 levels. ing up long-term yields, and the mone- trajectory, create fiscal space for investment, Unemployment rates returned to pre-pan- tary tightening to contain inflation is and maintain investor confidence. demic level in the last quarter of 2021, likely to depress growth in 2022. Pover- The COVID-19 pandemic gave Brazil one but they remain high (11.1 percent). La- ty rates are projected to stagnate in the of the highest tolls globally in terms of bor income may not fully replace the re- lives lost, but a rapid vaccine rollout since duction in government transfers – lead- medium-term, due to a slow labor mar- mid-2021 is supporting a return to normal- ing to higher poverty rates. A slower re- ket recovery. Productivity enhancing re- ity. The sizeable response implemented via turn to the labor force coupled with fewer forms are critical to accelerate growth social protection programs in 2020, al- job opportunities, have put female work- and safeguard fiscal sustainability. lowed the income of the bottom of the dis- ers and female-led households in a more tribution to surpass their pre-pandemic vulnerable position. FIGURE 1 Brazil / Evolution of Brazil’s GDP per activity sector FIGURE 2 Brazil / Actual and projected poverty rates and real private consumption per capita 2000 = 1 Poverty rate (%) Real private consumption per capita (constant LCU) 2.2 25 4200 Agriculture 4100 2.0 Services 20 Industry 4000 1.8 15 3900 1.6 3800 10 3700 1.4 3600 1.2 5 3500 1.0 0 3400 2012 2014 2016 2018 2020 2022 2024 0.8 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real priv. cons. pc Souce: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 98 Apr 22 High commodity prices and the large de- 2024, and the public debt to GDP ratio is preciation of the Real stabilized the cur- expected to stabilize by 2025. The current rent account deficit in 2021, still financed Outlook account deficit is forecast to widen to 1.7 by net FDI inflows. Increasing food, fuel, percent of GDP in the medium-term, as and energy prices eroded households' GDP growth is expected to slow to 0.7 per- the growth in commodities prices decreas- purchasing power across the income dis- cent in 2022 and mildly accelerate until es and global demand normalizes. Robust tribution. As inflation reached 10.5 per- 2024 on the back of easing inflation and re- external inflows are expected to fully fi- cent in 12 months until February 2022, duced uncertainty with the end of the elec- nance this deficit. the Central Bank accelerated the pace of tions. Inflation is projected to fall in 2023 The scenario is subject to significant risks, monetary normalization, raising the inter- due to the dissipation of the commodities as concerns remain about anemic poten- est rate to 11.75 percent in March and sig- price shock and an aggressive monetary tial growth and slow policy reform mo- naling its willingness to continue mone- policy, reaching the central bank target of mentum. Mounting demand for public tary tightening. 3.0 percent in 2024. Poverty is expected to expenditures on the back of the upcom- Fiscal consolidation in 2021 was substan- have increased to 18.7 percent in 2021, as ing general elections in October 2022 puts tive, given the rollback of COVID-related the coverage and benefits of emergency pressure on the spending rule, and polit- expenses and a higher-than-expected tax transfers were substantially reduced and ical instability persists, further deteriorat- collection. The primary balance improved unemployment rates remained high. In ing economic outlook for 2022. The war from a deficit of 9.5 percent of GDP in 2022, about 18 million low-income house- in Ukraine is causing higher commodi- 2020 to a surplus of 0.7 percent of GDP holds will be supported by the new ties prices and supply shortages that can in 2021. Subnational governments con- Auxílio Brasil program, however, complete trigger additional exchange rate deprecia- tributed to this balance with a surplus of elimination of the emergency transfers in tions and inflation pressures in Brazil, in- 1.1 percent of GDP, while the central gov- addition to sustained inflation may lead ducing a more aggressive monetary pol- ernment had a deficit of 0.4 percent. The poverty rates to stay largely stagnant in icy, reducing growth and increasing general government's gross debt declined the coming years. A gradual fiscal consoli- poverty. However, low external debt and to 80.3 percent of GDP in 2021, a 9.0 per- dation based on the fiscal rule is expected high international reserves provide solid centage points reduction. to result in a primary balance surplus by buffers to weather shocks. TABLE 2 Brazil / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 1.2 -3.9 4.6 0.7 1.3 2.0 Private Consumption 2.6 -5.4 3.6 1.0 1.5 2.0 Government Consumption -0.5 -4.5 2.0 0.0 0.0 0.0 Gross Fixed Capital Investment 4.0 -0.5 17.2 -0.5 1.8 3.9 Exports, Goods and Services -2.6 -1.8 5.8 0.5 1.5 2.0 Imports, Goods and Services 1.3 -9.8 12.4 -0.5 2.0 3.0 Real GDP growth, at constant factor prices 1.0 -3.5 4.3 0.7 1.3 2.0 Agriculture 0.4 3.8 -0.2 2.5 2.0 2.0 Industry -0.7 -3.4 4.5 0.3 0.7 1.1 Services 1.5 -4.3 4.7 0.6 1.4 2.3 Inflation (Consumer Price Index) 3.7 3.2 8.3 8.5 4.5 3.3 Current Account Balance (% of GDP) -3.5 -1.7 -1.7 -1.3 -1.3 -1.7 Net Foreign Direct Investment (% of GDP) 2.5 2.8 1.7 2.3 2.3 2.3 Fiscal Balance (% of GDP) -6.6 -14.2 -4.3 -8.3 -7.6 -5.2 Debt (% of GDP) 74.4 88.6 80.3 82.7 84.1 84.7 Primary Balance (% of GDP) -1.0 -9.5 0.7 -0.5 0.0 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 4.9 1.7 3.7 4.4 4.4 4.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.5 4.3 8.7 8.5 8.5 8.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 13.1 18.7 18.8 18.7 18.5 GHG emissions growth (mtCO2e) 9.5 3.0 11.7 -5.6 -5.2 -3.5 Energy related GHG emissions (% of total) 18.9 17.7 16.6 17.5 18.2 18.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2017-PNADC-E1, 2019-PNADC-E1, and 2020-PNADC-E5. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2017-2019) with pass-through = 0.87 based on private consumption per capita in constant LCU. Estimates for 2021-2022 based on microsimulations to reflect changes in government transfer programs. MPO 99 Apr 22 framework to attain greater equity, inclu- sion, and environmental sustainability CHILE Key conditions and while preserving a sound macroeconomic environment, securing fiscal responsibili- challenges ty, property rights, and an open trade regime will be critical. Reducing uncertain- Table 1 2021 A new government is taking office in ty during the process will be important to Population, million 19.2 March 2022 and will face a challenging create the conditions for renewed private GDP, current US$ billion 305.5 macroeconomic backdrop, with growth sector dynamism. GDP per capita, current US$ 15903.1 decelerating significantly and high infla- In the longer term, Chile needs to tackle a 0.7 International poverty rate ($1.9) tion. The 2022 budget has set a sharp fiscal long-standing barriers to productivity a 1.4 consolidation path, removing Covid-relat- growth such as: regulatory hurdles, low Lower middle-income poverty rate ($3.2) a 4.4 ed cash transfers that helped cushion competition in some sectors, innovation, Upper middle-income poverty rate ($5.5) Gini index a 44.9 household income losses. In the absence of education quality, and female labor force School enrollment, primary (% gross) b 102.4 emergency cash transfers, poverty (US$5.5 participation. b 80.2 a day) would have increased to 6.2 percent Life expectancy at birth, years instead of 4.4 percent in 2020. The mitiga- Total GHG Emissions (mtCO2e) 47.6 tion effects are estimated to have been even Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2011 PPPs. more substantial in 2021, with the rollout Recent developments b/ Most recent WDI value (2019). of the IFE universal, Chile’s most extensive and generous cash transfer, received by 85 Fueled by a strong fiscal response, Chile’s percent of the population. GDP grew at 11.7 percent in 2021, one of Three pension fund withdrawals worth the fastest recoveries worldwide. Econom- 16 percent of GDP provided liquidity ic activity far exceeded pre-pandemic lev- Growth will decelerate sharply in 2022 during 2021 but depressed capital mar- els. All sectors surpassed February 2020 on a reversal of fiscal stimulus and politi- kets and will impact future pensions. levels by the end of 2021, with the strong cal uncertainty. High inflation is expect- Tightening public spending to stabilize rebound in services behind more than half ed to trigger additional monetary tighten- debt and inflation and facilitating access of economic growth in the second part of to economic opportunities for the poor 2021. Growth was driven by consumption, ing. Temporary gains in poverty reduc- and vulnerable will be key to a sustain- amid pension fund withdrawals and direct tion from increased transfers will fade as able and even recovery. fiscal support worth 9 percent of GDP. One emergency measures are removed. Chile’s In the medium term, Chile needs to ad- of the fastest vaccination rates globally also medium-term prospects will depend on its dress social demands raised during the contributed to the fast normalization of capacity to deliver a new constitution 2019 protests. Tax and pension reforms economic activity. will need to be discussed in a new Con- However, job market recovery has been that supports greater equity, inclusion, gress without a clear majority. The ongo- slower than expected, with only 60 per- and environmental sustainability while ing constitutional process is an opportu- cent of the jobs lost in 2020 regained preserving sound macroeconomic man- nity to reach a new social consensus that in 2021 and many previously active agement and unlocking productivity. meets the population’s expectations, but women (most of them low-skilled) still this also involves risks. Creating a legal out of the workforce. FIGURE 1 Chile / Exchange rate and copper prices FIGURE 2 Chile / Actual and projected poverty rates and real GDP per capita CLP, US$ US$ per pound Poverty rate (%) Real GDP per capita (millions constant LCU) 900 1 25 10 850 1.5 9 800 20 8 2 750 7 700 2.5 15 6 650 3 5 600 10 4 3.5 3 550 4 5 2 500 4.5 1 450 0 0 400 5 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2006M01 2009M01 2012M01 2015M01 2018M01 2021M01 International poverty rate Lower middle-income pov. rate Exchange rate Copper price (rhs, inverse scale) Upper middle-income pov. rate Real GDP pc Source: Central Bank of Chile. Source: World Bank based on CASEN data for 2006-2020. Notes: see Table 2. MPO 100 Apr 22 Inflation accelerated to 7.8 percent y/y in have temporarily lowered poverty (US$5.5 Fiscal spending is expected to decline in February, driven by strong demand pres- a day) to less than 1.0 percent. Further, 2022 as Covid-related transfers are re- sures, commodity price increases, supply the Gini coefficient is estimated to have moved, leading to a reduction in the disruptions, and the peso depreciation. dropped from 0.45 in 2020 to 0.39 in 2021. government`s deficit to 3.8 percent of Persistent high inflation is risking second- GDP. Interest payments will increase round effects and has become a paramount amid higher debt stock and rates. In the concern, leading the Central Bank to in- medium term, the fiscal deficit should crease the monetary policy rate by 5 per- Outlook gradually converge towards the structur- centage points between July 2021 and Jan- al deficit target if increased social spend- uary 2022. Real GDP growth is expected to decel- ing is accompanied by increases in rev- Despite recovering revenues, the fiscal erate to 1.9 percent in 2022 due to the enue mobilization. deficit closed at around 7.7 percent of GDP reversal of policy stimulus, while tighter The current account deficit is projected to in 2021 due to high public spending. financial conditions and persistent politi- narrow to around 3 percent of GDP, as im- Notwithstanding the heavy use of public cal uncertainty will weigh on investment. ports normalize. savings funds, public debt reached 37 per- Still-high liquidity in households and the Amid the ceasing of emergency transfers cent of GDP, the highest in three decades. enhanced Guaranteed Universal Pension and challenging macroeconomic condi- Despite the record surge in copper prices, is expected to provide some cushion to tions, poverty (US$5.5 a day) is projected the current account deficit reached 6.6 per- the slowdown in consumption. Exports to increase to 4.7 percent and the Gini coef- cent of GDP in 2021 after a sharp increase will contribute positively to GDP growth ficient to 0.46 in 2022, and they are not ex- in imports fueled by the consumption-led amid a projected increase in copper out- pected to return to the pre-pandemic level recovery. Net FDI flows turned negative in put after supply disruptions in 2021. Fur- in the medium term. the third quarter amidst policy uncertainty ther ahead, the removal of direct social Risks to the outlook are mostly on the around the ongoing constitutional process transfers, tighter financial conditions, a downside and include new Covid variants, and election outcomes. The local currency deteriorated capital market and persistent climatic events, and deterioration in exter- depreciated by 16 percent in 2021 in a devi- uncertainty would lead to weak growth nal financial conditions as central banks ation from its historically close alignment through 2024. increase policy rates. The Russia-Ukraine to the copper price. Inflation is projected to remain above 7 conflict poses an upward risk to inflation The sharp rise in the non-labor incomes of percent for most of 2022 and begin to drop given the increase in commodity prices, to- the poor and vulnerable due to the mas- gradually towards 3 percent within the gether with a downward risk to growth sive cash transfers implemented in 2021, forecast horizon, provided fiscal and mon- due to the impact on export demand, mainly the IFE universal, is estimated to etary imbalances are addressed. terms of trade and financial uncertainty. TABLE 2 Chile / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.8 -6.0 11.7 1.9 1.5 2.0 Private Consumption 0.7 -8.0 20.3 1.2 0.7 1.8 Government Consumption 0.5 -4.0 10.3 -3.7 0.8 1.7 Gross Fixed Capital Investment 4.7 -9.3 17.6 1.0 1.1 2.1 Exports, Goods and Services -2.5 -1.1 -1.5 5.6 3.7 2.9 Imports, Goods and Services -1.7 -12.7 31.3 0.2 1.0 2.4 Real GDP growth, at constant factor prices 0.9 -5.9 11.7 1.9 1.5 2.0 Agriculture -0.7 -1.6 2.4 2.2 1.5 1.5 Industry -0.5 -3.5 5.8 1.7 1.5 1.5 Services 1.7 -7.3 15.2 2.0 1.5 2.2 Inflation (Consumer Price Index) 2.3 3.0 4.5 7.7 4.5 3.0 Current Account Balance (% of GDP) -5.2 -1.7 -6.6 -3.1 -2.5 -2.1 Net Foreign Direct Investment (% of GDP) 1.2 1.0 0.3 1.1 1.0 1.1 Fiscal Balance (% of GDP) -2.7 -7.1 -7.7 -3.8 -3.3 -2.7 Debt (% of GDP) 28.3 34.1 37.1 40.5 43.3 41.1 Primary Balance (% of GDP) -1.8 -6.2 -6.4 -0.5 -0.1 0.0 a,b International poverty rate ($1.9 in 2011 PPP) 0.7 0.0 0.9 0.9 0.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.4 0.1 1.6 1.6 1.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 4.4 0.8 4.7 4.5 4.3 GHG emissions growth (mtCO2e) 3.6 -15.8 5.5 -2.8 -2.1 -1.0 Energy related GHG emissions (% of total) 168.6 182.0 179.2 182.1 184.8 186.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2020-CASEN. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using microsimulation model for 2021 and neutral distribution with pass-through = 1 based on GDP per capita in constant LCU for 2022-2024. MPO 101 Apr 22 rising, while the crisis has strained soci- ety’s acceptance for higher taxation. COLOMBIA Key conditions and challenges Table 1 2021 Recent developments Colombia’s economy bounced back robust- Population, million 51.0 ly from the COVID-19 crisis and the macro- Supported by progress on vaccinations and GDP, current US$ billion 314.1 economic framework remains strong. the reopening of the economy, GDP grew GDP per capita, current US$ 6153.1 Yet, the COVID-19 crisis reversed progress 10.6 percent in 2021, but heterogeneously a 10.3 International poverty rate ($1.9) in resolving pre-existing vulnerabilities. across sectors. While activity in manufactur- a 19.9 Productivity remains low. Poverty de- ing surpassed the pre-COVID-19 trend, ac- Lower middle-income poverty rate ($3.2) a 38.3 clined significantly between 2008 and 2018, tivity in mining and construction remained Upper middle-income poverty rate ($5.5) Gini index a 54.2 but inequality remained high. Inefficien- below 2019 levels. Consumption has been School enrollment, primary (% gross) b 114.0 cies within the fiscal system limit income the main driver of GDP growth; investment b 77.3 redistribution, and high tax rates weigh and exports contributed only marginally Life expectancy at birth, years down economic activity and the creation of and remained below 2019 levels. Total GHG Emissions (mtCO2e) 294.3 good quality jobs. Rigidities in automatic The recovery of the labor market has not Source: WDI, Macro Poverty Outlook, and official data. inclusion to social programs limit the re- kept pace with economic activity. Female a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). sponse of social assistance to aggregate in- employment remains subdued, and job come shocks. quality declined. In 2021Q4, the not-eco- The national poverty rate increased from nomically active population increased rel- Economic recovery has been solid, with 35.7 percent in 2019 to 42.5 percent in 2020, ative to 2019, and employment rates de- wiping out over a decade of progress in creased, mostly because female employ- risks stemming from the labor market lifting people out of poverty and shrinking ment has not fully recovered. About 81 and higher-than expected inflation. GDP the middle class by 5 percentage points. percent of employment created in 2021 grew 10.6 percent in 2021 and is pro- While the 2021 recovery helped reduce was informal, and urban, female, and jected to grow 4.4 percent in 2022, the poverty, abating poverty durably and in- youth unemployment remain high. Labor creasing resilience among the non-poor incomes, a substantial share of total house- poverty rate is projected to decline rela- will require expanding the coverage of the hold income, remain 12.8 percent lower tive to 2021. The recovery helped reduce social security system, making labor mar- than pre-pandemic. the fiscal deficit. A sustained reduction kets more efficient and inclusive, and im- Strong domestic demand, adverse weather of the debt-to-GDP ratio is an important proving the quality of education, health, conditions for agriculture, the depreciation policy priority along with increasing the and infrastructure. of the Colombian peso, and price pressures The opportune and timely fiscal re- from abroad pushed inflation to 6.9 per- effectiveness of the fiscal system at re- sponse to the crisis increased the al- cent, y-o-y, in January 2022. Price increases ducing poverty and inequality, and di- ready high public debt-to-GDP ratio, have eroded households’ purchasing pow- versifying exports. making reigning in debt and fiscal er and undermined poverty reduction. As deficit a medium-term priority. Spend- inflation expectations moved above the in- ing pressures due to social demand are flation targeting band, the Central Bank FIGURE 1 Colombia / GDP components, historic and FIGURE 2 Colombia / Actual and projected poverty rates baseline scenario (dashed line) and real private consumption per capita Index, 2019=100 Poverty rate (%) Real private consumption per capita (millions constant LCU) 130 50 16 Consumption Investment Exports 45 120 14 Imports GDP 40 12 110 35 30 10 100 25 8 20 6 90 15 4 80 10 5 2 70 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 60 International poverty rate Lower middle-income pov. rate 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1 2023Q1 2024Q1 Upper middle-income pov. rate Real priv. cons. pc Sources: DANE and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 102 Apr 22 started to increase the monetary policy rate With the continuation of emergency in September, setting it at 4 percent in Jan- transfers, 1.2 million people are project- uary 2022. Outlook ed to exit poverty in 2022, (although The current account deficit reached 5.7 they will remain vulnerable to income percent of GDP in 2021, as exports (espe- The economy is projected to grow 4.4 per- shocks). Nonetheless, around 17.8 mil- cially tourism) remained weak while im- cent in 2022, as the bout of repressed con- lion people will remain poor, compared ports and distribution of dividends re- sumption comes to an end, monetary pol- to 17.5 million before the pandemic. In- sumed, offsetting strong inflows of remit- icy continues tightening, and external de- come inequality is also expected to fall tances. FDI and net portfolio inflows fi- mand is resuming slowly. Investment is slightly to 0.528 (Gini), yet Colombia re- nanced the current account deficit. projected to recover to pre-COVID level by mains one of the most unequal countries The central government’s deficit declined 2023, and the output gap is projected to in the world. Labor market gender gaps to 7.1 percent of GDP, as recovery buoyed close in early 2023. are expected to remain wider than be- tax revenues, offsetting the increase in The current account deficit is projected to fore the pandemic. spending. The nominal increase in GDP re- decrease in 2022 (mostly supported by The profile of medium-term risk is tilted duced the debt-to-GDP ratio. higher oil prices) and over the medium to the downside. Risks include: high do- The national poverty rate is estimated to term, as exports of services resume, im- mestic inflation inertia (with high-for- have dropped to 38.6 percent in 2021, still ports growth slows, and the flow of remit- long interest rates); higher international above pre-pandemic levels. Some 1.9 mil- tances normalize to pre-COVID levels. food and fuel inflation (disproportionate- lion people, mostly working in urban ser- The central government’s fiscal deficit is ly affecting the poor); tightening of fi- vices and commerce, are estimated to have projected to decline in compliance with nancing conditions abroad with increased exited poverty in 2021, thanks to the eco- the limits set by the fiscal rule, as the ef- capital mobility (because of the war in nomic recovery and the continuation of fects of the tax reforms approved in Sep- Ukraine); potential long-term effects of emergency transfers. The middle class has tember 2021 kick in, and COVID-19 re- the pandemic on the labor market, house- also rebounded. Nonetheless, 1.63 million lated health spending and emergency in- holds’ assets and human capital; and dis- of those who had fallen into poverty in come support come to an end. The de- appointing yields from September’s tax 2020 are estimated to have remained poor cline of the deficit at the departmental reform. The materialization of any of in 2021. Food insecurity persists, as a third and municipal level is projected to help these risks could slow down growth, or of households are not able to consume reduce the general government deficit. force an aggressive contraction of gov- three meals a day, compared to only 8 per- The debt-to-GDP ratio is projected to ernment spending, clouding prospects for cent before the pandemic. keep declining over the medium term. poverty and inequality reduction. TABLE 2 Colombia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 -7.0 10.6 4.4 3.5 3.3 Private Consumption 4.1 -5.0 14.6 4.1 3.3 3.1 Government Consumption 5.3 -0.6 12.1 2.0 0.6 0.6 Gross Fixed Capital Investment 2.2 -23.3 11.2 5.0 3.7 4.1 Exports, Goods and Services 3.1 -22.7 14.2 11.6 10.9 6.7 Imports, Goods and Services 7.3 -20.5 27.5 5.3 5.4 3.6 Real GDP growth, at constant factor prices 3.1 -7.1 10.3 4.3 3.5 3.3 Agriculture 2.7 2.0 2.4 2.9 4.9 3.5 Industry 0.2 -14.2 9.7 5.2 4.2 4.3 Services 4.4 -4.9 11.4 4.1 3.1 2.9 Inflation (Consumer Price Index) 3.5 2.5 3.5 6.6 3.9 3.1 Current Account Balance (% of GDP) -4.6 -3.4 -5.7 -4.5 -4.7 -4.6 Fiscal Balance (% of GDP) -2.6 -7.2 -7.3 -6.7 -4.3 -3.3 Debt (% of GDP) 52.3 67.2 66.3 65.4 65.3 64.2 Primary Balance (% of GDP) 0.4 -4.3 -3.9 -3.3 -0.9 0.1 a,b International poverty rate ($1.9 in 2011 PPP) 4.9 10.3 8.9 8.6 8.4 8.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 12.7 19.9 17.7 17.3 17.0 16.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 29.4 38.3 35.0 34.3 33.8 33.3 GHG emissions growth (mtCO2e) 4.4 2.5 2.6 1.2 -1.3 -2.1 Energy related GHG emissions (% of total) 30.3 28.2 28.9 29.1 29.2 29.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2009-GEIH, 2019-GEIH, and 2020-GEIH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using average elasticity (2009-2019) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 103 Apr 22 (US$5.50 poverty line) increased from 10.6 percent of the population in 2019 to 16.1 COSTA RICA Key conditions and percent in 2020. A strong economic performance in 2021 challenges and spending discipline enabled a faster than expected fiscal consolidation and Table 1 2021 Costa Rica doubled its income per capita started to improve labor market and so- Population, million 5.1 over the last two decades, due to relative- cial outcomes. The recent approval of GDP, current US$ billion 61.9 ly solid institutions, an outward-orient- the Public Employment Law and agree- GDP per capita, current US$ 12047.2 ed growth model and investments in hu- ment for the review of the IMF program a 2.1 International poverty rate ($1.9) man capital. The sophistication of exports further strengthen the fiscal prospects. a 5.7 and the overall resilience of the economy However, it is critical to continue pur- Lower middle-income poverty rate ($3.2) a 16.1 to external shocks improved significantly. suing reforms to reinforce fiscal consoli- Upper middle-income poverty rate ($5.5) Gini index a 49.3 Costa Rica is a world leader in promoting dation and create buffers against future School enrollment, primary (% gross) b 115.0 the sustainable use of natural resources, shocks, such as the elimination of tax b 80.3 which are at the core of its development exemptions and continued improvement Life expectancy at birth, years strategy. This growth model, however, of social programs. Total GHG Emissions (mtCO2e) 9.4 has not been fully successful in promot- Source: WDI, Macro Poverty Outlook, and official data. ing inclusion: the real incomes of the bot- a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). tom 40 percent remained largely stable, poverty reduction was limited, the expan- Recent developments sion of the middle class stagnated, and in- Strong growth and spending discipline equality increased during the decade pri- Growth reached 7.6 percent in 2021, sup- or to the pandemic. Fiscal vulnerabilities ported by private consumption and in- helped Costa Rica exceed fiscal targets in also built up as spending increased while vestment - particularly inventory reposi- 2021, despite harsh COVID-19 waves revenues stayed flat. tion and equipment- and by strong ex- and election-related spending pressures. The pandemic intensified these fiscal and ports. From the production side, manu- A strong rebound in manufacturing, par- social challenges. Fiscal consolidation ef- facturing was the main engine of growth, forts, launched in 2018, were interrupted followed by agriculture and selected ser- ticularly of medical equipment, and a as revenues collapsed amid increasing ex- vices such as information and communi- gradual recovery in services and agricul- penditures as the government sought to cation and financial. Tourism has not yet ture lifted GDP above pre-crisis levels. mitigate the impact of the pandemic. As recovered, despite Costa Rica’s high vac- While growth translated into job creation a result, the debt-to-GDP ratio increased cination rates (with 74.4 percent of popu- and increased household income, poverty from 56.1 percent in 2019 to 67.4 percent in lation fully inoculated). 2020. Unemployment rates nearly doubled The economic rebound supported a sharp rates remain above pre-pandemic values, -surpassing 20 percent in mid-2020- and decline in unemployment to 13.7 percent inequality is yet to recede. Continuing an family income declined despite the gov- in Q42021 (still above the 11 percent in efficiency oriented fiscal consolidation is ernment’s emergency response. Women, Q42019), a decline in the share of the poor critical for growth and social progress. youth, migrants, and less educated work- (to 11.1 percent) and vulnerable, and a con- ers were the most heavily affected. Poverty comitant recovery in the middle class. FIGURE 1 Costa Rica / Budget balance and change in debt FIGURE 2 Costa Rica / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (millions constant LCU) 15 25 9 Budget balance 8 10 20 7 Change in debt 6 15 5 5 4 10 0 3 5 2 -5 1 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -10 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real GDP pc Souce: World Bank staff projections based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 104 Apr 22 Merchandise exports experienced a no- employment efficiency with savings of 0.5 the fiscal rule and the IMF program, even table boom (27.2 percent by Q32021) percent of GDP. after a new administration takes pow- thanks to the recovery of trading part- er in May 2022. Both final presidential ners and high demand for medical candidates have signaled the importance equipment. Yet, a sharp increase in im- of maintaining the IMF program. In this ports meant that the current account Outlook context, complementary revenue mobi- deficit (CAD) remained around 3 percent lization efforts and growth enhancing of GDP and was financed mainly by FDI Growth is expected to moderate to 3.4 structural reforms are needed to build in- (3.2 percent of GDP). percent in 2022 and gradually converge vestors’ confidence and consolidate the Annual inflation stayed at 3.3 percent in to 3.2 percent over the medium term. foundations for inclusive and sustainable 2021. Seeking to contain inflation pres- Services, particularly tourism, are expect- growth. Though inflation pressures are sures, the Central Bank increased the Poli- ed to add momentum to the recovery in expected to remain elevated, inflation is cy Rate (by 50 basis points) to 1.75 percent 2022-2023 as the pandemic is brought un- expected to remain well within the Cen- in January 2022. The colon/dollar exchange der controlled and travelers regain confi- tral Bank’s target band. rate depreciated 4.4 percent annually by dence. The CAD is projected to be around Downside risks relate to the emergence the end-2021. 3.3 percent in 2022, financed through of COVID-19 variants, delays in the Na- Strong fiscal performance and marked im- multilateral disbursements and FDI. The tional Assembly’s approval of reforms provements in debt management lowered CAD is expected to decrease gradually after the 2022 elections and potential the cost of domestic borrowing. The pri- as tourism receipts reinforce total exports impacts from geopolitical tensions. De- mary deficit stayed at 0.3 percent of GDP and be fully financed by FDI as reforms layed reforms could undermine im- and the overall fiscal deficit at 5.1 percent boost investor confidence. provements in the fiscal accounts and of GDP in 2021; significantly below the 1.7 As the labor market recovers, poverty lead to mounting public debt, affecting and 6.9 percent of GDP targeted under the rates are expected to decline to 10.4 per- confidence and delaying recovery. As IMF program. This result was helped by cent in 2022 and 9.8 percent in 2023 while a small, open economy Costa Rica re- higher revenues and restricted primary the middle class continues to recover. mains vulnerable to external shocks. In- spending (beyond the mandate of the fiscal Further poverty reduction will require ef- ternational conflicts and global inflation- rule). The debt-to-GDP ratio closed at 68.8 forts to include less-educated workers in ary pressure are likely to raise food and percent in 2021. The public employment economic development. energy costs, with disproportionate im- law, approved in March 2022, strength- Fiscal consolidation is expected to contin- pact on those at the bottom of the in- ened fiscal prospects by improving public ue over the forecasting period, anchored in come distribution. TABLE 2 Costa Rica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.4 -4.1 7.6 3.4 3.2 3.2 Private Consumption 1.7 -5.0 5.8 2.9 3.0 3.2 Government Consumption 5.9 0.6 1.1 -1.5 0.1 0.1 Gross Fixed Capital Investment -8.2 -1.7 7.8 4.3 4.5 5.1 Exports, Goods and Services 4.3 -10.9 17.3 7.8 5.3 5.3 Imports, Goods and Services -2.3 -10.2 16.2 5.2 4.8 4.9 Real GDP growth, at constant factor prices 2.4 -4.1 7.6 3.4 3.2 3.2 Agriculture -1.5 0.5 3.6 2.4 2.4 1.9 Industry -0.3 1.0 10.0 3.2 2.6 2.1 Services 3.4 -5.7 7.2 3.5 3.4 3.7 Inflation (Consumer Price Index) 1.5 0.7 3.3 4.0 3.5 3.2 Current Account Balance (% of GDP) -1.2 -1.2 -3.0 -3.3 -3.1 -2.7 Net Foreign Direct Investment (% of GDP) 4.2 2.6 3.2 3.5 4.1 4.2 Fiscal Balance (% of GDP) -6.6 -8.5 -5.1 -4.6 -3.8 -2.9 Debt (% of GDP) 56.1 67.1 68.8 69.1 68.0 61.5 Primary Balance (% of GDP) -2.6 -3.9 -0.3 0.5 1.0 1.5 a,b International poverty rate ($1.9 in 2011 PPP) 1.0 2.1 1.3 1.1 0.9 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 3.3 5.7 3.6 3.3 3.1 2.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.6 16.1 11.1 10.4 9.8 9.2 GHG emissions growth (mtCO2e) 6.6 -3.3 6.8 4.3 3.6 3.6 Energy related GHG emissions (% of total) 95.6 94.7 93.4 91.8 90.1 88.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2015-ENAHO and 2020-ENAHO. Results for 2021 were obtained based on a preliminary harmonization of ENAHO. Fore- casts are from 2022 to 2024 b/ Projection using average elasticity (2015-2020) with pass-through = 1 based on GDP per capita in constant LCU. MPO 105 Apr 22 in-kind income from the government in response to the pandemic. As such, the DOMINICA Key conditions and active transfers programs, instituted by the Government, and continued recon- challenges struction spending are unlikely to have fully offset the impacts of the pandemic Table 1 2021 Dominica is a small island developing on poverty. Population, million 0.1 state (SIDS) with an economy reliant on Growth prospects will depend to a certain GDP, current US$ billion 0.5 tourism and agriculture. This makes the extent on vaccinations levels and the per- GDP per capita, current US$ 7566.1 country vulnerable to climate change, nat- ception of Dominica as a safe tourist desti- a 102.3 School enrollment, primary (% gross) ural disasters, and external economic nation. As of March 18, 2022, approximate- a 76.6 shocks. Dominica’s economy continues to ly 43 percent of the population has been Life expectancy at birth, years Total GHG Emissions (mtCO2e) 0.3 be affected by the COVID-19 pandemic. vaccinated once and 41.5 percent are fully Source: WDI, Macro Poverty Outlook, and official data. Tourism, which accounted for 25 percent vaccinated. According to the World Bank/ a/ Most recent WDI value (2019). of GDP pre-COVID was estimated at less UNDP survey, rates of vaccine hesitancy than 10 percent in 2021, though tourist ar- among those who have not been inoculat- rivals have increased. ed are among the highest in all of Latin Making things worse, the COVID-19 America and the Caribbean. shock occurred when Dominica was still Dominica is highly vulnerable to cat- rebuilding its economy following dam- astrophic weather events and external Dominica’s economy rebounded moder- ages caused by Hurricane Maria in 2017 shocks. Dominica’s fiscal position came ately in 2021, growing 3.7 percent, fol- (226 percent of GDP). under terrible strain after Hurricane lowing the sudden stop in tourism in The pandemic had negative impacts on Maria. Fiscal pressures were further ex- 2020 and COVID-19 containment mea- employment that were at best partially off- acerbated by the COVID-19 pandemic set by social assistance programs. A recent and debt levels have risen. While the sures. Nonetheless, poverty is expected to World Bank/UNDP phone survey (June Government has taken measures to con- remain elevated compared to pre- 2021) indicated that 17 percent of those solidate spending and reduce debt, chal- COVID-19 levels. Fiscal pressures con- working before the pandemic were no lenges remain given the pandemic and tinue to be acute, highlighting the need longer working after the pandemic with ambitions to build a fully climate-re- a notable decrease in formal employment silient economy. for strengthened fiscal management and (jobs in public and private enterprises) in increased fiscal resilience. The risk of debt favor of an increase in informal work and distress remains high. Medium-term self-employment. Job losses were marked- growth prospects appear favorable, ly more common for women (23 percent) Recent developments than for men (12 percent). Women report- though considerable uncertainty remains. ed a more pronounced increase in time COVID-19 impacted growth through spent on services at home and supporting several channels, including the near children with school during the pandemic. complete stop in tourism; COVID-19 re- Only a limited share of respondents (10 lated restrictions on domestic activity; percent) reported receiving monetary or and lower foreign direct investment. FIGURE 1 Dominica / Real GDP growth and fiscal balance FIGURE 2 Dominica / Public debt Percent, percent of GDP Percent of GDP 30 120 25 20 100 15 10 80 5 0 60 -5 -10 40 -15 Public Debt -20 20 Public External Debt 2010 2012 2014 2016 2018 2020 2022 2024 Overall Fiscal Balance (percent of GDP) 0 Real GDP growth at constant factor prices 2010 2012 2014 2016 2018 2020 2022 2024 Sources: Government of Dominica (2020), World Bank staff estimates. Source: World Bank staff estimates. MPO 106 Apr 22 Growth rebounded modestly in 2021 on Increased growth, reduced post-disaster a relaxation of domestic containment losses, and low inflation are all expected to measures, improving tourist arrivals, Outlook contribute to a reduction in poverty rates though remaining significantly below in the medium term. There remains an ur- pre-COVID levels, and a robust public Growth is forecast to accelerate to 6.8 per- gent need for updated poverty data and investment pipeline. cent in 2022 as tourism and the domestic better documentation of the extent to Household income from tourism-relat- economy further rebound from the pan- which social protection measures reach ed occupations remains depressed, demic. Short- to medium-term GDP those most in need and help households women have been hit especially hard growth remains driven largely by a re- cushion the effect of economic shocks. given their high participation in the sumption in tourist arrivals. Growth will Risks from natural disasters and the im- services and informal sectors. How- also be aided by a robust public invest- pact of climate change remain, including ever, agriculture has rebounded post- ment program, including new hotel devel- rising sea levels. Risks also arise from the Hurricane Maria and helped limit the opments and housing construction using financial sector and public debt vulnerabil- overall impact on poverty. Citizen-by-Investment revenues. Airport ities. Where transition to a fully climate-re- Dominica was effective in controlling construction (an over 60% of GDP project) silient economy requires additional efforts COVID-19 transmission and experienced is not expected to boost growth until 2023 to strengthen fiscal management, spend- relatively few cases through July 2021. Geothermal developments bode well for ing efficiency and effectiveness, these pres- However, new virus variants resulted in future growth prospects, as does Domini- sures will be more acute. peak transmission rates in August 2021 ca’s commitment to becoming a fully cli- Post-pandemic, the challenge will be to and February 2022, which have subse- mate-resilient economy, given that this shift focus from the current emphasis on quently subsided in March. could drive increases in tourism, and is al- recovery and reconstruction to building Fiscal and debt metrics remain challeng- so expected to mitigate economic impacts ex-ante resilience based on fiscal buffers, ing with an overall fiscal deficit of 7.2 arising from natural disasters. increasing climate-resilient investment, percent of GDP in FY2021 (July The transition to a more climate-resilient and expanding public and private insur- 2020-June 2021) and 9.4 percent expected economy will depend on increased spend- ance protection and social assistance. This in FY2022 as a result of decreased rev- ing efficiency, careful prioritization, and is all taking place within a context of sig- enues, increased COVID-related expendi- donor support. Inflationary pressures are nificant capacity constraints. tures, and an ambitious public invest- expected to approach 5 percent but remain Forecasts are subject to considerable ment pipeline. Public debt levels peaked relatively low and stable, the current ac- downside risk given rising food and fuel in 2019 and are expected to decline but count deficit is forecast to narrow as tourism prices, the economic impact of global remain in excess of 100 percent of GDP receipts increase. Financial sector vulnera- geopolitical developments, and the ever- in 2021 and 2022. bilities will require close monitoring. present risk of natural disasters. TABLE 2 Dominica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 -11.0 3.7 6.8 5.0 4.6 Real GDP growth, at constant factor prices 8.3 -7.1 3.7 6.8 5.0 4.6 Agriculture 21.6 3.2 -3.1 -0.5 -0.5 -0.4 Industry 0.7 -31.5 17.9 -0.8 4.9 1.4 Services 8.8 -2.2 2.1 9.4 5.7 5.8 Inflation (Consumer Price Index) 1.5 -0.7 3.0 5.0 4.5 2.0 Current Account Balance (% of GDP) -36.4 -27.5 -31.4 -28.7 -24.0 -18.3 a Fiscal Balance (% of GDP) -15.0 -8.1 -7.2 -9.4 -1.9 -2.1 a Debt (% of GDP) 78.1 109.1 100.9 100.3 97.5 94.3 a Primary Balance (% of GDP) -13.0 -5.5 -5.3 -7.4 0.3 0.2 GHG emissions growth (mtCO2e) 6.1 -8.8 13.8 8.5 1.1 1.1 Energy related GHG emissions (% of total) 78.7 78.0 81.5 83.8 84.9 85.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 107 Apr 22 Public debt continues to increase due to quasi-fiscal deficits and adverse debt dy- DOMINICAN Key conditions and namics. The interest bill already absorbed one-fifth of tax revenues in 2019, crowding challenges REPUBLIC out public investments, which declined from 3.9 to 2.3 percent of GDP between The Dominican Republic (DR) has been the 2010 and 2019. Improvements in the qual- second fastest growing economy in LAC ity of domestic resource mobilization and Table 1 2021 over the last decade, only surpassed by spending efficiency and effectiveness are Population, million 10.5 Panama, growth was supported by domes- necessary to ensure the adequate provision GDP, current US$ billion 94.3 tic demand and favorable external condi- of public services. GDP per capita, current US$ 8939.7 tions. The economy expanded by an aver- International poverty rate ($1.9) a 0.8 age of 5.3 percent in 2000–19, driven pri- a marily by capital accumulation and total Lower middle-income poverty rate ($3.2) Upper middle-income poverty rate ($5.5) a 4.0 15.2 factor productivity growth. Foreign direct Recent developments a investment (FDI) inflows, averaging about Gini index 39.6 4 percent of GDP over the last two The economy recovered strongly in 2021, b 105.7 School enrollment, primary (% gross) decades, transformed the economy, and with GDP rebounding by 12.3 percent, sup- b 74.1 Life expectancy at birth, years fueled tourism, services, manufacturing, ported by a solid policy response to Total GHG Emissions (mtCO2e) 39.9 construction, and mining. COVID-19, including fiscal, macropruden- Source: WDI, Macro Poverty Outlook, and official data. The country’s external position remains tial and supervisory policies, and monetary a/ Most recent value (2020), 2011 PPPs. strong, but the DR’s participation in global easing. A successful vaccination campaign b/ Most recent WDI value (2019). value chains is low, and has accounted for also contributed to the recovery. The gov- an average of 30 percent of value added to ernment increased the number of citizens exports since 2000; it has contributed to the covered by the public health system, result- The Dominican economy rebounded decline of total exports from 35 to 23 per- ing in 66.1 percent of the population being strongly in 2021, supported by well-im- cent of GDP in 2000–19. The removal of the fully vaccinated as of January 18, 2022. plemented fiscal and monetary policies. A Multifiber Agreement in 2005 that protect- However, income growth has been diluted ed Dominican textile exports to the US al- by price inflation, which reached 8.5 percent successful vaccination campaign also con- so contributed to the decline. Nevertheless, by December 2021, this is outside the central tributed to the rebound, by accelerating external deficits remain fully financed by bank’s target range of 4±1 percent. Price in- the tourism recovery. Although, inflation- FDI and remittances. creases are primarily explained by interna- ary pressures and lingering effects on la- Fostering long-term growth will require tional supply-chain disruptions and in- bor markets have kept poverty above pre- structural reforms in support of in- creasing commodity prices. In response, the creased productivity growth, including central bank increased its policy rate twice crisis levels. The fiscal deficit narrowed 5 through higher investment in innovation, between December 2021 and January 2022 percentage points to 2.9 percent of GDP and improved public services, in partic- to 5.0 percent (total of 150 basis points). in 2021. The medium-term outlook de- ular skills and education. A significant By 2021Q3, formal employment had not pends on productivity improvements. share of the labor force is excluded from fully recovered, remaining 3.8 percentage the formal economy. points below its pre-pandemic level. The FIGURE 1 Dominican Republic / Tourist arrivals, by FIGURE 2 Dominican Republic / Actual and projected residence poverty rates and real private consumption per capita Million of people Poverty rate (%) Real private consumption per capita (constant LCU) 8 40 250000 6.8 7.2 7.1 Non-Residents 7 6.6 35 Residents 6.2 200000 5.6 5.6 30 6 5.0 5.2 4.6 4.8 25 5 150000 20 4 15 100000 2.7 3 10 50000 2 5 1 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 108 Apr 22 lingering effects on labor markets along The fiscal deficit is projected to narrow from with inflationary pressures have reduced, 2.9 to 2.4 percent of GDP in 2021–24. A grad- on average, real family incomes by around Outlook ual phase-out of subsidies to state-owned 3 percent in 2021. enterprises in the energy and potentially For all these reasons, poverty (defined as Following rapid expansion in 2021, water sector, together with improvements living with less than US$5.5 per day) is growth is estimated to converge to the in tax administration, is estimated to create expected to remain at 2020 levels in 2021, 5 percent potential level. In the near- headroom to increase public investments above pre-pandemic levels. The vulnerable term, tourism and remittance-supported and expand targeted transfers. Adequate population is estimated to increase while private consumption will drive growth; implementation of conditional cash trans- middle-classes contract. maintaining potential growth requires fers is likely to mitigate the energy reform Remittance inflows increased by 26.6 per- steady implementation of structural re- impact on households’ income. The public- cent, year-on-year (y/y), to US$10.4 billion, forms, particularly in energy, water, and debt-to-GDP ratio is projected to stabilize alleviating the loss in family incomes, public-private partnerships, coupled with below 60 percent over the medium term. mostly in the metropolitan area where 56.8 efforts to increase the quality of human The macroeconomic scenario faces both percent of the total is received. capital and attract FDI to higher value- demand and supply risks. A normalization The number of tourists has increased but added industries. of monetary policy in the US can lead to a remains below pre-pandemic levels at 77 Government efforts are expected to tightening of financial conditions, while an percent. Merchandise exports expanded counter the mounting inflationary pres- escalation of the war in Ukraine could di- by 21.3 percent, yoy, and merchandise im- sures. The gas subsidy coverage for the rectly affect tourist arrivals, and indirectly ports increased by 45.8 percent, yoy. poorest has increased, while the import affect the prices of key goods and services. The government’s fiscal stimulus has been tariff for key staples will be reduced to ze- In addition, increasing fuel prices would phased out, contributing to fiscal consolida- ro for half year in 2022. possess a significant risk to the fiscal bal- tion efforts. The fiscal deficit narrowed from The poverty rate (US$5.5 PPP 2011 per ances and the energy reform. Likewise, cli- 7.9 percent of GDP in 2020 to 2.9 of GDP in day) is estimated to gradually decline in mate change has intensified the exposure 2021, mostly due to the recovery in revenue 2022 to 14 percent, but remain above pre- to natural disasters, which, given the coun- although partly explained by one-off tax ad- crisis levels. Meanwhile, inflation is likely try’s low degree of financial protection vances and substantial adjustments in ex- to converge toward its target bands only against these risks, could substantially in- penditures, particularly investment. by mid-2022. crease contingent fiscal liabilities. TABLE 2 Dominican Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 5.1 -6.7 12.3 5.0 5.0 5.0 Private Consumption 4.6 -3.4 6.6 5.0 5.4 5.1 Government Consumption 6.3 4.9 0.1 2.7 5.6 7.9 Gross Fixed Capital Investment 8.1 -12.1 22.1 4.5 3.2 4.0 Exports, Goods and Services 1.5 -30.3 36.2 13.5 7.8 7.0 Imports, Goods and Services 5.8 -14.6 24.7 9.5 6.0 6.1 Real GDP growth, at constant factor prices 4.8 -6.3 11.5 5.0 5.0 5.0 Agriculture 4.1 2.8 2.6 3.0 3.0 3.0 Industry 5.9 -6.7 16.5 5.0 5.0 5.0 Services 4.4 -7.1 10.0 5.2 5.2 5.2 Inflation (Consumer Price Index) 1.8 3.8 8.2 5.5 4.0 4.0 Current Account Balance (% of GDP) -1.3 -2.0 -2.5 -1.8 -1.6 -1.8 Net Foreign Direct Investment (% of GDP) -3.4 -3.2 -2.8 -3.2 -3.2 -3.2 a Fiscal Balance (% of GDP) -2.2 -7.9 -2.9 -2.8 -2.5 -2.4 b Debt (% of GDP) 50.5 69.1 62.7 60.9 60.1 59.8 a Primary Balance (% of GDP) 0.6 -4.7 0.2 0.1 0.5 0.5 c,d International poverty rate ($1.9 in 2011 PPP) 0.6 0.8 0.7 0.7 0.6 0.6 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 2.7 4.0 3.7 3.6 3.4 3.3 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 12.4 15.2 14.5 14.2 13.7 13.3 GHG emissions growth (mtCO2e) 5.7 -5.0 6.0 1.2 1.4 1.5 Energy related GHG emissions (% of total) 64.6 62.3 64.4 64.6 64.7 64.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are shown for the non-financial public sector (i.e. excluding central bank quasi-fiscal balances). b/ Consolidated public sector debt. c/ Calculations based on SEDLAC harmonization, using 2007-ENFT, 2019-ECNFT-Q03, and 2020-ECNFT-Q03. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. d/ Projection using annualized elasticity (2007-2019) with pass-through = 0.35 based on private consumption per capita in constant LCU. MPO 109 Apr 22 including in the financial sector, and fos- tering the promising agriculture sector. ECUADOR Key conditions and Private investment may also help exploit untapped mining resources in an environ- challenges mentally and socially sustainable way, en- hance non-conventional renewable energy Table 1 2021 With a fully dollarized economy and limit- supply, and improve infrastructure. Population, million 17.9 ed buffers, the pandemic led to a deep reces- Besides vulnerability to fluctuations in in- GDP, current US$ billion 105.7 sion and pushed one million people into ternational oil prices, Ecuador is significant- GDP per capita, current US$ 5911.6 poverty. The crisis deepened inequality by ly exposed to climate and other natural dis- a 6.5 International poverty rate ($1.9) curtailing access to education and job op- asters. For instance, the regressive erosion a 14.2 portunities, mainly for women, the youth, of the Coca River, worsened during the Lower middle-income poverty rate ($3.2) a 30.6 low-skilled workers, and migrants. rainy season, puts critical infrastructure in Upper middle-income poverty rate ($5.5) Gini index a 47.3 The shock was partially offset by a sov- danger, including the largest hydroelectric School enrollment, primary (% gross) b 99.0 ereign bonds' renegotiation and sizable facility and the main crude pipelines. Over b 77.0 multilateral financing. With limited room the last two years, this erosion has damaged Life expectancy at birth, years for fiscal stimulus, the new Government the main pipelines, interrupting oil produc- Total GHG Emissions (mtCO2e) 91.5 implemented an ambitious vaccination tion three times and generating environ- Source: WDI, Macro Poverty Outlook, and official data. program to enhance recovery—three- mental and social damages. a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). quarters of the population were fully vac- Addressing these challenges will require cinated by February 2022. It also em- consensus around critical reforms in a barked on a reform process to cement fragmented National Assembly and a po- After a successful vaccination campaign fiscal sustainability, propel private sector larized society. development, protect the most vulnerable and a solid economic rebound, Ecuador is people, and address climate change-relat- expected to continue its reform to secure ed challenges. fiscal sustainability and foster growth. After years of capital expenditure com- Recent developments The windfall oil revenues are likely to re- pression, fiscal sustainability will require reforms to mobilize fiscal revenues and ra- After falling by 7.8 percent in 2020, the duce short-term pressures for a budgetary tionalize current expenditure. Public ex- economy grew by an estimated 4.4 percent consolidation; however, improving the in- penditure efficiency is critical for creating in 2021 due to better external conditions, vestment climate will be crucial to boost- budgetary room to support vulnerable easing mobility restrictions, a successful ing growth and reducing poverty in the people, improve access to quality services, vaccination campaign, and expanding do- medium term. A new consensus will be and use high oil prices to build fiscal mestic credit. These factors supported the buffers. To set the ground for sustainable recovery of most sectors despite the stag- critical to cement long-term fiscal sus- growth based on a sound private sector nation in oil output. tainability while protecting the most vul- will require modernizing labor regulation, Labor participation and unemployment re- nerable and tackling long-lasting con- streamlining insolvency management, eas- turned to their pre-pandemic levels; how- straints to private sector development. ing burdensome regulations, enhancing ever, informality and underemployment competition, reducing market distortions, remained high as workers tapped into FIGURE 1 Ecuador / Fiscal and current account balances FIGURE 2 Ecuador / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 50 5000 Fiscal balance 4 45 4500 Current account balance 40 4000 2 35 3500 0 30 3000 25 2500 -2 20 2000 -4 15 1500 10 1000 -6 5 500 -8 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -10 International poverty rate Lower middle-income pov. rate 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Ecuador and Ministry of Economy and Finance. Source: World Bank. Notes: See Table 2. MPO 110 Apr 22 low-quality jobs to prevent a larger erosion Poverty declined from 30.6 to 29.6 percent the tax reform enacted in late 2021 will in- of their earnings. between 2020 and 2021, and vulnerable crease revenues through a mix of mea- The fiscal deficit dropped from 6.1 to 0.3 and middle-class populations recovered. sures, including permanent changes to percent between 2020 and 2021 due to re- However, most people did not rebound to personal income tax brackets and exemp- covering tax and oil revenues and low- their pre-pandemic status. Lack of fiscal tions. This consolidation is expected to re- er interest payments after the debt rene- space and insufficient targeting limited the duce the country's sovereign risk premi- gotiation. These factors more than off- Government's capacity to cushion the cri- um, allowing the Government to gradually set the effect of high health and social sis. Food insecurity remains high, and ac- return to international capital markets. Al- protection expenditure, the partial recov- cess to education and health is con- though the public sector is expected to ac- ery of public investment, and the increase strained, foreshadowing long-term im- cumulate some savings, public debt is pro- in fuel subsidies; this increase was a re- pacts on human capital. jected to fall to 51 percent by 2024. sult of higher oil prices and the sus- The Russia-Ukraine conflict is likely to af- pension of the system to gradually align fect banana, flowers, and shrimp exports, national diesel and gasoline prices with but total exports are expected to increase their international benchmarks. Despite Outlook due to high commodity prices and grow- sizable multilateral financing, public debt ing volumes. Surging imports, however, fell from 61 percent of GDP in 2020 to 58 Although the ongoing recovery and high will gradually reduce the current account percent in 2021 due to economic growth oil prices will allow Ecuador to grow surplus over the projection period. Despite and a lower fiscal deficit. 4.3 percent in 2022, growth is expected low foreign investment, the current ac- The current account surplus increased due to slow to 2.9 percent in the medium count surpluses and external financing to surging oil prices, increasing mining ex- term while structural growth-enhancing will expand the money supply and inter- ports, lower interest payments, and recov- reforms bear fruit. Although the current national reserves. ering remittances. With sizable multilater- expenditure consolidation will continue, The bottom of the distribution is expected to al financing and SDR allocation, this sur- the windfall oil revenues will allow the recover slowly due to improving labor mar- plus increased international reserves and Government to increase public invest- ket conditions, partially stopped by higher spurred the money supply. With low non- ment and build fiscal buffers. consumption prices, bringing poverty to al- performing loans, banks used their liquid- Given the government objective of reduc- most pre-pandemic level (25.9 percent) by ity to fuel domestic credit. ing public debt and building buffers, the 2024 and widening the share of vulnerable Despite the sustained increase in domestic fiscal deficit is projected to turn into a sur- people. Poverty and inequality reduction fuel and food prices, average inflation re- plus from 2022 onwards due to the ongo- could be constrained by higher food infla- mained near zero as the economy re- ing current expenditure rationalizations tion, war escalation, natural disasters, social mained below its potential. and improving oil revenues. Additionally, tensions, or political instability. TABLE 2 Ecuador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.0 -7.8 4.4 4.3 3.1 2.9 Private Consumption 0.3 -8.2 4.6 3.8 2.8 2.7 Government Consumption -2.0 -5.1 3.0 1.5 1.3 2.0 Gross Fixed Capital Investment -3.3 -19.0 17.8 12.5 5.6 3.9 Exports, Goods and Services 3.6 -5.4 6.7 3.1 2.7 2.7 Imports, Goods and Services 0.3 -13.8 16.5 6.5 3.3 2.9 Real GDP growth, at constant factor prices 0.3 -7.4 3.9 4.2 3.1 2.8 Agriculture 1.6 0.4 2.1 2.1 2.1 2.1 Industry 0.2 -10.0 5.3 4.2 3.0 2.7 Services 0.1 -7.2 3.4 4.6 3.2 3.1 Inflation (Consumer Price Index) 0.3 -0.3 0.1 3.9 1.7 1.7 Current Account Balance (% of GDP) -0.1 2.6 3.3 3.5 2.7 2.3 Net Foreign Direct Investment (% of GDP) 0.9 1.2 0.8 1.2 1.4 1.4 Fiscal Balance (% of GDP) -2.8 -6.1 -0.3 2.8 2.6 2.3 Debt (% of GDP) 51.4 60.9 58.2 53.5 51.9 50.2 Primary Balance (% of GDP) 0.0 -3.3 1.1 4.1 4.1 3.8 a,b International poverty rate ($1.9 in 2011 PPP) 3.6 6.5 4.6 3.9 3.6 3.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 14.2 12.2 10.5 9.9 9.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 25.4 30.6 29.6 27.3 26.2 25.9 GHG emissions growth (mtCO2e) 2.4 -3.4 0.7 1.3 -0.1 -0.4 Energy related GHG emissions (% of total) 41.5 40.0 40.0 40.4 40.0 39.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2007-ENEMDU, 2019-ENEMDU, and 2020-ENEMDU. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using microsimulation. MPO 111 Apr 22 crisis and there is no clear and feasible fis- cal consolidation plan. As a result, it is not EL SALVADOR Key conditions and clear that the country will be able to meet its financing needs and avoid a debt dis- challenges tress situation, this is reflected in the record level of sovereign risk (near 2,000 Table 1 2021 The COVID-19 crisis intensified El Sal- basis points). Population, million 6.5 vador’s structural weakness. Productivity Finally, the recent weakening of checks GDP, current US$ billion 27.9 has been declining since 2002, neverthe- and balances and the introduction of bit- GDP per capita, current US$ 4281.0 less, the country experienced a low and coin as legal tender have introduced signif- a 1.3 International poverty rate ($1.9) stable growth rate in the decade prior to icant policy uncertainty that is detrimen- a 5.7 the crisis, fueled by some of the highest re- tal to investments. Although the liquidity Lower middle-income poverty rate ($3.2) a 22.3 mittance inflows in the region. The crisis and technology in cryptocurrencies can be Upper middle-income poverty rate ($5.5) Gini index a 38.8 led to a collapse in economic activity in leveraged to help El Salvador to develop, School enrollment, primary (% gross) b 90.3 2020, followed by a sharp recovery in 2021. potential adverse impacts need to be taken b 73.3 The government has made significant into account. Life expectancy at birth, years progress in vaccination against COVID-19; Total GHG Emissions (mtCO2e) 13.7 70 percent of the population has received Source: WDI, Macro Poverty Outlook, and official data. at least one dose. However, to support this a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). recovery and grow productivity, El Sal- Recent developments vador needs to make progress in produc- tivity-enhancing reforms, including re- GDP rebounded in 2021, with an estimated El Salvador’s GDP rebounded in 2021, forms related to trade facilitation and the growth rate of 10.7 percent, led by man- business environment, innovation and ufacturing, commerce, and transport. On largely fueled by remittances. Growth competition, and regulations for private the demand side, private consumption prospects are threatened by high debt and sector participation in infrastructure. (boosted by remittances) and investment financing needs, slow progress on produc- The country experienced a significant re- led growth. The employment-to-popula- tivity-enhancing reforms, and policy un- duction in poverty before the COVID-19 tion ratio grew from 65 percent pre-pan- crisis; however, vulnerability to poverty demic to 69.6 percent in June 2021, but in- certainty. Poverty is not estimated to re- has been rising and it is among the highest creases in formal employment were con- turn to its pre-pandemic levels in 2021. in LAC. The sustainability of poverty re- centrated in the public sector. Limited fiscal space and lack of effective and duction is limited by: (i) slow human cap- Remittances grew 27 percent in 2021 boost- adaptive safety nets limit poverty reduc- ital accumulation, (ii) low progressivity of ing imports, which grew 46 percent. Ex- tion. Given its dollarization, establishing a safety nets, (iii) negligible coverage of ports rebounded at a slower pace (31.4 per- well-targeted conditional cash transfer cent). The trade deficit increased more credible fiscal framework and implement- (CCT) programs; and (iv) employment than remittances, resulting in a current ac- ing growth-enhancing reforms are critical barriers disproportionately affecting those count deficit estimated at 3.6 percent of for El Salvador to respond to shocks amid at the bottom. GDP, financed by FDI and debt. an uncertain global environment. Fiscal accounts, which have been a struc- Inflation averaged 3.5 percent in 2021 (from tural weakness, have worsened during the -0.4 percent in 2020), largely due to external FIGURE 1 El Salvador / Emerging markets bond global index FIGURE 2 El Salvador / Actual and projected poverty rates and real GDP per capita Spread (Basis Points) Poverty rate (%) Real GDP per capita (constant LCU) 2500 50 4500 El Salvador Latin America Costa Rica Argentina 45 4000 Ecuador 40 2000 3500 35 3000 30 1500 2500 25 2000 20 1000 1500 15 10 1000 500 5 500 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate Mar '21 May '21 Jul '21 Sep '21 Nov '21 Jan '22 Upper middle-income pov. rate Real GDP pc Source: JPMorgan Chase. Source: World Bank. Notes: see Table 2. MPO 112 Apr 22 factors like supply disruptions and com- to increase due to higher interest pay- modity prices. Food and transport prices ments and public sector wage bill. The grew 2.3 and 6.9 percent, respectively. Outlook deficit could remain above five percent The fiscal deficit declined from 9.2 percent of of GDP after 2022, while debt may reach GDP in 2020 to 4.5 in 2021. Expenditures GDP will still grow above its potential 90 percent of GDP. Since there is no grew by 6.2 percent, led by the generous re- in 2022 as a result of a large growth clear financing path for such fiscal pol- sponse to the pandemic, bitcoin set-up costs, carry-over from 2021, remittances, and icy trajectory, the baseline scenario as- and the wage bill. Revenues grew by 23.7 government consumption. The war in sumes that El Salvador would have to percent fueled by economic activity and tax Ukraine will reduce growth in 2022 due pursue at least a modest fiscal consol- administration efficiency. The debt stock in- to lower US growth and higher com- idation with the aim of stabilizing its creased by US$1.7 billion in 2021. However, modity prices. After 2022, growth will debt-to-GDP ratio. In this scenario, debt the debt-to-GDP ratio dropped from 91.8 in be around 2 percent as progress in would stabilize around 85 percent of 2020 to 85.6 percent of GDP in 2021. productivity-enhancing reforms remains GDP due to slower growth in public in- The poverty rate (US$5.5) is estimated to de- limited and policy uncertainty remains vestments and current expenditures. cline in 2021 but will still be 2.2 percentage high. Inflation will peak in 2022 due to Risks to this scenario are substantial. The points higher than in 2019. Vulnerability to higher fuel and food prices, but is pro- geopolitical environment could deteriorate poverty is estimated to decline to 42.2 per- jected to moderate afterwards. further, reducing global growth, increas- cent and about one-quarter of the popula- The current account will remain in ing inflation, and weakening the external tion is estimated to be in the middle class in deficit given the increase in imports, account of oil- and food-importing coun- 2021. The COVID-19 crisis led to an increase high commodity prices and a moder- tries like El Salvador. Changes in fiscal pol- in poverty, despite the generous fiscal re- ation in remittance growth. Financing icy may not be sufficient or timely enough sponse and large increase in remittances. the current account deficit will become to avoid debt distress. Meaningful poverty Mitigation measures were not well-target- increasingly challenging, given modest reduction requires fiscal space and re- ed, and remittances did not compensate for FDI prospects and limited access to ex- sources shifts toward progressive and pro- labor income losses at the bottom of the dis- ternal financing. poor social programs and human capital tribution, as only a small share of poor and In the absence of a credible fiscal consol- investments, tackling critical employment vulnerable households receive them. idation plan, the fiscal deficit is expected barriers is also necessary. TABLE 2 El Salvador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.6 -8.0 10.7 2.9 1.9 2.0 Private Consumption 3.2 -10.6 8.0 2.7 1.5 1.8 Government Consumption 0.6 6.1 5.5 4.8 2.4 0.9 Gross Fixed Capital Investment 6.7 -7.9 54.5 3.6 6.1 5.5 Exports, Goods and Services 6.2 -21.3 20.5 3.9 3.0 2.0 Imports, Goods and Services 2.9 -10.2 23.0 4.1 4.0 3.2 Real GDP growth, at constant factor prices 2.9 -7.9 10.7 2.9 1.9 2.0 Agriculture -0.5 -2.3 4.8 2.1 2.1 2.1 Industry 4.4 -10.0 5.1 2.8 2.2 2.3 Services 2.5 -7.5 13.6 3.0 1.7 1.9 Inflation (Consumer Price Index) 0.1 -0.4 3.5 4.7 2.4 1.6 Current Account Balance (% of GDP) -0.6 0.5 -3.6 -3.4 -4.3 -4.9 Net Foreign Direct Investment (% of GDP) 2.4 0.8 2.3 2.5 2.9 2.7 a Fiscal Balance (% of GDP) -3.0 -9.2 -4.5 -4.4 -4.5 -3.8 b Debt (% of GDP) 73.6 91.8 85.6 85.3 85.8 85.7 a Primary Balance (% of GDP) 0.7 -4.8 -0.4 -0.4 0.0 0.4 c,d International poverty rate ($1.9 in 2011 PPP) 1.3 1.4 1.2 1.1 0.9 0.8 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 5.7 7.4 6.4 5.6 5.0 4.5 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 22.3 26.9 24.5 22.1 20.2 18.4 GHG emissions growth (mtCO2e) 3.2 -5.3 4.1 1.3 0.9 0.2 Energy related GHG emissions (% of total) 53.9 53.4 53.9 53.7 53.4 52.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2019-EHPM. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. d/ Projections using microsimulation methods. MPO 113 Apr 22 to the financing market to cushion the ex- ternal shocks and invest in new opportu- GRENADA Key conditions and nities. The pandemic led to a sharp eco- nomic contraction of 13.8 percent in 2020, challenges and increased the debt to above 70 per- cent of GDP. It further narrowed the fis- Table 1 2021 Prior to the pandemic, Grenada was firmly cal space to mitigate economic volatilities Population, million 0.1 on its path to improved fiscal sustainabil- and support resilient growth. GDP, current US$ billion 1.1 ity, poverty reduction and climate re- GDP per capita, current US$ 9929.9 silience. Real GDP growth averaged 4.7 a 106.9 School enrollment, primary (% gross) percent between 2014 and 2019, supported Life expectancy at birth, years a 72.4 by strong demand in tourism, and by Recent developments Total GHG Emissions (mtCO2e) 2.2 structural reforms aimed at improving the Source: WDI, Macro Poverty Outlook, and official data. business environment and building cli- Following a deep recession in 2020, real a/ Most recent WDI value (2019). mate resilience; this led to a steady reduc- GDP growth is estimated to recover tion in poverty from 38 percent in 2008 to strongly at 5.3 percent in 2021, lowering 25 percent in 2018. Prudent fiscal manage- unemployment and poverty. The gradual Economic growth rebounded from the ment anchored by the Fiscal Responsibili- loosening of traveling protocols in 2021Q4 ty Law (FRL) and growth-friendly consol- has led to a significant increase of stay- sharp economic contraction of 2020, sup- idation measures led to an average of 4.2 over tourists, especially from the United ported by the resumption of tourism and percent of GDP primary surplus over the States. The total number of stay-over construction projects. Higher growth will same period. As a result of solid growth tourists remains lower than in 2020, but facilitate returning to the pre-pandemic and fiscal discipline, the public debt stock longer stays resulted in higher total spend- poverty reduction trend. The higher debt dropped from 108 percent of GDP in 2013 ing. Strategies to enhance the public pro- to 59.7 percent in 2019. ject implementation caused a significant level resulting from deep economic con- However, vulnerabilities remain mainly increase in public construction in 2021, traction and the additional fiscal spend- due to the intrinsic characteristics as a which, along with partially resumed pri- ing have threatened debt sustainability small island developing economy, and vate investment in agriculture and accom- and narrowed fiscal space. A medium- the severe aggravation of these pre-ex- modation, contributed largely to the isting challenges by the pandemic. As a growth. The return of international stu- term recovery plan, combined with a re- small island developing state, Grenada's dents at St. George's University (20 percent turn to the fiscal rule and improved fiscal economy and labor market remain heav- of GDP) to in-person learning also sup- transparency, will enhance the Govern- ily reliant on tourism, a sector that is ported 2021 GDP growth. These factors ment's capacity to finance social develop- deeply affected by the global business cy- helped reduce unemployment from 28.4 cle, natural disasters and with the highest percent in 2020Q2 to 16.6 percent in ment and climate resilience building. share of working women. Climate change 2021Q2 and led to a poverty reduction of and natural disasters have been a major 1.9 percent in 2021, reaching 29.0 percent. source of economic volatility and dispro- Recovery among women has been slower portionately affecting the poorest. Private as a result of the faster recovery in con- sector and households have limited access struction than tourism. FIGURE 1 Grenada / The evolution of main macro indicators FIGURE 2 Grenada / Unemployment rate Percent, percent of GDP Percent of GDP Percent 10 80 35 70 30 5 60 25 0 50 20 40 -5 30 15 20 10 -10 10 Standard def. 5 -15 0 CSO official def. 2019 2020 2021 2022 2023 2024 0 Debt-GDP(rhs) Primary balance GDP growth rate 2013 2015 2017 2019 Q2 2021Q2 Source: World Bank, Macroeconomics and Fiscal Management Global Practice. Source: Labor Force Survey 2013-2021, Central Statistical Office. Note: e= estimate; f = forecast * The estimates for the primary balance for 2020 included the Grenlec related payment of EC$162 million. MPO 114 Apr 22 The primary balance is estimated at a food, pushed up inflation and limited and return to the FRL in 2023 at 3.6 percent surplus of 2.3 percent of GDP in 2021. the reduction in extreme poverty to of GDP. A significant portion of public It is a narrowing surplus from 2020, ex- only 0.7 percentage points. construction will continue into 2022, in- cluding the December 2020 repurchase of creasing capital expenditure to a projected the electricity company at around 5.8 per- 9.5 percent of GDP. This increase will ex- cent of GDP. The lowered surplus reflect- ceed the gains in the tax revenue from in- ed a stronger increase in public construc- Outlook creased economic activities and turn the tion, partially continued supportive fis- primary balance into a deficit in 2022. Over cal measures, and a 4 percent growth of GDP and poverty rate are expected to re- the medium term, the primary balance is the wage bill. These factors outweighed cover gradually over the medium term as expected to return to the FRL level in 2023, the additional tax revenue. After having tourism rebounds. Real GDP is projected supported by the continued recovery of triggered the escape clause under the to reach its 2019 level by 2024, in tan- the economy, and the completion of major FRL for three years, the Government has dem with the assumed gradual resump- public construction projects. The Medium- committed to return to the FRL in 2023 tion of international travel, the expected term Fiscal Framework includes other sta- and has published a recovery plan that return of international students, and a re- bilizing factors such as improvements to lays out the medium-term fiscal strategy. bound in public and private construction tax administration and gains in spending Strong GDP growth and fiscal surplus projects. In line with the macroeconomic efficiency which will allow keeping total are estimated to reduce public debt from performance and the labor market's slow spending bounded. As a result, the debt- 73.1 percent of GDP in 2020 to 70.8 per- recovery, poverty is expected to reduce to-GDP ratio is projected to fall to about cent in 2021. slowly and reach around 27 percent in 64.8 percent by 2024. The current account deficit is estimat- 2022, approaching the pre-pandemic level Downside risks are high to the economic ed to have widened slightly to 20.2 only after 2023. Inflationary pressure, due outlook. In addition to natural disasters, percent of GDP in 2021, from 19.0 per- to the extended pandemic impacts and inflationary pressures and risks from the cent in 2020. The widening deficit re- the war in Ukraine, will affect negative- war in Ukraine could erode the real in- sults from higher global commodity ly the economic recovery and the poor- come growth in tourism source countries prices and increased imports to sup- est groups disproportionately. High glob- and negatively affect tourism recovery. port economic activities, which exceed al commodity prices, together with the These risks may also delay the build-up the higher exports associated with increasing imports demand, are expected of fiscal buffers to cushion future shocks. tourism. A significant portion of the to keep the external balance deficit at a Though progress in fiscal transparency higher external deficit is financed by high level, albeit with the improvement of and risk management has been achieved disbursement from pre-secured project tourism-related exports. in recent years, these could become ma- loans. Higher global commodity The primary surplus is expected to continue jor sources of risk and continue to re- prices, especially gas and fuel, and narrowing in 2022 but will likely improve quire attention. TABLE 2 Grenada / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices 0.7 -13.8 5.3 3.8 3.4 3.1 a Real GDP growth, at constant factor prices 1.3 -13.7 5.3 3.8 3.4 3.1 Agriculture -2.3 -14.5 5.2 3.3 2.8 1.9 Industry -0.6 -14.8 6.5 4.2 2.9 2.0 Services 2.0 -13.4 5.0 3.7 3.6 3.5 Inflation (Consumer Price Index) 0.6 -1.2 2.2 4.1 2.6 1.9 Current Account Balance (% of GDP) -13.6 -19.0 -20.2 -22.5 -16.0 -13.2 b Fiscal Balance (% of GDP) 5.0 -4.6 0.4 -2.7 1.8 2.2 Debt (% of GDP) 59.7 73.1 70.8 69.3 67.6 64.8 b Primary Balance (% of GDP) 6.8 -2.6 2.3 -0.7 3.6 3.9 GHG emissions growth (mtCO2e) 1.9 -13.5 5.1 3.1 1.8 0.7 Energy related GHG emissions (% of total) 12.9 12.9 12.9 12.9 12.8 12.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ The estimates for the fiscal balance and primary balance for 2020 excluded the Grenlec-related payment. MPO 115 Apr 22 Guatemala remains one of the countries with the highest level of social and eco- GUATEMALA Key conditions and nomic exclusion in the region. Rural areas, the northern and northwest regions, and challenges indigenous groups exhibit higher levels of monetary and nonmonetary poverty, low- Table 1 2021 Guatemala experienced a prolonged peri- er living standards, and more limited eco- Population, million 17.2 od of economic growth and macro-eco- nomic opportunities. The pandemic exac- GDP, current US$ billion 86.5 nomic stability prior to the COVID-19 pan- erbated the low and unequal rates of ac- GDP per capita, current US$ 5038.8 demic. In the pre-pandemic decade, real cess to basic services, and the resulting hu- a 8.8 International poverty rate ($1.9) GDP growth averaged 3.5 percent pro- man capital losses are among the largest a 24.4 pelled by remittance-fueled private con- in Central America, according to Human Lower middle-income poverty rate ($3.2) a 49.1 sumption. The Government implemented Capital Index estimates. Upper middle-income poverty rate ($5.5) Gini index a 48.3 prudent fiscal and monetary management. A fragmented political system, low rev- School enrollment, primary (% gross) b 100.6 Foreign exchange interventions by the enue mobilization, and low levels of public b 74.3 Central Bank supported a stable exchange investment remain among the country’s Life expectancy at birth, years rate. International reserves reached 24 per- salient challenges. Administrative mea- Total GHG Emissions (mtCO2e) 43.1 cent of GDP at end 2021. Investment and sures increased revenue mobilization to Source: WDI, Macro Poverty Outlook, and official data. productivity growth remain low, limiting 12.3 percent of GDP in 2021 (up from 11.2 a/ Most recent value (2014), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy the country’s long-term growth prospect. percent in 2019 but still the second lowest (2019). Despite stable economic growth, there has in the region, above Haiti). Political frag- been little progress in reducing poverty in mentation has complicated the adoption of recent years. Simulations for 2019 show tax and productivity-enhancing reforms. While the COVID-19 pandemic inter- that about 47.8 percent of the population Thus, GDP growth has relied on factor ac- rupted a prolonged period of growth, re- was below the poverty line (US$5.50 2011 cumulation and is constrained by negative PPP per day per person), slightly down total factor productivity. silient remittances and a timely fiscal from 49.1 percent in 2014 (last official stimulus package helped alleviate the im- poverty estimate). While the impact of the pact and supported a strong rebound; real pandemic increased poverty to an estimat- GDP is estimated to have increased by ed 52.4 percent in 2020, this increase would Recent developments have been two to three times greater with- 8.0 percent in 2021. At the same time, out the government’s policy response, tar- Economic growth is estimated to have slow vaccine rollout, political tensions, geted at the poor. Some vulnerable house- reached 8.0 percent in 2021 supported by strong dependance on remittances, and holds (between US$5.50 and US$13) record-high remittances that fueled private rising international prices pose signifi- slipped into poverty, resulting in a decline consumption and investment; GDP sur- cant risks. Higher food and energy prices in vulnerability from 36.5 in 2019 to 33.6 in passed the pre-pandemic projected trend. 2020 percent of the population. There was Guatemala experienced one of the smallest could adversely affect purchasing power, GDP contractions in the region in 2020, also a reduction in middle-class house- especially among the vulnerable, curbing holds (between US$13 and US$70) from and economic activity recovered to pre- poverty reduction in 2022. 15.2 to 13.5 percent of the population. pandemic levels in the first quarter of 2021 FIGURE 1 Guatemala / Remittances inflows and net FIGURE 2 Guatemala / Actual and projected poverty rates international reserves build up (in billion USD) and real private consumption per capita Remittances Inflows Net reserves Poverty rate (%) Real private consumption per capita (constant LCU) 20 30 60 35000 18 25 50 30000 16 14 25000 20 40 12 20000 10 15 30 15000 8 10 20 6 10000 4 10 5000 5 2 0 0 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Remittances Inflows Stock of Net International Reserves Upper middle-income pov. rate Real priv. cons. pc Source: Central Bank of Guatemala. Source: World Bank based on ENCOVI 2006 and 2014. Notes: see Table 2. MPO 116 Apr 22 and maintained momentum throughout percentage points to 13.5 percent of GDP The fiscal deficit is projected to increase to the year, supported by a remarkable ex- as emergency spending was scaled back; 2.3 percent of GDP in 2022 but continued pansion in the inflow of remittances. the primary surplus is estimated to have fiscal consolidation efforts are expected to Export growth was outpaced by imports, reached 0.5 percent of GDP. stabilize debt. Government spending is set narrowing the current account surplus. to increase to 14.5 percent of GDP in 2022, In 2021, strong external demand in- due to an increase in social transfers and creased merchandise exports, especially investment. Also, the government expand- apparel, textiles and coffee. A rebound Outlook ed the energy emergency subsidies in re- in domestic demand boosted import vol- sponse to increased prices. Fiscal consoli- ume growth to 24 percent, double the GDP growth is projected to be 3.4 percent dation will resume in 2023 as tax admin- growth rate of exports. Remittances kept in 2022 and converge to 3.5 percent in istration measures, including digital filing, the current account in surplus. The mon- the medium term. The war in Ukraine are projected to improve revenue mobi- etary policy rate was kept unchanged as damped the outlook for 2022 and 2023. lization by 0.4 p.p. between 2022 and 2024, average headline inflation was 4.3 per- The current account surplus is projected reducing the interest-to-revenue ratio from cent in 2021, within the policy range of to narrow, and tourism to remain sub- 14.1 percent in 2021 to 13.2 in 2024. The 3-5 percent. dued until 2023. Higher commodity debt burden is projected to decline in 2022, The growth in remittances is estimated to prices, especially food and energy prices, as additional revenues from 2021 will be have contributed to lower poverty in 2021. are projected to drive inflation up in 2022 used to cancel debt. Economic growth in Guatemala has had a and 2023. Foreign exchange interventions Risks to the forecast are skewed to the limited effect on poverty reduction in re- to stabilize the exchange rate are project- downside, although there are also upside cent decades, remittances increased reach- ed to continue and monetary policy may risks. New waves of COVID-19, natural dis- ing approximately US$800 per capita, tighten if inflation rises. aster events, and a worsening of supply which is expected to bring the poverty rate Poverty is expected to decline gradually chain constraints affecting exports could (US$5.50 2011 PPP per day) down to 51.7 but could be negatively affected by price slow recovery. Furthermore, lower than percent in 2021. Inequality is expected to developments. The expected hike in prices projected revenues would hinder social in- have decreased slightly, from a Gini index could limit purchasing power, curbing ef- vestment and worsen already weak social of 0.485 in 2020 to 0.481 in 2021. forts to reduce poverty and inequality. A indicators. On the upside, increased fiscal The fiscal deficit narrowed to 1.2 percent of slowdown of the US economy, in line with revenues that translate into public invest- GDP in 2021 as a result of improved rev- a somber global outlook, may lead to a re- ment and improved infrastructure, coming enues and under-execution of the budget. duction in remittances, further hindering on top of the increase in investment that was In 2021, government spending fell by 2.1 poverty reduction. recorded in 2021, could boost productivity. TABLE 2 Guatemala / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.9 -1.5 8.0 3.4 3.4 3.5 Private Consumption 4.5 -1.1 8.9 4.1 3.8 4.0 Government Consumption 2.5 1.6 6.6 3.2 0.4 0.9 Gross Fixed Capital Investment 8.7 -5.9 18.4 6.4 4.9 4.4 Exports, Goods and Services 0.1 -4.4 12.4 4.7 3.9 3.0 Imports, Goods and Services 4.9 -4.6 23.7 6.7 4.4 3.9 Real GDP growth, at constant factor prices 3.7 -1.4 7.6 3.4 3.4 3.5 Agriculture 2.1 2.9 2.5 2.3 2.4 2.4 Industry 3.8 -1.2 7.6 2.6 2.8 2.8 Services 3.9 -2.2 8.4 3.9 3.8 3.9 Inflation (Consumer Price Index) 3.7 3.2 4.3 5.0 4.5 4.0 Current Account Balance (% of GDP) 2.3 5.1 3.1 1.1 0.5 0.1 Fiscal Balance (% of GDP) -2.2 -4.9 -1.2 -2.3 -1.9 -1.9 Debt (% of GDP) 26.5 31.6 30.6 29.7 29.5 29.4 Primary Balance (% of GDP) -0.6 -3.2 0.5 -0.6 -0.3 -0.2 a,b International poverty rate ($1.9 in 2011 PPP) 8.4 10.9 9.8 9.8 9.7 9.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 23.7 27.2 25.7 25.5 25.5 25.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 47.8 52.4 51.7 51.5 51.1 51.2 GHG emissions growth (mtCO2e) 3.7 6.1 1.3 2.3 2.5 2.0 Energy related GHG emissions (% of total) 56.3 58.3 57.4 57.5 57.6 57.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2006-ENCOVI and 2014-ENCOVI. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. b/ Projections based on microsimulations. MPO 117 Apr 22 to vaccination hesitancy. At least 54 per- cent of the population was inoculated with GUYANA Key conditions and at least one dose of vaccine as of mid-Feb- ruary 2022. challenges The new Natural Resource Fund (NRF) Act, adopted in December 2021, intro- Table 1 2021 Guyana is going through a period of ex- duced a revised framework for the man- Population, million 0.8 ceptional growth with the development agement and transfers from the SWF. It al- GDP, current US$ billion 7.4 of its oil and gas sector. Real GDP per so revamped the oversight committee, in- GDP per capita, current US$ 9378.7 capita is expected to reach US$ 23,000 by cluding the establishment of a Board of Di- a 97.8 School enrollment, primary (% gross) 2024, more than double 2020 levels, with rectors, and is largely consistent with the a 69.9 the share of the oil and gas sector ris- Santiago Principles. The new rule allows Life expectancy at birth, years Total GHG Emissions (mtCO2e) 22.5 ing to approximately 60 percent of to- transfers to the budget starting 2022, using Source: WDI, Macro Poverty Outlook, and official data. tal GDP. Nevertheless, agriculture, gold, a simple mathematical formula to calculate a/ Most recent WDI value (2019). bauxite, and timber production remain withdrawal amounts which should aver- relevant, especially for the non-oil econ- age between 4 to 5 percent of GDP over the omy, as together, they account for a sig- medium term. As increased fiscal revenues Guyana's economy is expanding at an nificant share of jobs. The transformation will allow Guyana to rapidly scale up pub- also implies a significant increase in rev- lic expenditures, it is vital to ensure that extraordinary rate, fueled primarily by enues which, up to 2021, was being saved spending is efficient, and reforms address the expansion of oil output. This is ex- in a sovereign wealth fund (SWF) outside social and infrastructure gaps. In parallel, pected to continue over the medium of the economy. Guyana will need to manage the risks of term as more fields are added to produc- Guyana's resource wealth contrasts with large inflows from oil revenues to prevent tion. Increasing oil and gas revenues the overall needs of the population, overheating the economy and generating marked by ethnic and social polarization. Dutch Disease effects. will allow financing of significant bud- At 48.4 percent in 2019, Guyana’s poverty For long-term pro-poor growth, and in line get outlays to address development rate is among the highest in the region, us- with the country’s new national develop- needs and tackle poverty. Significant ing the upper-middle income poverty line ment strategy, more efficient and effective risks remain, including the management (US$5.5 per day in 2011 PPP). Between public service delivery is essential. This is 2006 and 2019, the income of the bottom particularly the case in areas like health, of oil wealth, the quality of spending, 40 percent grew slower than the average, education, and digital connectivity, which and Dutch disease effects. resulting in increased income inequality, improve human capital. Sound and trans- with the Gini coefficient rising from 0.46 parent management of oil revenues will be to 0.52. Poverty and social exclusion, in- critical to avoid increased polarization and cluding limited access to basic services, are further erosion of already weak institu- particularly severe in Guyana’s hinterland tions and governance. Reforms to support and among Amerindians. Furthermore, private sector growth are also critical. early evidence suggests that the pandemic COVID-19 remains a key risk for the econ- increased poverty and food insecurity omy, given the threat to the normalization amid limited progress in vaccination due of business conditions and livelihoods. FIGURE 1 Guyana / Oil production, real oil, and real non-oil FIGURE 2 Guyana / Selected food insecurity indicators in GDP, 2019-2024 June 2021 Real GDP (G$B, 2012 prices) Oil production (thousand barrels per day) Percent of households 4,000 350 45 40 3,500 300 35 3,000 30 250 2,500 25 200 20 2,000 15 150 1,500 10 100 5 1,000 0 500 50 Ran out of food Ran out of food An adult did not An adult could (pre pandemic, (last 30 days) eat for an entire not eat healthy 0 0 feb-2020) day and nutritious 2019 2020 2021 e 2022 f 2023 f 2024 f (last 30 days) food Oil GDP Non-Oil GDP Oil Production (rhs) (last 30 days) Source: World Bank staff estimates. Note: f=forecast. 2024 values assume full- Source: World Bank staff estimates based on World Bank and UNDP LAC High capacity production in Liza I and II. Frequency Phone Surveys, Phase II, Wave 1. MPO 118 Apr 22 The current account deficit (CAD) consumption, higher input costs, and sup- widened to 21.2 percent of GDP in 2021, ply chain disruptions. This threatens the Recent developments driven largely by the importation of purchasing power and food security of Guyana’s second floating production stor- poor and vulnerable households, especial- Real GDP is estimated to have increased age and offloading (FPSO) vessel, Liza ly if food prices continue to increase. by 19.9 percent in 2021, owing primarily Unity, and increased net service payments. Guyana’s natural resource boom will lead to an expansion of oil production, which The CAD was primarily funded by private to a sustained current account surplus in averaged about 107,500 barrels per day as inflows, while international reserves in- the coming years, improving the country's Liza I approached full capacity. The expan- creased by 19.1 percent to US$ 810.8 mil- international reserves position. The war in sion of the oil sector was accompanied by a lion, representing 2.1 months of total im- Ukraine and its impact on fuel prices will 4.6 percent growth in the non-oil economy ports in 2021. also influence Guyana’s current account linked to ongoing recovery from the im- going forward. pact of the pandemic, particularly in con- Guyana's fiscal deficit is expected to nar- struction and services. Inflation increased row to 4.9 in percent of non-oil GDP by to 4.8 percent in 2021, reflecting higher Outlook 2024. Increased revenues, largely tied to food prices which rose by 11.6 percent. inflows from the NRF will partly offset Guyana’s exchange rate regime remains a Guyana is expected to remain one of the higher spending on capital infrastruc- de facto stabilized arrangement with for- world's fastest-growing economies in the ture projects. In this context, public debt eign exchange rate interventions. medium term, as new oil fields are devel- is expected to fall to 23.6 percent of Negative impacts from the pandemic on oped and production capacity expands to GDP by 2024. employment and household income per- approximately 330,000 barrels per day by Guyana is now highly vulnerable to oil- sisted in 2021 and are likely to have in- 2024. Oil production, and consequently re- related shocks, both to price and output. creased poverty. The World Bank – UNDP al GDP, is expected to jump in 2022 as Liza It also faces well-known risks associated High-Frequency Phone Survey, conducted II begins operation. Real GDP is expected with resource-dependent economies, such in June 2021, suggests considerable in- to more than double by 2023, pushing per as a lack of diversification, increasing re- creases in food insecurity. About 40 per- capita income to over US$20,000 at the cur- liance on the state which can affect private cent of households ran out of food due to rent nominal exchange rate. Real GDP sector competitiveness, and an erosion of a lack of money or other resources within growth could accelerate further with the institutions. Guyana needs to maintain an the 30 days preceding the survey. Further- commissioning of additional fields in the operational SWF to mitigate the imbalance more, 47.3 percent of households have still medium term. between the resource inflow and the econ- not recovered their pre-pandemic level of Poverty reduction will depend on the omy’s absorptive capacity while also limit- income. This is also reflected in higher un- performance of the non-oil economy ing waste. Furthermore, oil production has employment rates. through job creation, including those environmental consequences that must be The fiscal deficit increased to 10.4 percent linked to public investment projects and carefully considered, and the sector may of non-oil GDP in 2021. The widening was local content for the oil sector, as well as face additional risks as the world transi- primarily driven by flood relief assistance the redistribution of resource revenues. tions away from fossil fuels. payments to farmers and households and The expansion of oil and gas production The pandemic resulted in severe disrup- increased capital expenditure outlined by will boost private investment and accel- tions in education with a third of school- the government’s public sector investment erate the growth of services. Increased aged children not attending school in program. Public debt fell to 40.7 percent of gold and bauxite output will also drive mid-2021. If resulting learning gaps are not overall GDP in 2021 due to increased eco- export growth. Inflation will remain el- addressed, this can have substantial long- nomic growth. evated, reflecting increasing government term impacts on welfare. TABLE 2 Guyana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at purchaser prices (total) 5.4 43.5 19.9 47.9 34.3 3.8 b Real GDP growth, at factor prices (non-oil) 3.1 -6.2 4.6 7.2 5.7 5.4 Agriculture -0.5 4.1 -9.1 3.6 3.0 3.0 Industry 5.4 -10.5 9.2 14.8 10.3 8.8 Services 4.0 -9.9 11.6 4.0 3.8 4.0 Inflation (Consumer Price Index) 1.4 1.0 4.8 7.3 6.5 6.2 c Current Account Balance (% of GDP) -54.6 -15.1 -21.2 45.7 42.6 34.9 d Fiscal Balance (% of GDP) -2.8 -9.4 -10.4 -7.0 -5.1 -4.9 Debt (% of GDP) 34.2 47.4 40.7 29.2 25.0 23.6 d Primary Balance (% of GDP) -2.0 -8.6 -9.7 -6.2 -4.5 -4.4 GHG emissions growth (mtCO2e) 1.5 9.0 6.2 6.0 13.7 3.8 Energy related GHG emissions (% of total) 14.1 19.5 22.6 32.5 39.5 40.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Total GDP at 2012 prices. b/ Non-oil GDP at 2012 prices. c/ BOP definition in current US$. d/ Share of non-oil GDP. MPO 119 Apr 22 2021, marking the third consecutive year of negative growth. All three sectors of the HAITI Key conditions and economy declined, with agriculture regis- tering the largest slide at 4.1 percent, partly challenges as a result of watershed degradation and low rainfall. The economic slump affected Table 1 2021 The political and institutional crisis, com- households, with 68 percent of them re- Population, million 11.5 pounded by increasing levels of insecuri- porting income drop compared to the pre- GDP, current US$ billion 20.9 ty, continues to hinder Haiti’s economic pandemic period (HFS). GDP per capita, current US$ 1814.6 performance. Other key challenges to On the fiscal front, the government strug- a 24.5 International poverty rate ($1.9) boost productivity and economic growth gled to mobilize tax revenues. The fiscal a 50.3 include deficient infrastructure, limited deficit is estimated at 2.5 percent of GDP Lower middle-income poverty rate ($3.2) a 78.6 human capital, weak governance and in- in 2021, with direct subsidies to the energy Upper middle-income poverty rate ($5.5) Gini index a 41.1 stitutions, and an unfavorable business sector accounting for 1.3 percent of GDP. Life expectancy at birth, years b 64.0 environment characterized by uncertain- In Q1 FY2022, however, the government Total GHG Emissions (mtCO2e) 10.5 ty, under-developed finance markets, and partially removed oil subsidies, hiking re- limited market contestability. tail fuel prices by 74.3 percent on average. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2012), 2011 PPPs. Vulnerability to natural hazard shocks Due to the strong gourde policy engi- b/ Most recent WDI value (2019). and climate change is likely to continue neered at the beginning of FY2021, the cur- to hinder growth, hurting the poor and rency appreciated by 23.2 percent on av- the vulnerable. erage against the US dollar by the end of Haiti’s economy contracted for a third The lack of credibility in the policy frame- FY2021. Headline inflation consequently work and uncertainty of the political edged down to 15.9 percent and food in- consecutive year in 2021, increasing the process erodes confidence and impair eco- flation declined to 19.6 percent, from 27.5 already high poverty levels. This reflects nomic agents' ability to plan for the long percent the previous year. The poorest are the deep structural challenges the country term or create jobs. Moreover, limited ac- disproportionally affected by the high in- must surmount, including a deepening cess to quality healthcare and education flation levels given their high share of lingering political crisis, unprecedented hinders the possibility of building human household expenditures on food. In line capital to break the cycle of poverty. with the reduced household incomes and level of insecurity, and weak governance, high inflation levels, food insecurity has which, combined with relatively low worsened, especially in the poorest rural skilled labor, leads to a strong dependence households, where 80 percent reported on imports. The country is also highly Recent developments running out of food. But the incidence of COVID-19 remained relatively mild, de- vulnerable to natural hazard shocks and Political instability and security concerns spite a vaccination rate below 1.0 percent. is recovering from a devastating earth- due to armed gangs vying for control over By the end of February 2022, about 26,000 quake and tropical storm Grace in the business districts depressed investment positive cases had been officially reported. Southern peninsula in 2021. which contracted by 21.8 percent in 2021, A corollary of the strong gourde policy is taking a toll on economic activity. There- the depletion of net international reserves, fore, GDP contracted by 1.8 percent in which declined by 35.8 percent to stand FIGURE 1 Haiti / Real GDP growth and sectoral contributions FIGURE 2 Haiti / Actual and simulated poverty rates and to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 4 90 60000 80 3 58000 70 2 60 56000 50 1 54000 40 0 30 52000 20 -1 50000 Agriculture Industry 10 -2 0 48000 Services GDP 2012 2014 2016 2018 2020 2022 2024 -3 International poverty rate Lower middle-income pov. rate 2001-2005 2006-2010 2011-2015 2016-2020 2021 Upper middle-income pov. rate Real GDP pc Source: Haiti Statistical Office (IHSI). Source: World Bank staff calculations. MPO 120 Apr 22 at US$ 457.6 million in FY2021. Gross re- While the recent fuel price adjustment exports are expected to contract. Despite serves are, however, at a healthy level of provided temporary relief, given the on- the global economic recovery and ensu- 6.5 months of imports. The current account going Russia-Ukraine war, ensuring retail ing increasing remittances, the CAB will balance (CAB) remained positive at 0.7 prices are adjusted regularly to reflect in- turn to a deficit of around 1.3 percent of percent of GDP, on large remittances in- ternational market price conditions for all GDP in FY2022. flows increase, higher exports, and the col- fuel products will be needed. Fiscal con- The economy is expected to rebound in the lapse in investment. ditions will remain tight since the author- medium term, supported by strong remit- Despite a recent political agreement to ities stated their intentions to commit to tances and increased private investment as form a new interim government, the polit- fiscal consolidation within the IMF Staff political tensions ease, and the security sit- ical situation remains volatile. The govern- Monitored Program (SMP) framework. uation improves. GDP is expected to ex- ment’s most urgent task is to reestablish Hence, the fiscal deficit is expected to nar- pand by 1.7 percent over the medium term. security and organize credible elections. row to 1.5 percent of GDP, albeit 1.9 per- Donor support and finalization of the SMP cent of GDP of central bank (BRH) financ- with the IMF, with several structural mea- ing is anticipated. The fuel price increase, sures focusing on tax revenue mobilization coupled with declining agricultural out- and greater spending efficiency, will likely Outlook put and BRH financing, will exert pres- help maintain the fiscal deficit at manage- sure on CPI inflation, which is expected able levels over the medium term, easing The tense political context and heightened to close at around 26.2 percent, with the pressure on prices. The CAB is expected to security concerns continue to depress pri- exchange rate moving pari passu. The re- stabilize at around -2.0 percent of GDP, on vate investment, with attendant conse- sulting increase in the cost of basic goods stronger growth of remittances. quences on growth. GDP is therefore ex- would hurt the poorest. The outlook remains fraught and hinges pected to contract by 0.4 percent. Agricul- Imports will grow at a faster rate, on strongly on how the political context ture, on which most vulnerable and poor higher fuel and food prices and material evolves and security improves. Delay in im- households depend for their livelihood, will to meet post-earthquake reconstruction plementing critical reforms, including in continue to hamper growth; one reason for needs. However, the workers’ strike at the electricity sector, customs, and internal this is the constant reduction of arable land the beginning of FY2022 in the textile revenue service, and vulnerability to natur- and low credit to the sector (0.1 percent of sector, coupled with rising insecurity, al hazard shocks may also hinder growth total commercial loans in FY2021). will affect the sector’s output. Therefore, and achievement of shared prosperity. TABLE 2 Haiti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018/19 2019/20 2020/21 2021/22e 2022/23f 2023/24f Real GDP growth, at constant market prices -1.7 -3.3 -1.8 -0.4 1.4 2.0 Private Consumption -1.0 -4.0 1.2 1.0 1.8 0.9 Government Consumption -8.6 11.1 9.7 9.5 8.1 -2.1 Gross Fixed Capital Investment 7.7 -20.6 -21.8 -0.8 -7.3 23.5 Exports, Goods and Services 6.8 -39.7 1.4 -1.0 4.0 2.0 Imports, Goods and Services 4.2 -18.3 2.7 6.2 2.5 3.1 Real GDP growth, at constant factor prices -1.1 -2.9 -2.5 -0.1 1.4 2.0 Agriculture -1.9 -2.5 -4.1 -1.1 0.9 1.0 Industry -6.8 -6.9 -2.5 -1.5 1.7 1.5 Services 2.1 -1.2 -2.0 0.9 1.4 2.6 Inflation (Consumer Price Index) 17.3 22.9 15.9 26.2 18.9 13.4 Current Account Balance (% of GDP) -1.1 1.5 0.7 -1.3 -2.1 -1.5 Net Foreign Direct Investment (% of GDP) 0.5 0.2 0.2 0.4 0.4 0.3 Fiscal Balance (% of GDP) -2.0 -3.0 -2.5 -1.5 -1.7 -1.5 Debt (% of GDP) 26.2 24.4 25.6 26.1 21.8 23.2 Primary Balance (% of GDP) -1.7 -2.7 -2.2 -1.2 -1.4 -1.3 a,b International poverty rate ($1.9 in 2011 PPP) 23.5 25.1 26.0 26.5 26.5 26.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 48.3 51.0 52.3 52.9 52.8 52.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 77.6 79.0 80.0 80.6 80.5 80.1 GHG emissions growth (mtCO2e) -0.6 -0.7 0.4 0.4 1.9 2.5 Energy related GHG emissions (% of total) 33.3 32.4 32.2 32.4 33.6 35.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2012-ECVMAS. Actual data: 2012. Nowcast: 2013-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2012) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 121 Apr 22 debt service remained relatively low. However, contingent liability risks remain HONDURAS Key conditions and high, including those related to the state electricity company (ENEE) and exoge- challenges nous shocks. Vaccination helped slow the spread of Table 1 2021 Honduras's export-oriented growth model COVID-19 by end-2021 (at 47 percent of the Population, million 10.1 has been insufficient to boost growth and population in March 2022). Yet, high hesi- GDP, current US$ billion 28.4 incomes. The country's exposure to exter- tancy rates among the elderly and less edu- GDP per capita, current US$ 2822.8 nal shocks and natural hazards, combined cated expose the country to new waves. a 14.8 International poverty rate ($1.9) with high crime rates and a weak institu- A key challenge is maintaining the reform a 29.0 tional and business environment, under- momentum amid political fragmentation Lower middle-income poverty rate ($3.2) a 49.0 mine its competitiveness. Real GDP and policy uncertainty, while mitigating Upper middle-income poverty rate ($5.5) Gini index a 48.2 growth averaged 3.1 percent over the past the social impacts of recent shocks. Better School enrollment, primary (% gross) b 90.2 decade, mainly driven by remittance-fu- targeting and execution of support pro- b 75.3 eled private consumption. Yet, in 2019, al- grams; strengthening resilience to climate Life expectancy at birth, years most half the population lived on less than risks; and improving the business environ- Total GHG Emissions (mtCO2e) 27.2 US$5.50 per day, making Honduras one of ment, governance and institutions remain Source: WDI, Macro Poverty Outlook, and official data. the poorest countries in the Latin America critical to boost economic opportunities for a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). and Caribbean region. Prudent macroeco- a largely poor and vulnerable population. nomic management anchored in the Fiscal Responsibility Law (FRL), a crawling peg Honduras's real GDP reached its pre-cri- exchange with ample foreign reserves, and sis level in 2021, led by remittance-fueled a sound financial sector supported macro Recent developments stability in the run-up to the crisis. private consumption, post-hurricane re- The impacts of the pandemic and hurri- Real GDP is estimated to have grown construction, and robust export demand. canes Eta and Iota exacerbated existing 11.9 percent y.o.y in 2021, rebounding Poverty and inequality are estimated to economic and social challenges. Real GDP to pre-crisis level. This expansion was contracted by 9 percent, and poverty broad-based and driven by private con- have declined in 2021 but remain above (US$5.50 line) is estimated to have in- sumption and investment associated with pre-crisis levels. GDP growth is expected creased by 6.4 percentage points in 2020 to remittances and reconstruction activities. to moderate in the medium term amid 55.4 percent. The country's relatively low Growth in remittances, representing 24.3 tempering of global demand, unwinding public debt and deficit coupled with good percent of GDP, accelerated by 19.6 per- of pandemic support, and completion of access to concessional financing allowed cent y.o.y in 2021. Yet, as of mid-2021, for a countercyclical response, in line with about 41 percent of households reported reconstruction activities. Adverse effects the FRL's escape clause, to cushion the im- incomes below the pre-pandemic level as of the prolonged pandemic on livelihoods pacts of the multiple shocks. Yet, emer- about 1 in 3 workers in Honduras lost and human capital accumulation pose gency programs had a relatively small mit- their pre-pandemic jobs. Job stoppages af- risks to future poverty reduction. igating impact. Despite a steep increase, fected women disproportionately, espe- public debt remained sustainable, and the cially mothers of 0–5-year-old children, FIGURE 1 Honduras / Fiscal balance and debt FIGURE 2 Honduras / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 2 58 70 25000 1 53 60 0 20000 -1 50 48 -2 40 15000 -3 43 30 10000 -4 38 20 -5 -6 5000 33 10 -7 0 0 -8 28 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2010 2012 2014 2016 2018 2020 2022 2024 International poverty rate Lower middle-income pov. rate Fiscal Balance Primary Balance Debt (rhs) Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Honduras and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 122 Apr 22 the elderly (age 65+), and the less-educat- stable exchange rate, inflation accelerated with higher import values is expected to be ed. Although food security improved in to 6.4 percent y.o.y in February 2022 – financed primarily by FDI inflows. Finally, 2021, Honduras still has the lowest rates above the Central Bank’s (BCH) target the poverty rate (USD 5.5 Line) is expected in Central America. band (4 percent ± 1 percent) – amid higher to decline to 47.8 percent by 2023 as labor Poverty (US$5.50 line) is estimated to have food and energy prices and strong domes- markets recover. declined in 2021 to 49.1 percent, still above tic demand. Higher food and gasoline Honduras is expected to continue receiv- the pre-crisis level. In 2021, the middle prices pose a risk to poverty reduction as ing external financial support while re- class (US$13-$70 per day in 2011 PPP) re- they account for a higher share of house- turning to the FRL target of 1 percent covered to its pre-crisis level of 17.9 per- hold income at the bottom of the distribu- NFPS deficit in 2023. The required fiscal cent, after a 3.6 percentage point fall at the tion. Moreover, high energy costs could af- tightening is challenging and is expected onset of the pandemic in 2020. fect light manufacturing (maquilas), which to be supported by the gradual unwind- The government continues with expansion- employs 12 percent of workers with an in- ing of pandemic support, budget reallo- ary policy as reconstruction and health come under the poverty line. The BCH cations, and revenue growth aided by the needs are significant. In keeping with the maintained the key policy rate at 3 percent economic recovery and revenue mobiliza- FRL's escape clause, the Non-Financial Pub- in early 2022. tion measures. The compliance with FRL lic Sector (NFPS) deficit is estimated to have will enable public debt to stabilize over reached 3.7 percent of GDP in 2021, bring- the medium term. ing total NFPS debt to 53.1 percent of GDP Monetary tightening is likely in the near (compared to 54.1 percent in 2020). The gov- Outlook term as inflation accelerates amid increas- ernment authorized new borrowing for up ing energy and food prices and anticipated to US$2 bn in 2022-23 and withdrew US$335 Real GDP is expected to moderate to an monetary policy tightening in the U.S. m in IMF's Special Drawing Rights. average annual rate of 3.5 percent slowly A weak legislative position within the rul- After registering a historical surplus of converging to its potential as global de- ing party could slow progress on fiscal, so- 2.9 percent of GDP in 2020, the current mand tempers and crisis support is phased cial, and structural reforms, and along account is estimated to have reversed to out. Remittances will continue to fuel do- with budget execution issues, weaken a deficit in 2021 on the back of recov- mestic consumption, albeit at a slower rate growth and raise risks of social unrest. ering imports. The external position re- amid stabilization in U.S. growth and Prolonged unemployment and high infla- mains strong, supported by remittances higher commodity prices amid the conflict tion could heighten food insecurity, par- and external financing. Foreign reserves in Ukraine. Agriculture is expected to re- ticularly for informal low-income house- stood at 30.6 percent of 2021 GDP at cover but will remain vulnerable to the holds that lack insurance and savings, and end-2021, supporting exchange rate stabil- U.S. import demand and climate shocks. could have lingering effects on human cap- ity. While being contained by a relatively A wider current account deficit associated ital and livelihoods. TABLE 2 Honduras / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.7 -9.0 11.9 3.1 3.6 3.7 Private Consumption 4.7 -6.4 6.1 3.3 3.4 3.2 Government Consumption 1.7 2.9 9.3 -2.9 -3.5 1.8 Gross Fixed Capital Investment -5.2 -23.8 27.3 5.3 4.8 3.8 Exports, Goods and Services 2.4 -20.3 18.1 6.3 5.4 4.9 Imports, Goods and Services -2.4 -18.5 13.7 5.5 3.7 3.6 Real GDP growth, at constant factor prices 2.7 -9.0 11.9 3.1 3.6 3.7 Agriculture -1.0 -6.3 0.3 5.3 4.1 3.1 Industry 1.8 -14.3 19.0 2.2 4.7 4.8 Services 4.0 -7.2 11.9 2.9 3.0 3.4 Inflation (Consumer Price Index) 4.4 3.5 4.5 5.5 5.0 4.0 Current Account Balance (% of GDP) -2.7 2.9 -3.1 -3.5 -3.9 -4.0 Net Foreign Direct Investment (% of GDP) 2.0 1.5 2.3 2.8 3.1 2.9 a Fiscal Balance (% of GDP) -0.9 -5.5 -3.7 -2.3 -1.0 -1.0 a Debt (% of GDP) 43.5 54.1 53.1 55.3 55.5 55.7 a Primary Balance (% of GDP) 0.2 -4.2 -2.3 -1.0 0.5 0.7 b,c International poverty rate ($1.9 in 2011 PPP) 14.8 18.5 14.1 13.9 13.4 13.0 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 29.0 35.3 29.0 28.5 27.9 27.2 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 49.0 55.4 49.1 48.4 47.8 46.8 GHG emissions growth (mtCO2e) -1.0 -6.6 4.7 2.6 2.4 1.6 Energy related GHG emissions (% of total) 35.8 33.0 34.5 34.6 35.9 36.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal data refers to non-financial public sector. b/ Calculations based on SEDLAC harmonization, using 2019-EPHPM. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 123 Apr 22 improving the efficiency and effectiveness of public spending. It will also demand an JAMAICA Key conditions and acceleration in reforms to address fiscal risks including those from natural disasters. challenges Containment of the COVID-19 pandemic is critical for economic recovery and in- Table 1 2021 Jamaica's real gross domestic product clusive growth. As of February 20, 2022, Population, million 3.0 (GDP) per capita has averaged $4,746 over approximately 25 percent of the popula- GDP, current US$ billion 12.5 the past decade, below the average for the tion has received one dose of vaccine and GDP per capita, current US$ 4204.7 1990s. Income per capita has declined fur- only 21 percent has been fully vaccinated a 90.6 School enrollment, primary (% gross) ther with the pandemic. Falling per capital against COVID-19, among the lowest in a 74.5 income coincided with a larger share of the the region due to high vaccine hesitancy. Life expectancy at birth, years Total GHG Emissions (mtCO2e) 9.7 population at work suggesting declining Jamaica’s near-term recovery will depend Source: WDI, Macro Poverty Outlook, and official data. average labor productivity. Jamaica’s low on the normalization of international trav- a/ Most recent WDI value (2019). growth and declining productivity is at- el, with the tourism sector accounting for tributed to a long list of constraints includ- more than 30 percent of GDP and one- ing limited interconnectedness of enclave third of the workforce. New COVID-19 industries with the rest of the economy, variants represent a major threat. and pervasive crime and violence which Jamaica remains on the Financial Action discourages investments. The country is Task Force's (FATF) grey list of non-com- also vulnerable to climate shocks affecting pliant countries due to flaws in its anti- Jamaica is recovering from the pandemic, mainly vulnerable groups as well as key money laundering and counter-terrorism with growth recently picking up and un- sectors like tourism and agriculture. Fur- financing framework. This could lead to employment falling to historic lows, re- ther, the cost of energy and internet con- large international banks de-risking, which nectivity are extremely high even by re- could have an impact on trade. sulting in a decrease in poverty. Nonethe- gional standards and there are gaps in hu- less, the country is still beset by a high man capital with high migration of skilled level of debt, low labor productivity, and labor and a weakening in learning and ed- a weak enabling environment for greater ucation outcomes. Recent developments Despite a steep reduction of public debt private sector participation in the econo- in recent years, from 145 to an estimated Real GDP rose by 4.6 percent in 2021, dri- my. Vaccine hesitancy, new COVID-19 96 percent of GDP between 2013 and ven by private and government consump- variants, the ongoing war in Ukraine, 2021, it remains among the highest in the tion, and by external demand as there was disaster shocks, and a slow tourism recov- region. As such, faster growth is need- some slowdown in investments. Govern- ed to reduce the debt burden and create ment consumption remained robust ery all pose significant risks. space for pro-poor interventions. Achiev- amidst a continuation of efforts to stem the ing the target of a debt stock of at least impact of the pandemic on livelihoods. At 60 percent of GDP by 2028 as outlined in the sectoral level, the expansion in real the Fiscal Responsibility Law will require GDP was principally attributed to a partial addressing constraints to growth while rebound in tourism from the near closure FIGURE 1 Jamaica / Fiscal balances and public debt FIGURE 2 Jamaica / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) GDP per capita (LCU constant) 120 110.4 8 30 310000 96.4 94.7 87.4 100 6 25 300000 80.3 80 74.3 4 20 60 2 15 290000 40 0 10 280000 20 -2 5 0 -4 0 270000 2019 2020 2021 e 2022 f 2023 f 2024 f 2014 2016 2018 2020 2022 2024 Debt (lhs) Fiscal Balance Primary Balance National poverty rate Real GDP pc Sources: GoJ, IMF, and World Bank staff estimates. Source: World Bank staff calculations. Note: Poverty projections are estimated based on 2018 JSLC. Projection using growth semi-elasticity of poverty = -1 and GDP per capita in constant LCU. MPO 124 Apr 22 of the sector in 2020. In this context, the un- 2020. Although the employment rate The fiscal accounts should remain in sur- employment rate fell to a historic low of 7.1 slightly surpassed pre-pandemic levels in plus over the medium-term with a gradual percent in October 2021. October 2021, nearly 50,000 workers still fall in spending as the COVID-19 cash sup- Inflation rose sharply in the second half had not returned to the labor force, forego- port and other programs are phased out. of the year, averaging 5.9 percent in 2021. ing earned income. Lower-income house- As such, financing needs will decline Most of the increase was due to higher holds, in particular, are feeling strained as pulling debt below 90 percent of GDP and food and fuel prices. As a result, the central prices continue to rise. closer to the target of 60 percent of GDP. bank raised its policy rate by 350 basis Nevertheless, the trajectory for public debt points to 4 percent between September remains vulnerable to uncertainties related 2021 and February 2022. to COVID-19, tightening financial market The fiscal account is estimated to have Outlook conditions, fiscal risks posed by state- recorded a surplus of 0.3 percent of GDP owned enterprises and to natural disaster in 2021. Higher tax and non-tax collections Over the medium term, real GDP growth shocks, posing risks for poverty. boosted revenues to 31.8 percent of GDP. is expected to average 2.2 percent, driven The current account is expected to record Spending fell by 0.9 percentage point to primarily by private consumption, invest- an average annual deficit of 3.2 percent of 31.5 percent of GDP, reflecting lower pro- ments, and net external demand, assuming GDP over the medium term as rising fuel gram, compensation and capital expendi- a steady recovery in tourist arrivals as vac- prices increase spending on imports and tures. In this context, the public debt to cination progresses and more travel routes remittances revert to pre-pandemic levels. GDP ratio fell by 14.1 percentage points to are restored. Investments are expected to Private flows are expected to improve, re- 96.3 percent of GDP in 2021. increase, driven by tourism-related and ducing the need for public sector borrow- In 2021, Jamaica's current account surplus public infrastructure projects. On the sup- ing to finance the deficit. Gross reserves was 1.3 percent of GDP, thanks to a 15.5 ply side, construction, agriculture, and are expected to remain at healthy levels, percent increase in visitor arrivals and a tourism will remain key drivers of growth. averaging more than 5 months of imports. 20.4 percent increase in remittances. Mining and quarrying will also support Poverty is projected to fall to around 13 Tourist visitors are still down 63.7 percent growth with the planned resumption in percent by 2024 as household incomes im- from pre-pandemic levels. Jamaica ended mining at the country’s major alumina prove with the economic recovery. Infla- 2021 with US4,832.4 million dollars in of- plants. Inflation is envisaged to average tion will need to be kept in check to protect ficial reserve assets (equivalent to 8.4 around 6.5 percent with the upside risk of purchasing power. Disruptions in learning months of total imports), up 18.4 percent remaining higher given ongoing develop- during the pandemic may have longer- from the year prior. Most of the increase ments in Europe. term effects on human capital and the fu- was driven by Special Drawing Rights and Monetary policy will continue to balance ture earning potential of students. the IMF Reserve Position. support to growth while strengthening ef- The economic outlook is vulnerable to sig- The poverty rate at the national poverty forts to dampen inflation expectations and nificant downside risks, such as slower- line is estimated to have declined to 18 per- avert pressures on the currency from an- than-expected tourism recovery, cent in 2021, following a sharp rise in 2020 ticipated monetary policy tightening in the COVID-19 variants, higher prices, capital to about 23 percent. Over 150,000 workers United States. Jamaica's financial institu- flow volatility, and natural disasters, as either lost their jobs or dropped out of the tions are still sound, though a protracted well as the possibility of a worsening of labor market between January and July crisis may pose stability challenges. Europe's ongoing crisis. TABLE 2 Jamaica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.9 -10.0 4.6 3.2 2.3 1.2 Private Consumption 1.0 -13.2 3.0 2.9 2.0 1.4 Government Consumption 3.1 11.7 2.1 -0.2 2.4 3.7 Gross Fixed Capital Investment 1.0 -15.9 -3.3 8.2 6.9 0.9 Exports, Goods and Services 3.6 -30.0 19.0 5.9 3.1 2.5 Imports, Goods and Services 4.2 -26.7 7.4 5.8 4.7 3.3 Real GDP growth, at constant factor prices 1.0 -10.0 4.6 3.2 2.3 1.2 Agriculture 0.4 -1.4 1.1 1.3 1.6 1.6 Industry -0.7 -5.7 2.7 3.0 1.2 0.7 Services 1.6 -12.1 5.6 3.5 2.7 1.3 Inflation (Consumer Price Index) 3.9 5.7 5.9 8.0 5.8 5.7 Current Account Balance (% of GDP) -2.3 -0.3 1.3 -4.1 -3.2 -2.5 Net Foreign Direct Investment (% of GDP) 1.4 1.9 1.2 2.4 2.5 2.5 a Fiscal Balance (% of GDP) 0.9 -3.1 0.3 0.3 0.3 0.3 a Debt (% of GDP) 94.7 110.4 96.4 87.4 80.3 74.3 a Primary Balance (% of GDP) 7.1 3.5 6.3 5.9 5.3 4.9 GHG emissions growth (mtCO2e) 4.1 -9.4 0.7 1.8 -0.6 0.2 Energy related GHG emissions (% of total) 81.9 80.6 81.2 81.6 82.0 82.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 125 Apr 22 COVID-19. These factors are likely to have long-term impacts on human capital, pro- MEXICO Key conditions and ductivity, and inequality. Mexico's fiscal position deteriorated in challenges 2020. The limited fiscal response to the pandemic, albeit at the risk of a weaker Table 1 2021 Trade openness, with a strong export man- recovery, and the sharp depreciation led Population, million 130.3 ufacturing base connected to Global Value to an increase in public indebtedness, al- GDP, current US$ billion 1292.4 Chains and integrated with the U.S. econ- though this was lower than other emerg- GDP per capita, current US$ 9921.6 omy, and a stable macroeconomic frame- ing markets. The recently approved ad- a 3.1 International poverty rate ($1.9) work, are staples of the Mexican economy. ministrative tax reform seeks to simplify a 9.8 Potential output growth declined in the tax compliance for MSMEs and broaden Lower middle-income poverty rate ($3.2) a 28.1 previous decade due to weak productivity the tax base. Moving forward, broader Upper middle-income poverty rate ($5.5) Gini index a 45.4 growth and sluggish investment. Produc- revenue-enhancing reforms will be need- School enrollment, primary (% gross) b 104.7 tivity heterogeneity is considerable across ed to meet spending pressures, increase b 75.1 sectors, regions, and firms as long-stand- access to quality public services and in- Life expectancy at birth, years ing structural barriers to growth remain, frastructure, while preserving debt sus- Total GHG Emissions (mtCO2e) 699.1 such as: limited access to finance, regulato- tainability. Higher oil prices will boost Source: WDI, Macro Poverty Outlook, and official data. ry burden, infrastructure bottlenecks, and revenue in the short term, but PEMEX's a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). inadequate provision of public services. challenging situation calls for a turn- Significant regional differences persist: 63 around. Uncertainty about regulatory percent of the multidimensional extreme changes could hamper the recovery of Real GDP growth is projected at 2.1 per- poor lived in six of Mexico's 32 states in some sectors, particularly energy. 2020. Rural areas, particularly in the south, cent in 2022. The labor market has yet to suffer from a vicious cycle of low produc- fully recover as most gains in employ- tivity, low physical and human capital in- ment took place in informal and low-wage vestments, and high poverty rates. Despite Recent developments jobs. Poverty is expected to decline mar- the positive effects of urbanization, most of Mexico's poor live in urban areas where Real GDP grew 4.8 percent in 2021, sup- ginally in 2022. Risks to recovery include public services provision is inadequate. ported by solid performances in services higher and persistent inflation, accelerat- The pandemic has exacerbated labor mar- and manufacturing in 2021 H1, as both ed monetary policy normalization in the ket weaknesses, including underemploy- mobility and U.S. demand increased. The U.S., increases in COVID-19 cases, con- ment, low female labor force participation, recovery lost impulse in 2021 H2 because tinuing job quality decline, and supply widespread informality, and lower quality of supply chain shortages, a rise in of newly created jobs. Access to quality ed- COVID-19 cases, and depressed invest- chain disruptions. Addressing pre-pan- ucation worsened as schools shut down, ment. Between July 2020 and December demic structural constraints to growth leading to higher dropout rates and a re- 2021, 7.4 million additional jobs were and inclusion remains critical for a ro- duction of 1.5 learning-adjusted years of added, surpassing pre-pandemic levels by bust medium-term economic recovery. education. Healthcare access declined as 0.8 million. However, most employment the system struggled to cope with gains were in informal and low-wage jobs FIGURE 1 Mexico / Inflation FIGURE 2 Mexico / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 8 40 150000 35 6 145000 30 4 140000 25 20 135000 2 15 130000 0 10 125000 5 -2 Jan '19 Jul '19 Jan '20 Jul '20 Jan '21 Jul '21 Jan '22 0 120000 Core Non-core Food 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Non-core Energy Non-core Utilities International poverty rate Lower middle-income pov. rate Inflation Upper middle-income pov. rate Real GDP pc Source: INEGI. Source: World Bank. Notes: see Table 2. MPO 126 Apr 22 and unemployment and underemploy- Government fiscal deficit was 3.8 percent projects. It envisages stabilizing the public ment rates remained above pre-pandemic of GDP during 2021. Government rev- debt-to-GDP ratio at 51 percent, support- levels. Female labor force participation enues benefited from the economic recov- ed by the enacted tax administration re- has not recovered, standing at 44.6 per- ery, tax settlements with large companies, form and economic growth. The strong cent at the end of 2021 compared to 45.2 and higher oil prices. Expenditures remain recovery in oil prices will help this debt percent in 2019. contained, despite the continuation of stabilization process. Monetary poverty using the US$5.5 poverty large public investment projects. Job creation, labor income growth, and line is expected to have declined from 28.1 higher social transfers in the form of non- percent in 2020 to 26.4 percent in 2021, sup- contributory pensions are expected to ported by a recovery in labor incomes. lead to a gradual reduction in monetary While the poverty headcount rate is back to Outlook poverty in 2022 and a further reduction its 2018 level, there are one million more through 2024. Enduring high inflation people in poverty compared to 2018 as a re- The economy is projected to expand by 2.1 could affect poverty reduction, as nearly sult of population growth. The vulnerable percent in 2022. Real GDP growth is fore- 55 (36) percent of the rural (urban) pop- (incomes between US$5.5 and US$13 per cast at 2.1 and 2.0 percent in 2023 and 2024, ulation had incomes below the basic food capita per day) increased slightly, making in line with Mexico's potential growth. The basket in 2021 Q4. up 44.5 percent of the population in 2021. economy is projected to reach its pre-pan- The economic recovery is subject to The current account deficit was 0.4 percent demic level in 2023. High inflation and risks. New COVID-19 variants might af- of GDP in 2021. Recovery in imports, due slow recovery in labor income are expect- fect mobility and private consumption, to inventory re-stocking and GVCs nor- ed to continue to weigh on domestic con- mitigated by the pace of vaccination. malcy, was attenuated by export perfor- sumption. Public investment is expected to Persistent bottlenecks in international mance, and remittances that amounted to support the recovery, while private invest- supply chains could slow the recovery US$51.6 billion in 2021. ment is projected to remain weak as regu- in manufacturing and exports. Regula- Headline (core) inflation reached 7.3 (6.6) latory uncertainties remain. tory uncertainty surrounding the ener- percent in February 2022. The cost of the The Central Bank is expected to continue gy sector may result in subdued pri- basic food basket increased by 13.9 (12.8) to raise its policy rate to rein in inflation, vate investment. Inflationary pressures percent in rural (urban) areas in the same anchor expectations, and accommodate may erode households' purchasing pow- period. The Central Bank increased its pol- the normalization of monetary policy in er and expedite interest rate hikes, icy rate from 4.0 in February 2021 to 6.0 the U.S. Inflation is projected to fall within which will affect investment and con- percent in February 2022 to maintain the target band after 2022. sumption. The current war in Ukraine medium-term expectations within the tar- The 2022 budget maintains prudent public ex- might add additional inflationary pres- get (3 ± 1 percent). penditure, focusing on flagship investment sures and increase financial risk. TABLE 2 Mexico / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.2 -8.2 4.8 2.1 2.1 2.0 Private Consumption 0.4 -10.5 7.2 2.7 2.5 2.4 Government Consumption -1.8 0.1 0.4 0.7 0.3 -0.2 Gross Fixed Capital Investment -4.7 -17.8 9.8 2.7 2.5 2.3 Exports, Goods and Services 1.5 -7.3 7.2 6.4 5.9 5.0 Imports, Goods and Services -0.7 -13.7 14.6 7.2 6.1 5.1 Real GDP growth, at constant factor prices -0.2 -7.9 4.7 2.1 2.1 2.0 Agriculture -0.3 0.3 2.9 2.0 1.7 1.3 Industry -1.8 -9.8 6.5 2.5 2.5 2.1 Services 0.6 -7.5 4.1 1.9 1.9 2.0 Inflation (Consumer Price Index) 3.6 3.4 5.7 6.0 3.9 3.5 Current Account Balance (% of GDP) -0.3 2.4 -0.4 -0.9 -1.2 -1.7 Net Foreign Direct Investment (% of GDP) 1.9 2.3 2.5 2.3 2.1 2.0 Fiscal Balance (% of GDP) -2.3 -4.0 -3.8 -3.4 -3.3 -3.3 Debt (% of GDP) 44.5 51.7 50.0 49.0 49.0 49.5 Primary Balance (% of GDP) 0.4 -1.0 -1.2 -0.7 0.0 0.3 a,b International poverty rate ($1.9 in 2011 PPP) 3.1 2.1 2.5 2.5 2.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 8.0 8.5 8.3 8.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 28.1 26.4 26.0 25.4 25.0 GHG emissions growth (mtCO2e) 1.1 -2.5 2.0 0.8 0.7 0.6 Energy related GHG emissions (% of total) 67.2 66.7 67.2 67.3 67.4 67.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2020-ENIGHNS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Based on microsimulation model for 2021-2022. For 2023-24, assumes neutral distribution (2020) with pass-through = 0.87 based on GDP per capita. MPO 127 Apr 22 in Ukraine lowers growth prospects in advanced economies and puts pressure NICARAGUA Key conditions and on commodity prices. The current domes- tic political context and subsequent in- challenges ternational reaction pose additional chal- lenges to economic recovery, including Table 1 2021 Prior to 2018, market-oriented reforms and lower FDI inflows and higher borrowing Population, million 6.7 sound macroeconomic management (in- costs. It will therefore be more urgent to GDP, current US$ billion 14.0 cluding a crawling peg exchange rate and establish productivity-boosting and con- GDP per capita, current US$ 2090.9 modest fiscal deficits) contributed to a sol- fidence-enhancing reforms, including im- a 3.4 International poverty rate ($1.9) id economic expansion. Between 2000 and proved access to finance, property rights a 13.1 2017, growth averaged 3.9 percent, led by and innovation. Lower middle-income poverty rate ($3.2) a 35.4 domestic demand fueled by remittances Upper middle-income poverty rate ($5.5) Gini index a 46.2 and Foreign Direct Investment (FDI). Nev- School enrollment, primary (% gross) b 120.6 ertheless, growth was driven primarily by Life expectancy at birth, years b 74.5 factor accumulation and led by low-skill Recent developments manufacturing exports. Total GHG Emissions (mtCO2e) 40.4 Following a two-year recession brought on Real GDP increased 10.3 percent in 2021. Source: WDI, Macro Poverty Outlook, and official data. by the sociopolitical crisis of 2018, the This recovery can be attributed to: (i) pri- a/ Most recent value (2014), 2011 PPPs. b/ WDI for School enrollment (2010); Life expectancy country suffered further declines in eco- vate consumption fueled by robust remit- (2019). nomic activity because of the pandemic tance inflows; (ii) public consumption and and two major hurricanes. Compared to investment aimed at addressing the im- regional peers, the economic impact of the pacts of COVID-19 and hurricane dam- Robust remittance inflows, a fiscal stimu- pandemic was limited due to mild contain- ages; and (iii) private investment and ex- lus, and favorable commodity prices have ment measures. Nonetheless, real GDP de- ports supported by favorable commodity clined 1.8 percent in 2020 as voluntary prices. Mining, manufacturing, construc- been the main drivers of the economic re- shutdowns weighed on domestic demand, tion, and trade have been the main drivers covery following a three-year recession while the global crisis dragged external de- of growth; tourism is recovering slowly. brought on by the 2018 sociopolitical cri- mand. With cumulative loss amounting to Nevertheless, welfare impacts of the sis, the COVID-19 pandemic, and two 8.7 percent since 2018, economic activity COVID-19 crisis remain. Data shows low- is estimated to have recovered to pre-2018 er employment rates in 2021Q3 (44 per- major hurricanes. However, fiscal consoli- levels in 2021. cent) than 2020Q3 (46 percent), as labor- dation, war in Ukraine, and repercus- While 60 percent of the population is fully intensive sectors like construction, hotel sions from the present political context vaccinated (as of February 2022), further and restaurants have not fully recovered are expected to reduce growth. Nicaragua vaccinations will be necessary to ensure a their employment levels. According to the still faces lingering pandemic-associated robust economic recovery, as more coun- World Bank High Frequency Survey, tries reduce COVID-19 restrictions and around 13 percent of those formally em- negative welfare impacts with lower ployed, prior to the pandemic, had tran- global tourism normalizes. Nonetheless, wages and employment and higher infor- the global environment is expected to sitioned to an informal job by June 2021. mality compared to the pre-crisis period. weigh on growth in Nicaragua as the war Employment and wage declines drove a FIGURE 1 Nicaragua / Real GDP growth and contributions FIGURE 2 Nicaragua / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 60 35000 20 50 30000 15 10 25000 40 5 20000 0 30 15000 -5 20 -10 10000 -15 10 5000 2017 2018 2019 2020 2021f 2022f 2023f 2024f Private Consumption Public Consumption 0 0 Public GFCF Private GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Exports Imports International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Nicaragua and World Bank. Source: World Bank. Notes: see Table 2. MPO 128 Apr 22 reduction in family income for 44 percent The current account deficit is expected to of households by mid-2021. widen in 2022 amid deteriorating terms of At the onset of the pandemic, the Central Outlook trade and a marginal deceleration in remit- Bank implemented policies to ensure liq- tances, balancing by 2024 as a result of a uidity in the financial system, and these Growth is expected to decelerate in 2022 gradual resumption in tourism, robust ex- are still in place. The financial system has to 2.9 percent amid global headwinds and ports, and growing, albeit at a declining been gradually recovering, as asset quality a fiscal consolidation. Authorities are plan- pace, remittance inflows. Meanwhile, FDI and profitability have continuously im- ning a consolidation starting 2022 as part inflows are expected to slow, given the proved. Inflation reached 4.9 percent in of their commitment to the IMF and con- present political context. 2021 pressured by rising commodity cerns over debt sustainability, by reducing Fiscal consolidation will bring the deficit prices, especially food and transportation. capital spending, however, current spend- down in coming years. Financing needs The fiscal deficit is estimated to have nar- ing momentum will remain to ensure ab- will be met through domestic borrowing rowed to 1.5 percent of GDP in 2021 as rev- sorption of COVID-19 funds, declining and non-concessional external borrowing, enue growth surpassed spending growth. thereafter. Recent international geopoliti- which will increase the cost of debt but not While emergency-related multilateral sup- cal developments are expected to weigh on compromise debt sustainability. The debt port enabled a ramp up in capital expen- growth amid elevated oil prices and low- burden is expected to reach 63.0 percent of ditures, including on hurricane-related re- er demand, partially offset by positive im- GDP in 2024. construction and pre-election spending, pacts from higher prices of exported com- Risks to the forecast are on the downside current expenditures rose more slowly as modities. Moreover, the present domestic and include the following: (i) deterioration execution of COVID-19 funds lagged. Debt political context is expected to keep in- of the domestic and international political is therefore expected to have reached 67.3 vestment and growth below historical context, including the war in Ukraine, (ii) percent of GDP by the end of 2021. levels throughout the forecast. These further international isolation, (iii) new The current account is estimated to have events will maintain the poverty rate (de- COVID-19 waves, (iv) delayed resumption recorded a deficit of 1 percent of GDP in fined as $3.2/day PPP) hovering around of international travel to Nicaragua; (v) nat- 2021 as increases in imports outweighed the 13 between 2020 and 2022. Meanwhile, in- ural disasters; and (vi) rising commodity pickup in exports. Meanwhile, FDI in- flation is expected to pick up further to prices. On the other hand, China-oriented creased to an average 8.5 percent of GDP in 5.9 percent in 2022 as commodity price policies, including the signing of the Belt the first three quarters of 2021 on the back pressures and supply-chain disruptions and Road Initiative MoU, could unlock ex- of financing for mining and energy projects are aggravated by recent geopolitical ternal loans on more favorable conditions spurred by favorable commodity prices. events, gradually declining thereafter. not subject to international sanctions. TABLE 2 Nicaragua / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -3.8 -1.8 10.3 2.9 2.3 2.5 Private Consumption -1.3 -0.6 8.1 3.2 2.2 2.4 Government Consumption 0.7 1.9 4.4 2.9 -2.3 2.4 Gross Fixed Capital Investment -24.5 10.4 33.9 -3.0 4.1 3.4 Exports, Goods and Services 5.6 -8.9 18.0 5.6 5.4 4.5 Imports, Goods and Services -3.4 0.4 18.5 2.8 3.9 4.1 Real GDP growth, at constant factor prices -3.3 -1.7 8.3 2.9 2.3 2.5 Agriculture 2.0 0.1 6.9 2.4 1.7 1.4 Industry -3.3 -1.4 17.7 3.9 2.7 2.6 Services -4.8 -2.4 5.0 2.5 2.2 2.8 Inflation (Consumer Price Index) 5.4 3.7 4.9 5.9 5.2 4.8 Current Account Balance (% of GDP) 6.0 5.9 -1.0 -1.6 -1.0 -0.1 a Fiscal Balance (% of GDP) -1.7 -2.6 -1.5 -1.6 -1.0 -0.7 b Debt (% of GDP) 58.1 65.9 67.3 67.7 66.1 63.0 a Primary Balance (% of GDP) -0.4 -1.3 -0.3 -0.4 0.2 0.3 c,d International poverty rate ($1.9 in 2011 PPP) 3.4 3.5 3.3 3.3 3.3 3.2 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 13.1 13.2 12.9 12.8 12.8 12.7 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 35.4 35.6 34.9 34.8 34.7 34.6 GHG emissions growth (mtCO2e) 0.8 1.1 2.6 1.8 1.8 1.8 Energy related GHG emissions (% of total) 15.2 15.0 15.8 16.1 16.2 16.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2007-, 2019-, and 2014-EMNV. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. d/ Projection using average elasticity (2007-2019) with pass-through = .3 based on GDP per capita in constant LCU. MPO 129 Apr 22 Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) are PANAMA Key conditions and deterrents to Foreign Direct Investment (FDI) and to leveraging Panama as a region- challenges al business and financial hub. Table 1 2021 Prior to the COVID-19 crisis, Panama sus- Population, million 4.4 tained high but declining growth rates, re- GDP, current US$ billion 63.6 lying on construction and public invest- Recent developments GDP per capita, current US$ 14515.0 ment. The middle class expanded from a 1.2 International poverty rate ($1.9) 50.8 percent of the population in 2015 to The spread of COVID-19 slowed in 2021 a 4.6 56.9 percent in 2019, however, rural pover- as a result of vaccination, with 73 percent Lower middle-income poverty rate ($3.2) a 12.1 ty remained six times higher than in urban of population at least partially vaccinated. Upper middle-income poverty rate ($5.5) Gini index a 49.8 areas. The COVID-19 crisis led to a two- The Omicron variant triggered a new School enrollment, primary (% gross) b 93.2 digit contraction in GDP in 2020 and a 2.7 spike, but the number of new cases was b 78.5 percentage-points increase in the poverty down by 85 percent by mid-February com- Life expectancy at birth, years rate, despite strong poverty-mitigation ef- pared to end-January. Total GHG Emissions (mtCO2e) 24.9 forts. Economic activity started to recover Panama’s GDP has rebounded from the Source: WDI, Macro Poverty Outlook, and official data. by the end of 2020, and the country needs COVID-19 crisis with 2021 growth at 15.3 a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). to ensure that the pandemic stays at bay percent. Growth was driven by copper to allow lagging sectors, such as tourism, mining from Panama Cobre, construction, to fully recover. Moreover, excess stock of manufacturing, and commerce, which ac- Panama’s strong rebound in 2021 buildings, higher household indebtedness, count for 70 percent of workers in vulner- and reduced fiscal space require a rethink ability (income between US$5.5 and US$13 brought real GDP above its pre-crisis lev- of the growth model. a day). The mining sector now accounts for el. Poverty is estimated to decline to al- The pandemic amplified existing chal- 7.1 percent of GDP in 2021 up from 3.8 per- most pre-crisis levels, in part due to lenges. Panama’s fiscal deficit (5.5 percent of cent in 2020. Poverty is estimated to have Panama’s mitigative social assistance GDP in 2021 vs. 2.9 in 2019) and debt levels decreased from 14.8 percent in 2020 to 12.3 (63.7 percent of GDP in 2021 vs. 46.3 in 2019) percent in 2021. measures. Nonetheless, some populations are much higher than before the pandemic. Panama’s external position remains remain vulnerable to income and employ- As a dollarized economy, the country needs stronger than in the pre-crisis period. Im- ment losses and require further protec- to promote fiscal consolidation to reduce in- ports are still below 2019 levels. The min- tion. As a dollarized economy, Panama terest payments, reduce public debt, and ing sector boosted exports in 2021, which now needs to curb the rise in public debt, comply with the deficit targets set by the Fis- are 137 percent higher than in 2019. The cal and Social Responsibility Law - FSRL (4 current account turned from a surplus in while promoting reforms that can in- percent of GDP for 2022). The main fiscal 2020 to a deficit in 2021, however, the crease potential growth and address the risk is the deficit in the pension system, deficit until September (2.1 percent of large urban-rural poverty divide. which requires larger transfers from the GDP) is 68 percent lower than in 2019. Net Treasury every year. Tax revenues are lower FDI inflows (3.2 percent of GDP) were than peers. The country’s weaknesses in more than enough to finance the deficit. FIGURE 1 Panama / Good exports and current account FIGURE 2 Panama / Actual and projected poverty rates and balance real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 4 40 12000 Non-Mining Exports (lhs) Mining Exports (lhs) Current Account Balance (rhs) 2 35 5 10000 30 0 8000 4 25 -2 20 6000 3 -4 15 4000 2 10 -6 2000 5 1 -8 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 -10 International poverty rate Lower middle-income pov. rate 2018 2019 2020 2021 Upper middle-income pov. rate Real GDP pc Source: INEC. Source: World Bank. Notes: see Table 2. MPO 130 Apr 22 Inflation increased in 2021 but is still at a inflows. Inflation will remain higher in moderate level compared to the US and re- 2022 due to higher fuel prices and the gional peers. The main culprit was trans- Outlook reduction in energy subsidies but should portation prices, driven by fuel and air- converge to lower levels as US inflation fares, which increased by 9.2 percent (aver- GDP is expected to grow strongly again in subsides. High food prices might exac- age prices). 2022 on the back of the growth carry-over erbate the effects of the pandemic on Panama’s fiscal position improved in from 2021 (9.4 percent), continued expan- food insecurity, which doubled during 2021, but deficits and debt are still at sion of the mining sector, and the late recov- the pandemic. This could affect house- a high level. The fiscal deficit declined ery in tourism and air transportation. In the holds in the lowest income decile the from 10 percent of GDP in 2020 to 5.5 medium term, GDP will converge to its po- most, who allocate 30 percent of their percent, below the 7-percent limit set by tential growth rate of around 5 percent. Al- budget to food. the LRSF. The debt-to-GDP ratio declined though Panama Solidario, the emergency Fiscal results will continue to improve, but from 69.8 in 2020 to 63.7, while debt social assistance program, has played a crit- compliance with the FSRL deficit limits risk indicators improved. Deficit reduc- ical role in mitigating the adverse effects of will become harder, hinging on rollback of tion was achieved due to higher revenue COVID-19, the more limited efficacy of the COVID-19 expenditures, efficiency gains growth (16.9 percent), moderation on cur- program in rural areas calls for further pro- from tax administration, expenditure dis- rent expenditures (5.6 percent growth), tection to prevent poverty and inequality cipline, and a solution to the pension sys- and containment on capital expenditures from increasing further. tem debt, even taking into account the new (17.7 percent contraction). However, rev- The increase in GDP, along with higher US$375 million yearly revenue flow from enues and expenditures are still not back commodity prices caused by the war in mining royalties. The main external risks at the pre-crisis level. In 2021, revenues Ukraine, will continue to boost imports. to the forecast are higher prices and risk reached 18.2 percent of GDP (18.5 percent Still, the current account deficit will be aversion brought by heightened geopoliti- in 2019) and expenditures were at 23.7 lower than historical averages as a result cal events. Climate change risks also arise percent of GDP (21.3 percent in 2019), of increasing mining exports and com- from drought and sea level rise, including due to increases in subsidies, transfers, petitiveness gains in service exports. The through their potential effects on the oper- and interest payments. deficit will be financed by FDI and other ation of the Panama Canal. TABLE 2 Panama / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.0 -17.9 15.3 6.5 5.0 5.0 Private Consumption 3.4 -18.5 8.5 6.4 5.0 4.6 Government Consumption 4.5 4.3 4.3 2.0 1.7 0.9 Gross Fixed Capital Investment 0.0 -37.9 40.3 9.7 8.9 6.0 Exports, Goods and Services -0.1 -22.0 15.5 7.0 5.0 5.1 Imports, Goods and Services -3.3 -29.3 20.0 7.7 6.8 4.5 Real GDP growth, at constant factor prices 3.2 -17.9 15.3 6.5 5.0 5.0 Agriculture 2.5 3.8 6.7 3.0 2.5 2.0 Industry 3.4 -32.1 30.6 7.4 4.0 3.7 Services 3.2 -12.7 10.7 6.3 5.5 5.6 Inflation (Consumer Price Index) -0.4 0.0 1.6 3.5 2.5 2.1 Current Account Balance (% of GDP) -5.3 3.1 -0.8 -1.2 -2.5 -3.5 Net Foreign Direct Investment (% of GDP) 5.5 3.2 4.9 5.1 5.4 6.0 Fiscal Balance (% of GDP) -3.5 -10.3 -5.5 -4.1 -3.0 -1.8 Debt (% of GDP) 46.4 69.8 63.7 63.5 63.0 62.4 Primary Balance (% of GDP) -1.6 -7.5 -3.1 -1.7 -0.6 0.7 a,b International poverty rate ($1.9 in 2011 PPP) 1.2 1.9 1.3 1.3 1.2 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.6 6.1 4.9 4.4 4.1 3.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 12.1 14.8 12.3 11.7 11.3 10.9 GHG emissions growth (mtCO2e) 9.4 -5.2 6.9 7.7 4.3 -1.0 Energy related GHG emissions (% of total) 48.9 51.3 52.9 55.8 57.3 56.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2019-EH. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 131 Apr 22 PARAGUAY Key conditions and Recent developments challenges Real GDP grew 5.8 percent year-on-year (yoy) over the first nine months of 2021, dri- Table 1 2021 Buttressed by sound macroeconomic ven by strong fixed investment growth from Population, million 7.2 management, Paraguay achieved strong both private and public construction works, GDP, current US$ billion 37.9 economic growth and poverty reduction as well as by private consumption growth. GDP per capita, current US$ 5248.5 between 2002 and 2019. Real GDP grew Despite high commodity prices, net exports a 0.8 International poverty rate ($1.9) 4.1 percent on average, poverty fell from contributed negatively to growth, as the a 4.7 45.9 to 15.4 percent of the population, drought suppressed export volumes. On Lower middle-income poverty rate ($3.2) a 17.9 and inequality declined from 57.3 to 45.7 the production side, growth was mainly dri- Upper middle-income poverty rate ($5.5) Gini index a 43.5 Gini points. This performance helped ven by services, followed by manufacturing School enrollment, primary (% gross) b 84.6 Paraguay cushion the effects of the pan- and construction. Nonetheless, high-fre- b 74.3 demic, as it recorded one of the smallest quency indicators point to slower growth in Life expectancy at birth, years GDP contractions in the region in 2020 the fourth quarter of 2021. Although the Total GHG Emissions (mtCO2e) 96.9 (-0.8 percent) and a modest increase in drought suppressed employment growth Source: WDI, Macro Poverty Outlook, and official data. poverty (2.5 percentage points) from the in rural areas, leading to a decline in the av- a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). 15.4 percent in 2019. erage unemployment rate by just 0.4 per- However, Paraguay’s growth has been cent (yoy), unemployment among urban highly volatile, linked to its economic women fell by 1.1 percent (yoy). Paraguay’s economic recovery is con- dependence on agriculture and hydro- Rising food and fuel prices led inflation to electric energy exports which make increase from an average of 2.5 percent yoy strained by adverse climate developments up 60 percent of total goods exports. in the first quarter of 2021 to 7.3 percent yoy and global uncertainty. The ongoing Thus, climate conditions are important in the fourth quarter, the fastest pace in a drought is reducing agricultural yields drivers of economic cycles and poverty decade and well above the target range (2-6 and hydroelectric exports, and driving up reduction, affecting incomes in the percent), despite a relatively stable ex- agricultural sector where the poorest change rate. Core inflation also doubled to 6 logistics costs, in the context of high fuel people work. percent over the same period. Despite sev- prices. Growth is thus expected to slow The severe ongoing drought in the Paraná en consecutive interest rate hikes of a cumu- down to 1.5 percent in 2022, weakening River basin illustrates the limitations of lative 500bps since August, inflation picked fiscal outcomes. Despite a fall in the un- Paraguay’s highly climate-dependent up further to 9.3 percent yoy in February employment rate, mainly among urban growth model. The prolonged dry spell 2022. Reserves stood at US$9.8 billion at has impacted the quantity and quality of end-February, equivalent to 9 months of women, poverty reduction is impeded by crops, driven up logistics costs, and pro- goods and services’ imports. Higher infla- the uptick in inflation, currently running voked widespread forest fires. Structural tion hindered poverty reduction, especially at the fastest pace in a decade. reforms that diversify Paraguay’s econo- for those at the lower end of the income dis- my will serve to increase its resilience to tribution. The poverty rate, measured at 5.5 external shocks. PPP dollars and 3.2 PPP dollars per day, is FIGURE 1 Paraguay / Headline and core CPI inflation FIGURE 2 Paraguay / Actual and projected poverty rates and real private consumption per capita Inflation, year-on-year change (percent) Poverty rate (%) Real private consumption per capita (millions constant LCU) 10 45 25 Headline CPI 40 Core CPI 20 8 35 Average 30 15 6 25 2021: 4.8 20 10 4 15 10 5 2 5 2020: 1.8 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate Feb'19 Jul'19 Dec'19 May'20 Oct'20 Mar'21 Aug'21 Jan'22 Upper middle-income pov. rate Real priv. cons. pc Sources: Central Bank of Paraguay and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 132 Apr 22 estimated to have declined by only 1.3 and driven by large private investments (name- slows due to the drought and as the import 0.4 percentage points respectively in 2021, ly a pulp plant and a biorefinery), with high- bill, especially for fuel, increases. The fi- leading to a marginal increase in the Gini co- er agricultural commodity prices only par- nancial account is expected to remain sta- efficient. These effects were more accentuat- tially offsetting the effects of the drought. ble as a share of GDP despite impending ed in rural areas where the drought limited This would lead to lower incomes, especial- interest rate increases in the United States, poverty reduction. ly in the rural areas, and to stagnating ex- as residents mainly own domestic curren- The pick-up in activity and prices improved treme poverty. Higher fuel prices, triggered cy-dominated assets. fiscal accounts, along with the continued by the war in Ukraine, are expected to com- The outlook assumes that weather con- phase-out of COVID-19 related emergency pound inflation challenges. Inflation is thus ditions will improve towards the end of social transfers and the reduction of public expected to recede only gradually despite 2022, that the shock to commodity prices investment, narrowing the fiscal deficit monetary policy tightening. As weather is temporary, and that future waves of from 6.1 percent in 2020 to an estimated 3.8 conditions normalize in 2023 and 2024, ex- the COVID-19 pandemic will not require percent of GDP in 2021. Revenues rose by al- port growth is expected to increase. mobility restrictions. However, only 45 most 14 percent, driven by corporate income The Government has deferred tax obliga- percent of the population had received tax collections, while total expenditures in- tions for soy producers and provided spe- two doses of a COVID-19 vaccine by Feb- creased by only 1.3 percent. Public debt is es- cial financing facilities to small-hold farm- ruary 2022, one of the lowest in the re- timated to have risen slightly to 36 percent of ers but it lacks the fiscal space to enact fur- gion. Fifteen percent of respondents to GDP at the end of 2021. Credit ratings re- ther stimulus measures. With lower rev- the World Bank High-Frequency Phone main stable; in January 2022, the Govern- enues, the fiscal deficit is expected to come Survey indicated that they were not plan- ment placed an 11-year US$500 million in at 3.6 percent of GDP and gradually nar- ning to receive the vaccine in June 2021. bond at 3.85 percent partly to repurchase row to reach the Government’s target of Fostering greater trust in institutions, in- outstanding bonds due in 2023 and 2026. 1.5 percent by 2024, in line with the fiscal cluding by improving the quality of pub- responsibility law. The Government in- lic services and by strengthening institu- tends to achieve this target by reducing tional capacity, is a key challenge. These personnel and capital spending. Debt is ex- reforms would also help Paraguay im- Outlook pected to stabilize due to faster growth prove the enabling environment for the and a lower deficit. private sector and thus attract more for- Economic growth is expected to slow to 1.5 The current account is forecast to register eign direct investment to boost growth in percent in 2022 and to remain primarily a small deficit in 2022 as export growth the medium term. TABLE 2 Paraguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.4 -0.8 4.5 1.5 4.1 3.8 Private Consumption 1.8 -3.6 5.8 1.6 3.9 4.0 Government Consumption 4.7 5.1 -1.3 -1.7 -0.6 1.3 Gross Fixed Capital Investment -6.1 5.3 11.3 6.6 5.6 4.2 Exports, Goods and Services -3.4 -9.0 4.8 1.2 6.5 5.4 Imports, Goods and Services -2.0 -15.2 9.5 3.5 5.5 5.2 Real GDP growth, at constant factor prices -0.2 -0.5 4.6 1.5 4.1 3.8 Agriculture -3.1 7.4 -11.0 -25.0 30.0 8.5 Industry -3.0 0.7 7.0 6.0 4.0 4.5 Services 2.4 -3.1 6.8 3.9 0.3 2.4 Inflation (Consumer Price Index) 2.8 1.8 4.8 6.5 4.0 4.0 Current Account Balance (% of GDP) -0.5 2.5 0.8 -0.7 0.9 1.3 Net Foreign Direct Investment (% of GDP) 0.6 0.3 0.4 0.6 0.6 0.6 Fiscal Balance (% of GDP) -2.9 -6.1 -3.8 -3.6 -2.5 -1.5 Debt (% of GDP) 23.4 34.5 36.0 36.6 36.3 35.9 Primary Balance (% of GDP) -2.0 -5.1 -2.7 -2.3 -1.2 -0.3 a,b International poverty rate ($1.9 in 2011 PPP) 0.9 0.8 0.7 0.7 0.8 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.5 4.7 4.3 4.5 4.5 4.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.4 17.9 16.6 17.1 17.1 16.9 GHG emissions growth (mtCO2e) -0.3 0.7 1.3 -9.1 -2.2 -0.4 Energy related GHG emissions (% of total) 9.6 9.2 9.8 0.8 0.7 0.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2020-EPH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 133 Apr 22 officials. In addition, political tensions be- tween the Executive and Congress, and polit- PERU Key conditions and ical fragmentation at national and subnation- allevelscontinuetobeasourceofuncertainty. challenges Theeconomyisalsovulnerabletocapitalout- flows, sudden reductions in prices of miner- Table 1 2021 Peru has solid macroeconomic fundamen- als,andnaturaldisasters.However,theongo- Population, million 33.4 tals, including a relatively low public debt to ing energy transition is expected to support GDP, current US$ billion 223.2 GDP ratio, considerable international re- the price of copper, Peru´s main export prod- GDP per capita, current US$ 6690.7 serves, and a solid central bank. However, uct,inthemediumterm. a 4.4 International poverty rate ($1.9) important structural weaknesses related to a 14.1 widespread informality, limited economic Lower middle-income poverty rate ($3.2) a 32.9 diversification, and weak state capacity Upper middle-income poverty rate ($5.5) Gini index a 43.8 have led to a significant slow-down in Recent developments School enrollment, primary (% gross) b 121.0 growth since the end of the commodity b 76.7 boom in 2014, slowing the pace of poverty After a strong recession in 2020, real GDP Life expectancy at birth, years and inequality reduction. Progress in reduc- grew 13.3 percent in 2021, reaching its pre- Total GHG Emissions (mtCO2e) 173.2 ing the size of the informal sector, which em- pandemic level. The recovery was led by Source: WDI, Macro Poverty Outlook, and official data. ploys three-quarters of workers in low pro- domestic demand, supported by the ex- a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). ductivity jobs, has been limited. In addition, pansion of both public and private expen- low quality government services, including diture. While employment levels have al- in education, health and water, hamper most returned to the pre-crisis levels, this Peru´s economy rebounded strongly in growth and poverty reduction. They also was largely driven by low quality jobs in made the country more vulnerable to the the informal sector. In fact, formal employ- 2021, but poverty reduction was slowed COVID-19 pandemic as the poverty rate ment in urban areas is still more than 20 by structural rigidities in the labor mar- (US$5-a-day -line) increased more than 12 percent below pre-pandemic levels. Lower ket and inflation. GDP growth is expect- percentage points, reaching 32.9 percent in quality of employment has led to a reduc- ed to return to its pre-pandemic trend of 2020. Although output strongly rebounded tion of household income, and by the end in 2021, workers' income and poverty have of the year, the average wage was still 13 around 3 percent annually in 2022, as the not yet reached their pre-pandemic levels. percent below that registered in 2019. boost from favorable export prices com- Medium-term prospects for growth and in- Mainly driven by the rebound in GDP, pensates for political uncertainty. Poverty clusion will depend on the capacity of the poverty declined by an estimated 4.6 per- is expected to remain well above its 2019 government to implement a credible reform centage points in 2021, reaching 28.3 per- level. Overcoming structural challenges program. In recent months, business confi- cent, still well above its level in 2019. dence and investment prospects have been The public deficit decreased from 8.9 per- related to wide-spread informality, low undermined by the uncertainty surround- cent in 2020 to 2.6 percent in 2021, one of the quality of public services, and limited eco- ing the policy agenda and potential policy fastest fiscal consolidations in the region. nomic diversification are critical for medi- reversals, including in critical areas such as This reduction was mainly driven by a 40 um-term to long-term growth. public transport, higher education, labor percent real increase in public revenues, as market, and a large turnover of public sector a result of higher tax collection from mining FIGURE 1 Peru / Real GDP growth and contributions to real FIGURE 2 Peru / Actual and projected poverty rates and real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 60 20000 Private Consumption 20 Public Consumption 18000 Gross Investment 50 16000 15 Exports Imports 14000 40 10 GDP 12000 5 30 10000 0 8000 20 6000 -5 4000 10 -10 2000 -15 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -20 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021 2022f 2023f 2024f Upper middle-income pov. rate Real GDP pc Sources: Central Bank and World Bank staff. Source: World Bank. Notes: See Table 2. MPO 134 Apr 22 companies, the effect of some administra- the short-term, with more than 70 per- in the coming years, the large-scale new in- tive measures, and prepayment of some tax cent of the population receiving two vestment pipeline is expected to compress fines. Public debt reached 36 percent of doses and more than 30 percent receiv- due to political and social tensions. GDP, just slightly above its 2020 levels. ing a booster dose. Peru was hit by the The fiscal deficit is expected to tem- Inflation trended upwards in the second half third wave of COVID-19 in early 2022 porarily increase in 2022, mainly due to of the year, reaching 6.4 percent by Decem- and the economic effects were limited. lower revenues from prepayments of tax ber. This brought average annual inflation to However, the long-term effects of the fines compared to 2021. From 2023 on- 4.0 percent in 2021, well above the 1-3 per- pandemic could be significant, through wards, the deficit could gradually de- cent target range. Price dynamics reflected the impacts of school closures on future cline, given the offsetting effects of fis- the global increase in the price of food and labor productivity. cal consolidation efforts and spending energy, the depreciation of the domestic The economy is expected to expand pressures to maintain citizen support. currency and the lagging effect of the sizable about 3.4 percent in 2022, mainly driven The announced reinstatement of the fis- monetary stimulus of 2020. In this context, by higher export volumes, while domes- cal rule for 2023 onwards would help to the Central Bank increased its reference rate tic demand will gradually decelerate. Ex- guide this decline. 375 basis points between August 2021 and ports will be supported by the entry into The current account deficit is expected to March 2022, to curb inflation expectations. operation of important copper mines. decline after 2022, mainly reflecting the The external current account recorded a Capital spending on mining will contin- combined effect of increasing exports and 2.8 percent deficit in 2021, mainly reflect- ue to support private investment due to the slowdown in imports, in a context of ing the effect of higher commodity prices the continuation of some large invest- a moderation in domestic demand. An ex- on foreign mining firms’ profits and their ment projects, offsetting the effect of low pected minor correction in export prices impact on income payments abroad, more business confidence. In addition, the re- since 2023 could also contain growth in than offsetting the effect of a record sur- covery of the formal labor market, and mining firms’ profits. plus in trade balance. the gradual normalization of activities, is Due to recent shocks to the price of energy expected to support an increase in pri- and food products, average inflation may vate consumption. pick up in 2022, slowing the pace of pover- In 2023 and 2024, GDP growth is expected ty reduction. Given the determined policy Outlook to gradually slow down, along with do- stance by the Central Bank and as infla- mestic demand and a weakening new in- tionary pressures ease, the inflation rate is Significant progress with vaccinations is vestment in the mining sector. Despite this, expected to gradually reverse to the target likely to limit the impact of COVID-19 in mineral prices are expected to remain high range by end 2023. TABLE 2 Peru / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -11.0 13.3 3.4 3.1 3.0 Private Consumption 3.2 -9.8 11.7 3.3 3.0 3.0 Government Consumption 3.6 9.1 6.0 4.0 3.1 3.1 Gross Fixed Capital Investment 2.9 -16.2 34.1 1.8 1.9 1.9 Exports, Goods and Services 0.3 -18.2 17.1 6.9 6.3 5.9 Imports, Goods and Services 1.7 -15.4 25.1 5.2 5.0 5.0 Real GDP growth, at constant factor prices 2.2 -10.9 13.3 3.4 3.1 3.0 Agriculture 1.5 1.0 3.7 2.3 2.3 2.4 Industry -0.1 -13.3 16.4 3.7 4.8 3.6 Services 3.8 -10.7 12.7 3.4 2.1 2.6 Inflation (Consumer Price Index) 2.1 1.8 4.0 5.3 4.0 2.8 Current Account Balance (% of GDP) -1.0 0.8 -2.8 -2.5 -2.1 -2.1 Net Foreign Direct Investment (% of GDP) 2.9 0.4 2.7 2.8 2.6 2.6 Fiscal Balance (% of GDP) -1.6 -8.9 -2.6 -2.8 -2.7 -2.5 Debt (% of GDP) 26.8 34.7 36.1 36.0 36.6 37.3 Primary Balance (% of GDP) -0.2 -7.3 -1.1 -1.0 -0.9 -0.8 a,b International poverty rate ($1.9 in 2011 PPP) 2.2 4.4 3.1 3.0 2.8 2.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 7.5 14.1 10.9 10.5 10.1 9.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 32.9 28.3 27.6 26.9 26.3 GHG emissions growth (mtCO2e) -0.9 -14.2 9.3 -0.3 -0.4 -0.5 Energy related GHG emissions (% of total) 26.3 16.3 22.1 21.8 21.3 20.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2010-ENAHO, 2019-ENAHO, and 2020-ENAHO. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2010-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 135 Apr 22 SAINT LUCIA Key conditions and Recent developments challenges Strong tourism recovery and construction resumption are estimated to have driven Table 1 2021 Saint Lucia (SLU) is a small tourism-de- economic growth to 6.6 percent in 2021 and Population, million 0.2 pendent island economy. Tourism ac- reduced the poverty rate. Total stay-over GDP, current US$ billion 1.8 counted for around 68 percent of GDP tourists are estimated to have increased by GDP per capita, current US$ 9591.9 in 2019. The island is highly vulnerable 53 percent in 2021 compared to 2020, but re- a 4.6 International poverty rate ($1.9) to external shocks and natural disasters, main far from full recovery at only 47 per- a 10.2 whose impacts are becoming increasingly cent of the 2019 level. Private and public con- Lower middle-income poverty rate ($3.2) a 19.9 severe due to climate change. The result- struction, such as hotel projects, road im- Upper middle-income poverty rate ($5.5) Gini index a 51.2 ing economic volatility weighs on longer- provement projects, hospital and airport, re- School enrollment, primary (% gross) b 101.1 term growth as well as the most vulner- sumed momentum and reached more than b 76.2 able groups disproportionately. Saint Lu- 10 percent growth rate in 2021. Agriculture, Life expectancy at birth, years cia recorded a very high economic con- however, experienced another year of reces- Total GHG Emissions (mtCO2e) 0.5 traction of 20.4 percent in 2020, and an in- sion, reflecting pre-existing concerns over Source: WDI, Macro Poverty Outlook, and official data. crease in unemployment of almost 5 per- banana exports, and the negative impacts of a/ Most recent value (2016), 2011 PPPs. b/ Most recent WDI value (2019). centage points, with women and young Hurricane Elsa in July 2021. Resumed eco- workers most affected. Widespread re- nomic activities are expected to have re- ductions in income are expected to have duced the poverty rate, which, nevertheless, After a steep economic contraction in increased poverty, despite supportive is projected to be more than 3 percentage government measures. points above its pre-pandemic level. Phone 2020, Saint Lucia’s growth picked up in The pandemic further heightened Saint survey data from June 2021 shows that 55.1 2021 as tourism started to recover. Real Lucia’s debt vulnerabilities. Leading up percent of households had not yet recuper- GDP and poverty are projected to reach to the pandemic, a fiscal deficit averaging ated their pre-pandemic income level. 2019 levels only by 2024. The pandemic 2 percent of GDP between 2015-19 The current account deficit is estimated to pushed up the public debt level to 60 remain high at 8.0 percent of GDP. The re- also led to a sharp increase in public percent of GDP by end-2019. The eco- bound of tourism receipts was offset by the debt. This aggravates pre-existing fiscal nomic contraction and additional fiscal rise in global commodity prices, especially vulnerabilities and refinancing risks, de- spending in 2020 led to a further increase oil, and increased imports to support do- spite the projected strong medium-term in public debt to more than 85 percent of mestic activities. Remittances and Citizen- recovery. A concrete fiscal consolidation GDP and debt service climbed to above ship-by-Investment inflows are estimated 15 percent of GDP. This high public to remain strong, consistent with the eco- strategy could mitigate the risks and en- debt level severely constrains the Gov- nomic recovery in the major economies. hance the financing ability for sustain- ernment’s borrowing capacity to finance They help to meet the current account fi- able development projects. new projects and mitigate socio-econom- nancing needs, along with the disbursement ic vulnerabilities to external shocks and from pre-secured project loans, and other natural disasters. tourism-related foreign direct investments FIGURE 1 Saint Lucia / Key macroeconomic variables FIGURE 2 Saint Lucia / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 25 PPG debt-to-GDP (rhs) 100 30 35000 20 Primary Balance 90 25 30000 15 Real GDP Growth 80 25000 10 70 20 5 60 20000 15 0 50 15000 -5 40 10 10000 -10 30 5 5000 -15 20 0 0 -20 10 2016 2018 2020 2022 2024 -25 0 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021e 2022f 2023f 2024f Upper middle-income pov. rate Real GDP pc Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Source: World Bank. Notes: see Table 2. Global Practices. Notes: e = estimate, f = forecast. MPO 136 Apr 22 (FDI), and support from multilateral and bi- holds, which already increased to concern- lateral partners. Imputed net foreign re- ing levels during the pandemic. serves are relatively stable at an estimated Outlook The current account deficit is projected to 4.1 months of imports. Gas and fuel prices decrease over the medium term. The trend drove up inflation in 2021, negatively im- Strong return of tourism and continued is driven by the opposing forces of increased pacting the purchasing power and food se- construction projects will drive economic exports in tourism receipts, and higher curity of the most vulnerable groups. Phone recovery and lower the poverty rate, but global commodity prices along with higher survey data from June 2021 suggests that risks to the economic outlook are elevated. imports to meet domestic activities. Risks to food insecurity remains elevated with more GDP growth is projected to average 5.8 FDI inflows are high with monetary policy than one third of households having run out percent between 2022 and 2024. Continued tightening in major economies. of food due to a lack of money or resources. recovery momentum, additional airlifts Despite the medium-term improvement of The fiscal deficit is estimated to narrow to from US and UK, and scheduled pick-up fiscal outturns and the solid economic re- 7.5 percent of GDP in 2021 from 11.0 per- of cruises will maintain tourism growth. covery, debt remains high and poses sig- cent in 2020. Recovery in economic activi- Robust growth in construction will arise nificant refinancing risks. The disburse- ties brought tax revenues up by around 12 from continuation and completion of the ment of the remaining airport loan and the percent from 2020, but remain 15 percent large public infrastructure projects and overall fiscal deficit are expected to keep lower than the pre-pandemic level. Partial major hotel and entertainment projects debt at above 80 percent of GDP. With exiting of the COVID-19 related measures throughout 2024. However, tourism recov- around half of the central government’s and a delayed payment of agreed public ery remains highly uncertain due to the debt maturing in the next 4 years, the Gov- wage increases in 2021 helped lower cur- pandemic evolution. Meanwhile, due to ernment faces challenges to meet financing rent expenditure. But higher utility costs the war in Ukraine and continued pan- needs. Rising concerns over high public and increased capital expenditure partially demic impacts, the recovery faces elevated debt and tightening of market liquidity offset this improvement and led to only risks from global inflationary pressures, may result in higher financing costs and a marginal decrease of total expenditure. especially in 2022, which threaten to de- lower roll-over rates, which could further The fiscal deficit, together with the addi- crease the real income in tourism source push up public debt levels. Early and tional disbursements for the airport rede- countries and increase traveling costs. In- transparent fiscal consolidation will help velopment project, led to a further increase flationary pressures will also threaten food mitigate the refinancing risks and break in public debt to 89.2 percent of GDP. security of poor and vulnerable house- the vicious cycle of “high debt-high costs”. TABLE 2 Saint Lucia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices -0.1 -20.4 6.6 7.9 5.8 3.7 a Real GDP growth, at constant factor prices 0.8 -20.3 6.6 7.9 5.8 3.7 Agriculture 3.6 -9.5 -10.3 4.8 3.4 1.8 Industry -1.4 -9.9 8.6 6.9 4.2 2.9 Services 1.1 -21.9 6.8 8.1 6.0 3.8 Inflation (Consumer Price Index) 0.6 -1.7 2.5 3.9 2.4 1.9 Current Account Balance (% of GDP) 6.1 -8.3 -8.0 -7.2 -5.3 -1.7 b Fiscal Balance (% of GDP) -3.4 -11.0 -7.5 -5.9 -4.0 -3.5 b Debt (% of GDP) 59.7 86.5 89.2 89.5 87.3 87.0 b Primary Balance (% of GDP) -0.4 -7.2 -3.8 -2.3 -0.5 -0.3 c,d International poverty rate ($1.9 in 2011 PPP) 4.5 6.4 5.4 4.7 4.6 4.5 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.4 13.0 12.1 11.3 10.2 9.7 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 19.2 25.0 22.8 20.6 19.8 19.2 GHG emissions growth (mtCO2e) 2.5 -22.7 3.8 9.2 4.9 1.1 Energy related GHG emissions (% of total) 65.5 67.4 68.5 67.1 66.3 66.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Fiscal balances are reported in fiscal years (April 1st -March 31st). c/ Calculations based on SEDLAC harmonization, using 2016-SLC-HBS. Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. d/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 137 Apr 22 2008, the poverty rate was 30.2 percent us- ing the national poverty line of EC$5,523 or ST. VINCENT AND Key conditions and US$2,046 per annum per adult. challenges THEGRENADINES St. Vincent and the Grenadines (SVG) is a Recent developments small island developing state (SIDS) with an Table 1 2021 economy driven largely by tourism and COVID-19 and the volcanic eruption have Population, million 0.1 agriculture. This makes it particularly vul- had a sizeable impact on economic growth. GDP, current US$ billion 0.8 nerable to climate change, external econom- The fall in tourism following the COVID-19 GDP per capita, current US$ 7190.1 ic shocks, and natural disasters such as those pandemic resulted in a GDP contraction of School enrollment, primary (% gross) a 113.4 experienced recently with the volcanic -5.3 percent in 2020. Livelihoods were then a 72.5 eruption and the COVID-19 pandemic. Pri- completely disrupted by the volcanic erup- Life expectancy at birth, years or to the pandemic, SVG was upgrading es- tion in April 2021, when 22,800 people were Total GHG Emissions (mtCO2e) 0.4 sential infrastructure to lay the foundation evacuated from their homes, farms, and Source: WDI, Macro Poverty Outlook, and official data. for increased growth and economic diversi- businesses. This contributed to a significant a/ Most recent WDI value (2019). fication, including completion of a new in- loss in income and has depressed domestic ternational airport, modernization of the demand. Electricity and water services were seaport (a 22 percent of GDP public invest- interrupted. Education was severely dis- The volcanic eruption and COVID-19 ment), and plans for the construction of a rupted as schools throughout the country significantly impacted GDP growth in new hospital. To ensure the sustainability of were used as shelters, although teachers 2021. Poverty is expected to have fur- these essential investments, fiscal consoli- continued to be paid. Tourism had already ther increased due to the economic con- dation had commenced, and primary fiscal been hard hit by COVID-19, the volcanic surpluses had been achieved from 2016 eruption and ongoing COVID-19 develop- traction and volcano induced disloca- through 2019. SVG adopted a Fiscal Respon- ments have further delayed the expected re- tions. After several years of primary sibility Framework with fiscal balance, ex- bound in tourism. surpluses, these recent shocks have ex- penditure, wage bill, and debt targets, and The overall fiscal deficit widened to 4.2 erted pressure on public finances. Public the creation of a contingency fund. Howev- percent of GDP in 2021, largely in response er, the COVID-19 shock and the volcanic to the fiscal demands imposed by the vol- investment projects will pose fiscal chal- eruption have disrupted this agenda. canic eruption. The government imple- lenges. Natural disasters and rising food The volcanic eruption, which displaced mented direct fiscal spending measures to- and fuel prices pose additional risks. The about 20 percent of the population, com- taling 7.1 percent of GDP to address the risk of debt distress remains high. pounded the impact of the COVID-19 immediate post-volcano humanitarian cri- shock. Heavy ashfall, critical utility inter- sis. Additional spending will be needed for ruptions, increased food insecurity, and the reconstruction and recovery efforts. Thus, subsequent flooding and mudslides are ex- the deficit is expected to widen to 5.3 per- pected to have had a significant poverty and cent of GDP in 2022. This will pose chal- welfare impact which is difficult to quanti- lenges in a context where the government fy. Based on the last available data from plans to continue with critical investment FIGURE 1 St. Vincent and the Grenadines / Fiscal balances FIGURE 2 St. Vincent and the Grenadines / Public debt Percent of GDP Percent of GDP 4 90 80 2 70 0 60 50 -2 40 -4 30 Public Debt Overall Fiscal Balance 20 -6 Public External Debt Primary Balance 10 -8 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Sources: SVG Minister of Finance (2020) and World Bank staff estimates. Sources: SVGs Minister of Finance (2020) and World Bank staff estimates. MPO 138 Apr 22 projects, such as the port modernization tourism continues to rebound and is ex- non-port projects; increasing the customs project and the new hospital, while taking pected to return to levels approaching service charge; enhancing taxpayer com- steps to strengthen its fiscal framework. 80 percent of pre-COVID levels by 2023. pliance; limiting import duty and VAT ex- In terms of external vulnerabilities, the Tourism growth over the medium term emptions; strengthening SOE governance; current account deficit increased to 24.1 is expected to be facilitated by the new and exploring measures to reform the percent of GDP in 2021, from 16.3 percent airport. However, ongoing COVID-19 de- government workers’ pension system. in 2020, following the volcanic eruption. velopments continue to contribute to con- The fiscal deficit is forecast to increase International reserves fell modestly to 5 siderable uncertainty. The sizeable invest- to 5.3 percent of GDP in 2022 and 6.3 months of import coverage. Public debt ment pipeline should also contribute to percent in 2023 as the public investment rose to 87.5 percent of GDP in 2021, of growth over the short term, as will in- program is implemented and volcano re- which external debt is 69 percent of GDP, creased economic efficiency following construction efforts continue. Limiting the and SVG remains at a high risk of debt dis- port modernization. deficit given the uncertain global econom- tress. Debt is currently assessed as sustain- In an environment of relatively low histor- ic environment will require careful man- able given the authorities’ fiscal consolida- ical growth, high unemployment rates are agement of the ambitious public invest- tion plans, which would ensure that the expected to continue. Considering the im- ment program. Balances in the contin- public debt to GDP ratio would fall to un- pact on the informal sector, poverty rates gency fund, which had been accessed to der 60 percent of GDP by 2035, the East- are likely to have increased. Economic address COVID-19 and volcano needs, ern Caribbean Currency Union’s (ECCU’s) stimulus measures in response to the pan- are expected to be replenished and then regional goal. Government gross financing demic expanded social protection mea- continue to grow, which bodes well for needs are covered primarily by official ex- sures, and volcano-related humanitarian future fiscal resilience. Primary fiscal sur- ternal financing and some recourse to do- efforts have helped mitigate the impacts on pluses approaching 3.0 percent of GDP mestic financing through the issuance of T- poverty, though not eliminate them. should facilitate a reduction in public Bills. SVG is participating in the Debt Ser- Continued fiscal reforms are necessary to debt levels over the medium term as soon vice Suspension Initiative. build fiscal buffers and to ensure pub- as COVID-19 impacts dissipate, recon- lic debt returns to a downward trajectory. struction activities are addressed, and the To accomplish these fiscal consolidation port modernization is complete. measures have been adopted, including: Forecasts are subject to considerable Outlook containing nominal growth of the wage downside risk given rising food and fuel bill over the medium term; limiting pub- prices, the economic impact of global Growth is forecast to accelerate to 4.2 per- lic investment by focusing on reconstruc- geopolitical developments, and the ever- cent in 2022 and 7.3 percent in 2023 as tion and port modernization; scaling back present risk of natural disasters. TABLE 2 St. Vincent and the Grenadines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices 0.4 -5.3 -2.8 4.2 7.3 4.2 a Real GDP growth, at constant factor prices 0.4 -5.9 -2.8 4.2 7.3 4.2 Agriculture -1.6 1.6 -22.7 13.5 10.4 -3.8 Industry -5.5 -7.8 3.9 4.0 1.9 1.1 Services 1.8 -6.1 -2.4 3.6 8.2 5.4 Inflation (Consumer Price Index) 0.9 -0.6 1.6 4.8 2.9 2.2 Current Account Balance (% of GDP) -8.8 -16.3 -24.1 -16.9 -16.8 -11.8 b Fiscal Balance (% of GDP) 0.3 -2.5 -4.2 -5.3 -6.3 -3.8 b Debt (% of GDP) 67.9 81.0 87.5 86.7 85.5 85.0 b Primary Balance (% of GDP) 2.6 -0.3 -1.9 -3.1 -4.0 -1.6 GHG emissions growth (mtCO2e) 0.8 -3.3 3.7 13.1 2.1 2.0 Energy related GHG emissions (% of total) 77.6 76.9 77.7 80.2 80.6 81.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Budget balances and public debt are for the central government. MPO 139 Apr 22 in consumption poverty and one in 20 in extreme poverty. Over half of the popula- SURINAME Key conditions and tion in the interior regions lived in pover- ty. About 13 percent of the population was challenges non-poor but at risk of falling into poverty. Table 1 2021 Suriname is a small, natural-resource-rich, Population, million 0.6 upper middle-income country. Gold cur- GDP, current US$ billion 3.1 rently represents more than 80 percent of Recent developments GDP per capita, current US$ 5204.6 total exports and the overall mining sector a 109.2 School enrollment, primary (% gross) accounts for nearly half of public sector Economic mismanagement compounded a 71.7 revenue. The government redistributes by restrictions on economic activity to curb Life expectancy at birth, years Total GHG Emissions (mtCO2e) 12.7 revenue earned from extractive industries the spread of COVID-19 resulted in a se- Source: WDI, Macro Poverty Outlook, and official data. through significant public sector employ- vere economic crisis, with GDP contracting a/ Most recent WDI value (2019). ment and, to a lesser extent, through some 15.9 percent in 2020 and another estimated categorically targeted income support to 3.5 percent in 2021. people with disabilities, households with Suriname continues to experience signif- Suriname built up substantial macroeco- children, the elderly, and vulnerable icant COVID-19 related challenges, in- households. The private sector is mostly cluding peak transmission rates in Sep- nomic imbalances as a result of economic engaged in provision of non-tradeable ser- tember 2021 and January 2022 leading mismanagement and high commodity vices, often through small firms employing to tightening restrictions on mobility and revenue volatility. A newly elected gov- informal workers. economic activity, depending on the ernment adopted a comprehensive macro- Substantial macroeconomic imbalances number of new COVID-19 cases. The economic stabilization program and ob- have built up since the closure of bauxite country has been able to ensure a suffi- mines in 2015 and a sharp decline in com- cient stock of COVID-19 vaccines, mainly tained support through an IMF Extended modity prices in 2015-16. In the run-up to from bilateral sources. In February 2022, Fund Facility by end-2021. The the 2020 general elections, macro-econom- about 40 percent of the population had COVID-19 pandemic exacerbated exist- ic imbalances were further exacerbated by been fully vaccinated. ing domestic vulnerabilities, leading to a severe economic mismanagement includ- The government adopted a comprehensive ing a substantial expansion in the number program of policy measures with respect sharp GDP contraction, increased unem- of civil servants, excessive borrowing, and to fiscal and debt sustainability, monetary ployment and high inflation which creat- monetary financing of the fiscal deficit. A and exchange rate policy, financial sector ed an increase in poverty. The discovery fixed official exchange rate created a stability and governance to address macro- of offshore oil, if adequately managed, widening gap between the official and par- economic imbalances as of mid-2020. On allel market rates and led to a near-exhaus- December 22, 2021, the IMF board ap- may accelerate fiscal consolidation and tion of usable gross international reserves. proved a three- year Extended Fund Facil- higher growth in the longer-term. Suriname does not regularly publish em- ity in support of this program. ployment and poverty statistics. The latest Public debt amounted to US$3.4 bn or 126 poverty data were collected in 2016. At the percent of GDP at the end of 2021 and arrears time over a quarter of the population lived on external bilateral and private market debt FIGURE 1 Suriname / Consumer price inflation FIGURE 2 Suriname / GDP per capita MoM percent Annual percent SRD (thousand) US$ (thousand) 16 80 35 10 Month-on-Month 14 70 30 Annual (rhs) 8 12 60 25 10 50 6 20 8 40 15 4 6 30 10 4 20 2 5 2 10 0 0 0 0 2015 2016 2017 2018 2019 2020 2021e Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 SRD (constant prices 2015) US$ Source: General Bureau of Statistics. Sources: General Bureau of Statistics and World Bank. MPO 140 Apr 22 are estimated at about 11 percent of GDP. currency depreciation. Banks are likely Restoring debt sustainability under the to face a capital shortfall and need for IMF-supported program will require im- recapitalization, the exact magnitude of Outlook portant debt relief from Suriname’s private which will be determined through an as- and bilateral external creditors. In the set quality review. Suriname faces challenging economic con- meantime, the country is expected to con- Beneficiaries of social protection programs ditions. The near-term outlook critically tinue to accumulate arrears on its liabilities received additional payments during the depends on the successful implementation to these creditors. 2020 economic downturn and, in 2021 and of the macroeconomic stabilization pro- Revenue enhancing and expenditure re- 2022, the amounts provided by these pro- gram, including an external public debt re- duction measures have already led to grams were increased to compensate ben- structuring with a sizeable reduction in the modest surpluses in the country’s overall eficiaries for price increases. However, this Net Present Value of the debt. After two and primary fiscal balances on a cash basis. increase is not expected to fully offset de- years of sharp contraction in economic ac- Additional measures, such as the introduc- clines in disposable household incomes tivity, a gradual resumption of economic tion of a Value Added Tax, the elimination that were brought about by declines in em- growth is expected for 2022-24 to nearly 3 of electricity subsidies and the rationaliza- ployment and rapid inflation. percent per year in the medium term. tion of civil service, should turn the prima- Micro-simulations suggest that employ- The longer-term growth outlook may be ry balance from a persistent deficit into a ment losses induced by the economic more positive following the discoveries of surplus of 3-4 percent of GDP by 2023-24. downturn, combined with a loss in pur- several offshore oil deposits as of 2020. A The government introduced a floating ex- chasing power stemming from high levels Final Investment Decision (FID) by one of change rate, and a reserve money targeting of inflation, led to a substantial increase the major oil companies is expected later regime was adopted as the basis of mon- in poverty rates. Women, especially those this year at which point there is more cer- etary policy in June 2021. The exchange who were single and those with lower lev- tainty about a possible revenue flow from rate stabilized at the then prevailing paral- els of education, were more likely to be offshore oil production which will take lel market rate of about SRD21/US$ (com- poor pre-pandemic and more heavily af- several years to materialize. pared to the official exchange rate of fected by the economic downturn. The modest economic recovery will at SRD7.5/US$ early 2020). The large step- Exchange rate depreciation as well as the best partially counterbalance the signif- wise depreciation of the exchange rate overall economic downturn led to a sig- icant challenges faced by many house- throughout 2020 and 2021, led to a sharp nificant shift in the current account of the holds. Planned efforts to improve the de- pass-through to month-on-month con- balance of payments: from a deficit of 11 livery and effectiveness of social assis- sumer price inflation rates and annual percent of GDP in 2019 to a surplus of 9 tance, therefore remain a priority. Al- (12-month accumulated), inflation peaked and 5 percent of GDP in 2020 and 2021, though purchasing power is expected to in August 2021 at 74.4 percent. Reserve respectively. The change in the current stabilize gradually, international infla- money targets are employed to anchor in- account was mainly brought about by a tionary pressure due to global conflict flation expectations, whereas a flexible ex- sharp contraction in imports of goods and poses a risk, especially to the poorest. La- change rate should moderate the apprecia- services, a build-up of arrears on exter- bor market indicators are not expected tion of the real exchange rate. nal debt-service liabilities as well as a to return to their pre-pandemic level any The banking system is facing a rise in non- strengthening in the price of gold, the time soon, with continued negative im- performing loans due to the recession and main export commodity. plications for poverty. TABLE 2 Suriname / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.1 -15.9 -3.5 1.8 2.1 2.7 Real GDP growth, at constant factor prices 1.1 -15.9 -3.5 1.8 2.1 2.7 Agriculture -18.8 -1.5 -2.0 1.2 3.0 3.0 Industry -5.1 -17.1 -2.5 2.0 2.0 2.5 Services 7.7 -17.1 -4.2 1.8 2.0 2.8 Inflation (Consumer Price Index) 4.3 34.8 59.1 37.9 22.2 14.1 Current Account Balance (% of GDP) -11.2 9.1 5.4 1.9 0.7 -0.9 Net Foreign Direct Investment (% of GDP) -0.2 0.0 -5.3 3.3 3.2 2.9 a Fiscal Balance (% of GDP) -18.8 -11.2 1.6 -1.0 -0.4 0.4 a Debt (% of GDP) 85.2 148.3 125.9 123.7 115.3 112.6 a Primary Balance (% of GDP) -15.7 -7.5 3.8 2.1 3.1 3.9 GHG emissions growth (mtCO2e) 1.2 -4.0 -0.9 0.0 -0.2 0.1 Energy related GHG emissions (% of total) 17.2 14.9 14.4 14.6 14.5 14.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Budget balances and public debt are for the central government. MPO 141 Apr 22 trade agreement with China to enhance in- tegration into the global economy as well URUGUAY Key conditions and as policy actions to address vulnerability to climate change, SOEs’ competitiveness, challenges and pensions and education reform. Table 1 2021 The COVID19 shock marked the first eco- Population, million 3.5 nomic contraction since 2002. Between GDP, current US$ billion 59.3 2002 and 2019, Uruguay’s economy ex- Recent developments GDP per capita, current US$ 17022.8 panded faster than the regional average, a 0.2 International poverty rate ($1.9) poverty fell to historical lows, and the GDP fell 4.3 percent yoy in the first a 0.7 country reaffirmed its relatively low lev- quarter of 2021, hit by border closures Lower middle-income poverty rate ($3.2) a 4.6 els of inequality and its large middle- heading into the 2021 summer season, Upper middle-income poverty rate ($5.5) Gini index a 40.2 class. Yet, GDP growth started decelerat- but recovery resumed reaching pre-crisis School enrollment, primary (% gross) b 104.3 ing in 2015 following a deterioration in levels in the third quarter. Growth was b 77.9 the external environment, while pover- widespread, with contact-intensive sec- Life expectancy at birth, years ty reduction stalled and even increased tors having the greatest incidences. On Total GHG Emissions (mtCO2e) 33.0 slightly in 2018-2019. the demand side, growth was fueled by Source: WDI, Macro Poverty Outlook, and official data. An economy reliant on agricultural ex- exports, investment, and government a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). ports and tourism, the pandemic affected consumption. Strong investment was Uruguay early for a 6.1 percent fall in GDP partly associated with the continuation of in 2020. The economy recovered in 2021, a US$3bn paper mill project (UPM 2) and Uruguay’s GDP rebounded in 2021, on the back of a comprehensive vaccina- related public infrastructure works. The tion campaign. economy continued to recover in the last reaching pre-crisis levels. The economic The impacts of the pandemic on house- quarter, for a 4.4 percent expansion in recovery and fiscal discipline helped re- hold income and employment were miti- 2021. Despite signs of improvement, the duce the fiscal deficit to below the 2019 gated through multiple support measures labor market was still significantly affect- level, despite additional COVID19 ex- reaching the poor and vulnerable, and ed in the first half of 2021. High-frequen- the middle class. These measures includ- cy survey data show that 9.8 percent of penditures. With inflation above the tar- ed cash transfers, pension benefits, wage pre-pandemic formal workers were in an get range, the Central Bank started a subsidies, and labor regulation adjust- informal job by June 2021. Young work- gradual monetary tightening process in ments to support paid unemployment ers and women were more affected, with August 2021. Improving economic and and reduced work time. 18.7 and 10.2 percent having switched labor market conditions supported Prudent fiscal management helped lower from a pre-pandemic formal job to infor- the fiscal deficit in 2021 to below its 2019 mality, respectively. poverty reduction. However, global un- level, despite increased COVID19-related Exports increased 14.4 percent in 2021, certainty, commodity prices, and new expenditures. Aside from fiscal discipline, boosted by a hike in commodity prices and COVID19 variants present risks to a the government is committed to a reform recovered external demand. Imports grew sustained recovery. agenda to address structural growth bot- 20.9 percent over the same period, partly tlenecks. These include pursuit of a free fueled by investment and consumption of FIGURE 1 Uruguay / Actual and projected primary and FIGURE 2 Uruguay / Actual and simulated poverty rates and overall fiscal balances real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 20 600000 Primary fiscal balance 5 18 Overall fiscal balance 500000 16 4 14 400000 3 12 2 10 300000 1 8 200000 6 0 4 100000 -1 2 -2 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -3 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 2024 Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy and Finance, Central Bank of Uruguay, and World Source: World Bank. Notes: see Table 2. Bank staff calculations. MPO 142 Apr 22 durable goods. Merchandise exports target range (3-6 percent starting in Sep- reached a record high in 2021, estimated at tember 2022), in a context of high inertia US$11.5bn. Outlook and high commodity prices. Backed by the economic recovery, the Cen- The fiscal consolidation process is ex- tral Bank initiated a monetary tightening In a context of high commodity prices, de- pected to continue. The overall deficit process in August 2021, increasing the celerating global economic growth, and is expected to fall to 2.5 percent of monetary policy rate 275 basis points in six partial reactivation of the tourism sector, GDP in 2022, largely due to a reduc- months. A relatively stable exchange rate GDP is projected to grow 3.3 percent in 2022 tion in COVID19-related expenditure through 2021 contributed to a fall in infla- despite an ongoing drought that affects and a further contraction in current tion from 9.8 percent in 2020 to 7.7 per- agricultural production, and to converge to public expenditure, reaching 1.9 per- cent in 2021. However, inflation remains 2.5 percent by 2024. In this baseline scenario, cent of GDP by 2024. The approval of above the upper bound of the current tar- poverty (measured by the international up- a pension reform, informed by a mul- get range of 7 percent. per-middle income line) is expected to come ti-party technical committee, will play The economic recovery also contributed down to its pre-pandemic levels in 2022, de- a key role in supporting fiscal sustain- to a substantial improvement of fiscal pending on the evolution of real earnings ability in the long-term. accounts. The fiscal deficit reached an among vulnerable populations. While an overall improvement in macro- estimated 3.0 percent of GDP in 2021, Following high growth in 2021, exports of fiscal conditions is expected, risks lie on down from 5.4 percent in 2020, mostly goods and services are expected to deceler- the downside. Heightened global uncer- due to higher fiscal revenue and con- ate to 5.1 percent in 2022, but are projected to tainty and its impact on commodity tractions in major expenditure cate- regain dynamism in 2023 as the pulp plant prices, financial conditions, and global gories. Uruguay continued to have fa- UPM 2 starts exporting by the end of the first economic activity represent a major vorable access to international credit quarter. Import growth is expected to decel- source of risk. They add to the expected markets through the crisis. erate, given the expected private consump- monetary tightening in developed coun- The national poverty rate fell in the first tion and investment dynamics. After a small tries, which could deteriorate external de- semester of 2021. It is estimated to have deterioration in 2022 due to the negative net mand and Uruguay’s access to credit reached close to pre-pandemic levels at the effect of high commodity prices on terms- markets. New COVID19 variants could end of 2021, driven by improvements in of-trade, the current account deficit is ex- affect both internal and external demand economic activity and unemployment, pected to gradually narrow. and labor supply. A growth deceleration which registered 7 percent in December, Monetary tightening is expected to bring in China, Uruguay’s main trading partner its lowest level in the past three years. inflation down only gradually to the new is another major risk. TABLE 2 Uruguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.4 -6.1 4.4 3.3 2.6 2.5 Private Consumption 0.5 -6.9 2.3 3.5 2.2 2.1 Government Consumption 1.1 -7.1 7.3 -3.3 -1.4 0.4 Gross Fixed Capital Investment 0.8 1.3 15.8 6.0 0.3 2.6 Exports, Goods and Services 3.6 -16.0 14.4 5.1 7.5 4.2 Imports, Goods and Services 1.5 -12.0 20.9 3.3 2.8 2.5 Real GDP growth, at constant factor prices 0.4 -6.2 4.4 3.3 2.6 2.5 Agriculture -0.3 -0.4 3.2 3.1 2.5 2.5 Industry -3.7 -5.6 5.2 3.9 2.0 2.0 Services 1.1 -6.8 4.4 3.2 2.7 2.6 Inflation (Consumer Price Index) 7.9 9.8 7.7 7.0 6.3 5.8 Current Account Balance (% of GDP) 1.6 -0.6 -0.9 -1.0 -0.6 -0.6 Net Foreign Direct Investment (% of GDP) 2.2 1.7 1.7 1.5 1.4 1.4 a Fiscal Balance (% of GDP) -3.9 -5.4 -3.0 -2.5 -2.2 -1.9 Debt (% of GDP) 60.5 68.3 66.4 66.9 67.7 67.7 a Primary Balance (% of GDP) -1.7 -2.8 -1.0 -0.4 0.0 0.3 b,c International poverty rate ($1.9 in 2011 PPP) 0.1 0.2 0.1 0.1 0.1 0.1 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.7 0.5 0.4 0.4 0.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 3.2 4.6 3.7 3.2 2.9 2.6 GHG emissions growth (mtCO2e) -1.7 -2.3 0.0 1.1 0.3 0.2 Energy related GHG emissions (% of total) 19.1 18.5 18.2 18.8 18.9 18.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Non-Financial Public Sector. Excluding revenues associated with the "cincuentones". b/ Calculations based on SEDLAC harmonization, using 2013-ECH, 2019-ECH, and 2020-ECH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using point-to-point elasticity (2013-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 143 Apr 22 Middle East and North Africa Algeria Kuwait Saudi Arabia Bahrain Lebanon Syrian Arab Republic Djibouti Libya Tunisia Egypt, Arab Republic Morocco United Arab Emirates Iran, Islamic Republic Oman Yemen, Republic Iraq, Republic Palestinian Territories Jordan Qatar MPO 145 Apr 22 to a private sector-led growth and job creation model a developmental priority. ALGERIA Key conditions and Private firms are small, of low productiv- ity, and largely informal, amid substan- challenges tial State presence in productive sectors, a high regulatory burden, and limited ac- Table 1 2021 Population, million 44.7 The Algerian economy remains dominated cess to credit and skills. The Plan argues GDP, current US$ billion 168.0 by the oil and gas sector, which accounted for reinforcing macroeconomic stability, GDP per capita, current US$ 3761.1 for 19% of GDP, 94% of product exports rationalizing spending, reducing imports a 5.5 and 40% of budget revenues between 2015 and boosting non-hydrocarbon exports, National poverty rate a 0.4 and 2020. Over the past 15 years, however, and for significant improvements to the International poverty rate ($1.9) a 3.7 declining investments contributed to a de- business environment, including through Lower middle-income poverty rate ($3.2) a 27.6 Gini index cline in oil production and a stagnation in the reform of public banks and state- b 111.3 School enrollment, primary (% gross) natural gas production, while rising do- owned enterprises, as well as the adop- b 76.9 Life expectancy at birth, years mestic consumption has led to a steeper tion of a new Investment Law. The specif- Total GHG Emissions (mtCO2e) 221.7 fall in export volumes. ic timeline for its implementation remains Source: WDI, Macro Poverty Outlook, and official data. Since 2015, the current account and overall to be determined. a/ Most recent value (2011). budget deficits have averaged 13% and 11% b/ WDI for School enrollment (2020); Life expectancy (2019). of GDP, respectively, leading to a marked decline in international reserves, currency depreciation, import compression policies, Recent developments Increasing oil and gas demand and prices as well as debt monetization. Real public spending also stagnated, contributing to a Led by the oil and gas sector, the economy led to a strong rebound in hydrocarbon pro- slowdown in non-hydrocarbon sectors, and expanded by 3.9% year-on-year during the duction and exports in 2021, sharply re- average annual real GDP growth fell to 1.1% first nine months of 2021, after contracting ducing fiscal and external financing needs. in 2017-2019, causing GDP per capita in PPP by 5.5% in 2020. The recovery in hydrocar- The recovery in the non-hydrocarbon seg- terms to return to its 2014 levels. Nonethe- bon output was driven by surging Euro- less, non-monetary poverty declined be- pean gas demand and easing OPEC pro- ments of the economy remains incomplete, tween 2013 and 2019, amid improvements in duction quotas. Low rainfall contributed however, while inflation is rising. Looking education, health, and material outcomes. to a stagnation in agricultural output and beyond the current hydrocarbon windfall, The COVID-19-induced recession exacer- services growth was subdued, but indus- accelerating the implementation of the bated growth challenges and macroeco- trial and construction activity supported Government’s structural reform agenda nomic imbalances, reinforcing the impetus growth. As of September 2021, non-hydro- for reform. The Government notably took carbon GDP was still 3% below its pre- will be essential to accelerate the recovery, steps to attract foreign investment by is- pandemic level. On the expenditure side, reduce Algeria’s reliance on hydrocarbon suing a new Hydrocarbon Law, as well as private consumption and investment re- exports and sustainably reduce macroeco- lifting restrictions on foreign ownership of turned to their pre-pandemic levels, while nomic imbalances, diversify the economy, domestic firms in several sectors. inventories are yet to recover. Meanwhile, the September 2021 Govern- The estimated overall budget deficit nar- and create private sector jobs. ment Action Plan has made the transition rowed from 12% in 2020 to 3.5% of GDP FIGURE 1 Algeria / Crude oil prices and trade balance FIGURE 2 Algeria / GDP components, production side Billion US$ US$ per barrel Real GDP index (2019 =100) 4 120 110 Current account balance Price of Algerian petroleum 105 2 100 100 0 80 95 -2 60 90 Agriculture -4 40 Hydrocarbons 85 Industry -6 20 Construction 80 Commercial services GDP -8 0 75 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021e 2022e 2019 2020 2021 Sources: Bank of Algeria and oilprice.com. Source: National Statistical Office and World Bank staff estimates. MPO 146 Apr 22 in 2021, driven by rising oil revenues, poverty estimates and estimating infla- In 2022, the fiscal position is expected to an incomplete recovery in spending and tion’s impact on well-being. improve markedly amid surging energy despite significant financing support to Algeria’s current account deficit shrank by prices, sustained depreciation, and a re- the national pension fund. Estimated oil 74% in 2021, amid a 70% increase in the covery in tax revenues, offsetting the mod- revenues surpassed pre-pandemic levels value of hydrocarbon exports and a muted erate increase in public spending. The cur- to reach 15% of GDP in 2021, while recovery in imports, and despite rising im- rent account balance is expected to register tax revenues remained 1.7 percentage port prices. Accordingly, foreign exchange a surplus, aided by high hydrocarbon points of GDP below pre-crisis, owing reserves stabilized, at around 11 months of prices and despite a moderate recovery in to subdued firm profitability and im- imports of goods and services. input and equipment imports, consistent ports. Budget spending only recovered with higher investment. Over the medium- moderately, absent a marked recovery term, budget and external deficits are ex- in public investment. Public debt is esti- pected to reappear and widen amid de- mated to have increased from 52 to 61% Outlook clining hydrocarbon export volumes and of GDP in 2021, with banks purchas- prices, and public debt to stabilize at ing large amounts of Treasury securities GDP is expected to continue to rebound around 50% of GDP. as part of a state-owned enterprise debt and return to its 2019 level in 2022, despite The economic consequences of the Russ- buyback program supported by Central low rainfall and therefore weak agricultur- ian-Ukrainian war and associated sanc- Bank financing. al production. Aided by a rebound in pub- tions could further elevate hydrocarbon Broad money grew by 14% in 2021 as lic and energy investment, investment prices and improve Algeria’s fiscal and hydrocarbon deposits increased and growth is expected to outpace that in con- external balances despite rising food im- COVID-19 policies to ease liquidity con- sumption, more muted due to a gradual la- port prices. On the other hand, large ditions remained in place, but private sec- bor market recovery and the effect of high macroeconomic imbalances could reap- tor credit grew only by 3%. Inflation ac- inflation on real consumer income. Hydro- pear if global hydrocarbon prices were celerated markedly in 2021, led by a carbon production will increase as OPEC to decline. Ultimately, sustaining growth 10.1% increase in food prices despite sig- quotas are eased and demand for Algerian and enhancing economic resilience will nificant food subsidies, exacerbating the gas benefits from European diversification hinge on the pace of implementation of situation of the vulnerable population. away from Russian supply, before resum- structural reforms and their ability to fos- The household survey under implemen- ing a gradual decline, offset by modest ter economic diversification, private sec- tation will allow for updating the 2011 non-hydrocarbon economic growth. tor-led growth and job creation. TABLE 2 Algeria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.0 -5.1 3.9 3.2 1.3 1.4 Private Consumption 2.1 -3.0 2.1 2.0 2.0 2.2 Government Consumption 1.9 -0.3 -0.9 0.1 0.1 0.0 Gross Fixed Capital Investment -3.6 -5.2 3.5 5.7 3.1 4.6 Exports, Goods and Services -6.0 -11.4 11.1 4.3 -1.2 -2.0 Imports, Goods and Services -6.9 -15.6 -3.9 3.0 1.9 2.4 Real GDP growth, at constant factor prices 1.0 -4.7 3.9 3.2 1.2 1.3 Agriculture 2.7 1.3 0.2 0.9 1.8 1.3 Industry -1.6 -7.5 7.0 4.2 1.3 1.3 Services 3.4 -3.4 1.7 2.6 0.9 1.3 Inflation (Consumer Price Index) 2.0 2.4 7.2 7.1 7.0 7.0 Current Account Balance (% of GDP) -9.9 -12.6 -2.8 4.7 -0.2 -4.0 Fiscal Balance (% of GDP) -9.6 -12.0 -3.5 0.7 -0.8 -2.2 Debt (% of GDP) 45.6 52.1 61.2 51.8 50.5 49.9 Primary Balance (% of GDP) -9.0 -11.0 -2.9 1.3 0.0 -1.2 GHG emissions growth (mtCO2e) 2.3 -2.4 1.4 3.1 2.0 1.7 Energy related GHG emissions (% of total) 64.4 64.2 64.4 65.1 65.4 65.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 147 Apr 22 adherence to consolidation efforts, and reducing the fiscal risks from off-budget BAHRAIN Key conditions and expenditures will help to improve Bahrain’s outlook. Advancing structural challenges reforms including these related to in- vesting in renewable energy and digital Table 1 2021 The Bahraini economy is relatively diver- solutions, would attract foreign invest- Population, million 1.7 sified, reflecting the authorities’ consider- ment, and increase employment oppor- GDP, current US$ billion 38.8 able efforts to boost manufacturing, refin- tunities, particularly among women and GDP per capita, current US$ 22823.5 ing, tourism, and trade. Nevertheless, the youth. While soaring oil prices caused by a 98.0 School enrollment, primary (% gross) hydrocarbon sector remains a strong dri- the economic consequences of the war in a 77.3 ver of the economy accounting for 20 per- Ukraine are expected to further strength- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 52.4 cent of GDP and over 60 percent of to- en Bahrain’s fiscal and external balances, Source: WDI, Macro Poverty Outlook, and official data. tal revenues, thereby making the econo- there is a risk that strong fiscal buffers a/ Most recent WDI value (2019). my extremely vulnerable to energy prices might lead to an increase in already high shocks. As such, the pandemic and re- off budget spending. lated oil price shock have exacerbated The government has made efforts to re- The economy is gradually picking up as Bahrain’s large pre-existing fiscal and ex- duce unemployment by promoting the hir- ternal imbalances, with a surge in public ing of Bahrainis in the private sector pandemic pressures fade, non-oil econo- debt levels and gross financing needs. through incentives to firms and increasing my recovers, and hydrocarbon production Bringing the fiscal position to a balance the local skills base to gradually lower un- increases. The fiscal deficit remains high by 2022 according to 2018 Fiscal Balanced employment among nationals as well as as emergency crisis-spending persists but Program (FBP) proved challenging due to the demand for foreign labor. is expected to narrow gradually. The ex- the pause of fiscal consolidation caused by the pandemic and insufficient fiscal ternal balance will noticeably improve. adjustment measures. The debt to-GDP-ratio is expected to re- At end-2021, the country announced new Recent developments main elevated during the forecast period measures to curve the fiscal deficit, includ- to meet fiscal needs. Downside risks arise ing the doubling of the VAT rate to 10 per- Bahrain’s economy is gradually emerging cent from January 2022 and actions to re- from the pandemic-caused recession. Lat- from oil price volatility, and insufficient duce the deficit related to electricity and est official data indicate that the economy fiscal adjustment that could worsen fiscal water authority. grew by 1.5 percent (y/y) in the first nine and external positions and intensify pres- However, challenges remain. Delays in re- months of 2021 (9M-2021), after nearly a 5 sure on already high public debt, thereby forms and persistent off-budget spending percent contraction in 2020. The rebound may imply higher debt and financing was mainly underpinned by 2.3 percent threating macroeconomic sustainability. needs. Additional efforts are needed to un- growth in non-hydrocarbon aided by a leash more fiscal space to meet the in- strong expansion in the transportation and creased challenges posed by climate communication sector—one of the hard- change and an expected long-term decline est-hit by the pandemic—as well as in- of demand for fossil fuels. On the upside, creased agricultural and fishing activity. FIGURE 1 Bahrain / Real annual GDP growth FIGURE 2 Bahrain / General government operations Percentage change Percent of GDP Percent of GDP 6 0 40 -2 35 4 -4 30 2 -6 -8 25 0 -10 20 -2 -12 15 Hydrocarbon GDP -4 -14 Overall fiscal balance 10 Non-hydrocarbon GDP -16 Total revenus (rhs) -6 5 Real GDP -18 Total expenditure (rhs) -8 -20 0 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Sources: Bahrain authorities, World Bank, and IMF staff projections. Sources: Bahrain authorities, World Bank, and IMF staff projections. MPO 148 Apr 22 The hydrocarbon sector contracted by al- According to the Labor Market Regulatory fiscal consolidation. The expansion of the most 2 percent (y/y) in the same period. Authority, total employment in Q1-2021 Sitra oil refinery and development of the Growth is estimated to have registered fell with respect to 2020, driven by lower Khaleej al Bahrain shale oil project will 2.6 percent by end-2021 driven by the foreign employment. Data from the Social support the growth outlook going for- non-hydrocarbon activities. Inflation re- Insurance Organization indicate a recov- ward. Inflation is expected to increase to mains in negative territory, averaging at ery in Bahraini employment by the end of 2.5 percent in 2022, fueled by the doubling -0.6 percent, due to weaker demand and 2021. The number of Bahraini employees of the VAT rate to 10 percent and a contin- lower prices for rents compounded by increased by 2.7 percent in Q4-2021 (y/y), ued recovery of domestic demand. the departure of expatriates caused by 2.9 percent in the private sector and 2.3 While the pandemic related spending con- the pandemic. percent in the public sector. The number tinues, the fiscal deficit is projected to con- The fiscal deficit is estimated to have nar- of foreign employees has continued to de- tinue narrowing over the medium term, rowed, from over 17 percent of GDP in crease since Q4-2020 (y/y). supported by high hydrocarbon revenues 2020 to almost 11 percent in 2021, thanks and implementation of fiscal adjustment to improved revenue from higher oil and measures under the FBP. Yet public debt aluminum prices despite high pandemic- is projected to remain above 120 percent related emergency spending. Public debt Outlook of GDP throughout 2022-24. Adherence to remained elevated at above 120 percent of the FBP accompanied by higher hydrocar- GDP, although the better fiscal outcome Bahrain’s economic outlook hangs on oil bon and non-hydrocarbon revenues, helped to lower it by 6 percentage points. market prospects, pandemic conditions, would improve the fiscal outlook. The external sector exhibited a strong per- and reform implementation. Growth is Higher exports from oil and aluminum formance in the first 9M-2021 driven by sol- projected to accelerate to 3.5 percent in along with the revival of the tourism sector id rebound in both oil and non-oil exports, 2022, boosted by the surging energy prices are forecast to keep the current account in including service receipts, aided by the re- caused by the economic consequences of surplus at nearly 5 percent of GDP in 2022, laxation of COVID-19 restrictions. As a re- the war in Ukraine. Recovery of the non- but to decelerate in the 2023-24 given high sult, the current account balance is estimat- oil economy is likely to continue thanks debt service payments and increased cap- ed to switch into a surplus of over 4 percent to successful vaccination rollout and fur- ital imports to boost oil production. The of GDP by end-2021, mitigating pressures ther relaxation of movement restrictions. anticipated external account surplus will on foreign reserves, which doubled to US$4 Over the medium-term, however, non-oil help mitigate pressures on the foreign ex- billion in 2021, up from US$2 billion in 2020. economic activity would be dampened by change reserves. TABLE 2 Bahrain / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.1 -4.9 2.6 3.5 3.1 3.1 Private Consumption 0.5 -4.4 3.1 3.7 3.2 2.9 Government Consumption -1.5 -2.1 2.3 1.1 -0.8 -1.3 Gross Fixed Capital Investment -2.8 -3.8 2.2 3.7 3.9 4.0 Exports, Goods and Services 0.4 -2.5 5.5 6.2 6.3 6.5 Imports, Goods and Services -5.6 -0.7 6.2 6.4 6.4 6.5 Real GDP growth, at constant factor prices 2.1 -4.9 2.6 3.5 3.1 3.1 Agriculture -1.0 0.1 2.2 2.4 2.7 2.6 Industry 2.3 -1.2 1.8 3.0 3.7 4.4 Services 2.0 -7.7 3.2 3.8 2.7 2.1 Inflation (Consumer Price Index) 1.0 -2.3 -0.6 2.5 2.7 2.5 Current Account Balance (% of GDP) -2.1 -9.3 4.3 4.6 3.4 3.1 Fiscal Balance (% of GDP) -9.1 -17.4 -10.7 -6.8 -5.6 -5.0 GHG emissions growth (mtCO2e) 6.1 -2.0 3.1 3.5 3.3 3.3 Energy related GHG emissions (% of total) 63.3 62.2 62.9 63.7 64.2 64.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 149 Apr 22 Heavy reliance on food and energy im- ports presents a key vulnerability. Global DJIBOUTI Key conditions and commodity price shocks are immediately felt in Djibouti’s relatively small and un- challenges diversified economy, putting upward pressure on inflation and potentially jeop- Table 1 2021 In the decade leading up to the COVID-19 ardizing food and energy security. The Population, million 1.0 pandemic, Djibouti’s economy was grow- conflict between Ukraine and Russia–two GDP, current US$ billion 3.6 ing rapidly by over 6 percent per year on of the world’s largest producers of GDP per capita, current US$ 3576.5 average, driven by externally financed, wheat–may exacerbate some of these a 17.0 International poverty rate ($1.9) large-scale investment in transport and sources of fragility. a 39.8 port infrastructure, which aimed at mak- In 2017 (latest available data), 39 percent of Lower middle-income poverty rate ($3.2) a 21.1 ing the most out of the country’s strategic the population lived below the lower-mid- National poverty rate Gini index a 41.6 location and deep-water port to serve as dle income poverty line ($3.20 a day, 2011 School enrollment, primary (% gross) b 73.8 a key regional refueling, trade and trans- PPP) and 17 percent in extreme poverty b 67.1 shipment center. (below the international poverty line of Life expectancy at birth, years This development strategy has come at the $1.90 a day, 2011 PPP). Djibouti is one of Total GHG Emissions (mtCO2e) 1.4 cost of rising debt vulnerabilities. Dji- the most unequal countries in the MENA Source: WDI, Macro Poverty Outlook, and official data. bouti’s public and publicly guaranteed region, with an estimated Gini coefficient a/ Most recent value (2017), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy debt rose sharply from 37.5 percent of GDP of 41.6 in 2017. Poor data landscape, both (2019). in 2010 to an estimated 74 percent in 2021. in terms of quality and availability, hin- Rising debt service cost of fast-maturing ders the ability to plan. debts has crowded out much needed The withdrawal of COVID-19 movement spending in social sectors. Health and so- restrictions facilitated Djibouti’s economic cial expenditures represent 5 percent and rebound in 2021,to an estimated 4.3%. 3 percent of the government’s budget, re- Recent developments spectively compared to more than 30 per- Growth is projected to remain moderate in cent for public infrastructure. GDP growth rebounded to 4.3 percent 2022 but to expand briskly thereafter thanks The pandemic and the conflict in neigh- in 2021 from 0.5 percent in 2020 (lowest to infrastructure projects, reducing the in- boring Ethiopia had a heavy toll on Dji- growth since 2000), driven by the with- bouti’s economy and fiscal accounts (in- drawal of COVID-19 movement restric- cidence of poverty from 14.7% in 2020to a cluding Ports related SOEs revenues), tions, which allowed the resumption of projected 12.4% in 2024.Regional stability further constraining the government’s major public works, such as the transfor- and commitment to fiscal consolidation and debt service capacity. Since February mation of the old port into a shopping structural reforms remain critical for Dji- 2022, Djibouti’s external and public debt center, preparatory works for the con- bouti’s growth prospects. As a net importer are assessed as unsustainable. Over the struction of a shipyard repair factory, and medium term, debt service is set to in- development of Damerjog Industrial De- of food and energy, Djibouti is vulnerable to velopment Free Trade Zone (DDID FTZ). crease, as different payments come to commodity price shocks, which is further maturity, including the deferred debt ser- Government transfers and income sup- exacerbated by the war in Ukraine. vices linked to the DSSI. port initiatives also bolstered household FIGURE 1 Djibouti / Real GDP growth, fiscal, and current FIGURE 2 Djibouti / Actual and projected poverty rates and account balances real GDP per capita Percent of GDP Percent change Poverty rate (%) Real GDP per capita (constant LCU) 24 10 80 700000 19 8 70 600000 6 60 500000 14 50 4 400000 9 40 2 300000 4 30 0 200000 20 -1 -2 10 100000 -6 -4 0 0 2017 2018 2019 2020 e 2021 f 2022 f 2023 f 2012 2014 2016 2018 2020 2022 2024 Real GDP growth (rhs) Current account balance (lhs) International poverty rate Lower middle-income pov. rate Government fiscal deficit (rhs) Upper middle-income pov. rate Real GDP pc Sources: Government of Djibouti and World Bank staff projections. Source: World Bank. Notes: see Table 2. MPO 150 Apr 22 consumption, but a softening of maritime the investment code or established in free transport and services overall (connected zones. On the expenditure side, the Law to the Ethiopian crisis) have somewhat Outlook foresees a 5 percent reduction of subsidies offset the growth momentum. Headline to SOEs, freeze of new recruitments in the inflation rose to 2.5 percent at end-2021 Growth is projected to soften to 3.3 percent public service, and the centralization of cen- (y/y), reflecting the recovery of domestic in 2022 reflecting spillover effects of re- tral government’s tenders and purchases of demand, high global commodity prices, gional instability, and namely if the crisis goods and services. While encouraging, and recurrent shortages in imports of in Ethiopia protracts further. Economic ac- these measures will only partially offset the fresh food from Ethiopia. tivity is expected to strengthen in 2023 and debt service requirements, hence the gov- The overall fiscal deficit stood at 1.8 per- 2024 boosted by new infrastructure pro- ernment is expected to engage with its cred- cent of GDP in 2021, nearly the same as in jects. Djibouti’s medium-term outlook is itors to explore additional way to address 2020. New tax exemptions, lower interna- subject to downside risks, including the debt obligations and strengthen domestic tional aid, and continued pandemic-relat- emergence of new COVID-19 variants, revenue mobilization, including by ratio- ed tax reliefs more than cancelled out the persistent disruption in global transports nalizing tax exemptions and negotiating fiscal space created by the DSSI (US$57.7 and logistics value chains (particularly im- more favorable bilateral deals on rents paid million or 1.6 percent of GDP) and expen- portant for port-related SOEs activities), by military bases. diture rationalization (including subsidies and continuation or possible intensifica- With continued economic growth, poverty and transfers to SOEs). tion the Ethiopian crisis. As a net importer ($1.90 per day) is expected to resume its The current account position deteriorated of food and energy, the economic conse- downward trend from 14 percent in 2022 to sharply from a surplus of 11.6 percent of quences of the the war in Ukraine would 12.4 percent in 2024. As existing household GDP in 2020 to a deficit of 1.1 percent likely affect Djibouti's external account budget surveys do not capture a large pro- in 2021, driven by the slowdown in ex- through higher import bills. portion of the population that are either un- ports to Ethiopia and increased imports The 2022 Finance Law proposes several rev- documented, nomadic, or displaced, the due to stronger domestic demand. On the enue and expenditure measures to create fis- above poverty estimates are lower bound. upside, a US$40 million SDRs allocation cal space for debt services. Tax measures in- Policy choices in the macro-fiscal space and from the IMF helped maintain a strong clude the revision of income tax brackets, re- the structure of the economy in upcoming reserve coverage, at 5 months of imports ductionintheVATthreshold,andone-offtax years will be consequential to the poverty as of end-2021. payments for companies exempted under reduction path in Djibouti. TABLE 2 Djibouti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.8 0.5 4.3 3.3 5.2 6.2 Private Consumption 5.0 -5.0 4.7 4.6 4.6 5.0 Government Consumption -0.5 -2.1 8.3 -0.5 9.4 4.3 Gross Fixed Capital Investment 26.4 -37.2 5.3 1.8 7.6 7.1 Exports, Goods and Services 12.9 7.5 4.3 3.6 4.6 7.0 Imports, Goods and Services 13.9 -0.5 5.5 3.9 5.5 7.0 Real GDP growth, at constant factor prices 7.2 0.5 4.3 3.3 5.2 6.2 Agriculture 0.7 3.5 3.5 3.5 3.5 3.5 Industry 9.4 2.0 4.5 4.2 6.5 9.0 Services 6.8 0.1 4.3 3.1 4.9 5.5 Inflation (Consumer Price Index) 3.3 1.8 1.2 2.0 2.0 2.0 Current Account Balance (% of GDP) 28.9 11.6 -1.1 -3.3 -1.7 0.7 Fiscal Balance (% of GDP) -0.3 -1.7 -1.8 -2.8 -2.4 -1.9 Debt (% of GDP) 65.3 73.3 73.5 74.3 75.1 75.3 Primary Balance (% of GDP) 0.9 -1.2 -0.9 -1.8 -1.4 -0.9 a,b International poverty rate ($1.9 in 2011 PPP) 14.4 14.7 14.2 14.0 13.5 12.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 35.0 35.3 34.5 33.8 32.1 30.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 65.3 65.8 65.0 64.2 62.8 61.2 GHG emissions growth (mtCO2e) 1.6 0.3 0.8 0.8 0.8 0.8 Energy related GHG emissions (% of total) 31.0 31.1 31.3 31.6 31.8 32.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2017-EDAM.Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2017) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 151 Apr 22 debt remains elevated. Financing require- ments are thus high, at a time when glob- ARAB REPUBLIC Key conditions and al financial conditions are tightening as advanced economies unwind their accom- challenges OF EGYPT modative monetary policies. Going forward, enhancing public expen- Egypt implemented macroeconomic stabi- diture efficiency and revenue mobiliza- lization and energy sector reforms, as well tion will be crucial to avail the fiscal Table 1 2021 as structural measures to address en- space needed to advance human and Population, million 104.3 trenched problems through taking steps to physical capital for the population of GDP, current US$ billion 404.1 strengthen public debt management and above 103 million. Importantly, continu- GDP per capita, current US$ 3876.4 enhance aspects of the business environ- ing to pursue structural reforms to un- Lower middle-income poverty rate ($3.2) a 28.9 ment. These concerted efforts since leash the private sector’s potential in a 29.7 2016—along with the measures undertak- higher value-added and export-oriented National poverty rate a en at the onset of COVID-19 to ease mon- activities are necessary to create jobs, and Gini index 31.5 b etary conditions, provide selected sectoral improve living standards. School enrollment, primary (% gross) 106.4 support and mobilize external financ- b 72.0 Life expectancy at birth, years ing—enabled the country to face the pan- Total GHG Emissions (mtCO2e) 348.9 demic with relative resilience. Source: WDI, Macro Poverty Outlook, and official data. Nevertheless, the global economic conse- Recent developments a/ Most recent value (2017), 2011 PPPs. quences of the war in Ukraine and associ- b/ Most recent WDI value (2019). ated sanctions on Russia, along with on- On March 21, the Central Bank of Egypt going COVID-related disruptions, threat- (CBE) allowed the exchange rate to depre- en to exacerbate long-standing challenges ciate overnight by around 16 percent to Egyptundertookexchangerate,monetary facing Egypt’s external balances, mainly stem the widening net exports deficit, and andfiscalmeasuresinresponsetoadverse through widening the current account raised policy rates by 100 basis points to globaldevelopments(includingsoaring deficit (given the country’s net commod- curb inflation and contain portfolio out- pricesandtighteningfinancialconditions), ity importer status, and the concentrated flows. Meanwhile, the government intro- nature of trade with Russia and Ukraine). duced a mitigation package worth LE130 aggravatedbythewarinUkraine.Yet,these billion (1.6 percent of FY2022/23 GDP) to Egypt’s growth model that shifted over policyactionsalsoreflectunderlyingstruc- the past two decades towards non-trad- alleviate the impact of the rising prices turalchallenges.Thesurgeingrowthto9 able lower productivity sectors con- through hikes to public sector wages and percentinH1-FY2021/22(supportedbyre- tributed to the relatively limited export pensions, tax measures, and expanding penetration and sophistication, as well as coverage of the cash transfer programs, boundsinexport-orientedsectors)isexpect- below-potential labor market outcomes. among other measures. edtoslowdowngraduallythroughFY2022/ Official estimates indicate recent gains in Prior to the external shock that triggered 23.Reformstoenhanceprivateinvestment, welfare; however poverty rates were at these policy measures, the economy was exportsandFDIremaincrucialfortheecono- 29.7 percent, as reported for the period recovering, although pressures on exter- my’sresilienceandcompetitiveness. October 2019—March 2020. Despite sig- nal and fiscal accounts were building. nificant fiscal consolidation, government Growth had surged to 9 percent during FIGURE 1 Arab Republic of Egypt / Real GDP growth and FIGURE 2 Arab Republic of Egypt / Banking sector net labor market indicators foreign assets Percent Percent of working-age population LE Billion 10 50 400 8 45 300 40 6 200 35 4 100 30 2 25 0 0 20 -100 -2 Real GDP Growth 15 CBE NFA Banks NFA Employment Rate (rhs) Labor Force Participation Rate (rhs) -200 -4 10 FY2019Q1 FY2019Q4 FY2020Q3 FY2021Q2 Sources: Ministry of Planning (MoP) and CAPMAS. Source: World Bank estimates based on CBE. MPO 152 Apr 22 H1-FY2021/22 (July—December 2021), domestic banks may have partly borne due to the higher imports bill, and the compared to a modest rate of 1.4 percent the consequences. impact of the Ukraine war on tourism as a year earlier. The resumption of inter- well as on demand for non-oil exports national travel and trade, global pent- (notably by Europe). Notwithstanding up demand and favorable base effects the pressures from the decline in portfo- allowed for strong rebounds in the ex- Outlook lio investments, the capital and financial port-oriented sectors, such as tourism, account can remain relatively buoyed by the Suez Canal, non-oil manufacturing, The recent surge in economic activity has potential financing from the Internation- and gas extractives. The communications set Egypt on track to achieve growth of al Monetary Fund (requested on March and construction sectors also continue to 5.5 percent in FY2021/22. However, base 23). Other possible mitigating factors in- be important contributors to growth. On effects and the demand overshoot are ex- clude the boost that higher international the demand-side, consumption and in- pected to start tapering off and economic prices can provide to Egypt’s gas exports, vestment improved, but the net exports activity will be adversely affected by the remittances from the GCC, and FDI in- deficit widened, partly because the repercussions of the war in Ukraine. flows to oil and gas extractives. Egypt al- steady and marked real exchange rate Thus, growth is expected to slow down to so issued a maiden Samurai bond worth appreciation over the previous years fa- 5 percent in FY2022/23. Inflation is fore- US$500 million in end-March 2022, and vored imports growth, and the accelerat- cast to surpass the CBE’s inflation tar- other sovereign issuances are expected ing global commodity prices also inflated get range (7 percent +/2 PPT) through the to continue, including innovative Green Egypt’s import bill. remainder of FY2021/22 due to the im- bonds and Sukuk. Domestic prices were gradually rising, and pact of the depreciation, imported infla- The budget deficit is forecast to increase inflation spiked to 8.8 percent in February tion, possible supply bottlenecks, along in FY2021/22 on account of the additional 2022 (more than 2.7 percentage points with the potential continuation of upward mitigation measures introduced in March higher than its average since the beginning adjustments to retail fuel prices. While 2022, and soaring international prices and of FY2021/22), reflecting early repercus- some mitigation is expected from the re- monetary tightening that are driving up sions of the war in Ukraine. cent fiscal package, existing food subsidy the cost of government purchases, subsi- While international reserves are comfort- and cash transfer programs, as well as the dies, wages and interest payments. Gov- able (at US$41 billion at end-February), relatively large reserves of wheat and oth- ernment debt will, in turn, also increase banks’ net foreign assets position has er cereals, poverty may still increase as due to both the higher deficit and the been in deficit since the beginning of inflation undermines real incomes. adverse valuation impact stemming from FY2021/22; indicating that external ac- The current account deficit-to-GDP ratio is the currency depreciation. Fiscal consol- counts have been under pressure prior to expected to widen to 6 percent in FY2021/ idation is, however, expected to resume the escalation of the war in Ukraine, and 22, from 4.6 percent in FY2020/21, mainly over the medium term. TABLE 2 Arab Republic of Egypt / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.6 3.6 3.3 5.5 5.0 5.3 Private Consumption 1.0 7.3 7.1 5.7 4.0 4.1 Government Consumption 2.8 6.7 3.7 6.0 7.5 4.0 Gross Fixed Capital Investment 14.1 -20.9 -8.5 8.2 4.9 8.3 Exports, Goods and Services -2.2 -21.7 -13.4 15.0 24.0 11.0 Imports, Goods and Services -8.9 -17.9 0.2 13.5 13.0 5.5 Real GDP growth, at constant factor prices 5.1 2.5 2.0 5.4 4.9 5.3 Agriculture 3.3 3.3 3.8 4.5 4.5 3.3 Industry 5.8 0.6 -1.1 6.6 6.0 6.4 Services 5.1 3.6 3.5 4.8 4.3 5.0 Inflation (Consumer Price Index) 13.9 5.7 4.5 10.0 9.0 8.5 Current Account Balance (% of GDP) -3.6 -3.1 -4.6 -6.0 -5.0 -4.0 Net Foreign Direct Investment (% of GDP) 2.6 1.9 1.2 1.5 1.8 2.0 Fiscal Balance (% of GDP) -8.1 -7.9 -7.4 -7.9 -7.3 -7.1 Debt (% of GDP) 90.2 87.0 92.4 96.4 91.6 87.3 Primary Balance (% of GDP) 1.9 1.8 1.5 1.3 1.7 2.0 a,b International poverty rate ($1.9 in 2011 PPP) 3.7 4.3 4.3 4.3 4.2 4.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 28.4 29.8 29.7 29.5 29.2 28.9 GHG emissions growth (mtCO2e) 1.9 2.1 1.7 1.8 1.9 1.9 Energy related GHG emissions (% of total) 68.3 68.6 69.2 69.2 69.1 68.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2010-HIECS, 2015-HIECS, and 2017-HIECS. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2010-2015) with pass-through = 0.07 based on GDP per capita in constant LCU. MPO 153 Apr 22 subpar performance. Iran is one of the largest subsidizers of fossil fuels globally, IRAN, ISLAMIC Key conditions and leading to allocative inefficiencies and sig- nificant budget and equity implications, as challenges REPUBLIC well as high carbon intensity of the econo- my. While social protection measures part- Iran’s economy is slowly emerging from ly mitigated pressures, the lack of target- a decade-long stagnation bogged by two ing and inflation indexation reduced their Table 1 2021 rounds of economic sanctions, marked oil impact over time. Furthermore, climate Population, million 85.0 price cyclicality, and the COVID-19 pan- change challenges in Iran have hurt GDP, current US$ billion 249.7 demic. Real GDP in 2020/211 was almost growth, especially in labor-intensive agri- GDP per capita, current US$ 2936.3 at the same level as 2010/11, and real GDP culture and industry sectors following School enrollment, primary (% gross) a 110.7 per capita in 2020/21 fell to the 2004/05 lev- record high temperatures and low rain- a 76.7 el. The large contractions in oil exports falls. These factors constrain the pace of re- Life expectancy at birth, years placed severe pressures on government fi- covery and the dynamism of the economy Total GHG Emissions (mtCO2e) 819.9 nances at the same time, as oil prices start- in the outlook. Source: WDI, Macro Poverty Outlook, and official data. ed a downward trajectory in late-2018, a/ Most recent WDI value (2019). which further worsened during the COVID-19 pandemic. While current ac- count pressures were partly absorbed Recent developments through the depreciation of the rial and Iran’s economy continues its gradual re- import substitution, the depreciation to- The economy continued to rebound in covery that started in mid-2020, driven gether with the government’s budget 9M-21/22 (Apr-Dec 2021), following a by the oil sector and services. However, deficit financing operations fueled infla- two-year recession. A recovery in the oil tionary pressures. High inflation and lack and service sectors (11.7 and 6.5 percent water and energy shortages led to con- of jobs negatively impacted household growth, respectively) – following a re- traction of the agriculture and industry welfare and added to social grievances. turn of global and domestic activity af- sectors. Only a third of the pandemic pe- The impact of the pandemic on Iran’s labor ter the start of the pandemic – led to a riod jobs losses have so far been recovered. market was significant following multiple 5 percent YoY growth in 9M-21/22. How- and long-lasting waves of infections. ever, the agriculture sector contracted by Oil revenue shortfalls led to a growing Iran’s economic challenges are also struc- 2.1 percent due to drought and energy budget deficit, adding to inflationary tural. Despite adjustments that partially blackouts. On the demand side, a 3.4 pressures through the government’s mitigated the impact of external shocks, percent expansion in consumption drove deficit financing operations. Growth is the economy remains constrained by wide- GDP growth as activity returned closer forecast to remain modest with both up- spread inefficiencies and price distortions to pre-pandemic levels. Imports growth that have contributed to the economy’s (25.5 percent) outweighed the pick-up in side and downside risks associated with exports (5.4 percent), and investment also oil market dynamics, geopolitical ten- declined (5.2 percent). The economic re- sions, the pandemic, and climate change. 1/ The Iranian calendar year starts on March 21 of bound has yet to be reflected in the la- every year and ends on March 20 of the following year. bor market as the recovery was largely FIGURE 1 Islamic Republic of Iran / GDP growth and FIGURE 2 Islamic Republic of Iran / Current account supply side decomposition balance Percent, percentage points US$ billion Percent (YoY) 15 12 120 9 90 10 6 60 5 3 30 0 0 0 -3 -30 -5 -6 -60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -10 2015/16 2017/18 2019/20 2021/22e 2023/24f 2017/18 2018/19 2019/20 2020/21 21/22 Oil Agriculture Industry CAB, US$ billion (lhs) Exports growth, YoY (rhs) Services Net taxes GDP growth Imports growth, YoY (rhs) Sources: CBI and World Bank staff calculations. Sources: CBI and World Bank staff calculations. MPO 154 Apr 22 driven by the oil sector, and employment against the US dollar and M2 expanded by in real investment. Inflation is forecast to growth in services and industries could 39.8 percent. ease relative to 2021/22 but remain high, not compensate for job losses in the agri- A strong expansion in hydrocarbon ex- at over 30 percent annually, as fiscal and culture sector. ports drove the current account balance exchange rate pressures persist. Sustained The government faced challenges in financ- to a surplus of US$5.9 billion in H1-21/ inflation will continue to put pressure ing a growing fiscal deficit due to a shortfall 22. Oil exports grew through both price on the livelihood of poor and vulnerable in oil revenues and higher expenditures. In and (likely) volume channels, reaching households, already severely hit by the line with exports, oil revenues grew rapidly US$18.6 billion (118 percent growth, YoY), pandemic crisis. in H1-21/22 (over 300 percent YoY), howev- partly a base effect from their 2020/21 col- Higher projected oil prices in the outlook er from a record low base. The oil proceeds lapse after the pandemic. While oil export period and growth in oil export volumes only met 14 percent of the ambitious budget volumes are not officially reported (be- considering the tighter global oil market target for the year and accounted for 12 per- cause of the sanctions), the higher oil pro- are forecast to curb fiscal pressures. cent of government revenues (an improve- duction growth in 2021 (21 percent) indi- However, high expenditure growth due ment from the 4 percent share of H1-20/21 cates an upward trend in exports includ- to increasing wage bill and pension but far from pre-sanction share of 50 percent ing through indirect exports to China. spending are projected to keep the fiscal in H1-18/19). However, tax revenues grew Non-oil exports and imports surpassed balance in a deficit of 3.8 percent of GDP by 60 percent, partly reflecting higher infla- their pre-pandemic levels during April in 2022-24. tion, and expenditures also grew by 58 per- 2021 - February 2022 by 12.7 percent and Iran’s economic outlook is subject to signif- cent. This brought the budget deficit to 6.8 16.6 percent, respectively. icant risks. On the upside, further increase percent of GDP in H1-21/22, which was in oil prices following heightened global mainly financed through bond issuance (82 tensions can directly boost fiscal revenues percent), as the government could not real- and indirectly lead to a faster growth in ize its planned sales of public assets. Outlook oil export volumes if oil markets seek all Inflation continued its upward trend, dri- available supply to ease price pressures. ven by inflationary expectations, currency Average GDP growth is projected to re- With both Iran and Russia under sanc- depreciation, and monetary expansion. main modest in the medium term as the tions, higher trade and investment with Headline and core inflation in 2021/22 rose economy remains constrained by the con- Russia could reduce the impact of sanc- to an estimated 40.7 and 51 percent, re- tinued impact of the pandemic through tions on Iran. Downside risks relate to the spectively – recording the third consecu- weaker domestic and global demand, resurgence of new COVID-19 variants, a tive year of inflation above 35 percent – while trade, especially oil exports, remains worsening climate change impact, and but have since eased to 35.4 and 39.1 per- restricted by ongoing sanctions. Non-oil heightened geopolitical tensions including cent YoY in February 2022. In 10M-21/22, GDP growth is projected to remain below the recent conflict’s impact on global food the currency depreciated by 14.7 percent potential following previous years’ decline prices and Iran’s imports. TABLE 2 Islamic Republic of Iran / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019/20 2020/21 2021/22 2022/23e 2023/24f 2024/25f Real GDP growth, at constant market prices -6.8 3.4 4.1 3.7 2.7 2.3 Private Consumption -7.7 -0.4 3.4 2.9 2.3 1.9 Government Consumption -6.0 -2.3 3.9 3.9 3.4 2.9 Gross Fixed Capital Investment -5.9 2.5 -4.4 5.3 3.4 3.4 Exports, Goods and Services -29.9 -5.4 8.9 8.7 5.6 4.5 Imports, Goods and Services -38.1 -29.2 22.8 5.1 3.9 3.1 Real GDP growth, at constant factor prices -6.5 3.6 4.1 3.7 2.7 2.3 Agriculture 8.8 4.5 -1.3 1.7 1.5 1.5 Industry -15.9 8.4 4.6 5.4 3.5 3.2 Services -0.5 -0.1 4.6 2.6 2.1 1.7 Inflation (Consumer Price Index) 41.3 36.4 40.7 37.6 34.8 32.1 Current Account Balance (% of GDP) 1.5 -0.3 1.8 4.7 3.1 2.8 Fiscal Balance (% of GDP) -5.0 -6.3 -5.5 -3.7 -3.8 -3.9 Gross Public Debt (% of GDP) 48.0 52.0 49.8 46.4 44.5 43.2 Primary Balance (% of GDP) -4.5 -5.3 -4.5 -2.8 -3.0 -3.1 GHG emissions growth (mtCO2e) -0.6 -3.2 2.8 2.8 2.2 2.0 Energy related GHG emissions (% of total) 71.3 70.5 71.0 71.3 71.4 71.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 155 Apr 22 high temperatures and severe droughts have impacted agricultural production, REPUBLIC OF Key conditions and making Iraq more reliant on imports as commodity prices rise, with implications challenges IRAQ for food security and poverty, especially in rural areas. High dependence on gas and Iraq’s economy is gradually emerging from electricity imports have increased the mag- the pandemic, driven by a recovery in non- nitude of impact from disruptions to these Table 1 2021 oil economic activity and more favorable oil imports. This while Iraq is the world’s sec- Population, million 41.2 market dynamics. Non-oil economic activ- ond largest gas flaring country failing to GDP, current US$ billion 204.8 ity is recovering to the pre-pandemic level capture over half of the associated gas in GDP per capita, current US$ 4973.4 as COVID-19 restrictions are eased. Oil pro- oil production. School enrollment, primary (% gross) a 108.7 duction has also gradually increased as per A protracted government formation a 70.6 the OPEC+ production quota tapering, process and a resurgence of security chal- Life expectancy at birth, years which is scheduled to be fully phased out by lenges cloud the prospects of Iraq’s econo- Total GHG Emissions (mtCO2e) 246.2 September 2022. Higher oil prices have also my. A political dead lock has stalled the Source: WDI, Macro Poverty Outlook, and official data. bolstered government revenues and government formation process since the a/ Most recent WDI value (2019). strengthened reserves. October 2021 parliamentary elections and However, Iraq’s economic recovery re- led to postponing of the 2022 budget, mains fraught by significant volatility and adding to pre-exiting social grievances re- Iraq’s economy is gradually recovering long-standing structural challenges. Due to garding corruption, poor public service de- from the twin shocks of the pandemic and overdependence on oil, exports and govern- livery and lack of economic opportunities. collapse in oil prices in 2020. Both oil and ment revenues remain highly volatile and The oil windfall presents a crucial opportu- non-oil growth are on track to reach their pro-cyclical in line with oil price dynamics. nity for implementation of a comprehensive Government spending is beset by rigid package of economic reforms to achieve pre-pandemic levels as oil production in- wage and transfer expenditures. The pan- sustainable economic growth and cushion creases and the easing of COVID-19 re- demic also amplified Iraq’s pre-existing the impact of future economic shocks. strictions restores domestic economic ac- fragilities in the health care system, public tivity. Fiscal and external deficits are back administration, and digital and physical in- frastructure, compounding low productiv- to surpluses as oil prices continue to surge. ity growth. The disproportional impacts of Recent developments Growth in the medium term is projected to the crisis on the pre-pandemic poor and vul- be driven by the oil sector as OPEC+ pro- nerable population exacerbated the pre-ex- Iraq’s economy is gradually rebounding duction cuts are phased out. The outlook re- isting poverty trends and inequality. While following the deep economic strains of the mains subject to significant risks including the overall unemployment rate increased COVID-19 pandemic. Real GDP is estimat- during the pandemic, unemployment ed to have edged up by 1.3 percent in 2021, uncertainties relating to the impact of among the displaced, returnees and women after a sharp contraction of 11.3 percent in geopolitical tensions, the ongoing pandem- jobseekers, and those pre-pandemic self- 2020. The rebound was mainly driven by the ic, security challenges, and climate change. employed and informal workers, in partic- non-oil sector which grew by 6 percent in ular, is pronounced significantly. Record 9M-2021 year-on-year (y/y), underpinned FIGURE 1 Republic of Iraq / GDP growth and supply side FIGURE 2 Republic of Iraq / Fiscal account outlook decomposition Percent, percentage points Percent of GDP US$ per barrel 15 60 100 50 90 10 40 80 30 70 5 20 60 10 50 0 0 40 -10 -5 -20 30 -30 20 -10 -40 10 -50 0 -15 2019 2020 2021 2022 2023 2024 2015 2017 2019 2021 2023 Oil revenues (lhs) Non-Oil revenues (lhs) Oil Agriculture Non-oil industry Wages and pension (lhs) Other expenditures (lhs) Services GDP growth Fiscal balance (lhs) Oil price (rhs) Sources: Iraq’s COSIT and World Bank staff calculations. Sources: Iraq MoF, MoO, and World Bank staff calculations. MPO 156 Apr 22 by a strong performance of the high con- by 25 percent (y/y). The latter was driven such, Iraq’s overall fiscal surplus is project- tact sectors including transport, accommo- by private imports’ downward adjustment ed to moderate from an initial high of 11.7 dation, and retail sectors. However, agri- following the devaluation. The stronger percent of GDP in 2022 to 4.9 percent of cultural and construction contracted by trade balance pushed official reserves up GDP in 2024, while the debt-to-GDP ratio 17.5 percent and 36.8 percent respectively, from US$54 billion in Dec-2020 to US$61.9 gradually improves to an annual average following severe droughts, energy out- billion in Dec-2021, strengthening buffers of 43 percent in 2022-24. ages, and the rising global price of inputs. to external shocks. Iraq’s economic outlook remains subject In 9M-2021, oil GDP contracted by 4 per- to significant risks. The recent geopolitical cent (y/y) as Iraq adjusted its oil produc- tensions related to the Russian war and tion as per the OPEC+ agreement. Head- invasion highlight risks for Iraq economy line and core inflation edged up to an av- Outlook both on the up and downside. While any erage of 6 and 6.6 percent (y/y) in 2021, re- further oil price hikes would further im- spectively, following the 23 percent deval- The turnaround in oil markets has signif- prove Iraq’s fiscal balance, rising food uation in Dec-2020 and the gradual recov- icantly improved Iraq’s economic outlook prices and disruption to agriculture im- ery in domestic demand. in the medium term. Overall growth in ports will exacerbate pre-existing poverty Government revenues surged by 73 per- 2022 is now forecast at 8.9 percent as trends and increase food security risks. cent (y/y) in 2021 spurred by higher oil OPEC+ quotas end and Iraq’s production The conflict also poses risks to Iraq’s prices which averaged at US$68.3/barrel in surpasses its pre-pandemic level of 4.6 crude oil production if operations of 2021 (78 percent increase y/y). These bud- mbpd. Growth in the outer years is project- Russian oil companies in Iraq are im- getary gains were in part boosted by the ed to remain modest at 3.7 percent on av- pacted by international sanctions on Rus- currency devaluation and measures to mo- erage as oil production moderates. Non-oil sia. Higher oil prices could hurt the long- bilize non-oil domestic revenues mainly GDP growth is projected to converge to its standing need to reform thereby deepen- from customs. While recurrent expendi- long-term potential growth trend in part ing Iraq’s structural economic challenges. tures – including the wage bill – remained aided by higher investments that would Further intensified climate change effects high at 29 percent of GDP, improved oil re- be financed through the oil windfall. How- and water shortages will decrease agricul- ceipts turned the overall fiscal balance to a ever, growth is forecast to remain con- tural production. Additionally, COVID-19 surplus of 5.3 percent of GDP in 2021. The strained by the economy’s limited absorp- vaccination in Iraq remains very low, improved fiscal situation together with a tive capacity and other inefficiencies. among the lowest in the region and well denominator effect from the high nominal Higher projected oil prices in 2022-2024 are below the global rate, and poses additional GDP growth (33 percent y/y) is estimated forecast to significantly improve Iraq’s fis- risks. It remains low even among the most to have reduced the debt-to-GDP ratio to cal and external outlook. Due to their high vulnerable group, the elderly, and among 54.8 percent in 2021, down from 64.7 per- dependence on oil, government revenues those with high risk of exposure to the cent in 2020. are likely to grow significantly through virus – poorer households and informal Higher oil prices and exports also improved both price and volume channels. In the ab- workers that are less likely to work from Iraq’s external accounts. The current ac- sence of a fiscal rule, part of the new fiscal home and more likely to live in large count balance turned into a surplus of 8.3 space is likely to be absorbed by higher households in cramped conditions. Other percent of GDP in 9M-2021 as exports investment expenditures along with other risks include the decline in oil prices, and a surged by 46 percent and imports declined procyclical discretionary spending. As deterioration of the security situation. TABLE 2 Republic of Iraq / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.8 -8.6 1.3 8.9 4.5 3.0 Private Consumption 1.5 3.1 2.3 3.2 3.1 3.0 Government Consumption 25.2 -9.5 5.6 6.0 4.0 3.4 Gross Fixed Capital Investment 496.1 -67.0 10.0 13.3 9.5 8.3 Exports, Goods and Services 4.6 -10.1 -0.5 13.5 5.5 2.9 Imports, Goods and Services 28.4 -23.9 4.2 8.7 5.7 5.0 Real GDP growth, at constant factor prices 5.5 -11.3 1.3 8.9 4.5 3.0 Agriculture 46.2 22.5 -12.0 4.0 2.0 2.0 Industry 7.4 -15.2 -0.1 12.5 5.3 2.9 Services -1.8 -6.3 6.5 2.3 3.0 3.1 Inflation (Consumer Price Index) -0.2 0.6 6.0 3.3 3.0 2.5 a Current Account Balance (% of GDP) 5.6 -5.2 8.2 10.6 7.4 5.2 a Net Foreign Direct Investment (% of GDP) 1.4 1.6 1.5 1.6 1.6 1.7 a Fiscal Balance (% of GDP) 1.3 -5.8 4.3 11.7 6.7 4.9 a Debt (% of GDP) 44.7 64.7 54.8 43.3 42.8 41.7 a Primary Balance (% of GDP) 2.4 -4.8 5.3 12.5 7.6 6.0 GHG emissions growth (mtCO2e) 11.4 -2.6 7.3 18.1 13.8 11.6 Energy related GHG emissions (% of total) 72.5 73.8 76.4 79.3 81.2 82.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Share of factor cost GDP. MPO 157 Apr 22 trade links with Ukraine and Russia are limited, a continuous and accelerated JORDAN Key conditions and surge in commodity prices and stronger slowdown in global growth represent challenges imminent downside risks to the econo- my. In absence of accelerated progress Table 1 2021 During the past decade, Jordan has faced on structural reforms, output could take Population, million 10.3 multiple external shocks. Growth perfor- longer to recover due to deeper scars GDP, current US$ billion 45.2 mance has been affected by regional in- on firms’ balance sheets and potentially GDP per capita, current US$ 4403.8 stability, which disrupted trade routes higher bankruptcies, human capital loss- a 15.7 National poverty rate and key export markets, triggered a es, and weaker human capital accumula- b 80.4 large refugee influx, and reduced for- tion. Over medium-to-long run, the im- School enrollment, primary (% gross) b 74.5 eign capital inflows through an econom- pact of climate change on natural haz- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 35.0 ic slowdown in GCC countries. Jordan’s ards could intensify the country’s water growth slowed to an average of 2.4 per- scarcity, posing a serious challenge to the Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017/8). cent a year during 2010-2019, compared agriculture sector. b/ WDI for School enrollment (2020); Life expectancy to 6.5 percent during 2000-2009, while (2019). population grew twice as fast as real GDP due to the influx of refugees. As a result, job growth could not match Recent developments Jordan’s economic rebound during 2021 growth in the working age population. has been steady, but significant slack re- Unemployment was high and rising in Jordan’s economic recovery during the mains in the economy. Unemployment is comparison to regional peers even prior first 9 months of 2021 was steady to COVID-19 shock. but was slightly below expectation. still persistently high - particularly for Jordan has weathered the COVID-19 Growth reached 2.1 percent in the youth while labor force participation shock better than most countries. Its 9M-2021 year-on-year, led by a broad- is among the lowest regionally. The cur- economy registered a modest contrac- based recovery of the services and in- rent account deficit remains elevated, but tion during 2020, cushioned by the dustrial sectors. Nonetheless, perfor- the fiscal position is showing tangible im- substantial improvement in terms of mance of some sub-sectors, specifically trade and the authorities’ timely mon- contact-intensive services, remain be- provement. Headline inflation remains etary and fiscal responses, including low pre-pandemic levels. low despite increases in transport and fu- wage subsidies for formal workers and The fiscal position showed a notable im- el prices. Going forward, economic provision of temporary cash transfers provement vis-à-vis 2020. Central Gov- growth is projected to remain modest as for poor and informal vulnerable ernment (CG) fiscal deficit (incl. grants) households. as of 11M-2021 stood at 4.6 percent of both the direct and indirect impacts of the Over the medium term, Jordan’s structural GDP, 1.5 percentage point lower than in Russian invasion, war and associated impediments along with imminent global 2020. A strong recovery in domestic rev- sanctions unfold, creating headwinds for risk factors arising from the Russian in- enue collection contributed to the signifi- Jordan’s nascent economic recovery. vasion, war and associated sanctions pose cant improvement, which more than off- serious downside risks. Although direct set elevated spending. FIGURE 1 Jordan / Current account deficit and its drivers FIGURE 2 Jordan / Unemployment rate in regional comparison Percent of GDP Percent 20 30 15 10 25 5 20 0 -5 -2.1 15 -10 -6.9 -8.1 -7.8 -15 -10.6 10 -12.1 -20 -25 5 -30 2017 2018 2019 2020 9M-2020 9M-2021 0 Current Transfers Income account Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Services Balance Trade Balance Turkey Tunisia Morocco Current Account Jordan Egypt Saudi Arabia Sources: Central Bank of Jordan and World Bank staff calculations. Sources: Haver Analytics and World Bank staff calculations. MPO 158 Apr 22 Jordan’s current account deficit (CAD) re- 90.4 percent) before gradually declining mains elevated. The CAD at end-Septem- over the medium-term. ber 2021 widened to 12.1 percent of GDP, Outlook On the external front, the ongoing Russian driven by a substantial increase in the mer- invasion, war and associated sanctions are chandise trade deficit amid unprecedented Growth is projected to reach 2.0 percent estimated to lead to a high CAD in 2022 as a increases in global commodity prices and and 2.1 percent in 2021 and 2022 respec- result of higher energy prices as well as neg- modest recovery in travel receipts com- tively, led by a recovery in domestic de- ative impact on tourism. Tourists receipts pared to pre-COVID-19 levels. Nonethe- mand and supportive government poli- from Russia and Ukraine together account- less, international reserves at end-Decem- cies. On the supply side, acceleration in the ed for 4.8 percent of total tourist receipts in ber 2021 stood at a comfortable level cover- recovery of tourism and services are ex- 2021. As a result, the CAD (including ing 9.5 months of imports, reflecting timely pected to boost the economy. Growth dy- grants) is projected to only modestly nar- donor and IMF program support (as well namics over the medium-term, however, row - reaching 9.1 percent of GDP in 2022, as SDR augmentation). hinge on global economic conditions, compared to an estimated 10.6 percent of Employment indicators still raise concern headwinds from the Russian invasion, war GDP in 2021. Over medium-term, full for households’ welfare. Deterioration in and associated sanctions and timely reso- tourism recovery, pick-up in remittances, the labor market remains the most sig- lution of structural impediments. Reflect- growth in exports and slow-down in im- nificant threat to household welfare. The ing elevated international commodity ports is projected to narrow Jordan’s CAD. employment rate remained low at 26.4 prices, headline inflation during 2022 is Household welfare is expected to slightly percent (Q3-2021). Although unemploy- projected to reach 3.3 percent. improve with the expected slow recovery ment fell slightly since peaking at 25.0 The CG fiscal deficit (incl. grants) is pro- in tourism, domestic demand and interac- percent in Q1-2021, it was still high at jected to improve to 4.0 percent of GDP in tion-intensive services sectors. However, 23.2 percent in Q3-2021, even more so 2022, supported by robust revenue efforts short of a revival of growth beyond the for women (30.8 percent) and young peo- and retraction of COVID-19 related expen- low 2 percent—which in turn is contingent ple (48.5 percent among those aged 15 ditures. Over the medium term, the fiscal on reform implementation—welfare im- to 24 years old). The national poverty deficit is projected to improve supported provements are not expected to be signifi- rate before the pandemic was 15.7 percent by IMF-EFF fiscal measures. Subsequent- cant and could be reversed through shocks (2018). Declines in employment incomes ly, government and guaranteed gross debt given limited household buffers. Larger at the height of the crisis were estimated at end-2022 is projected to reach 114.2 per- households, young, female and informal to increase poverty by as much as 11 per- cent of GDP (with debt net of Social Secu- workers may take longer to recover from centage points. rity Investment Fund holdings at around the economic impacts of the crisis. TABLE 2 Jordan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.0 -1.6 2.0 2.1 2.3 2.3 Private Consumption -0.5 -0.8 4.5 2.5 1.6 1.6 Government Consumption 2.1 5.2 3.9 -2.1 0.9 2.4 Gross Fixed Capital Investment -11.1 20.0 4.2 4.6 1.4 2.8 Exports, Goods and Services 6.5 -35.8 20.7 5.7 5.8 6.9 Imports, Goods and Services -3.1 -17.2 19.5 4.2 2.3 4.2 Real GDP growth, at constant factor prices 2.2 -1.4 2.0 2.0 2.3 2.3 Agriculture 2.6 1.6 3.0 2.4 2.6 2.9 Industry 1.4 -2.4 2.7 1.4 1.6 1.8 Services 2.4 -1.2 1.7 2.3 2.6 2.5 Inflation (Consumer Price Index) 0.8 0.3 1.3 3.3 2.5 2.5 Current Account Balance (% of GDP) -2.1 -8.1 -10.6 -9.1 -6.5 -5.0 Net Foreign Direct Investment (% of GDP) 1.5 1.6 1.6 2.2 2.9 3.4 a Fiscal Balance (% of GDP) -4.9 -7.3 -6.0 -4.0 -3.5 -2.4 b Debt (% of GDP) 97.4 109.0 113.6 114.2 114.5 113.0 b Debt, net of SSIF (% of GDP) 78.0 88.0 91.3 90.4 89.2 86.3 a Primary Balance (% of GDP) -1.3 -3.1 -1.7 0.0 0.5 1.6 GHG emissions growth (mtCO2e) 0.2 -4.0 1.7 1.9 1.6 2.1 Energy related GHG emissions (% of total) 63.3 62.0 62.4 62.5 62.8 62.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ CG fiscal balance incl. grants, use of cash and unident. measures as per IMF-EFF (Jan 2022) of 1.3% of GDP in 2023, and 1.6% of GDP in 2024. b/ Government and guaranteed gross debt. Includes securitization of domestic arrears in 2019-21. MPO 159 Apr 22 long-term challenges such as enhanc- ing fiscal sustainability by containing KUWAIT Key conditions and the wage bill, phasing out subsidies and moving ahead with VAT in har- challenges mony with other GCC countries. Table 1 2021 Kuwait’s long-term challenges relate to Population, million 4.3 the economy’s dependence on oil and GDP, current US$ billion 134.7 domestic consumption, and slow imple- Recent developments GDP per capita, current US$ 31325.6 mentation of diversification plans. Large a 87.3 School enrollment, primary (% gross) financial assets underpin Kuwait’s eco- Kuwait’s real GDP growth in 2021 is es- a 75.5 nomic resilience, but these assets alone timated at 2.3 percent, a modest rebound Life expectancy at birth, years Total GHG Emissions (mtCO2e) 113.8 cannot substitute for the fiscal and given the based effect that the COVID-19 Source: WDI, Macro Poverty Outlook, and official data. structural reforms that would offset the driven deep contraction of 8.9 percent in a/ WDI for School enrollment (2020); Life expectancy risks of low oil demand in the future. 2020 generated. The recovery was aided (2019). Fitch Ratings downgraded its sovereign by a pick-up in the oil sector in line with rating in January due to ongoing polit- OPEC+’s decision to ease crude production ical constraints hindering economic re- cuts, as well as a rebound of domestic con- form and debt financing needs. In 2021, sumption supported by renewed debt pay- more than 257,000 expatriates perma- ment deferrals and higher consumer loans. nently relocated following a trend ex- Domestic credit increased by 6.3 percent Kuwait exited a two-year recession in acerbated by the pandemic. Moreover, in 2021, its highest growth rate since 2015, 2021 as COVID-19 restrictions and the government has been accelerating its and was driven by households, while busi- OPEC+ cuts are gradually eased. The fis- Kuwaitisation policy—the replacement ness credit remained flat. The spike in cal deficit is expected to narrow with of foreign workers with Kuwaitis. The COVID-19 cases in early 2022 was the surging oil prices. The economic recovery exodus of expats has resulted in labor highest recorded since the crisis began, shortages, which risks hampering prompting authorities to tighten restric- is projected to gather pace in 2022 due to growth in both the oil and non-oil sec- tions. The case count has since dropped the combined effects of fewer pandemic re- tors. Structural reforms targeting sus- dramatically and now over 83 percent of lated restrictions, higher oil production tained, inclusive, and greener growth the population is fully vaccinated. Inflation and rising oil prices which will boost both are urgently needed. is expected to increase from 2.1 in 2020 to Key risks to the outlook relate to 3.4 percent in 2021 due to higher prices oil and non-oil sectors. However, emerg- the uncertainty over new variants of across all categories, led by food prices. ing coronavirus variants, volatile oil COVID-19, oil market volatility, and The Central Bank of Kuwait raised interest prices and continued political deadlock the political deadlock over structural rates by 25 bp in line with Federal Reserve over key reforms are downside risks. reforms. On the other hand an upside System’s move to tackle inflation. risk is that the recent oil price surge The fiscal deficit narrowed from 33.2 per- triggered by the war in Ukraine con- cent of GDP in FY20/21 to an estimated tinues. As the COVID-19 crisis abates, 11.4 percent of GDP in FY21/22 which is policies should address medium- and narrower than the government’s budget FIGURE 1 Kuwait / General government operations FIGURE 2 Kuwait / Growth: Real GDP, real oil, and real non-oil sectors Percent of GDP Percent of GDP Percent change Percent change 70 20 15 8 60 6 10 10 4 50 0 5 2 40 0 0 -10 30 -5 -2 -20 20 -4 -10 10 -30 -6 -15 Oil GDP 0 -40 Non-Oil GDP -8 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -20 Real GDP growth (rhs) -10 Revenues Expenditure Fiscal Balance (rhs) 2014 2016 2018 2020 2022f 2024f Sources: World Bank, Macroeconomics, Trade and Investment Global Practice, Sources: Kuwait CSB, World Bank, Macroeconomics, Trade and Investment Glob- IMF WEO. Notes: (1) Based on fiscal year cycle (April to March 31), (2) Balances al Practice. exclude investment income and transfers to the Future Generations Fund. MPO 160 Apr 22 (29.8 percent of GDP) due to higher-than- driven by a reduction of migrants (by 8.5 through stronger oil revenues and lower expected oil prices. This more than com- percent between 2019 and 2020). ILO es- spending, primarily subsidy and capital pensated for higher spending (the fiscal timates women and men unemployment spending cuts. However, with the sharp year begins in April and figures exclude rates increased in 2020: 8.2 and 2.0 percent, increase in oil prices following the war in investment income). However, financing respectively, compared to 5.7 and 1.0 per- Ukraine, a large swing into surplus for the the deficit will remain a challenge without cent in 2019. overall fiscal balance (to 13 percent of GDP the approval of the proposed debt law that in 2022) is projected. This will enable the seeks to raise the borrowing limit. In tan- partial clearance of US$7.7 billion in ar- dem with the recovery of global oil prices rears that Kuwait's finance ministry owes and export volumes as pandemic related Outlook to ministries and other public bodies. In international supply chain disruptions light of this, fiscal reform to enhance liq- eased, the current account surplus expand- Economic growth in 2022 is expected to uidity are critical and introducing the VAT ed by an estimated 5.1 percent of GDP in accelerate to 5.7 percent due to higher oil in line with its GCC peers will help diver- 2021. The recovery in trade was led by output, as OPEC+ cuts are phased out, and sify revenue. Furthermore, Kuwait should higher earnings from both oil and non-oil as domestic demand strengthens. Oil pro- seize the opportunity of the favorable fis- exports, mitigated by higher imports. duction is expected to increase by 8.6 per- cal position to delink the economy from oil Kuwait’s labor market is highly segment- cent in 2022 as OPEC+ lifts quotas and new and push forward structural reforms. The ed. According to the 2016-17 Labor Force capacity at the Al Zour refinery comes on- related boost in oil export earnings in ad- Survey, nine out of ten employed Kuwaitis line. Over the medium term, real GDP will dition to improvements in global demand work in the public sector, and thus were expand (averaging 3 percent for 2023-24) and waning concerns over the pandemic, protected from pandemic-related restric- thanks to stronger oil exports and credit will continue to expand the current ac- tions on economic activity. By contrast, mi- growth. Stronger domestic demand will count balance. Kuwait has long-term LNG grant workers are largely employed in the give further momentum to inflation in import contracts with Qatar so the gas private sector (64.3 percent) or as domestic 2022. However, a gradual tightening of price hike is not expected to have a major workers (31 percent). The ILO estimates monetary policy from 2022 onwards will impact. Frequent government changes in- an annual decline of 5.8 percent in the la- moderate inflation over the medium term. dicate that political deadlock will continue bor force in 2020, with only a partial re- The FY22/23 budget aimed to narrow the to hinder structural reform needed to raise bound in 2021 (4.1 percent). This is largely overall fiscal deficit (7.2 percent of GDP) potential growth and competitiveness. TABLE 2 Kuwait / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.6 -8.9 2.3 5.7 3.6 2.5 Private Consumption 2.3 -4.5 2.9 4.2 3.1 3.0 Government Consumption 7.7 -1.6 3.0 3.8 2.5 2.2 Gross Fixed Capital Investment -2.6 -3.1 0.5 2.0 3.8 3.5 Exports, Goods and Services -10.0 -13.3 3.2 8.6 5.1 2.7 Imports, Goods and Services -10.4 -4.0 3.5 5.0 4.9 3.8 Real GDP growth, at constant factor prices 0.7 -8.9 2.4 5.5 3.4 2.3 Agriculture -4.6 -3.8 0.5 1.0 1.3 1.5 Industry -0.9 -12.2 2.2 6.8 3.1 1.1 Services 3.4 -3.5 2.6 3.5 3.9 4.0 Inflation (Consumer Price Index) 1.1 2.1 3.4 3.6 2.8 2.3 Current Account Balance (% of GDP) 24.4 20.8 25.9 42.4 39.5 26.3 a Fiscal Balance (% of GDP) -9.5 -33.2 -11.4 13.0 5.9 2.6 GHG emissions growth (mtCO2e) 4.9 -7.1 3.3 8.0 4.9 4.9 Energy related GHG emissions (% of total) 77.4 74.3 73.0 72.4 70.9 69.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (April 1st-March 31st). MPO 161 Apr 22 LEBANON Key conditions and Recent developments challenges Real GDP is projected to decline by 10.5 percent in 2021, on the top of a 21.4 per- Table 1 2021 Lebanon is almost three years into an eco- cent contraction in 2020. A scarce source Population, million 6.8 nomic and financial crisis that is among the of growth is the tourism sector, where GDP, current US$ billion 22.1 worst the world has seen (Lebanon Sink- tourist arrivals surged by 101.2 percent, GDP per capita, current US$ 3263.6 ing (to the Top 3). Nominal GDP plum- from a low base, over the first seven a 78.9 Life expectancy at birth, years meted from close to US$52 billion in 2019 months of 2021. Total GHG Emissions (mtCO2e) 28.8 to an estimated US$22 billion in 2021. The Public finances improved in 2021, para- Source: WDI, Macro Poverty Outlook, and official data. crisis has also led to a triple-digit depre- doxically, as spending collapsed faster a/ Most recent WDI value (2019). ciation and inflation, decimating the coun- than revenue generation. Revenues are es- try’s gross foreign reserve base. timated to have declined from an already The share of the Lebanese population un- low 13.1 percent of GDP in 2020 to a mere Real GDP is estimated to have declined by der the national poverty line estimated to 6.3 percent of GDP in 2021—the third low- 10.5 percent in 2021, on the back of a 21.4 have risen by 9.1 percentage points (pp) by est revenue ratio worldwide in 2021, ahead end-2021. Phone surveys conducted in No- of only Somalia and Yemen. The expen- percent contraction in 2020 as policy mak- vember-December 2021 by the World Food diture contraction was even more pro- ers have still not agreed on a plan to address Program with support from the World nounced, shrinking by 9.2 pp to 7.3 percent the collapse of the country’s development Bank, found that, of households surveyed of GDP in 2021. This partly reflects low in- model. The exchange rate continued to dete- (i) 61 percent reported challenges in ac- terest payments due to the Eurobond de- cessing food and other basic needs, up fault and a favorable arrangement with riorate sharply in 2021, keeping inflation from 41 percent in the same period in 2020; Banque du Liban (BdL, central bank) on rates in triple digits. Politically, Lebanon (ii) 64 percent reported adults restricting domestic debt as well as drastic cutbacks heads into parliamentary elections on May consumption in favor of children; and (iii) in primary spending (falling by 4.3 pp of 15, which are highly anticipated in light of 52 percent have difficulties in accessing GDP over 6M-2021). As a result, the overall health care, compared to 36 percent in the fiscal (primary) balance is estimated to systemic failures in governance. The eco- same period in 2020. have reached -1 percent (0.2 percent) of nomic consequences of the Russian inva- Lebanon has witnessed a dramatic col- GDP in 2021, compared to -3.3 percent (-0.8 sion, war and associated sanctions are lapse in basic services, driven by depleting percent) in 2020. adding to Lebanon’s plights, in particular FX reserves. Acute shortages of fuel for The depreciation of the Lebanese pound given its critical net imports of wheat (qua- both the private and public utilities have (LBP) picked up speed in H2-2021; the US$ led to severe electricity blackouts across banknote exchange rate (BNR) went from si-exclusively from these two countries) the country, with the public utility, EdL, LBP15,000/US$ in June 2021 to breach and oil. Assuming continued no policy re- supplying as little as 2 hours per day. Fur- LBP30,000/US$ in January 2022. This was form, real GDP is projected to contract by ther, medication have at times been in sub- largely due to a disorderly termination of 6.5 percent in 2022. stantial shortages, while health services the FX subsidy, which had covered essen- have suffered heavily. tial imports (fuel, medication, wheat etc.) FIGURE 1 Lebanon / Exchange rate depreciation and rising FIGURE 2 Lebanon / Inflation in basic items has been a key prices driver of overall inflation, hurting the poor and the middle class Index (Aug 2019=100) Contributions to Overall Inflation in 2021, percent 1,800 160 Headline Inflation growth Parallel exchange rate Food & Non-alcoholic Beverages World Bank average exchange rate 140 Transportation 1,500 Water, Electricity, Gas, & Other Fuels Consumer price index 120 Clothing & Footwear Currency in circulation Furnishings, Household Equipment 1,200 100 Health 80 Alcoholic Beverages & Tobacco Communication 900 Education 60 Owner Occupied 40 Actual Rent 600 Other 20 300 0 -20 0 Aug-19 Dec-19 Apr-20 Aug-20 Dec-20 Apr-21 Aug-21 Dec-21 -40 Sources: Lebanese authorities and World Bank staff calculations. Sources: Lebanese authorities and World Bank staff calculations. MPO 162 Apr 22 since end-2019. The World Bank Average in January 2022, as effects of the FX subsidy Inflation rates will remain in triple digits, Exchange Rate (AER) depreciated by 211 removal materialized. Average inflation subdued only by BdL’s ability to control percent in 2021, compared to 250 percent for 2021 is estimated at 150 percent (Figure narrow money supply. depreciation in 2020 (Figure 1). 2)—the 3rd highest globally after The projections come with wide confi- In December 2021, BdL began aggressive FX Venezuela and Sudan. dence intervals attributed to (i) a downside interventions using its gross reserves, man- In October 2021, the Lebanese authorities risk of gross FX reserves depletion, re- aging to bring the BNR back down to and the IMF resumed discussions, which newed COVID-19 outbreaks, higher com- LBP20,000/US$. Nonetheless, dwindling were interrupted for many months since modity prices, especially oil; and (ii) up- FX reserves render such measures non-sus- their initial launch in May 2020. Disagree- side risk if Government agrees to and im- tainable. By December 2021, gross FX re- ments persist on how to account for losses plements a comprehensive macroeconom- serves (excluding gold reserves) at BdL in the financial sector. A critical audit of the ic stabilization and reform program. reached US$17.8 billion (equivalent to 12.6 BdL—necessary to any recovery plan—re- Considering the scale and scope of months of imports), declining by US$6.3 bil- mains a longstanding pending issue. Lebanon’s financial and economic crisis, lion since end-2020. Since this includes the negative impact of the economic conse- around US$5 billion in Lebanese Eu- quences of the Russian invasion, war and robonds, on which the Government default- associated sanctions is of a different mag- ed in March 2020, gross reserves are now Outlook nitude. It is nonetheless large and negative less than required reserves on banks’ cus- as Lebanon will have to quickly tap new tomer FX deposits—estimated at US$14.4 Subject to extraordinarily high uncertain- alternatives for its wheat imports from billion. BdL does not publish net reserves ty, real GDP is projected to contract by a Russia and Ukraine to guarantee food se- data, but these are estimated to be highly further 6.5 percent in 2022 under the as- curity. Additionally, surging energy prices negative (potentially several times GDP). sumptions of continued inadequate macro will further exacerbate already existing, Large exchange rate pass-through effects policy responses and a minimum level of crisis related exchange market pressures, have implied surging inflation, which after stability on the political and security highly elevated inflation rates, and likely falling to 100.6 percent (yoy) in June 2021, scenes. A runaway inflation-depreciation reduce further the limited amount of elec- spiked to a crisis-peak of 240 percent (yoy) spiral, a plausible scenario, is not assumed. tricity supplied by EdL. TABLE 2 Lebanon / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f Real GDP growth, at constant market prices -7.2 -21.4 -10.5 -6.5 Private Consumption -5.9 -15.3 -5.4 -7.2 Government Consumption 6.2 -53.7 -65.9 -28.0 Gross Fixed Capital Investment -40.7 -55.4 -71.0 -54.9 Exports, Goods and Services -1.7 -53.7 -0.4 8.2 Imports, Goods and Services -13.0 -46.0 -15.2 -4.4 Real GDP growth, at constant factor prices -5.9 -17.6 -7.8 -6.8 Agriculture 6.1 53.5 -10.5 0.0 Industry -17.6 -21.8 -10.5 0.0 Services -4.7 -21.7 -7.0 -8.6 Inflation (Consumer Price Index) 2.9 84.3 150.0 120.0 Current Account Balance (% of GDP) -21.9 -9.3 -18.1 -12.8 Net Foreign Direct Investment (% of GDP) 3.4 8.9 6.6 4.9 Fiscal Balance (% of GDP) -10.5 -3.3 -1.0 -1.6 Debt (% of GDP) 171.1 179.2 180.6 272.0 Primary Balance (% of GDP) -0.5 -0.8 0.2 -0.8 GHG emissions growth (mtCO2e) -6.2 -16.1 6.7 -24.4 Energy related GHG emissions (% of total) 73.8 71.2 74.5 67.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 163 Apr 22 Household welfare has continued to dete- riorate due to the loss of jobs and sources LIBYA Key conditions and of income that accompanied the conflict, economic downturn and COVID-19 con- challenges tainment measures. According to the REACH initiative, 63 percent and 49 per- Table 1 2021 Contrary to 2021, when Libya made cent of Libyans and non-Libyans surveyed Population, million 7.0 progress towards ending the decade- in mid-2021, respectively, reported having GDP, current US$ billion 41.6 long conflict and reunifying competing used or exhausted coping strategies clas- GDP per capita, current US$ 5977.9 public institutions in the East and West, sified as crisis or emergency strategies, a 109.0 School enrollment, primary (% gross) the year 2022 has so far brought a re- thereby hindering their capacity to re- a 72.9 turn to political division. National elec- spond to potential future shocks. Life expectancy at birth, years Source: WDI, Macro Poverty Outlook, and official data. tions, originally scheduled for December Results of a World Food Program (WFP) a/ Most recent WDI value (2019). 2021, have been postponed and there is phone survey conducted in August-Sep- no agreement on a new date nor on tember 2021 showed 8 percent of Libyan the legal and constitutional basis for the households have inadequate food con- elections. The eastern-based House of sumption. Food insecurity was highest in Representatives has granted confidence the Southern region. Compared to April to a new cabinet, whereas the Govern- 2021, there was an increase in food insecu- Since the delay of national elections in ment of National Unity considers that rity reported in Tobruk, where 37 percent December 2021, political and security its mandate does not end until nation- of surveyed households had inadequate tensions and oil production disruptions al elections take place. Libya finds itself food consumption. have escalated. The confirmation of a new again with two parallel governments in the East and West, with likely negative cabinet by the House of Representatives implications for policy making, econom- has returned Libya to a state of institu- ic recovery, and security. Recent developments tional division, with two parallel govern- COVID-19 vaccination coverage in ments in the East and West. While soar- Libya remains relatively low. By end- While official national accounts data have February 2022, 31 percent of people been unavailable for much of the conflict ing global oil prices will have a positive in Libya were vaccinated and only 16 period, rough estimates of GDP can be impact on growth and fiscal and external percent were fully vaccinated. made using data on night-time lights, oil surpluses, this hinges on the persistence The consecutive waves of the COVID-19 production and government spending. of oil production. Meanwhile the popula- pandemic have placed a significant strain Estimates reveal that growth rebounded tion faces increasing food insecurity as on the healthcare system which is already in 2021, driven by a significant accelera- battered by the conflict. The United Na- tion of oil production (average of 1.2 mil- global wheat prices rise. tions Office for the Coordination of Hu- lion barrels per day (mb/d) compared to manitarian Affairs (OCHA) estimated that 0.4 mb/d in 2020). However, since mid- over 800,000 people lacked consistent ac- December 2021, there have been multiple cess to primary and secondary healthcare production disruptions due to weather- services in 2021. induced port closures, infrastructure FIGURE 1 Libya / Oil production and exports FIGURE 2 Libya / Real annual GDP growth Thousands of barrels per day US$ million Percent 1,400 4500 225 Non-hydrocarbon 200 4000 Hydrocarbon 1,200 175 3500 Real GDP 150 1,000 3000 125 800 100 2500 75 600 2000 50 1500 25 400 0 1000 200 -25 Oil Production 500 -50 Exports 0 0 -75 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 2006 2008 2010 2012 2014 2016 2018 2020 Sources: Organization of the Petroleum Exporting Countries (oil production) and Sources: Libyan authorities and World Bank staff estimates. IMF Direction of Trade Statistics (exports). MPO 164 Apr 22 maintenance issues, and shutdowns by purchase food. For households that expe- of 34.8 percent of GDP to a surplus of 23.4 armed groups. Oil production in January rienced shocks, price fluctuations and in- percent of GDP in 2020-2021. 2022 recorded its lowest level since Octo- creases (37 percent) rank highest among ber 2020 (1.08 mb/d). the types of shock experienced. Prices of essential goods rose in 2021 and The fiscal balance witnessed a massive re- accelerated during the second half of the versal from a 64.4 percent of GDP deficit Outlook year. The price of the Minimum Expen- in 2020 to a 10.6 percent of GDP surplus in diture Basket (MEB) in December 2021 2021 owing to the jump in oil production It is impossible to forecast economic out- was 12.6 percent higher than in Decem- and prices and the exchange rate devalu- comes with any degree of confidence due ber 2020 and 24.5 percent higher than in ation (much of the spending (particularly to the high level of uncertainty surround- March 2020 at the start of the COVID-19 wages) was denominated in LYD where- ing political and security developments. If pandemic. The rise was especially pro- as 98 percent of revenues in 2021 were oil production and exports continue with- nounced in the West and South. The sourced from hydrocarbons denominated out major extended disruptions, Libya will MEB, measured by the REACH initiative, in US$). Government spending in LYD in- benefit from soaring global oil prices represents the minimum culturally ad- creased by 87 percent in 2021 with rises which will translate into higher fiscal rev- justed items required to support a Libyan across all major budget categories or chap- enues and inflow of hard currency. This household for a month. ters; however, given the 70 percent depre- will positively affect the trade, current ac- Prices of flour are reportedly on the rise ciation of the exchange rate in January count, and fiscal balances. Libya may face in the aftermath of the Russia-Ukraine 2021, this represented a spending drop of short-term wheat supply disruptions, crisis and in the absence of food subsi- 43 percent in USD equivalent. higher wheat prices and in turn higher in- dies. Libya relies significantly on wheat There is no approved budget for 2022 to flation and lower consumption. and cereal imports from Russia and date, and chances for approval of a uni- Downside risks to the outlook are elevat- Ukraine (54 percent of wheat imports, 62 fied government budget soon are low giv- ed. Political tensions relating to national percent of barley imports, and 69 percent en the return to two separate cabinets in elections and rival governments are high, of maize or corn imports). the East and West. which raises the specter of a potential According to an August 2021 survey by Data for the first 11 months of 2021 reveal backslide into violence. A deterioration of WFP, more than half of surveyed house- a trade balance surplus of 52 percent of the security situation or shocks to the glob- holds reported having experienced shocks GDP, driven by the major increase in oil al economy or global commodity prices in the last 12 months, with 38 percent exports and oil prices. The current account would adversely impact economic activity reporting reduced ability to produce or is estimated to have turned from a deficit and household welfare. TABLE 2 Libya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018 2019 2020 2021e Real GDP growth, at constant factor prices 15.1 2.5 -31.3 99.3 Hydrocarbon GDP 35.9 4.3 -52.3 203.9 Non-Hydrocarbon GDP 1.8 1.0 -12.8 48.7 Exchange Rate (USD/LYD) 1.4 1.4 1.4 4.5 Current Account Balance (% of GDP) 21.4 11.6 -34.8 23.4 Fiscal Balance (% of GDP) -7.0 1.7 -64.4 10.6 Crude oil production (million barrels per day) 1.0 1.2 0.4 1.2 Sources: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate. MPO 165 Apr 22 to health insurance, create a unified cash transfer program for the poor and vulner- MOROCCO Key conditions and able, and improve educational outcomes. challenges Table 1 2021 A strong economic rebound in 2021 has Recent developments Population, million 37.3 enabled Morocco to recover most of the GDP, current US$ billion 128.6 output and job losses caused by the The authorities responded to the GDP per capita, current US$ 3442.4 COVID-19 crisis. However, real GDP is COVID-19 Omicron variant with a suspen- a 4.8 National poverty rate still 6.4 percent below the pre-pandemic sion of international travel from November a 7.3 trend, potential growth has been declin- 29, 2021 to February 7, 2022, one of the Lower middle-income poverty rate ($3.2) a 39.5 ing since the early 2010s, volatile precipi- most stringent measures globally. Accord- Gini index School enrollment, primary (% gross) b 115.2 tations are increasingly affecting the econ- ing to official statistics, new COVID-19 cas- Life expectancy at birth, years b 76.7 omy, and the crisis may leave socio-eco- es have fallen in March 2022 to their lowest Total GHG Emissions (mtCO2e) 98.7 nomic scars if not treated well. level since April-May 2020. Morocco has Morocco’s growth has not been sufficient- achieved one of the highest levels of vac- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014). ly labor intensive to absorb a growing cination in the African continent, with 63 b/ WDI for School enrollment (2020); Life expectancy working-age population, owing to the percent of the population fully vaccinated (2019). slow pace of structural transformation. as of March. The labor market is characterized by a GDP growth rebounded to 7.4 percent in large informal sector, high rates of inac- 2021 after contracting by 6.3 percent in The economy rebounded in 2021, due to a tivity and low female labor force partic- 2020. This was partly due to an exceptional strong agricultural output, solid exports ipation. This is related to the prevalence cereal crop after two consecutive years of of low-valued-added services, and a diffi- severe drought. Agricultural value-added and remittances, supportive macroeco- cult business environment, especially for grew by 19 percent. The performance of nomic policies, and significant progress on start-ups and young firms. the industrial sector was solid (7.7 percent COVID-19 vaccination. The authorities The authorities recently adopted a New annual growth), while that of services (4.8 adopted a New Development Model, an Development Model that calls for an ambi- percent) was muted by a slow recovery of ambitious reform program that aims to fos- tious and transformative reform agenda. It tourism. On the demand side, growth was envisages an acceleration and diversifica- boosted by consumption, supported by a ter stronger, greener, and more inclusive tion of Morocco’s growth, which in the re- surge in workers’ remittances and recover- growth. They also embarked on ambitious cent past has been heavily reliant on high ing labor markets. reforms in health insurance, social protec- levels of public investment with a relative- Annual inflation remained contained at 1.4 tion, and education. In the short-run, the ly low multiplier effect. Another key chal- percent on average, notwithstanding the lenge is to foster human capital accumu- emergence of imported cost-push pres- authorities will need to address the socio- lation and address long-lasting inequities sures towards the end of 2021. CPI posted economic effects of a severe drought and in access to services and social protection. a 3.6 percent yearly increase in February higher global energy and food prices. To this end, the government has embarked 2022. Bank Al-Maghrib has maintained the on a broad reform to universalize access policy rate at 1.5 percent since June 2020. FIGURE 1 Morocco / Actual and projected real GDP, percent FIGURE 2 Morocco / Actual and projected poverty rates and deviation from 2019 level and pre-COVID-19 forecast real GDP per capita Percent difference in real GDP levels Poverty rate (%) Real GDP per capita (constant LCU) 2 50 35000 0 30000 40 25000 -2 30 20000 -4 20 15000 -6 10000 10 -8 5000 -10 0 0 2018 2019 2020 2021 2022 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Deviation from pre-COVID-19 projection International poverty rate Lower middle-income pov. rate Deviation from 2019 real GDP Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 166 Apr 22 The budget deficit declined from 7.6 to 6 at $1.9 line (2011 PPP) by 26 percent, reach- up global commodity prices, which to- percent of GDP in 2020-2021, as contin- ing 5.7 percent and 0.7 percent. gether with the drought, could push up ued increases in public spending in 2021 Morocco’s import bill and public subsi- - due to the vaccination campaign, high- dies, thereby impacting the current ac- er public sector wages and rising energy count and the budget balance. A weaker subsidies - was more than offset by the Outlook recovery could exert additional pressures rebound in labor income taxes and VAT. on household and firms’ debt servicing The debt-to-GDP ratio declined slightly Growth is projected to slow to 1.1 percent capacity. Inflationary pressures could from 76.4 to 75.6 percent. in 2022, as agricultural output declines force the central bank to raise rates, The current account deficit widened from by 17.3 percent due to another severe which together with changes in the mone- 1.5 to 2.6 percent of GDP in 2020-2021, as drought. The economy is projected to be tary stance of advanced economies would strong exports and remittances (7.8 per- driven by a still solid but moderating in- tighten financing conditions for the public cent of GDP) were more than offset by dustrial performance and a faster recov- and the private sector. growing imports and depressed tourism ery of tourism. Ongoing reforms are ex- Rising prices and decreasing agricultural receipts. The current account deficit was pected to increase potential growth over revenues are expected to slow down the financed by higher net FDI flows and the medium-term. post-COVID-19 normalization of socio- multilateral disbursements. The exchange The fiscal impact of the health and social economic conditions. Poverty and ex- rate has been overall stable, and foreign protection reform and postponement of treme poverty are expected to stagnate reserves increased by 3.3 percent to 6.3 the LPG and flour subsidy reform will in 2022 at best, and will not get back months of imports. slow the consolidation of the budget deficit to pre-COVID-19 levels until 2023. Giv- Following the sharp increase in poverty in (6.2 percent of GDP in 2022). Public debt is en inflationary pressures, especially for 2020, living conditions started to progres- projected to stabilize below 80 percent of food and energy products, as well as the sively normalize in 2021 due to an im- GDP. The current account deficit is expect- impacts of the severe drought, measures provement in labor market performance ed to widen to 5.5 percent of GDP due to to support the most vulnerable as well and the exceptionally good agricultural higher energy and food import bill. as the broader planned social dialogue season. Poverty at $3.2 line (2011 PPP) de- This outlook is subject to various down- will be important measures for Govern- creased by 17 percent and extreme poverty side risks. The war in Ukraine is pushing ment to take. TABLE 2 Morocco / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.6 -6.3 7.4 1.1 4.3 3.6 Private Consumption 1.9 -4.1 6.7 2.4 4.4 3.9 Government Consumption 4.8 1.7 5.4 2.7 2.6 2.5 Gross Fixed Capital Investment 1.0 -9.0 9.8 5.7 5.7 4.7 Exports, Goods and Services 6.2 -14.3 4.9 11.2 11.7 10.4 Imports, Goods and Services 3.4 -12.2 9.8 13.2 9.7 9.0 Real GDP growth, at constant factor prices 2.7 -6.1 6.7 1.1 4.3 3.6 Agriculture -4.6 -6.9 19.0 -17.3 16.5 4.9 Industry 3.6 -3.8 7.7 3.3 3.4 3.5 Services 4.0 -7.1 4.8 3.6 3.6 3.7 Inflation (Consumer Price Index) 0.2 0.7 1.4 4.0 1.8 1.7 Current Account Balance (% of GDP) -3.7 -1.5 -2.6 -5.5 -4.0 -3.7 Net Foreign Direct Investment (% of GDP) 1.3 1.4 1.3 1.5 1.5 1.5 Fiscal Balance (% of GDP) -3.8 -7.6 -6.0 -6.2 -5.8 -5.7 Debt (% of GDP) 64.8 76.4 75.6 79.8 79.5 79.6 Primary Balance (% of GDP) -1.5 -5.1 -3.7 -3.9 -3.4 -3.4 a,b International poverty rate ($1.9 in 2011 PPP) 0.7 0.9 0.7 0.7 0.6 0.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 5.4 6.8 5.7 5.7 5.2 4.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 24.9 29.0 25.8 25.9 24.3 23.1 GHG emissions growth (mtCO2e) 6.3 -4.5 5.3 1.2 3.5 3.3 Energy related GHG emissions (% of total) 69.3 67.9 69.4 69.4 69.8 70.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2013-ENCDM.Actual data: 2013. Nowcast: 2014-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2013) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 167 Apr 22 could potentially undermine the reform momentum. Moreover, Oman is among OMAN Key conditions and the top Arab countries in terms of wheat imports from Russia, therefore, the ongo- challenges ing conflict could cause a higher wheat import bill, which will likely be compen- Table 1 2021 Oman’s economy was hit hard in 2020 by sated by increased hydrocarbon exports Population, million 5.2 COVID-19 and its impact on hydrocarbon receipts induced by the conflict. GDP, current US$ billion 83.6 prices. Despite past diversification efforts, GDP per capita, current US$ 16076.9 public finances and the external sector re- a 104.5 School enrollment, primary (% gross) main dependent on hydrocarbon and thus Life expectancy at birth, years a 77.9 vulnerable to volatility of hydrocarbon Recent developments Total GHG Emissions (mtCO2e) 102.0 prices. To address the persistent twin Source: WDI, Macro Poverty Outlook, and official data. deficits that have resulted in a debt build- Oman’s economy is recovering gradually a/ WDI for School enrollment (2020); Life expectancy up, in 2020 the government embarked on from the dual impact of the pandemic and (2019). an ambitious reform program. These in- the collapse in oil prices. Estimates suggest clude the Medium-Term Fiscal Balance that overall growth reached 2.1 percent in Plan (MTFP) 2020-24, a fiscal consolidation 2021. Hydrocarbon GDP grew by an es- After a difficult 2020, Oman’s economy is program, which aims at putting public timated 2.2 percent, driven by higher oil on a solid recovery path amid easing pan- debt on a sustainable path through in- production due to the easing of OPEC+ creased non-hydrocarbon revenues, ex- cuts since mid-2021 and the coming on demic pressures, higher hydrocarbon out- penditure rationalization and SOE re- stream of a new liquified gas plant in puts, and wide-ranging government re- forms. Other measures to boost the non- mid-2021. Non-oil GDP is estimated to forms. Frontloaded fiscal reforms includ- hydrocarbon tradeable sector would fur- have rebounded by almost 2 percent in ing VAT and cuts in spending are expect- ther support a stronger external position 2021, supported by the recovery of domes- ed to turn the fiscal and current account over the long term. The implementation of tic and external demand aided by in- the MTFP, coupled with ongoing structur- creased vaccine penetration, which boost- deficits into surpluses starting from 2022. al reforms, are expected to facilitate private ed the most impacted sectors by the pan- Downside risks include resurgent pan- sector growth and job creation. demic (tourism, hospitality, and retails). demic pressures, volatility of oil prices, However, key challenges remain. These Annual inflation switched from the 2020 and slower implementation of the govern- include renewed pandemic pressures and negative territory and picked up to an av- volatility of energy prices, which could erage 1.5 percent in 2021, due to the in- ment’s reform program. On the upside, increase gross financing needs and dis- troduction of the VAT last April and im- rising hydrocarbon production, improved rupt the government’s reform program. proved domestic demand. non-oil revenues, and expenditures ratio- Medium-term challenges relate to the on- Public finances improved substantially in nalization would further strengthen fiscal going global transition from fossil to 2021. Higher hydrocarbon revenues to- and external positions. greener energy sources, and its impact gether with fiscal adjustment measures, on Oman’s fiscal and external sustain- such as the streamlining of public expen- ability. Fiscal consolidation could poten- ditures primarily reflecting lower wage bill tially give rise to social tensions, which mainly from mandatory retirement, cuts to FIGURE 1 Oman / Real annual GDP growth FIGURE 2 Oman / General government operations Percentage change Percent of GDP Percent of GDP 10 10 60 Hydrocarbon GDP 8 5 Non-Hydrocarbon GDP 45 6 Real GDP (rhs) 0 4 -5 30 2 -10 0 Overall Fiscal balance 15 -2 -15 Total expenditure (rhs) Total revenue (rhs) -4 -20 0 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Sources: Oman authorities; World Bank staff projections; and IMF. Sources: Oman authorities and World Bank staff projections. MPO 168 Apr 22 utility subsidies and the introduction of has bounced back, and as of December other GCC producers, may ramp up VAT in April 2021, significantly lowered 2021 it is estimated at about 267,000 com- hydrocarbon output to satisfy the oil the deficit to an estimated 3 percent of pared to an average of about 262,300 in market, thereby providing upside risk GDP, compared with 16 percent in 2020. 2019. By contrast, the number of expatri- to GDP growth. Inflation is forecast to The favorable fiscal outcome is estimated ates employed in the private sector has de- pick up to over 3 percent in 2022 as to lead to a decline in the debt-to-GDP ra- clined considerably, most notably in man- the recovery in demand and the VAT tio to 65 percent in 2021 from over 71 per- ufacturing and construction. impact continue to feed into prices, be- cent in 2020. fore declining to an average of 2 per- Higher hydrocarbon exports, reduction cent in 2023-24. in public investment expenditure, and The fiscal outturn is expected to switch Omanization efforts that led to lower Outlook into a surplus of nearly 6 percent of outward remittances all contributed to GDP in 2022 and to continue improving the marked decline in the current ac- Oman’s economy is expected to improve in 2023-24, due to higher hydrocarbon count deficit estimated to reach less than gradually and strengthen over the medi- revenues and steady implementation of 4 percent of GDP in 2021, compared um-term, supported by higher oil and fiscal adjustment measures. The public with 12 percent in 2020. As a result, the gas production and the ongoing structur- debt-to-GDP ratio is forecast to gradu- central bank gross reserves bolstered to al reforms. Growth is projected to pass ally decline to an average of 38 percent US$19 billion (6 months of imports of 5 percent in 2022 underpinned by more over 2022-24. goods and services) in 2021, a US$5 bil- than 8 percent growth in the hydrocar- Higher oil prices and export diversifica- lion increase from 2020. bon sector, boosted by increased produc- tion are expected to improve the cur- The unemployment rate dropped to 1.9 tion of liquified natural gas in the key rent account balance to a surplus above percent in December 2021, below the pre- Ghazeer and Khazzan fields. The non-oil 5 percent of GDP in 2022 and remain pandemic rate (2.8 percent in December economy will continue to grow, exceed- in positive territory over 2023-24, allow- 2019). Unemployment remains higher ing 2 percent in 2022, as fast vaccine roll- ing the accumulation of gross foreign re- among youth (aged 15-24), and particular- out strengthens domestic activity. Over serves to over US$28 billion on average in ly among young women (25.6 percent). the medium term, growth will deceler- 2022-24 (or 8 months of imports of goods The private sector continues to be the ate to an average of 2.7 percent per year and services). Higher hydrocarbon prices largest contributor to Omanis employ- in 2023-24, while the hydrocarbon sector and continued implementation of struc- ment. After a decline in 2020, the number will remain the main driver of growth. If tural reforms would considerably im- of Omanis employed in the private sector the war in Ukraine escalates, Oman, like prove the outlook. TABLE 2 Oman / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.8 -2.8 2.1 5.6 2.8 2.6 Private Consumption 0.9 -2.0 2.2 4.1 3.0 2.5 Government Consumption 0.3 -3.0 -2.0 -1.4 -1.7 -1.6 Gross Fixed Capital Investment -3.8 -4.3 2.7 4.4 3.8 4.2 Exports, Goods and Services 4.8 -8.0 5.7 8.3 6.0 5.5 Imports, Goods and Services -0.4 -10.5 5.5 6.5 5.9 5.4 Real GDP growth, at constant factor prices -0.8 -2.8 2.1 5.6 2.8 2.6 Agriculture 2.0 3.5 2.4 3.6 3.7 3.7 Industry 1.2 -4.7 1.8 5.8 3.5 1.7 Services -4.2 -0.1 2.5 5.5 1.7 4.0 Inflation (Consumer Price Index) 0.1 -0.9 1.5 3.4 2.1 2.0 Current Account Balance (% of GDP) -5.5 -11.9 -3.7 5.6 5.3 3.4 Fiscal Balance (% of GDP) -5.6 -16.1 -3.0 5.9 6.8 6.1 Debt (% of GDP) 60.5 71.1 65.3 47.0 37.2 30.8 GHG emissions growth (mtCO2e) 2.7 -0.3 21.1 12.9 10.1 -18.1 Energy related GHG emissions (% of total) 84.1 84.0 85.3 86.1 86.5 83.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 169 Apr 22 2022, the Palestinian territories are going through a fifth wave, dominated by the PALESTINIAN Key conditions and Omicron virus. Around 43 percent of the population has received at least one challenges TERRITORIES dose of the vaccine, but estimates sug- gest that there are sufficient vaccine dos- The Palestinian economy was stagnant and es to meet vaccination needs only up to the socio-economic situation already dif- mid-2022. Table 1 2021 ficult prior to the breakout of COVID-19. Population, million 4.9 This is attributed to restrictions by Israel GDP, current US$ billion 18.0 (on trade, movement and access), recur- GDP per capita, current US$ 3664.6 rent hostilities, internal divide, and falling Recent developments Upper middle-income poverty rate ($5.5) a 21.9 aid inflows. During 2017-19, annual GDP a 33.7 growth averaged 1.3 percent—lower than Despite new waves of COVID-19, lock- Gini index b the population growth rate resulting in de- downs were significantly eased in 2021. School enrollment, primary (% gross) 96.4 b creasing per capita incomes and increasing This, combined with the pickup of the vac- Life expectancy at birth, years 74.1 poverty. Growth decomposition shows cination campaign, allowed consumer con- Source: WDI, Macro Poverty Outlook, and official data. that this was driven by accumulation of fidence to slowly pick up and business ac- a/ Most recent value (2016), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy factors and not improvements in produc- tivity to gradually rebound. Latest data (2019). tivity. In recent years, gross investment show that the Palestinian economy grew has averaged about 26 percent of GDP, by 7.0 percent in 2021. The improved eco- but the bulk of this has been channeled nomic performance was mostly driven by into activities in the non-tradable sectors, the West Bank, which grew by 7.8 percent, rather than sectors that could have served while the May 2021 conflict in Gaza Following eased lockdowns and an im- as escalators for growth. Likewise, for- slowed the Strip’s recovery resulting in a provement in the health situation in eign direct investment, at a mere 1 per- growth rate of 3.4 percent in 2021. 2021, the Palestinian economy started its cent of GDP, is very low. Inflation began to rise from negative ter- recovery from the pandemic. Despite There is significant regional disparity in ritory in 2020, registering an average of strong revenues, the fiscal situation re- economic activity and income per capita 1.2 percent in 2021 due to a pickup in de- between the West Bank and Gaza. Accord- mand and rising global food and energy mained difficult in 2021 due to very low ing to the latest national household survey, prices. This trend has continued in ear- aid. This forced the Palestinian Authority around 22 percent of Palestinians lived be- ly 2022 with the CPI rising by 2.7 per- to accrue large arrears to the private sec- low the upper-middle income poverty line cent in January, y-o-y. Recently, the Pales- tor, public pension fund and pay partial ($5.5 2011 PPP a day) in 2016/17. Poverty tinians took to the streets of the West is significantly higher in Gaza with 46 per- Bank demonstrating against tax hikes that salaries to its employees. Given the ongo- cent of the population below the poverty the Palestinian Authority (PA) implement- ing pandemic, the outlook remains pre- line in 2016/17 compared to only 9 percent ed on sugary drinks and one-time use carious and subject to additional political in the West Bank. plastics in February 2022, to abide by the and security risks. COVID-19 has exacerbated existing econom- Paris Protocol following similar measures ic and social challenges. As of mid-March on the Israeli side. FIGURE 1 Palestinian territories / New daily COVID-19 FIGURE 2 Palestinian territories / Actual and projected infections and 7-day moving average poverty rates and real GDP per capita New Cases Poverty rate (%) Real GDP per capita (constant LCU) 22500 35 3600 New daily cases 20000 3400 7-day moving average 30 17500 3200 25 15000 3000 12500 20 2800 10000 15 2600 7500 10 2400 5000 5 2200 2500 0 0 2000 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -2500 International poverty rate Lower middle-income pov. rate Mar-20 Jul-20 Nov-20 Mar-21 Jul-21 Nov-21 Upper middle-income pov. rate Real GDP pc Sources: John Hopkins University CSEE and World Bank staff calculations. Sources: Palestine Expenditure and Consumption Survey (PECS), World Bank staff calculations. MPO 170 Apr 22 Public revenues bounced back with the eco- nearly 8 percentage points from 2016 (lat- on sugary drinks and single-use plastics, nomic recovery, while growth in expenses est available official data). As the impact higher collections on tobacco excise and was limited due to cuts in transfers. The fis- of the pandemic receded, the poverty rate higher VAT revenue due to implementing cal deficit after grants and after accounting is estimated to have declined to 27.3 per- an e-VAT system with Israel. Yet, these ef- for deductions made by Israel from rev- cent in 2021. Current poverty rates repre- forts would be offset by Israeli unilateral enues collected on behalf of the PA nar- sent a poor population of approximately deductions from revenues it collects on be- rowed to 5.8 percent of GDP in 2021 from 7.5 1.5 million people. half of the PA, projected at 1.6 percent of percent in 2020. The deficit was largely fi- GDP in 2022. Expenditure is expected to nanced by the accumulation of arrears to the decline with partial payments of salaries private sector and the public pension fund. until May 2022. With grants, the fiscal The PA also started paying partial salaries to Outlook deficit (on a cash basis) is expected to fall its employees since December 2021. to 4.5 percent of GDP in 2022. The unemployment rate in the Palestinian Under a baseline scenario that assumes a The economic consequences of the Russ- territories edged up to 24.2 percent in Q4 continuation of the Israeli restrictions, per- ian invasion and associated sanctions 2021 from 23.4 percent a year earlier, due sistence of the internal divide between the may also affect the outlook through to a rise in the participation rate. The over- West Bank and Gaza and stagnating aid mounting inflationary pressure. The on- all rate masks a wide regional divergence levels, growth is expected to hover around going pandemic may also cause risks to whereby unemployment in the West Bank 3.7-3.1 percent over the forecast period. the outlook, especially if no additional reached 13.2 percent while in Gaza it was The poverty rate is projected to decline to vaccines are secured beyond mid-2022. 44.7 percent. 26.7 percent in 2022, and then to further Further, if recent clashes between Pales- Estimates based on GDP per capita gradually decrease to 26.1 percent by 2024. tinians and the Israeli forces in the West growth suggest that in 2020 the poverty On the fiscal front, revenue is projected to Bank and in Gaza escalate, there is little rate spiked to 29.7 percent, an increase of grow in 2022, reflecting increased tax rates room left to absorb such shocks. TABLE 2 Palestinian territories / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.4 -11.3 7.0 3.7 3.2 3.1 Private Consumption 4.1 -13.1 6.3 4.2 2.9 3.3 Government Consumption -3.5 0.3 11.1 -5.5 7.6 3.0 Gross Fixed Capital Investment -2.6 -20.9 14.7 10.0 1.0 3.0 Exports, Goods and Services 2.0 -11.2 18.8 6.0 3.8 3.8 Imports, Goods and Services 1.4 -14.2 16.6 4.0 3.6 3.6 Real GDP growth, at constant factor prices 1.3 -12.0 6.2 3.7 3.2 3.1 Agriculture 0.9 -9.1 -2.3 3.0 3.0 3.0 Industry -0.5 -19.4 6.2 3.5 3.2 3.2 Services 2.0 -10.0 7.2 3.8 3.3 3.1 Inflation (Consumer Price Index) 1.6 -0.7 1.2 2.8 2.4 2.4 Current Account Balance (% of GDP) -10.4 -12.3 -8.2 -8.1 -8.0 -7.9 Net Foreign Direct Investment (% of GDP) 1.1 0.9 0.0 0.8 0.8 0.8 Fiscal Balance (% of GDP) -7.5 -7.5 -5.8 -4.5 -3.7 -3.5 Debt (% of GDP) 39.5 53.9 54.9 55.8 56.1 56.1 Primary Balance (% of GDP) -7.2 -7.1 -5.1 -3.8 -3.0 -2.8 a,b International poverty rate ($1.9 in 2011 PPP) 0.9 1.4 1.3 1.3 1.3 1.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.9 7.3 6.6 6.2 6.2 6.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 23.1 29.7 27.3 26.7 26.2 26.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2016-PECS.Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 171 Apr 22 the North Field East Expansion project in January 2022. QATAR Key conditions and In addition, significant steps have been taken to boost competitiveness in the non- challenges oil economy. These measures include: the abolishment of the Kafala sponsorship sys- Table 1 2021 With more than 75 percent of Qatar’s tem; a new Public-Private Partnerships Population, million 2.8 population vaccinated, recurring bouts of law; the recognition of real estate owner- GDP, current US$ billion 167.9 COVID-19 have had progressively small- ship by non-Qataris and a level playing GDP per capita, current US$ 59964.3 er economic effects and strong growth field with citizens in some commercial ac- a 103.9 School enrollment, primary (% gross) has resumed. Renewed activity ahead of tivities. A non-discriminatory minimum a 80.2 the World Cup has also been strength- wage has also come into force for all work- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 109.0 ened by the ending of the three-year ers; a first among the GCC countries. Source: WDI, Macro Poverty Outlook, and official data. diplomatic rift between Qatar and four a/ WDI for School enrollment (2020); Life expectancy Arab states (Saudi Arabia, UAE, Bahrain, (2019). and Egypt). The recent classification of natural gas as Recent developments a “green” investment by the EU has also The resulting commodity shocks from the spotlighted liquified natural gas (LNG). Economic recovery is well underway and war in Ukraine are on balance positive for Qatar is the world’s largest LNG exporter despite temporary interruptions from and the sharp recovery in oil prices during COVID-19, real GDP grew by 3.0 percent Qatar’s economy, the largest LNG ex- 2021 has been magnified on LNG markets in 2021, versus 3.6 percent contraction in porter in the world. Preparations for the with natural gas prices jumping four times the previous year rebounding in the sec- World Cup scheduled for December 2022 more than oil in Europe; with further steep ond quarter of 2021, at an annualized rate have intensified the diversification of the rises following the war in Ukraine. of 4 percent, and remained positive in the economy and bolstered non-oil activity Hydrocarbon production will remain a third quarter. The Purchasing Managers’ key driver of the Qatari economy. LNG in- Index (PMI) was above 50 during all 2021 despite the COVID-19 pandemic. Hydro- vestments are being expanded in the mar- reflecting economic expansion reaching a carbon dependence, however, is likely to itime and onshore North Field which will highpoint of 63 in November and above expand this decade as the North Field fa- total around US$29 billion and lift produc- 57 since then. Google mobility data had cilities begin production. Possible new tion capacity to 126 million tons per an- a short-lived dip during this most recent num (mtpa) by 2027, up from the current surge of the virus. But retail and recre- outbreaks of COVID-19, a spike in con- production rate of 77 million mtpa with ation, transit station and workplace mo- sumer price inflation and rising US in- more than half beginning within 2024. In- bility, recovered in February 2022 to pre- terest rates, should be modest downside vestments are being brought forward with pandemic levels. risks for the country given high vaccina- QatarEnergy, the state-owned enterprise The fiscal deficit is estimated at 0.9 percent tion rates and sizeable sovereign financial operating all oil and gas activities in the of GDP in 2021, an improvement from a country, awarding large engineering, pro- 2.1 percent recorded in the previous year. wealth and reserves. curement, construction, and installation Recovery in hydrocarbon prices, where the contracts for offshore facilities destined for bulk of government revenues are derived, FIGURE 1 Qatar / Real GDP growth FIGURE 2 Qatar / Public finances Percent, percentage points Percent of GDP 12 50 Oil GDP growth 10 Non-oil growth 40 8 Real GDP growth 30 6 4 20 2 10 0 -2 0 -4 -10 -6 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Fiscal balance Revenue Expenditure Source: World Bank staff calculations. Sources: Haver and World Bank staff calculations. MPO 172 Apr 22 and a gradual unwinding of offsetting ex- growth at or above 4.5 percent in the penditures to mitigate the economic ef- coming years and deepen Qatar’s depen- fects of COVID-19 amongst hardest hit Outlook dence on hydrocarbons. sectors (travel, tourism, and real estate) Continuation of high oil prices with a pre- should continue to improve the fiscal Real GDP is estimated to rise in 2022 to 4.9 mium expected for natural gas in Europe balance and steadily shrink gross public percent on the heels of boosted hydrocarbon from geopolitical tensions, as well as the debt (58.6 percent of GDP at end exports of 10 percent. Growth in private con- EU’s recent classification of this hydrocar- 2021)—gross debt in Qatar needs to be sumption may be slightly below at 4.8 per- bon feedstock as a green target investment, viewed against the 270.0 percent of GDP cent, driven by a potential dilution of World should lead to surpluses for the fiscal bal- in assets accumulated in Qatar’s sover- Cup proceeds and higher prices. Consumer ance in Qatar above 3 percent of GDP into eign wealth fund (QIA) at end-2021 and prices are projected to jump by an additional the foreseeable future. The potential intro- an additional 18.1 percent of GDP in cen- percentage point in the current year. duction of VAT is likely to positively im- tral bank reserves. Both the current account and fiscal bal- pact revenue in the current year and be- Similar to other high income countries ance surpluses are projected to widen in yond. Similarly, the current account sur- impacted by global supply chain inter- 2022 given that both depend about 90 plus is forecast to widen to more than 7 ruptions, Qatar’s consumer price inflation percent on hydrocarbons. A potential up- percent of GDP by 2024 as it is mostly dri- (CPI) has reached highs not seen since side for 2022, linked to the economic con- ven by exports of hydrocarbons, reinforced 2008: 6.4 percent in December 2021 (y/ sequences of the war in Ukraine and Eu- by World Cup tourist receipts. y). This contrasts with deflation during rope’s goal of structurally reducing its With regard to Green House Gas emissions, the COVID-19 lockdowns. At some point, exposure to Russian gas, is a speeding up the forecast is for flat performance in ab- possibly in 2022, Qatar will introduce a of investments in the North Field Nat- solute terms from 5.5 kilo tons of carbon VAT regime which would have a one ural Gas which should see production dioxide (ktCO2) in 2021 to 5.4 in 2024. off impact on prices. As a GCC member increase by 60 percent at mid-decade. Analysis shows the bulk of the emissions to state, Qatar agreed in 2016 to a VAT While non-oil growth is likely to ease in be caused by energy, especially fuel com- regime with a standard rate of 5 percent coming years, the hydrocarbon economy bustion activities (91 percent of the total) but has delayed implementation. should pull up the overall rate real GDP and fugitive emissions (about 5 percent). TABLE 2 Qatar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.8 -3.6 3.0 4.9 4.5 4.4 Private Consumption 3.5 -5.6 4.5 4.8 4.1 4.2 Government Consumption 2.5 10.3 3.6 5.4 4.7 5.0 Gross Fixed Capital Investment 2.5 -3.1 2.3 4.0 3.6 3.7 Exports, Goods and Services 1.1 -6.8 4.1 6.6 7.0 7.1 Imports, Goods and Services 6.0 -2.7 5.5 7.3 7.8 7.8 Real GDP growth, at constant factor prices 0.8 -3.6 3.1 4.9 4.5 4.4 Agriculture 1.0 21.0 5.0 6.0 3.0 3.0 Industry -2.3 -1.5 2.7 3.8 4.2 4.2 Services 7.6 -7.9 3.8 7.2 5.0 4.7 Inflation (Consumer Price Index) -0.9 -2.6 1.0 4.0 2.8 2.3 Current Account Balance (% of GDP) 2.4 -2.5 3.1 4.5 6.1 7.4 Fiscal Balance (% of GDP) 1.0 -2.1 -0.9 3.4 3.3 3.9 Primary Balance (% of GDP) 2.7 -0.2 0.7 4.9 4.7 5.1 GHG emissions growth (mtCO2e) 5.7 -2.1 5.5 5.3 5.3 5.4 Energy related GHG emissions (% of total) 92.0 91.9 91.2 91.2 91.3 91.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 173 Apr 22 tighten in line with the US monetary pol- icy, which will dampen the recent mort- SAUDI ARABIA Key conditions and gage credit boom. challenges Table 1 2021 The war in Ukraine will have sizable Recent developments Population, million 35.3 economic implications globally through GDP, current US$ billion 833.0 multiple channels; most significant for Saudi Arabia continues to successfully GDP per capita, current US$ 23597.7 Saudi Arabia is through energy markets. control the adverse impacts of the pan- a 100.2 School enrollment, primary (% gross) Energy prices have already increased demic despite the Omicron variant out- a 75.1 and are likely to rise further if conflict break at the end of 2021. With a high vac- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 601.9 continues to escalate which may require cination rollout, reaching 68 percent of the Source: WDI, Macro Poverty Outlook, and official data. OPEC+ members to ramp up produc- population, new cases are on a downward a/ WDI for School enrollment (2020); Life expectancy tion—presenting an upside risk to Saudi trajectory since January 2022. Globally, (2019). Arabia’s outlook. Saudi Arabia continues to assume its piv- The government’s long-term strategy to otal role, under the OPEC+ structure, in diversify the economy and reduce depen- resolving oil market imbalances through After registering a stronger-than-expect- dence on oil is well-articulated in Vision waning monthly oil production cuts of 0.4 ed recovery in 2021, the Saudi Arabian 2030. The Public Investment Fund (PIF) mbpd, which started in July 2021. is envisioned to play a central develop- Against this background, latest official da- economy is on an accelerated growth mental role in this transformation plan ta suggest that the economy grew by 3.3 path in 2022; driven by higher oil and by investing SAR 150 billion (US$40 bil- percent in 2021. The oil sector registered non-oil activities as oil production and lion) annually into the domestic economy. growth of 0.2 percent, reflecting a gradual prices strengthen and pandemic pres- This role would require fund’s enhanced easing of voluntary output cuts. The non- sures fade. Direct trade flows with Rus- transparency and predictability for the oil sector continued its recovery path reg- private sector. Moreover, off-balance istering a 5.1 percent growth in 2021 —lift- sia and Ukraine are limited; however, sheet investments reduce overall fiscal ing the non-oil economy by 3.2 percent spillovers in the oil market have oversight and could increase contingent above its pre-pandemic level. More recent strengthened medium-term fiscal and ex- liabilities and fiscal risks. high frequency data report a slight dip in ternal outlook. A breakout of new Risks to the non-oil sector recovery re- January 2022 PMI following the Omicron main. Despite more than two-thirds of the surge, but the economic impact of the Omi- COVID-19 variants, tighter global fi- population fully inoculated against the cron is expected to be short-lived. Head- nancial conditions, and volatile oil COVID-19, a spike in cases due to new line inflation registered 3.1 percent in 2021, prices are key risks to the outlook. variants that are vaccine-resistant would as the VAT-driven impact on inflation dis- risk a cycle of movement restrictions and sipated, but was offset by higher food and delay the recovery. In all cases, the vac- transportation prices. cine rollout should remain the authority’s The budget deficit narrowed in 2021 to 2.1 main priority in the near term. Further- percent of GDP, driven by higher oil rev- more, domestic monetary policy is set to enues and fiscal consolidation measures. FIGURE 1 Saudi Arabia / Annual real GDP growth FIGURE 2 Saudi Arabia / Central government operations Percent change Percent of GDP 15 50 Oil GDP Non-oil GDP 40 10 Real GDP 30 5 20 0 10 0 -5 -10 Budget Balance Revenues Expenditures -10 -20 2017 2018 2019 2020 2021e 2022f 2017 2018 2019 2020 2021e 2022f Sources: GASTAT Saudi Arabia and World Bank staff estimates. Source: World Bank, Macroeconomics, Trade & Investment Global Practice. MPO 174 Apr 22 Tax revenues have also contributed to with rising participation among Saudi tighter fiscal and monetary policies in the this improvement, increasing by 40 per- women (from 26 percent in Q4 2019 to medium term, stronger private consump- cent from 2020, driven by stronger do- 34.1 percent in Q3 2021), unemployment tion, an increase of religious tourism, and mestic demand and full-year collection of rate has also dropped by 9 percentage higher domestic capital spending—sig- the higher VAT rate. On the expenditures points relative to pre-pandemic levels to naled through the PIF and other state side, tighter fiscal policy resulted in ex- an estimated 21.9 percent in Q3 2021. agencies—are anticipated. Headline infla- penditures dropping by 3 percent; with Third, the increase in employment is dri- tion is projected to slow and hover at capital expenditures bearing the brunt of ven by the private sector reflecting strong around 2 percent during 2022 as result of this cut. Thus far, reduction of reserves performance in non-oil activities. Last, a stronger US dollar, against which the and ample market access have proven but not least, foreign workers are leav- Saudi Riyal is pegged, and tighter mone- sufficient to finance the deficit and shield ing, leading to an overall reduction in tary policy. the economy from full volatility of oil employment of almost 900,000 workers The budget balance is expected to register prices; especially, during H1 2021. (Q3 2021 relative to Q4 2019). a surplus of 9.1 percent of GDP in Supported by higher oil export receipts 2022—the first surplus in nine years—dri- and phasing-out of restrictions on reli- ven by higher oil receipts. Fiscal perfor- gious tourism, the current account is esti- mance in the medium term is underpinned mated to register a surplus of 5.2 percent Outlook by authorities’ commitment to compress of GDP in 2021 from a deficit of 2.3 per- expenditures and build credible budget cent of GDP in 2020. Growth is expected to accelerate to 7 per- envelopes. With most of capital spending There is no publicly available informa- cent in 2022 before moderating to 3.8 and channeled through the PIF and other state tion on official poverty rates in Saudi 3.0 percent in 2023 and 2024, respectively. agencies, the overall fiscal stance is more Arabia and access to micro data from Stronger oil output is the main driver be- expansionary than officially reported household surveys is limited. However, hind the recovery which is expected to through the budget. recent statistics point to significant and grow by 13 percent in 2022 following the As higher energy prices and further un- remarkable changes in the labor market. end of the OPEC+ production cuts in De- winding of OPEC+ oil production cuts kick First, Saudi nationals are entering the cember 2022. The non-oil sector is expected in, the current account surplus is projected labor market at high rates driven by to continue its growth trajectory, estimated to widen to 14 percent of GDP in 2022 be- recent reforms; especially, those aimed at 4 percent in 2022 and 3.2 percent in the fore moderating to an average of 9.2 per- at women’s participation. Second, along medium-term. Despite headwinds from cent in the medium term. TABLE 2 Saudi Arabia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.3 -4.1 3.3 7.0 3.8 3.0 Private Consumption 4.4 -4.9 3.4 3.0 3.1 2.8 Government Consumption 0.6 2.6 1.8 0.6 0.8 0.6 Gross Fixed Capital Investment 4.9 -14.0 8.2 6.4 7.2 3.3 Exports, Goods and Services -4.5 -8.7 1.4 14.8 5.1 4.7 Imports, Goods and Services 1.3 -14.6 2.7 7.6 5.4 4.3 Real GDP growth, at constant factor prices 0.3 -4.0 3.3 7.0 3.8 3.0 Agriculture 1.3 0.0 0.1 0.2 0.2 0.2 Industry -2.6 -5.3 0.6 8.5 2.8 2.7 Services 4.3 -2.5 7.0 5.5 5.2 3.5 Inflation (Consumer Price Index) -1.2 3.4 3.1 2.0 1.8 1.9 Current Account Balance (% of GDP) 4.7 -2.3 5.2 14.0 11.1 7.3 Fiscal Balance (% of GDP) -4.2 -11.1 -2.1 9.1 5.9 3.8 Debt (% of GDP) 23.1 32.5 29.1 23.5 21.4 19.4 Primary Balance (% of GDP) -3.4 -10.1 -1.2 10.1 6.8 4.6 GHG emissions growth (mtCO2e) -2.2 -4.7 1.1 3.1 1.8 1.3 Energy related GHG emissions (% of total) 77.2 77.2 77.6 77.3 77.5 77.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 175 Apr 22 since the onset of the conflict. With a severely degraded healthcare system fol- SYRIAN ARAB Key conditions and lowing the decade-long war, COVID-19 has only exacerbated the pre-existing vul- challenges REPUBLIC nerable situations. COVID-19-associated deaths continue to rise in Syria, partially Now moving into its eleventh year, the due to a slow vaccine rollout. By the conflict in Syria has continued to inflict a end of February 2022, only 11 percent of Table 1 2021 devastating impact on the inhabitants and the total population received at least one Population, million 17.4 their economy. More than half the coun- dose of the vaccine, and 6 percent was GDP, current US$ billion 16.5 try’s pre-conflict population remains dis- fully vaccinated. GDP per capita, current US$ 947.7 placed, including 6.6 million survivors in School enrollment, primary (% gross) a 81.7 internally displaced people (IDP) status in a Syria and another 5.6 million Syrians regis- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 72.7 44.4 tered as refugees in neighboring countries. Recent developments Although large-scale conflict has subsided Source: WDI, Macro Poverty Outlook, and official data. recently, Syria still recorded 7,465 conflict- The economy continues to suffer from the a/ WDI for School enrollment (2013); Life expectancy (2019). related deaths in 2021, the 9th highest in compounding effects of the health crisis, ad- the world, according to the statistics col- verse weather events, regional fragility, and lected under the Armed Conflict Location macroeconomic instability. Since 2020, Syr- Socioeconomic conditions are deteriorat- & Event Data Project (ACLED). ia’s external economic ties have been se- The social and economic impact of the con- verely restrained by the deepening crisis in ing rapidly in Syria, affected by a range of flict is large and growing. Between 2010 neighboring Lebanon and Turkey as well as shocks, including prolonged armed con- and 2019, Syria’s GDP shrunk by more the introduction of new US sanctions under flict, economic sanctions, COVID-19 pan- than a half. The decline in Gross National the Caesar Law, which triggered shortages demic, a severe drought, deepening eco- Income per capita in Syria has led the of essential goods and rapid currency de- World Bank Group to reclassify Syria as a preciation. The market exchange rate of the nomic crisis in neighboring Lebanon and low-income country in 2018, a reclassifica- Syrian pound against the US dollar weak- Turkey and the economic consequences of tion that highlights the scale of the damage ened by 26 percent year-on-year (yoy) in the Russian invasion, war and associated on Syria’s economy since 2011. 2021, following a 224 percent yoy deprecia- sanctions. The continued depreciation of Conflict, displacement and the collapse of tion in 2020. Given the heavy reliance on im- the local currency has led to rampant infla- economic activities and social services have ports, currency falls have quickly feed into all contributed to the decline in social wel- higher domestic prices, causing hyperinfla- tion, worsening already high food insecuri- fare. Before the conflict, extreme poverty in tion. Annual inflation reached 114 percent ty and pushing more people into poverty. Syria ($1.90 2011 PPP per day) was virtually in 2020, the largest increase in decades. In Conflict, displacement and the collapse of inexistent. It is now affecting more than 50 response to the surge in inflation, the gov- economic activities and social services have percent of the population. On the non-mon- ernment introduced two rounds of wage in- etary front, access to shelter, livelihood op- creases for public sector workers in 2021, all contributed to the decline in welfare for portunities, health, education, water, and but this was not enough to compensate for Syria’s inhabitants. sanitation have all worsened dramatically the erosion of real incomes. FIGURE 1 Syrian Arab Republic / Exchange rate FIGURE 2 Syrian Arab Republic / Work days per month for depreciation along with surging inflation a worker to afford the minimum food basket Percent, YoY change Number of work days per month 350 30 Market exchange rate 300 CPI Food CPI 25 WFP food basket price 250 20 200 150 15 100 10 50 5 0 -50 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021 Sources: Central Bureau of Statistics, Syria, WFP Market Price Watch Bulletin, Sources: WFP Market Price Market Price Watch Bulletin and World Bank estimates. and World Bank estimates. MPO 176 Apr 22 Syria’s triple-digit inflation has affected food consumption in December 2021, a especially capital expenditures, will re- the poor and vulnerable disproportionate- rise from 39 percent a year ago. main constrained by low revenues and the ly. Food price inflation—proxied by the lack of access to financing. As a result of World Food Program (WFP) food basket protracted and compounding crises, the price index—rose by 97 percent during international donor community estimates 2021 on the top of a 236 percent increase Outlook that over 60 percent of the Syrians will be in 2020. It is estimated that, on average, in need of assistance in 2022. a low skilled worker would need to work The economic conditions in Syria is project- Risks to the growth outlook are signifi- for as many as 23 days a month to af- ed to continue to be mired by the low inten- cant and tilted to the downside. Owing ford the minimum food basket (sole ba- sity conflict, turmoil in Lebanon and to its heavy reliance on food and fuel im- sic food needs of a family of five). Driven Turkey, the COVID-19 pandemic, and the ports, Syria is particularly vulnerable to by the noticeable increase in commodi- economic consequences of the Russian in- soaring food prices triggered by the eco- ty prices, government subsidies on essen- vasion, war and associated sanctions. A per- nomic consequences of the Russian inva- tial food and fuel goods have dramati- sistent twin deficit would further drain for- sion, war and associated sanctions, which cally risen over the past years, account- eign exchange reserves, putting further would worsen the already acute food in- ing for approximately 40 percent of the pressure on the domestic currency. Inflation security of the country. Should trade total budgeted expenditures in 2021 and is projected to remain high in the short term, flows with Russia be affected, the impact 2022. To compress subsidies, Syria’s gov- due to the pass-through effects of currency would be even greater given Syria im- ernment has tightened rationing, which depreciation, persistent food and fuel ports a significant amount of wheat from has inevitably deteriorated the already shortages, and reduced food and fuel ra- Russia. In addition, economic stagnation dire living conditions of the Syrian peo- tioning. Private consumption will remain and deterioration of public services may ple. According to recent WFP estimates, subdued with continued erosion of pur- lead to an increase in social unrest and close to half of the surveyed households chasing power amid rising prices and cur- conflict, worsening Syria’s already vul- (49 percent) reported poor or borderline rency depreciation. Government spending, nerable political instability. TABLE 2 Syrian Arab Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f a Real GDP growth, at constant market prices 3.7 1.5 -2.1 -2.6 Inflation (Consumer Price Index) 13.4 114.2 89.2 60.0 Fiscal Balance (% of GDP) -7.9 -6.5 -6.8 -7.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Projections based on nighttime light data. MPO 177 Apr 22 TUNISIA Key conditions and Recent developments challenges GDP grew by an estimated 2.9 percent in 2021, as the successful containment Table 1 2021 A decade after the Jasmin revolution, of the COVID-19 pandemic starting in Population, million 11.9 Tunisia faces increasingly difficult eco- the second semester and increased vac- GDP, current US$ billion 44.2 nomic conditions. Weak reform imple- cination allowed the relaxation of mobil- GDP per capita, current US$ 3701.0 mentation has left the economy ineffi- ity restrictions across the country. The a 15.2 National poverty rate ciently closed to investment and trade economic rebound was relatively modest a 3.0 and ill-equipped to exploit opportunities considering the strong GDP contraction Lower middle-income poverty rate ($3.2) a 32.8 in the global economy. As growth and of 9.2 percent in 2020, the sharpest in Gini index School enrollment, primary (% gross) b 113.4 private job creation stagnated, the State the MENA region. Key factors behind the Life expectancy at birth, years b 76.7 stepped in as an employer of last resort modest recovery include the relative de- Total GHG Emissions (mtCO2e) 34.3 and price stabilizer through subsidies. pendence of the economy on tourism, the This has caused a deterioration of the limited fiscal space and difficult business Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2015). fiscal situation under the weight of a environment, including restrictions on in- b/ WDI for School enrollment (2020); Life expectancy large public sector wage bill, higher vestments and competition. (2019). energy and food subsidies and under- Labor market outcomes remained weak. performing state-owned enterprises. The The already high unemployment rate COVID-19 pandemic has exacerbated reached 18.4 percent by the 3rd quarter of these weaknesses. 2021 combined with a slight reduction in la- Tunisia’s economic outlook remains high- Tunisia’s growth prospects hinge criti- bor force participation. The unemployment cally on timely and decisive structural rate is particularly high among youth, ly uncertain. The economic rebound in reforms to address economic distortions women and in the west of the country. 2021 was relatively moderate. Debt sus- and fiscal pressures. The government Inflation rose to 6.5 percent in 2021, a full tainability concerns remained acute due aims to advance some key reforms in- percentage point above 2020, amid rising to elevated fiscal deficits and financing cluding (i) the elimination of business en- global commodity prices and rebounding needs. As a net importer of energy and ce- try permits and licenses, (ii) the reduc- domestic demand. tion of consumer subsidies; (iii) the im- The fiscal deficit narrowed to an estimated reals, Tunisia is vulnerable to spikes in provement of the performance of state- 7.7 percent of GDP in 2021 from 9.4 percent global commodity prices. Fast-tracking owned enterprises; and (iv) the reduction in 2020. Expenditure hikes related to the the recovery and safeguarding macroeco- of the public sector wage bill. Progress increases in subsidies (particularly energy) nomic stability will require the speedy in these reforms is critical to stabilize the and civil service wages were more than macroeconomic situation, and to secure a offset by a rebound in revenues, mainly implementation of structural reforms. new IMF program which is essential to from indirect taxes. The deficit was fi- mobilize multilateral and bilateral financ- nanced by a combination of debt rollover ing and regain access to international fi- and debt monetization. Public debt rose to nancial markets. 84 percent of GDP. FIGURE 1 Tunisia / Real GDP: Actual, forecast and pre- FIGURE 2 Tunisia / Actual and projected poverty rates and COVID-19 trend real GDP per capita Millions of real TND (2010 prices) Poverty rate (%) Real GDP per capita (constant LCU) 90,000 45 7000 40 85,000 6000 35 80,000 5000 30 25 4000 75,000 20 3000 70,000 15 2000 10 65,000 1000 pre-COVID-19 trend 5 60,000 0 0 History and forecast 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 55,000 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 2024 Upper middle-income pov. rate Real GDP pc Sources: National Institute of Statistics; World Bank. Source: World Bank. Notes: see Table 2. MPO 178 Apr 22 The current account deficit (CAD) stood at by pre-existing structural weaknesses and pose significant downside risks to the 6.5 percent of GDP in 2021, a slight deterio- the economic consequences of and un- Tunisian economy. As a net commodity ration from 6.1 percent in 2020. This result- certainty around the Russian invasion of importer, continued upsurges in energy ed from the expanding trade deficit as im- Ukraine and associated sanctions. and food prices would add further pres- ports increased more than exports, compen- Tunisia’s public finance and external ac- sure on Tunisia’s external account sated for by a 28 percent rise in primary in- count will remain precarious in the absence through higher import bills, while higher come (mainly remittances). The strong in- of an IMF program and uncertain global subsidy costs could weigh heavily on the crease in imports was driven by the growth conditions. The CAD is projected to widen fiscal position. Energy subsidies would in domestic demand linked to the increase significantly to 7.6 percent of GDP in 2022, increase by 3.9 percent of GDP if the av- in public expenditures and in exports. driven by surging energy and food prices. erage price of oil in 2022 were to increase Despite some fiscal consolidation ef- to $115 per barrel as in the immediate af- forts—including two rounds of fuel price termath of the Russian invasion. Cereal increases in February and March 2022—the subsidies would increase by 0.2 percent Outlook fiscal deficit would remain high at a project- of GDP if wheat prices were to increase ed 6.1 percent of GDP in 2022. Gross public by 20 percent relatively to their Novem- Growth is projected to reach 3.0 percent financing needs are projected at around ber 2021 levels. in 2022, supported a gradual global re- TND 20bn in 2022 (US$6.9 billion; 14.7 per- Poverty is expected to reach 3.4 percent in covery from the pandemic. This rate cent of GDP), half of which is for external 2022 and 3.1 percent in 2023 using the $3.2 would not yet allow output to return to amortization. Inflationary pressures, stem- line (2011 PPP). The number of poor and pre-pandemic levels of 2019. Growth is ming from rising commodity prices, will vulnerable at $5.5 line (2011 PPP) is pro- expected to eventually gain ground, but constrain further debt monetization. jected to decline from 18.9 percent in 2022 it remains modest at around 3.5 percent The economic consequences of the Russian- to 17.7 percent in 2023 and is not expected a year over the medium term, dragged Ukrainian war and associated sanctions to go back to pre-crisis levels before 2024. TABLE 2 Tunisia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.4 -9.2 2.9 3.0 3.5 3.3 Private Consumption 2.3 -5.1 2.0 3.0 4.5 4.0 Government Consumption 2.4 -5.3 1.9 3.5 1.3 1.6 Gross Fixed Capital Investment 0.5 -28.7 1.7 6.3 4.1 4.8 Exports, Goods and Services -4.1 -20.4 10.3 5.9 8.0 8.0 Imports, Goods and Services -6.9 -19.3 8.0 7.7 9.0 9.0 Real GDP growth, at constant factor prices 1.5 -9.8 3.0 3.1 3.5 3.3 Agriculture 5.7 0.4 -5.4 -4.6 4.0 4.0 Industry -1.4 -9.3 7.5 8.5 3.5 3.2 Services 2.1 -11.4 2.6 2.0 3.5 3.2 Inflation (Consumer Price Index) 6.7 5.6 6.5 6.5 6.5 6.0 Current Account Balance (% of GDP) -8.1 -6.1 -6.5 -7.6 -7.2 -6.9 Fiscal Balance (% of GDP) -2.9 -9.4 -7.7 -6.3 -5.6 -3.9 Debt (% of GDP) 67.9 79.5 84.5 84.2 90.6 91.0 Primary Balance (% of GDP) -0.4 -5.8 -4.7 -3.1 -2.5 -0.6 a,b International poverty rate ($1.9 in 2011 PPP) 0.2 0.3 0.3 0.3 0.3 0.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 2.9 3.7 3.5 3.4 3.1 3.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 16.6 20.1 19.5 18.9 17.7 17.0 GHG emissions growth (mtCO2e) 0.7 -8.5 -0.3 3.3 2.1 1.9 Energy related GHG emissions (% of total) 73.0 71.7 71.2 71.5 71.5 71.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2015-NSHBCSL.Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2015) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 179 Apr 22 Dhabi’s GRE debt increased by 30 percent from 2017 to US$64.2 billion in 2020, while UNITED ARAB Key conditions and Dubai’s GRE debt was US$51 billion in 2020 (IMF). Despite changes in the com- challenges EMIRATES position of debt, i.e., a shift from loans to bonds and lengthened maturity profiles, Over the past decade, the authorities have Abu Dhabi and Dubai GREs face short- intensified efforts to diversify the econo- term rollover risks with a combined Table 1 2021 my, successfully positioning the UAE as US$68.8 billion debt in 2021-23. GRE debt Population, million 10.0 the region’s trade, financial and travel hub. servicing capacity is low and GRE risks GDP, current US$ billion 464.9 Through economic visions and plans, the could be exacerbated by a prolonged pan- GDP per capita, current US$ 46490.0 UAE aims to diversify the economy and demic and/or tightening global financial School enrollment, primary (% gross) a 115.4 build on its reputation as a business hub, conditions. Contingent fiscal risks from a 78.0 while promoting environmental sustain- GREs should be closely monitored and Life expectancy at birth, years ability. However, the UAE will increasing- pre-emptively mitigated and GRE efficien- Total GHG Emissions (mtCO2e) 205.8 ly face greater competition for foreign in- cy and productivity must be improved. Source: WDI, Macro Poverty Outlook, and official data. vestment, especially from Saudi Arabia a/ WDI for School enrollment (2020); Life expectancy (2019). and Qatar. Moreover, while the non-hy- drocarbon sector accounts for two-thirds of GDP, the economy continues to rely on Recent developments The UAE led the world with a successful hydrocarbon activity as the engine of growth and the main source of govern- Real GDP growth is estimated at 2.8 per- vaccination program, which, together ment revenue, and thus the economy re- cent in 2021 following a contraction of 6.1 with the gradual phasing out of OPEC+ mains vulnerable to oil price volatility. percent in 2020. The recovery was aided by oil production cuts and monetary and fis- Nevertheless, authorities continue to press a successful vaccination program, and fis- cal stimulus, led to a strong economic re- forward to enhance its business environ- cal and monetary stimulus measures that ment through, for instance, improved helped the rebound of domestic consump- covery in 2021. Over the medium term, bankruptcy provision and easier access to tion. Dubai quarterly GDP registered a the recovery will be bolstered by higher oil foreign investment and workers. growth of 6.3 percent Y-o-Y in Q3-2021. In prices triggered by the economic conse- Steps towards diversifying public rev- Dubai hotel occupancy increased, owing quences of the war in Ukraine. The au- enues are also underway with the recent mostly to the resumption of internation- thorities continue to make progress on fis- introduction of a corporate income tax al travel. The Purchasing Manager’s Index (CIT) effective in 2023—a major shift for (PMI) for October 2021 registered its high- cal and economic diversification. Risks in- a country historically known for low taxa- est reading since June 2019, with a score clude renewed coronavirus outbreaks, tion. This may provide Dubai with greater of 55.7 supported by increased activity re- tightening global financial conditions, resources if corporate debt problems resur- lated to Expo 2020 and loosening of and oil sector volatility. face. The UAE’s government related enti- COVID-19 restrictions. The recovery is ex- ties (GRE’s) remain a significant source of pected to strengthen in 2022 despite a vulnerability. The ability of GREs to meet short-term dampening of sentiment due to their debt obligations is uncertain. Abu the Omicron variant as indicated by a FIGURE 1 United Arab Emirates / Annual real GDP growth FIGURE 2 United Arab Emirates / Composite purchasing manager's index Percent change Composite PMI: Total Economy (SA, 50+=Expansion) 10 60 8 58 6 56 4 54 2 52 0 50 -2 48 Oil GDP -4 46 Non-Oil GDP -6 44 Real GDP growth -8 42 2013 2015 2017 2019 2021e 2023f Jan'19 Jul'19 Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Sources: UAE authorities and IMF/World Bank staff estimates. Sources: IHS Markit Purchasing Managers Survey. MPO 180 Apr 22 slight dip in January’s PMI. The hydro- five years, while declining in Dubai at a revival is a policy priority. Russia became carbon sector also picked up pace as marginal pace. the third-largest source market for Dubai’s OPEC+ production quotas were eased; oil The current account balance improved to travel and tourism sector in 2021, while production went up by 8 percent in 6.8 percent of GDP in 2021 in tandem with Ukrainian tourists are among the top 20, Q4-2021 compared to Q2-2021. The health improved performance of both hydrocar- which presents a downside risk for its non- situation is improving with daily new bon and non-hydrocarbon exports mitigat- oil recovery. cases below 800 in February 2022 (on a ed by higher imports. Recent efforts to deepen equity markets, 7-day rolling average basis) for the first Understanding of poverty, inequality, encourage technology businesses and time since 2020 and over 95 percent of the and livelihoods in the UAE continues to boost the industrial sector coupled with population is fully vaccinated. be limited due to sparse representative a recovery in global trade, rising oil pro- Government finances improved in 2021; household and labor data. According to duction and higher oil prices, will sup- fiscal outturns for the federal government data from the UAE Central Bank, em- port recovery in the medium term. Re- showed a return to a surplus (estimated at ployment in Q3 2021 remained at the forms to improve the business environ- 2.4 percent of GDP) from a deficit of 2.5 same level of the previous quarter and ment such as the new labor code will in- percent of GDP in 2020. The consolidated above pre-pandemic levels. crease labor market flexibility and attract deficit is estimated to have improved from expats. As OPEC+ quotas are eased and 5.4 percent of GDP in 2020 to 0.5 percent in with higher oil prices and the introduc- 2021. Financing needs were mostly met by tion of CIT, fiscal balances will receive a international debt issuances at the emirate Outlook boost. A robust expansion of trade aid- and federal levels. ed by a renewed push by the authorities Inflation returned in 2021 after two con- The economic consequences of the war in to increase reexports to Asia and Africa secutive years of deflation, owing to rising Ukraine have triggered an oil price surge will expand the current account surplus. global food and energy prices, higher local which will have positive implications for Higher energy prices will increase infla- property prices, and a continuing recovery the UAE economy and its fiscal and ex- tion in 2022 but easing supply bottlenecks in domestic demand. Residential real es- ternal balances. However, tourism and and gradual monetary policy tightening, tate market continues to improve, with the non-oil economy might face head- in line with the US Fed’s hike and contin- prices in Abu Dhabi registering Y-o-Y winds. Tourism and travel account for al- uing tightening cycle, should soften infla- gains for the third consecutive quarter in most 20 percent of Dubai's GDP, and their tion over the medium term. TABLE 2 United Arab Emirates / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.4 -6.1 2.8 4.7 3.4 3.6 Private Consumption 10.0 -12.5 5.1 3.8 3.7 4.0 Government Consumption 10.0 0.7 1.7 2.7 2.9 2.9 Gross Fixed Capital Investment 0.0 5.8 3.9 3.4 3.9 4.0 Exports, Goods and Services -1.3 -7.0 6.7 5.9 5.1 5.2 Imports, Goods and Services -5.5 -6.4 8.8 5.4 4.5 4.5 Real GDP growth, at constant factor prices 3.4 -6.1 2.8 4.7 3.4 3.6 Agriculture 3.8 6.9 3.8 4.6 4.9 4.9 Industry 2.6 -5.5 0.4 6.6 3.5 2.9 Services 4.2 -6.9 5.1 2.8 3.1 4.2 Inflation (Consumer Price Index) -1.9 -2.1 0.2 2.2 1.9 1.7 Current Account Balance (% of GDP) 8.5 6.0 6.8 13.7 11.8 11.3 a Fiscal Balance (% of GDP) -1.0 -5.4 -0.5 4.4 5.0 2.7 GHG emissions growth (mtCO2e) -2.1 -9.4 -1.6 0.6 0.1 0.4 Energy related GHG emissions (% of total) 71.7 69.9 69.2 68.6 67.7 67.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Consolidated fiscal balance. MPO 181 Apr 22 With only 50 per cent of Yemen’s health facilities functional, the COVID-19 pan- REPUBLIC OF Key conditions and demic placed additional pressure on the country’s already fragile health system. challenges YEMEN Vaccination efforts are underway, but so far only two per cent of the population After almost seven years of escalating has been vaccinated. conflict, Yemen continues to face an un- Table 1 2021 precedented humanitarian, social and Population, million 30.5 economic crisis. Significant damage to vi- GDP, current US$ billion 21.1 tal public infrastructure has contributed Recent developments GDP per capita, current US$ 690.4 to a disruption of basic services, while in- School enrollment, primary (% gross) a 93.6 security has delayed the rehabilitation of Available information suggests that the a 66.1 oil exports—which had been the largest Yemeni economy continued to weaken Life expectancy at birth, years source of foreign currency before the in 2021, affected by macroeconomic in- Total GHG Emissions (mtCO2e) 22.5 war—severely limiting government rev- stability (especially in southern gover- Source: WDI, Macro Poverty Outlook, and official data. enue and supply of foreign exchange for norates), escalating hostilities, and a/ Most recent WDI value (2019). essential imports, including fuel. The bi- heavy rains and flooding, which dam- furcation of national institutions between aged shelters and infrastructure, de- the conflicting parties—the international- stroyed livelihood, and facilitated the Economic conditions continue to deterio- ly recognized government (IRG) based spread of diseases such as cholera. The rate, and acute humanitarian crisis per- in Aden and de-facto authorities in volume of oil production remained sig- sists. The bifurcation of economic insti- Sana’a—and uncoordinated policy deci- nificantly below the pre-conflict levels, tutions by conflicting parties, and the sions have further compounded the eco- notwithstanding slight improvements in nomic crisis and humanitarian suffering recent years. Non-oil economic activity uncoordinated policy decisions have fur- from violence. continues to suffer from hostilities, in- ther compounded the socio-economic cri- Reliable information on the economy terruption of basic services (electricity, sis stemming from active conflict, now is absent, as official statistics are no telecommunications), and acute short- in its seventh year. Donor fatigue, soar- longer produced. Yemen’s economy is ages of inputs, which were compounded largely informal and relies on remit- by double taxation and distortions cre- ing global commodity prices, and ad- tances and aid inflows to fund con- ated by uncoordinated policy decisions verse climate conditions will continue to sumption. Agriculture dominates the by the two authorities. pose serious threat to the already dire real economy (after the collapse of the Yemen’s public finances remain under se- socio-economic conditions. oil sector) but suffers from an increas- vere stress. During 2021, continued mon- ing frequency of climate- and pest-re- etization of the fiscal deficit in the IRG lated disruptive events. and STC-controlled areas, coupled with The social conditions are precarious, with rising global commodity prices, fueled the UN estimating more than 24 million inflation and put a significant downward people (some 80 percent of the popula- pressure on the currency in the southern tion) in need of humanitarian assistance. governorates. The suspension of external FIGURE 1 Republic of Yemen / Real GDP (indexed): FIGURE 2 Republic of Yemen / Exchange rate trend: Yemen and comparators Yemen (Sana’a and Aden) RGDP Index (2010=100) Exchange rate (YER/USD) 150 1800 Yemen Sana'a Middle East & North Africa 1600 125 Aden Low income 1400 FCSs 100 1200 World 1000 75 800 50 600 400 25 200 0 0 1990 1995 2000 2005 2010 2015 2020 1-May-18 1-Jan-19 1-Sep-19 1-May-20 1-Jan-21 1-Sep-21 Source: MFMod, World Bank. Sources: IMF and Central Bank of Yemen. MPO 182 Apr 22 public debt services remained in place dollar has remained relatively stable in except for payments to IDA and IMF. the absence of monetary expansion, as a Fiscal policy by the de facto authorities result of cash budgeting and a ban on the Outlook in Sana’a, the country’s main commer- use of new banknotes printed after 2016. cial and financial center, is operating Sharp depreciation and soring global food Economic and social prospects in 2022 and under a cash budget system. Given the prices substantially strained the humani- beyond are highly uncertain and hinge crit- lack of hydrocarbon revenue, the scale tarian crisis from an already dire situation. ically on a resolution of the conflict and the of fiscal policy in Sana’a is smaller and Importantly, food access is materially overall security conditions. In this context, mostly depends on revenue from corpo- worse in the southern governorates, where the flare-up of conflict, coupled with surg- rate profit tax. the rial plunged substantially during most ing international oil prices, would be detri- Competing monetary policies by the of the 2021. mental to the private sector’s operational en- two conflicting authorities have result- The economic consequences of the Russ- vironment. On the upside, robust growth in ed in a large divergence of the ex- ian invasion, war and associated sanc- GCC countries driven by rising global ener- change rate of the Yemeni rial. In the tions, on Yemen are expected to be gy prices may boost remittance flows to southern governorates, the rial depre- broadly negative. In the short term, re- Yemen. Revenue generation in Yemen as a ciated by over 100 percent against the duced imports of key commodities, on whole will continue to be deeply challenged US dollar by early December 2021 (y- account of a supply side shock, by an extremely low tax base. Trade will con- o-y). The introduction of a foreign ex- and—over both the short and medium tinue to be negatively affected by blockages change auction mechanism – since mid- term—increased oil and food prices, will of shipment offloading, infrastructural November 2021 – coupled with the ap- weigh heavily on the trade balance, in- damages to the port facilities, and pervasive pointment of new central bank manage- flation, and household consumption. The shortage of foreign exchange. Risks to the ment in Aden on December 6, 2021, con- negative effects will be partially offset by socio-economic outlook are related to po- tributed to reverse the falling trend, al- some improvements on the fiscal front tential economic sanctions by the US, elevat- lowing the rial to stabilize since January and on remittances—on account of higher ed cost of wheat imports, and a decaying oil 2022. The sentiment also improved on ac- global crude oil price (which Yemen ex- tanker in the Red Sea. The latter could cause count of the expected conversion of (at ports). Millions may face severe food lasting environmental and economic dam- least part) of the recent IMF SDRs al- consumption gaps due to rapidly increas- ages, by affecting one of the world’s richest location to Yemen, which is expected to ing levels of need, which could turn an and most biodiverse marine ecosystems in take place shortly. In the northern gover- already dire food crisis into a catastro- the Red Sea, with long-term implications for norate, the exchange rate against the US phe, if assistance is not scaled up. Yemen’s fisheries and shipping sectors. TABLE 2 Republic of Yemen / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f Real GDP growth, at constant market prices 1.4 -8.5 -2.1 0.8 2.5 a Inflation (Consumer Price Index) 10.0 35.0 85.1 31.7 15.0 Current Account Balance (% of GDP) -3.9 -6.9 -3.0 -9.3 -9.0 Fiscal Balance (% of GDP) -5.6 -5.2 -4.9 -5.5 -5.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Inflation rates refer to end-of-period figures. MPO 183 Apr 22 South Asia Afghanistan Maldives Bangladesh Nepal Bhutan Pakistan India Sri Lanka MPO 185 Apr 22 AFGHANISTAN Key conditions and Recent developments challenges Official GDP statistics are not being pro- duced. Economic output is expected to Afghanistan is experiencing a worsen- decline by between 20-30 percent over the ing fiscal, macroeconomic, and finan- year from August 2021. According to a re- cial sector crisis. The sudden cessa- cent private sector survey, firms have laid Economic conditions continue to deterio- tion of international grants (previously off more than half of their staff on aver- rate following the political crisis of Au- equivalent to 45 percent of GDP and age. More than one third of small busi- financing 75 percent of public expen- nesses have temporarily or permanently gust 2021. Cessation of international diture) has caused a collapse in pub- closed operations, while more than three- grant support is driving a major collapse lic spending and aggregate demand. quarters of large companies report de- in aggregate demand, difficult macroeco- Many frontline public service workers creased demand for their outputs. nomic adjustments, and disruptions to remain unpaid. Declines in aid and Despite reduced incomes and domestic de- service delivery. Disruption to interna- government spending have under- mand, prices have increased rapidly. mined private sector activity, especial- Headline y-o-y inflation reached 12.7 per- tional financial relationships, the freezing ly in the aid-driven services sector cent in December reflecting depreciation, of the central bank’s overseas assets, and which has accounted for a large pro- increasing international prices, and import loss of confidence in the banking system is portion of output and growth since constraints arising from disruptions to in- driving a financial sector crisis. Renewed 2001. Loss of grant inflows has also ternational transactions. Food inflation left a shortage of hard currency with reached 17.7 percent, reflecting heavy re- international support for humanitarian which to finance imports (Afghanistan liance on imported wheat. More recent da- activities and basic service delivery is was heavily dependent imports for ta collected by the World Food Program now underway, but a broader program of critical items including food, fuel, and shows y-o-y inflation for a basket of basic action will be required for economic stabi- electricity, with a trade deficit equal household goods reaching 42 percent in to around 35 percent of GDP). the first week of February. lization and eventual recovery. Afghanistan’s offshore central bank as- According to official data, goods imports sets have been frozen, undermining declined by around 47 percent over the the capacity of the central bank to second half of 2021 relative to the same smooth the required macroeconomic period in 2020, in line with contracting adjustment, while international bank- domestic demand, disruptions to interna- ing relationships have been heavily tional payments, and the central bank’s disrupted due to international sanc- loss of access to overseas assets. Import tions and associated Anti-Money contraction was broad-based, reflecting Laundering (AML) concerns. These lower imports for all categories of goods. factors combined with a shortage of Recent data from the Pakistan authorities both USD and AFN cash notes have show imports from Pakistan in January triggered a crisis of confidence in the 2022 were only around one-third of 2021 banking sector, crippling cash short- levels. Goods exports, on the other hand, ages, and severe disruptions to domes- declined only moderately over the second tic and international payments, with half of 2021 (4.7 percent lower than dur- severe impacts on the private sector ing the same period in 2020). Positive im- and humanitarian agencies. Disrup- pacts of improved security and deprecia- tions to the banking sector are par- tion were offset by the closure of aid-sub- ticularly impairing the operations of sidized air corridors for agricultural ex- businesses that rely on formal financial ports to India and China. flows to import necessary inputs, plac- The Afghani has depreciated against most ing their ongoing viability at risk. major trading currencies since August, re- Rapidly deteriorating economic conditions flecting the decline in aid inflows and in the context of severe drought are dri- heightened uncertainty. The Afghani fell ving a humanitarian crisis. Afghans are by 14 percent against the USD, 10 percent suffering from rapidly increasing unem- against the Euro, and 4 percent against the ployment, deepening impoverishment, Pakistani Rupee between the end-July 2021 and worsening food insecurity. A and mid-February 2022. The market value largescale international humanitarian re- of the AFN is being buoyed by a tightening sponse is being mobilized, while efforts are of the domestic money supply driven by underway to restore international devel- shortages of AFN banknotes and recent in- opment support to critical service delivery jections of USD cash through humanitari- functions. Dysfunction of the financial sec- an cash shipments. tor, however, continues to both constrain The abrupt cessation of aid inflows and the effective mobilization of aid support difficult economic conditions are driving and limit prospects for economic stabiliza- a significant fiscal contraction, with public tion and recovery. spending expected to decline by around MPO 186 Apr 22 75 percent. All development and security leading to a reduction from 10 to five per- services, including health, education, aid has ceased (previously equal to around cent in the share of households receiving re- food security, and community develop- US$8.5 billion per year), leaving only rela- mittances. Extreme poverty had led to the ment, to be delivered through off-budget tively limited humanitarian flows. The in- widespread adoption of harmful coping channels. In the context of financial sector terim administration collected US$ 0.5 bil- mechanisms such as reducing food con- dysfunctions, USD cash shipments man- lion between September-December 2021 – sumption, borrowing at high interest rates aged by the United Nations are provid- around half of revenue collections over the and the sale or consumption of assets. This ing a vital source of funding for human- same period in 2019. In its quarterly bud- will have long-term consequences given itarian activities and an important source get (December 21-March 21), the interim Afghanistan’s very young population. of USD liquidity. administration plans spending equal to All parties acknowledge, however, that around only 50 percent of 2019 levels, with current provision of humanitarian and the budget including ambitious revenue basic services assistance is unsustainably projections and a significant unfinanced Outlook expensive and cannot substitute for a deficit (equal to around US$60 million).1 functioning economy and private sector Recent indicators of monetary poverty are Afghanistan’s economic outlook is stark. (current humanitarian needs exceed pre- not available, but a recent household sur- Under any scenario, Afghanistan will face vious levels of civilian aid assistance). vey shows that living conditions have de- a smaller economy, significantly higher Economic stabilization or medium-term teriorated and food insecurity has wors- rates of poverty, and more limited eco- recovery would require: i) restoration of ened since August 2021. 70 percent of nomic opportunities for the 600,000 core financial sector functions, includ- households report insufficient incomes to Afghans reaching working age every year. ing effective operation of the central meet basic food and non-food needs (com- Human development outcomes are likely bank; ii) sound economic management; pared to about 35 percent reported for May to deteriorate in the context of substantial iii) restoration of confidence; and iv) 2021). A substantial decline in labor earn- disruptions to basic services and increased maintenance of adequate security con- ings and destruction of employment in the poverty. The Russian invasion of Ukraine, ditions. Such progress would likely re- public and private sectors are driving in- war, and associated sanctions may have quire coordinated action between the in- creased unemployment and increased in- significant exacerbating impacts via in- ternational community and the interim formal and casual work. The economic cri- creased prices for imported food and fuel. administration, including in relation to sis is also weakening safety nets, with dis- Recent moves by the international commu- the utilization of frozen assets, provision ruptions to international financial flows nity will mitigate human impacts. The of technical assistance support for eco- United Nations is mobilizing a largescale nomic management, and measures to humanitarian response to reach more than restore international banking relation- 1/ The quarterly budget includes large cuts to security 24 million Afghans at a total cost over ships. Meanwhile, the world bank con- and development project allocations, while maintaining CY2022 of US$4.4 billion. The international tinues to provide analytical support to allocations for recurrent health and education expendi- tures at close to previous levels. It remains unclear community is also working towards re- inform international community on en- whether the budget will be effectively implemented. newed development assistance for basic gagement priorities. MPO 187 Apr 22 the negative impacts of the pandemic, in- cluding relatively low debt. A stimulus BANGLADESH Key conditions and program protected productive capacity in the manufacturing sector, while monetary challenges policy was accommodative. Downside risks to the outlook persist and Table 1 2021 GDP has grown rapidly over the past two external risks remain elevated. The war in Population, million 166.3 decades, supported by a demographic div- the Ukraine may contribute to rising com- GDP, current US$ billion 415.3 idend, sound macroeconomic policies, and modity prices (oil, natural gas, fertilizer, GDP per capita, current US$ 2497.0 an acceleration in readymade garment grains), which could increase the current a 14.3 International poverty rate ($1.9) (RMG) exports. Job creation and remit- account deficit. Fiscal expenditures on sub- a 52.3 tance inflows contributed to a sharp de- sidies may rise, depending on the extent Lower middle-income poverty rate ($3.2) a 84.2 cline in poverty. However, the pace of job of price adjustments, which may also in- Upper middle-income poverty rate ($5.5) Gini index a 32.4 creation and poverty reduction has slowed crease inflationary pressure. New waves of School enrollment, primary (% gross) b 119.6 since 2013, even as GDP growth acceler- COVID-19 could necessitate additional b 72.6 ated. Persistent structural weaknesses in- movement restrictions, hampering domes- Life expectancy at birth, years clude low institutional capacity, highly tic economic activity. Although not fully Total GHG Emissions (mtCO2e) 247.0 concentrated exports, growing financial reflected in official data due to continued Source: WDI, Macro Poverty Outlook, and official data. sector vulnerabilities, unbalanced urban- regulatory forbearance, the pandemic has a/ Most recent value (2016), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy ization, and a business climate that lags deepened longstanding financial sector (2019). peer economies. Bangladesh is also highly vulnerabilities, including high levels of vulnerable to the effects of climate change. non-performing loans (especially in state- After graduation from the UN’s Least De- owned banks) and weak capital buffers. After decelerating to 3.4 percent in FY20, veloped Country status in 2026, real GDP growth rebounded to 6.9 per- Bangladesh will begin to lose preferential access to advanced economy markets. cent in FY21. While pandemic disrup- Bangladesh’s economy performed well Recent developments tions are waning, GDP growth is project- during the pandemic compared to peer ed to decelerate moderately to 6.4 percent countries. The lockdown negatively im- High frequency macroeconomic indicators in FY22 with higher commodity prices. pacted the work status of approximately point to a continued recovery in July-De- half the population. High frequency phone cember 2021 (H1 FY22) as COVID-19 in- Poverty is expected to decline modestly. survey data collected in mid-2021 under- fections moderated and global economic Downside risks include commodity price score the disproportionate impact of growth accelerated. On the demand side, volatility, new waves of COVID-19, and COVID-19 job losses on women. However, merchandise exports rose by 28.4 percent worsening financial sector vulnerabilities. restrictions were progressively less strin- (y-o-y) in H1 FY22 as RMG exports re- Addressing longstanding structural chal- gent with each wave of COVID-19, includ- bounded strongly. Imports of consumer, ing the omicron variant, and economic ac- capital, and intermediate goods rose by lenges could accelerate the post- 52.4 percent over the same period, as the tivity gradually recovered from an initial COVID-19 recovery and support longer contraction. Bangladesh entered the pan- recovery accelerated. On the supply side, term development objectives. demic with adequate buffers to mitigate the industrial production index shows FIGURE 1 Bangladesh / Real GDP growth and contributions FIGURE 2 Bangladesh / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 15 100 200000 90 180000 10 80 160000 70 140000 5 60 120000 50 100000 0 40 80000 -5 30 60000 20 40000 -10 10 20000 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: Bangladesh Bureau of Statistics and World Bank staff estimates. Sources: World Bank. Notes: see Table 2. MPO 188 Apr 22 strong growth in manufacturing, while reserves remained adequate at US$ 46.1 economic disruptions related to the services growth was supported by a de- billion in December 2021, or 6.7 months COVID-19 pandemic are waning, a sharp cline in COVID-19 movement restrictions. of imports. increase in commodity prices and rising Modest agricultural growth was sustained, The estimated fiscal deficit moderated to uncertainty in European export markets with no major flooding events. 3.6 percent of GDP in FY21, as revenues are expected to weigh on growth. Inflation rose to 6.1 percent in December outpaced expenditure growth. Tax rev- Notwithstanding these challenges, GDP 2021, driven by rising global commodity enues increased by 16.8 percent (y-o-y) in growth is expected to remain resilient in prices, and upward adjustments in ad- H1 FY22, primarily supported by trade-re- FY23, supported by a recovery in invest- ministered prices of gas and diesel. lated taxes on rising imports. Estimated ex- ment, and strong domestic demand. In- Bangladesh Bank (BB) maintained its ex- penditure increased due to higher subsidy flation is projected to reach 6.2 percent pansionary monetary policy stance since payments in the energy and agriculture in FY22, with a high degree of uncer- the beginning of the pandemic. Following sectors. Deficit financing from the banking tainty in FY23 due to commodity price a downward trend in FY21, private sector sector increased, as the sale of National volatility. Official remittance inflows are credit growth accelerated modestly to Savings Certificates (NSCs) declined due expected to grow in FY23, as higher oil 11.1 percent (y-o-y) by January 2022 but to stringent application of eligibility regu- prices underpin demand for workers in remained below the 14.8 percent target lations and a reduction in NSC rates. the GCC. This, in turn, is likely to reduce set by the BB. The COVID-19 pandemic has put the sub- the current account deficit. The current account deficit reached US$ 8.2 stantial poverty reduction gains of the past The fiscal deficit is projected to remain billion in H1 FY22, compared to a surplus of two decades at risk. After rising during the within the government’s 5.0 percent of US$ 3.5 billion in the same period of FY21. COVID-19 pandemic, estimated poverty GDP target. Gradual revenue growth The rising deficit was driven by a 55.4 per- declined to 11.9 percent in FY21, using the will be supported by rising imports and cent increase in imports and a 20.9 percent international poverty rate ($1.9 in 2011 PPP). modest policy reforms, expenditure decline in official remittance inflows, as the A gradual reduction in poverty is projected growth will be led by infrastructure use of informal payment channels resumed to continue, reaching 11.3 percent in FY22. spending. To sustain GDP growth over with relaxation of international travel re- the medium term, longstanding struc- strictions. The balance of payment deficit tural challenges must be addressed, in- reached US$ 1.8 billion in H1 FY22, com- cluding increasing domestic revenues, pared to a surplus of US$ 6.1 billion over the Outlook modernizing the tariff regime, resolving same period of FY21. The interbank ex- sector vulnerabilities, and improving the change rate depreciated modestly to 86.0 GDP growth is expected to decelerate business climate. BDT/US$ in January 2022. Foreign exchange modestly to 6.4 percent in FY22. While TABLE 2 Bangladesh / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018/19 2019/20 2020/21 2021/22e 2022/23f 2023/24f Real GDP growth, at constant market prices 7.9 3.4 6.9 6.4 6.7 6.9 Private Consumption 4.9 3.0 8.0 7.9 5.9 5.8 Government Consumption 13.4 2.0 6.9 7.7 8.3 8.8 Gross Fixed Capital Investment 6.9 3.9 8.1 8.4 7.7 8.1 Exports, Goods and Services 11.5 -17.5 9.2 25.5 5.8 6.8 Imports, Goods and Services 0.5 -11.4 15.3 28.8 5.7 5.6 Real GDP growth, at constant factor prices 8.0 3.8 7.0 6.4 6.7 6.9 Agriculture 3.3 3.4 3.2 3.2 3.5 3.6 Industry 11.6 3.6 10.3 10.4 10.2 9.9 Services 6.9 3.9 5.7 4.3 4.9 5.3 Inflation (Consumer Price Index) 5.5 5.6 5.6 6.2 6.0 5.8 Current Account Balance (% of GDP) -1.3 -1.5 -1.1 -4.0 -3.5 -3.2 Net Foreign Direct Investment (% of GDP) 0.7 0.3 0.3 0.4 0.5 0.6 Fiscal Balance (% of GDP) -4.7 -4.8 -3.6 -4.1 -4.0 -3.5 Debt (% of GDP) 28.5 31.7 32.1 32.8 33.2 33.1 Primary Balance (% of GDP) -3.0 -2.9 -1.5 -2.1 -1.9 -1.4 a,b International poverty rate ($1.9 in 2011 PPP) 12.1 12.5 11.9 11.3 10.8 10.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 48.2 49.0 47.8 46.8 45.7 44.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 82.3 82.7 82.1 81.6 81.1 80.6 GHG emissions growth (mtCO2e) 5.8 2.5 3.1 3.8 4.1 4.2 Energy related GHG emissions (% of total) 40.6 41.4 42.3 43.7 45.1 46.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SAR-POV harmonization, using 2010-HIES and 2016-HIES.Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2010-2016) with pass-through = 1 based on GDP per capita in constant LCU. MPO 189 Apr 22 $3.20 poverty rate from 11.0 percent in 2019 to 12.6 percent in 2021. BHUTAN Key conditions and The short term outlook is largely depen- dent on the speed of return to economic challenges normalcy, and the efficacy of fiscal sup- port, both through COVID-19 relief mea- Table 1 2021 Economic growth had been strong prior sures (which includes a partial interest Population, million 0.8 to the COVID-19 pandemic, fueled by the waiver on loans and temporary income GDP, current US$ billion 2.4 public sector-led hydropower sector and support to individuals directly affected GDP per capita, current US$ 3069.5 strong performance in the services sector, by the pandemic) and the scale up of a 1.5 International poverty rate ($1.9) including tourism. Annual real GDP capital expenditures. Addressing vulner- a 12.2 growth averaged 7.5 percent since the abilities in the financial sector is crucial, Lower middle-income poverty rate ($3.2) a 38.9 1980s, and the poverty rate dropped from as pressures on asset quality are likely to Upper middle-income poverty rate ($5.5) Gini index a 37.4 36 percent to 12 percent from 2007 to 2017, increase once the forbearance measures School enrollment, primary (% gross) b 105.8 based on the $3.20/day poverty line. While are phased out. Other risks include de- b 71.8 the hydro sector has provided a reliable lays in hydro projects (the generation ca- Life expectancy at birth, years source of growth, it did not create many pacity is expected to double in the medi- Total GHG Emissions (mtCO2e) -5.5 jobs, which remain concentrated in agri- um term with the completion of four pro- Source: WDI, Macro Poverty Outlook, and official data. culture and the public sector. Growth con- jects), which would have significant im- a/ Most recent value (2017), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy straints related to the country’s unique ge- pacts on growth, fiscal revenues, and ex- (2019). ographic and economic characteristics, in- ports. The economic impact from the war cluding high trade costs and a small do- in Ukraine on Bhutan will likely be felt mestic market, have limited competitive- through higher energy and food prices, Output is estimated to have contracted by ness of non-hydro sectors. as direct trade with Russia and Ukraine 3.7 percent in FY20/21, with broad based Bhutan has achieved mass vaccination is negligible. (almost 90 percent of its adult total pop- contractions in the non-hydro industrial ulation has received a booster dose by and services sector, reflecting early March 2022), and managed to con- COVID-19-related disruptions. The fiscal tain the virus, despite a recent surge Recent developments deficit has increased to 6.3 percent in in cases due to the Omicron variant. However, the government’s strict ze- The economy has further contracted by FY20/21 due to fiscal measures to support ro-COVID policy has significantly con- 3.7 percent in FY20/21 (July 2020 to July livelihoods and the recovery of the econo- strained livelihoods and economic ac- 2021), after a negative growth of 2.4 per- my, amid subdued revenue performance. tivity in the non-hydro industrial and cent in FY19/20. The industry sector con- Poverty is expected to have increased with services sectors, as stringent social and tracted by 5.5 percent, despite positive the economic contraction translating into mobility restrictions – including for in- growth in the hydro sector. Construction, bound tourism and foreign workers – manufacturing, and mining sectors were lower household incomes. adversely affected by foreign labor short- remained in place. This has had a direct impact on worker earnings and con- ages and high input prices. Services sec- tributed to an increase in the estimated tor output fell by 2.2 percent, as the FIGURE 1 Bhutan / Fiscal indicators FIGURE 2 Bhutan / Actual and projected poverty rates and real GDP per capita Billion LCU Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 80 Total revenues and grants (lhs) 4 70 100000 Total expenditures (lhs) 90000 70 Fiscal Balance (rhs) 2 60 80000 60 50 70000 0 50 60000 40 40 -2 50000 30 40000 30 -4 30000 20 20 20000 -6 10 10 10000 0 -8 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Source: Ministry of Finance and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 190 Apr 22 tourism industry remained largely inactive in spending was driven by COVID-19 re- and the resulting increase in exports, as in FY20/21. On the demand side, private lief measures (6.6 percent of GDP), as well well as a recovery in non-hydro industries investment and consumption contracted as an increase in capital expenditures. Rev- and the services sector. Inflation is project- sharply due to domestic COVID-19 con- enues also increased, but to a lesser extent, ed to remain elevated in the short and tainment measures and lower incomes. driven by hydro profit transfers from the medium term, owing to continued supply Average inflation moderated from 8.2 per- on-streaming of Mangdechhu (4.2 percent disruptions and higher energy and com- cent in FY20/21 to 6.0 percent in the first of GDP). Tax revenues declined in FY20/21, modity prices. half of FY21/22, driven by a slowdown in reflecting the slowdown in the non-hydro The CAD is expected to remain low rela- food inflation. However, non-food infla- economy. Public debt increased to 134.9 tive to pre-COVID levels, and to moderate tion remains high, reflecting higher fuel percent of GDP in FY20/21 (up from 123 further in the medium term due to a sharp and transport prices, and food inflation percent in FY19/20). However, risks to debt increase in electricity exports and a grad- has picked up in line with price develop- sustainability remain moderate as the bulk ual decline in hydro-related imports after ments in India. of the debt is linked to hydro project loans the completion of projects. The current account deficit (CAD) has fur- from India (to be paid off from future hy- The fiscal deficit is expected to increase to ther narrowed to 11.8 percent of GDP in dro revenues) with low refinancing and ex- 10.1 percent of GDP in FY21/22 due to the FY20/21, driven by a smaller trade deficit change rate risks. scale up in capital expenditures and sub- than in FY19/20. Goods exports (as a share dued revenue performance, including a of GDP) increased, supported by an in- decline in hydro profit transfers, and crease in hydro exports and trade facilita- would then decline to 7.4 percent of GDP tion measures for non-hydro goods, main- Outlook in FY22/23 as pandemic-related fiscal mea- ly mineral products and base metals. sures are gradually phased out. Domestic Goods imports also increased compared to The economy is expected to grow by 4.4 revenues are expected to increase over the FY19/20, but to a lesser extent, as private percent in FY21/22, supported by Bhutan’s medium term, supported by hydro rev- investment projects, including hydro con- rapid vaccination campaign, the easing of enues and policies aimed at mobilizing struction, remained subdued. The services mobility restrictions, and ongoing fiscal non-hydro revenues, including the intro- deficit deteriorated further, reflecting the support. On the demand side, public in- duction of the Goods and Services Tax standstill in tourism-related services in vestment and a recovery in domestic and (GST) in FY22/23. Public debt is projected FY20/21. Gross international reserves external demand (in particular from India) to remain elevated as a share of GDP in the stood at US$1.6 billion in November 2021, underpin growth. Output is expected to short term due to high fiscal deficits. equivalent to 19.5 months of goods and return to pre-pandemic levels in FY22/23 The $3.20 poverty rate is expected to de- services imports. with a gradual recovery in tourism and a cline from 2021 onwards, although a full The fiscal deficit widened to 6.3 percent in pick up in services sector growth. In the recovery to poverty headcount rates esti- FY20/21, reflecting fiscal support and sub- medium term, growth will be driven by mated before the pandemic is not likely to dued revenue performance. The increase the new hydro plants coming on stream be achieved until 2023. TABLE 2 Bhutan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018/19 2019/20 2020/21 2021/22e 2022/23f 2023/24f Real GDP growth, at constant market prices 4.4 -2.4 -3.7 4.4 4.7 6.7 Private Consumption 10.3 -0.5 -3.5 4.0 2.5 2.0 Government Consumption 7.0 7.3 24.0 -5.6 -11.4 2.8 Gross Fixed Capital Investment -11.2 -15.2 -18.6 19.1 3.0 2.1 Exports, Goods and Services 9.6 -4.1 -1.2 5.2 20.7 20.8 Imports, Goods and Services 0.0 -9.2 -2.1 8.9 3.8 6.7 Real GDP growth, at constant factor prices 4.6 -0.8 -2.6 4.4 4.7 6.7 Agriculture 2.7 2.9 5.7 3.5 3.5 3.5 Industry -1.6 -5.6 -5.5 7.5 5.4 11.9 Services 11.1 2.6 -2.2 2.3 4.3 3.2 Inflation (Consumer Price Index) 2.8 3.0 8.2 7.3 5.5 3.9 Current Account Balance (% of GDP) -20.5 -12.4 -11.8 -11.4 -9.5 -5.2 Fiscal Balance (% of GDP) -1.6 -1.9 -6.3 -10.1 -7.4 -4.5 Debt (% of GDP) 106.5 123.0 134.9 134.6 131.4 128.1 Primary Balance (% of GDP) -0.7 -1.5 -5.3 -8.3 -5.8 -2.2 a,b International poverty rate ($1.9 in 2011 PPP) 1.3 1.4 1.6 1.5 1.3 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 11.0 11.6 12.6 11.9 11.2 10.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 37.0 38.1 39.7 38.6 37.4 35.7 GHG emissions growth (mtCO2e) -0.2 1.6 1.5 -2.0 -1.8 -3.8 Energy related GHG emissions (% of total) -15.6 -15.1 -14.4 -15.2 -16.0 -17.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Calculations based on SAR-POV harmonization, using 2007-BLSS, 2019-, and 2017-BLSS.Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using average elasticity (2007-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 191 Apr 22 consumer spending further, localized stress in the financial sector following the INDIA Key conditions and withdrawal of regulatory forbearance, moderating global growth and the emer- challenges gence of new ‘variants’ of COVID-19 ne- cessitating stringent restrictions on activity Table 1 2021 The growth recovery in FY22 was driven vis-a-vis those witnessed in recent months. Population, million 1393.4 by a strong growth in investment and a GDP, current US$ billion 3085.4 rebound in private consumption. The eco- GDP per capita, current US$ 2214.3 nomic impact of the surging COVID-19 in- School enrollment, primary (% gross) a 99.9 fections in January-February 2022 (the Recent developments a 69.7 ‘third wave’) was much less pronounced, Life expectancy at birth, years Total GHG Emissions (mtCO2e) 3254.9 in contrast to the deep contraction in FY21 The economy expanded by 8.3 percent in Source: WDI, Macro Poverty Outlook, and official data. due to the national lockdown. The recov- FY22 following a contraction of 6.6 percent a/ WDI for School enrollment (2020); Life expectancy ery has been strong but not broad-based. in FY21. On the demand side, private con- (2019). Restrictions on activity and sectoral nature sumption was supported by the release of of the crisis have hampered the income pent-up demand post the ‘second wave’ prospects of low-income households, un- and investment was spurred by increased skilled labor, and the informal sector. government capital spending. Imports in- Growth was driven mainly by investment, creased more than exports, leading to a underpinned by a targeted fiscal stimulus, negative contribution from trade in FY22. The rebound in FY22 was strong despite as well as the exports of services. Latest da- On the supply side, mining and manufac- the two ‘waves’ of COVID-19, support- ta shows that the economy expanded by turing sectors benefited from the global ed by increased vaccination coverage. 5.4 percent in the third quarter (October- rally in commodity prices and robust ex- The recovery, however, is not broad December) of FY22. ternal demand. The services sector ex- based with private consumption growth The focus of fiscal policy shifted from panded but remained below the pre-pan- mitigating the socio-economic impact of demic level due to slower recovery in con- constrained by subdued income and em- COVID-19, towards increasing capital tact-intensive segments. ployment. Investment strengthened due spending to facilitate the recovery by Headline inflation averaged above the to the government’s capex push and ac- crowding-in private investment and bol- midpoint of the tolerance range (2-6 per- commodative financing conditions. How- stering revenue to facilitate gradual fiscal cent) at 5.5 percent in FY22 due to cost- consolidation. Despite rising inflationary push pressures from higher commodity ever, growth is expected to moderate in pressures, the RBI has indicated contin- prices and supply disruptions. Although FY23 due to rising inflation, supply dis- uation of the accommodative monetary the RBI maintained an accommodative ruptions stemming from intensifying policy stance. stance, it has undertaken steps towards geo-political tensions, and moderating Major headwinds to growth in FY23 in- gradual policy normalization by pausing global growth outlook. clude persistently elevated inflation— ex- the government securities acquisition acerbated by rising oil and commodity program and rebalancing liquidity from prices and supply disruptions following the overnight to term money market. The the conflict in Eastern Europe— denting financial sector remained resilient with FIGURE 1 India / Real GDP growth and contributions to real FIGURE 2 India / Real GDP GDP growth Percent, percentage points INR billion 15 190,000 Forecast Forecast 180,000 10 170,000 5 160,000 150,000 Real GDP (in 0 140,000 FY 2021-22) surpasses 130,000 pre-pandemic -5 FY 2019-20 120,000 -10 110,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 100,000 Private Consumption Government Consumption Gross Fixed Investment Net Exports 90,000 Others Real GDP, y-o-y percent 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Sources: National Statistics Office (NSO) and World Bank staff calculations. Sources: National Statistics Office (NSO) and World Bank staff calculations. Note: 2014 refers to the fiscal year 2014-15 (FY15) and so on. Note: 2014 refers to the fiscal year 2014-15 (FY15) and so on. MPO 192 Apr 22 improvement in the performance and as- July 2021. Unemployment rates declined to in the financial sector, government initia- set quality of banks, especially the public 7.4 percent (monthly average) over July tives including the production linked in- sector banks. 2021-Feb 2022, from 12 percent in May 2021, centive scheme and improvement of the The current account balance was in mod- but it has been accompanied by workers investment climate will support invest- est deficit of 0.2 percent in Q1-Q2 FY22 as transitioning into lower-paying and less-se- ment. Despite this, surging commodity import growth outpaced export growth, cure jobs. Labor force participation has de- prices, renewed supply disruptions and despite the buoyant exports of computer clined from an average of 42.8 percent in heightened business uncertainty can delay and professional services. Further, robust 2019, to 40 percent through 2021.1 a sustainable pickup in private investment. foreign investment inflows and RBI inter- Inflation is expected to rise on the back vention in the foreign exchange market, of elevated crude oil and commodity resulted in a record high accumulation of prices and extended global supply dis- foreign exchange reserves of USD 622 bil- Outlook ruptions, with upside risks stemming lion by mid-March 2022 (15 months of from faster passthrough of elevated input FY21 imports). Real GDP is expected to grow at 8.0 costs to consumer prices. Intensifying in- The general government fiscal deficit, after percent in FY23, facing headwinds from flationary pressures may lead to sooner- peaking at 13.3 percent in FY21, declined geopolitical tensions in Eastern Europe. than-expected tightening of monetary to 10.9 percent in FY22 driven by stronger The recovery in private consumption will policy in FY23. growth in revenue vis-à-vis expenditure. be constrained by the incomplete recov- The current account deficit will widen sub- The capital expenditure of the union gov- ery in the labor market, and inflationary stantially as merchandise trade deficit in- ernment grew by 27 percent y-o-y over pressures weighing on households’ pur- creases on the back of rising commodity Q1-Q3 FY22, while current spending in- chasing power. Increased government prices and a resumption of, albeit slow, do- creased at a relatively modest pace (8 per- capital spending (especially in infrastruc- mestic recovery and will be only partially cent). Consequently, public debt declined ture and logistics), reduced vulnerabilities offset by resilient services exports. Capital to 86.9 percent of GDP in FY22 from 88.6 flows, especially foreign direct investment percent in FY21. inflows, are expected to remain steady— After the ‘second wave’, India’s labor mar- 1/ Data from Consumer Pyramids Household Survey given the reforms implemented to improve ket experienced a partial recovery starting (2019-2022). the business environment. TABLE 2 India / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019/20 2020/21 2021/22 2022/23e 2023/24f 2024/25f Real GDP growth, at constant market prices 3.7 -6.6 8.3 8.0 7.1 6.5 Private Consumption 5.2 -6.0 7.9 8.1 7.1 7.1 Government Consumption 3.4 3.6 1.5 8.1 7.0 7.9 Gross Fixed Capital Investment 1.6 -10.4 12.9 10.2 8.3 8.5 Exports, Goods and Services -3.4 -9.2 21.7 6.2 10.8 8.2 Imports, Goods and Services -0.8 -13.8 33.2 9.2 11.4 12.3 Real GDP growth, at constant factor prices 3.8 -4.8 7.6 8.0 6.8 6.5 Agriculture 5.5 3.3 3.1 4.0 3.8 3.6 Industry -1.4 -3.3 9.8 6.7 6.8 6.7 Services 6.3 -7.8 7.7 9.9 7.7 7.1 Inflation (Consumer Price Index) 4.8 6.2 5.5 5.5 4.9 4.2 Current Account Balance (% of GDP) -0.9 0.9 -1.2 -2.5 -2.0 -1.7 Net Foreign Direct Investment (% of GDP) 1.5 1.6 1.6 1.5 1.6 1.6 Fiscal Balance (% of GDP) -7.2 -13.3 -10.9 -9.6 -8.5 -8.0 Debt (% of GDP) 73.7 88.6 86.9 86.5 85.8 85.0 Primary Balance (% of GDP) -2.5 -7.8 -5.4 -3.8 -2.7 -2.1 GHG emissions growth (mtCO2e) 1.8 -10.5 6.7 5.2 4.0 3.3 Energy related GHG emissions (% of total) 70.9 67.8 69.0 70.2 71.1 71.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 193 Apr 22 large investments through external non-con- cessional sources and sovereign guarantees MALDIVES Key conditions and has contributed to growing fiscal and debt vulnerabilities, which are unlikely to dimin- challenges ish given significant public investments are expected to continue due to government’s Table 1 2021 Tourism is the main driver of economic commitment to completing these projects be- Population, million 0.5 growth, fiscal revenues, and foreign ex- forethe2023presidentialelections. GDP, current US$ billion 4.9 change earnings in Maldives. After the GDP per capita, current US$ 8977.8 COVID-19 outbreak in March 2020, Mal- a 1.7 Upper middle-income poverty rate ($5.5) dives closed its borders for three months, Gini index a 29.3 which severely hit the sector. Only 555,494 Recent developments b 98.0 tourists visited in 2020, a third of the 2019 School enrollment, primary (% gross) Life expectancy at birth, years b 78.9 level. Following a nationwide vaccination A recovery in tourism has led to a strong Total GHG Emissions (mtCO2e) 2.6 campaign that commenced in February economic rebound since Q2 2021. Real 2021, over two-thirds of the population have GDP grew from a low base by over 70 per- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. now been fully vaccinated. This supported a cent (y-o-y) in Q2 and Q3 2021. Notably, b/ Most recent WDI value (2019). stronger recovery in tourism in the second Maldives received over 1.3 million tourists half of 2021, with total arrivals reaching 1.3 in 2021, which was about 80 percent of million by the end of the year. However, a 2019 levels. Despite a new wave of high dependence on tourism and limited COVID-19 infections due to the Omicron Following the recovery in 2021, Mal- sectoral diversification remains a key struc- variant, the growth momentum has con- tural challenge as the country is highly vul- tinued into 2022. Tourist arrivals were 43 dives is projected to grow at 7.6 per- nerable to external and macroeconomic and 54 percent above 2021 levels in Janu- cent in 2022, and fully recover to pre- shocks. Disruptions stemming from the ary and February 2022, respectively. pandemic output levels by 2023. This pandemic and shocks due to the Russia- Along with the economic recovery and will be supported by a sustained recov- Ukraine war highlight the risks associated higher global commodity prices, headline with reliance on a single economic sector. inflation rose slightly to 0.5 percent in ery in tourism, assuming increasing ar- Additional long-standing structural weak- 2021, from deflation of 1.4 percent in 2020. rivals from traditional markets, such as nesses also remain. To promote faster This was driven by increases in transport, China and Western Europe, which will growth, the government has rightly scaled food, housing, water, electricity, gas, and partially offset any fall in Russian and up infrastructure investments since 2016. other fuel prices. This has helped boost construction activity, The current account deficit narrowed to an Ukrainian tourists. Despite a narrow- productivity growth, and medium-term estimated US$1.1 billion (21.7 percent of ing of the fiscal deficit, public debt will growth prospects. Investments in physical GDP) in 2021 from US$1.3 billion (35.5 per- remain unsustainable. and social infrastructure have also led to a cent of GDP) in 2020, as exports surged by reduction in poverty, with only 1.7 percent about 97 percent and exceeded the 59 per- of the population estimated to be living be- cent growth in imports. The official gross re- low the poverty line (5.5 PPP USD/person/ serves remained stable at above US$800 mil- day) in 2019. However, financing of these lion (2.5 months of imports) for most of 2021. FIGURE 1 Maldives / Visitor arrivals FIGURE 2 Maldives / Actual and projected poverty rates and real GDP per capita Number of tourist arrivals Poverty rate (%) Real GDP per capita (constant LCU) 180000 12 180000 160000 160000 140000 10 140000 120000 8 120000 100000 100000 80000 6 80000 60000 4 60000 40000 40000 20000 2 20000 0 0 0 -20000 2019 2021 2023 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Upper middle-income pov. rate Real GDP pc 2016-2018 2019 2020 2021 2022 Sources: Ministry of Tourism and World Bank staff calculations. Sources: HIES 2019/20 and World Bank POVMOD projections. MPO 194 Apr 22 Tourism-linked revenues rose alongside real GDP is expected to grow at 7.6 per- revenue mobilization measures (particu- the recovery in tourism, with total revenues cent in 2022, and at 9.9 percent in 2023 larly the introduction of new departure and grants amounting to US$631 million in supported by: (i) greater tourism capac- taxes and an increased Airport Develop- Q2 and Q3 2021, which was only 15 percent ity due to the completion of the Velana ment Fee). Despite a narrowing of the fis- below 2019 levels. Given that expenditures airport expansion and new resorts; (ii) a cal deficit, public debt levels will remain grew by 12 percent (y-o-y) in Q2 and Q3 return of Chinese tourists following the high and unsustainable. 2021, with capital expenditure only picking reopening of their border; and (iii) con- Downside risks persist. The baseline pro- up in Q3 2021, the fiscal deficit is estimated tinued capital expenditures and election- jection accounts for the estimated impacts to have narrowed to 17.7 percent of GDP in related spending. of the Russia-Ukraine war on tourism and 2021. Combined with the fast recovery in Inflation is projected to rise to 3.5 percent oil prices under the current trend, but fur- GDP growth, this led to a fall in public debt in 2022, but moderate in the medium term ther increases in global energy prices may from 146 percent of GDP in 2020 to a still un- as global energy prices normalize. Al- cause an additional fiscal burden. Tourism sustainable 129 percent in 2021. though service exports will increase as could be adversely impacted by a persis- After a sharp increase to 11 percent of the tourism recovers, the return to pre-pan- tent reduction in Russian and Ukrainian population in 2020, the poverty rate is esti- demic levels of consumption and capital tourists and new waves of COVID-19 in- mated to have fallen to 4 percent in 2021 due goods imports will lead to an expansion in fections. However, there is some upside to the economic recovery, and is expected to the current account deficit to a projected 24 potential for increasing tourist arrivals return to pre-pandemic levels by 2023. percent of GDP in 2023, before narrowing from traditional markets such as China in 2024 due to a fall in capital goods im- and Western Europe. ports as large investment projects are ex- Despite improving fiscal prospects, pru- pected to be completed by then. dent debt management remains critical to Outlook The fiscal deficit is projected to decline to improving fiscal sustainability and lower- 16 percent of GDP in 2022 and steadily ing the cost of growth-enhancing invest- Due to a continued recovery in tourism and narrow in the medium term as revenues ments, especially with large debt service other sectors impacted by the pandemic, improve due to tourism growth and new obligations coming due in 2026. TABLE 2 Maldives / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.9 -33.5 31.0 7.6 10.2 7.1 Private Consumption 4.4 -27.2 29.0 8.5 7.2 6.5 Government Consumption -4.3 5.4 6.5 7.1 7.8 11.2 Gross Fixed Capital Investment -2.6 -36.6 14.1 0.0 14.8 -2.6 Exports, Goods and Services 6.7 -51.4 69.6 12.1 10.2 8.5 Imports, Goods and Services -0.3 -41.1 50.0 10.2 9.3 6.0 Real GDP growth, at constant factor prices 6.9 -31.3 27.3 7.6 10.2 7.1 Agriculture -7.6 7.0 3.8 2.6 2.4 2.1 Industry 1.9 -25.4 -1.6 9.9 8.1 7.0 Services 8.6 -34.3 34.1 7.7 10.9 7.4 Inflation (Consumer Price Index) 0.2 -1.4 0.5 3.5 1.3 1.2 Current Account Balance (% of GDP) -26.6 -35.5 -21.7 -23.2 -23.9 -21.3 Net Foreign Direct Investment (% of GDP) 17.1 -11.8 9.0 12.5 13.9 12.8 Fiscal Balance (% of GDP) -6.7 -23.5 -17.7 -16.0 -13.9 -12.8 Debt (% of GDP) 78.8 146.1 128.8 130.9 129.6 129.2 Primary Balance (% of GDP) -4.9 -20.8 -14.0 -10.9 -9.2 -8.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.7 10.9 4.0 2.5 1.3 0.7 GHG emissions growth (mtCO2e) 3.3 3.1 3.1 3.0 3.1 2.8 Energy related GHG emissions (% of total) 81.5 81.5 81.5 81.5 81.6 81.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SAR-POV harmonization, using 2019-HIES. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 195 Apr 22 of activity in the services and industrial sectors. Growth in the agricultural sector NEPAL Key conditions and has been muted following a reduction in paddy production amid unseasonal rains challenges in October 2021. Average inflation accelerated from 3.4 per- Table 1 2021 Nepal has achieved an average growth cent in FY21 to 5 percent in H1FY22, re- Population, million 29.7 rate of 4.9 percent between FY09 and flecting higher transportation prices asso- GDP, current US$ billion 35.1 FY19 and attained lower middle-income ciated with global fuel price hikes and an GDP per capita, current US$ 1182.0 status in 2020. The country has reduced increased educational fees and housing a 15.0 International poverty rate ($1.9) poverty, thanks in large part to remit- prices. However, food price inflation a 50.9 tances inflows which averaged 21.9 per- slowed to 4.2 percent (year-on-year) in Lower middle-income poverty rate ($3.2) a 83.0 cent of GDP over the same period. Struc- H1FY22 from 4.6 percent in FY21, reflect- Upper middle-income poverty rate ($5.5) Gini index a 32.8 tural constraints to achieving inclusive ing a lower vegetable price increase. School enrollment, primary (% gross) b 142.1 and sustainable growth remain, including The current account deficit widened in b 70.8 a significant share of population in low- H1FY22 relative to H1FY21. Drivers in- Life expectancy at birth, years quality low-productivity jobs, high vul- clude a surge in imports and a drop in of- Total GHG Emissions (mtCO2e) 54.4 nerability to natural disasters and climate ficial remittance inflows, which in absolute Source: WDI, Macro Poverty Outlook, and official data. change, large infrastructure gaps, and terms far outpaced an increase in exports. a/ Most recent value (2010), 2011 PPPs. b/ Most recent WDI value (2019). highly concentrated trade markets. En- In the absence of significant FDI inflows, suring continued transition to a federal- the current account deficit was financed by ized system of governance and public fi- trade credits, external concessional bor- After an initial recovery in FY21, growth nance and managing the rising debt lev- rowing, and reserve drawdown. Official els, in recent years, through prudent fiscal gross foreign exchange reserves fell to momentum continued during H1FY22 management will be additional challenges USD 9.9 billion in mid-January 2022 (6.6 with progress in vaccination and ongoing that need to be managed. months of imports coverage) from USD COVID-19 related fiscal and monetary 11.8 billion in mid-July 2021. In response, support. Growth is expected to accelerate the central bank adopted measures to mit- igate pressure on reserves, including limit- in FY22 to 3.7 percent, weathering new Recent developments ing imports of luxury goods. variant waves and rising fuel prices. Going As observed in previous years, a federal forward, the economy is forecast to grow After growing 1.8 percent in FY21, the econ- fiscal surplus was recorded in H1FY22 as 4.1 and 5.8 percent in FY23 and FY24, re- omy maintained recovery momentum in revenue outstripped expenditure growth, spectively. Downside risks include new the first half of FY22 with increased interna- as the budget execution tends to accel- tional tourist arrivals and continued expan- erate in the last quarter of the fiscal COVID-19 variants, the severity of the sion of credit to the private sector. Signifi- year. Revenue expanded by 28 percent Russia-Ukraine conflict, and potentially cant progress on vaccination has allowed year-on-year in H1FY22 on the back of stronger import compression measures to Nepal to weather a renewed COVID-19 a strong recovery in trade-related taxes, support international reserves. wave in early 2022 with less stringent con- income taxes, and non-tax revenues es- tainment measures, supporting a rebound pecially with strong increase in royalties, FIGURE 1 Nepal / Real GDP levels: Actual vs. pre-covid trend FIGURE 2 Nepal / The current account deficit has widened Index of real GDP, FY2019=100 USD billion 140 10 Pre-covid 5 year GDP trend 120 5 Actual GDP 100 0 80 -5 60 -10 40 -15 FY16 FY17 FY18 FY19 FY20 FY21 H1FY22 20 Workers' remittances Balance of goods and services FY11 FY13 FY15 FY17 FY19 FY21 FY23 Current account balance Sources: World Bank staff projections and Nepal Central Bureau of Statistics. Sources: World Bank staff calculations and Nepal Rastra Bank. MPO 196 Apr 22 dividends, and passport and visa fee col- end of FY22 (81.7 percent of the population demand for migrant workers in the GCC lections. Compared to H1FY21, total ex- aged 18 and higher have received full dos- countries due to stronger economic perfor- penditure rose due to higher social secu- es of vaccine by March 25, 2022); and (iii) a mance driven by higher oil prices. Larg- rity spending and intergovernmental fis- gradual increase in international migration er current account deficits are expected to cal transfers to sub-national governments, and tourist arrivals, reaching pre-pandem- be financed primarily by concessional bor- while capital expenditure remained close ic levels by FY24. rowing and moderate drawdown on re- to H1FY21 levels. While public debt has The baseline forecast projects a gradual serves, while FDI is assumed to remain risen from 22.7 percent to 41.8 percent of medium-term recovery, with growth accel- marginal as a funding source. GDP from FY17 to FY21, the risk of debt erating from 3.7 percent in FY22 to 5.8 per- The fiscal deficit is projected to narrow to distress is currently assessed as low as cent by FY24. Vaccination deployment is 3.7 percent of GDP in FY22 as growth re- per the Joint Bank-Fund Debt Sustainabil- expected to unleash pent-up demand for bounds continue to support revenue col- ity Analysis of December 2021. most service sub-sectors. Industry sector lection. Over the medium-term, the fiscal New analysis based on the World Bank growth is projected to be supported by in- deficit is projected to further narrow grad- COVID-19 phone monitoring survey (con- creased production of hydropower includ- ually, supported by expected rollback of ducted during the later half of 2020) shows ing from the recently completed Upper COVID-19 related tax breaks and modest that 45 percent of those who recovered Tamakoshi plant. Agricultural growth is policy reforms. Total public debt is project- from a job loss have switched sectors and projected to decelerate in FY22, reflecting ed to peak at 44.5 percent of GDP in FY24. taken jobs with lower earnings and skill a decline in paddy production and the rise The economic outlook is subject to down- requirements. This indicates that many of global fertilizer prices earlier in the fiscal side risks. A major uncertainty is the households have been pushed to margin- year. Increasing fuel prices are expected to speed of booster dose deployment and ally above or below the poverty line. New weigh on aggregate demand. vaccine effectiveness to stop transmission data on jobs and recovery from January Inflation is expected to rise to 6 percent of a new COVID-19 variant. The out- 2022 will help better understand the im- during FY22 reflecting higher global com- comes of local elections in May 2022 and pacts of the COVID-19 on the labor mar- modity prices. From FY22 to FY24, annual federal and provincial elections in FY23 kets and its welfare implications. Higher inflation is expected to average 5.6 percent. will pose additional political uncertainty. inflation will increase the cost of basic The current account deficit is projected to Risks on the external side stem from in- needs, which will adversely impact the widen to 11.9 percent of GDP in FY22 and creasing pressure on reserves driven by poor and vulnerable, although this may be begin to narrow after. Imports are expect- the increasing imports. partially mitigated by rising remittances. ed to peak at 43.1 percent of GDP in FY22, Stronger import control measures to mit- driven by resurgent consumption and in- igate pressures on international reserves creased commodity prices. Merchandise could affect growth through lower trade- exports are projected to grow from a low related tax revenues, depressed private Outlook base as Nepal continues to take advantage consumption and production, and lower of tariff exemptions under the South Asian capital expenditures. The ongoing Russia- The baseline scenario assumes: (i) that no Free Trade Area agreement and expands Ukraine conflict, if it deepens further, new nationwide strict containment mea- electricity exports to India. Remittances are could lower travel demand and may sures are imposed; (ii) a near complete vac- projected to average 21.8 percent of GDP threaten the recovery of tourism and cination of the eligible population by the over the medium term, assuming stronger tourism related sectors. TABLE 2 Nepal / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.7 -2.1 1.8 3.7 4.1 5.8 Private Consumption 8.1 3.6 2.4 2.1 1.9 2.5 Government Consumption 9.8 3.8 -5.0 23.6 0.8 -4.1 Gross Fixed Capital Investment 11.3 -12.4 1.2 7.6 5.5 9.6 Exports, Goods and Services 5.5 -15.9 -19.8 30.7 12.5 15.1 Imports, Goods and Services 5.8 -15.2 16.9 10.2 2.3 3.1 Real GDP growth, at constant factor prices 6.4 -2.1 1.8 3.7 4.1 5.8 Agriculture 5.2 2.2 2.7 1.3 1.8 2.3 Industry 7.4 -3.7 0.9 5.1 5.3 6.9 Services 6.8 -4.0 1.6 4.7 5.0 7.4 Inflation (Consumer Price Index) 4.6 6.1 3.4 6.0 5.7 5.2 Current Account Balance (% of GDP) -6.9 -0.9 -8.1 -11.9 -9.5 -6.8 Fiscal Balance (% of GDP) -5.0 -5.3 -4.6 -3.7 -3.5 -3.4 Debt (% of GDP) 27.2 36.3 41.8 43.1 44.2 44.5 Primary Balance (% of GDP) -4.5 -4.7 -3.7 -2.8 -2.5 -2.3 GHG emissions growth (mtCO2e) 1.3 -2.3 0.8 1.0 1.3 2.3 Energy related GHG emissions (% of total) 42.7 40.5 39.5 39.1 38.9 39.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 197 Apr 22 PAKISTAN Key conditions and Recent developments challenges Indicators have mostly signaled positive economic momentum over July-December Table 1 2021 Since imposing a widespread lockdown in 2021 (H1 FY22). With continued improve- Population, million 225.2 response to the first COVID-19 wave, Pak- ment in community mobility and still ro- GDP, current US$ billion 345.5 istan has been effectively using localized bust official remittance inflows, private GDP per capita, current US$ 1534.3 lockdowns to curb the infection spread, al- consumption is estimated to have a 3.6 International poverty rate ($1.9) lowing economic activity to largely contin- strengthened. Similarly, investment is also a 34.4 ue. Expansion of the national cash trans- expected to have increased with strong Lower middle-income poverty rate ($3.2) a 77.6 fer program, a mass vaccination campaign, growth of machinery imports and govern- Upper middle-income poverty rate ($5.5) Gini index a 29.6 accommodative macroeconomic policies, ment development expenditure. Govern- School enrollment, primary (% gross) b 95.5 and supportive measures for the financial ment consumption also grew strongly b 67.3 sector, all helped mitigate the adverse ef- with vaccine procurement. On the produc- Life expectancy at birth, years fects of the pandemic. As a result, growth tion side, agricultural output, mainly rice Total GHG Emissions (mtCO2e) 469.2 of real GDP at constant factor 2015-16 and sugarcane increased, reflecting better Source: WDI, Macro Poverty Outlook, and official data. prices rebounded to 5.6 percent in FY21, weather conditions. Similarly, large-scale a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). after contracting by 1.0 percent in FY20. manufacturing growth rose to 7.5 percent Nevertheless, long-standing structural y-o-y in H1 FY22, higher than the 1.5 per- weaknesses of the economy and low pro- cent for H1 FY21. In contrast, business and After a definitive economic recovery in ductivity growth pose risks to a sustained consumer confidence have fallen since recovery. Strong aggregate demand pres- June 2021, partly due to concerns about FY21, Pakistan’s GDP growth is expected sures, in part due to previously accom- higher inflation and interest rates. to slow in FY22 and FY23 due to macroeco- modative fiscal and monetary policies, Headline inflation rose to an average of nomic challenges emanating on both do- paired with the continued less conducive 9.8 percent y-o-y in H1 FY22 from 8.6 per- mestic and external fronts. Symptomatic of external environment for exports have cent in H1 FY21, driven by surging glob- contributed to a record-high trade deficit al commodity prices and a weaker ex- the long-standing structural issues associ- (Figure 1), weighing on the Rupee and the change rate. Similarly, core inflation has ated with low potential growth, the record- country’s limited external buffers. been increasing since September 2021. Ac- high trade deficit and double-digit infla- Macroeconomic risks are strongly tilted to cordingly, the State Bank of Pakistan has tion, require urgent macroeconomic ad- the downside. They include faster-than-ex- been unwinding its expansionary mone- justment measures. The ongoing pandem- pected tightening of global financing con- tary stance since September 2021, raising ditions, further increases in world energy the policy rate by a cumulative 275 basis ic, a protracted surge in global commodity prices, and the possible risk of a return points (bps) and banks’ cash reserve re- prices, and faster-than-expected tighten- of stringent COVID-19 related mobility re- quirement by 100 bps. ing of global financing conditions pose sub- strictions. Domestically, political tensions The current account deficit (CAD) in H1 stantial risks to the outlook. and policy slippages can also lead to pro- FY22 widened to US$9.0 billion, from a tracted macroeconomic imbalances. surplus of US$1.2 billion in H1 FY21, as FIGURE 1 Pakistan / Headline inflation and overall trade FIGURE 2 Pakistan / Actual and projected poverty rates and deficit real GDP per capita Percent US$ Billion Poverty rate (%) Real GDP per capita (constant LCU) 14 5 100 200000 Trade Deficit (rhs) 4.5 90 180000 12 Inflation (lhs) 4 80 160000 10 3.5 70 140000 60 120000 3 8 50 100000 2.5 40 80000 6 2 30 60000 4 1.5 20 40000 1 10 20000 2 0 0 0.5 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 0 International poverty rate Lower middle-income pov. rate Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Upper middle-income pov. rate Real GDP pc Sources: Pakistan Bureau of Statistics and State Bank of Pakistan. Source: World Bank. Notes: see Table 2. MPO 198 Apr 22 imports values surged by 54.4 percent, complement the tighter monetary policy, is expected to slow to 4.3 percent in FY22 doubling the 27.3 percent growth in ex- the Government approved a Supplemen- and to 4.0 percent in FY23. However there- ports values. Double-digit growth in re- tary Finance Bill in January 2022, with- after, economic growth is projected to re- mittances in H1 FY22 helped to finance drew tax exemptions, and cut back on fed- cover to 4.2 percent in FY24, supported by the record-high trade deficit. The financial eral development spending, while protect- the implementation of structural reforms account recorded net inflows of US$10.1 ing social sector spending. to support macroeconomic stability and billion, supported by the new IMF SDR With the economic recovery and im- dissipating global inflationary pressures. allocation, short-term Government de- proved labor market conditions, poverty Inflation is estimated to rise to 10.7 percent posits from Saudi Arabia, and a Eu- measured at the lower middle-income in FY22 but moderate over the forecast robond issuance in July 2021. In January- class poverty line of $3.20 PPP 2011 per horizon. Largely reflecting the imports February, the Government obtained day is estimated to have declined from surge in H1 FY22, the CAD is expected US$2.1 billion from International Sukuks 37.0 percent in FY20 to 34.0 percent in to widen to 4.4 percent of GDP in FY22. and the IMF Extended Fund Facility FY21 (Figure 2). Rising food and energy Macroeconomic adjustment measures and (EFF). Despite these inflows, foreign ex- inflation is expected to diminish the real the weaker currency are expected to tame change reserves had fallen to US$13.5 bil- purchasing power of households, dispro- imports mostly in FY23. The CAD is ex- lion by March 25, 2022, equivalent to portionally affecting poor and vulnerable pected to narrow to 3.0 percent of GDP in 2.0 months of imports of goods and ser- households that spend a larger share of FY24, as reforms to reduce import tariffs vices. Meanwhile, the Rupee depreciated their budget on these items. In response, and the anti-export bias of trade policy by 14.3 percent against the U.S. dollar the Government introduced a targeted gain traction. The fiscal deficit (including from July 2021 to end-March 2022. food subsidies program (Ehsaas Rashan grants) is projected to widen slightly to 6.2 Despite the high tax revenue growth with Riyat) in February 2022. percent of GDP in FY22, and gradually the surge in imports, the fiscal deficit narrow over the medium term as revenue widened by 20.6 percent in H1 FY22 due to mobilization measures, particularly GST higher spending on vaccine procurement, harmonization and personal income tax re- settlement of power sector arrears, and de- Outlook form, take hold. Public debt as a share of velopment projects. Public debt, including GDP is projected to stay high, but to grad- guaranteed debt, reached 70.7 percent of On the back of high base effects, recent ually decline over the medium term. The GDP at end-December 2021, compared to macroeconomic adjustment measures outlook is predicated on the IMF-EFF pro- 72.0 percent at end-December 2020. To and stronger inflation, real GDP growth gram remaining on-track. TABLE 2 Pakistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018/19 2019/20 2020/21 2021/22e 2022/23f 2023/24f a,b Real GDP growth, at constant market prices 2.5 -1.3 6.0 4.3 4.0 4.2 Private Consumption 5.6 -3.1 6.3 5.5 3.0 3.9 Government Consumption -1.6 8.4 3.1 6.9 6.0 3.8 Gross Fixed Capital Investment -11.1 -5.5 6.8 4.4 2.5 4.4 Exports, Goods and Services 13.2 1.5 4.8 7.1 1.8 2.8 Imports, Goods and Services 7.6 -5.1 5.5 12.1 -0.7 2.1 a Real GDP growth, at constant factor prices 3.1 -1.0 5.6 4.3 4.0 4.2 Agriculture 0.9 3.9 3.5 3.6 3.2 3.3 Industry 0.2 -5.8 7.8 4.0 3.3 3.8 Services 5.0 -1.3 5.7 4.7 4.5 4.7 Inflation (Consumer Price Index) 6.8 10.7 8.9 10.7 9.0 7.5 Current Account Balance (% of GDP) -4.2 -1.5 -0.6 -4.4 -3.1 -3.0 Net Foreign Direct Investment (% of GDP) 0.4 0.9 0.5 0.6 0.8 0.9 Fiscal Balance (% of GDP) -7.8 -7.0 -6.1 -6.2 -6.0 -5.2 Debt (% of GDP) 78.0 81.1 76.0 76.0 74.4 72.5 Primary Balance (% of GDP) -3.0 -1.5 -1.1 -1.4 -1.0 -0.3 c,d International poverty rate ($1.9 in 2011 PPP) 3.6 4.3 3.4 3.0 2.7 2.3 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 34.4 37.0 34.0 32.1 30.7 29.0 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 77.6 79.0 77.3 76.3 75.3 74.0 GHG emissions growth (mtCO2e) 2.8 0.4 3.8 3.0 3.3 3.4 Energy related GHG emissions (% of total) 45.2 44.6 45.5 45.7 46.0 46.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Macroeconomic outlook as of February 2022. a/ Using re-based national accounts data at 2015-16 prices. b/ 2020/2021 expenditure accounts are World Bank estimates that conform to the production accounts of the new base year. c/ Calculations based on SAR-POV harmonization, using 2018-HIES.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. d/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 199 Apr 22 climate, restore competition, and support reforms to improve productivity in agri- SRI LANKA Key conditions and culture. Public investments and future borrowings should prioritize key sectors challenges and address immediate needs and induce sustainable and resilient growth through Table 1 2021 Due to the COVID-19 pandemic, the econ- economic transformation. Population, million 22.0 omy contracted by 3.6 percent in 2020, rais- GDP, current US$ billion 82.5 ing the $3.20 poverty rate to an estimated GDP per capita, current US$ 3750.2 11.7 percent. In 2021, an expeditious vacci- International poverty rate ($1.9) a 0.9 nation campaign contributed to economic Recent developments a 11.0 recovery. However, fiscal deficits sharply Lower middle-income poverty rate ($3.2) a 42.0 widened and public debt significantly in- Real GDP is estimated to have expanded Upper middle-income poverty rate ($5.5) Gini index a 39.3 creased due the pandemic and pre-pan- by 3.5 percent in 2021 thanks to a strong School enrollment, primary (% gross) b 100.2 demic tax cuts. Foreign exchange earnings 12.3 percent, year-on-year, rebound from a b 77.0 declined, while large international sover- low base in the second quarter of the year. Life expectancy at birth, years eign bond repayments came due. Height- Significant contributions came from man- Total GHG Emissions (mtCO2e) 36.7 ened fiscal and external risks led to a series ufacturing, financial services, construction, Source: WDI, Macro Poverty Outlook, and official data. of sovereign credit rating downgrades, transport, and real estate activity. Despite a/ Most recent value (2016), 2011 PPPs. b/ Most recent WDI value (2019). preventing market-based refinancing. Offi- still low tourism receipts, exports expand- cial reserves declined to critically low lev- ed significantly, led by the textile industry. els and a foreign exchange shortage has af- Higher imports of intermediate and capital fected the supply of some essentials. Inad- goods increased imports. The $3.20 pover- equate fuel supply for thermal generation ty rate is estimated to have slightly de- resulted in scheduled power cuts. clined to 10.9 percent in 2021, still above Sri Lanka faces unsustainable debt and Sri Lanka’s macroeconomic challenges are pre-pandemic levels. significant balance of payments chal- linked to years of high fiscal deficits, dri- Year-on-year inflation accelerated to 17.5 lenges. The economic outlook is highly ven primarily by low revenue collection, percent in February 2022, mostly due to and erosion of export competitiveness high food inflation at 24.7 percent, amid uncertain due to the fiscal and external due to a restrictive trade regime and rising global commodity prices, adjust- imbalances. Urgent policy measures are weak investment climate. Growth slowed ments to fuel prices, and partial moneti- needed to address the high levels of debt to an average 3.1 percent between 2017 zation of the fiscal deficit. Moreover, an and debt service, reduce the fiscal deficit, and 2019 from the 6.2 percent between agrochemical imports ban between May restore external stability, and mitigate the 2010 and 2016, as a peace dividend and and November reduced agricultural pro- a policy thrust toward reconstruction fad- duction. The increase in prices affected adverse impacts on the poor and vulnera- ed away and macroeconomic shocks ad- the ability of households to cover living ble. The forecasts have been finalized on versely impacted growth. Structural ad- expenses, leading to a deterioration of March 17, 2022. justments are needed to restore debt sus- welfare and more food insecurity. Since tainability, significantly increase revenue August 2021, the central bank has in- collection, and to improve the investment creased policy rates and the statutory FIGURE 1 Sri Lanka / Real GDP growth and contributions to FIGURE 2 Sri Lanka / Actual and projected poverty rates real GDP growth (production side) and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 4 70 500000 3 450000 60 400000 2 50 350000 1 40 300000 0 250000 30 200000 -1 20 150000 -2 100000 -3 10 50000 -4 0 0 2017 2018 2019 2020 2021e 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Agriculture Industry Services International poverty rate Lower middle-income pov. rate Net taxes Overall growth Upper middle-income pov. rate Real GDP pc Sources: Department of Census and Statistics, World Bank staff calculations. Sources: World Bank. Notes: see Table 2. MPO 200 Apr 22 reserve ratio by 200 basis points to mit- floated the currency on March 07 to prices, partially offset by gradually in- igate the pressures. stem reserve losses. By March 15, the cur- creasing remittances due to the float of the The trade deficit widened to USD 8.1 rency had depreciated by 31 percent. currency. Poverty at $3.20 per day is pro- billion in 2021 from USD 6 billion in The fiscal deficit is estimated to have re- jected to remain broadly unchanged from 2020 as a rising import bill offset the in- mained at 11.1 percent of GDP in 2021, 2021. A shortfall of external financing, crease in export earnings, despite import and public and publicly guaranteed debt larger than expected impacts of the Russia- restrictions on non-essential goods. De- to have increased to 117 percent of GDP. Ukraine War and associated sanctions on clines in remittances (22.7 percent) and The fiscal deficit was mostly financed by commodity prices and tourism, as well as tourism receipts (61.7 percent) are esti- domestic resources, including the central the possible emergence of new COVID mated to have further widened the cur- bank. Fitch, S&P, and Moody’s downgrad- variants pose downside risks. On the up- rent account deficit to USD 3.2 billion (or ed the sovereign rating deeper into the side, an opening of China could provide a 3.8 percent of GDP) in 2021. substantial risk investment category. boost to tourism. The government has mobilized external Sri Lanka needs to address the structural financing from bilateral partners, includ- sources of its vulnerabilities. This would ing a financial assistance package from require reducing fiscal deficits especially India worth US$ 1.4 billion in January Outlook through strengthening domestic revenue 2022 to pay for essential imports and mobilization. Fiscal consolidation needs to boost foreign exchange liquidity. A fur- The heightened fiscal and external risks as be accompanied by tighter monetary pol- ther US$ 1 billion support from India well as challenging political situation pose icy to contain pressures on inflation. Sri was signed on March 17, 2022. Howev- significant uncertainty to the economic out- Lanka also needs to find feasible options er, official reserves at US$ 2.3 billion in look and Sri Lanka faces an external financ- to restore debt sustainability. The financial February 2022 (equivalent to 1.3 months ing gap in 2022 and beyond. The real GDP sector needs to be carefully monitored of imports) remain low relative to for- growth outlook is subject to the continuing amid high exposure to the public sector eign currency debt service, estimated at fiscal and external imbalances. Despite ex- and the impact of the recent currency de- USD 5.6 billion from April to December pected further tightening of monetary poli- preciation on banks’ balance sheets. The 2022 (including domestic instruments is- cy, inflation will likely stay elevated, due the necessary adjustments may adversely af- sued in foreign currency). Net foreign recent currency depreciation and high com- fect growth and impact poverty initially assets of the banking system declined modity prices, partly related to the Russia- but will correct the significant imbalances, to US$ -4.9 billion in December 2021, Ukraine War and associated sanctions. The subsequently providing the foundation for showing escalating foreign exchange liq- fiscal deficit is projected to stay high amid stronger and sustainable growth and ac- uidity shortages. After keeping the ex- low revenue generation and rigid expendi- cess to international financial markets. change rate broadly fixed around 201 tures. The current account deficit is expected Mitigating the impacts on the poor and LKR/US$ for seven months, the CBSL toincreaseduetothehighglobalcommodity vulnerable would remain critical. TABLE 2 Sri Lanka / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.3 -3.6 3.5 2.4 2.3 2.3 Private Consumption 3.0 -3.0 3.6 2.3 2.2 2.4 Government Consumption 13.0 4.4 4.4 0.8 -1.3 -0.5 Gross Fixed Capital Investment 1.0 -9.5 5.8 2.3 1.0 1.5 Exports, Goods and Services 7.2 -9.6 18.2 8.9 5.8 2.8 Imports, Goods and Services -5.8 -11.4 15.7 5.9 2.2 1.3 Real GDP growth, at constant factor prices 2.2 -3.1 3.5 2.4 2.3 2.3 Agriculture 1.0 -2.4 3.0 1.0 1.5 1.5 Industry 2.6 -6.9 4.2 2.3 2.3 2.2 Services 2.2 -1.5 3.2 2.6 2.4 2.5 Inflation (Consumer Price Index) 4.3 4.6 6.0 15.2 8.3 6.1 Current Account Balance (% of GDP) -2.2 -1.3 -3.8 -4.3 -3.4 -2.9 Net Foreign Direct Investment (% of GDP) 0.7 0.6 0.8 1.1 1.3 1.3 Fiscal Balance (% of GDP) -9.6 -11.1 -11.1 -9.1 -9.6 -9.7 Debt (% of GDP) 94.3 109.7 117.0 122.7 124.3 125.4 Primary Balance (% of GDP) -3.6 -4.6 -4.6 -2.0 -2.0 -1.7 a,b International poverty rate ($1.9 in 2011 PPP) 0.7 1.2 1.0 1.0 1.0 1.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.5 11.7 10.9 10.8 10.8 10.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 39.3 42.3 40.9 40.8 40.7 40.6 GHG emissions growth (mtCO2e) -0.1 -4.0 3.1 2.7 2.4 2.4 Energy related GHG emissions (% of total) 63.8 64.4 65.7 67.0 67.9 68.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SAR-POV harmonization, using 2016-HIES.Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Estimates for 2017-2019 and 2021 use a neutral distribution (2016) and assume a medium pass-through (0.87) based on GDP per capita in constant LCU. Estimate for 2020 based on microsimulation of COVID19 impacts. Estimates for 2022-2024 assume a very low pass-through (0.10) based also on GDP per capita. MPO 201 Apr 22 Sub-Saharan Africa Angola Côte d'Ivoire Liberia Senegal Benin Equatorial Guinea Madagascar Seychelles Botswana Eritrea Malawi Sierra Leone Burkina Faso Eswatini Mali Somalia Burundi Ethiopia Mauritania South Africa Cabo Verde Gabon Mauritius South Sudan Cameroon The Gambia Mozambique Tanzania Central African Republic Ghana Namibia Togo Chad Guinea Niger Uganda Comoros Guinea-Bissau Nigeria Zambia Congo, Dem. Republic Kenya Rwanda Zimbabwe Congo, Republic Lesotho São Tomé and Príncipe MPO 203 Apr 22 population) had received at least one dose of a COVID-19 vaccine. ANGOLA Key conditions and Main challenges include a steeper and re- newed decline in oil production, limited challenges economic diversification, difficulty in at- tracting foreign direct investment in non- Table 1 2021 Angola remains excessively dependent on oil sectors, as well as Angola’s vulnerabil- Population, million 33.9 the oil sector. Although oil production ity to climate change. Moreover, food in- GDP, current US$ billion 81.8 declined by 39 percent since its peak in flation, already at high levels, will likely GDP per capita, current US$ 2410.8 2015, oil still accounts for 94 percent of be exacerbated by the increase in global a 49.9 International poverty rate ($1.9) exports as of 2021. This lack of diversi- commodity prices and economic uncer- a 71.5 fication reflects the legacy of macroeco- tainty triggered by the Russian invasion Lower middle-income poverty rate ($3.2) a 88.5 nomic instability, underinvestment in in- of Ukraine and associated sanctions and Upper middle-income poverty rate ($5.5) Gini index a 51.3 frastructure and human capital, and a supply disruptions. School enrollment, primary (% gross) b 113.5 challenging business environment. The b 61.1 decline in oil prices and production with- Life expectancy at birth, years out growth elsewhere in the economy Total GHG Emissions (mtCO2e) 112.5 translated into a cumulative GDP contrac- Recent developments Source: WDI, Macro Poverty Outlook, and official data. tion of 9.2 percent from 2015 to 2020, loss a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2015); Life expectancy of formal jobs, and an increase in pover- Angola exited the recession in 2021, with (2019). ty, which has been exacerbated in recent growth expected at 0.2 percent as agricul- years by high food inflation. ture and services growth offset continued Underinvestment in the social sectors declines in oil production. Oil exports Angola recorded marginally positive has resulted in low levels of schooling grew 60 percent while imports grew only GDP growth in 2021 following five con- and poor health outcomes, such that 23 percent, widening the current account. Angola is among the countries with the This, together with an SDR allocation of secutive years of economic contraction. lowest Human Capital Index (0.36 in US$1 billion, increased Angola’s net re- With oil prices expected to remain high, 2020). Angola is also highly exposed to serves, maintaining import coverage at the outlook for 2022 is favorable. Howev- climate risks, with parts of the coun- around eleven months. Non-oil exports er, despite improvements in macroeco- try continuously suffering from severe (wood, fish, granite, and beverages) re- drought, floods, and soil degradation mained small and volatile. nomic policies in recent years, a legacy of since around 2012. Largely because of higher oil prices, the underinvestment in physical and human Angola’s economy suffered from exchange rate appreciated 13.4 percent capital poses considerable challenges to COVID-19 indirectly through falling oil YoY by December 2021, recovering al- poverty reduction and economic diversifi- prices, but overall, the country has been most a third of the 2020 depreciation. cation, leaving Angola highly exposed to relatively resilient against the pandemic. The stronger currency has not translated As of February 14, 2022, Angola had 55.9 into lower inflation, which remains high risks from volatile oil prices, the pandem- at 27 percent, driven by high food prices COVID-19 deaths per million people ic, and climate change. (compared to 745.9 globally) and 10.9 mil- and the lagged effect of monetary mea- lion people (69.3 percent of the target sures from 2020. In response, the central FIGURE 1 Angola / Actual and projected public debt levels FIGURE 2 Angola / Actual and projected poverty rates and and primary balance real private consumption per capita Percent of GDP Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 10 150 100 30000 Public debt (RHS) Primary fiscal balance 90 25000 80 8 70 100 20000 60 50 15000 5 40 10000 30 50 20 3 5000 10 0 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 0 0 International poverty rate Lower middle-income pov. rate 2019 2020 2021 2022 2023 2024 Upper middle-income pov. rate Real priv. cons. pc Sources: Angola Ministry of Finance, World Bank MTI. Source: World Bank. Notes: see Table 2. MPO 204 Apr 22 bank raised the reference rate from 15.5 of a projected 1.6 million vulnerable appreciation, the government is expected to 20 percent. families enrolled, 300,000 of whom have to miss its inflation target of 18 percent Higher oil receipts combined with buoy- received at least one transfer. due to rising global commodity prices ant non-oil revenues (especially VAT) led which particularly affect staple foods. fiscal revenues to grow about 47.5 percent Projections suggest that the share of the in 2021. Public spending growth, estimat- Angolan population living on less than ed at 18.6 percent, was driven by cur- Outlook US$1.90 per day (2011 PPP) will remain at rent spending as public investment grew 53.2 percent in 2022 as economic growth by 0.2 percent. Most additional oil rev- With soaring oil prices, GDP growth is ex- fails to keep up with population growth. enue was saved, increasing the primary pected at 2.9 percent in 2022. The non-oil This includes over 1.3 million people fac- surplus. This, together with currency ap- sector is expected to grow 2.3 percent, pro- ing severe hunger due to drought in some preciation and GDP growth, drove debt pelled by mining of diamonds and other of the poorest provinces in the country. levels from 130.5 to 88.1 percent of GDP minerals, the beverage and construction Meanwhile, the continued expansion of from 2020 to 2021. Consequently, bond industry, agriculture and fisheries, and the Kwenda program and improvements yields declined, and Angola’s credit rat- trade. With rising oil prices and a small but in non-oil sectors are expected to increase ing was upgraded. temporary recovery of oil production, oil the welfare of the poorest. Employment declined to 61.2 percent of sector growth is projected at 4.4 percent. The risks to the outlook arise from possible adults in Q4 2021 (from 62.8 percent a The 2022 budget keeps Angola on a path future waves or variants of COVID-19, oil year earlier), with the vast majority (81 of fiscal consolidation. The government is price volatility, and political uncertainty percent) employed in the informal sec- expected to increase the primary surplus resulting from the 2022 elections. In addi- tor. Food insecurity and poverty were from 7.3 percent of GDP in 2021 to 8.1 tion, escalating geopolitical tensions or cli- exacerbated by limited employment op- percent of GDP, further decreasing public mate-related natural disasters can further portunities and food inflation. After two debt levels to 74.2 percent of GDP. This, disrupt global value chains and fuel food years of stagnation, the minimum wage however, remains subject to oil price prices growth with potentially severe con- rose 50 percent against accumulated in- risks as non-oil revenues are expected sequences for the food security and wel- flation of 52 percent. The Kwenda cash to increase only gradually. Despite con- fare of vulnerable households. transfer program has about 500,000 out tinued monetary tightening and currency TABLE 2 Angola / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.7 -5.5 0.2 2.9 3.1 3.3 Private Consumption -6.2 -4.0 6.6 3.1 4.7 4.3 Government Consumption -1.6 -7.1 6.5 2.8 2.5 4.4 Gross Fixed Capital Investment -1.9 -1.6 8.0 3.0 4.5 5.5 Exports, Goods and Services -5.9 -6.3 -10.8 4.3 1.3 -0.3 Imports, Goods and Services -11.0 -21.7 6.0 6.0 8.0 6.5 Real GDP growth, at constant factor prices -1.2 -6.7 0.2 2.9 3.1 3.3 Agriculture -1.3 2.4 12.2 6.5 7.0 6.8 Industry -3.6 -10.4 -9.1 0.8 -0.2 0.2 Services 2.2 -3.5 9.6 4.4 5.6 5.4 Inflation (Consumer Price Index) 17.1 22.3 25.6 20.0 12.3 9.5 Current Account Balance (% of GDP) 6.2 2.4 9.1 11.0 9.2 6.1 Net Foreign Direct Investment (% of GDP) -2.1 -3.3 -3.2 -0.2 0.5 0.8 Fiscal Balance (% of GDP) 0.8 -1.9 2.5 2.9 2.0 1.5 Debt (% of GDP) 119.6 130.5 88.1 74.2 68.3 64.6 Primary Balance (% of GDP) 6.5 4.9 7.3 8.1 7.7 6.5 a,b International poverty rate ($1.9 in 2011 PPP) 52.2 54.1 53.2 53.2 52.8 52.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 73.0 74.2 73.6 73.7 73.4 73.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 90.4 91.8 91.1 91.2 90.9 90.6 GHG emissions growth (mtCO2e) -5.0 -3.6 -1.5 -1.2 -0.4 -0.1 Energy related GHG emissions (% of total) 14.6 13.3 13.0 12.3 12.1 12.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-IDREA. Projection using point to point elasticity at regional level with pass-through = 0.7 based on private consumption per capita in constant LCU. b/ Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. MPO 205 Apr 22 In terms of risks, sustained food and ener- gy price volatility fueled by global geopo- BENIN Key conditions and litical tensions would negatively impact poor and vulnerable households, increas- challenges ing food insecurity and slowing poverty reduction. Extreme climate events would Table 1 2021 Prior to the pandemic, Benin experienced also cause damage and jeopardize agricul- Population, million 12.5 robust real GDP growth, averaging 6.4 tural output. Increased insecurity in the GDP, current US$ billion 18.5 percent between 2017-2019, due to a rela- northern part of the country could threaten GDP per capita, current US$ 1487.0 tively favorable external environment and the economic development of these rural a 19.2 International poverty rate ($1.9) commitment to macroeconomic stability. regions, push more households into a 51.3 The swift socio-economic response to fragility and trigger new security spend- Lower middle-income poverty rate ($3.2) a 79.3 COVID-19, combined with the continua- ing, reducing fiscal space. Finally, mone- Upper middle-income poverty rate ($5.5) Gini index a 37.8 tion of large public infrastructure projects tary policy tightening in advanced School enrollment, primary (% gross) b 114.2 supported growth throughout 2020, keep- economies would put pressure on Benin’s b 61.8 ing the real GDP deceleration among the external financing and debt sustainability. Life expectancy at birth, years lowest in SSA. The Government Action Total GHG Emissions (mtCO2e) 30.5 Plan (PAG) which initially covered the Source: WDI, Macro Poverty Outlook, and official data. period 2016-2021 was extended to 2026 a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy following the reelection of President Recent developments (2019). Talon in April 2021, and PAG2 maintains its focus on strengthening governance Real GDP growth is expected to have and on ambitious infrastructure invest- reached 6.6 percent in 2021, 3.8 percent Backed by a rebound of services and dy- ments (transport, logistics, agriculture, in per capita terms, driven by a strong namic construction sector, real GDP and tourism). rebound of the tertiary and construction Extending the recovery into the medium sectors. Private consumption (+3.9 per- growth is estimated to have reached 6.6 term will require continued structural re- cent) and total investment (+19.4 percent) percent in 2021, in-line with pre-COVID forms alleviating key constraints. First, benefited from easing cross border restric- trends. The fiscal deficit deteriorated fur- productivity growth in services and indus- tions and large public investment pro- ther as government extended its socio- try has been slow, due to low quality ed- jects. Inflation eased to 1.7 percent on av- ucation and skills mismatches. Second, the erage in 2021, notably on the back of economic response into 2021 and main- COVID-19 crisis highlighted a lack of re- lower energy prices until September 2021 tained capital expenditure levels, putting silience stemming from high gender dis- and a good, yet delayed, local subsistence pressure on PPG debt. Global inflation, parities and inadequate social safety nets. farming production. regional insecurity spreading through the Finally, even though fiscal consolidation The external current account deficit (CAD) northern border, and tightening global fi- efforts since 2016 enabled the use of coun- is estimated to have significantly deterio- tercyclical fiscal policy in response to the rated to -4.6 percent of GDP in 2021, after nancial conditions cloud the outlook. a temporary improvement to -1.7 percent COVID-19 crisis, domestic revenue mobi- lization remains structurally weak, limit- of GDP in 2020. In 2021, the resumption of ing fiscal space for productive spending. re-export activities following the end of the FIGURE 1 Benin / Budget balance and change in public and FIGURE 2 Benin / Actual and projected poverty rates and publicly guaranteed debt real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 10 100 900000 8 90 800000 6 80 700000 4 70 600000 2 60 500000 0 50 400000 -2 40 300000 30 -4 20 200000 -6 10 100000 -8 2011 2013 2015 2017 2019 2021 2023 0 0 2011 2013 2015 2017 2019 2021 2023 Change in debt (%GDP) Budget balance (%GDP) International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank Notes: see Table 2. MPO 206 Apr 22 border closure with Nigeria and the large stood at 44.2 percent, +12.8 ppts higher by regional bond emissions and conces- import demand required for infrastructure than in urban areas. Poverty reduction sional financing. projects fueled the deficit. The CAD was ($1.9 a day, 2011 PPP) based on the 2018 Swift response to alleviate the surge in mainly financed by external commercial EHCVM was estimated at 19.2 percent, food and fuel prices on households, will borrowing in 2021. and it slightly slowed down in 2021 (-0.5 keep the fiscal deficit (including grants) Fiscal policy remained expansionary for a percent y-o-y) versus 2020, as extreme high at 5.5 percent of GDP in 2022. A rev- second consecutive year with the fiscal poor represented 18.3 percent of the popu- enue-based fiscal consolidation is expected deficit (incl. grants) up from 4.7 percent of lation end-2021. to narrow the fiscal deficit to 4.4 percent the GDP in 2020, to 5.8 percent of GDP in 2023 and reach the WAEMU target of 3 in 2021. The increase was mostly driven percent of GDP by 2025. As a result, PPG by capital expenditure and the extension debt is expected to peak at 52.4 percent end of COVID related current spending. Rev- Outlook 2023 before gradually decreasing. enues, excluding grants, increased from WAEMU reserves are expected to fall to 12.7 to 13.4 percent of GDP in 2021, due The ongoing war in Ukraine and its around 5.5 months of imports in 2022 to higher customs revenues and resilient repercussions in fuel and food prices, are and 5.3 months in 2023 and 2024, re- tax revenues. Public and publicly guaran- expected to negatively weigh on the short flecting faster growth in imports and a teed (PPG) debt increased to 51.7 percent term outlook. Real GDP growth is expect- reduction in net capital inflows (as a in 2021 (+9.2 ppt compared to 2019), with ed to decelerate to 5.9 percent in 2022, be- percent of GDP), as the environment for Eurobond issuances representing the bulk fore stabilizing at around 6 percent with Eurobond issuances remains uncertain. of 2021’s financing. fiscal consolidation muting the rebound. Growth-friendly fiscal consolidation and Benin’s monetary and exchange rate poli- A gradual shift from public to private the implementation of structural reforms cies are managed by the Central Bank of investments in the medium term is ex- are key to maintaining reserves at an West African States (BCEAO), which main- pected to drive growth on the demand optimal level. tains a fixed peg between the CFA Franc side, underpinned by the implementation Poverty reduction is expected to gradually and the Euro. Its reserves reached 5.8 of the PAG 2. revert to its pre-crisis downward trend as months of imports of goods and services Inflation is projected to sharply increase to the economy rebounds, but recent increas- in 2021, as a result of increased exports, 3.9 percent in 2022, and gradually abate es in food and energy prices could slow the August 2021 SDR allocation, and port- as the impact of the ongoing conflict in its pace. On the back of improved employ- folio inflows linked to Eurobond issuances Ukraine recedes. ment indicators, and social protection pro- in the region. The current account deficit (including grams, the $1.9/day PPP poverty head- Poverty and vulnerability remain high. grants) is expected to widen to 6 percent of count rate is expected to decrease to 18 The poverty rate based on the national GDP in 2022, as import prices rise driven percent in 2022 (-0.3 percent y-o-y), and to poverty line was 38.5 percent in 2019, with by imports from construction and energy 17.4 percent by 2024. strong spatial disparities: rural poverty sectors. The CAD will be mainly financed TABLE 2 Benin / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.9 3.8 6.6 5.9 6.1 6.0 Private Consumption 3.5 3.0 3.9 3.5 3.6 4.3 Government Consumption 5.8 19.6 8.5 9.2 -2.0 3.0 Gross Fixed Capital Investment 8.4 -10.9 11.6 11.0 15.4 10.2 Exports, Goods and Services -1.6 -15.4 23.8 14.0 8.3 5.8 Imports, Goods and Services -6.1 -21.5 19.8 13.4 6.9 4.6 Real GDP growth, at constant factor prices 6.9 3.8 6.6 5.9 6.1 6.0 Agriculture 7.2 1.8 3.2 5.0 5.4 5.5 Industry 6.2 5.2 9.4 8.4 9.5 10.1 Services 7.1 4.5 7.4 4.7 3.9 2.9 Inflation (Consumer Price Index) -0.9 3.0 1.7 3.9 2.5 2.0 Current Account Balance (% of GDP) -4.0 -1.7 -4.6 -6.0 -5.3 -4.8 Net Foreign Direct Investment (% of GDP) 1.3 0.5 1.4 1.5 1.8 2.2 Fiscal Balance (% of GDP) -0.5 -4.7 -5.8 -5.5 -4.3 -3.1 Debt (% of GDP) 42.5 46.1 51.7 52.2 52.3 51.2 Primary Balance (% of GDP) 1.1 -2.7 -3.6 -3.7 -2.6 -1.6 a,b International poverty rate ($1.9 in 2011 PPP) 18.8 18.7 18.3 18.0 17.7 17.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 50.8 50.7 50.2 49.8 49.5 49.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 78.6 78.4 77.7 77.1 76.5 75.9 GHG emissions growth (mtCO2e) 1.6 2.3 4.2 3.6 3.3 3.5 Energy related GHG emissions (% of total) 35.2 36.0 38.0 39.4 40.6 41.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2011-EMICOV, 2015-EMICOV, and 2018-EHCVM.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point to point elasticity at regional level with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 207 Apr 22 rationalizing the SOE sector and address- ing constraints that hinder private sector BOTSWANA Key conditions and engagement in trade and investment are central to the recovery. challenges Table 1 2021 Botswana has historically enjoyed Population, million 2.4 strong and stable growth since inde- Recent developments GDP, current US$ billion 16.5 pendence supported by the discovery GDP per capita, current US$ 6849.4 of large diamond deposits and pru- Botswana’s economy rebounded strongly a 14.5 International poverty rate ($1.9) dent use of the proceeds. The limita- in 2021 led by the mining sector. GDP a 36.5 tions of the existing diamond sector- growth is estimated to have bounced Lower middle-income poverty rate ($3.2) a 59.1 led development model have become back to 12.1 percent in 2021, following Upper middle-income poverty rate ($5.5) Gini index a 53.3 increasingly pronounced: growth re- a contraction of 8.5 percent in 2020, dri- School enrollment, primary (% gross) b 103.2 mains sluggish, job creation is low, ven by a rebound in diamond activity. b 69.6 and inequality is high. Weakened glob- Botswana’s economy grew 13.5 percent Life expectancy at birth, years al demand has kept diamond proceeds over Q1-Q3 2021 year-on-year (y-o-y). Total GHG Emissions (mtCO2e) 59.1 below pre-global financial crisis levels Supported by the rollout of COVID-19 Source: WDI, Macro Poverty Outlook, and official data. and competition from synthetic dia- vaccines, domestic consumption also sig- a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2015); Life expectancy monds and higher production costs nificantly contributed to the recovery. Di- (2019). have added further pressures. amond prices returned to pre-pandem- Since 2015, continued fiscal expansion to ic levels after a sharp decline in 2020. support growth has created large fiscal Diamond mining increased 35.4 percent Botswana’s economic growth is projected deficits, eroded buffers and weakened the over Q1-Q3 2021, contributing 6.1 percent to moderate to 4.1 percent in 2022 follow- external position. Low capital accumula- to overall GDP growth. Non-mining sec- tion and sluggish productivity constrained tors showed more mixed recovery tra- ing a 12.1 percent rebound last year. De- growth in the non-diamond economy. Un- jectories. The hospitality sector remained spite the headwinds created by employment remains high, as the private affected by intermittent restrictions. Un- COVID-19, economic growth surpassed sector struggles to create jobs due to high employment peaked from 24.5 percent in expectations. Structural policies to deliv- costs/barriers to doing business and the Q42020 to 26 percent in Q42021. Pover- mismatch between poor domestic supply ty is projected to have declined to 56.6 er a stronger, resilient, equitable and sus- of skills and high demand. percent in 2021 after a projected sharp tainable recovery remain key to tackle COVID-19 exacerbated existing econom- increase in 2020, based on the upper among others the unemployment rate of ic and social challenges, setting back middle-income country poverty line and 26 percent and the projected poverty rate some gains made in alleviating poverty, remains high compared to other upper of 56.6 percent in 2021, based on the up- underscoring the urgent need for a sig- middle-income countries. nificant shift towards a more diversified CPI averaged 6.7 percent in 2021 com- per middle-income country poverty line. pared to 1.9 percent in 2020. Inflationary and export-led economy, with the pri- vate sector playing a leading role. Im- pressures were on an upward trajectory proving public sector spending efficiency, driven by adjustments to regulated FIGURE 1 Botswana / Real GDP growth and contributions FIGURE 2 Botswana / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 0.6 70 90000 80000 0.4 60 70000 0.2 50 60000 40 50000 0.0 30 40000 -0.2 30000 20 -0.4 20000 10 10000 -0.6 2019Q1 Q3 2020Q1 Q3 2021Q1 Q3 0 0 Gross Capital Formation Public Consumption 2009 2011 2013 2015 2017 2019 2021 2023 Private Consumption Exports International poverty rate Lower middle-income pov. rate Imports GDP Growth Upper middle-income pov. rate Real GDP pc Source: Statistics Botswana. Source: World Bank. Notes: see table 2. MPO 208 Apr 22 prices, notably utilities, VAT, Botswana poised to remain robust, supported by ex- Housing Corporation rentals, and in- ternal demand. Investment in renewable creases in domestic fuel prices. Bank of Outlook energy projects will support growth and Botswana maintained an accommodative contribute to removing the energy supply monetary policy stance, maintaining the The outlook is not without substantial constraint to higher private sector activity. repo rate at 3.75 percent. The current downside risks as the emergence of new Abundant copper reserves coupled with account deficit narrowed in 2021 to an COVID-19 variants pose a threat to the re- record-high copper prices will add the estimated 2.1 percent of GDP, buoyed covery. Prolonged higher inflation leading needed impetus. Implementation of struc- by the rebound in diamond exports. to monetary tightening around the world tural reforms will support growth over the Foreign exchange reserves are estimat- could slow the recovery exacerbated by the medium term as Government pursues fis- ed to have increased from P58.8 bil- Ukraine-Russia conflict through high food cal consolidation. Growth is expected to lion (US$4.9 billion) in December 2020 and fuel prices. Muted mineral receipts average 4 percent over 2023-24. to P61.1 billion (US$5.2 billion) in No- against envisaged lower SACU receipts The current account deficit is expected to vember 2021 with sound reserves at 10 would dampen the fiscal position. Poverty narrow to 0.6 percent of GDP in 2022 and months of import cover. levels are projected to reach 56.2 percent in record a surplus of 1.6 percent of GDP in With the Government channeling fiscal 2022 (measured using the upper-middle- 2023 as the rebound in diamond produc- resources towards healthcare and sup- income country poverty line, US$5.5/per- tion and favorable terms of trade owing porting the economy, the 2020 projected son/day in 2011PPP). to subdued diamond supply in Russia an- deficit increased to 9.4 percent of GDP Growth is envisaged to moderate in 2022 chor the projected drop in SACU revenues. hence further Government Investment but still maintain a robust recovery at 4.1 The fiscal deficit is expected to decline to Account drawdowns, dropping balances percent as the base effects from the pan- 4.2 percent of GDP in FY2022/23, driven from US$ 1.6 billion in 2020 to an all- demic shock fade. Progress in vaccination by higher revenue collection while expen- time low of US$ 0.8 billion as of Septem- will support economic activity, especially diture remain under pressure. Public debt ber 2021. Debt is projected to reach 25.5 in the non-mining sectors that have con- is estimated to reach 27.2 percent of GDP percent of GDP in 2021 from 23.9 percent tinued to be significantly affected by the this year and 26.8 percent by 2023, driven in 2020. pandemic in 2021. Diamond activity is also by external borrowing. TABLE 2 Botswana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.0 -8.5 12.1 4.1 4.0 4.0 Private Consumption 3.5 -2.7 6.2 6.0 4.2 4.0 Government Consumption 9.8 3.6 0.7 -5.2 -2.2 -1.8 Gross Fixed Capital Investment 10.2 -7.7 7.0 4.1 4.0 4.1 Exports, Goods and Services -7.1 -18.1 44.0 9.2 8.3 7.3 Imports, Goods and Services 11.9 5.2 5.1 5.0 4.9 4.8 Real GDP growth, at constant factor prices 3.2 -8.9 12.1 4.1 4.0 4.0 Agriculture 3.0 -1.7 3.0 3.0 2.8 2.6 Industry -1.5 -20.6 26.7 4.6 4.4 4.4 Services 6.8 -0.8 4.1 3.8 3.8 3.8 Inflation (Consumer Price Index) 2.8 1.9 6.7 7.5 4.5 4.5 Current Account Balance (% of GDP) -8.4 -10.6 -2.1 -0.6 1.6 1.9 Net Foreign Direct Investment (% of GDP) 1.3 -0.6 0.6 0.8 1.2 1.2 a Fiscal Balance (% of GDP) -6.2 -9.4 -5.7 -4.2 -0.5 0.0 Debt (% of GDP) 21.2 23.9 25.5 27.2 26.8 26.4 a,b Primary Balance (% of GDP) -5.5 -8.7 -4.9 -3.4 0.3 1.1 c,d International poverty rate ($1.9 in 2011 PPP) 12.0 15.0 12.3 12.1 11.5 11.2 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 32.5 37.1 33.1 32.5 31.8 31.4 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 56.2 59.4 56.6 56.2 55.8 55.1 GHG emissions growth (mtCO2e) 0.6 -1.4 3.7 0.4 0.3 0.4 Energy related GHG emissions (% of total) 17.2 15.7 16.8 17.2 17.4 17.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). b/ Refers to Public and Publicly Guaranteed debt. c/ Calculations based on 2015-BMTHS. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. d/ Projection using neutral distribution (2015) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 209 Apr 22 BURKINA FASO Key conditions and Recent developments challenges Following a sharp recovery in the second half of 2020, GDP growth remained Table 1 2021 Over the past decade, the primary (mainly strong in 2021, estimated at 7.0 percent. Population, million 21.5 agriculture) sector has declined in impor- This reflected a strong rebound in ser- GDP, current US$ billion 18.0 tance, now contributing less than 20 per- vices and robust gold production and was GDP per capita, current US$ 839.4 cent to the economy, with a booming gold supported by private investment, main- a 33.7 International poverty rate ($1.9) industry generating almost 20 percent of ly into mines, air transport, and bever- a 61.8 GDP and 85 percent of exports. Services ages. The fiscal deficit remained above 5 Lower middle-income poverty rate ($3.2) a 80.0 account for nearly half of GDP, with the percent as the government implemented Upper middle-income poverty rate ($5.5) Gini index a 47.3 public and retail sectors creating most jobs the Economic Recovery Plan in response School enrollment, primary (% gross) b 92.6 and output. With an increasingly violent to COVID-19 while enacting additional b 61.6 security context outside the capital, about security spending. Despite robust gold Life expectancy at birth, years a quarter of schools have closed in the two production, the trade deficit deteriorated, Total GHG Emissions (mtCO2e) 62.7 most affected regions, and the number of with imports rising faster than exports. Source: WDI, Macro Poverty Outlook, and official data. internally displaced persons reached 1.8 With lower donor grants, the current ac- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy million as of March 2022. count deficit is estimated to have (2019). Economic prospects are uncertain after widened to 3.0 percent of GDP. the recent unconstitutional regime Fueled by an accommodative monetary change, combined with growing insecu- stance and rising food prices (+14.7 per- The economy grew by an estimated 7.0 rity, the impact of climatic change, and cent) on account of a sharp contraction percent in 2021 (4.2 percent in per-capita the lingering effects of COVID-19. On in agricultural output, inflation (CPI) January 24, 2022, a military junta seized reached 3.9 percent in 2021, a 10-year terms), with investment-led growth in power in response to the worsening se- high. Food inflation is a particular con- services, gold mining, and manufactur- curity situation, which reduced interna- cern for the poor, as food accounts ing. Due to supply bottlenecks in the tional community financial support and for 48 percent of their total consump- agricultural sector, food insecurity re- could prompt economic sanctions by tion. The Central Bank of West African ECOWAS, the regional bloc from which States (BCEAO) manages the monetary mains high, and inflation approached a the country got suspended. The primari- and exchange rate policies, which main- 10-year peak. The transition government, ly rain-fed agriculture and livestock sec- tains a fixed peg between the CFA Franc in place since the January 2022 coup tors remain highly vulnerable to climat- and the Euro. Its reserves reached 5.8 d’état, faces significant challenges in ad- ic shocks and natural disasters, particu- months of imports of goods and services dressing the multifaceted security, hu- larly droughts, floods, and locust inva- in 2021 due to increased exports, the sion. A resurgence of COVID-19, with August 2021 SDR allocation, and portfo- manitarian, and food crises. less than 20 percent of the population lio inflows linked to Eurobond issuances vaccinated, could also subdue domestic in the region (by Benin, Côte d’Ivoire, demand and hurt the services sector. Senegal, and BOAD). FIGURE 1 Burkina Faso / Real GDP and sectoral FIGURE 2 Burkina Faso / Actual and projected poverty decomposition of real GDP rates and real GDP per capita Billion CFAF Poverty rate (%) Real GDP per capita (constant LCU) 2,250 100 600,000 2,000 90 500,000 1,750 80 1,500 70 400,000 1,250 60 1,000 50 300,000 750 40 200,000 30 500 20 250 100,000 10 - Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 0 0 2016 2017 2018 2019 2020 2021 2014 2016 2018 2020 2022 2024 International poverty rate Lower middle-income pov. rate Primary Sector Secondary Sector Tertiary Sector Upper middle-income pov. rate Real GDP pc Source: : World Bank staff estimates based on the national statistical institute Source: World Bank. Notes: see table 2. (INSD) data. MPO 210 Apr 22 The international extreme poverty rate at 4.8 percent in 2022, assuming that there reforms are crucial to maintaining reserves (US$1.9/day per capita, 2011 PPP) in- continue to be no significant sanctions at an optimal level. creased by about half a percentage point from the international community in re- The extreme poverty rate is projected to to 32.6 percent in 2020, resulting in an ad- sponse to the January coup d’état and tran- continue to fall by about one percentage ditional 290,000 extreme poor. In 2021, sition arrangements. Growth is expected to point a year over the medium term. The poverty projections based on per-capita be driven by private consumption and a number of poor is also projected to de- GDP growth estimated a decline to 30.8 rebound in agriculture, while the current crease. Still, with high population growth, percent. Food insecurity (as measured by account deficit may widen further due to this means only 50,000 to 100,000 would the FIES) has followed the same pattern, high oil prices and a decline in donor escape poverty each year, and over 6 mil- rising from 44 percent in 2018 to 53 percent grants after the coup. lion Burkinabe will remain poor for the in June 2020 and then falling to 37 percent The fiscal deficit is projected to worsen in foreseeable future. Food insecurity is ex- by June 2021 (phone surveys). However, 2022 due to increased security spending pected to deteriorate due to poor harvests the decline in poverty may be overestimat- and lower grants before gradually con- in 2021 and rising food prices, with the sit- ed as mining and services growth is un- verging toward the WAEMU fiscal target uation particularly severe in the north. likely to quickly translate into increased of 3 percent of GDP by 2025. Over the There are significant downside risks to the incomes for poor and rural households, medium term, further tax reforms and economic outlook with multiple domestic and the same surveys find that almost half wage bill controls could significantly lower risks, including further political instability, of households had lower incomes in 2021, the fiscal deficit. Burkina Faso remains at climate shocks, local COVID outbreaks, compared to 2020, with only 28 percent re- moderate risk of external and overall pub- and widespread social discontent from ported an increase. lic debt distress, with some space to absorb high food inflation and insecurity. The eco- shocks on external debt. nomic consequences of the Russia-Ukraine WAEMU regional foreign exchange re- war would primarily be through higher serves are expected to fall to around 5.3 global food (grains and fertilizer) and en- Outlook months of imports by 2024, reflecting ergy prices. The projections already reflect faster growth in imports and a reduction in recent sharp price increases of oil, gas, Over the medium term, the economy is ex- net capital inflows (as a percent of GDP), metals, minerals, and agricultural com- pected to continue slightly below its pre- as the environment for Eurobond is- modities since January 2022, including pandemic growth path amidst heightened suances remains uncertain. Growth- gold, which benefits Burkina Faso. uncertainty. Real GDP growth is projected friendly fiscal consolidation and structural TABLE 2 Burkina Faso / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.7 1.9 7.0 4.8 5.4 5.3 Private Consumption 3.5 8.6 3.4 9.9 3.4 5.4 Government Consumption 13.4 8.0 6.6 13.7 12.5 3.2 Gross Fixed Capital Investment 3.0 -4.0 29.1 -9.2 6.2 8.0 Exports, Goods and Services -0.3 -3.6 6.5 9.7 4.5 3.4 Imports, Goods and Services -2.8 10.0 15.5 10.7 5.1 4.8 Real GDP growth, at constant factor prices 5.9 2.6 7.0 4.8 5.4 5.3 Agriculture 2.1 6.3 -4.1 6.3 4.6 6.2 Industry 2.7 15.6 11.0 4.8 5.9 6.9 Services 9.8 -6.0 10.6 4.1 5.5 3.9 Inflation (Consumer Price Index) -3.2 1.9 3.9 5.0 3.5 3.0 Current Account Balance (% of GDP) -3.3 -0.2 -3.0 -4.8 -4.7 -4.9 Net Foreign Direct Investment (% of GDP) 0.9 0.6 0.5 0.5 0.6 0.6 Fiscal Balance (% of GDP) -3.3 -5.5 -5.5 -6.6 -5.1 -3.8 Debt (% of GDP) 42.0 46.3 55.0 59.3 58.4 56.4 Primary Balance (% of GDP) -2.1 -4.2 -4.0 -4.4 -2.9 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 32.1 32.6 30.8 30.1 28.8 27.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 60.6 60.9 59.7 59.0 57.8 56.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 79.2 79.5 78.4 77.9 77.4 76.8 GHG emissions growth (mtCO2e) 4.3 4.7 4.4 5.1 5.0 4.9 Energy related GHG emissions (% of total) 10.5 10.9 10.7 11.2 11.7 12.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 211 Apr 22 social stability and economic growth aims to sustain growth and resilience by boost- BURUNDI Key conditions and ing promising sectors, developing human capital, enhancing environmental protec- challenges tion, and strengthening institutional ca- pacity. Implementing this agenda poses Table 1 2021 Burundi’s development has been ham- significant financing needs and requires Population, million 12.3 pered by structural weaknesses locking the deeper economic reforms. GDP, current US$ billion 3.5 economy in a low-level equilibrium sus- The rising oil and wheat prices resulting GDP per capita, current US$ 287.3 tained by mutually reinforcing fragility from the Russian invasion and associated a 72.8 International poverty rate ($1.9) and poverty. Burundi faces a multidimen- sanctions, represent a negative term - of a 38.6 sional fragility trap with recurring political trade shock likely to slow economic Gini index b 119.0 instability, low economic diversification, growth, accelerate inflation, and increase School enrollment, primary (% gross) Life expectancy at birth, years b 61.6 high population growth, and environmen- fiscal and current account deficits. Al- Total GHG Emissions (mtCO2e) 9.8 tal degradation, leading to low and volatile though projected to accelerate in the medi- growth. The business environment is not um term, economic growth in 2022 and Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2013), 2011 PPPs. conducive to private sector development. 2023 will be lower than initially projected, b/ Most recent WDI value (2019). The cessation of most aid since 2015 con- which further complicates efforts to re- strained the government's ability to build verse poverty trends. The fiscal and cur- infrastructure. These weaknesses have rent account deficit are projected to remain Economic growth is estimated at 1.8 per- been exacerbated by inconsistent macro- high in 2022 before improving gradually cent in 2021 from 0.3 percent in 2020, economic policies including foreign ex- over the medium term. change restrictions, exchange rate overval- driven by agriculture and a recovery in uation, fiscal dominance of monetary pol- services. Industrial growth was subdued icy, and high public sector indebtedness. due to mining disputes. While recovery is These factors lead to low capital accumula- Recent developments expected to accelerate over the medium tion, weak productivity growth and limit- ed structural transformation of the econo- Growth in 2021 reached 1.8 percent from term, the country faces serious downside my and contribute to higher poverty rates 0.3 percent in 2020, with a rebound in ser- risks, including from fiscal slippages and and curtailed human capital development. vices and steady agriculture growth. In- inadequate external financing. Poverty The COVID-19 outbreak has increased the dustrial growth was subdued due to the continued to rise, reflecting the negative economy’s vulnerability with a deteriora- ongoing suspension of mining activities as tion of macroeconomic accounts. A recent contracts were renegotiated. Private con- per capita GDP growth as population survey revealed that off-farm incomes de- sumption and investment supported growth remains high. creased and food insecurity rose while growth on the demand side. Inflation ac- large proportions of businesses reported celerated to 8.3 percent in December 2021 declining sales, difficulty accessing inputs from 7.5 percent a year before, driven by and cash flow crunches. The national de- food prices. velopment plan 2018-2027 and the Presi- The fiscal deficit remained high at 5.1 per- dent’s program for peace consolidation, cent of GDP in 2021 from 6.5 percent of FIGURE 1 Burundi / Public debt, fiscal and current account FIGURE 2 Burundi / Actual and projected poverty rates and deficits real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 80 16 100 190000 70 14 180000 95 60 12 170000 90 50 10 160000 85 150000 40 8 80 140000 30 6 130000 20 4 75 120000 10 2 70 110000 0 0 65 100000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Public domestic debt (lhs) Public external debt (lhs) International poverty rate Real GDP pc Fiscal deficit (rhs) Current account deficit (rhs) Sources: Official statistics and World Bank calculations. Source: World Bank. Notes: see table 2. MPO 212 Apr 22 GDP in 2020. The increase in revenue mo- growth per capita remains negative, with CAD is expected to average 14 percent of bilization was not enough to cover expen- poverty estimated at 87.2 percent in 2021 GDP in 2024, since export growth (expect- ditures, with increased interest payments. (based on international poverty line of ed from minerals and traditional exports) The fiscal deficit continues to be financed $1.90/day, in 2011 PPP), from 72.8 per- will be offset by higher imports driven by mainly by domestic borrowing, bringing cent in 2013 (the last year with data higher consumption growth and exchange public debt to 70.6 percent of GDP (73 per- availability). rate overvaluation. The share of the popu- cent of which is domestic debt). lation living below 1.90/day (2011 PPP), is Driven by oil prices, the current account projected to reach 86.4 percent in 2024. deficit (CAD) remained high at 13.9 per- The outlook is vulnerable to climatic haz- cent of GDP in 2021, primarily financed by Outlook ards, fiscal risks, and further spillover ef- trade credits. Despite higher prices for Bu- fects of the Ukraine/Russia conflict. Do- rundi's main exports, export earnings de- Growth is projected to range between 2.5 mestic fiscal risks include weaker growth clined due to the absence of gold exports - 4.1 percent in 2022-24. Services should performance and higher domestic debt following the suspension of mining. The continue to recover while agriculture will service costs. External fiscal risks include increase in export volumes focused on a keep its growth pace assuming favorable weaker grants and higher interest rates few regionally traded products (e.g., beer). rainfall. Industrial growth is projected to on external borrowing. Inadequate financ- Imports of both capital and consumption accelerate due to a loosening of forex con- ing of the CAD could heighten pressure goods increased. The SDR issuance straints from the SDR allocation, and as- on currency. With weak vaccination, the strengthened international reserves, cover- suming resolution in mining disputes and COVID-19 pandemic could return and af- ing 4.3 months of imports at end-October increased power generation. Private con- fect the economy. On the upside, foreign 2021 from 0.8 months a year before. The sumption and public investment are pro- aid could accelerate with the progress in exchange rate remained overvalued with jected to remain high given economic re- international cooperation, following the the parallel market premium averaging 70 covery and public infrastructure pro- lifting of sanctions by the USA in Novem- percent (end-December 2021). grams. The fiscal deficit is projected to 5 ber 2021 and the EU in February 2022, Burundi’s Human Capital Index remains percent of GDP in 2022 before narrowing and the re-engagement of the IMF. How- low at 0.39, with stunting and learning in 2023-24 as current spending is contained ever, for growth to accelerate meaningful- poverty at 52.2 and 93 percent, respec- and revenue collection increases. Howev- ly, Burundi needs to implement reforms tively. Literacy remains particularly low er, the deficit will remain high at 4 percent that support export growth and private among women and rural residents. With of GDP as external grants increase only sector development. high population growth, any demograph- gradually. Public debt is expected to de- ic dividend remains out of reach. GDP crease to 64 percent of GDP by 2024. The TABLE 2 Burundi / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.8 0.3 1.8 2.5 3.3 4.1 Private Consumption 3.1 0.3 2.8 3.0 3.4 3.6 Government Consumption 8.3 19.2 5.4 4.0 3.9 3.9 Gross Fixed Capital Investment 32.9 -16.6 17.8 7.7 10.3 13.5 Exports, Goods and Services -0.5 -14.9 18.2 10.9 9.4 9.8 Imports, Goods and Services 17.1 3.4 13.5 7.3 7.0 7.1 Real GDP growth, at constant factor prices 1.8 0.3 1.8 2.5 3.3 4.1 Agriculture 3.1 2.8 2.9 3.0 3.4 4.0 Industry 2.1 1.8 1.4 2.4 3.1 4.4 Services 0.9 -1.7 1.3 2.2 3.3 4.0 Inflation (Consumer Price Index) -0.8 7.5 8.3 9.0 6.7 6.7 Current Account Balance (% of GDP) -13.4 -10.9 -13.9 -15.7 -15.0 -14.2 Net Foreign Direct Investment (% of GDP) 0.0 -0.1 0.0 0.0 0.0 0.0 Fiscal Balance (% of GDP) -4.9 -6.5 -5.1 -5.0 -4.0 -3.9 Debt (% of GDP) 58.5 63.6 70.6 68.8 66.9 63.8 Primary Balance (% of GDP) -4.3 -5.2 -2.3 -2.4 -1.8 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 84.0 86.2 87.2 87.7 87.4 86.4 GHG emissions growth (mtCO2e) 3.1 3.0 3.2 3.3 3.4 3.5 Energy related GHG emissions (% of total) 14.4 14.2 13.7 13.3 12.9 12.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2006-QUIBB and 2013-ECVMB. Actual data: 2013. Nowcast: 2014-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2006-2013) with pass-through = 1 based on GDP per capita in constant LCU. MPO 213 Apr 22 The pace of economic recovery is subject to substantial downside risks associated CABO VERDE Key conditions and with rising uncertainty in Europe due to the Ukraine conflict, the emergence challenges of new COVID-19 variants, and climatic shocks. Fiscal risks are high as the gov- Table 1 2021 Political stability, democratic institutions, ernment is exposed to contingent liabil- Population, million 0.6 and pro-market reforms have generated ities in sectors that are particularly vul- GDP, current US$ billion 1.9 significant economic and social progress nerable to the crisis, such as aviation, GDP per capita, current US$ 3363.6 since independence in 1975. However, ports, and utilities. A sustained Ukraine a 3.4 International poverty rate ($1.9) Cabo Verde’s development model, based war could reduce investments and a 15.4 on tourism and foreign direct investment tourism flows and trigger fiscal liabilities. Lower middle-income poverty rate ($3.2) a 41.3 (FDI) has shown signs of fatigue since the Moreover, Cabo Verde remains highly ex- Upper middle-income poverty rate ($5.5) Gini index a 42.4 2008 Global Financial Crisis. The subse- posed to natural disasters such as vol- School enrollment, primary (% gross) b 100.9 quent sluggish recovery in Europe re- canic eruptions, droughts, floods, and ris- b 73.0 duced the influx of funds, with dwindling ing sea levels that could further weigh on Life expectancy at birth, years private investment and growth. Ineffective external and fiscal balances. Total GHG Emissions (mtCO2e) 0.8 expansionary fiscal policy between Source: WDI, Macro Poverty Outlook, and official data. 2010-2015 led to growing fiscal financing a/ Most recent value (2015), 2011 PPPs. b/ Most recent WDI value (2019). needs and to put public debt back on a sustainable path, the authorities initiated a Recent developments consolidation program in 2016, including Growth rebounded to 7.1 percent in the reform of loss-making state owned en- Economic activity is estimated to have ex- terprises (SOEs). panded by 7.1 percent in 2021, magnified 2021, led by the gradual recovery in The COVID-19 crisis reversed the progress by base effects after a contraction of 14.8 tourism, supporting poverty alleviation. in fiscal consolidation and exacerbated the percent in 2020. Growth was led by a slight Inflationary pressures increased, driven growth model’s vulnerabilities. In addi- recovery of tourism from the second quar- by energy and food. Growth-friendly fis- tion to the adverse economic effects of mit- ter. Retail and wholesale trade, construc- igation measures, global travel restrictions tion, and public administration were the cal consolidation should see growth con- led to a sharp contraction in tourism and main contributors of growth. On the de- verging to 6 percent and put debt-to- related activities. The authorities respond- mand side, public consumption and net GDP on a declining path over the medi- ed by expanding public health services exports were the main drivers. um term. The outlook is subject to sub- and social protection programs, as well as The current account deficit (CAD) is esti- stantial downside risks stemming from by providing financial support to small mated to have declined from 15.9 percent of businesses. However, poverty reduction GDP in 2020, to 14.2 percent in 2021, sup- new COVID-19 variants, the Ukraine gains made since 2015 were reversed in ported by an increase in remittances and the crisis, and climatic shocks. 2020 driven largely by substantial tempo- moderate recovery in services exports. The rary job losses, particularly in the tourism CAD was financed by concessional loans sector. The unemployment rate increased and FDI. International reserves reached 6.9 from 11.3 to 14.5 percent in 2020. months of prospective imports. FIGURE 1 Cabo Verde / GDP per capita and debt outlook FIGURE 2 Cabo Verde / Actual and projected poverty rates and real GDP per capita Percentage of GDP Billions, CVE Poverty rate (%) Real GDP per capita (constant LCU) 240% 240 60 350000 215 215% 200 300000 50 182 190% 160 250000 40 165% 120 200000 154.9 157.1 153.1 147.1 30 140.8 150000 140% 80 124.7 124.1 20 116 100000 115% 110 40 104 100 98 10 50000 90% 0 2018 2019 2020 2021e 2022f 2023f 2024f 0 0 Public Debt: Post-COVID-19 forecast (lhs) 2007 2009 2011 2013 2015 2017 2019 2021 2023 Public Debt: Pre-COVID-19 forecast (lhs) International poverty rate Lower middle-income pov. rate Real GDP per capita: Post-COVID-19 forecast Upper middle-income pov. rate Real GDP pc Sources: World Bank and IMF staff estimates. Note: Pre COVID-19 GDP forecast Source: World Bank. Notes: see table 2. refers to the 2019 Annual Meetings Macro-poverty Outlook. MPO 214 Apr 22 The fiscal deficit is estimated to have nar- in poverty. The extreme poverty rate fell Inflation is projected to converge to 2 per- rowed slightly to 9.5 percent of GDP in slightly from 2.4 percent to 2 percent. cent over the medium-term. 2021, driven by sustained high current ex- The CAD is projected to reach 11.8 percent penditure (33.8 percent of GDP). Financing of GDP in 2022, falling to 6.7 percent by needs of 8.8 percent of GDP were covered 2024 driven by the rebound in service ex- by concessional credits, grants, domestic Outlook ports. Medium-term external financing borrowing, and resources freed up by the needs are expected to be covered mainly Debt Service Suspension Initiative. Public Real GDP growth is projected to reach by FDI, which is expected to reach 5.3 per- debt as a share of GDP increased slightly to 5.5 percent in 2022 (4.4 percent in per cent of GDP in 2024. International reserves 157.1 percent of GDP, driven by increased capita terms), driven by the continued re- are expected to remain strong, at 6 to 7 domestic debt, and remains sustainable, covery of the tourism sector. The Ukraine months of imports. but the risk of external and total debt dis- crisis will weigh on growth, mainly The authorities are committed to gradual tress is high. through increasing oil and food prices. fiscal consolidation over the medium term, Cabo Verde’s monetary policy is aligned Over the medium term, private con- which includes enhanced management of with the Eurozone, as the escudo is pegged sumption and investment in tourism and fiscal risks, notably from SOEs, and rev- to the euro. Inflationary pressures in- the blue economy will be the main con- enue mobilization. The primary fiscal creased in 2021 due to higher international tributors to growth. The outlook is sub- deficit is projected to decline to 8 percent of oil and food prices. Average headline in- ject to substantial downside risks stem- GDP in 2022. Fiscal consolidation and pru- flation rose from 0.6 percent in 2020, to ming from climate shocks, new dent borrowing policies should reduce the 1.9 percent in 2021. Food inflation, which COVID-19 variants, the realization of public debt-to-GDP ratio to 140.8 percent stood at 0.6 percent, affected dispropor- contingent liabilities, increased global un- by 2024. tionally the poor as the bottom forty per- certainty due to the Ukraine war, and de- The poverty rate (based on the lower- cent of the population spends about 34 lays in SOE reforms. middle income poverty line of US$3.2 a percent of their income on consumption. Inflationary pressures are expected to peak day, 2011 PPP) is projected to decline to The rebound in economic activity in 2021 in 2022, reaching 3.5 percent, reflecting the 10.6 percent in 2022 and 8 percent by resulted in a reduction in the poverty stress on global value chains and the im- 2024. Poverty reduction will be supported rate from 14.7 percent to 12.3 percent (us- pact of the Ukraine war. Inflation is expect- by growth, mainly in the tourism sector, ing $3.2 US per day PPP in 2011), re- ed to start stabilizing in 2023 as supply dis- and the stabilization of inflation over the flecting nearly 12,000 fewer people living ruptions abate and energy prices stabilize. medium term. TABLE 2 Cabo Verde / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.7 -14.8 7.1 5.5 6.1 6.0 Private Consumption 5.9 -11.3 3.9 2.3 3.4 3.0 Government Consumption 4.8 0.8 7.5 2.3 2.5 1.7 Gross Fixed Capital Investment -6.3 19.7 11.2 12.5 10.4 10.6 Exports, Goods and Services 8.7 -58.4 8.4 22.4 13.4 12.7 Imports, Goods and Services 0.8 -22.5 7.4 13.6 9.1 8.8 Real GDP growth, at constant factor prices 5.7 -14.8 7.1 5.5 6.1 6.0 Agriculture -6.8 -6.3 8.1 4.5 2.9 2.6 Industry 7.5 -2.0 10.3 6.4 6.3 5.6 Services 6.3 -19.2 5.9 5.3 6.3 6.5 Inflation (Consumer Price Index) 1.1 0.6 1.9 3.5 2.3 2.0 Current Account Balance (% of GDP) -0.4 -16.5 -13.5 -11.8 -7.0 -6.7 Net Foreign Direct Investment (% of GDP) 4.2 3.7 5.8 2.6 4.2 5.3 Fiscal Balance (% of GDP) -2.4 -10.0 -9.5 -8.0 -7.1 -5.9 Debt (% of GDP) 124.1 154.9 157.1 153.1 147.1 140.8 Primary Balance (% of GDP) 0.2 -7.1 -7.0 -4.8 -3.6 -2.2 a,b International poverty rate ($1.9 in 2011 PPP) 2.0 3.1 2.4 2.0 1.6 1.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 10.2 14.7 12.3 10.8 9.2 8.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 32.5 41.1 37.0 34.2 31.2 28.7 GHG emissions growth (mtCO2e) 2.5 2.2 2.1 2.5 2.4 1.5 Energy related GHG emissions (% of total) 87.5 88.1 88.7 88.9 89.1 90.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2007-QUIBB, 2019-, and 2015-IDRF. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2007-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 215 Apr 22 For growth to accelerate and become more inclusive, the government’s role CAMEROON Key conditions and needs to shift from being the main driver of economic activity to: (i) providing a challenges stable and fair regulatory environment and adequate infrastructure services; and Table 1 2021 Cameroon is the largest economy in the (iii) effectively delivering basic services to Population, million 27.2 Economic and Monetary Community of the population. GDP, current US$ billion 42.0 Central Africa (CEMAC), accounting for GDP per capita, current US$ 1543.7 over 40 percent of the region’s GDP a 26.0 International poverty rate ($1.9) and over 60 percent of regional foreign Lower middle-income poverty rate ($3.2) a 47.0 exchange reserves. The oil sector ac- Recent developments a 71.0 counts for 4 percent of the country’s Upper middle-income poverty rate ($5.5) Gini index a 46.6 GDP and 13.8 percent of its fiscal rev- Cameroon’s economic activity gradually School enrollment, primary (% gross) b 105.7 enues in 2021, highlighting Cameroon’s recovered in 2021 on the back of dynamic b 59.3 exposure to commodities and oil price secondary and tertiary sectors and Life expectancy at birth, years shocks. The current development model stronger external demand. Real GDP Total GHG Emissions (mtCO2e) 126.1 has run out of steam, as governance in- growth reached 3.5 percent in 2021, or 0.8 Source: WDI, Macro Poverty Outlook, and official data. dicators have deteriorated, human capi- percent in per capita terms. Higher oil pro- a/ Most recent value (2014), 2011 PPPs. b/ Most recent WDI value (2019). tal remains weak, and the business en- duction and prices and a rebound in ser- vironment is unfavorable. High market vices and external demand have supported concentration and state ownership of private consumption and investment. In- The completion of infrastructure projects commercial enterprises also limit do- creased shipping costs have put pressure mestic competition. The country has be- on prices in recent months, limiting the is expected to boost GDP growth in 2022. come more fragile. Conflicts affecting 6 availability of food staples in local mar- Driven by higher oil prices, the fiscal out of 10 of Cameroon’s regions have kets. Meanwhile, higher exports and oil deficit is projected to narrow in the medi- displaced people, increased violence, prices have improved Cameroon’s current um term, while the current account and led to a collapse in social services. account balance. Following a sharp decline The current growth level is too low to in 2020, imports moderately increased in deficit would decline gradually. The im- achieve a substantial poverty reduction. 2021, driven by large infrastructure pro- pact of the shipping crisis, along with the Although the poverty rate has declined jects, including initiatives related to the Ukraine-Russia war, could put further over the last decade, the absolute num- Africa Cup of Nations. Despite the im- pressure on inflation and incomes. The ber of poor people has increased con- proving economic context, vaccination outlook remains favorable, but is subject sistently due to population growth. The against COVID-19 remains low at 2.9 per- COVID-19 crisis has reversed progress cent of the total population, as of end- to several risks, hence the need to acceler- in poverty reduction, with the poverty March 2022. ate structural reforms. rate estimated to have increased in 2020. The fiscal deficit remained unchanged to The debt stock has been rising since 3.2 percent of GDP in 2021, owing to 2016, calling for improved debt manage- improved revenue collection and expen- ment to attract new investment. diture controls. Oil revenues reached 1.9 FIGURE 1 Cameroon / Real GDP growth and contributions FIGURE 2 Cameroon / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 90 800000 8 80 700000 6 70 600000 4 60 500000 2 50 400000 0 40 -2 300000 30 -4 20 200000 -6 10 100000 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2007 2009 2011 2013 2015 2017 2019 2021 2023 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 216 Apr 22 percent of GDP in the same year due 3.2 percent of GDP in 2021 to 2.8 percent to higher oil prices. Tax revenues also in 2024. Non-oil revenues are expected to increased in 2021 due to better-than-ex- Outlook increase, due to simplified administrative pected collection of the value-added tax measures on property income and the new (VAT), corporate income tax, and excises. The economic recovery is expected to con- tax on mobile money transfers. Spending Similarly, efforts to improve the tax ad- solidate, with growth projected to reach reprioritization, including the gradual re- ministration, including digitization and 4.0 percent in 2022 and 4.4 percent in 2023. duction of subsidies to SOEs, would con- tax audits, also contributed to the revenue Economic growth would benefit from sus- tain expenditure in the medium term. Still, increase. On the expenditures side, even tained higher oil prices as the pandemic Cameroon remains at high risk of external though higher oil prices led to higher fuel comes progressively to an end. Unless the and overall debt distress, although debt is subsidies, the authorities cut current ex- government introduces price subsidies, the assessed as sustainable, according to the penditures on goods and services, allow- Ukraine-Russia war will affect the outlook, latest Debt Sustainability Analysis con- ing for some expansion of capital out- have an impact on poverty reduction, and ducted in February 2022. lays. Capital spending increased from 4.6 weigh on inflation. Key transmission chan- The outlook remains subject to risks asso- percent of GDP in 2020 to 5.4 percent nels are: (i) increased wheat prices, trans- ciated with: (i) a further tightening of mon- of GDP in 2021, while the public debt lating into higher prices for bread; (ii) etary policy; (ii) a protracted Ukraine-Rus- stock increased from 44.9 percent of GDP higher oil and energy prices, leading to sia war; and (iii) a persistent security cri- in end-2020 to 47.2 percent of GDP by higher production costs; and (iii) higher sis in the North-West, South-West, and Far end-2021. fertilizer prices, affecting the majority of North regions. Should such risks material- The Bank of Central African States tight- people working in agriculture. Efforts to ize, real GDP would grow more modestly ened its monetary policy in late 2021 over reduce poverty will also be hampered by than under the baseline scenario, affecting concerns about the evolution of foreign ex- the ongoing security crisis in parts of the fiscal and external accounts. A sharp rise change reserves. Despite higher oil prices country. Nevertheless, the poverty rate is in global risk premia following a monetary and the International Monetary Fund Spe- expected to remain constant at 23 percent policy tightening in advanced economies cial Drawing Rights allocation (equivalent in 2022. would affect the outlook and debt sustain- to US$1.4 billion), the country’s foreign ex- The current account balance should con- ability. The increase in international oil change reserves represented just above 3 tinue to improve, owing to robust oil and and food prices would add on existing in- months’ worth of imports of goods and non-oil commodity exports. The country’s flationary and fiscal pressures. services by end 2021 (same as by end 2020). fiscal deficit is projected to narrow from TABLE 2 Cameroon / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.7 0.5 3.5 4.0 4.3 4.4 Private Consumption 4.5 3.3 3.8 4.0 5.4 4.6 Government Consumption 1.8 2.3 3.4 9.1 -5.2 -7.9 Gross Fixed Capital Investment 8.1 2.4 8.2 8.9 8.5 8.9 Exports, Goods and Services 5.1 -21.0 3.2 3.9 11.5 8.8 Imports, Goods and Services 10.5 -5.4 9.0 11.5 11.0 7.0 Real GDP growth, at constant factor prices 3.6 0.5 3.5 4.0 4.3 4.4 Agriculture 2.8 0.1 4.1 4.3 5.6 5.6 Industry 3.6 1.3 4.1 4.4 4.5 4.5 Services 3.9 0.3 3.1 3.7 3.8 4.0 Inflation (Consumer Price Index) 2.5 2.5 2.5 3.0 2.5 2.0 Current Account Balance (% of GDP) -4.4 -3.7 -4.0 -3.9 -3.8 -3.7 Fiscal Balance (% of GDP) -3.3 -3.2 -3.2 -3.0 -2.9 -2.8 Debt (% of GDP) 43.0 45.8 47.1 45.1 42.3 39.8 Primary Balance (% of GDP) -2.4 -2.3 -2.1 -1.9 -2.0 -1.9 a,b International poverty rate ($1.9 in 2011 PPP) 23.2 23.9 23.6 23.1 22.6 22.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 42.4 43.4 42.9 42.2 41.3 40.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 66.4 67.5 67.0 66.2 65.3 64.2 GHG emissions growth (mtCO2e) 0.9 0.4 0.9 1.0 1.0 1.1 Energy related GHG emissions (% of total) 9.6 9.5 9.8 10.1 10.3 10.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2007-ECAM-III, 2019-, and 2014-ECAM-IV. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2007-2019) with pass-through = 1 based on GDP per capita in constant LCU. MPO 217 Apr 22 CENTRAL Key conditions and Recent developments challenges AFRICAN REP. CAR’s economic growth stagnated in 2021 due to renewed insecurity, coupled with Repeated instability and violence have the protracted effects of COVID-19 on the exacerbated CAR’s socioeconomic indica- global economy. Economic activity suf- Table 1 2021 tors and kept the country at the bottom fered particularly in 2021Q1 as renewed Population, million 4.9 of most development rankings. While en- insecurity amid election disputes disrupt- GDP, current US$ billion 2.4 dowed with ample natural resources, the ed production and trade. Boosted by the GDP per capita, current US$ 484.6 country’s economy is poorly diversified, resumption of commerce along the Gini index a 56.2 with agriculture and forestry constituting Douala-Bangui corridor and security b 102.0 the backbone of economic activities. The gains, economic activity picked up in the School enrollment, primary (% gross) b agriculture sector accounts for more than second half of the year. Mining and agri- Life expectancy at birth, years 53.3 75 percent of total employment, and tim- cultural production accelerated, owing to Total GHG Emissions (mtCO2e) 88.9 ber, cotton, coffee, diamond, and gold improved security around production sites Source: WDI, Macro Poverty Outlook, and official data. represented more than 85 percent of total and favorable rainfall. Public investment a/ Most recent value (2008), 2011 PPPs. b/ WDI for School enrollment (2016); Life expectancy exports in 2019. Poverty is high, with declined from 11.4 percent of GDP in 2020 (2019). more than 7 in 10 Central Africans living to 7.5 percent of GDP in 2021 as the gov- below the international poverty line ernment unwound its COVID-19 fiscal (measured using US$1.90 per day, 2011 stimulus package. Economic growth is Renewed insecurity prevented the Central PPP). Inadequate social protection sys- projected to increase by 3.2 percent in 2022, tems and limited access to education and supported by the prospect of improved se- African Republic’s (CAR) economy from healthcare facilities are major bottlenecks curity and the ceasefire agreed in the Lu- rebounding in 2021. The outlook is sub- for human capital accumulation. The for- anda roadmap (i.e., the regional initiative ject to downside risks arising from a re- mal private sector is small and con- to restore peace). Conflict and COVID-19 versal in security gains and the impact of strained by several structural challenges, have hampered progress in reducing ex- the Ukraine-Russia war on commodity including limited access to finance, a treme poverty, with 71.4 percent of the weak regulatory framework, poor infra- population living in extreme poverty in and food prices, which could adversely af- structure (e.g., energy and transporta- 2021, up slightly from 71.0 percent in 2020. fect public finances and growth and result tion), lack of skilled labor, and a fragile Renewed conflict in late 2020/early 2021 in significant social hardship and human- security and political environment. The contributed to significant inflationary itarian costs. The ability of traditional humanitarian situation remains precari- pressures in the first half of 2021, which ous, with 43 percent of the population decelerated markedly as traffic along the partners to provide support in a geopoliti- facing acute food insecurity. As of Janu- country’s lifeline resumed. As a result, cally more complex environment weighs ary 2022, there were 734,000 refugees out- inflation reached an average of 3.8 per- heavily on the outlook, which is vulnera- side the country—the highest level since cent in 2021—above the 3 percent re- ble to headwinds. December 2013—and 652,000 internally gional ceiling. High inflation is projected displaced persons. to linger in 2022 on the back of rising FIGURE 1 Central African Republic / Real GDP growth FIGURE 2 Central African Republic / Actual and projected and contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8 78 250000 76 6 74 200000 4 72 70 2 150000 68 0 66 100000 64 -2 62 -4 60 50000 58 -6 2016 2017 2018 2019 2020 2021 2022 2023 2024 56 0 Exports Gross Fixed Investment 2008 2010 2012 2014 2016 2018 2020 2022 2024 Government Consumption Private Consumption International poverty rate Real GDP pc Real GDP growth Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 218 Apr 22 commodity prices and persistent disrup- 10.8 percent of GDP in 2021, owing mainly Inflation is expected to remain below the tions in food supply chains. The Bank of to delays in the disbursement of official regional convergence criteria in the medi- Central African States tightened its mon- transfers. The SDR allocation (equivalent um term, contingent on stable and im- etary policy in late 2021 over concerns to 5.8 percent of GDP) did, however, pro- proved security on the Douala-Bangui about the evolution of foreign exchange vide additional liquidity to meet some of corridor and a slowdown in inflationary reserves, which, despite higher oil prices the country’s financing needs. The trade pressures at the global level. The fiscal and the International Monetary Fund balance improved as the rebound in ex- balance is projected to remain in deficit 2021 Special Drawing Rights (SDR) allo- ports during the second half of 2021 ex- in the medium term, as donor financing cation, represented just above 3 months’ ceeded the uptick in imports. Persistent gradually declines without being offset worth of regional imports of goods and global uncertainty related to COVID-19 by domestic revenues. Public debt is pro- services by end-December 2021—roughly and renewed conflicts translated to a low- jected to remain sustainable. The current the same as at end-December 2020. er-than-expected recovery of foreign direct account balance is expected to improve in The overall fiscal deficit widened from 3.3 investment. The current account balance is the medium term, reflecting an improve- percent of GDP in 2020 to 6.1 percent of projected to improve in 2022 as exports re- ment in the trade balance, but it should GDP in 2021, reflecting a decline in do- cover and official transfers resume. remain structurally in deficit. mestic revenue and the cancelation and Risks to the outlook remain high and tilted postponement of budget support from to the downside. The absence of donor donors due to geopolitical tensions and budget support could lead to the accumu- the lack of transparency of the country's Outlook lation of external arrears and possible non- security expenditures. Pressures on public payment of public wages, resulting in sig- finances were high throughout 2021 de- Provided that security gains are not re- nificant socioeconomic hardship. A rever- spite cuts in public spending, forcing the versed, and the impact of the Ukraine- sal in security gains could undermine eco- government to rely on bridge financing Russia war on the global economic re- nomic activity and traffic on the main trade on the domestic market. Cashflow pres- covery is contained, economic growth is corridor. The possible lingering effect of sures are expected to remain high in 2022, expected to average 3.5 percent in the the pandemic, coupled with the impact of with a risk of a potential liquidity short- medium term, supported by solid agri- the Ukraine-Russia war at the global level, age if budget support from donors does cultural and industrial output on the could lead to persistent disruptions in not materialize. The government has al- supply side and high private consump- global supply chains and higher commodi- ready revised downward its public ex- tion on the demand side. Under these as- ty prices, resulting in higher fuel and grain penditure plan and is considering new sumptions, per capita income is expect- prices, with adverse effects on public fi- borrowing on the domestic market to pre- ed to return to its pre-COVID-19 level by nances and private consumption, as well vent any liquidity shortages. 2023. Extreme poverty is projected to re- as on poverty due to the effects of higher The current account deficit widened from main high, with a slow decline between food prices. 8.8 percent of GDP in 2020 to an estimated 2022 and 2024. TABLE 2 Central African Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.1 0.9 0.9 3.2 3.4 4.0 Private Consumption 5.7 -4.2 0.5 4.7 5.3 2.3 Government Consumption 7.7 21.5 -4.9 -10.3 2.9 1.0 Gross Fixed Capital Investment -9.6 28.3 -9.6 6.7 -1.4 12.3 Exports, Goods and Services 1.9 -2.8 -5.5 6.3 8.2 9.3 Imports, Goods and Services 4.9 1.0 -10.3 7.1 8.4 4.9 Real GDP growth, at constant factor prices 2.6 0.9 1.2 3.1 3.4 3.9 Agriculture 3.1 4.5 3.2 3.8 4.2 4.0 Industry 2.1 0.0 -0.2 0.6 1.0 1.3 Services 2.3 -1.2 0.4 3.5 3.6 4.6 Inflation (Consumer Price Index) 2.8 2.3 3.8 3.6 2.7 2.5 Current Account Balance (% of GDP) -4.8 -8.8 -10.8 -6.8 -7.9 -6.6 Fiscal Balance (% of GDP) 1.7 -3.3 -6.1 -2.3 -2.0 -1.8 Debt (% of GDP) 47.9 44.0 48.4 44.9 43.4 41.9 Primary Balance (% of GDP) 2.0 -3.0 -5.8 -1.8 -1.4 -1.3 a,b International poverty rate ($1.9 in 2011 PPP) 70.8 71.0 71.4 70.9 70.6 70.3 GHG emissions growth (mtCO2e) 0.9 0.6 0.6 1.9 2.2 2.4 Energy related GHG emissions (% of total) 39.8 39.8 39.7 40.3 40.8 41.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2008-ECASEB. Actual data: 2008. Nowcast: 2009-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2008) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 219 Apr 22 percent (4.6 percent per capita) contraction in 2020. The passing of President Deby led CHAD Key conditions and to economic disruptions in the second quarter of 2021 as the new authorities con- challenges solidated power. Workers' strikes led to the suspension of oil production on Esso Table 1 2021 Chad's economy has performed below po- plants (one-fourth of Chad's production), Population, million 16.9 tential since the 2014-15 oil price shock. driving a decline in oil production of 8.2 GDP, current US$ billion 11.4 Notwithstanding the 2018-19 recovery, an- percent over the year. Although the coun- GDP per capita, current US$ 672.8 nual GDP growth contracted by 1.1 per- try suffered from food insecurity, due part- a 33.2 International poverty rate ($1.9) cent on average over the past six years, ly to weak cereal production after poor a 66.4 which, given the rapidly growing popula- rains, agriculture remained the main non- Lower middle-income poverty rate ($3.2) a 87.9 tion, translated into an annual decrease in oil growth driver, contributing 1.9 percent- Upper middle-income poverty rate ($5.5) Gini index a 37.5 per capita income of 4.1 percent. Oil con- age points (pp), while services contracted School enrollment, primary (% gross) b 89.2 stitutes about 20 percent of GDP, 35 per- 4.4 pp. Export value increased by 55.3 per- b 54.2 cent of revenue, and 75 percent of exports. cent due to the increase in oil prices (66.4 Life expectancy at birth, years Chad ranked 187th out of 189 countries on percent), helping the current account Total GHG Emissions (mtCO2e) 118.2 the Human Development Index in 2020. deficit narrow from 7.8 percent of GDP to Source: WDI, Macro Poverty Outlook, and official data. Living conditions and access to essential 5.6 percent in 2021. a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). services remain poor due to severe weath- As containment measures on domestic er conditions, cyclical insecurity, political supply chains were slowly lifted, inflation unrest, weak governance, including oil dropped from 3.5 percent to one percent in GDP contracted by 1.2 percent in 2021 revenues management, poor trade net- 2021. Food inflation was 3 percent, signifi- works, low human capital investment, and cantly lower than the rest of Sahel. Chad's (4.2 percent per capita) - the second con- a lack of infrastructure. monetary and exchange rate policies are secutive year of recession – due to a tem- Chad has not strengthened regional inte- managed by the regional Central Bank, porary suspension of oil production, so- gration, economic transformation, or ac- which supported regional reserve accumu- cio-political insecurity, and liquidity con- cess to electricity and digital technologies. lation by raising its policy rate to 3.5 per- Growing political and security expenses cent and the marginal lending facility rate straints. This situation likely increased and high levels of debt service relative to from 5 to 5.25 percent. As a result, regional extreme poverty by 2 percentage points. domestic revenue have constrained Chad's reserves increased to 3.4 months of im- Growing food and general insecurity, cli- ability to improve basic services and infra- ports from 3.1 months in 2020, thanks also matic shocks, and continued dependency structure delivery. to regional fiscal consolidation policies and on volatile oil revenues heightens the rising oil prices. Despite a significant increase in oil prices, risks to the fragile recovery during a sen- the fiscal deficit, excluding grants, stood at sitive political transition. Recent developments 6.7 percent of GDP (4.3 percent including grants) in 2021, due to the one-year lag in Chad's GDP contracted by 1.2 percent (4.2 the main component of oil-revenue taxa- percent per capita) in 2021, following a 1.6 tion as well as an increase in security and FIGURE 1 Chad / GDP growth, current account and fiscal FIGURE 2 Chad / Actual and projected poverty rates and balance real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 6 100 450000 4 90 400000 2 80 350000 0 70 300000 60 -2 250000 50 -4 200000 40 -6 150000 30 -8 20 100000 10 50000 -10 2019 2020 2021 2022 2023 2024 0 0 Fiscal balance (% of GDP) 2011 2013 2015 2017 2019 2021 2023 Current account balance (% of GDP) International poverty rate Lower middle-income pov. rate Real GDP growth Upper middle-income pov. rate Real GDP pc Source: World Bank Source: World Bank. Notes: see Table 2. MPO 220 Apr 22 political transition spending. Total public grow by 2.8 percent in 2022 (-0.2 percent and lack of structural economic transfor- debt slightly increased while debt ser- per capita). The positive outlook for the mation will limit the space for poverty vices remained too high; the Government oil sector, services, and agriculture should reduction. The social protection system has requested a debt restructuring under strengthen over the medium-term, with should be strengthened to extend its cov- the G20 Common Framework to help re- growth averaging 3.7 percent per annum. erage and better target the poorest and store debt sustainability. Higher global energy and food prices due most vulnerable. The extreme poverty rate (US$1.9/ day per to the Russia-Ukraine war is projected to This outlook is subject to high uncertainty capita, 2011 PPP) is projected to have in- increase inflation in 2022. and multiple downside risks, including in- creased by more than 2 pp between 2020 The current account balance is projected to creased political instability during a transi- and 2021, reaching 37.8 percent, with the become positive, at 0.9 percent of GDP on tion period, intensified security risks, fur- number of extremely poor increasing from average over 2022-24, driven by increased ther climate-related shocks, continuing 5.8 to 6.2 million. The COVID-19 crisis fur- activity in the oil and services sectors. The food security challenges, uncontrolled lo- ther impacted the livelihoods of poor and fiscal balance is expected to stand at 1.2 cal COVID outbreaks, and widespread so- vulnerable households. In high-frequency percent of GDP in 2022 and further im- cial discontent from food and general inse- phone surveys in 2021, 76 percent of prove in 2023-24 due to significant increas- curity. At least one of these risks will like- households reported a loss in their total es in oil revenues, more controlled security ly materialize, and concurrent shocks are a household income and 21 percent of spending and less political transition-relat- possibility. The economic consequences of households seeking health care could not ed expenditures. However, Chad will still the Russia-Ukraine war would primarily get access to it. need a significant debt restructuring to ser- be through higher global food (grains/fer- vice its debts while increasing social and tilizer) and energy prices. The projections investment spending needs, and to reduce already reflect recent sharp increases in oil oil price volatility risk. and gas, agriculture and metal and miner- Outlook The extreme poverty rate is expected to al prices since January 2022. Chad should increase to 38 percent in 2022 due to neg- benefit from higher global oil prices and Based on current projections for oil ative GDP per capita growth. The num- direct this benefit towards inclusive prices, the global recovery, and the Gov- ber of poor will likely increase to 6.4 mil- growth to reduce poverty. ernment’s gradual fiscal consolidation lion. Continued high food inflation, low program, the economy is expected to coverage of social protection programs, TABLE 2 Chad / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 -1.6 -1.2 2.8 3.5 3.9 Private Consumption 1.4 0.5 1.6 2.8 2.9 3.3 Government Consumption 1.7 11.1 3.7 3.7 0.2 0.0 Gross Fixed Capital Investment 6.6 -14.7 -4.5 0.7 5.3 7.2 Exports, Goods and Services 6.0 1.1 -0.4 3.9 4.6 3.7 Imports, Goods and Services 4.0 1.8 5.1 3.5 4.0 3.0 Real GDP growth, at constant factor prices 3.3 -1.6 -1.2 2.8 3.5 3.9 Agriculture 0.1 3.9 6.2 5.0 4.3 4.3 Industry 7.3 -0.1 -4.6 1.3 2.8 1.6 Services 2.5 -7.0 -4.4 2.1 3.3 5.6 Inflation (Consumer Price Index) -1.0 3.5 1.0 3.5 3.0 3.0 Current Account Balance (% of GDP) -4.9 -7.8 -6.0 3.6 1.4 -2.1 Fiscal Balance (% of GDP) -0.6 1.2 -4.3 1.2 3.2 3.1 Debt (% of GDP) 51.1 49.9 52.1 51.6 53.2 47.6 Primary Balance (% of GDP) 1.0 2.9 -2.7 2.8 4.8 4.7 a,b International poverty rate ($1.9 in 2011 PPP) 33.1 35.5 37.8 37.9 37.6 36.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 66.4 68.2 70.1 70.2 69.9 69.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 87.9 88.9 89.9 89.9 89.8 89.5 GHG emissions growth (mtCO2e) 3.8 4.0 4.2 4.2 4.2 4.2 Energy related GHG emissions (% of total) 1.6 1.5 1.5 1.5 1.5 1.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 221 Apr 22 ary pressures that would reflect price trends in commodities and freight costs, COMOROS Key conditions and the possible spread of new COVID-19 vari- ants that would restrain international trav- challenges el and trigger stringent restrictions at the national and global levels, and there is a Table 1 2021 Comoros is a small and fragile island high risk of sovereign debt distress. Population, million 0.9 with significant structural challenges hin- GDP, current US$ billion 1.3 dering its development. The GDP per GDP per capita, current US$ 1444.6 capita growth rate which was, around International poverty rate ($1.9) a 19.1 0.5 percent, over the last two decades, Recent developments a 39.7 is a result of institutional and economic Lower middle-income poverty rate ($3.2) a 64.6 weaknesses, poor infrastructure provi- While Comoros has been relatively spared Upper middle-income poverty rate ($5.5) Gini index a 45.3 sion, and natural shocks. by the COVID-19, the pandemic still School enrollment, primary (% gross) b 99.5 Low domestic revenue mobilization, stem- weighed on the economy through the im- b 64.3 ming from weak administrative capacity pact of national restrictive measures on Life expectancy at birth, years as well as poor economic performance, consumption. Thus, driven by an expan- Total GHG Emissions (mtCO2e) 0.7 translated into low human and physical sionary fiscal policy and a sluggish private Source: WDI, Macro Poverty Outlook, and official data. capital. Consequently, between 2002 and consumption, the economy expanded by a/ Most recent value (2014), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy 2018, the country’s produced physical cap- 2.4 percent in 2021. The service sector, (2019). ital per capita declined by 27.7 percent which was the main driver of the growth, while the human capital wealth per capita recovered slightly, growing by 2.8 percent increased by only 0.16 percent. Thus, hu- in 2021 in comparison to -2.2 percent in The COVID-19 is still weighing on Co- man and physical capital’s contribution to 2020. Compared to 2020, the poverty rate moros, as the economy grew below its Comoros growth has been marginal. remained stable at 39.7 percentage points Growth is primarily led by private con- in 2021. potential in 2021. Driven by an expan- sumption, and private remittances are fu- Moreover, the pandemic and its impacts sionary fiscal policy, growth is expected eling the consumption-driven growth tra- on the global supply chain fueled short- to pick up in 2022-2024. However, the jectory. On the supply side, growth is ages and the inflation rate reached 7.1 per- recovery could be constrained. The heavily driven by the service and agricul- cent (y-o-y) in December 2021 from -4.8 ture sectors while there is an important un- percent in December 2020. The price in- country, already at a high risk of debt tapped potential in the fishing and tourism crease was primarily driven by food and distress, is facing growing imbalances. industries. Realizing a sustainable and in- non-alcoholic beverage products (+12.2 In addition, Comoros will however face clusive growth would require tapping in percentage points), health prices (+7.6 per- several external headwinds. Poverty will those industries while improving human centage points) and transport prices (+5.3 decline in 2022 due to improvement in and physical capital, better leveraging the percentage points). Though, it remained diaspora potential, and improving the in- low, on average, in 2021 (1.4 percent). economic growth. The expansionary fiscal policy led to a stitutional quality. Comoros outlooks face several headwinds higher fiscal deficit (2.5 percent of GDP in related to the risks for additional inflation- 2021 from 1.0 percent in 2020). This policy FIGURE 1 Comoros / Selected macroeconomic indicators FIGURE 2 Comoros / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 40 1 70 500000 35 0 495000 60 30 -1 490000 -2 50 25 485000 -3 40 20 -4 480000 15 30 -5 475000 10 -6 20 470000 5 -7 10 465000 0 -8 2017 2018 2019 2020 2021e 2022f 2023f 2024f 0 460000 Debt (% of GDP) 2014 2016 2018 2020 2022 2024 Current Account Balance (% of GDP, rhs) International poverty rate Lower middle-income pov. rate Fiscal Balance (% of GDP, rhs) Upper middle-income pov. rate Real GDP pc Sources: National authorities, and staff estimates and forecasts. Source: World Bank. Notes: see Table 2. MPO 222 Apr 22 was characterized by an increase in trans- increased to 9.6 months of imports at economy is expected to grow at a rate of fers (+0.7 percent of GDP) and capital ex- end-September 2021, in comparison with 3.4 percent in 2023-2024 when the vacci- penditures (+4.5 percent of GDP). More- 9 months at end-2020. This improvement nation rate will increase, and if advanced over, the government kept the freight cost in the overall external position stems economies fully recover, and tourists, valuation for imports to pre-March 2021 from the Special Drawings Rights alloca- mainly the ones from the diaspora, can levels to reduce inflationary pressures. tion of US$24 million. return to Comoros for the different cycles The increased fiscal needs (13.0 percent of of Grand Marriage. GDP in 2021) stemming from this poli- A deterioration of the fiscal deficit is pro- cy was financed by external partners (10.7 jected to increase to 4.9 percent of GDP percent of GDP), including the World Outlook on the back of an increase in domestical- Bank support for the vaccine rollout. The ly financed investment. With an increase deficit was contained through the imple- The economy is projected to expand by in the import bill due to the expansion- mentation of some tax and customs ad- 2.8 percentage points in 2022 on the back ary fiscal policy, and a decline of remit- ministration reforms under the IMF Staff of an expansionary fiscal policy. This tances, a deterioration of the external po- Monitored Program. With a sluggish slow recovery also reflects difficulties in sition is projected, and the current ac- growth and expansionary fiscal policy, the service sector that would grow below count deficit is forecasted to increase to public debt increased to 24.9 percent of its potential because of structural sectoral 6.6 percent of GDP in 2022 and reach 7.0 GDP in 2021 from 22.1 percent in 2020. issues, existing COVID-19 restrictions, percent in 2023. There is a high risk of public debt distress and a lower purchasing power due to in- Against this backdrop, the poverty rate is due to the signature of a non-concessional creased inflationary pressures at the glob- expected to decrease only moderately over loan for the tourism sector. al and national levels. In fact, the Russian the next two years. By 2023, poverty is pro- Following the decrease in remittances invasion, war, and associated sanctions jected to return to its pre-COVID levels at and the increase in the import bill, Co- will impede Comoros recovery through 39.5 percent (when measured against the moros recorded a deterioration of its cur- its consequences on increased inflationary poverty line for lower middle-income rent account deficit to 3.4 percent of GDP pressures, less remittances from France countries of USD 3.2 a day per capita in in 2021, from 2.0 percent in 2020. How- which hosts a substantial share of the Co- PPP terms). Poverty rate is expected to ever, Comoros’ overall external position morian diaspora, and the resulting slow- continue to decrease to about 39.3 percent has marginally improved as reserves had er increase in the domestic demand. The in 2024. TABLE 2 Comoros / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.8 -0.3 2.4 2.8 3.1 3.7 Private Consumption 3.8 3.8 1.6 2.1 4.6 3.3 Government Consumption 3.5 4.1 2.3 12.1 -1.1 5.3 Gross Fixed Capital Investment -8.4 -14.4 2.5 6.2 8.1 -1.7 Exports, Goods and Services 6.8 -46.3 23.1 28.4 9.8 4.9 Imports, Goods and Services 5.7 -9.3 0.9 13.8 9.7 0.8 Real GDP growth, at constant factor prices 1.9 -0.8 2.4 2.8 3.1 3.7 Agriculture 0.9 4.3 1.6 -4.5 0.4 4.9 Industry 4.0 -5.6 2.1 6.3 3.1 3.2 Services 1.9 -2.2 2.8 5.6 4.3 3.2 Inflation (Consumer Price Index) 3.7 0.8 1.4 6.4 3.3 1.0 Current Account Balance (% of GDP) -2.4 -2.0 -3.4 -6.6 -7.0 -6.3 Fiscal Balance (% of GDP) -4.3 -1.0 -2.5 -4.9 -4.4 -2.9 Debt (% of GDP) 20.6 22.0 24.9 29.3 33.2 35.1 Primary Balance (% of GDP) -4.1 -0.8 -2.2 -4.5 -3.7 -1.9 a,b International poverty rate ($1.9 in 2011 PPP) 18.4 19.2 19.2 18.9 18.6 18.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 38.9 39.7 39.7 39.4 39.0 38.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 63.9 64.8 64.7 64.6 64.2 63.8 GHG emissions growth (mtCO2e) 3.5 2.4 2.6 3.2 3.1 3.1 Energy related GHG emissions (% of total) 42.4 42.3 42.5 43.0 43.4 43.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2014-EESIC. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2014) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 223 Apr 22 stability. Therefore, improving domestic revenue mobilization to widen fiscal DEMOCRATIC Key conditions and space is crucial. Poverty remains widespread, including in challenges REP. OF CONGO urban areas. Significant geographical dis- parities exist between provinces, with ex- The Democratic Republic of the Congo treme poverty concentrated in central and (DRC) has suffered from decades of con- northwestern provinces. DRC is second Table 1 2021 flict, poor governance, and volatile eco- only to Nigeria in Sub-Saharan Africa in Population, million 92.4 nomic growth, which has led to persistent- the number of extreme poor. Despite some GDP, current US$ billion 59.5 ly high levels of poverty. The economy is improvements in recent years, social and GDP per capita, current US$ 644.2 highly dependent on mineral extraction: human development indicators remain International poverty rate ($1.9) a 77.2 copper and cobalt constitute over 80 per- weak: in 2020, infant mortality was 63.8 a 91.4 cent of exports, with China absorbing 40 per 1000 live births, higher than the Sub- Lower middle-income poverty rate ($3.2) a percent of exports. With its huge agricul- Saharan average of 50.3, while the HCI of Upper middle-income poverty rate ($5.5) 97.9 a ture potential untapped, DRC is a net food 0.37 is among the lowest of Sub-Saharan Gini index 42.1 importer, which increases vulnerabilities African countries. b 118.5 School enrollment, primary (% gross) to external and climatic shocks. Structural b 60.7 Life expectancy at birth, years constraints have led to an underdeveloped Total GHG Emissions (mtCO2e) 683.4 private sector and fostered a large informal Source: WDI, Macro Poverty Outlook, and official data. economy. Improving the business environ- Recent developments a/ Most recent value (2012), 2011 PPPs. ment and closing gaps in infrastructure b/ WDI for School enrollment (2018); Life expectancy (2019). and human capital are needed to achieve Economic activity in DRC recovered economic diversification and reduce com- strongly in 2021 with real GDP growth modity dependence. estimated at 5.7 percent. The mining DRC is led by a fragile coalition and po- sector was a key driver of growth- cop- Economic activity rebounded in 2021, with litical risks are high, a legacy of DRC’s per and cobalt production rose by 12.0 higher prices and production of copper and protracted periods of political unrest. and 7.6 percent, respectively, as domes- cobalt lifting GDP growth to an estimated Reaching political consensus and increas- tic production capacity increased with 5.7 percent and supporting a narrower cur- ing the presence and credibility of the the launch in mid-2021 of the Kamoa- rent account deficit. Reserves increased, state, including through improved gover- Kakula mining project. The easing of nance, will be key to maintain stability COVID restrictions, and higher revenues easing pressures on the currency and infla- and advance structural reforms that will from the mining sector, which also ben- tion. Fiscal consolidation was achieved de- attract investments and create jobs. The efited from rising prices, supported spite higher social and infrastructure need for the state to deliver more and bet- growth of non-mining sectors by 3.9 spending. Continued uncertainty around ter services to citizens means that expen- percent (2020: -1.3 percent). diture-led adjustments to revenue short- The CAD narrowed to about 1.0 percent of the pandemic and local and international falls or external conditions could jeopar- GDP in 2021 (2020: 2.2) due to improved conflicts represent important risks to dize not only long-term growth prospects terms of trade and higher mining exports growth and poverty reduction. and pro-poor spending but also political volumes. Despite a small decline in foreign FIGURE 1 Democratic Republic of Congo / Real GDP FIGURE 2 Democratic Republic of Congo / Actual and growth and sectoral contributions to real GDP growth projected poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8 100 170000 6.9 6.4 6.1 95 160000 6 5.8 5.7 6.0 90 150000 4.4 4 3.8 3.8 85 3.7 3.5 3.6 3.1 140000 2.4 2.5 2.7 2.5 2 80 1.7 130000 1.3 75 0 120000 70 -2 65 110000 -2.2 60 100000 -4 2012 2014 2016 2018 2020 2022 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Non-Mining Mining sector SSA growth GDP Upper middle-income pov. rate Real GDP pc Sources: Democratic Republic of Congo Statistical Authorities, World Bank. Source: World Bank. Notes: see Table 2. MPO 224 Apr 22 direct investment, the narrower current ac- poverty increase in 2020 with job losses Despite the lasting adverse effect of count and the IMF’s SDR allocation boost- and reduced food consumption for 10 the pandemic, high population growth, ed international reserves, which reached and 20 percent of households, respective- and the Russian invasion, extreme 6.4 weeks of imports in 2021 (2020: 2.1 ly, according to COVID-19 High Frequen- poverty is projected to decrease by 2.8 weeks). With a slower depreciation rate of cy Phone surveys in Kinshasa, favorable percentage points by 2024 given favor- the CDF and a deceleration in inflation (to economic prospects made it possible to able economic prospects. 9.1 in 2021), the Central Bank progressively reverse the trend by 2021. DRC’s economy remains vulnerable to cut its policy rate from 18.5 percent in Jan- commodity price movements and growth uary 2021 to 8.5 percent in mid-June 2021 performance of its major trading partners and to 7.5 percent in early 2022. which might be disturbed by geopolitical Fiscal accounts were balanced in 2021 Outlook conflicts and a resurgence of the pandemic. (2020: -1.2 percent) owing to higher rev- The economic consequences of the Russian enues despite pressure on social and pub- GDP growth is estimated to accelerate to invasion and associated sanctions, through lic infrastructure spending that lifted pub- 6.4 percent by 2023 driven by the services rising global food costs and higher oil lic expenditure up to 13.1 percent of GDP sector (mostly trade and telecommunica- prices, could exert strong pressure on in- in 2021 (2020:10.1). Domestic revenue col- tion). The mining sector is expected to ex- flation and on households’ consumption, lection increased to 11.2 percent of GDP pand further in 2022 and pick up pace by raising the burden on expenditures by up (2020: 8.7) with higher income and value- 2024 as Kamoa-Kakula - aiming to become to 15 percent and subsequently reducing added tax collections and a better perfor- the second largest copper mine in the private consumption growth. mance in non-tax revenue (of which min- world- enters its second phase of produc- With the agriculture sector employing over ing revenue accounts for 30 percent). tion in late-2022. 60 percent of the working age population, The latest World Bank projections put The fiscal deficit could widen to about 2.7 vulnerability to climate change related poverty at 72.1 percent in 2021, a 0.8 percent by 2022 as the government is likely risks (floods, droughts) is substantial. Fi- percentage points decrease compared to to provide some cushion to higher oil and nally, continued political uncertainty 2020.1Despite adverse effects of the food prices. The CAD is projected to nar- ahead of planned 2023 presidential elec- COVID-19 pandemic, explaining a slight row further in 2022 with a slight surplus tions, might delay reform efforts, worsen estimated at 0.1 percent as higher com- fiscal imbalances and generate arrears. modity prices improve terms of trade DRC’s immediate challenge is to maintain (higher oil prices might accelerate further political and macroeconomic stability 1/ The projections, estimated using macroeconomic forecasts, are preliminary and as more data come from the demand for cobalt, a key component in while stepping up ongoing reforms to en- the ground, poverty projections will be updated. rechargeable batteries). sure sustainable growth. TABLE 2 Democratic Republic of Congo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.4 1.7 5.7 6.0 6.4 6.1 Private Consumption 17.3 -8.0 1.6 1.5 2.0 2.2 Government Consumption 6.6 4.1 20.9 11.7 2.6 7.2 Gross Fixed Capital Investment 6.3 31.3 33.6 13.1 17.2 11.3 Exports, Goods and Services 1.4 8.0 14.9 12.5 8.0 8.0 Imports, Goods and Services 25.2 12.0 30.7 11.4 12.4 8.7 Real GDP growth, at constant factor prices 4.6 2.3 5.6 5.9 6.2 6.0 Agriculture 3.1 2.5 2.4 2.5 2.6 2.7 Industry 4.1 4.2 6.6 7.2 7.5 7.0 Services 5.7 0.1 5.6 5.7 6.1 6.0 Inflation (Consumer Price Index) 4.7 11.2 9.1 9.5 7.0 6.0 Current Account Balance (% of GDP) -3.4 -2.2 -1.0 0.1 -0.5 -0.8 Fiscal Balance (% of GDP) -2.0 -1.2 0.0 -2.7 -1.6 -1.1 Debt (% of GDP) 19.5 22.4 21.7 21.2 19.8 16.0 Primary Balance (% of GDP) -1.8 -1.0 0.2 -2.2 -1.1 -1.1 a,b International poverty rate ($1.9 in 2011 PPP) 72.5 72.9 72.1 71.1 70.1 69.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 89.0 89.2 88.9 88.4 87.8 87.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 97.1 97.2 97.1 96.8 96.5 96.3 GHG emissions growth (mtCO2e) 0.1 0.0 0.2 0.2 0.1 0.1 Energy related GHG emissions (% of total) 2.2 2.2 2.3 2.3 2.4 2.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2012-E123. Actual data: 2012. Nowcast: 2013-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2012) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 225 Apr 22 human capital and infrastructure, as well as to improve the business environment REPUBLIC OF Key conditions and for faster, sustained, and inclusive eco- nomic growth. The pandemic continues to challenges CONGO be a risk to the ROC’s economic stability, especially given the slow pace of vaccina- The Congolese economy, which is highly tion, with only about 12 percent of the pop- oil-dependent, has been contracting since ulation fully vaccinated as of March 17, Table 1 2021 the fall of oil prices in mid-2014, with GDP 2022. Diversifying the economy away from Population, million 5.7 growth averaging -4.8 percent in 2015–21. oil remains a key challenge to reduce the GDP, current US$ billion 12.1 The exposure to large swings in oil prices country’s vulnerability to volatile oil prices GDP per capita, current US$ 2132.9 and weak governance, reflected in high and production, which was highlighted by International poverty rate ($1.9) a 39.6 levels of non-concessional borrowing, led the 6.2 percent economic contraction a 64.1 the debt to become unsustainable and the recorded in 2020. Lower middle-income poverty rate ($3.2) a country into debt distress, with its debt-to- Upper middle-income poverty rate ($5.5) 83.9 a GDP ratio increasing from 42.3 percent in Gini index 48.9 2014 to 113.2 percent in 2020. While debt School enrollment, primary (% gross) b b 93.7 restructuring agreements concluded in Recent developments Life expectancy at birth, years 64.6 2021, higher oil prices, and improved debt Total GHG Emissions (mtCO2e) 20.4 management (including restricting new The Congolese economy is estimated to Source: WDI, Macro Poverty Outlook, and official data. external financing on concessional terms) have contracted by 3.5 percent in 2021, a a/ Most recent value (2011), 2011 PPPs. have restored debt sustainability, ROC deeper recession compared to the World b/ WDI for School enrollment (2018); Life expectancy (2019). however remains in debt distress due to Bank fall forecast of -1.2 percent, owing to outstanding arrears with some external lower-than-expected oil production. De- and domestic creditors. Natural resource spite higher oil prices and increased glob- revenues have not translated into higher al demand, oil production declined by The Republic of Congo’s (ROC) econo- income per capita growth, and human cap- 10.8 percent, year-on-year, in 2021 due my contracted by an estimated 3.5 per- ital development remains below that of to postponed investments, technical chal- cent in 2021. The poverty rate increased peer countries, owing to low government lenges, and maturing oil fields. By con- from 51.9 percent in 2020 to an esti- spending efficiency and weak governance trast, non-oil growth reached an estimat- mated 53.9 percent in 2021. The ROC in key sectors. The proportion of the pop- ed 3.4 percent in 2021, the first year of ulation living below the international ex- growth since 2014, driven by the resump- is expected to make a gradual recovery treme poverty line of US$1.90 PPP per day tion of economic activities (following the from the COVID-19 crisis, with GDP increased from 39.1 percent in 2015 to 53.9 significant disruptions caused by the pan- growth projected at 3.7 percent in percent in 2021, with the poverty rate in- demic), increased use of locally sourced 2022-24. A prolonged war in Ukraine creasing by 5.2 percentage points between inputs by large firms, and progress in the 2019 and 2021 alone, driven by the pan- repayment of domestic arrears. The over- could increase inflationary pressures in demic. The social and economic cost of all GDP growth contraction resulted in the country, but high oil prices may fur- COVID-19 further highlights the impor- an increase in extreme poverty from 51.9 ther sustain the recovery. tance of reforms to protect and develop percent in 2020 to 53.9 percent in 2021. FIGURE 1 Republic of Congo / Real GDP growth and FIGURE 2 Republic of Congo / Actual and projected sectoral contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage point Poverty rate (%) Real GDP per capita (constant LCU) 10 100 1400000 8 1200000 6 80 4 1000000 2 60 800000 0 -2 40 600000 -4 400000 -6 20 -8 200000 -10 0 0 Oil GDP Non-oil GDP -12 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Net Taxes Real GDP -14 International poverty rate Lower middle-income pov. rate 2015 2016 2017 2018 2019 2020 2021e 2022f 2023f 2024f Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see table 2. MPO 226 Apr 22 Overall inflation remained contained at slightly decline to an average of 53.4 per- 2.0 percent in 2021, but disruptions in cent in 2022–24, consistent with GDP per global supply chains and high interna- Outlook capita growth. The return of real GDP tional commodity and agricultural prices per capita to the pre-COVID level of exerted inflationary pressures on domes- The ROC is expected to gradually recov- US$1,800 by 2030 will require the econo- tic food prices, which increased by about er from the COVID-19 crisis, with GDP my to grow by 4.5 percent, on average, 3.4 percent, especially affecting the poor. growth projected at 3.5 percent in 2022 starting in 2025. Meanwhile, the pover- Despite the fall in oil production, govern- and an average of 3.8 percent in 2023-24. ty rate is projected to return to pre-pan- ment revenues increased due to higher oil Oil sector growth (expected at 4.0 per- demic levels by 2028. prices, which, together with a moderation cent in 2022 and an average of 4.9 per- The fiscal balance is expected to remain in public spending, led to a fiscal surplus cent in 2023-24) would be driven primar- positive at 4.1 percent of GDP in 2022 estimated at 2.1 percent of GDP in 2021 ily by the resumption of investments by and an average of 2.3 percent in 2022–24 (compared to a deficit of 2.4 percent of oil companies, including for asset mainte- due to higher oil revenues, fueled by GDP in 2020). Public debt fell sharply from nance, which had been postponed due to higher oil prices (resulting from the con- 113.2 percent of GDP in 2020 to 98.5 per- the pandemic and negotiations with oil flict in Ukraine) and improved non-oil cent of GDP in 2021, driven by high exter- companies over taxation arrangements. revenue mobilization (resulting from tax nal debt service payments tied to oil prices Non-oil economic growth (expected at administration reforms). Higher oil prices and the increase in nominal GDP. In the 3.0 percent in 2022 and 2.5 percent, on are also projected to widen the current external sector, high export receipts result- average, in 2023-24) will be spurred by account surplus to 15.3 percent of GDP ing from higher oil prices led to an estimat- the removal of COVID-19 restrictions in in 2022, before it narrows to an average ed current account surplus of 9.0 percent of early 2022, continued progress in repay- of 4.6 percent of GDP in 2023-24, as in- GDP in 2021 (compared to a surplus of 0.9 ment of domestic arrears, and the re- vestments in new oil fields will lead to percent of GDP in 2020). The Bank of Central sumption of public investments (partially an increase in equipment imports. African States tightened its monetary policy due to an increase in fiscal space from Downside risks include uncertainties relat- in late 2021 over concerns about the evolu- higher oil revenues). However, the war ed to the pandemic and oil production. A tion of foreign exchange reserves, which, in Ukraine may also translate into higher prolonged war in Ukraine represents both despite higher oil prices and the Interna- inflation of about 2.8 percent in 2022 downside and upside risks. While it would tional Monetary Fund’s 2021 Special Draw- and an average of 3.0 percent in 2023-24. further raise international agricultural ing Rights allocation (equivalent to US$1.4 Food inflation is expected to rise even prices, adding substantial inflationary billion), represented just above 3 months’ higher, impacting the country’s food se- pressures, it could also sustain high oil worth of the region’s imports of goods and curity, given that food accounts for about prices, potentially strengthening the eco- services by end-December 2021 (roughly 30 percent of the ROC’s merchandise im- nomic recovery. the same as by end-December 2020). ports. The poverty rate is expected to TABLE 2 Republic of Congo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.1 -6.2 -3.5 3.5 3.0 4.5 Private Consumption 1.6 -6.9 7.5 5.0 4.5 5.5 Government Consumption -18.7 -33.1 9.7 9.4 4.6 4.1 Gross Fixed Capital Investment -2.3 -45.0 12.7 6.9 10.9 10.9 Exports, Goods and Services 7.4 -11.1 -9.6 4.7 3.4 6.0 Imports, Goods and Services 3.2 -36.3 5.0 11.0 9.8 11.5 Real GDP growth, at constant factor prices -0.6 -5.1 -3.5 3.5 3.0 4.5 Agriculture 0.2 4.5 1.5 2.7 2.1 2.0 Industry 0.2 -3.7 -9.2 4.0 3.5 6.3 Services -1.8 -9.2 3.9 3.0 2.6 2.7 Inflation (Consumer Price Index) 2.2 1.4 2.0 2.8 3.0 3.0 Current Account Balance (% of GDP) -0.8 0.9 9.0 15.3 6.6 2.7 Net Foreign Direct Investment (% of GDP) 3.4 2.4 5.5 5.0 5.7 5.9 Fiscal Balance (% of GDP) 3.4 -2.4 2.1 4.1 2.8 1.9 Debt (% of GDP) 81.9 113.2 98.5 82.6 77.6 71.9 Primary Balance (% of GDP) 8.0 -0.6 4.3 6.0 4.7 3.5 a,b International poverty rate ($1.9 in 2011 PPP) 48.7 51.9 53.9 53.6 53.5 52.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 72.1 74.1 75.8 75.5 75.5 74.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 89.6 90.9 91.5 91.5 91.4 91.1 GHG emissions growth (mtCO2e) 2.3 -1.2 0.1 1.5 1.4 1.8 Energy related GHG emissions (% of total) 21.3 19.9 19.5 20.1 20.7 21.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2011-ECOM. Actual data: 2011. Nowcast: 2012-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2011) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 227 Apr 22 will continue fueling inflationary pres- sures. While the vaccination rollout is CÔTE D'IVOIRE Key conditions and among the highest in West Africa, vul- nerabilities from new infection waves re- challenges main. Heightened regional and securi- ty tensions and climate-related factors Table 1 2021 One of the fastest-growing economies in could also dampen the outlook. In the Population, million 27.1 sub-Saharan Africa for almost a decade - medium term, the roll out of the NDP GDP, current US$ billion 66.2 with real GDP growth averaging 8.2 per- will depend on adequate financing, GDP per capita, current US$ 2445.4 cent annually over 2012–19 (5.7 percent in premised on greater domestic revenue a 9.2 International poverty rate ($1.9) per capita terms) - Cote d’Ivoire exits the mobilization and private financing. a 34.9 global COVID-19 crisis facing a renewed Lower middle-income poverty rate ($3.2) a 67.4 imperative: addressing bottlenecks to en- Upper middle-income poverty rate ($5.5) Gini index a 37.2 able structural transformation and sustain School enrollment, primary (% gross) b 100.5 inclusive growth. Total factor productivity Recent developments b 57.8 growth has remained flat since 2017, and Life expectancy at birth, years economic complexity has stalled, below The economy rebounded strongly from the Total GHG Emissions (mtCO2e) 49.3 the level expected for its income level. The COVID-19-induced slowdown in 2020, Source: WDI, Macro Poverty Outlook, and official data. informal sector, although shrinking, still aided by fiscal and monetary policy sup- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy accounts for up to 40 percent of GDP. port and less disruptive containment mea- (2019). Aiming to double GDP per capita by sures. Real GDP growth is estimated at 7.0 2030, the authorities adopted the National percent in 2021 (4.4 percent in per capita Development Plan (NDP) 2021-2025 in terms) against 2 percent in 2020 (-0.6 per- The recovery in 2021 registered 7.0 per- December 2021, based on leveraging pri- cent in per capita terms), owing to cent growth (4.4 percent per capita), with vate investment, capital deepening, im- stronger-than-expected domestic demand. provements in human capital, addressing Private consumption and investment were a rebound in domestic demand. Inflation climate risks, and strengthening gover- supported by strong credit (+13 percent) reached a 10-year high, casting a shadow nance. Improving factor accumulation and employment (+7.5 percent) growth; over the gains for poor households. Head- while reducing allocative inefficiencies while public consumption and invest- winds prevail in the short-term from the created by market distortions should im- ments remained high. Net exports were prove productivity, and support the de- negative at end-November, as exports of surge in global commodity prices, the velopment of higher-value added sectors cocoa and cashew nuts were offset by in- tightening of financial markets, and sup- in services and manufacturing. vestment-driven imports (+15.1 percent). ply-side disruptions resulting from the Downside risks in the short term have The supply side was marked by a strong Ukraine conflict, along with heightened risen due to the Ukraine conflict’s im- expansion in commerce and services, in- geopolitical and security tensions from pact on global commodity prices and cluding trade and telecom despite tempo- supply-side disruptions to agricultural rary disruptions in electricity supply the Sahel. caused by climate-related factors in the inputs. A tightening of global financial conditions could increase debt vulnera- first half of the year. Agriculture’s perfor- bilities, while higher oil and food prices mance was more mixed with weak food FIGURE 1 Côte d'Ivoire / Real GDP growth and FIGURE 2 Côte d'Ivoire / Actual and projected poverty contributions to real GDP growth rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant million LCU) 20 90 1.80 80 1.60 15 70 1.40 10 60 1.20 50 1.00 5 40 0.80 30 0.60 0 20 0.40 10 0.20 -5 2015 2018 2021 2024 0 0.00 Gov. cons. Exports GFCF 2008 2010 2012 2014 2016 2018 2020 2022 2024 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 228 Apr 22 crop production contrasting that of export exceeding the annual target by more than in 2022 due to the Ukraine conflict and its crops. The current account deficit is ex- 15 percent, mostly due to tax buoyancy. global effects. Trade flows with Ukraine pected to have widened to 3.8 percent of Meanwhile, expenditure increased on ac- and Russia are small, but the indirect im- GDP in 2021 from 3.2 percent in 2020, re- count of further security and health pact through higher food and fuel prices flecting lower trade surplus and higher needs, and public investment. Capital ex- would still impact the external and real primary and secondary deficits due to low- penditure outpaced their target by 20.3 sectors. The current account deficit should er official grants and net remittances flows percent, linked to PND projects. In- widen due to higher import prices in the as well as higher interest payments. creased financing needs were covered by short term. Coupled with worsening re- Inflation reached a 10-year high of 4.2 per- recourse to the regional market, the al- gional tensions and insecurity on the cent, 1.2 percentage points above the re- location of IMF SDRs (1.3 percent of northern borders compounding supply gional target, mainly driven by foodstuffs GDP) and Eurobond issuances. As a re- disruptions, inflation could become a ma- because of a water deficit that affected pro- sult, public debt also increased to 52.6 jor threat forcing the BCEAO to tighten duction, and disruptions in the cultivation percent of GDP. monetary policy earlier, increasing financ- schedules of some crops because of mobil- The incidence of extreme poverty mea- ing costs of domestic debt. ity restrictions lingering since 2020 and in- sured with the US$1.9 a day per capita The fiscal deficit is now expected to in- creased security in the northern borders. (2011 PPP) international poverty line de- crease in 2022, with fiscal consolidation de- Côte d’Ivoire’s monetary and exchange clined from 8.95 percent in 2019, to 8.75 layed as a result of the external shock. It rate policies are managed by the Central percent in 2021, slightly higher in compar- should converge towards the WAEMU tar- Bank of West African States (BCEAO), ison to pre-COVID (2019) poverty projec- get of 3 percent of GDP one year later, in which maintains a fixed peg between the tions of 8.6 percent. The recent inflation 2025, with PPG debt only gradually sta- CFA Franc and the Euro. Its reserves spike is estimated to have increased ex- bilizing around 52 percent of GDP in reached 5.8 months of imports in 2021 ow- treme poverty rate by 0.2 ppt point over 2023-24. In the medium term, creating fis- ing to increased exports, the August 2021 the 2020-21 period. cal space and preserving debt sustainabil- SDR allocation, and Eurobond issuances in ity would require additional revenue mo- the region (by Benin, Côte d’Ivoire, Sene- bilization. Increased borrowing in the do- gal and the BOAD). mestic market could potentially crowd out High expenditure levels to support eco- Outlook private investment. Poverty alleviation nomic recovery were offset by higher- should continue in the medium term on than-expected revenue collection, allow- The medium-term outlook is broadly posi- the back of the economic recovery and the ing for a decline of the fiscal deficit to tive, supported by the PND and a commit- rollout of the new social development plan 5.1 percent of GDP in 2021. Tax revenues ment to macroeconomic stability, but re- (PSGOUV2). significantly increased (+20 percent yoy), al GDP growth is projected to decelerate TABLE 2 Côte d'Ivoire / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.2 2.0 7.0 5.7 6.8 6.6 Private Consumption 6.0 1.9 5.0 4.2 4.5 4.3 Government Consumption 4.1 0.3 1.3 3.1 2.1 -0.2 Gross Fixed Capital Investment 5.5 12.2 21.3 9.1 7.8 6.0 Exports, Goods and Services 5.7 -1.3 3.7 9.8 17.1 15.6 Imports, Goods and Services 4.4 8.8 12.7 9.2 10.8 7.5 Real GDP growth, at constant factor prices 6.3 2.0 7.0 5.7 6.8 6.6 Agriculture 5.3 2.7 1.9 2.0 2.8 2.9 Industry 11.5 1.6 6.2 6.6 10.0 10.9 Services 4.7 1.9 8.7 6.4 6.6 5.8 Inflation (Consumer Price Index) 0.8 2.4 4.2 5.5 3.5 3.0 Current Account Balance (% of GDP) -2.3 -3.2 -3.8 -4.7 -4.2 -4.0 Net Foreign Direct Investment (% of GDP) 1.3 1.2 1.5 1.3 1.4 1.7 Fiscal Balance (% of GDP) -2.3 -5.6 -5.1 -5.7 -4.8 -3.9 Debt (% of GDP) 38.8 47.6 52.0 52.6 52.7 51.8 Primary Balance (% of GDP) -0.8 -3.7 -3.0 -3.4 -2.8 -2.1 a,b International poverty rate ($1.9 in 2011 PPP) 8.9 9.0 8.8 8.5 8.3 8.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 34.5 34.5 34.1 33.7 33.3 32.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 66.6 66.7 65.9 65.0 64.2 63.4 GHG emissions growth (mtCO2e) 0.3 -0.5 -0.4 -0.3 0.3 0.0 Energy related GHG emissions (% of total) 21.3 20.2 19.6 18.8 18.1 17.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2015-ENV and 2018-EHCVM.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point to point elasticity at regional level with pass-through = 1 based on GDP per capita in constant LCU. MPO 229 Apr 22 months during the crisis, and only 14 per- cent of students continued their education EQUATORIAL Key conditions and (either in person or from home). In the con- text of data paucity to track poverty, the challenges GUINEA Living Standard Measurement Survey (ex- pected in 2022) will be key to benchmark Since the oil price drop in 2014, Equato- poverty incidence. rial Guinea’s economic growth has been Table 1 2021 negative amid a declining trend of the Population, million 1.5 dominant hydrocarbon sector. While the GDP, current US$ billion 10.7 country is classified as upper-middle-in- Recent developments GDP per capita, current US$ 7408.7 come, the long recession has likely cur- School enrollment, primary (% gross) a 61.8 tailed progress in shared prosperity and The economy is estimated to have re- a 58.7 poverty reduction, with GDP per capita mained in recession in 2021 as GDP Life expectancy at birth, years growth averaging -6.1 percent over the contracted by an estimated 1.6 percent Total GHG Emissions (mtCO2e) 20.6 past decade. Human capital outcomes are (an improvement from a contraction of Source: WDI, Macro Poverty Outlook, and official data. weak and undermined by insufficient so- 4.9 percent in 2020), mainly due to a a/ WDI for School enrollment (2015); Life expectancy (2019). cial spending and poor public service de- decline in hydrocarbon production (de- livery. Public health spending represents spite positive performance in liquified only 0.7 percent of GDP, significantly natural gas [LNG]). A new wave of The economy is estimated to have record- lower than the average of 3.3 percent of COVID-19 at the end of the year, a GDP for upper-middle-income countries, slowdown in construction (due to mod- ed its seventh consecutive year of negative while life expectancy at birth is low at erate public investment), and the Bata growth in 2021 amid disappointed hydro- only 58.9 years. The unfavorable busi- explosions (which occurred in March carbon production. Barring new substan- ness environment and poor governance 2021 and caused widespread damage tial hydrocarbon discoveries, growth is (with corruption perception levels among in Equatorial Guinea’s largest city) also the worst in the world) weigh down pri- contributed to dampening economic projected to remain negative over the vate sector development. The dependen- growth. The revival of the service sector medium term. Uncertainties related to cy on the hydrocarbon sector has made that followed the end of mobility restric- the Russian invasion of Ukraine, along the country highly vulnerable to volatile tions, including the full reopening of in- with a deterioration of the financial sector oil prices, and the social and economic ternational borders, limited the extent of and fiscal position associated with a pro- toll of COVID-19 has highlighted the ur- the economic downturn. gent need to diversify the economy away Notwithstanding higher global food longed COVID-19 crisis, represent down- from the hydrocarbon industry. and energy prices, inflation rate in side risks to the outlook. There are no reli- Poverty is likely to have increased during Equatorial Guinea is estimated at 1.8 able data to track poverty. the COVID-19 pandemic, with phone sur- percent in 2021 (lower than 4.8 percent veys conducted in 2020 showing a signif- in 2020), driven mainly by the phasing icant impact on employment and school- out of restrictive COVID-19-related ing. Indeed, almost half of the working measures. The authorities made timid population stopped working for up to 6 progress on the gradual repayment of FIGURE 1 Equatorial Guinea / Hydrocarbon production (in FIGURE 2 Equatorial Guinea / Non-income poverty thousands of barrels per day of oil equivalent) indicators Thousands of barrels Percentage points 250% 310000 EQG relative to Sub-Saharan Africa average 290000 200% EQG relative to Middle income countries 270000 average 150% 250000 100% 230000 210000 50% 190000 0% 170000 Mortality rate, under- Maternal mortality Prevalence of anemia 5 (per 1,000 live ratio (modeled among children (% of 150000 births) estimate, per 100,000 children ages 6-59 2020 2021e 2022f 2023f 2024f live births) months) Sources: National authorities and World Bank. Source: World Bank. MPO 230 Apr 22 domestic arrears (currently at 36 per- 3 months’ worth of regional imports of The outlook could worsen if the global cent of total public debt), helping to goods and services by end-December COVID-19 crisis lingers and the govern- gradually reduce the share of non-per- 2021 (roughly the same as by end-De- ment fails to resolve the elevated outstand- forming loans and improve the liquid- cember 2020). ing arrears, which could intensify financial ity and solvency of the banking sector. sector risks. Moreover, international donor More favorable oil prices (resulting in budget support may fail to materialize (in higher oil revenues), coupled with gov- particular, IMF lending program-related ernment expenditure moderation (in par- Outlook disbursements) if progress on key fiscal ticular public investment), significantly and governance reforms remains slow. Fi- improved the government’s fiscal posi- Economic growth is expected to re- nally, negative medium-term growth tion compared to the previous year, with bound in 2022 (1.8 percent) due to high- prospects and associated rising fiscal pres- the fiscal deficit narrowing from 3.3 per- er hydrocarbon production (especially sures could hamper the government’s cent of GDP in 2020 to 1.2 percent of LNG) and sustained high oil and gas plans to raise social spending, undermin- GDP in 2021. In addition to higher year- prices owing to the conflict in Ukraine, ing social outcomes. Upside risks include on-year oil exports in 2021, lower im- which should have positive spillover ef- the use of the IMF SDR allocation to re- ports also had a favorable impact on the fects on domestic demand. Barring new solve government arrears and stronger- external deficit, which narrowed to 2.4 substantial discoveries, hydrocarbon than-projected oil revenues stemming percent of GDP (from 10.9 percent of production will continue to decline as from both higher-than-expected oil prices GDP in 2020). some of the country’s largest oil fields and oil production. A prolonged war in The Bank of Central African States tight- are reaching maturity. As a result, GDP Ukraine presents both downside and up- ened its monetary policy in late 2021 growth is projected to contract by an av- side risks. While it would raise internation- over concerns about the evolution of for- erage of 2.4 percent in 2023-24. In the al agricultural prices (adding inflationary eign exchange reserves, which, despite absence of significant diversification ef- pressures in Equatorial Guinea), it could higher oil prices and the International forts or investments into new hydrocar- also sustain high oil prices (which would Monetary Fund (IMF) 2021 Special Draw- bon reserves, GDP per capita will take increase oil revenues). ing Rights (SDR) allocation (equivalent nearly two decades to return to its pre- to US$1.4 billion), represented just above pandemic level. TABLE 2 Equatorial Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -6.0 -4.9 -1.6 1.8 -2.6 -2.1 Private Consumption 3.4 3.4 1.0 1.4 1.2 0.7 Government Consumption -4.5 -5.3 2.3 0.4 -8.5 -5.8 Gross Fixed Capital Investment -55.8 -42.1 -18.0 -6.0 -17.0 -20.0 Exports, Goods and Services -6.2 -9.0 -1.7 2.9 -0.8 -0.9 Imports, Goods and Services -9.0 -7.8 2.0 2.0 1.0 0.5 Real GDP growth, at constant factor prices -6.0 -5.0 -1.6 1.9 -2.6 -2.1 Agriculture -5.8 0.4 2.8 1.4 1.4 1.4 Industry -8.7 -6.8 -0.6 3.0 -2.0 -2.4 Services -1.2 -2.1 -3.5 0.0 -4.0 -1.7 Inflation (Consumer Price Index) 1.2 5.8 1.8 2.8 2.5 2.5 Current Account Balance (% of GDP) -1.6 -10.9 -2.4 1.4 -1.2 -2.1 Net Foreign Direct Investment (% of GDP) 5.3 3.9 5.9 5.0 5.4 5.6 Fiscal Balance (% of GDP) 2.0 -3.3 -1.2 -0.6 -1.4 -1.5 Debt (% of GDP) 45.9 52.3 47.4 43.2 47.9 45.9 Primary Balance (% of GDP) 2.7 -2.0 0.4 0.8 0.2 0.1 GHG emissions growth (mtCO2e) -8.5 -2.5 -0.1 0.5 -1.0 0.6 Energy related GHG emissions (% of total) 21.6 17.4 18.2 19.4 19.5 20.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 231 Apr 22 led to data production capacity con- straints. National accounts data are lim- ERITREA Key conditions and ited to unofficial GDP estimates by the Ministry of Finance, inflation estimates challenges cover only the capital, Asmara, and full balance of payments accounts are miss- Table 1 2021 After UN sanctions were lifted in Novem- ing. The last population census in Eritrea Population, million 3.6 ber 2018, Eritrea started emerging from a took place more than 25 years ago. GDP, current US$ billion 2.3 decade of international isolation. Efforts to Therefore, little is known about poverty. GDP per capita, current US$ 632.6 shift from a centrally planned to a market- Data from 1996/97, covering only urban a 68.4 School enrollment, primary (% gross) led economy have been slow and sporadic, areas, suggests that poverty was wide- a 66.3 and large SOEs dominate economic activi- spread with around 70 percent of the Life expectancy at birth, years Total GHG Emissions (mtCO2e) 8.3 ty. Monetary policy is characterized by ad- population living in poverty. Source: WDI, Macro Poverty Outlook, and official data. ministrative measures, fiscal dominance, a/ WDI for School enrollment (2018); Life expectancy and a fixed exchange rate regime pegged (2019). to the US dollar, enabled by severe import restrictions in a context of low foreign ex- Recent developments change reserves. The banking system Real GDP rebounded by 2.9 percent in largely lends to government and lacks in- After contracting by 0.6 percent in 2020 2021 after a 0.6 percent contraction in ternational correspondent banks, while amid the Covid-19 crisis, real GDP re- payment and settlement systems are ab- bounded by an estimated 2.9 percent in 2020, aided by external demand uptake sent. The country is among the most vul- 2021, supported by external demand up- and resumption of domestic activity. A nerable and least adapted to climate take and the resumption of economic ac- significant boost to growth is expected in change in Sub-Saharan Africa, and fre- tivity as the restrictions imposed at the 2022 from new mining developments and quent weather shocks pose a heavy burden onset of the pandemic were lifted. Infla- rising prices of mineral exports. However, for the economy and rural livelihoods. The tionary pressures that build up following mining sector, which started operating in the closure of the border with Ethiopia af- rising food inflation, climate vulnerabili- 2011, accounts for over 90 percent of total ter its temporary opening for two months ties and geopolitical tensions cloud the exports, yet contributions to budget rev- in 2019 eased in 2021, and inflation hov- medium-term outlook. National accounts enues are limited. ered at 4.5 percent. The external current and poverty statistics have not been pro- The Covid-19 crisis hit Eritrea amid a hia- account surplus increased to 13.6 percent tus in its reengagement with development of GDP in 2021 from 11.4 percent the year duced over the last decade. partners, leaving it without needed exter- before as commodity exports grew faster nal funding. In addition, informal cross- than the recovering imports. Reserves are border trade was affected by the conflict in estimated to hover at about two months northern Ethiopia. Yet, Eritrea’s isolation of imports. moderated the magnitude of the initial ex- The UN Food and Agriculture Organiza- ternal shock. tion said in early March 2022 that the The emergency conditions prevailing in desert locust upsurge that ravaged the the country over the past decade have Horn of Africa for more than two years FIGURE 1 Eritrea / Evolution of total public debt FIGURE 2 Eritrea / Primary and overall fiscal balances Percent of GDP Percent of GDP 350 6 300 4 250 2 200 0 150 -2 100 50 -4 0 -6 2017 2018 2019 2020 2021e 2022p 2023p 2017 2018 2019 2020 2021e 2022p 2023p Domestic debt External debt Total public debt Overall fiscal balance Primary fiscal balance Sources: Ministry of Finance, Planning and Economic Development, World Bank Sources: Ministry of Finance, Planning and Economic Development, World Bank staff estimates. staff estimates. MPO 232 Apr 22 has ended as drier conditions prevail, but outcomes remain uncertain given fre- household’s consumption, exacerbating recommended vigilance as few residual quent data revisions due to reporting lags poverty and food insecurity. Over the infestations may linger. As part of efforts driven by widespread manual processes. medium term, growth could continue in to reinvigorate the partnership between the range of 3.6 to 3.8 percent, supported the UN and Eritrea and prepare for a by sustained mineral exports and potential new Sustainable Development Coopera- spillovers from the new potash mine to fer- tion Framework for 2022-2026, a 24-per- Outlook tilizer production, which could enhance son mission to Asmara led by UN Re- agricultural productivity, improving liveli- gional Directors took place end-January Real GDP growth is expected to accelerate hoods and food security. 2022, with discussions covering to 4.7 percent in 2022 as the Colluli and Nevertheless, downside risks are signifi- COVID-19 vaccination, regional dynamics Asmara mines start exporting at full ca- cant. Rising global geopolitical tensions in the Horn of Africa, regional trade in- pacity. Rising international prices of zinc, and new Covid-19 variants could further tegration and ACFTA, human rights, cli- gold and copper, which jointly account for reduce global growth, negatively impact- mate action, and data for development. over 90 percent of Eritrea’s exports, will ing exports. Eritrea’s continued involve- However, Eritrea remains mostly isolated strengthen the current account and soften ment in the northern Ethiopia conflict internationally. On November 12, 2021, the negative impact from rising prices of could attract renewed international sanc- the US imposed sanctions on four promi- oil and wheat, which are among the coun- tions, while escalation of war in Europe nent Eritrean entities and two individuals try’s top imports, stemming from the Rus- could further push up oil and wheat in response to their role in the ongoing sia-Ukraine war. Similarly, the hike in prices, with potentially dire effects on human rights crisis in Ethiopia. potash prices, which have trebled over the poverty and food insecurity. The absence The rebounding economic activity sup- past year and have low prospects of com- of a Covid-19 vaccination campaign ported stronger revenues in 2021, driving ing down soon as sanctions weigh heavily heightens risks to lives and livelihoods, a decline of fiscal deficit to 3.7 percent on Russia and Belarus, the second and while severe climate vulnerabilities that of GDP from 4.2 in 2020. Construction third world producers of the commodity, burden Eritrea could worsen in coming work associated to the Colluli and As- could further boost Eritrea’s growth and years. The fragile macroeconomic situation mara mines continued to drive capital ex- external accounts, bolstering government and severe credit constraints leave the penditures. Public debt is estimated at revenue and providing much needed for- country with little space to boost prepared- around 243 percent of GDP, of which eign exchange. However, the increasing ness facing these risks, and to control dam- nearly 80 percent is owed to domestic food inflation and possible shortages of ages should they materialize. banks. However, fiscal and domestic debt key commodities will weigh negatively on TABLE 2 Eritrea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.8 -0.6 2.9 4.7 3.6 3.7 Private Consumption 5.5 -1.9 3.0 7.2 5.6 5.9 Government Consumption 39.3 16.4 9.9 3.5 4.0 2.2 Gross Fixed Capital Investment 67.5 152.2 39.1 -18.0 1.6 1.3 Exports, Goods and Services -5.0 -5.4 49.7 25.7 3.8 1.6 Imports, Goods and Services 1.4 -3.5 42.6 28.0 2.0 3.1 Real GDP growth, at constant factor prices 3.7 -0.7 2.9 4.7 3.6 3.7 Agriculture 27.0 -0.5 4.5 3.1 2.5 3.3 Industry 13.0 -0.7 1.4 10.2 7.6 6.7 Services -26.0 -1.1 2.0 0.6 0.2 0.3 Inflation (Consumer Price Index) -16.4 4.8 4.5 6.2 3.5 2.2 Current Account Balance (% of GDP) 13.0 11.4 13.6 13.6 13.3 12.4 Net Foreign Direct Investment (% of GDP) 3.9 3.8 3.7 3.4 3.3 3.2 Fiscal Balance (% of GDP) 0.7 -4.2 -3.7 -0.8 0.3 1.0 Debt (% of GDP) 269.5 260.7 242.7 215.4 198.9 186.6 Primary Balance (% of GDP) 2.5 -2.6 -2.3 0.6 1.4 2.1 GHG emissions growth (mtCO2e) 4.3 -2.8 3.1 4.9 3.7 1.0 Energy related GHG emissions (% of total) 26.1 26.3 26.6 27.5 27.8 28.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 233 Apr 22 poverty has been slow, with close to a third of the population living below ESWATINI Key conditions and the US$1.90/day (2011 PPP) international poverty line. At about 27 percent, Eswa- challenges tini has the world’s highest HIV preva- lence rate among adults aged 15 to 49, a Table 1 2021 Eswatini has largely relied on government driver and consequence of high poverty Population, million 1.2 investment and consumption to drive and inequality. GDP, current US$ billion 4.7 growth since the end of apartheid in South GDP per capita, current US$ 4009.7 Africa, as foreign private investment de- a 29.2 International poverty rate ($1.9) clined and relocated back to South Africa. Lower middle-income poverty rate ($3.2) a 52.1 Private investment remains constrained by Recent developments a 72.0 an unfavorable investment climate and Upper middle-income poverty rate ($5.5) Gini index a 54.6 governance challenges. The risk of recur- Despite the continued COVID-19 pandem- School enrollment, primary (% gross) b 114.5 rence of political unrest in Eswatini and ic and the June 2021 political unrest, eco- b 60.2 heightened global risks create uncertainty nomic growth is estimated to have re- Life expectancy at birth, years for medium-term private sector invest- bounded to 3.1 percent in 2021 from a con- Total GHG Emissions (mtCO2e) 3.0 ment and economic growth. traction of 1.9 in 2020. The third and fourth Source: WDI, Macro Poverty Outlook, and official data. The fiscal situation has been fragile due to COVID-19 wave containment measures a/ Most recent value (2016), 2011 PPPs. b/ Most recent WDI value (2019). overreliance on volatile Southern African were not as restrictive as those of earlier Customs Union (SACU) revenues, which waves, allowing firms to ramp up produc- translates into significant fluctuations in tion in 2021Q4. A recovery in external de- GDP growth is estimated to have re- public spending and pose a challenge to mand supported export-oriented manu- the management of fiscal operations and facturing activities. The vaccination cam- bounded to 3.1 percent in 2021, reflecting growth potential. Volatile SACU receipts paign, which reached about 25.3 percent the easing of COVID-19 restrictions and have been met by rigid government expen- of the population at end December 2021, subsequent boost on external demand. diture, leading to persistent fiscal deficits helped to contain the spread of the virus The fiscal deficit declined in 2021, as the in the recent past (Figure 1). SACU rev- and eased uncertainties on both demand enues consist of external trade and excise and supply prospects. Though the June-Ju- government implemented expenditure duties on imported goods, as well as a de- ly political unrest resulted in the destruc- cuts in line with its three-year fiscal ad- velopment component derived from excise tion of physical assets, theft of inventory, justment plan. Poverty remains stagnant taxes. The volatility in SACU revenues and constrained operational hours, its im- due to slow growth of per capita GDP. largely reflects the volatility in imports pact on production was partly mitigated as The economy is projected to continue to and the impact of exchange rate on custom firms accessed a Reconstruction Fund set receipts. The fall in SACU revenue was up by the government to cushion business recover in 2022, albeit at a slower pace, amplified by declining trade and growth from damages of the political unrest. slowing poverty reduction. during the COVID-19 pandemic. Inflationary pressures weakened in 2021 as Poverty, unemployment, inequality, and the government kept the rental price con- HIV prevalence levels have historically stant, resulting in annual inflation slowing been high. Progress toward reducing to 3.7 percent, from 3.9 percent in 2020. FIGURE 1 Eswatini / Fiscal deficit and SACU revenue FIGURE 2 Eswatini / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 25 90 40000 20 80 35000 15 70 30000 60 10 25000 50 5 20000 40 0 15000 30 20 10000 -5 10 5000 -10 0 0 -15 2009 2011 2013 2015 2017 2019 2021 2023 2000 2003 2006 2009 2012 2015 2018 2021p 2024p International poverty rate Lower middle-income pov. rate Fiscal Deficit SACU Upper middle-income pov. rate Real GDP pc Sources: Eswatini Ministry of Finance, and the World Bank staff projections. Source: World Bank. Notes: see Table 2. MPO 234 Apr 22 Year-on-year inflation started to increase in 6.5 percent in 2020 due to the decline in as at mid- February 2022) is expected to December 2021 (to 3.5 percent from 3 per- SACU revenues. strengthen certainty on demand and sup- cent in November 2021) after declining for Poverty remains stagnant, in a context ply chains. Poverty is projected to remain three consecutive months from September with limited growth in per capita GDP. at around 28 percent, reflecting the slow 2021. Inflation increased further in January About 28.5 percent of the population is es- economic recovery in the medium term. 2022 to 3.6 percent, prompting the Central timated to live below the poverty line The fiscal deficit is projected to further Bank to increase the repo rate (for the first ($1.90/day). decline in 2022, as authorities implement time since July 2020) in January 2022, from the revenue and expenditure-led fiscal 3.75 percent to 4.0 percent. adjustment plan. Although the second- The fiscal deficit is estimated to have de- round effects of the pandemic are antic- clined in FY2021/22 mainly due to under- Outlook ipated to manifest through a further re- spending on capital expenditure. The fiscal duction in SACU revenues in 2022, the deficit is estimated at 5 percent of GDP, Real GDP growth is projected to slow to 2 fiscal deficit is projected to fall, as do- lower than the 6.5 percent of GDP initially percent in 2022, reflecting the implementa- mestic revenues recover, and the authori- projected in the original budget. The un- tion of the government’s three-year fiscal ties continue to maintain a tight expendi- derspending on capital expenditure re- adjustment program that will dampen ture framework. Public debt is projected flects low disbursements due to delays in growth of sectors linked to government to reach a peak in 2022 of 46 percent of the procurement process on foreign fi- operations, such as construction and pub- GDP and will start to decline from 2023, nanced projects. It also reflects commit- lic administration. In addition, inflation is reflecting declining fiscal deficit. ment to the fiscal adjustment plan that expected to rise to 4.7 percent in 2022, dri- The current account balance is projected to aims to limit the accumulation of expen- ven by higher international oil (partly trig- turn into a deficit of 1.2 percent of GDP in diture arrears. At the same time, revenue gered by the Russia-Ukraine conflict), ad- 2022—the first time since the 2010/11 fiscal collections declined mainly due to the pan- ministered utility prices, and continued crisis—partly reflecting declining SACU demic and subsequent economic chal- supply shocks due to the COVID-19 pan- revenues. The current account surplus is lenges. The current account surplus de- demic. Nevertheless, the continuation of projected from 2023 onward on the back of clined to 0.9 percent of GDP in 2021 from the vaccination program (at 28.6 percent recovering SACU revenue. TABLE 2 Eswatini / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.6 -1.9 3.1 2.0 1.8 1.8 Private Consumption -1.5 0.5 2.7 2.2 2.4 1.4 Government Consumption -2.0 6.7 2.2 -0.5 -1.0 -0.5 Gross Fixed Capital Investment 1.0 -5.9 3.8 2.1 -0.8 1.5 Exports, Goods and Services 16.3 -2.4 2.7 3.6 3.9 4.3 Imports, Goods and Services 1.5 -0.7 2.1 2.5 2.3 2.3 Real GDP growth, at constant factor prices 2.7 -1.7 3.1 2.0 1.8 1.9 Agriculture 0.9 -5.4 3.3 3.5 4.5 3.6 Industry 5.5 -9.7 7.8 1.5 1.6 2.0 Services 1.1 4.5 0.2 2.1 1.4 1.5 Inflation (Consumer Price Index) 2.6 3.9 3.7 4.7 4.3 4.4 Current Account Balance (% of GDP) 4.7 6.5 0.7 -1.2 0.4 1.1 Net Foreign Direct Investment (% of GDP) -2.4 -0.2 -0.7 -0.8 -0.8 -0.8 Fiscal Balance (% of GDP) -6.2 -6.7 -5.1 -4.4 0.7 2.1 Debt (% of GDP) 40.0 41.7 42.8 45.7 44.7 42.2 Primary Balance (% of GDP) -4.9 -4.5 -3.3 -1.4 3.4 4.5 a,b International poverty rate ($1.9 in 2011 PPP) 27.5 28.6 27.9 27.5 27.2 26.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 51.1 52.0 51.4 51.1 50.7 50.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 70.9 71.8 71.1 70.9 70.9 70.5 GHG emissions growth (mtCO2e) 0.5 0.2 -0.5 0.1 0.2 0.3 Energy related GHG emissions (% of total) 45.7 45.9 46.0 46.1 46.2 46.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2016-HIES.Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 235 Apr 22 Downside risks loom large over the out- look presented below. While has been a ETHIOPIA Key conditions and significant de-escalation in the armed con- frontation between federal and allied re- challenges gional forces and Tigrayan forces since De- cember and both sides seem to be more Table 1 2021 Ethiopia has been among the fastest open to seek a solution through diploma- Population, million 117.9 growing countries in the world, with cy, the risks associated to a protracted con- GDP, current US$ billion 114.6 GDP expanding at an average rate of 10 flict remain significant. Impacts on agricul- GDP per capita, current US$ 972.5 percent during FY04-FY20. Growth has ture are also being compounded by the on- a 30.8 International poverty rate ($1.9) been driven by large-scale public invest- going drought affecting the Horn of Africa. a 68.9 ment in infrastructure. While poverty de- Finally, there are risks that macroeconomic Lower middle-income poverty rate ($3.2) a 90.2 clined by about 10 percentage points dur- stability is affected and economic reforms Upper middle-income poverty rate ($5.5) Gini index a 35.0 ing 2004-2016, gains are modest when are delayed or reversed. School enrollment, primary (% gross) b 119.4 compared to other countries that saw fast b 66.6 growth, and inequality has increased in Life expectancy at birth, years recent years. Total GHG Emissions (mtCO2e) 213.6 The limitations of the state-led develop- Recent developments Source: WDI, Macro Poverty Outlook, and official data. ment model in Ethiopia have become ap- a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy parent in recent years. Structural trans- At 6.3 percent according to official figures, (2019). formation remains incipient, and the role growth surprised on the upside in FY21, of the private sector is constrained by as agriculture performance in the second SOE dominance and an uneven playing part of the year was better-than-expected. An increased import bill and a decline field. The financing of the large capital The few available high-frequency indica- in official aid flows have led to a weak- investments coupled with a loss in com- tors suggest growth has been sluggish in petitiveness, caused by an overvalued ex- the second half of 2021, as electricity gen- ening of the balance of payments and a change rate, have put the country at eration dropped, capital imports contract- significant drawdown in reserves. high risk of debt distress. Acknowledging ed, and regional authorities in Amhara re- Growth in FY22 is expected to ease these shortcomings, the authorities ported that 41 million quintals of agricul- from 6.3 percent in FY21, impacted by launched a Homegrown Economic Re- ture production (or about 10 percent of the form Agenda in September 2019, aiming production of the previous year) had been the armed conflict, and inflation is likely to foster efficiency and introduce com- lost due to the conflict. to remain high, as oil and wheat prices petition in key growth-enabling sectors Merchandise exports grew at 21.8 percent increase. This is expected to result in a (energy, logistics, and telecom), improve year-on-year (y-o-y) during July-Novem- slowdown in poverty reduction. the business climate, and address macro- ber 2021. While gold exports have de- economic imbalances. Among other mea- clined after the surge in FY20, exports sures, authorities are expected to adopt of coffee, meat, and vegetables have been a market-determined exchange rate and strong in both volumes and values, and introduce a modern monetary policy textile and flower exports have rebound- framework by end-2022. ed. Merchandise imports have expanded FIGURE 1 Ethiopia / Gross foreign exchange reserves FIGURE 2 Ethiopia / Evolution of inflation, y-o-y percentage change Million US$ Months of imports Percent change 4,500 3.0 45 4,000 40 2.5 3,500 35 3,000 2.0 30 2,500 25 1.5 2,000 20 1,500 1.0 15 1,000 10 0.5 500 5 0 0.0 0 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 In million US$ In months of imports General Food Nonfood Source: National Bank of Ethiopia. Source: Central Statistical Agency of Ethiopia. MPO 236 Apr 22 fast (24.3 percent y-o-y), driven by a larg- a supplementary budget comprising addi- Bank of Ethiopia bonds, which will likely er fuel and cereal bill as international tional outlays on defense and reconstruc- hold back economic activity. Prices are prices climb up. This has resulted in a sig- tion amounting to about US$2.5 billion (2.3 expected to keep rising the coming nificant widening of the current account percent of GDP). months, as monetary policy has loosened deficit. During the first five months of FY22, About 30 percent of households continue again, crop production has likely been a significant drawdown of reserves was reporting inability to purchase essential impacted by the conflict, and internation- needed, as official transfers halved (-47.8 items (food, medicines), and in the April al commodity prices remain high. The percent y-o-y), and despite robust FDI in- 2021 round of the high-frequency survey economic consequences of the Russian in- flows (26.9 percent y-o-y). Reserves stood in there was a surge in the number of house- vasion of Ukraine, war and associated November at US$1.8 billion (about one holds mentioning high prices were their sanctions are expected to result in further month of imports). main impediment. The ongoing armed deterioration of the balance of payments Inflation has averaged above 30 percent dur- conflict has had a severe impact on food se- and inflationary pressures. This outlook ing the first seven months of FY22, driven by curity: the World Food Program (WFP) es- expects some rebound in economic ac- food prices, a recent increase in fuel prices, timated that as of November 2021, 9.4 mil- tivity in FY23 assuming the conflict in and expectations. Despite continued nomi- lion people needed humanitarian food as- Tigray does not reignite. nal depreciation, high inflation has resulted sistance in northern Ethiopia. The poverty trajectory is uncertain due to in the real exchange rate remaining broadly offsetting factors. On one hand, armed unchanged during this period. After some conflict, persistent droughts in lowland re- slowdown over the summer, base money gions and rising inflation, are expected to growth has picked up again, reaching 33.4 Outlook have driven a large number of people into percentduringthefirstfivemonths ofthefis- poverty. On the other hand, growth in oth- cal year. Broad money growth eased to 24 The growth figure for FY22 has been re- er sectors and parts of the country is ex- percent, impacted by the temporary instruc- vised down on account of the intensi- pected to alleviate poverty. Whether the tion to freeze bank loan disbursements, fication of the conflict during the first poverty effect of growth can fully offset the which was lifted in December. months of the fiscal year, the introduction impact of the conflict, droughts and infla- Revenue collection remains sluggish, of more stringent foreign exchange sur- tion is unclear, but their intensity suggests growing at an estimate of 15 percent, in rendering requirements, and the new re- that progress in poverty reduction will be nominal terms, during the first half of quirement for banks to invest 1 percent lower than in previous periods. FY22. In January, the parliament approved of outstanding credit on Development TABLE 2 Ethiopia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018/19 2019/20 2020/21 2021/22e 2022/23f 2023/24f Real GDP growth, at constant market prices 9.0 6.1 6.3 3.3 5.2 5.9 Private Consumption 5.1 5.0 3.0 2.5 2.8 3.3 Government Consumption 7.2 0.6 12.2 21.1 3.8 3.1 Gross Fixed Capital Investment 15.1 5.6 7.6 -1.0 8.3 9.8 Exports, Goods and Services 3.0 3.4 5.5 6.2 6.8 7.5 Imports, Goods and Services 5.4 -1.9 2.0 3.8 4.2 5.1 Real GDP growth, at constant factor prices 9.0 6.1 6.3 3.3 5.2 5.9 Agriculture 3.8 4.3 5.5 2.5 4.0 4.0 Industry 11.5 9.6 7.3 5.5 9.5 9.5 Services 12.0 5.2 6.3 2.4 3.0 4.7 Inflation (Consumer Price Index) 12.5 19.9 20.2 34.2 25.6 16.9 Current Account Balance (% of GDP) -5.1 -4.1 -2.7 -4.5 -4.1 -3.8 Fiscal Balance (% of GDP) -2.5 -2.8 -2.8 -4.2 -3.3 -2.9 Debt (% of GDP) 57.3 56.5 56.6 56.0 55.6 53.2 Primary Balance (% of GDP) -2.0 -2.4 -2.2 -3.6 -2.7 -2.3 a,b International poverty rate ($1.9 in 2011 PPP) 25.9 25.2 24.5 24.4 23.9 23.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 63.7 63.0 62.2 62.0 61.5 60.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 83.4 82.4 81.4 81.2 80.5 79.5 GHG emissions growth (mtCO2e) 2.0 1.1 1.2 0.6 1.2 1.5 Energy related GHG emissions (% of total) 24.6 23.2 21.7 19.9 18.4 17.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2015-HICES, 2018-, and 2015-HICES. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using point to point elasticity at regional level with pass-through = 1 based on GDP per capita in constant LCU. Note: Growth projections are based on limited information and stand to be updated/revised based on improved data availability. MPO 237 Apr 22 stepped up to reduce fiscal vulnerabilities. The reintegration of Gabon into the Extrac- GABON Key conditions and tive Industries Transparency Initiative in October 2021 was an important step, and challenges the authorities need to ensure the effective implementation of all membership oblig- Table 1 2021 Gabon’s economic recovery is underway, ations. Despite reaching historic highs in Population, million 2.3 although inadequate governance and a 2020, public debt remains sustainable, al- GDP, current US$ billion 17.6 poor business climate remain major chal- though vulnerabilities are high. GDP per capita, current US$ 7734.3 lenges to channel resource wealth to sus- a 3.4 International poverty rate ($1.9) tainable development and ensure broad- a 11.2 based improvements in living conditions. Lower middle-income poverty rate ($3.2) Upper middle-income poverty rate ($5.5) a 32.2 Given the country’s young workforce and Recent developments Gini index a 38.0 fast-growing population, increasing hu- School enrollment, primary (% gross) b 139.9 man capital is a priority to meet the chal- Following a recession in 2020 caused by b 66.5 lenge of economic diversification and re- the COVID-19 pandemic and oil price Life expectancy at birth, years duce the risk of social unrest in a context shocks, the Gabonese economy expanded Total GHG Emissions (mtCO2e) 13.2 of high unemployment. Higher global oil by an estimated 1.5 percent in 2021. Source: WDI, Macro Poverty Outlook, and official data. prices expected for the forecast horizon Growth was driven by the non-oil sector, a/ Most recent value (2017), 2011 PPPs. b/ WDI for School enrollment (2011); Life expectancy might delay the implementation of mea- in particular the booming mining and (2019). sures to diversify exports, strengthen so- forestry sectors. Oil production is esti- cial safety nets, and promote competition. mated to have declined by 5.5 percent Sustained implementation of reforms to in 2021, year-on-year (y-o-y), to meet the Gabon’s economy expanded by an esti- strengthen public financial management OPEC+ quota. mated 1.5 percent in 2021, driven by the and the efficiency of public investment New measures to encourage vaccination is crucial to meet the country’s devel- have been in place since the beginning of booming mining and forestry sectors. The opment needs and improve its growth 2022, but the number of fully vaccinated fiscal balance deteriorated slightly in prospects. Efforts to improve reporting people remains low at 13 percent of the 2021. Public debt remains sustainable, and procurement practices are required population in early March 2022. The but risks are high. The spike in agricul- to modernize and strengthen public in- poverty rate is estimated to reach 34.1 per- vestment management. cent in 2021. Living conditions have not tural commodity prices due to the Despite the challenging global economic yet returned to their pre-COVID-19 crisis Ukraine conflict could add to food insecu- context, it is crucial for Gabon to accelerate levels, when employment levels suffered rity and disproportionally affect the most its efforts to manage the macroeconomic from restrictive measures, resulting in ma- vulnerable. While higher oil prices will volatility due to external shocks. Key to his jor income losses, especially for self-em- support the recovery, the transformation is building fiscal buffers, by strengthening ployed and informal workers. domestic revenue mobilization and ensur- Despite higher global food and energy of Gabon’s growth model to foster green prices, inflation remained contained in ing a more selective allocation of tax ex- and inclusive growth and accelerate job emptions. Efforts to foster transparency in 2021. The consumer price index in- creation is crucial. natural resource management need to be creased by 2.0 percent in January 2022, FIGURE 1 Gabon / Debt and fiscal balance FIGURE 2 Gabon / Actual and projected poverty rates and real GDP per capita External and domestic debt (in CFAF billion) Fiscal balance (in percent) Poverty rate (%) Real GDP per capita (millions constant LCU) 8,000 8 60 3 7,000 6 50 3 6,000 4 40 3 5,000 2 4,000 30 3 0 3,000 20 3 -2 2,000 10 2 1,000 -4 0 2 0 -6 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2010 2012 2014 2016 2018 2020 2022f 2024f International poverty rate Lower middle-income pov. rate External debt Domestic debt Fiscal balance (rhs) Upper middle-income pov. rate Real GDP pc Sources: Official government data and World Bank calculations. Note: e = esti- Source: World Bank. Notes: see table 2. mate, f = forecast. MPO 238 Apr 22 y-o-y, as food prices rose moderately continued easing of OPEC+ oil production by 2.4 percent. The Bank of Central cuts, and a resumption of investments in African States tightened its monetary Outlook wood and agri-business. policy in late 2021 over concerns about Against this backdrop, the share of the evolution of foreign exchange re- Gabon’s economy is projected to gain mo- Gabonese households living on less than serves, which, despite higher oil prices mentum and grow by an average of 2.8 US$5.5 per day is expected to decline grad- and the 2021 Special Drawing Rights percent in 2023-24. Higher global oil ually to 33.4 percent by 2024, which is 1.0 allocation, represented just above 3 prices due to the conflict in Ukraine are percentage point higher than the pre-pan- months’ worth of imports of goods and expected to have spillover effects on in- demic rate estimated for 2019. services by end-December 2021. ternal demand. Medium-term growth The outlook is subject to high levels of un- The fiscal balance deteriorated slightly to critically depends on the government’s certainty. Gabon’s fiscal sustainability an estimated 2.5 percent of GDP in 2021. commitment to structural reforms and could deteriorate if global financing con- High oil prices partially compensated for economic diversification. ditions tighten substantially. While higher- lower oil production and contributed to Measures to strengthen domestic revenue than-expected global oil prices will favor- higher than initially anticipated oil rev- collection and rationalize tax exemptions ably impact the country’s fiscal and exter- enue while tax revenues remained fragile. would contribute to higher tax revenues, nal balances, high global food and energy The government continued its efforts to and oil-revenue would be favorably im- prices due to the Ukraine conflict pose in- keep spending under control while invest- pacted by higher global oil prices. There flation risks and will disproportionally af- ment spending increased. Public debt is es- may be pressure on the wage bill in 2022 fect Gabon’s most vulnerable population timated to have declined to 70.5 percent of as the public servants’ hiring freeze is dis- and increase food insecurity. The emer- GDP at end-2021. continued. Fiscal balances and debt are ex- gence of new COVID-19 variants may also In 2021, the strong performance of the pected to improve gradually over the have a negative impact on domestic activ- wood and manganese industries, com- medium term. Concrete efforts to improve ity if the government were to impose new bined with higher commodity prices, con- public debt management and budget exe- restrictions. Uncertainty surrounding the tributed to an overall increase in export cution should prevent the accumulation of 2023 presidential election and weak insti- earnings, while imports rose slightly com- new domestic and external arrears. tutional capacity could slow the govern- pared to the previous year. The current ac- The current account is projected to post ment’s implementation of structural re- count deficit is estimated to have narrowed a surplus in the medium term, supported forms aimed at diversifying away from oil, to 4.9 percent of GDP in 2021. by higher oil and manganese prices, the thereby jeopardizing future growth. TABLE 2 Gabon / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 3.9 -1.8 1.5 3.3 2.6 3.0 Private Consumption 0.9 -2.0 -1.0 0.1 3.3 2.6 Government Consumption 6.1 5.5 1.3 0.5 1.5 0.1 Gross Fixed Capital Investment 21.5 -16.7 10.8 -0.2 3.2 5.0 Exports, Goods and Services 14.0 10.1 0.6 6.4 1.8 0.9 Imports, Goods and Services 21.5 -16.7 34.8 0.1 2.7 2.3 Real GDP growth, at constant factor prices 4.2 -1.9 1.5 3.3 2.6 3.0 Agriculture 7.9 5.9 6.7 5.2 4.2 4.8 Industry 6.8 -2.2 0.4 3.0 1.5 2.9 Services 2.3 -2.8 1.3 3.1 2.9 2.7 Inflation (Consumer Price Index) 1.0 1.6 2.0 3.0 2.8 2.5 Current Account Balance (% of GDP) -0.9 -6.0 -4.9 4.1 3.1 1.2 Net Foreign Direct Investment (% of GDP) -7.4 -8.4 -7.5 -4.9 -5.0 -4.0 Fiscal Balance (% of GDP) 1.4 -2.1 -2.5 0.5 2.4 1.8 Debt (% of GDP) 59.8 77.4 70.5 61.6 60.0 59.0 Primary Balance (% of GDP) 3.6 1.2 0.4 3.2 5.0 4.5 a,b International poverty rate ($1.9 in 2011 PPP) 3.4 3.6 3.6 3.6 3.6 3.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 11.3 12.0 12.1 12.0 11.9 11.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 32.3 33.8 34.0 33.8 33.7 33.4 GHG emissions growth (mtCO2e) -1.3 -2.4 -2.1 -1.7 -1.4 -1.2 Energy related GHG emissions (% of total) 17.6 14.7 12.1 9.6 7.4 5.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2017-EGEP.Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2017) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 239 Apr 22 occurred mostly in the low-productive agriculture sector (employing 35.5 percent THE GAMBIA Key conditions and of workers), and not in the higher-paid ser- vices sector, slowing the pace of poverty challenges reduction. Moreover, high food inflation exposes poor households – who spend 65 Table 1 2021 Semi-enclaved within Senegal, The Gam- percent on food - to the risk of sliding Population, million 2.5 bia is a small, fragile, densely populated deeper into poverty. GDP, current US$ billion 2.0 country with historically low and volatile As the risk of debt distress and inflation re- GDP per capita, current US$ 821.4 economic growth, characterized by limited main high, The Gambia has limited fiscal a 10.3 International poverty rate ($1.9) economic diversification, insufficient cap- and monetary policy buffers to respond to a 38.4 ital accumulation, and low productivity. the spillovers from war. The outlook is Lower middle-income poverty rate ($3.2) a 72.7 Since the democratic transition of 2017, the subject to downside risks from vaccine-re- Upper middle-income poverty rate ($5.5) Gini index a 35.9 Government has taken steps to restore sistant virus mutations, slower vaccine School enrollment, primary (% gross) b 103.5 macroeconomic stability and reignite roll-out, higher commodity prices, slower b 62.0 growth (6 percent during 2017-2019). The reform pace, and frequent climatic shocks. Life expectancy at birth, years 2019 debt restructuring helped The Gambia Total GHG Emissions (mtCO2e) 3.6 to exit debt distress in early 2020 and paved Source: WDI, Macro Poverty Outlook, and official data. the way for an IMF program. A successful a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy 2021 election will further these gains. Recent developments (2019). Despite progress with COVID19 vaccina- tion in tourist markets, it is slow within GDP grew by 5.6 percent (2.6 percent in The Gambia at 13.5 percent, and the re- per capita terms) in 2021, after falling Economic recovery accelerated towards covery will be gradual due to uncertainty by 0.2 percent in 2020 (-3 percent pc). end-2021. However, the pace of recovery around new variants and the Russia- All sectors grew, as tourist arrivals were Ukraine conflict. The 2021/22 tourist sea- above-expectations, rainfall was higher will slowdown owing to commodity son (October to March) performed above than average (supporting poor, rural and prices and supply shocks. High fiscal expectations in 2021, however future travel industrial workers) and record-high re- deficits have led to domestic borrowing restrictions, a potential downturn in mittances continued to support the con- that could risk sustainability. Inflation tourist markets, and the rising cost of liv- struction and distributive trade sectors. ing globally could slow the recovery. GDP On the demand side, growth was sup- may erode household incomes amidst a growth estimates for 2021 were revised up ported by private consumption and in- slow recovery in employment and hinder compared to the Fall, reflecting higher- vestment while imports grew. poverty reduction. The outlook is subject than-projected tourist arrivals, remit- The current account deficit (CAD) to downside risks from the speed of global tances, FDI, project implementation and a widened slightly in 2021 despite a rebound recovery, the pandemic, and global conta- private credit rebound. However, contin- in tourism. FDI financed the deficit, while ued commodity price and supply shocks the exchange rate remained stable. Remit- gion from the Russia-Ukraine conflict. tances increased by 31 percent y/y bolster- will constrain future agricultural growth. Recovery in the labor market remains slow ing reserves to above 6 months of next and unequal as increases in employment year’s imports at end-2021. Remittances FIGURE 1 The Gambia / Actual and projected fiscal and FIGURE 2 The Gambia / Actual and projected poverty rates primary balance and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 2 90 90 30000 1 80 29000 85 70 28000 0 60 27000 -1 80 50 26000 -2 75 40 25000 -3 30 24000 70 20 23000 -4 10 22000 -5 65 0 21000 2019 2020 2021 e 2022 f 2023 f 2024 f 2010 2012 2014 2016 2018 2020 2022 2024 Fiscal balance (% of GDP) Primary balance (% of GDP) International poverty rate Lower middle-income pov. rate Debt (% of GDP, rhs) Upper middle-income pov. rate Real GDP pc Sources: Gambian authorities and World Bank estimates. Source: World Bank. Notes: see table 2. MPO 240 Apr 22 were the same for almost half of the bot- ongoing cash transfers in rural areas, and capital transfers. Reserves should re- tom 20 percent households responding to where most of the poor live, is likely to main above 4 months of imports. high-frequency phone surveys. have contributed to the decline in poverty. The fiscal deficit will increase further in The fiscal deficit doubled as capital expen- 2022 as subsidies/transfers increase to diture accelerated, mainly for locally-fund- partially offset rising fuel, fertilizer and ed infrastructure projects, and tax rev- food prices. Starting 2023, fiscal consol- enues and grants declined. Recurrent Outlook idation will resume, supported by im- spending fell as pandemic-related support proved tax expenditure monitoring and was withdrawn. While public debt-to-GDP The conflict in Ukraine will slow the revenue administration, and public fi- declined, short-term domestic borrowing recovery as the terms-of-trade worsen, nance reforms. The primary deficit is pro- increased significantly, elevating risks to The Gambia being a net oil, fertilizer, jected to reach 0.8 percent of GDP by debt sustainability. and food importer. It has, however, 2024, with public debt-to-GDP remaining Headline inflation rose, driven by high weak direct investment, tourism and high but on a declining path. food prices (+3 percentage points). A nega- trade links with Russia or Ukraine. Inflation is expected to continue rising tive output gap implies inflation is mostly Private and public consumption would from high commodity prices and structur- imported. The central bank has thus sus- grow in 2022 to counter the shock, while al challenges at Banjul Port. Rising food tained the 10 percent policy rate since May large infrastructure projects are imple- prices will limit the ability of vulnerable 2020. Broad money continued to grow in mented. Over the medium-term, growth households to increase their real incomes. 2021, supported by the banking sector’s will be driven by services, industry and Surveys show that as of December 2021, 78 high level of net foreign assets. agriculture, and the pandemic-induced percent of households reported food prices Poverty increased in 2020 – for the first adoption of digital technologies, assuming as the main shock affecting their wellbeing. time since 2016 - driven largely by implementation of structural reforms and The economic recovery is expected to off- COVID-19. Survey data indicate large normal weather. Real GDP will grow by set the negative distributional effects of in- employment losses and near universal in- 5.6 percent in 2022 (2.7 percent in pc) and flation, so the poverty rate is expected to come losses at the peak of the pandem- 6.2 percent in 2023 (3.2 percent in pc). continue declining, reaching 7.8 percent in ic. However, the extreme poverty rate de- The CAD will widen further, driven by 2022 and 6.2 percent by 2024. The planned clined from 9.2 percent in 2020 to 8.5 per- commodity imports and the high import expansion in cash transfers to urban areas cent in 2021, lifting over 10,000 people content of public investments, and by de- will provide some cushion against price in- out of poverty, driven by the recovering clining grants and private inflows over creases and support poverty reduction. agriculture labor market. Additionally, time. The deficit will be financed by FDI TABLE 2 The Gambia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.2 -0.2 5.6 5.6 6.2 6.5 Private Consumption 4.0 -2.4 4.3 7.0 6.0 4.7 Government Consumption 14.6 10.8 -2.8 2.6 6.1 7.4 Gross Fixed Capital Investment 28.7 40.7 21.0 7.1 6.5 4.2 Exports, Goods and Services -10.6 -51.3 6.2 15.5 11.0 7.6 Imports, Goods and Services -1.7 16.2 7.9 11.2 7.2 1.8 Real GDP growth, at constant factor prices 6.2 -0.2 5.6 5.6 6.2 6.5 Agriculture -0.5 12.0 1.0 2.0 2.8 3.2 Industry 14.8 9.9 10.7 4.9 6.8 7.0 Services 6.1 -7.3 5.6 7.2 7.2 7.4 Inflation (Consumer Price Index) 7.1 5.9 7.4 8.0 8.0 6.3 Current Account Balance (% of GDP) -6.2 -3.7 -4.6 -12.3 -12.7 -10.9 Fiscal Balance (% of GDP) -2.5 -2.2 -4.4 -4.6 -3.6 -3.4 Debt (% of GDP) 83.0 85.0 83.0 80.4 74.5 68.7 Primary Balance (% of GDP) 0.6 1.0 -2.0 -1.9 -1.0 -0.8 a,b International poverty rate ($1.9 in 2011 PPP) 8.4 9.2 8.5 7.8 7.0 6.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 33.2 35.5 33.6 32.3 30.7 28.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 69.2 70.7 69.3 67.6 65.3 63.7 GHG emissions growth (mtCO2e) 2.5 2.1 3.4 2.7 2.9 2.5 Energy related GHG emissions (% of total) 30.4 30.3 30.1 30.2 30.2 30.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2015-IHS. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2015) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 241 Apr 22 prior inflationary pressures and financing constraints. The developments are expected GHANA Key conditions and to raise global prices for several key com- modities (including food, fuels, fertilizers, challenges and metals used in manufacturing), lower- ing households’ and firms’ purchasing Table 1 2021 Ghana has experienced strong economic power and increasing poverty; these pres- Population, million 31.7 growth over the past three decades, lead- sures have already hastened monetary pol- GDP, current US$ billion 73.0 ing to a near doubling of GDP per capita. icy tightening. Higher fertilizer and metal GDP per capita, current US$ 2299.2 However, in the past decade, GDP growth prices are expected to negatively impact a 12.7 International poverty rate ($1.9) fluctuated between 2.7 and 6.5 percent (ex- construction, manufacturing, and agricul- a 29.3 cept 0.4 percent in 2020 as a result of the ture. Although Ghana will enjoy a current Lower middle-income poverty rate ($3.2) a 55.1 pandemic), partially due to dependence on account boost from rising commodity Upper middle-income poverty rate ($5.5) Gini index a 43.5 natural resources and exposure to external prices (particularly for oil and gold), bene- School enrollment, primary (% gross) b 103.4 shocks. Moreover, Ghana’s growth has not fits to real GDP are likely to be counteracted b 64.1 created sufficient job opportunities for the by domestic inflation and Ghana’s falling Life expectancy at birth, years growing and young population, and the oil production until at least 2025. Total GHG Emissions (mtCO2e) 18.0 economy is not sufficiently diversified: Source: WDI, Macro Poverty Outlook, and official data. gold, cocoa, and oil exports accounted for a/ Most recent value (2016), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy over 75 percent of all goods exports over (2019). 2015–2017, with limited manufacturing ex- Recent developments ports. Labor has continued to move out of agriculture and into low value-added Ghana’s economy rebounded in 2021, after Economic growth rebounded to 4.1 per- services, and some manufacturing while the COVID-induced slowdown in 2020. cent in 2021, but significant macroeco- some services subsectors have experienced Growth is estimated at 4.1 percent for 2021 fast growth (ICT, Financial and Profession- – below pre-pandemic trends. Inflation av- nomic imbalances remain. The fiscal al Services) but they employ very few eraged 10 percent in 2021, and accelerated deficit and debt remained elevated, and workers. Macroeconomic management has further in early 2022, driven by exchange inflation rose to double digits. Medium- been uneven. Recently, relatively large fis- rate depreciation and food and non-food term growth prospects are strong, but cal imbalances and elevated public debt price hikes. Inflation reached 15.7 percent have put Ghana at high risks of debt dis- in February, its highest rate since 2016 and there are important risks related to fiscal tress. Ghana’s sovereign spreads widened well above the Central Bank’s target band and external vulnerabilities. Poverty re- in the second half of 2021 effectively shut- of 6 – 10 percent. duction has stagnated in recent years as ting the economy off from the Eurobond The fiscal deficit was 11.3 percent of GDP in important regional disparities persist; the market and risking further strain on exter- 2021, reflecting significant budget rigidities, recent surge in food and fuel prices is nal sustainability. debt service obligations, and revenue mobi- Ghana’s economy continues to suffer im- lization challenges. The deficit had doubled likely to have a significant impact on the from 7.6 percent of GDP in 2019 to 15.2 per- pacts of the pandemic, and the war in poor and vulnerable households. Ukraine and associated sanctions are fur- cent in 2020, due to pandemic-related ther complicating the outlook, exacerbating spending and financial and energy sector FIGURE 1 Ghana / Real GDP growth and contributions to FIGURE 2 Ghana / Actual and projected poverty rates and real GDP growth real GDP per capita Percentage points Percent Poverty rate (%) Real GDP per capita (constant LCU) 40 7 80 7000 20 6 70 6000 5 60 0 5000 4 50 -20 4000 3 40 3000 -40 30 2 2000 -60 20 1 10 1000 -80 0 2019 2020 2021e 2022f 2023f 2024f 0 0 Private cons. Gov. cons. GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Exports Imports Statistical disc. International poverty rate Lower middle-income pov. rate Inventories GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see table 2. MPO 242 Apr 22 cleanups. Debt-to-GDP rose by 15.6 per- above 50 percent. Using the international medium-term (2022-2024), compared to centage points to 78.8 percent of GDP in poverty line (US$1.9 PPP), poverty de- the Authorities’ target of 5.8 percent. 2020. New debt has been increasingly con- clined from 12.7 percent to 10.2 percent Ghana’s external position is projected to tracted from the domestic sector, at higher from 2016 to 2021, reflecting slow but worsen after a temporary improvement in (nominal) rates and shorter maturities. steady real GDP per capita growth. 2021. The current account deficit is ex- The 2021 Balance of Payments surplus pected to widen to 4 percent of GDP in is estimated at 2.1 percent of GDP. The 2022 and to remain elevated through to trade balance was positive but narrowed 2024, due to a gradual decline in oil ex- as imports recovered more quickly than Outlook port volumes and recovery of imports to exports. The Current Account Deficit was pre-pandemic levels. In the coming years, 3.8 percent of GDP in 2021, reflecting Growth is projected to reach 5.5 in 2022 there will be pressure to erode foreign re- high investment income outflows, includ- and an average of 5.3 over 2022-2024. serves due to the widening current ac- ing debt servicing. The Capital and Fi- Growth is expected to be broad-based, led count deficit and constrained access to the nancial Accounts enjoyed a US$3.7 billion by agriculture and services and a stronger Eurobond market. surplus by 2021Q3 and foreign reserves industry sector supported by higher ex- Using the international poverty line were US$11.0 billion (4.9 months' import tractives prices. Higher fertilizer prices (US$1.9 PPP), poverty rate is projected to coverage) by September 2021, up from due to the Ukraine crisis may slightly de- decrease from 10.2 in 2021 to 8.8 in 2024. US$8.6 billion in December 2020. The ex- press agricultural output in 2023. with the uptick in growth. However, the change rate was relatively stable in 2021 The government’s 2022 budget set forth an ongoing conflict between Russia and (supported by US$4 billion in Eurobond ambitious consolidation plan, which may Ukraine places increased pressure on issuances and Special Drawing Rights al- prove difficult to achieve. The government prices. Year-on-year food inflation had al- locations) but fell substantially in late aims to raise revenue from 16 percent of ready nearly tripled between May 2021 2021 and early 2022 (17 percent against GDP in 2021 to 20 percent in 2022, which, and February 2022 to 17.4 percent. Given the dollar from end December 2021 to combined with spending cuts, would re- that Ghanaians devote nearly half their March 2022). duce the deficit to 4.5 percent of GDP by budget to food, this will tighten the budget Poverty reduction has slowed in recent 2024. However, a significant revenue mea- of millions of Ghanaians vulnerable to years, with persistent spatial inequalities sure (an e-levy ) has faced steep opposi- poverty. Combined with other pressures and increasing vulnerabilities. More than tion, preventing its introduction so far, from the Russia–Ukraine conflict and asso- 20 percent live under the national poverty while targets for other revenue measures ciated sanctions, these risks imperiling the line. The poor are concentrated in the three are optimistic. More conservatively, the fis- poverty reduction achieved by Ghana dur- northern regions, where poverty rates are cal deficit may average 7.5 percent in the ing the 21st century. TABLE 2 Ghana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.5 0.4 4.1 5.5 5.2 5.0 Private Consumption 13.9 1.3 5.8 6.2 6.0 4.0 Government Consumption 5.4 6.4 -15.9 -2.6 -3.0 -1.2 Gross Fixed Capital Investment -27.9 -40.7 5.9 12.4 4.4 7.7 Exports, Goods and Services 6.7 -12.8 7.6 5.2 5.2 5.2 Imports, Goods and Services 1.7 -8.8 4.9 4.2 4.9 2.3 Real GDP growth, at constant factor prices 6.5 0.4 4.1 5.5 5.2 5.0 Agriculture 4.6 7.4 5.4 5.0 5.3 4.3 Industry 6.4 -3.6 -0.5 5.7 4.8 4.2 Services 7.6 0.9 8.0 5.6 5.5 6.2 Inflation (Consumer Price Index) 7.9 10.4 10.0 12.8 12.1 11.0 Current Account Balance (% of GDP) -2.7 -3.3 -3.8 -4.0 -4.2 -3.0 Fiscal Balance (% of GDP) -7.6 -15.2 -11.3 -10.6 -6.5 -5.5 Debt (% of GDP) 63.3 78.8 83.5 84.9 86.4 87.4 Primary Balance (% of GDP) -1.9 -8.8 -3.7 -1.4 0.3 1.1 a,b International poverty rate ($1.9 in 2011 PPP) 10.2 10.5 10.2 9.5 9.2 8.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 25.0 25.5 24.9 23.8 23.0 22.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 49.1 49.8 49.0 47.3 46.1 44.7 GHG emissions growth (mtCO2e) 16.1 9.6 -2.0 15.2 13.8 8.2 Energy related GHG emissions (% of total) 148.7 143.9 144.2 137.6 132.3 129.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2016-GLSS-VII. Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 243 Apr 22 COVID-19 affected the non-mining sec- tor and exacerbated existing develop- GUINEA Key conditions and ment challenges. Enacting structural re- forms to diversify the economy and pro- challenges mote inclusive growth has become more pressing. Guinea is at moderate risk Table 1 2021 Growth averaged 8 percent 2016-2020, 5.1 of external debt distress with limited Population, million 13.5 percent in per capita terms, supported by space to absorb shocks. This assessment GDP, current US$ billion 16.1 a mining boom and low fiscal deficits (1.3 hinges on commitments to maintain a GDP per capita, current US$ 1194.6 percent in 2016–2020). However, econom- prudent borrowing plan that maximizes a 23.2 International poverty rate ($1.9) ic growth had a limited impact on pover- concessional borrowing. a 60.4 ty reduction and shared prosperity, with Lower middle-income poverty rate ($3.2) a 89.8 the national poverty rate declining from Upper middle-income poverty rate ($5.5) National GINI (2018/2019) 27.2 48.5 percent in 2014 to 43.7 percent in School enrollment, primary (% gross) b 100.8 2018/19, equivalent to a growth elastici- Recent developments b 61.6 ty of poverty of 0.47. The pandemic most Life expectancy at birth, years likely erased those gains. About 32 per- Growth decelerated to 3.1 percent in 2021 Total GHG Emissions (mtCO2e) 45.8 cent of the population suffered depriva- (0.3 percent in per capita terms). Bauxite Source: WDI, Macro Poverty Outlook, and official data. tions in education, health, and access to exports (in tons) grew by 4 percent in 2021 a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy basic infrastructure in 2018. compared to 24 percent in 2020 because (2019). Guinea shares many of the economic fea- of a slowdown in economic activity after tures of resource-dependent countries. Ex- the coup. Gold exports (in ounces) grew ports are dominated by few products (e.g., 11 percent in 2021, reflecting a strong ar- A slowdown in bauxite production and a bauxite and gold) and concentrated in few tisanal production. Inflation accelerated modest recovery in services slowed markets (China and the United Arab Emi- from 10.6 percent in 2020, to 12.6 percent rates), exposing the country to commodity in 2021 due to higher food prices (15.1 per- growth to 3.1 percent in 2021. The fiscal price shocks. The mining boom and high cent) and supply disruptions (domestic deficit narrowed, reflecting lower capital inflation have affected the competitiveness and external). The Ukraine conflict will spending, but public debt increased to of other sectors through an appreciating likely increase food price inflation in 2022, 43.1 percent due to PPP infrastructure local currency— a phenomenon known as affecting disproportionally the poorest and ‘Dutch disease’. Guinea also has low levels threating food security. projects. Mining-related FDI is expected of human capital and widespread gender The overall fiscal deficit (including to support growth over the medium term, gaps in education, earnings, agricultural grants) improved to 1.6 percent of GDP in lowering poverty. Down-side risks in- productivity, and political representation. 2021, even though tax revenues remained clude a prolonged political transition, Governance challenges were brought to low (11.4 percent of GDP). Weak tax ad- persisting COVID-19 impacts, delayed the forefront by the coup d’état in Sep- ministration and mining tax exemptions tember 2021. Other constraints to inclu- explain low tax revenues. Electricity sub- structural reforms, and spillovers of the sidies doubled in 2021 to 20 percent of sive growth include weak tax revenues, Ukraine conflict. an underdeveloped financial sector, and spending, reflecting low electricity tariffs large infrastructure gap. and higher electricity generation from the FIGURE 1 Guinea / Primary and overall fiscal balance FIGURE 2 Guinea / Food security status of the population (January 2021) Percent of GDP Percent of population 0.0 -0.5 Urban -1.0 -1.5 Rural -2.0 -2.5 Guinea -3.0 -3.5 0 20 40 60 80 100 2017 2018 2019 2020 2021e 2022p 2023p 2024p Food Secure Midly food insecure Fiscal balance Primary balance Moderately food insecure Severely food insecure Sources: Guinean authorities and World Bank staff projections. Source: World Bank staff calculation based on HFPS 2021. Note: the household high-frequency phone survey (HFPS) includes a module to capture the Food In- security Experience Scale (FIES) following the FAO (2017) methodology. MPO 244 Apr 22 Kaleta-Souapiti hydropower project. Un- per year in 2018/19), the national poverty reduce private investment, and spending der-executed capital spending helped off- rate is estimated to have increased 4 per- in social programs. Inflation is expected to set those subsidies. Spending on social centage points, disproportionately affect- remain high, but to decline gradually to 8.8 safety nets is small (0.5 percent of public ing rural populations. percent by 2024. spending in 2020). The debt-to-GDP ratio The external current account deficit is pro- increased from 38.4 percent of GDP in 2018 jected to widen to 13.3 percent of GDP in to 43.3 percent in 2021, reflecting borrow- 2022, reflecting lower exports, higher im- ing related to the pandemic and disburse- Outlook ports for infrastructure spending, and high- ment for the Souapiti hydropower project. er energy and food costs due to the Russia- The current account deficit improved to 9.4 Mining-related FDI will continue to drive Ukraine war. The deficit is projected to sta- percent of GDP in 2021, due to lower im- growth. As the service sector and mining bilize thereafter, with exports projected to ports of intermediate goods. Mining-relat- production recover, growth will accelerate grow slower than imports, particularly for ed FDI continued to be the main source of in 2022. But the Ukraine conflict lowered renewed infrastructure spending for road external financing and increased from 9.9 growth projections to 4.4 percent in 2022, and railways. FDI inflows could increase, percent of GDP in 2020 to 10.8 percent in and to 5.8 percent in 2023–2024 and could reflecting planned new mining projects, 2021. Estimated international reserves de- affect the operations of Rusal, a Russian and support financing requirements. cline slightly in 2021 while the currency conglomerate that accounts for 7 percent Extreme poverty is projected to decline to appreciated in nominal terms. of bauxite exports. Investment in energy 19.0 percent by 2023. Downward risks to Based on GDP per capita growth projec- and transport could support growth in the poverty reduction include the persistence tions, the extreme poverty rate (percent- construction sector. Better provisioning of of high inflation and the deferral of social age of the population living below the in- fertilizer stocks could improve agricultural reforms. Higher fertilizer prices due to the ternational poverty line US$1.90 per capi- productivity, but higher fertilizer prices Ukraine conflict could constraint farmers, ta per day, 2011 PPP) is estimated to could dampen earnings. Rising oil prices disrupting the food industry. Following have remained stagnant at 21.1 percent in could increase fuel subsidies, widening the the COVID-19 crisis, 84 percent of Guinean 2020 and 2021. However, when consider- fiscal deficit. Uncertainties around the po- households cited higher input prices as the ing that the pandemic most likely pushed litical transition could also decelerate the most common challenge in farming and into poverty nonpoor vulnerable popula- implementation of reforms to strengthen the prospects for a prolonged period of tions close to the national poverty line governance and the financial performance food insecurity is high. (estimated at 5,006,362 GNF per capita of the public electricity utility, which could TABLE 2 Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.6 4.6 3.1 4.3 5.9 5.8 Private Consumption 5.4 3.5 5.5 4.1 4.6 4.7 Government Consumption -6.3 42.9 -1.3 11.8 9.5 9.4 Gross Fixed Capital Investment -8.4 -10.2 19.0 18.4 26.4 22.8 Exports, Goods and Services -0.6 33.5 3.4 3.8 4.0 4.0 Imports, Goods and Services -9.5 39.4 7.2 10.2 10.1 10.1 Real GDP growth, at constant factor prices 6.5 4.6 3.1 4.4 5.8 5.8 Agriculture 7.6 -1.6 5.4 5.8 6.0 6.0 Industry 7.2 18.5 4.2 5.0 6.7 6.7 Services 5.5 -3.4 1.2 3.3 4.9 4.9 Inflation (Consumer Price Index) 9.5 10.6 12.6 12.0 10.0 8.8 Current Account Balance (% of GDP) -10.8 -14.0 -9.4 -13.2 -13.4 -12.3 Net Foreign Direct Investment (% of GDP) 9.0 10.1 10.8 13.2 13.2 12.3 Fiscal Balance (% of GDP) -0.5 -2.9 -1.6 -2.2 -2.1 -1.9 Debt (% of GDP) 33.8 40.0 43.1 42.6 41.6 42.2 Primary Balance (% of GDP) 0.0 -2.3 -0.7 -1.2 -1.0 -1.0 a,b International poverty rate ($1.9 in 2011 PPP) 21.8 21.1 21.1 20.2 19.0 18.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 58.7 57.9 57.8 57.0 55.4 53.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 89.2 88.7 88.6 88.3 87.6 86.8 GHG emissions growth (mtCO2e) 3.0 3.7 4.0 4.0 4.0 4.0 Energy related GHG emissions (% of total) 14.7 14.6 14.4 14.3 14.0 13.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 245 Apr 22 started as a response to COVID-19 and continued into 2021. A systemic bank is GUINEA-BISSAU Key conditions and undercapitalized. High levels of non-per- forming loans, 21.8 percent in all banks challenges across the country and 10.3 percent exclud- ing the undercapitalized bank, also repre- Table 1 2021 Exports of raw cashew nuts, which ac- sent an important vulnerability. A deterio- Population, million 2.0 count for 90 percent of merchandise ex- ration in this situation would generate con- GDP, current US$ billion 1.6 ports, determine economic performance. tingent liabilities, adding to fiscal and pub- GDP per capita, current US$ 793.9 Cashew production is dispersed among lic debt pressures. a 24.7 International poverty rate ($1.9) smallholder farmers, whose income sup- a 59.5 ports overall economic activity. Annual Lower middle-income poverty rate ($3.2) a 86.0 GDP grew 5.4 percent on average be- Upper middle-income poverty rate ($5.5) Gini index a 34.8 tween 2015 and 2017 (3.2 percent in per Recent developments School enrollment, primary (% gross) b 118.7 capita terms) as cashew prices reached b 58.3 record highs, but Guinea-Bissau is struc- Economic activity expanded to 3.8 percent Life expectancy at birth, years turally vulnerable to terms-of-trade in 2021 (1.5 percent in per capita terms) Total GHG Emissions (mtCO2e) 4.6 shocks and climatic risks. Raw cashew from 1.5 percent in 2020. Strong cashew Source: WDI, Macro Poverty Outlook, and official data. prices had been on a downward trajec- production, up 23.5 percent from 2020, and a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2010); Life expectancy tory since 2018, adversely affecting eco- high international prices drove growth, (2019). nomic growth, poverty, and government causing an upward revision of growth finances, until a recovery in 2021. Around forecasts. On the demand side, capital in- 15 percent of tax revenue is directly relat- vestments and net imports were the main Growth is expected to continue to recover ed to cashew exports. drivers of growth. Inflation rose from 1.5 over the medium-term, as international Limited diversification and low agricul- percent in 2020 to 3.3 percent in 2021, dri- tural productivity keep the country high- ven by an increase in food (+2 percentage cashew demand and production rebound, ly dependent on food and capital im- points) and oil prices. rising to around 4.5 percent and bolstered ports. Responding to the COVID-19 pan- Increased cashew exports only partially by fiscal consolidation and structural re- demic and externally financed infrastruc- offset the increase in oil and food import forms. The outlook is subject to signifi- ture projects led to high primary deficits prices and the current account deficit and considerable debt accumulation in (CAD) is estimated to have increased from cant downside risks stemming from con- 2021. Entrenched political instability has 2.9 percent of GDP in 2020 to 4 percent in tinued inflationary pressures, notably for taken the country through multiple 2021. The CAD was financed by conces- food and petroleum, potentially exacerbat- coups, including a failed attempt in Feb- sional loans and grants. The IMF SDR allo- ed by conflict in Ukraine, new ruary 2022, and precluded the implemen- cation of USD $38.4 million (2.4 percent of COVID-19 variants, external shocks af- tation of structural reforms. GDP) contributed to closing the external fi- The banking sector is a looming risk. The nancing gap. fecting international cashew prices, polit- The fiscal deficit fell from 9.9 percent of sector continues to depend on the accom- ical instability, and climatic shocks. modative stance of the central bank inject- GDP in 2020 to 5.3 percent in 2021, dri- ing liquidity into the economy, which ven by an increase in tax revenues and FIGURE 1 Guinea-Bissau / Evolution of main economic FIGURE 2 Guinea-Bissau / Actual and projected poverty indicators rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8 100 460000 6 90 4 440000 80 2 70 420000 0 60 -2 50 400000 -4 40 380000 -6 30 -8 20 360000 10 -10 2013 2015 2017 2019 2021e 2023f 0 340000 GDP growth (%) 2010 2012 2014 2016 2018 2020 2022 2024 Fiscal balance (% of GDP) International poverty rate Lower middle-income pov. rate Current account balance (% of GDP) Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance and World Bank. Source: World Bank. Notes: see Table 2. MPO 246 Apr 22 a reduction in current expenditure. Pub- to further dampen the pace of recovery in 2023 and 2024, reflecting faster growth lic debt as a share of GDP increased from in sectors such as tourism, thereby af- in imports and a reduction in net capital 78.3 percent in 2020 to 79.8 percent in fecting poverty reduction. inflows (as a percent of GDP), as the envi- 2021, driven by the depreciation of the ronment for Eurobond issuances remains euro against the dollar and the rephasing uncertain. Growth-friendly fiscal consoli- of legacy arrears. Although the risk of ex- dation and the implementation of structur- ternal and total debt distress is high, pub- Outlook al reforms are key to maintaining reserves lic debt remains sustainable. at an optimal level. Guinea-Bissau’s monetary and exchange The Ukrainian conflict will have a negative The authorities are committed to a medi- rate policies are managed by the Central effect on the economy. Real GDP growth um-term fiscal consolidation, which in- Bank of West African States (BCEAO), has been revised down from 4 percent in cludes enhanced management of fiscal which maintains a fixed peg between the 2022, to 3.5 percent and medium-term risks, notably from SOEs, revenue mobi- CFA franc and the euro. Its reserves growth from 5 percent to 4.5 percent, de- lization and control of the wage bill. The reached 5.8 months of imports of goods spite high forecasted cashew prices and in- primary deficit is projected to decline from and services in 2021, because of increased frastructure investments. The crisis will al- 2.3 percent of GDP in 2022, to 1.8 by 2024 exports, the August 2021 SDR allocation, so cause inflation to rise to 4 percent in with the public debt-to-GDP ratio expect- and portfolio inflows linked to Eurobond 2022, reflecting higher food and oil prices. ed to fall to 75 percent of GDP by 2024. issuances in the region (by Benin, Côte The outlook is subject to substantial down- Sustained agricultural growth should con- d’Ivoire, Senegal and the BOAD). side risks stemming from political insta- tinue to reduce poverty rates in 2022, to Using updated poverty indicators from bility, climate shocks, new COVID-19 vari- 22.6 percent and reaching 20.5 percent by 2018/19 (previous MPOs used 2010 in- ants, and non-performing loans in the fi- 2024, lifting an additional 22,000 people dicators), extreme poverty ($1.9/day PPP nancial sector. out of poverty. Significant downside risks poverty line) declined from 24.1 percent The CAD will reach 5 percent of GDP in exist, notably related to the pace of the eco- in 2020 to 23.4 percent in 2021, lifting 2022 and 4.6 by 2024. External financing nomic recovery, political and security in- over 3,000 people out of extreme pover- needs will continue to be met by conces- stability, and the poor, who spend nearly ty. The decline in poverty indicates a sional loans and grants in 2022. WAEMU 60 percent of their expenditure on food, are slow recovery in the economy. Addi- reserves are expected to fall to around 5.5 most vulnerable to rising food prices. tionally, recent political events are likely months of imports in 2022 and 5.3 months TABLE 2 Guinea-Bissau / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 1.5 3.8 3.5 4.5 4.5 Private Consumption 1.4 -1.0 3.0 1.0 2.5 2.5 Government Consumption 16.6 9.0 -0.4 16.2 3.2 10.2 Gross Fixed Capital Investment 33.8 7.3 14.1 7.2 16.2 8.4 Exports, Goods and Services 8.7 -2.5 5.3 5.5 6.0 7.0 Imports, Goods and Services 14.1 -1.0 5.9 6.0 6.4 6.4 Real GDP growth, at constant factor prices 4.5 1.5 3.8 3.5 4.5 4.5 Agriculture 5.8 -0.2 4.4 4.6 5.1 5.1 Industry 4.2 -0.2 3.5 3.6 4.4 4.4 Services 3.5 3.5 3.4 2.6 4.0 4.0 Inflation (Consumer Price Index) 0.3 1.5 3.3 4.0 2.0 2.0 Current Account Balance (% of GDP) -8.8 -2.9 -4.0 -5.0 -4.9 -4.6 Fiscal Balance (% of GDP) -4.1 -9.9 -5.3 -4.2 -4.1 -3.7 Debt (% of GDP) 65.9 78.3 79.8 80.9 76.1 75.0 Primary Balance (% of GDP) -2.9 -8.3 -3.7 -2.3 -2.1 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 23.6 24.1 23.4 22.6 21.6 20.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 58.2 58.7 57.9 57.4 56.2 54.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 85.4 85.8 85.1 84.7 84.0 83.1 GHG emissions growth (mtCO2e) 1.0 1.2 0.4 1.1 1.3 1.5 Energy related GHG emissions (% of total) 12.8 12.9 13.0 13.1 13.2 13.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 247 Apr 22 and business environment (including by reducing corruption and excessive red KENYA Key conditions and tape), and enhancing access to finance. Kenya’s economy relies on tourism and challenges rainfed agriculture, and is vulnerable to climate change and extreme weather Table 1 2021 Kenya was making strong economic events such as the severe drought current- Population, million 55.0 progress prior to the COVID-19 pan- ly affecting the north-east of the country. GDP, current US$ billion 110.3 demic, with real GDP growing at an Over the past decade, climate-related an- GDP per capita, current US$ 2005.8 annual average rate of 5 percent and nual losses have been 3-5 percent of GDP, a 37.1 International poverty rate ($1.9) major achievements in human develop- despite Kenya’s negligible contribution to a 66.5 ment (the highest Human Capital Index global GHG emissions. Climate-related Lower middle-income poverty rate ($3.2) a 86.6 score in continental sub-Saharan Africa); priorities include phasing out the remain- Upper middle-income poverty rate ($5.5) Gini index a 40.8 in energy access and sustainability (ac- ing fossil fuel power supply, increasing School enrollment, primary (% gross) b 103.2 cess to electricity almost doubled to 75 tree-cover, adopting climate-smart agricul- b 66.7 percent of households in 2018, based on ture, and making the transportation and Life expectancy at birth, years a nearly 90 percent green energy mix); waste management systems more efficient Total GHG Emissions (mtCO2e) 77.2 and in poverty reduction (the share of and sustainable. Source: WDI, Macro Poverty Outlook, and official data. the population living below the $1.90 a a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2016); Life expectancy day poverty line fell from 45.2 percent (2019). in 2009 to 34.4 percent in 2019). Kenya aspires to become an upper middle-in- Recent developments come country by 2030, which will re- Kenya’s economy was severely disrupted quire a shift away from the economy’s Whilst the pandemic stalled growth in by the COVID-19 shock but it has recent reliance on debt-financed public 2020, the economy has recovered, and investment and towards more private output is well above pre-pandemic levels. staged a strong recovery, and the pover- investment to sustainably generate jobs The economy grew by an estimated 6.7 ty rate is projected to fall below its pre- and income growth. percent in 2021, supported by a strong pandemic level in 2022. However, pro- To support structural transformation to- recovery of the services sector (Figure longed drought in the north-east has wards a more inclusive and resilient pri- 1), particularly education, and growth in vate sector-led economy, it is critical to manufacturing and construction. Agricul- caused severe hardship in affected areas. reinforce fiscal consolidation, since fiscal tural output, however, contracted by 1.5 Progress on fiscal consolidation will be space has eroded and debt risks have percent in 2021, due to below-average essential to achieve a durable, private mounted. Measures are also needed to rains. Disruption caused by the omicron sector-led recovery, and to restore space strengthen productivity and private in- variant of COVID-19 led to some moder- for pro-poor spending and investment in vestment, by addressing economic distor- ation of economic activity in the fourth tions (including those which arise from quarter of 2021. human capital. Monetary policy remained accommoda- an uneven playing field between the pri- vate sector and a large and inefficient tive. Inflation pressures remained con- SOE sector), improving the regulatory tained overall but the prices of some staple FIGURE 1 Kenya / Real GDP growth and sectoral FIGURE 2 Kenya / Actual and projected poverty rates and contributions to real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 8 100 160000 90 140000 6 80 120000 70 4 100000 60 50 80000 2 40 60000 30 0 40000 20 10 20000 -2 2020 2021 2022 2023 2024 0 0 Net taxes Services 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Industry Agriculture International poverty rate Lower middle-income pov. rate Real GDP growth (percent) Upper middle-income pov. rate Real priv. cons. pc Sources: Kenya National Bureau of Statistics and World Bank. Source: World Bank. Notes: see Table 2. MPO 248 Apr 22 products have risen significantly, affected expected to narrow to 4.4 percent of by global supply chain challenges and be- GDP by FY2023/24, through a mix of low-average rains. The below-average Outlook expenditure restraint and revenue mea- rains have also resulted in deteriorating sures, including further rationalization food security, especially in the north and The course of the pandemic remains key to of tax expenditures and introduction of east of Kenya which has been affected by the outlook but increasing COVID-19 vac- a digital tax. Public debt is expected to a severe drought (USAID’s Famine Early cinations will help to mitigate the risks. decline as a share of GDP, benefiting from Warning Systems Network). The global fu- The government targets to vaccinate all economic growth, fiscal consolidation and el and food price shocks caused by Rus- adults by end-2022 and with the improve- reduced borrowing costs due to increases sia’s invasion of Ukraine will increase im- ment in vaccine supply, the proportion of in concessional debt in the financing mix. port costs and prices, including of Kenya’s adults fully vaccinated increased from 15.3 Lower domestic borrowing by govern- significant net fuel and wheat imports, percent in December 2021 to 27.8 percent ment will create more room for banks to fi- though the duration and magnitude of the in February 2022. nance private sector investment. price effects are highly uncertain. With GDP growth projected to average 5.2 Domestic risks facing the outlook stem The fiscal outturn in the first half (H1) of percent over 2022–24, growth in real per from election-related disruptions and ad- FY2021/22 improved, driven largely by the capita incomes will help reverse the rising verse weather conditions (currently af- economic recovery, a strong rebound in rev- poverty rates caused by the pandemic. fecting north-eastern Kenya). External enues, and new tax policy and administra- Poverty is expected to fall to 33.4 percent uncertainty will stem from re-intensifi- tion measures implemented under the gov- in 2022, below the pre-crisis level of 34.4 cation of the pandemic, and the global ernment’s medium-term fiscal consolida- percent (2019). The baseline projections as- price and trade shocks emanating from tion program. Total expenditures have re- sume that normal rains support good agri- the Russia-Ukraine conflict with poten- mained broadly steady at 10.8 percent of cultural harvests to drive food processing, tially adverse impacts on inflation, the GDP in H1, with an increase in recurrent sustain export growth, help anchor infla- current account balance, and the fiscal spending being offset by reduced develop- tion expectations, and support house- deficit (depending on extent to which ment spending and below-target transfers holds’ consumption. global oil price increases are passed on to county governments. As a result, the fiscal Progress on fiscal consolidation will bol- to retail fuel consumers). deficit in H1 FY2021/22 decreased to 2.5 per- ster confidence and resources for private cent of GDP from 3.2 percent a year earlier. sector investment. The fiscal deficit is TABLE 2 Kenya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -0.3 6.7 5.0 5.2 5.5 Private Consumption 4.9 -2.7 7.3 5.5 5.6 5.8 Government Consumption 7.0 4.3 4.2 4.9 3.6 3.5 Gross Fixed Capital Investment 3.8 3.4 6.4 4.1 6.7 7.6 Exports, Goods and Services -3.2 -8.2 8.0 6.8 7.1 7.4 Imports, Goods and Services 1.8 -8.5 7.5 7.0 8.0 8.3 Real GDP growth, at constant factor prices 5.2 0.3 6.7 5.0 5.2 5.5 Agriculture 2.6 4.8 -1.5 3.6 3.8 4.2 Industry 3.4 4.0 6.6 3.5 4.0 4.3 Services 6.7 -2.2 9.6 5.9 6.0 6.2 Inflation (Consumer Price Index) 5.2 5.3 6.4 6.0 5.5 5.0 Current Account Balance (% of GDP) -5.3 -4.6 -5.5 -6.0 -5.5 -5.0 Net Foreign Direct Investment (% of GDP) 0.9 0.5 0.2 0.6 0.8 0.9 Fiscal Balance (% of GDP) -7.4 -7.9 -8.2 -7.5 -5.5 -4.3 Debt (% of GDP) 59.5 65.8 68.2 68.0 66.8 63.9 Primary Balance (% of GDP) -3.2 -3.9 -3.7 -2.8 -0.6 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 34.4 35.7 34.3 33.4 32.5 31.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 65.1 65.8 65.1 64.7 64.2 63.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 85.9 86.2 85.8 85.6 85.3 85.0 GHG emissions growth (mtCO2e) 3.8 2.2 2.2 2.1 2.5 2.4 Energy related GHG emissions (% of total) 41.2 39.8 42.1 43.0 44.4 45.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2005-IHBS and 2015-IHBS.Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2005-2015) with pass-through = 1 based on private consumption per capita in constant LCU. MPO 249 Apr 22 October 2022 and more splits in the cur- rent ruling coalition have emerged ahead LESOTHO Key conditions and of the elections. Even before the pandemic, Lesotho grap- challenges pled with high poverty and unemploy- ment rates. The unemployment rate was Table 1 2021 Real GDP contracted by 6.5 percent in 2020 22.5 percent in 2019 (strict definition), ris- Population, million 2.2 because of the effects of the COVID-19 ing to 38.3 percent (when the expanded de- GDP, current US$ billion 2.4 pandemic. According to the National finition that includes discouraged job seek- GDP per capita, current US$ 1111.8 COVID-19 Secretariat (NACOSEC), about ers is used). About a third of the popula- a 27.2 International poverty rate ($1.9) 56 percent of Lesotho’s eligible population tion lives on less than US$1.90/person/day a 49.9 have been vaccinated as at mid-March (in 2011 PPP terms). Rural and mountain- Lower middle-income poverty rate ($3.2) a 73.2 2022. Even though the number of positive ous regions tend to be the poorest, given Upper middle-income poverty rate ($5.5) Gini index a 44.9 COVID-19 cases has been low in recent their poorer access to basic infrastructure School enrollment, primary (% gross) b 120.9 months, possibility of new waves of infec- and services, limited economic opportuni- b 54.3 tion cannot be ruled out yet, and this is ex- ties, and vulnerability to climatic shocks Life expectancy at birth, years pected to weigh down Lesotho’s exports, which weighs down agricultural produc- Total GHG Emissions (mtCO2e) 5.0 lower remittances and capital inflows and tivity. Remittances from migrant workers, Source: WDI, Macro Poverty Outlook, and official data. present downside risks to growth. which play a crucial safety net role, have a/ Most recent value (2017), 2011 PPPs. b/ WDI for School enrollment (2017); Life expectancy The COVID-19 pandemic has exacerbated been hard hit by the pandemic. (2019). an already dire fiscal position. Southern African Customs Union (SACU) receipts – the major source of government revenues – Economic growth has been modest in re- have declined further, from 22.1 percent of Recent developments cent years. Domestic economy is expect- GDP in 2020 to 18.8 percent in 2021. Pub- lic expenditure remains elevated at about Lesotho’s economy has been in recession ed to recover and register a modest 54.8 percent of GDP in 2021. Consequently, even before the emergence of the growth of 1.6 percent in 2021. However, the financing gap remains wide in the face COVID-19 pandemic. Real GDP contract- political instability, fiscal challenges, of limited government buffers and limited ed by an average 0.6 percent annually be- and the COVID-19 pandemic present domestic borrowing capacity. Public debt tween 2017 and 2019 before the sharp 2020 has increased – from 48.1 percent of GDP recession. The downturn continued into significant downside risks. With modest in 2019 to 60.5 percent of GDP in 2021, the first quarter of 2021, after when some growth expected in 2022, the poverty reflecting growing current spending and recovery was observed in sectors like infor- ratio will stary around 30 percent, us- large capital projects. mation technology and communications, ing the international poverty line. The country has, in recent years, expe- mining, and manufacturing sectors which rienced unstable governments, character- recorded double-digit quarterly growth ized by weak coalitions and frequent rates. It is estimated that the economy re- change in government and/or cabinet bounded by 1.6 percent in 2021. reshuffles which delays developmental Annual inflation rate averaged 6.0 per- progress. National elections are slated for cent in 2021 compared with 5.0 percent FIGURE 1 Lesotho / Real GDP growth and sectoral FIGURE 2 Lesotho / Actual and projected poverty rates and contributions to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 80 10600 10 70 10400 60 10200 5 50 10000 0 40 9800 -5 30 9600 -10 20 9400 -15 10 9200 0 9000 -20 2017 2019 2021 2023 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Agriculture Industry Services GDP Growth Upper middle-income pov. rate Real GDP pc Source: World bank. Source: World Bank. Notes: see table 2. MPO 250 Apr 22 in 2020, driven by higher food and en- of food insecurity particularly among the business and consumer confidence as the ergy prices, and by increased adminis- rural population. vaccination rollout improves. On the tered prices domestically. The inflation downside, infection waves of the rate has accelerated to 7.6 percent in Jan- COVID-19 pandemic coupled with emer- uary 2022. The current account deficit gence of new strains of the virus will narrowed from 3.4 percent of GDP in Outlook challenge economic recovery. 2019 to 2.0 percent in 2020 primarily due Key inflationary pressures are expected to to a decline in imports. The economic recovery is expected to emanate from food prices, administered The fiscal situation remains challenging pick up momentum over the medium prices and spill-over effects of invasion of with a fiscal deficit of 5.9 percent of GDP term. Through 2024, real GDP growth is Ukraine by Russia which will likely drive- expected in 2021. Central Bank of Lesotho expected to average 2.1 percent annual- up food and energy prices. The precarious reduced the policy rate four times from ly, driven by strong agricultural sector fiscal situation and political uncertainly 6.25 to 3.5 percent (by 275 basis points) be- growth on account of good seasonal rain- are also weighing down the economic out- tween March and July 2020. The policy rate fall (even though some parts of the coun- look. A wider fiscal deficit of 8.0 percent has since been increased twice to 4.0 per- try experienced droughts while others ex- of GDP is expected in 2022. Public debt is cent per annum to ensure that the domes- perienced floods), the expansion in the projected to increase steadily to 63.1 per- tic cost of funds remains aligned with the horticulture industry which is anticipated cent of GDP by 2023 before moderating. rest of the region. to come from the Fresh Produce Market Other downside risks include (a) general Despite the modest recovery in 2021, Centre that was launched in 2021, and a elections- that would adversely affect pro- poverty levels are estimated to have de- growing domestic medicinal cannabis in- ject implementation; (b) heavy rains expe- creased only marginally from 30.4 percent dustry. Growth in the mining industry is rienced in the beginning of 2022. in 2020 to 30.1 percent in 2021 (based on anticipated as several mines resume pro- Poverty rates is expected to trend down- the US$1.90/person/day, 2011 PPP terms). duction. Construction activities associated wards but will remain higher than in 2019 Other factors – such as rising food prices with the second phase of Lesotho High- as pressure on food and energy prices as and slow labor market recovery from lands Water Project (LHWP-II) should im- well as a fragile economic environment COVID-19-related lockdown measures – pact growth positively in the medium slow the pace of poverty reduction. The limit poverty reduction. Recurring climat- term, as will the construction of roads, US$1.90/person/day (in 2011 PPP terms) ic hazards which adversely affect per- the Mafeteng solar power plant, and poverty rate is projected to fall slightly to formance of the agricultural sector exac- Maseru district hospital. Services sector is 29.6 percent in 2022 and further to 28.4 per- erbate the challenge and increase levels also expected to recover due to improved cent in 2024. TABLE 2 Lesotho / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.6 -6.5 1.6 2.3 2.1 2.0 Private Consumption 2.6 4.8 -2.0 3.6 3.6 3.6 Government Consumption 7.8 19.7 -5.3 13.4 6.3 -0.4 Gross Fixed Capital Investment -12.2 -42.8 -1.7 -6.4 38.6 49.8 Exports, Goods and Services -13.3 -17.5 38.1 1.6 2.2 2.2 Imports, Goods and Services -1.4 -0.5 15.0 6.8 10.3 10.3 Real GDP growth, at constant factor prices 2.6 -6.5 1.6 2.3 2.1 2.0 Agriculture 0.8 8.3 2.3 2.4 2.4 2.4 Industry -5.9 -12.0 7.5 4.8 5.0 5.0 Services 6.1 -5.9 -0.4 1.4 1.0 0.8 Inflation (Consumer Price Index) 5.2 5.0 6.0 5.3 5.3 5.5 Current Account Balance (% of GDP) -3.4 -2.0 -4.9 -9.6 -7.7 -6.4 Net Foreign Direct Investment (% of GDP) 1.5 1.3 1.5 1.6 1.7 1.6 Fiscal Balance (% of GDP) -5.6 -1.1 -5.9 -8.0 -3.6 -0.4 Debt (% of GDP) 48.1 49.7 60.5 60.0 63.1 45.3 Primary Balance (% of GDP) -4.4 -0.2 -4.9 -7.2 -2.8 0.3 a,b International poverty rate ($1.9 in 2011 PPP) 27.3 30.4 30.1 29.6 29.0 28.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 49.9 52.2 52.0 51.4 51.0 50.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 73.3 75.9 75.5 75.0 74.4 74.0 GHG emissions growth (mtCO2e) -1.3 -5.5 0.1 1.5 1.8 1.9 Energy related GHG emissions (% of total) 66.9 64.1 63.1 62.9 63.0 63.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2017-CMSHBS. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2017) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 251 Apr 22 and human capital, increased produc- tivity in agriculture and other informal LIBERIA Key conditions and sector activities, accelerated formal job creation, strengthened socioeconomic re- challenges silience, improved governance, and ex- panded institutional capacity. Table 1 2021 Liberia's economy is still recovering from Population, million 5.2 years of poor economic and social perfor- GDP, current US$ billion 3.5 mance. Between 2014 and 2020, the econo- GDP per capita, current US$ 673.1 my contracted by an average of 0.4 percent Recent developments a 44.4 International poverty rate ($1.9) per year, and per capita GDP fell by 12.3 a 75.6 percent cumulatively, owing in part to re- After contracting by 3.0 percent in 2020, Lower middle-income poverty rate ($3.2) a 93.2 peated exogenous shocks such as the Ebola GDP growth recovered to 4.0 percent in Upper middle-income poverty rate ($5.5) Gini index a 35.3 outbreak, the collapse of iron ore and rub- 2021, on the back of improved external de- School enrollment, primary (% gross) b 85.1 ber prices, the drawdown of United Na- mand, higher prices for Liberia’s exports, b 64.1 tions peacekeeping forces, and the and the resumption of normal domestic ac- Life expectancy at birth, years COVID-19 pandemic. As a result, by 2020, tivity. Rubber production increased by 38 Total GHG Emissions (mtCO2e) 22.5 the poverty rate is projected to have risen percent, year-on-year [y/y], palm oil (12 Source: WDI, Macro Poverty Outlook, and official data. to 52 percent, wiping out nearly half of percent, y/y), iron ore (3 percent, y/y), and a/ Most recent value (2016), 2011 PPPs. b/ WDI for School enrollment (2017); Life expectancy the gains made post-conflict where pover- gold (79 percent, y/y), boosting agricultur- (2019). ty decreased from 71 percent to 42 percent al and mining output. Cement, beverages, between 2007 and 2014. Non-monetary and electricity production all increased poverty indicators such as access to health- significantly, reflecting the materialization Liberia’s economy is recovering. GDP care, education, electricity, and basic util- of pent-up demand and activity in the ser- growth is projected to increase from an ities continue to be low by regional and vices sector. Inflation fell to single digits at international standards, with rural/urban 7.9 percent in 2021, down from 17.4 per- estimated 4.0 percent in 2021 to 4.4 and gender disparities exacerbated by un- cent in 2020 due to the appreciation of the percent in 2022, driven by mining and equal access to productive assets, infra- Liberian dollar and prudent fiscal and continued recovery from the pandemic. structure, public services, and markets. monetary policies. The Central Bank of Meanwhile, inflation declined from 17.4 Liberia continues to face complex de- Liberia maintained the monetary policy velopment challenges, including inade- rates at 20 percent in 2021, well above the percent in 2020 to 7.9 percent in 2021, quate physical and human capital, a inflation rate, and began the implementa- and it is expected to stay in single dig- highly concentrated export structure, a tion of a currency changeover to help curb its in 2022 due to prudent monetary narrow revenue base, significant spend- disruptive cash shortages and boost confi- and fiscal policies. However, there are ing needs, weak governance, and a chal- dence in the financial sector. While the re- downside risks and uncertainties associ- lenging business environment. Transi- bound in growth and moderation in infla- tioning to an economic path that reliably tion led to a small recovery in consump- ated with the Ukraine-Russia conflict, tion, poverty levels remained high. generates broad-based improvements in the ongoing currency changeover, and poverty and social outcomes would re- The government’s fiscal deficit and public the COVID-19 pandemic. quire significant investments in physical debt ratio improved in 2021. The overall FIGURE 1 Liberia / Real GDP growth and sectoral FIGURE 2 Liberia / Actual and projected poverty rates and contributions to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 6 120 900 5 800 100 4 700 3 80 600 2 500 60 1 400 0 40 300 -1 200 20 -2 100 Agriculture Industry -3 0 0 Services Real GDP growth 2007 2009 2011 2013 2015 2017 2019 2021 2023 -4 International poverty rate Lower middle-income pov. rate 2019 2020 2021 2022f 2023f 2024f Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations based on IMF and CBL data. Source: World Bank. Note: see table 2. MPO 252 Apr 22 fiscal deficit narrowed from 3.8 percent of of 5.0 percent in 2023-24. Per capita GDP Russia is very limited, as these two GDP in 2020 to 2.9 percent in 2021, mainly will return to pre-crisis levels by 2023. countries together account for 1.5 per- thanks to strong revenue performance and The positive outlook is underpinned by cent of the country’s imports and less successful efforts to contain the public sec- significant tailwinds for mining, the gov- than 1 percent of exports. The Ukraine- tor wage bill. As a result, the public debt- ernment’s planned scale-up of public in- Russia conflict will affect Liberia mainly to-GDP ratio declined from 55.0 percent in vestment, and the implementation of through changes in commodity prices, 2020 to 53.3 percent in 2021. structural reforms. Specifically, the gov- with a likely positive net effect on trade. Liberia’s current account deficit worsened ernment has ratified a new mining con- FDI is expected to increase due to the despite stronger-than-expected export cession that would triple the production recent expansion of a mining project. growth. The current account deficit of iron ore, boost employment, and at- The country’s foreign exchange reserves widened from 16.3 percent of GDP in 2020 tract FDI over the next decade. The sharp are projected to cover around four to 17.7 percent in 2021, mainly due to a increase in metal prices, especially iron months of imports in the medium term. worsening trade deficit. While exports in- ore, presents terms of trade gains and The fiscal deficit will remain at 2021 lev- creased by 5.4 percentage points of GDP, improved prospects for the mining sec- els in 2022 as the national budget for on the back of higher export prices (e.g., tor. Inflation is expected to increase due the year targets a significant increase in of gold and iron ore), imports also surged. to rising global food and fuel prices, but revenue. Domestic revenues are project- The deficit was financed mainly by foreign it is projected to remain in single dig- ed to increase, reflecting an increase in direct investment (FDI) (7.3 percent of its as the government’s commitment to both tax and non-tax revenue, thanks GDP) and capital grants. In 2021, Liberia regulate the prices of some commodi- to royalties and rents from the mining benefited from a new Special Drawing ties (e.g., fuel, rice, and transport) helps sector. Meanwhile, total expenditure is Rights (SDR) allocation from the Interna- mitigate the pressure on domestic prices. projected to increase driven by the rise tional Monetary Fund of SDR 247.7 million Even so, the conduct of the currency in government consumption expenditure (approximately US$350 million or 7.3 per- changeover is crucial for limiting infla- despite a reduction in the public sector cent of GDP). The additional SDR alloca- tion. Fueled by a buoying economy, pri- wage bill. Domestically financed capital tion sharply increased the coverage of in- vate consumption per capita is also ex- expenditure is also projected to increase ternational reserves from 2.1 months of im- pected to increase in 2022, despite higher dramatically by 2.2 percentage points of ports in 2020 to 4 months in 2021. inflation. This will likely push the pover- GDP. Nevertheless, the Ukraine-Russia ty rate below 50 percent for the first time crisis could trigger higher inflation and since the pandemic began. The outlook fiscal overruns. is subject to the path of the pandemic at Outlook home and abroad. The current account deficit is expected The economy is projected to expand by to remain around 16 percent of GDP. 4.4 percent in 2022 and reach an average Liberia’s direct exposure to Ukraine and TABLE 2 Liberia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -2.5 -3.0 4.0 4.4 4.8 5.2 Private Consumption -2.8 -1.9 1.2 3.0 3.0 3.0 Government Consumption 4.0 -11.6 -3.7 1.3 -14.4 -5.8 Gross Fixed Capital Investment -7.8 -7.3 22.0 25.3 27.9 22.4 Exports, Goods and Services 1.6 1.2 15.4 2.0 2.0 2.0 Imports, Goods and Services 0.4 8.1 1.3 3.1 3.1 3.1 Real GDP growth, at constant factor prices -2.4 -3.0 4.0 4.4 4.8 5.2 Agriculture 0.2 2.4 1.9 3.6 4.8 5.2 Industry 1.0 0.2 16.3 9.0 9.0 6.0 Services -5.7 -8.8 1.1 3.1 2.8 4.8 Inflation (Consumer Price Index) 27.0 17.4 7.9 8.2 7.0 7.0 Current Account Balance (% of GDP) -20.5 -16.3 -17.7 -16.3 -15.8 -14.6 Fiscal Balance (% of GDP) -5.6 -3.7 -2.9 -2.9 -2.8 -2.3 Debt (% of GDP) 48.5 55.0 53.1 51.1 49.9 51.1 Primary Balance (% of GDP) -5.0 -2.5 -1.9 -1.1 -1.1 -0.7 a,b International poverty rate ($1.9 in 2011 PPP) 47.3 51.1 50.6 49.4 47.6 46.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 78.4 80.2 79.9 79.1 78.4 76.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 94.1 95.1 94.9 94.6 94.2 93.8 GHG emissions growth (mtCO2e) 0.0 -0.9 0.0 -0.3 -0.6 -0.6 Energy related GHG emissions (% of total) 35.9 35.0 33.0 30.6 28.0 25.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2016-HIES. Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2016) with pass-through = 1 based on GDP per capita in constant LCU. MPO 253 Apr 22 all of which require deep governance and institutional reforms. MADAGASCAR Key conditions and challenges Table 1 2021 Recent developments Development prospects in Madagascar Population, million 28.4 continue to be hampered by the country’s During 2021, Madagascar faced two addi- GDP, current US$ billion 14.1 low growth potential and exposure to fre- tional waves of COVID-19, one starting in GDP per capita, current US$ 494.5 quent, deep, and persistent shocks. March and another in November. Between a 78.8 International poverty rate ($1.9) Growth averaged about 3.5 percent from these two waves, domestic activity had a 91.5 the return to constitutional order in 2013 started to recover but private investment Lower middle-income poverty rate ($3.2) a 97.5 to the onset of the pandemic and was fol- remained weak and employment registra- Upper middle-income poverty rate ($5.5) Gini index a 42.6 lowed by a recession in 2020 that was tion started moderating again towards the School enrollment, primary (% gross) b 134.1 about 3 times deeper than in the rest of end of the year. The reopening of the Am- b 67.0 Sub-Saharan Africa. Activity had started to batovy mine in March 2021 and rising in- Life expectancy at birth, years recover in 2021 but was interrupted in 2022 ternational prices of nickel and cobalt bol- Total GHG Emissions (mtCO2e) 42.2 by a new wave of COVID-19, a series of ex- stered export revenues and industrial ac- Source: WDI, Macro Poverty Outlook, and official data. treme weather events and the fallout from tivity during most of the year. However, a/ Most recent value (2012), 2011 PPPs. b/ Most recent WDI value (2019). Russia’s invasion of Ukraine. Growth pro- agricultural production, which is the main jections was nearly halved for 2022 and are source of income for an overwhelming ma- significantly softer than previously-than- jority of the population, remained sub- An economic recovery started in 2021 but expected in 2023 and 2024. As a result, the dued, which notably reflected a weak rice poverty rate is now predicted to remain harvest. Severe droughts in the South also was interrupted in 2022 by the combined close to 80 percent over the next couple of led to widespread crop failure and grow- impact of a third wave of the pandemic, a years, compared with an average of 42 per- ing food insecurity. Households in most series of climate shocks, and the escalat- cent for the rest of Sub-Saharan Africa. affected areas ran out of food reserves and ing conflict in Ukraine. In this context, A further escalation of geopolitical ten- have resorted to desperate feeding prac- sions could heighten the risk of a hard tices. Many households have also been growth projections were downgraded to landing of the global economy, which forced to sell assets, accumulate debt, or 2.6 percent in 2022 and to an average of could jeopardize the recovery in Madagas- migrate in search for food. 4.4 percent in 2023-24, resulting in the car. At the national level, vulnerability to Despite an unprecedented sequence of poverty rate remaining close to 80 per- additional climate shocks, low vaccination shocks and growing financing needs, cent by 2024. rates, and policy uncertainty are among macroeconomic stability has been main- the key risks to the outlook. Beyond the tained throughout the crisis. Access to need to scale up the response to recent emergency lending allowed the govern- shocks, accelerating growth and reducing ment to increase public spending in both poverty will require urgent reforms sup- 2020 and 2021, in contrast with the experi- porting private investment, connectivity ence of previous recessions when a sharp infrastructures and access to basic services, contraction in public spending deepened FIGURE 1 Madagascar / Growth and income per capita FIGURE 2 Madagascar / Actual and projected poverty rates levels and real GDP per capita Percent Index = 100 in 1960 Poverty rate (%) Real GDP per capita (constant thousand LCU) 10 80 100 820 5 75 95 800 90 0 70 780 85 760 -5 65 80 740 75 -10 60 70 720 -15 GDP growth 55 GDP per capita growth 65 700 GDP per capita level (RHS) 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -20 50 International poverty rate Lower middle-income pov. rate 2000 2005 2010 2015 2020 Upper middle-income pov. rate Real GDP pc Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Source: World Bank. Notes: see Table 2. Global Practices. MPO 254 Apr 22 the crisis. While helping to alleviate the it one of the most disruptive cyclonic sea- cent in 2024, with structural constraints impact of the crisis, this countercyclical in- sons in recent years. Russia’s invasion of and slowing external demand preventing crease in both current and capital spending Ukraine is also projected to have important a faster rebound. The growth potential of led the budget deficit to 4.1 percent in 2020 repercussions, as it will negatively impact the economy has been negatively impacted and 6.3 percent in 2021, which contributed economic prospects in the European by deteriorating human capital, private in- to an uptick in public debt to 52 percent Union, which is Madagascar’s main trad- vestment and public sector governance of GDP in 2021 (up from 38.5 percent in ing partner, and has already led to signif- during the crisis and is not expected to ex- 2019), but still well below risk thresholds icant upward pressure on global energy ceed 4 percent in the absence of a signifi- considered for a country like Madagascar. and food prices. This conflict will result cant reforms. in slowing export growth, deteriorating Against this backdrop, the poverty rate is terms of trade and rising inflation in projected to remain well above pre-crisis Madagascar. The effect on the trade deficit levels. The expected recovery in economic Outlook will be somewhat offset by a continued in- activity will translate into a gradual de- crease nickel and cobalt prices and a grad- cline in poverty rates, from an historical A third wave of the pandemic followed by ual pick up in tourism activity. In this con- high of 81 percent in 2020 to 80.2 percent a sequence of severe weather events and text, growth projections for 2022 were in 2023 and 79.9 percent in 2024, thereby the adverse effects from the conflict in downgraded to 2.6 percent, from 5.4 per- remaining above pre-crisis levels (Chart 2). Ukraine are expected to contribute to de- cent previously, which implies that GDP Progress with poverty reduction will celerating activity in 2022. In particular, per capita would stagnate and remain largely be determined by progress with the more than 450.000 people were affected by about 8.5 percentage points below pre-cri- policy response to recent crises, the capac- four tropical storm systems hitting Mada- sis levels (Chart 1). Growth is expected to ity of the economy to rebound and the ab- gascar since the start of the year, making pick up to 4.2 percent in 2023 and 4.6 per- sence of additional climate shocks. TABLE 2 Madagascar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.4 -7.1 4.4 2.6 4.2 4.6 Private Consumption 1.2 -2.9 1.9 2.5 3.4 3.6 Government Consumption 1.9 1.8 15.5 -0.7 0.9 2.2 Gross Fixed Capital Investment 12.9 -10.1 3.0 5.2 8.9 8.5 Exports, Goods and Services 10.9 -22.6 11.6 4.9 5.4 6.4 Imports, Goods and Services 4.6 -13.8 7.4 4.5 5.4 6.1 Real GDP growth, at constant factor prices 4.3 -8.5 4.7 2.6 4.2 4.6 Agriculture 5.5 0.6 1.5 1.8 2.8 2.8 Industry 6.6 -29.5 13.2 5.0 5.6 5.9 Services 3.1 -6.2 4.4 2.4 4.5 5.1 Inflation (Consumer Price Index) 5.6 4.2 6.2 7.5 6.4 6.1 Current Account Balance (% of GDP) -2.3 -5.4 -5.3 -6.2 -6.1 -6.1 Fiscal Balance (% of GDP) -1.4 -4.1 -6.3 -6.0 -5.4 -4.4 Debt (% of GDP) 38.5 49.0 52.1 53.9 55.1 55.2 Primary Balance (% of GDP) -0.7 -3.4 -5.4 -5.0 -4.3 -3.4 a,b International poverty rate ($1.9 in 2011 PPP) 77.4 81.0 80.6 80.6 80.2 79.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 90.9 92.1 91.9 91.9 91.7 91.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 97.3 97.7 97.6 97.6 97.6 97.5 GHG emissions growth (mtCO2e) 2.8 -1.4 0.7 0.4 0.7 0.9 Energy related GHG emissions (% of total) 14.5 14.1 14.9 15.0 15.4 15.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2012-ENSOMD. The historical poverty rates have been revised with respect to their CPI to account for the fact that the 2012-ENSOMD survey work took place from September 2012-November 2013. Previously, CPI measures used the starting year (2012) of the survey field work only. b/ Projection using neutral distribution (2012) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 255 Apr 22 Associated higher debt servicing costs further reduce fiscal space for govern- MALAWI Key conditions and ment investment. Frequent weather shocks, along with challenges the slow pace of structural transfor- mation, have contributed to the high Table 1 2021 The economy continues to recover from and stagnant poverty rate in the last Population, million 19.6 the impacts of the COVID-19 pandemic. decade. Between 2010 and 2020, the GDP, current US$ billion 12.3 Cases surged during the spread of the share of people below the $1.90 per GDP per capita, current US$ 626.3 Omicron variant in late 2021, but symp- day poverty line increased from 72 a 73.5 International poverty rate ($1.9) toms associated with the strain were percent to 74 percent. a 90.4 milder and the government did not impose Lower middle-income poverty rate ($3.2) a 97.1 substantial additional mobility restric- Upper middle-income poverty rate ($5.5) Gini index a 38.5 tions. However, vaccine uptake is low, and School enrollment, primary (% gross) b 144.8 the country remains susceptible to new Recent developments b 64.3 strains of the virus. Life expectancy at birth, years Exports continue to recover slowly, Economic growth increased to 2.8 percent Total GHG Emissions (mtCO2e) 28.2 while imports have been increasing of GDP in 2021 despite three waves of Source: WDI, Macro Poverty Outlook, and official data. from a higher base, which continues to COVID-19 infections. Growth was driven a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). weaken the current account balance. In- by the strong performance of the agricul- vestment is limited by a weak busi- tural sector, aided by favorable weather ness environment characterized by lim- and increased input use. This offset weak Malawi’s GDP growth rose to 2.8 percent ited access to credit, numerous non-tar- growth in industry and services, which iff barriers, and high transport costs. were more significantly impacted by re- in 2021, boosted by an improved agricul- Together with erratic electricity supply, strictions related to COVID-19. tural harvest and the diminishing impact this constrains diversification and in- Headline inflation increased to 13.0 per- of the COVID-19 pandemic. However, creased value addition despite the cent in February 2022, above the monetary growth is projected to stagnate in 2022 growth of some sectors, such as soya policy rate of 12 percent. Food inflation and mining. High reliance on subsis- reached 15.3 percent, largely due to an in- due to weather shocks and increased com- tence rain-fed agriculture, susceptible to crease in maize prices, while non-food in- modity prices, contributing to rising in- weather shocks, further impedes eco- flation has been driven by rising fuel flation and challenging the government’s nomic activity. prices. The official exchange rate remained fiscal consolidation efforts. These dynam- Implementation of expansionary policies relatively stable for the second half of 2021 ics reduce the impact of growth on pover- and weak fiscal management have con- but rising global commodity prices con- tributed to high fiscal deficits, resulting tributed to inflation, and the spread be- ty, which remains persistent and is in increased high-cost domestic debt. tween the official and cash exchange rate among the highest in the region. This has crowded out private invest- has widened. ment. The recent uptake of non-conces- The FY22 budget deficit is expected to sional external debt has pushed Malawi increase further, reaching 9.4 percent into high risk of public debt distress. of GDP. The government is optimistic FIGURE 1 Malawi / Fiscal deficit and public debt FIGURE 2 Malawi / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 10 70 120 400000 9 390000 60 100 8 380000 7 50 80 370000 6 40 60 360000 5 30 350000 4 40 3 20 340000 2 20 330000 10 1 0 320000 - - 2010 2012 2014 2016 2018 2020 2022 2024 2010 2012 2014 2016 2018 2020 2022 2024 International poverty rate Lower middle-income pov. rate Fiscal Deficit (lhs) Public Debt (rhs) Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance, Economic Planning and Development, World Bank. Source: World Bank. Notes: See Table 2. MPO 256 Apr 22 that revenues (including disbursement elevated from pandemic-induced supply- of grants) will increase to 16.7 percent chain disruptions and increased global de- of GDP. Expenditure is expected to in- Outlook mand, are also rising due to the conflict. crease significantly to 26.0 percent of The current account deficit is estimated to GDP, driven by a surge in domestically Growth is projected to decline to 2.1 increase to 14.4 percent of GDP. Exports financed development expenditure, ris- percent in 2022, from 2.8 percent in are expected to maintain their current up- ing debt servicing costs, social benefits 2021. This reduction is largely due to ward momentum, but the cost of imports (including implementation of the Af- weather-related shocks, macro-fiscal im- is expected to increase, offsetting export fordable Input Program), and grants. balances, and the impacts of the Russia- gains. Rising commodity prices will also The resultant deficit will be financed us- Ukraine war. The late onset of rains has exert upward pressure on inflation. Sup- ing high-cost domestic resources, fur- been compounded by heavy rainfall and ply-related pressures on the agriculture ther exacerbating an already challenging floods caused by Tropical Cyclones Ana sector due to weather shocks could push public debt situation. and Gombe, which have negatively im- average annual inflation into double digits. The current account deficit remained pacted production of key export crops As a result of consolidation efforts on large in 2021, at 13.0 percent of GDP. and other sectors that rely on agri- both revenues and expenditures, the FY23 As mobility restrictions imposed to con- cultural inputs. Electricity disruptions fiscal deficit is expected to decline to 8.2 tain the pandemic were slowly eased, from the damaged Kapichira hydroelec- percent of GDP. Revenue is projected to the performance of exports improved. tric power station are affecting industry. increase to 16.8 percent of GDP driven Rising prices of goods such as fuel The Russia-Ukraine conflict has impacted by an increase in grant disbursements. and fertilizer have resulted in rising im- the economy through both direct price ef- Meanwhile, expenditure is expected to port costs. Rising food prices have im- fects and implications on downstream ac- drop to 25 percent of GDP. pacted households’ budget by reducing tivities. Instability in global commodity Due to the weather-related shocks affect- consumption levels, resulting in declin- markets is resulting in higher prices for fu- ing agricultural productivity and in- ing welfare and counteracting improve- el and fertilizer, further constraining for- comes, the share of the population below ments in economic growth. In turn, eign currency reserves and exerting down- the international $1.90 poverty line is pro- Malawi’s $1.90 international poverty ward pressure on the exchange rate. Glob- jected to stagnate around 74 percent in rate has remained at 74 percent. al commodity prices, which were already 2022 and 2023. TABLE 2 Malawi / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.4 0.8 2.8 2.1 4.3 4.2 Private Consumption 5.4 0.8 2.9 2.5 5.0 5.2 Government Consumption 5.4 0.8 -2.9 7.1 0.5 -3.6 Gross Fixed Capital Investment 5.4 0.8 6.1 0.8 2.5 6.2 Exports, Goods and Services 5.4 0.8 5.5 2.1 3.6 4.1 Imports, Goods and Services 5.4 0.8 4.3 3.6 4.0 5.2 Real GDP growth, at constant factor prices 6.0 0.8 2.8 2.1 4.3 4.2 Agriculture 5.9 3.4 5.2 -3.0 3.4 3.1 Industry 7.7 1.2 1.9 2.0 4.1 4.5 Services 5.5 -0.5 2.0 4.4 4.7 4.6 Inflation (Consumer Price Index) 9.4 8.6 9.3 12.6 11.5 9.8 Current Account Balance (% of GDP) -13.8 -11.7 -13.0 -14.4 -13.6 -13.4 Net Foreign Direct Investment (% of GDP) 0.3 0.6 0.3 0.8 0.6 0.6 Fiscal Balance (% of GDP) -4.4 -6.4 -7.1 -9.4 -8.2 -8.3 Debt (% of GDP) 45.3 52.8 53.6 61.5 60.3 58.9 Primary Balance (% of GDP) -1.5 -3.3 -3.3 -4.9 -2.9 -3.2 a,b International poverty rate ($1.9 in 2011 PPP) 73.5 74.3 74.3 74.4 74.0 73.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 90.4 90.7 90.7 90.8 90.5 90.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 97.1 97.2 97.2 97.2 97.1 97.1 GHG emissions growth (mtCO2e) 1.6 1.4 2.1 1.9 2.4 1.8 Energy related GHG emissions (% of total) 34.2 34.2 34.2 34.5 34.7 34.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2019-IHS-V.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 257 Apr 22 January 2022 including border closure, suspension of commercial and financial MALI Key conditions and transactions, freeze of public assets and suspension of regional funding. challenges Table 1 2021 Insufficient investment in human and Population, million 20.9 physical capital has hindered Mali’s Recent developments GDP, current US$ billion 18.5 structural transformation. Subsistence GDP per capita, current US$ 887.2 farming with low productivity still dom- The economy grew by 3.1 percent, 0.1 a 16.3 International poverty rate ($1.9) inates agriculture, manufacturing is con- percent in per capita terms, in 2021, dri- a 49.5 centrated in low-value added textiles and ven by services and agriculture as the Lower middle-income poverty rate ($3.2) a 77.8 agri-food, while cotton and gold domi- cotton sector recovered. Private consump- Upper middle-income poverty rate ($5.5) Gini index a 36.1 nate exports. The services sector expand- tion and public investment also rebound- School enrollment, primary (% gross) b 75.6 ed rapidly over the last decade but lacks ed. The current account deficit (CAD) b 59.3 the skilled labor and infrastructure base widened in 2021 to 4.3 percent of GDP, Life expectancy at birth, years for sustained growth. The under-diversi- as the terms of trade deteriorated follow- Total GHG Emissions (mtCO2e) 47.6 fied economy remains vulnerable to com- ing the gold price stabilization and oil Source: WDI, Macro Poverty Outlook, and official data. modity price volatility and climate-relat- price rise. Exports declined from lower a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy ed shocks. Contingent liabilities related to gold and cotton exports, while imports (2019). the energy utility and the surge of domes- rose from higher domestic demand. tic debt constitute significant fiscal risks. The fiscal deficit stayed high, at 5.5 per- National monetary poverty has stagnated cent of GDP, with public expenditure es- Two military coups in August 2020 and over 2011-2020 while nonmonetary pover- timated at 27.9 percent of GDP, driven May 2021 and growing insecurity have ty indicators show mixed results: from by a larger wage bill, capital expenditure 2011 to 2020 the share of households with and quasi-fiscal measures to contain retail resulted in a stagnant economy, with a child not attending school fell from food and fuel prices. Revenues increased negligible per capita growth in 2021 and 62 to 41 percent, while the share with following improved indirect tax collec- projected for 2022, exacerbated by food sick members unable to receive healthcare tions. Financing was covered by conces- price inflation that particularly hurt the rose from 22 to 37 percent. sional credits, grants and domestic bor- Violent conflict and insecurity have ex- rowing. Public debt rose to 52.7 percent poor. The medium-term outlook is subject panded to central and southern regions, of GDP though Mali remains at moderate to significant downside risks, notably disrupting agriculture and service delivery risk of debt distress. with uncertainty over the political transi- outside Bamako. Though transfers to local Annual average inflation rose to 4 percent tion and regional sanctions, with poverty governments have increased, newly creat- in 2021, reaching 8.9 percent (y/y) in De- expected to decline only slightly due to ed administrative regions are not ade- cember, driven by food (5.2 percent), par- quately staffed to provide public services. ticularly cereals (8.9 percent), and ser- limited per capita income growth. vices. Mali’s monetary and exchange rate Following the postponement of national elections, due in February 2022, ECOWAS policies are managed by the BCEAO, imposed tough sanctions against Mali in which maintains a peg between the CFA FIGURE 1 Mali / GDP growth, fiscal and current account FIGURE 2 Mali / Actual and projected poverty rates and real balances GDP per capita Percent Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 0 100 290000 5 90 280000 4 -2 80 270000 70 3 60 260000 2 -4 50 250000 1 40 240000 0 -6 30 230000 20 -1 10 220000 -2 -8 2017 2018 2019 2020e 2021e 2022p 2023p 2024p 0 210000 GDP growth (%) 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Fiscal balance (% of GDP), rhs International poverty rate Lower middle-income pov. rate Current account balance (% of GDP), rhs Upper middle-income pov. rate Real GDP pc Sources: Malian government and the World Bank. Source: World Bank. Notes: see table 2. MPO 258 Apr 22 Franc and the Euro. Its reserves reached expire by the end of March 2022. Growth inflows, due to the uncertain envi- 5.8 months of imports of goods and ser- is expected to recover gradually, reaching ronment for Eurobond issuances. vices in 2021 following the recovery in ex- 5.2 percent on average over 2023-24. High The extreme poverty rate is projected to port repatriation proceeds. Mali’s WAE- levels of inflation will continue in 2022 stagnate at around 17.5 percent in 2022, MU membership was suspended as part but will normalize towards the regional due to the high projected population of the sanctions. Commercial banks still target (2 percent) by 2024. The CAD is growth rate of 2.9 percent over 2021-2023. benefit from the Central Bank’s refinanc- projected to stabilize around 4.2 percent Protracted sanctions may reduce employ- ing operations (at a reduced level), while of GDP in 2022 and narrow to 3.5 per- ment and incomes for the urban poor en- the government’s access to the regional cent of GDP by 2025 with the easing of gaged in construction, transport, com- market was suspended. oil prices. merce and hospitality. Internally displaced With near zero per capita income growth, The fiscal deficit is expected to narrow persons and refugees will increasingly the extreme poverty rate (US$1.90/day per to 4.5 percent of GDP in 2022, as part flock into Bamako when the government capita, 2011 PPP) remained at 17.6 percent, of a fiscal consolidation program that tar- is ill-equipped to mitigate humanitarian though high food inflation and insecurity gets returning to the regional ceiling of crises and support the vulnerable. disproportionately impact poor and vul- 3 percent of GDP by 2024. Tax revenue The outlook is subject to multiple down- nerable households, who spend 46 percent is expected to slightly decline due to the side risks, the most important being re- of the budget on food, compared with 31 slow recovery and trade embargo, while gional sanctions extending beyond March, percent for the non-poor. the suspension of international financial but also from intensified insecurity, further flows limits financing options. Spending climatic shocks, food insecurity and new should be reprioritized away from non- COVID outbreaks. It is likely that at least priority capital investment in response some of these risks will materialize and Outlook to the fiscal constraints. Public debt will concurrent shocks are possible. The Rus- subsequently decline to 48.2 percent of sia-Ukraine war presents additional risks In 2022, the economy is expected to grow GDP by 2024. through higher food and energy prices. at 3.3 percent, which reflects the impact WAEMU reserves are expected to fall The projections reflect recent sharp in- of regional sanctions on the construction to around 5.5 months of imports in creases in commodity prices since January and service sectors that depend on re- 2022 and 5.3 months in 2023 and 2022, though with a high degree of uncer- gional supply networks. However, this 2024, reflecting faster growth in im- tainty. Higher gold prices could help offset projection assumes that the sanctions will ports and a reduction in net capital the negative impact of surging oil prices. TABLE 2 Mali / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.8 -1.2 3.1 3.3 5.3 5.0 Private Consumption 3.8 1.9 5.0 4.0 4.0 4.0 Government Consumption 4.0 4.5 11.2 2.8 4.1 2.1 Gross Fixed Capital Investment 6.3 -1.2 3.8 -2.1 8.4 7.5 Exports, Goods and Services 2.3 0.5 -0.5 2.1 5.0 5.0 Imports, Goods and Services 5.9 -2.9 10.1 1.0 3.7 3.1 Real GDP growth, at constant factor prices 4.5 -1.1 3.1 3.3 5.3 5.0 Agriculture 4.0 -4.8 2.2 4.8 5.0 5.0 Industry 3.7 -0.1 0.7 2.6 6.0 4.0 Services 5.2 1.4 4.9 2.5 5.2 5.4 Inflation (Consumer Price Index) -2.9 0.5 4.0 7.0 2.5 2.0 Current Account Balance (% of GDP) -7.5 -2.3 -4.3 -4.3 -3.7 -3.9 Net Foreign Direct Investment (% of GDP) 5.0 3.1 2.4 2.4 2.4 2.6 Fiscal Balance (% of GDP) -1.7 -5.4 -5.5 -4.5 -3.5 -3.0 Debt (% of GDP) 40.7 47.3 52.7 49.8 49.0 48.2 Primary Balance (% of GDP) -0.7 -4.2 -4.0 -2.5 -1.8 -1.4 a,b International poverty rate ($1.9 in 2011 PPP) 15.7 17.6 17.6 17.5 16.3 15.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 48.3 50.8 50.8 50.6 49.3 47.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 77.4 78.7 78.5 78.4 77.8 77.3 GHG emissions growth (mtCO2e) 4.8 -1.5 6.4 4.0 4.3 4.4 Energy related GHG emissions (% of total) 17.6 17.6 17.9 18.1 18.5 19.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018/19 EHCVM. This survey replaced the previous 2009-ELIM survey used to calculate poverty rates in previous years. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 259 Apr 22 impact of climate related shocks on the primary sector, especially fisheries. MAURITANIA Key conditions and Poverty reduction is threatened by rising food and energy prices, a higher cost of challenges living, and supply disruptions. These im- ply a decline in extreme poverty rates of Table 1 2021 Macroeconomic stability had improved just 0.11 and 0.2 percent points per year be- Population, million 4.8 before the Covid-19 pandemic from im- tween 2022 and 2024 using the US$1.9/day GDP, current US$ billion 8.3 proved terms of trade and reforms to and US$3.2/day (2011 PPP) international GDP per capita, current US$ 1735.8 reduce fiscal deficits after the 2014-2015 poverty lines respectively. To meaningful- a 6.0 International poverty rate ($1.9) commodity price shock. Growth in- ly reduce the absolute number of the poor a 24.1 creased to 5.8 percent in 2019, driven by by 2024, agriculture sector reforms are nec- Lower middle-income poverty rate ($3.2) a 58.8 extractive sector growth of 14.9 percent. essary to support the mechanization, irri- Upper middle-income poverty rate ($5.5) Gini index a 32.6 However, with the pandemic, structur- gation, and the use of improved seedlings School enrollment, primary (% gross) b 100.4 al reforms were delayed, and the econo- to enhance domestic food production and b 64.9 my remains undiversified and reliant on resilience, and the consumption of cheaper Life expectancy at birth, years the extractives sector. Between 2015 and locally produced cereals and grains. Total GHG Emissions (mtCO2e) 14.1 2019, the Human Development Index re- Source: WDI, Macro Poverty Outlook, and official data. mained unchanged, ranking Mauritania a/ Most recent value (2014), 2011 PPPs. b/ Most recent WDI value (2019). 157th out of 189 countries. This may be partially explained by insufficient invest- Recent developments ment in human capital and basic infra- Growth rebounded in 2021 to 2.3 percent, structure, and the challenges of channel- Growth rebounded in 2021 to 2.3 percent ing economic gains to address develop- (-0.4 percent in per capita terms) from a supported by extractives and services, ment constraints. contraction of -1.8 percent in 2020. Services while extreme poverty remained at 5.8 The negative impact of the pandemic on contributed 1.1 percentage points (pp) to percent. Fiscal balances remained posi- human, economic, and social activities GDP growth supported by the relaxation tive, at 2.5 percent of GDP, supported by declined markedly in 2021, reflected by a of containment measures, vaccination of rebound in growth and government mit- the population, and the growing extrac- donor financing. Growth is expected to igations measures. The numbers of peo- tives sector. The main drivers of growth reach 7.7 percent by 2024 with the start ple in extreme poverty fell to 7,200 in were private investment, government con- of gas production. Downside risks include 2021 from 38,000 in 2020. Phone survey sumption and exports. The exchange rate rising inflation pressures, potentially ex- results suggest that 20 percent of house- remained stable in 2021, while average acerbated by a prolonged conflict in holds fell into extreme poverty in July headline inflation rose from 2.4 percent y/y 2020 compared to 16 percent in May 2021. in 2020, to 3.6 percent y/y in 2021, driven Ukraine, export price volatility, and re- Since 2021, the Government has been im- by higher food prices. gional insecurity. plementing priority programs to sustain The current account deficit (CAD) nar- growth by supporting inclusive job cre- rowed from 7.1 percent of GDP in 2020, ation, social protection, and infrastructure to 6.6 percent of GDP in 2021 on account development, as well as mitigating the of favorable exports prices. The CAD was FIGURE 1 Mauritania / Evolution of main macroeconomic FIGURE 2 Mauritania / Actual and projected poverty rates indicators and real GDP per capita Percent, percentage Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 10 0 70 60000 -2 58000 8 60 -4 56000 6 -6 50 54000 4 -8 40 52000 2 -10 30 50000 -12 0 48000 -14 20 46000 -2 -16 10 44000 -4 -18 2015 2016 2017 2018 2019 2020 2021e 2022p 2023p 2024p 0 42000 GDP growth (%) 2008 2010 2012 2014 2016 2018 2020 2022 2024 Primary fiscal balance (% of GDP) International poverty rate Lower middle-income pov. rate Current account balance (% of GDP, rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 260 Apr 22 financed by foreign direct investment, poverty lines of US$1.9/day and US$3.2 alternatives. In the medium term, growth donor financing, the suspension of debt (2011 PPP), remained unchanged in 2021, at will be sustained by gas production start- service, and the allocation of special draw- 5.8 percent and 23.8 percent, respectively. ing in 2024, financial services and public ing rights. Gross international reserves in- sector investments. Inflation is expected creased to 6.2 months of imports of goods to gradually fall to 4 percent y/y in 2024 and services in 2021, from 4.8 months of from 5.3 percent in 2022. imports in 2020. Outlook The CAD is projected to deteriorate to 8.9 The overall fiscal balance remained in percent of GDP in 2022 with higher im- surplus at 2.5 percent of GDP in 2021 dri- The ongoing conflict in Ukraine is expect- ports of equipment for mining and gas in- ven by increases in taxes and mining rev- ed to have a mixed impact on Mauritania. dustry. It should improve to 4.3 percent of enues. Domestic revenues rose with in- It is projected to have negative impact on GDP in 2024 as new gas exports offset low- creased economic activity, stronger do- inflation, through higher imports prices of er projected prices for iron exports. FDI re- mestic demand, and higher dividend pay- food and crude oil, and a positive impact lated to the extractive industry and conces- ments. Expenditure increased from 19.5 through higher iron ore and gold export sional borrowing should finance the cur- percent of GDP in 2020 to 22.8 percent in prices. The net effect should be positive on rent account, with resulting gross interna- 2022, driven by higher current expendi- the current account, but negative on the tional reserves of more than 5 months of ture. Though at high risk of external debt fiscal account, as government fuel subsi- non-extractive imports. distress, public debt remains sustainable, dies may be increased to maintain a con- Fiscal balances are projected to slightly de- falling from 59.3 percent of GDP in 2020, stant administered price. teriorate to a deficit of 0.5 percent of GDP to 56.7 percent in 2021. The economy is expected to continue to in 2022, due to the scaling up of public in- The 2021 economic recovery was led by the rebound in 2022, by 4.5 percent (5.1 per vestment and stronger spending on educa- industrial sector, though it employs one capita terms) and over the medium term. tion, health, and social protection. The au- percent of the poor (Table 2). Agricultural Growth will be driven by a successful thorities are expected to continue renego- and services sectors, which employ 57 per- vaccine roll-out, higher gold and iron tiating for better financial terms for public cent and 42 percent of the poor, respective- production in response to rising interna- debt to lower costs and levels. As real GDP ly, grew by 0.7 percent and 2.5 percent. Ex- tional prices, and stronger substitution of per capita rises, poverty rates are projected treme poverty, based on the international imported cereals with locally produced to trend downwards (Figure 2). TABLE 2 Mauritania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.8 -1.8 2.3 4.5 5.3 7.7 Private Consumption 2.7 2.7 2.5 2.3 2.4 2.7 Government Consumption 1.0 9.2 12.6 5.7 3.5 7.6 Gross Fixed Capital Investment 24.4 -8.9 12.8 5.2 6.4 6.9 Exports, Goods and Services 19.1 -1.9 -2.5 3.4 4.8 8.6 Imports, Goods and Services 11.7 2.0 2.1 2.4 2.5 2.4 Real GDP growth, at constant factor prices 6.6 -1.0 2.3 4.5 5.3 7.7 Agriculture 8.7 -4.0 0.7 0.9 1.0 1.1 Industry 5.6 2.7 3.3 3.9 4.0 6.1 Services 6.2 -1.5 2.5 6.4 7.8 11.2 Inflation (Consumer Price Index) 2.3 2.4 3.6 5.3 5.1 4.0 Current Account Balance (% of GDP) -10.5 -7.2 -6.6 -8.9 -7.8 -4.3 Net Foreign Direct Investment (% of GDP) 11.2 11.4 11.7 11.4 8.5 8.0 Fiscal Balance (% of GDP) 2.0 1.9 2.5 -0.5 -0.6 -0.4 Debt (% of GDP) 63.5 65.5 59.3 56.7 56.7 54.5 Primary Balance (% of GDP) 3.0 3.2 3.4 0.5 0.4 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 5.7 5.8 5.8 5.8 5.7 5.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 23.6 23.8 23.8 23.7 23.6 23.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 57.6 58.2 58.2 57.9 57.7 57.1 GHG emissions growth (mtCO2e) 2.2 1.5 4.5 2.2 2.9 3.4 Energy related GHG emissions (% of total) 33.5 34.3 33.8 34.3 34.9 35.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2008-EPCV and 2014-EPCV.Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. b/ Projection using point to point elasticity at regional level with pass-through = 0,7 based on GDP per capita in constant LCU. MPO 261 Apr 22 Investment Corporation owned by it, in- creased contingent liabilities. MAURITIUS Key conditions and Achieving inclusive growth will require overcoming constraints to a more inclusive challenges labor market. This includes increasing the participation of youth and women with Table 1 2021 Mauritius became a High-Income Country low educational attainments. Over 50,000 Population, million 1.3 in July 2020 based on 2019 data, but fell youth aged 16 to 29 are neither in educa- GDP, current US$ billion 11.1 back into Upper-Middle income category tion nor in employment, and about 1 out GDP per capita, current US$ 8654.6 in July 2021 as real GDP plunged by 14.9 of 3 of these has obtained at most a certifi- a 2.2 Lower middle-income poverty rate ($3.2) percentage points in 2020 amid the cate of primary education. Similarly, only a 12.7 Covid-19 pandemic. Even before the Covid 1 in 2 women participates in the labor mar- Upper middle-income poverty rate ($5.5) a 36.8 pandemic, several interrelated structural ket, and only 1 in 3 among women with Gini index School enrollment, primary (% gross) b 99.5 challenges had rendered the country’s low education. The impact of Covid-19 re- Life expectancy at birth, years b 74.2 growth trajectory more fragile. These in- versed recent gains in labor force partic- Total GHG Emissions (mtCO2e) 6.3 clude stagnating private investment, sus- ipation of women. Women were signifi- tained loss of export competitiveness, skill cantly more likely to be displaced during Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017), 2011 PPPs. shortages coexisting with high structural this time, while men and women with a b/ Most recent WDI value (2019). unemployment, rising inequality, and better education were significantly less mounting pressure on public finances likely to be laid off overall. from high and increasing social security GDP grew 3.9 percent in 2021 aided by spending driven by the ageing population, leading to persistent fiscal deficits and a widespread Covid-19 vaccination, al- growing public debt to GDP ratio. Recent developments though subsequent virus waves dampened Mauritius’ handling of the Covid-19 tourism recovery and output remains be- health emergency was very successful, GDP grew an estimated 3.9 percent in low pre-pandemic levels. External factors and the extensive state support was ef- 2021, although subsequent Covid-19 fuel inflation, while public debt is at a fective in protecting livelihoods. Howev- waves dampened growth and output re- er, this came at high fiscal cost, caus- mains below pre-pandemic levels. A suc- historically high level. Recovery hinges on ing public debt to spike despite a Rs cessful Covid-19 vaccination campaign re- the creation of fiscal space to address 55 billion (12.6 of GDP) non-refundable sulting in 76 percent of the population be- longstanding structural challenges and transfer to government from the Bank of ing fully vaccinated by end-February 2022 boost preparedness for future shocks. The Mauritius in FY2020/21, which followed has been a cornerstone of recovery. How- a previous Rs 18 billion transfer (3.9 of ever, a large output gap remains in effects of Covid-19 reversed recent gains GDP) under the FY2019/20 budget. Ad- tourism, with 179,780 arrivals in 2021 in poverty reduction and female labor ditionally, the blurring in the separation marking a 41.8 percent decrease compared force participation. of monetary and fiscal functions stem- to 308,980 in 2020. Even after full reopen- ming from the direct involvement of the ing of borders since October 1, monthly BoM in the Covid-19 response, as well arrivals hovered below 50 percent of pre- as through the newly created Mauritius pandemic figures. Total exports increased FIGURE 1 Mauritius / General government balance and FIGURE 2 Mauritius / Actual and projected poverty rates debt and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 2 110 25 350000 0 100 -2 90 300000 20 -4 80 250000 -6 70 -8 15 200000 60 -10 50 -12 150000 40 10 -14 -16 30 100000 -18 20 5 10 50000 -20 -22 0 0 0 2012/13 2015/16 2018/19 2021/22e 2024/25f General government balance (lhs) 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Primary balance (lhs) Real GDP pc Lower middle-income pov. rate General government debt (rhs) Upper middle-income pov. rate Sources: Statistics Mauritius, World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 262 Apr 22 16.9 percent in 2021 compared to 2020, dri- expects to fully control Air Mauritius by recovery of tourism, before gradually ven by manufactures. As total imports in- end-March 2022. The rising of the Maurit- narrowing down over the medium term, creased by 29.8 percent, the trade deficit ian flag in the Chagos archipelago on Feb- assuming continued recovery of tourism was 39.4 percent higher. However, the cur- ruary 14 during a scientific expedition to and efforts to strengthen export com- rent account deficit still narrowed from the Blenheim reef signaled Mauritius’ in- petitiveness. The fiscal deficit is expect- 12.5 to 11.1 percent of GDP, aided by net tent to recover the islands in dispute with ed to moderate to 9.8 percent in FY21/ income inflows. the UK. 22 as the economic recovery accelerates Fiscal deficit escalated to 19.9 percent in Poverty (Upper-MIC threshold of $5.5 a and Covid-19 support measures are lift- FY20/21, and despite being partially fi- day 2011 PPP) fell from 18 to 10 percent ed, aiding a progressive fiscal consoli- nanced through a 12.6 percent of GDP non- between 2012 and 2019. However, given dation. Public debt would peak at 103.7 refundable Central Bank transfer, still the dramatic contraction of GDP in 2020, percent of GDP in FY21/22 and gradual- caused public debt to spike to 100.6 per- poverty is estimated to have increased by ly decrease over the medium term. Pro- cent of GDP. Headline inflation rose to 4 over 5 percentage points in 2020, subse- jections indicate that poverty will fall to percent in 2021 from 2.5 percent in 2020, quently dropping by over 1 point in 2021. 10 percent, the pre-COVID-19 level, well driven by external supply shocks leading into 2024. to higher freight, energy, and food prices. Significant downside risks cloud the hori- As oil prices rose to historical heights in zon. New Covid-19 variants may continue the wake of the Russian invasion of Outlook to inhibit the rebound of tourism, while es- Ukraine and ensuing sanctions on Russia, calation of war in Europe and harsher eco- the BoM raised the Key Repo Rate 15 bps GDP is expected to grow by 5.9 percent in nomic sanctions could push fuel and food to 2 percent on March 9, representing its 2022 and 6.0 in 2023, before decelerating to prices higher and further disrupt global first hike since June 2011. The removal of 3.9 percent in 2024, in a global context of supply chains, fueling inflation. Pensions’ Mauritius from the FATF, UK and EU low growth, high inflation, and heightened reform and the phased unwinding of watchlists between October 2021 and Janu- geopolitical tensions. Covid-19 support will be key to maintain ary 2022 bolstered the financial sector, and The current account deficit would rise to debt sustainability and create fiscal space following closing of the Mandatory Offer 14.2 percent of GDP in 2022 hit by high- to address structural challenges and boost made by Airport Holdings Limited on Oc- er oil and food import costs and with preparedness facing future shocks, includ- tober 15, 2021, the state-controlled entity rising airfare costs hindering a stronger ing from climate change. TABLE 2 Mauritius / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices 3.0 -14.9 3.9 5.9 6.0 3.9 Private Consumption 3.2 -18.6 6.3 2.0 2.0 2.2 Government Consumption 2.0 -1.2 2.9 1.4 2.9 2.9 Gross Fixed Capital Investment 6.1 -26.1 19.0 3.8 5.7 4.7 Exports, Goods and Services -4.2 -38.1 -1.4 32.0 12.7 7.0 Imports, Goods and Services 2.1 -28.9 5.9 12.3 2.5 2.6 Real GDP growth, at constant factor prices 3.2 -14.7 3.9 5.9 6.0 3.9 Agriculture 4.1 -2.5 6.6 1.5 3.8 1.8 Industry 2.4 -19.1 13.2 1.7 3.3 1.3 Services 3.3 -14.3 1.4 7.3 6.9 4.7 Inflation (Consumer Price Index) 0.5 2.5 4.0 8.4 5.7 5.0 Current Account Balance (% of GDP) -5.4 -12.5 -11.1 -14.2 -10.4 -9.3 Net Foreign Direct Investment (% of GDP) 14.3 26.0 31.9 32.5 32.3 33.1 b Fiscal Balance (% of GDP) -10.8 -19.9 -9.8 -6.3 -7.1 -6.2 b Debt (% of GDP) 77.7 100.6 103.7 103.2 99.0 97.5 b Primary Balance (% of GDP) -8.1 -17.0 -7.4 -3.9 -4.7 -4.0 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.8 2.7 2.4 2.2 2.0 1.8 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.5 15.8 14.5 12.9 11.1 10.0 GHG emissions growth (mtCO2e) 0.4 -12.9 7.5 5.7 4.5 6.5 Energy related GHG emissions (% of total) 61.5 62.1 61.2 61.5 61.4 61.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Historical demand-side data is being revised due to a consistency problem. b/ Fiscal balances are reported in fiscal years (July 1st - June30th). c/ Calculations based on 2017-HBS.Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. d/ Projection using neutral distribution (2017) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 263 Apr 22 promote inclusive growth. Achieving this requires, among others, investments MOZAMBIQUE Key conditions and in infrastructure and social sectors, but the country faces substantial fiscal con- challenges straints. The public sector wage bill and debt service absorb about 90 percent Table 1 2021 The economy was already weak when it of total tax revenues. In addition, sig- Population, million 32.2 entered the pandemic. Growth plunged nificant fiscal revenues from the LNG GDP, current US$ billion 16.1 from 8 percent in 1993–2015, to 3 percent sector may materialize only in about a GDP per capita, current US$ 500.0 in 2016–2019, due to the hidden debt cri- decade. Mobilizing additional financing a 63.7 International poverty rate ($1.9) sis in 2016, the insurgency escalation in needs involve: (i) resuming fiscal con- a 82.4 Northern Mozambique, and the cyclones solidation, notably through wage bill re- Lower middle-income poverty rate ($3.2) a 54.0 in 2019. In 2020, COVID-19 led to a GDP forms; (ii) increasing public spending ef- Gini index School enrollment, primary (% gross) b 118.4 contraction of 1.2 percent, as demand fell ficiency; (iii) improving debt manage- Life expectancy at birth, years b 60.9 and liquified natural gas (LNG) invest- ment and bringing public debt back to Total GHG Emissions (mtCO2e) 112.2 ments were delayed. The pandemic exac- more sustainable levels; and (iv) greater erbated pre-existing vulnerabilities stem- private sector development. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014), 2011 PPPs. ming from overreliance on large invest- b/ WDI for School enrollment (2020); Life expectancy ments in the extractive industry and ex- (2019). ports of commodities, with weak domes- tic linkages. The private sector’s potential Recent developments remains untapped due to weak gover- Mozambique’s economy recovered moder- nance, a difficult business environment, Growth reached 2.2 percent in 2021, dri- ately in 2021. Growth reached 2.2 per- and infrastructure and human capital ven by increased agricultural and ser- deficits. Structural transformation has vices output. The resumption of mobility cent, driven by agriculture and a gradual been limited with most jobs remaining in supported the recovery of private con- rebound in demand. Yet, the poverty rate low productivity activities. Despite con- sumption. The global recovery impacted remains high at 63.5 percent as per capita siderable downside risks—including food, energy, and fuel prices, contribut- income declined. The medium-term out- COVID-19, natural disasters, and insur- ing to a rise in inflation to 5.7 percent in look is positive with growth projected to gency— economic prospects remain pos- 2021, double the rate registered in 2020. itive. Growth is projected to average 5 The loss of income and employment due reach 6 percent in 2023, largely reflecting percent in 2022-2024, driven by develop- to the pandemic meant that the pover- the start of LNG production. However, ments in the LNG sector. The poverty ty rate remained unchanged at 63.5 per- considerable uncertainties remain, in- rate is expected to fall marginally from cent in 2021, but the number of poor in- cluding from the pandemic, insurgency in 63.2 to 61.1 percent between 2022 and creased by 650,000, totaling 20.4 million 2024, but the number of poor will in- as of end-2021. the north, and natural disasters. crease by some 600,000 people due to Although revenues held up well in 2021, rapid population growth. fiscal pressures persisted. The overall fiscal Mozambique needs to capitalize on the deficit declined to an estimated 4.8 percent gains from the economic recovery to of GDP in 2021, down from 5.7 percent in FIGURE 1 Mozambique / Real GDP growth and sectoral FIGURE 2 Mozambique / Actual and projected poverty contributions to real GDP growth rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8% 100 25000 90 6% 80 20000 4% 70 60 15000 2% 50 0% 40 10000 30 -2% 20 5000 -4% 10 0 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 Agriculture Extractives Manufacturing International poverty rate Lower middle-income pov. rate Services Tax GDP Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 264 Apr 22 2020. Despite the pressures from COVID- at US$3.2 billion (equivalent to 6-7 but expected to decline to 3.6 percent of related as well as humanitarian and secu- months of imports, excluding megapro- GDP over 2023–2024, partly driven by a rity spending, total public expenditure fell jects) in November of 2021—representing lower wage bill. Structural reforms, includ- to 31.6 percent of GDP in 2021 (from 33.6 a drop of 14 percent (y-o-y). ing streamlined salary and career struc- percent in 2020). This was driven by lower tures, and fiscal consolidation measures debt service, reflecting currency appreci- are expected to reduce wage bill pressures. ation and debt service deferral under the Revenue is projected to perform well as the DSSI. Total public debt dropped from 125 Outlook economy recovers. Despite this, financing to 117 percent of GDP in 2021, largely due needs will remain substantial in 2022-2024, to the currency appreciation. Mozambique Growth is projected at 3.6 percent in 2022, due to high debt service and short-term is in debt distress with debt assessed to be before peaking at 6 percent in 2023. The cost of wage bill reforms. sustainable in a forward-looking sense. start of LNG production at the Coral South The CAD is expected to reach 32.5 per- Recovering trade and delayed implemen- offshore is expected to boost exports. Agri- cent of GDP in 2022, and stay close to 40 tation of LNG projects have led to a sta- cultural output growth is expected to re- percent in 2023-2024 owing to increased ble current account deficit (CAD). The main considerable, given favorable weath- imports of services and machinery for CAD declined from 25.7 to 22 percent of er conditions, and services activities will LNG development. Further, the push in GDP between 2020 and 2021. The drop continue to steadily recover. Inflationary fuel, and wheat will add extra US$ 300 was mainly driven by lower imports of pressures will remain substantial as fuel million to total imports. However, exports services, due to the delays in LNG pro- and food prices continue to increase. are set to grow significantly as LNG pro- jects. Total exports—mainly coal and alu- Nonetheless, inflation is projected to re- duction begins and commodity prices re- minum—grew by 55 percent, following a main within single digit in the medium- cover. The external financing gap will decline of 23 percent in 2020. The CAD term, supported by a conservative mon- be covered by FDI inflows and external was mostly financed by FDI and, to some etary policy and a stable exchange rate. loans, mainly for LNG investments. These extent, private borrowing. FDI was con- Poverty is expected to remain over 63 per- FDI inflows, combined with the anticipat- siderably high at US$ 5.1billion (against cent in 2022, despite the growth recovery ed World Bank DPF and the IMF pro- US$ 3 billion in 2020), surpassing pre- and increased social transfers. gram, will allow external reserves to re- pandemic levels. As a result of these de- Fiscal pressures are likely to persist. The main at comfortable levels. velopments, net external reserves closed deficit is projected at 6.3 percent in 2022 TABLE 2 Mozambique / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.3 -1.2 2.2 3.6 6.0 5.8 Private Consumption 3.1 -2.1 18.1 0.3 7.6 3.7 Government Consumption 3.6 -19.3 -5.8 10.5 -18.7 -7.5 Gross Fixed Capital Investment -0.6 60.1 36.1 -0.9 3.8 6.8 Exports, Goods and Services -9.5 -15.0 24.1 9.6 15.1 6.4 Imports, Goods and Services -1.5 -0.4 40.7 2.1 3.5 2.5 Real GDP growth, at constant factor prices 1.8 -1.9 2.2 3.6 6.0 5.8 Agriculture 1.3 3.1 3.4 3.5 1.2 5.8 Industry -0.4 -5.8 1.3 3.6 14.9 5.8 Services 2.9 -2.7 2.0 3.7 5.1 5.7 Inflation (Consumer Price Index) 2.8 3.1 5.7 6.4 5.5 5.5 Current Account Balance (% of GDP) -19.6 -25.7 -22.1 -32.5 -39.0 -42.0 Net Foreign Direct Investment (% of GDP) 14.4 16.7 31.8 22.2 20.6 19.1 a Fiscal Balance (% of GDP) -0.5 -5.7 -4.8 -6.3 -3.7 -3.5 Debt (% of GDP) 107.5 125.3 117.4 120.0 113.5 104.1 a Primary Balance (% of GDP) 2.7 -2.3 -1.1 -2.4 0.1 0.8 b,c International poverty rate ($1.9 in 2011 PPP) 61.9 63.3 63.5 63.2 62.2 61.1 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 81.1 82.2 82.3 82.1 81.4 80.6 GHG emissions growth (mtCO2e) 0.9 0.7 0.3 1.1 1.7 1.5 Energy related GHG emissions (% of total) 8.0 8.3 8.0 8.2 8.7 9.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Figure includes once-off capital gains revenues in 2017, estimated at 2.7 percent of GDP. b/ Calculations based on 2014-IOF. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2014) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 265 Apr 22 and foster job-rich growth, is critical to re- verse the trend of declining potential out- NAMIBIA Key conditions and put. In the long term, progress in the planned development of a green hydrogen challenges sector carries significant upside potential for the economy. Short-term risks to Table 1 2021 Namibia’s growth challenge predated the Namibia’s recovery are dominated by pan- Population, million 2.6 COVID-19 crisis. In the decade leading up demic uncertainties, amid relatively low GDP, current US$ billion 12.4 to 2015, economic growth averaged nearly vaccine coverage, and evolving effects of GDP per capita, current US$ 4794.1 5 percent annually boosted by investments the war in Ukraine. a 13.8 International poverty rate ($1.9) in mineral extraction, a boom in exports a 30.3 and government spending. The period Lower middle-income poverty rate ($3.2) a 51.0 from 2016 onwards has mostly been Upper middle-income poverty rate ($5.5) Gini index a 59.1 marked by recession. Pre-pandemic, fiscal Recent developments School enrollment, primary (% gross) b 124.2 retrenchment, weak export prices, comple- b 63.7 tion of major investment projects and poor Mainly driven by a rebound in private Life expectancy at birth, years growth in key trade partners brought consumption, the economy is estimated to Total GHG Emissions (mtCO2e) 22.2 growth to a halt. In real terms, GDP per have expanded by 0.8 percent in 2021 fol- Source: WDI, Macro Poverty Outlook, and official data. capita has contracted since 2016, with cor- lowing the historic contraction of -8.5 in a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy responding projected poverty increases. 2020. The economic rebound was weak- (2019). Weak demand and skills mismatches have er than projected in October 2021 due to constrained job creation with the unem- a marked deterioration in the net export ployment rate averaging above 20 percent balance. Exports contracted further and Namibia’s growth rebound in 2021 is es- since 2016. With persisting labor market imports rebounded. The supply side as- timated to have been weaker than expect- challenges, Namibia remains one of the sessment suggests that the tertiary sec- most unequal countries in the world. tor underpinned growth in 2021, coming ed. The outlook for 2022 is favorable Global and regional developments are an from depressed levels in the prior year, boosted by an improved pandemic situa- important driver of Namibia’s fiscal and while industry output contracted, led by tion and strong prospects for the mining external positions as the country is highly declines in construction activity and elec- sector. The protracted effects of the pan- reliant on commodity exports and SACU tricity generation. Tight COVID-19 re- transfers. Volatility in prices of Namibia’s strictions were in place during parts of demic have left significant scarring in the exports, particularly diamonds and ura- the year to manage surges in infections. economy, worsening socio-economic indi- nium, present risks. While Namibia en- The protracted effects of the pandemic cators. The projected upper middle-in- joyed good rains in 2021, the country is have left significant scarring in the econ- come poverty rate remains high at 65 per- amongst the driest in the world and se- omy, worsening socio-economic indica- cent for 2021 while employment is esti- vere drought is a persistent threat for eco- tors. Given the sluggish economic expan- nomic performance and for the welfare of sion, the projected upper middle-income mated to be below pre-pandemic levels. poverty rate remained high at 65 percent poor subsistence farmers. Raising productivity, including through re- while employment is estimated to be well forms to improve the business environment below pre-pandemic levels. FIGURE 1 Namibia / Budget balance and SACU revenues FIGURE 2 Namibia / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 0 6 80 70000 -1 7 70 60000 -2 8 60 -3 50000 9 50 -4 40000 -5 10 40 30000 -6 11 30 -7 20000 20 12 -8 10000 10 -9 13 0 0 -10 14 2009 2011 2013 2015 2017 2019 2021 2023 2016 2017 2018 2019 2020 2021e International poverty rate Lower middle-income pov. rate Budget deficit Taxes on international trade, SACU (rhs) Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance, Central Bank and World Bank staff estimates. Source: World Bank. Notes: See table 2. MPO 266 Apr 22 Namibia experienced a deterioration of matured in November 2021, limiting the So long as the effects of the conflict in its current account balance to an estimat- rise in debt levels. Ukraine last, higher mineral prices will ed deficit of 8 percent of GDP in 2021 Monetary policy remained accommoda- benefit Namibia’s terms of trade but the re- from an atypical surplus of 3.3 percent of tive and aligned with the SARB. The policy lated oil price shock will raise the import GDP in 2020, while being able to main- rate was unchanged at 3.75 percent bill and inflationary pressures. tain an adequate level of international re- through 2021, before the Bank of Namibia Government consumption is expected to serves. The weaker external balance was hiked by 25 basis points in February 2022. be a drag on growth over the medium due to lower mineral exports, a decrease Inflation remained contained in 2021, aver- term given fiscal consolidation. Authori- in SACU receipts, investment income out- aging 3.6 percent. ties remain committed to restoring fiscal flows, and an increase in imports that sustainability over the MTEF period, al- has been fueled by rebounding domes- though the speed of consolidation will tic demand. Thanks to significant finan- depend on recovery in revenues. Mone- cial inflows from International Financial Outlook tary policy normalization is expected to Institutions, gross reserves increased from continue at a prudent pace, driven by the US$2.2 billion at end-2020 to US$2.8 bil- Namibia’s economic performance is ex- exchange rate peg with the rand. As min- lion at end-2021 (representing about 5.5 pected to improve in 2022-23, premised on ing exports rebound and SACU receipts months of imports). waning effects of the pandemic and strong increase from next year, the current ac- Amid the limited growth rebound, the prospects for the mining sector. GDP count deficit is expected to narrow grad- fiscal position deteriorated with the bud- growth is projected to accelerate to 2.9 per- ually over the medium term and pro- get deficit increasing to 8.8 percent of cent in 2022. Diamond output, in particu- jected at 6.3 percent of GDP in 2022. GDP in 2021 (from 8.2 percent in 2020), lar, is expected to increase as the new Deb- The trajectory of the pandemic globally is and public debt (including guarantees) marine vessel begins operating and the life an intractable risk to the outlook while further rising to 75.3 percent of GDP from of mines that were previously slated to the projected growth path is insufficient 69.2 percent in 2020. The wider deficit close is extended. The new diamond re- to address socio-economic challenges. was on the back of lower SACU revenues, covery vessel is expected to boost produc- Poverty is projected to remain high at 64 which fell from 12.5 percent of GDP in tion by at least a third. Activity in the min- percent (US$5.50 line, 2011 PPP) in 2022 FY2020 to 7.9 percent of GDP in FY2021. ing sector is broadly expected to find sup- due to weak per capita GDP growth and Namibia redeemed its Eurobond which port from firm global commodity prices. slow job creation. TABLE 2 Namibia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.9 -8.5 0.8 2.9 2.1 2.0 Private Consumption 0.4 -10.3 11.9 3.3 3.0 3.0 Government Consumption 1.5 -1.5 0.5 -0.6 -0.1 -0.2 Gross Fixed Capital Investment -8.9 -11.2 -8.8 5.0 4.3 4.7 Exports, Goods and Services -9.0 -17.7 -9.8 13.1 6.0 3.5 Imports, Goods and Services -3.4 -14.7 8.0 6.9 5.1 4.0 Real GDP growth, at constant factor prices -0.2 -7.1 0.5 2.9 2.1 2.0 Agriculture -3.2 6.1 -0.1 2.0 2.0 2.0 Industry -2.3 -13.7 -2.9 7.2 2.1 2.5 Services 1.1 -5.7 1.9 1.4 2.1 1.7 Inflation (Consumer Price Index) 3.7 2.2 3.6 5.2 4.5 4.5 Current Account Balance (% of GDP) -1.8 3.3 -8.0 -6.3 -4.5 -3.8 Net Foreign Direct Investment (% of GDP) -1.5 -2.0 2.3 1.6 1.6 1.9 Fiscal Balance (% of GDP) -5.3 -8.2 -8.8 -7.4 -6.2 -5.4 a Debt (% of GDP) 62.8 69.2 75.3 79.5 81.5 83.6 Primary Balance (% of GDP) -1.4 -3.8 -4.3 -2.6 -1.1 -0.4 b,c International poverty rate ($1.9 in 2011 PPP) 16.7 20.8 21.3 20.8 20.6 20.5 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 35.8 43.5 44.4 43.4 43.1 42.9 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 56.8 64.5 65.3 64.4 64.1 63.9 GHG emissions growth (mtCO2e) -1.1 0.0 -0.1 1.5 1.5 0.3 Energy related GHG emissions (% of total) 19.9 19.3 19.2 19.5 19.9 19.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Refers to Public and Publicly Guaranteed debt b/ Calculations based on 2009-NHIES and 2015-NHIES. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. c/ Projection using annualized elasticity (2009-2015) with pass-through = 1 based on GDP per capita in constant LCU. MPO 267 Apr 22 a stronger disasters management frame- work, and robust social safety nets, are NIGER Key conditions and also key to increase resilience to natural shocks. Supporting demographic transi- challenges tion by reducing large gender gaps also needs to be a central piece of Niger’s Table 1 2021 Despite robust GDP growth (averaging 6.2 development strategy, while the pace of Population, million 25.1 percent annually over 2010-2019), the level vaccination for COVID-19 needs to accel- GDP, current US$ billion 14.3 of per capita GDP (US$ 554 in current erate to reach the target of 42 percent of GDP per capita, current US$ 569.8 prices) in 2019 remains well below regional the population. a 41.4 International poverty rate ($1.9) peers. High demographic growth is the a 75.2 main drag to a more sustained increase in Lower middle-income poverty rate ($3.2) a 91.8 per capita incomes. Upper middle-income poverty rate ($5.5) Gini index a 37.3 Niger needs to address at least two key fac- Recent developments School enrollment, primary (% gross) b 66.4 tors to reduce its structural fragility and sus- b 62.4 tain a higher pace of economic growth. First, The pace of economic growth came to a Life expectancy at birth, years Niger needs to better adapt to climatic sudden halt in 2021, falling to 1.4 percent Total GHG Emissions (mtCO2e) 52.3 changes as 75 percent of the workforce is from 3.6 percent in 2020 due to the collapse Source: WDI, Macro Poverty Outlook, and official data. still in subsistence agriculture and volatile of cereal production (-38 percent), caused a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). climatic conditions have led to large agricul- by drought in September, crop infestation, tural production fluctuations (as highlight- and insecurity. This agricultural produc- ed by the collapse of production in 2021) tion shock left more than 2.5 million peo- Niger avoided recession in 2020, but the and food insecurity. Second, Niger needs to ple food insecure. address domestic insecurity and regional The fiscal deficit remained high, at 6.6 recovery was interrupted in 2021 with instability, which impact Niger’s overall percent of GDP, in 2021 due to the in- growth falling to 1.4 percent (-2.3 percent economic performance, public finances, crease in spending to support the recov- per capita), due to heightened insecurity service delivery and access to markets. ery and to address security and food in- and climatic shocks (drought, erratic With relative political stability in a tur- security issues, for example by strength- bulent region, Niger is relatively well po- ening food for work, school feeding, or rains and flash floods) that significantly sitioned to adopt structural reforms that cereal distribution programs. As a result reduced agricultural output. Consequent- lay the foundations for more inclusive of lower growth and the higher deficit, ly, extreme poverty increased to 41.8 per- and resilient economic growth. Reforms public debt is projected to have reached cent in 2021. While the outlook remains need to increase overall productivity (es- 52.3 percent of GDP in 2021, and the positive, with oil revenues coming on- pecially in agriculture) by strengthening risk of debt distress is assessed as mod- economic governance, promoting finan- erate. The current account deficit (CAD) stream in 2024, significant downside cial inclusion, adopting digital technolo- is estimated to have widened to 14.9 risks require a strong reform effort. gies, and broadening access to education percent of GDP in 2021, driven by a and training to support waged jobs cre- deterioration of the trade balance amid ation. Accelerating crisis preparedness high oil and gas projects-related imports through climate adaptation investments, and higher food import prices. FIGURE 1 Niger / Real GDP growth and sectoral FIGURE 2 Niger / Actual and projected poverty rates and contributions to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 12 120 400000 10 350000 100 8 300000 6 80 250000 4 60 200000 2 150000 0 40 100000 -2 20 50000 -4 2019 2020 2021 2022 2023 2024 0 0 Agriculture Industry 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Services Net Taxes International poverty rate Lower middle-income pov. rate Actual GDP growth Upper middle-income pov. rate Real GDP pc Sources: INSN and World Bank staff estimates. Source: World Bank. Note: See table 2. MPO 268 Apr 22 Inflationary pressures persisted, fueled by Nigerien households are net food buyers in agriculture improves. However, in order rising food prices (7.8 percent), particu- and food represent 58 percent of their con- to achieve a reduction in the absolute num- larly cereals (16.8 percent). Average annu- sumption basket. ber of poor, annual GDP growth must be al inflation reached 3.8 percent for 2021. significantly above Niger’s projected high Niger’s monetary and exchange rate poli- population growth rate of 3.8 percent dur- cies are managed by the BCEAO, which ing the period 2022-2024, and the rents maintains a fixed peg between the CFA Outlook from the petroleum sector must be broadly Franc and the Euro. Its reserves reached shared through proactive government 5.8 months of imports of goods and ser- Amidst high uncertainty, economic policies for inclusive growth. vices in 2021, as a result of the recovery growth in 2022 is projected at 5.2 percent. The GDP growth outlook is subject to a in export repatriation proceeds, the Au- This forecast hinges upon several positive high degree of uncertainty and multiple gust 2021 SDR allocation, and portfolio developments, particularly the absence of downside risks, including intensified secu- inflows linked to Eurobond issuances in new climatic shocks, and on an improve- rity risks, further climatic-shocks, continu- the region. ment in the security situation. Over the ing food security challenges, local COVID The 2.3 percent decline in per capita GDP medium term, growth is expected to sur- outbreaks, and widespread social discon- in 2021 resulted in an increase of 1.4 per- pass 10 percent in 2024 due to the start of tent from food inflation and insecurity. It is centage point in the international extreme oil production. Inflation is set to overshoot likely that at least one/some of these risks poverty rate (US$1.90/day per capita, 2011 the standard 3 percent target again in 2022, will materialize and concurrent shocks are PPP) to 41.8 percent in 2021. As a result, driven by higher food and energy prices. possible. The economic consequences of the number of extreme poor rose from 9.8 An ambitious fiscal adjustment supported the Russia-Ukraine war are a further million to 10.5 million. Data from high fre- by the IMF program, aimed at reducing the source of risk, primarily through higher quency phone surveys indicated that 40 deficit from 5.5 percent of GDP in 2022, to global food (grains/fertilizer) and energy percent of households experienced an in- around 3 percent in 2024, would put the prices. The projections already reflect re- come loss during the pandemic. Further- debt-to-GDP ratio onto a declining path. cent sharp increases in oil and gas, agri- more, higher food inflation would have Extreme poverty is expected to decline to culture and metal and mineral prices since impacted poor households as 40 percent of 41.0 percent in 2022 as growth, particularly January 2022. TABLE 2 Niger / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.9 3.6 1.4 5.2 7.1 10.4 Private Consumption 3.7 4.4 -1.5 5.1 5.9 6.7 Government Consumption 8.1 3.7 2.0 7.6 13.0 12.1 Gross Fixed Capital Investment 13.6 4.9 9.1 5.4 6.0 6.5 Exports, Goods and Services 1.1 -6.3 3.6 5.5 20.8 41.7 Imports, Goods and Services 6.2 2.7 3.5 6.8 11.1 11.0 Real GDP growth, at constant factor prices 6.1 4.2 1.1 5.1 7.1 10.4 Agriculture 3.4 7.7 -7.9 5.0 6.1 6.2 Industry 9.0 1.7 5.4 6.4 7.9 20.0 Services 7.0 2.3 7.7 4.4 7.6 8.5 Inflation (Consumer Price Index) -2.5 2.8 3.8 3.5 3.0 3.0 Current Account Balance (% of GDP) -12.2 -13.2 -14.9 -16.9 -15.5 -12.2 Net Foreign Direct Investment (% of GDP) 5.3 2.5 4.6 5.2 3.5 2.8 Fiscal Balance (% of GDP) -3.6 -5.4 -6.6 -5.5 -4.5 -3.2 Debt (% of GDP) 39.8 45.0 52.5 53.0 52.2 48.7 Primary Balance (% of GDP) -2.6 -4.4 -5.5 -4.1 -3.1 -2.1 a,b International poverty rate ($1.9 in 2011 PPP) 40.3 40.4 41.8 41.0 38.7 34.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 74.3 74.5 75.5 74.8 73.5 70.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 91.5 91.5 91.9 91.6 91.1 89.9 GHG emissions growth (mtCO2e) 4.8 3.8 3.9 4.3 4.8 5.3 Energy related GHG emissions (% of total) 14.8 14.6 14.6 14.9 15.5 16.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 269 Apr 22 which remains scant, should be expanded to offset income losses and prevent house- NIGERIA Key conditions and holds from falling into—or further in- to—poverty. challenges In the medium term, the government must adopt reforms to sustain Nigeria’s eco- Table 1 2021 After two decades of uneven growth, nomic recovery. These include merging its Population, million 211.4 poverty in Nigeria remains widespread, multiple exchange rates, reducing trade re- GDP, current US$ billion 488.6 affecting around 4 in 10 Nigerians. Nigeria strictions, improving the business climate, GDP per capita, current US$ 2311.1 grew rapidly between 2000 and 2014 (av- and reducing the monetization of the fiscal a 39.1 International poverty rate ($1.9) erage of 7 percent per year), but the deficit. In addition, diversifying the econ- a 71.0 2014-2015 collapse in global oil prices, a re- omy, especially reducing the dependence Lower middle-income poverty rate ($3.2) a 92.0 versal in macroeconomic reforms, and the of revenues on oil, is essential to build re- Upper middle-income poverty rate ($5.5) Gini index a 35.1 fall in domestic non-oil production led to silience against future shocks, create pro- School enrollment, primary (% gross) b 87.5 a cycle of sluggish growth. Subsequently, ductive jobs, and reduce poverty. b 54.7 economic growth has been muted at 1.1 Life expectancy at birth, years percent, on average, in 2015–21, below the Total GHG Emissions (mtCO2e) 387.0 rate of population growth of 2.6 percent. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. Nigeria’s fiscal position has been deterio- Recent developments b/ WDI for School enrollment (2018); Life expectancy rating since 2015, mainly due to low and (2019). declining oil revenues (50 percent of con- GDP grew by 3.6 percent in 2021, exceed- solidated revenues come from oil) and ris- ing population growth for the first time ing expenditures, resulting in fiscal deficits since 2015, led by base effects in most sec- Nigeria’s real GDP is expected to grow averaging 5.4 percent of GDP in 2020-21. tors and organic growth in agriculture, by 3.8 percent in 2022. Nevertheless, giv- After the 2015-16 recession, Nigeria’s al- telecommunications, and financial ser- ready low level of general government rev- vices. Oil production, however, continued en high population growth and stagnant enue fell and averaged 7.0 percent of GDP to decline and reached a two-decade low poverty reduction, the number of Nigeri- between 2016 and 2020, the second lowest due to inefficiencies and insecurity. ans living below the international poverty globally. As a result, general government Inflation remains high in Nigeria, reach- line is projected to rise by 2.5 million be- expenditure remains low. ing 15.6 percent, year-on-year, in January In the short term, recouping the welfare 2022—above the average of the last 4 tween 2021 and 2024. Nigeria’s growth and human capital losses incurred during years and one of the highest in Sub-Sa- outlook remains uncertain due to the war the COVID-19 pandemic remains vital. To haran Africa. Inflation has been driven in Ukraine and its impact on the global this end, the authorities should consider by higher prices of staples, which are es- economy. Macroeconomic and business three policy priorities. First, a fast and eq- pecially reducing the purchasing power climate reforms will be necessary to en- uitable vaccine rollout is still needed to of poor and vulnerable Nigerians, con- tackle the virus’ direct health effects. Sec- straining any potential poverty reduction. sure a sustained recovery beyond the base Nigerian authorities have not taken any ond, reversing learning losses from school effects seen in 2021. closures can mitigate long-term effects on recent concerted actions to tackle infla- human capital. Finally, social protection, tionary pressures. FIGURE 1 Nigeria / Oil price shock transmission channels FIGURE 2 Nigeria / Actual and projected poverty rates and real GDP per capita Percent GDP, percent growth US$/bbl Poverty rate (%) Real GDP per capita (constant LCU) 20 110 100 400000 90 390000 Oil price (US$/bbl) 90 15 80 380000 70 70 60 370000 10 50 50 360000 40 350000 30 5 30 Revenues (% GDP) 340000 GDP growth (%) 10 20 10 330000 0 -10 0 320000 2010 2012 2014 2016 2018 2020 2022 2024 -5 -30 International poverty rate Lower middle-income pov. rate 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Upper middle-income pov. rate Real GDP pc Sources: WDI, NBS, and World Bank. Source: World Bank. Notes: see Table 2. MPO 270 Apr 22 The government’s fiscal position typically can be threatened by: (i) the impact of improves when oil prices rise, but this the Russia-Ukraine conflict on the global was not the case in 2021 when the con- Outlook economy through lower capital flows, solidated fiscal deficit remained above 5.0 heightened uncertainty, higher prices of percent of GDP. Nigeria has not been Nigeria’s GDP growth is projected at 3.8 imported food and inputs for fertilizers, able to fully benefit from the current price percent in 2022, driven by growth in the lower global growth, and volatile oil boom because: (i) oil production declined services, trade, agriculture, and construc- prices; (ii) lower-than-expected oil pro- in 2021; and (ii) the domestic price of tion sectors as well as a recovery in oil pro- duction due to technical inefficiencies; petrol remained fixed while global petrol duction. Yet, GDP per capita at end-2022 (iii) heightened insecurity; (iv) higher un- prices rose, increasing the cost of the Pre- is expected to be below the level recorded certainty on policy direction arising from mium Motor Spirit (PMS) subsidy. The in 2014, and it is not expected to return to the upcoming February 2023 general PMS subsidy disproportionately benefits pre-COVID-19 levels before 2027. elections; and (v) worsening fiscal risks richer Nigerians and imposes a massive The impact of the pandemic on poverty related to the PMS subsidy deductions. and unsustainable fiscal burden. Its cost could linger. Combining the effects of Even in the most favorable global con- rose from 4 to 35 percent of oil and gas the COVID-19 crisis and high popula- text, the policy response of Nigeria’s au- revenues in 2021 (US$4.5 billion, roughly tion growth, the number of Nigerians thorities will be crucial to lay the foun- 1 percent of GDP). living in extreme poverty (measured us- dation for a robust recovery. The au- Buoyed by rising oil prices and improved ing the international poverty line of thorities can boost growth by strength- remittance inflows, Nigeria’s external po- US$1.90 per day, 2011 PPP) could rise ening macroeconomic reform efforts, in- sition improved in 2021. The current ac- by 10 million between 2019 and 2024, cluding measures aimed at: (a) adopting count balance improved from -2.4 percent with the absolute number of poor peo- a more flexible and transparent foreign of GDP in 2020 to 2.0 percent of GDP in ple reaching 89 million by 2024. While exchange management regime; (b) ac- 2021. Despite the central bank taking steps these forecasts are slightly rosier than celerating revenue-based fiscal consolida- to merge its multiple exchange rates by the World Bank fall forecasts, they still tion; (c) strengthening expenditure and adopting the Importer and Exporter FX paint a sobering picture of Nigeria’s debt management; and (d) improving the window rate as its official rate in May 2021, prospects for poverty reduction. business climate. the parallel rate premium increased to 37 The country’s economic outlook remains percent of the official rate in 2021. highly uncertain. The projected recovery TABLE 2 Nigeria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -1.8 3.6 3.8 4.0 4.0 Private Consumption -2.4 1.3 0.2 2.4 2.6 2.9 Government Consumption 15.0 13.6 -1.1 4.8 0.4 7.5 Gross Fixed Capital Investment 11.8 19.0 8.5 3.2 5.2 7.9 Exports, Goods and Services 15.0 -32.2 10.4 8.5 7.5 5.0 Imports, Goods and Services 27.3 -23.5 3.5 5.5 4.3 9.0 Real GDP growth, at constant factor prices 2.3 -1.9 3.7 3.8 4.0 4.1 Agriculture 2.4 2.2 2.1 2.7 2.7 3.0 Industry 2.3 -5.9 -0.2 4.5 5.1 3.5 Services 2.2 -2.2 6.0 4.1 4.1 4.8 Inflation (Consumer Price Index) 11.4 13.2 17.0 14.8 13.0 11.0 Current Account Balance (% of GDP) -3.8 -2.4 2.0 5.8 4.9 3.2 Net Foreign Direct Investment (% of GDP) 0.4 0.2 0.6 0.5 0.4 0.4 Fiscal Balance (% of GDP) -4.6 -5.8 -5.8 -5.1 -4.9 -5.3 Debt (% of GDP) 21.7 25.2 29.6 29.6 30.4 31.7 Primary Balance (% of GDP) -2.6 -4.1 -3.6 -2.6 -2.4 -2.4 a,b International poverty rate ($1.9 in 2011 PPP) 39.3 41.1 40.7 40.2 39.6 38.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 71.1 72.6 72.3 71.9 71.4 70.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 92.1 92.8 92.6 92.4 92.1 91.9 GHG emissions growth (mtCO2e) 3.1 1.1 3.9 4.0 4.4 4.6 Energy related GHG emissions (% of total) 39.3 38.1 38.0 37.8 37.9 38.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-LSS.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 271 Apr 22 by high costs of finance, energy, and trans- port, coupled with dominance of SOEs. RWANDA Key conditions and Key reforms should aim to enable compet- itive domestic enterprises, foster innova- challenges tion, develop long-term finance, and foster regional integration. Table 1 2021 Despite exceptional economic perfor- Population, million 13.3 mance in recent decades, including rapid GDP, current US$ billion 11.0 growth in per capita income over GDP per capita, current US$ 828.7 2005–2019, Rwanda faces major develop- Recent developments a 56.5 International poverty rate ($1.9) ment challenges. Poverty rates (measured a 80.3 as US$1.90 a day) fell from 69.1 percent Effective vaccination measures helped Lower middle-income poverty rate ($3.2) a 91.9 in 2005 to 56.5 percent in 2017 and was Rwanda navigate the pandemic. After Upper middle-income poverty rate ($5.5) Gini index a 43.7 projected to fall even further to 52.9 per- grappling with the third—and more se- School enrollment, primary (% gross) b 131.3 cent in 2019 behind strong growth in GDP vere—wave in June–August 2021, Rwan- b 69.0 and private consumption. With the emer- da successfully contained the spread of Life expectancy at birth, years gence of COVID-19, poverty is expected infections while continuing its vaccination Total GHG Emissions (mtCO2e) 8.4 to have increased to 56.0 percent for 2020. campaign. By end-February, about 68 per- Source: WDI, Macro Poverty Outlook, and official data. Rwanda has relatively higher poverty rates cent of the total population had received a/ Most recent value (2016), 2011 PPPs. b/ Most recent WDI value (2019). than African peers with similar income per at least one dose of COVID vaccine, while capita, and poverty reduction has become 60 percent had received two doses. These less responsive to growth in recent years. vaccination rates place Rwanda among Rwanda’s economy grew at around 11 Rwanda now faces challenges in fully the top ten countries in Africa. Rwanda translating its strong growth into commen- started administrating a booster shot dose percent in 2021, as targeted measures surate gains in poverty reduction and in December 2021. helped economic activities to effectively shared prosperity, with the aim of elimi- The economy surged in 2021, growing by navigate the pandemic. The twin deficits nating poverty by 2050. about 11 percent. Gradually easing mobil- remained—requiring more external fi- A shift from public investment-led growth ity restrictions have supported a broad- to the private sector is key to Rwanda’s as- based rebound, stimulating private con- nancing—and are expected to ease below piration of becoming an upper-middle in- sumption, by increasing incomes amid the their pre-crisis levels in 2022–2024. De- come country by 2035 and a high-income reopening of economic activities, and spite an unprecedented assistance pro- country by 2050. Capital accumulation, falling inflation. Household consumption gram, poverty likely increased due to the mostly large-scale public investment in in- made significant contribution to growth, adverse effects of the pandemic on output frastructure, has been the main driver of thanks to government transfers rolled out growth. Limitations of the state-led devel- to households affected by the pandemic. and employment, but is expected to re- opment model have become apparent. La- Government investment spending con- turn to pre-crisis levels in 2022. bor productivity and total factor produc- tributed significantly, accounting for one- tivity are low for its income level. More- third of GDP growth. However, unem- over, the private sector still maintains a rel- ployment continued to be higher relative atively limited presence, restricted in part to the pre-crisis levels as firms were not yet FIGURE 1 Rwanda / Primary deficit, interest payments, and FIGURE 2 Rwanda / Actual and projected poverty rates and public debt real private consumption per capita Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 16 100 700000 90 600000 12 80 70 500000 8 60 400000 50 40 300000 4 30 200000 20 0 100000 10 0 0 -4 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2016 2017 2018 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Primary deficit Interest Change in debt Upper middle-income pov. rate Real priv. cons. pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 272 Apr 22 confident about the recovery sustainability (to 5 percent) in mid-February 2022, while improve, raising GDP growth to around and did not hire permanent employees. In continuing to support the recovery. 7 percent over 2022–2024, a lower growth August 2021, the unemployment rate was trajectory than before the pandemic. more than 3 percentage points higher than Rwanda is likely to reach its pre-pandemic in August 2019. trend on its real per capita US$ GDP by The authorities have maintained a fiscal Outlook 2023. The pace of national vaccination expansion to support the recovery amid should be kept up to ensure that 70 percent rising revenues. Total government rev- Short- to medium-term growth prospects of the population 12 years and above is ful- enues (including grants) peaked in 2021, of Rwanda’s economy are positive but con- ly vaccinated by mid-2022. estimated at 25.5 percent of GDP, up from ditional on continued national vaccination, The fiscal deficit is expected to remain ele- 23.6 percent in 2020. Government outlays recovery of the domestic economy, as well vated at around 7.4 percent of GDP in 2022 also increased, reaching 33.3 percent of as the economic consequences of the Russ- before gradually declining as revenues re- GDP in 2021, compared to 32.9 percent in ian invasion in Ukraine. Energy and com- cover and emergency spending subsides. 2020, driven mainly by continued fiscal modity prices (especially wheat) have The deficit is projected to narrow to about support for firms and households affected surged, adding to inflationary pressures 4 percent of GDP in 2024 in line with gov- by the pandemic. The government fast- from supply chain disruptions and hob- ernment commitments. Public debt is fore- tracked a US$250 million package to sup- bling the rebound from the COVID-19 cast to peak in 2023 (Table 2), but Rwanda port private investments in manufacturing pandemic. While the economic conse- remains susceptible to external shocks to and construction. The overall fiscal deficit quences of the Russian invasion, war, and growth and/or exports, and worse-than- eased to 8.2 percent of GDP in 2021, com- associated sanctions are still unfolding, expected external financing conditions, pared to 10.3 percent of GDP in 2020, as Rwanda’s GDP growth is likely to be lower which can be aggravated by a prolonged Rwanda continued to benefit from large than expected in 2022. Commodity prices pandemic and uneven recovery. Rwanda external COVID-related support. and fiscal subsidies are expected to be the needs to identify credible revenue and Driven mainly by rising prices of fresh main channels of the crisis. Even though spending measures for a growth-friendly food and energy products, annual urban poverty is expected to return to pre-crisis fiscal consolidation with a view to reach- inflation rose to 5.8 percent in February levels in 2022 behind expected increases ing their debt anchor within a reasonable and is expected to remain high in 2022. in household consumption, large increases timeframe and further strengthening their In expectation of higher inflationary pres- in food prices have the potential to delay debt management capacity. However, sures from higher international commodi- or even revert these poverty gains. With higher interest payments could put pres- ties, the National Bank of Rwanda raised eased COVID-19 restrictions, domestic de- sure on fiscal space in the medium-term, the policy interest rate by 50 basis points mand and trade are expected to gradually absent revenue reforms. TABLE 2 Rwanda / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 9.5 -3.4 10.9 6.8 7.2 7.4 Private Consumption 5.5 -5.0 8.8 6.2 6.1 5.8 Government Consumption 17.5 1.9 4.3 7.7 7.5 8.3 Gross Fixed Capital Investment 32.1 -4.5 17.0 15.2 7.6 6.6 Exports, Goods and Services 19.9 -9.2 2.8 14.9 16.2 15.7 Imports, Goods and Services 18.0 -3.4 3.6 17.7 11.0 9.3 Real GDP growth, at constant factor prices 8.9 -3.5 10.9 6.8 7.2 7.4 Agriculture 5.0 0.9 5.8 5.5 5.5 5.0 Industry 16.6 -4.2 14.7 10.7 9.2 8.5 Services 8.3 -5.5 12.2 6.0 7.2 8.2 Inflation (Consumer Price Index) 2.4 7.7 0.8 7.2 6.8 5.0 Current Account Balance (% of GDP) -11.9 -12.2 -10.9 -11.8 -11.4 -10.2 Net Foreign Direct Investment (% of GDP) 2.5 1.0 1.9 3.2 3.6 3.7 Fiscal Balance (% of GDP) -9.2 -10.4 -8.4 -7.4 -5.7 -4.2 Debt (% of GDP) 56.8 72.4 74.9 77.9 78.8 76.0 Primary Balance (% of GDP) -7.7 -8.8 -6.3 -5.0 -3.2 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 52.9 56.0 53.6 51.8 50.4 49.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 78.1 80.0 78.6 77.5 76.6 75.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 91.1 91.8 91.3 90.8 90.5 90.2 GHG emissions growth (mtCO2e) 2.8 2.1 2.9 3.2 3.3 3.2 Energy related GHG emissions (% of total) 26.1 25.9 25.3 24.6 24.0 23.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2010-EICV-III and 2016-EICV-V.Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using average elasticity (2010-2016) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 273 Apr 22 a state of emergency. The December 2021 floods led to agricultural and livestock SÃO TOMÉ AND Key conditions and losses and, if uncompensated, will lead to an increase in poverty. Most Santomean challenges PRÍNCIPE households lack insurance or strategies for coping with shocks, with 65 percent STP is a small island country heavily ex- reporting either having to reduce spend- posed to shocks and constrained by its re- ing or having no strategy in the event of Table 1 2021 mote location, weak private sector, limited a shock. Population, million 0.2 institutional capacity, and low human cap- GDP, current US$ billion 0.5 ital. Underdeveloped infrastructure, espe- GDP per capita, current US$ 2559.2 cially unreliable and costly electricity, is a International poverty rate ($1.9) a 25.6 key challenge to growth and fiscal sustain- Recent developments a 57.0 ability. STP is highly dependent on exter- Lower middle-income poverty rate ($3.2) a nal concessional financing and has effec- Real GDP growth is estimated to have Upper middle-income poverty rate ($5.5) 82.9 a tively pursued a “public expenditures-led” slowed down from 3.1 percent in 2020 Gini index 40.7 growth model. With the structural decline to 1.8 percent in 2021 as international fi- b 106.8 School enrollment, primary (% gross) in external financing compounded by low nancing from development partners for b 70.4 Life expectancy at birth, years domestic revenue mobilization, the pace of COVID-19 response declined, continued Total GHG Emissions (mtCO2e) 0.4 growth has slowed in recent years. global travel restrictions dampening the Source: WDI, Macro Poverty Outlook, and official data. STP’s fast-growing population is young recovery of tourism, and prolonged en- a/ Most recent value (2017), 2011 PPPs. and lacking employment opportunities, ergy shortages in mid-2021 disrupting b/ WDI for School enrollment (2017); Life expectancy (2019). heavily relying on informal and subsis- economic activity. tence activities. Poverty remains wide- The current account deficit (CAD), ex- spread, with about 25.9 percent of the pop- cluding grants, is expected to have ulation living on less than $1.90 per day (in widened given the increase in imports, The challenges presented by the 2011 PPP terms) in 2017. which was driven primarily by higher COVID-19 pandemic and the energy cri- The COVID-19 pandemic in STP brought oil prices, while low tourism activity un- sis on São Tomé and Príncipe have been the highest death rate in Africa, at about dermined receipts. To address the unex- further aggravated by flooding and land- 33 deaths per 100,000 inhabitants, com- pected fiscal expenditures resulting from slides from severe rain in end-2021. Nev- pared to 19 in the rest of the continent. rainfall and floods, the government Vaccination has been advancing well, drew on the recently allocated SDRs. ertheless, the economy continues to grow however, and as of end-February, nearly Thus, net international reserves in early and the outlook for 2022 is encouraging 112 thousand Santomean (corresponding 2022 were reduced to around US$ 30 as tourism is projected to recover. Imple- to 97 percent of the adult population or million (28 percent YoY) and covered menting reforms in the tax system and 49 percent of the total population) had re- two months of imports. ceived at least one vaccine dose. In De- Lower levels of external grants and do- energy sector is paramount to ensure fis- cember 2021, heavy rainfall and the con- mestic revenues due the economic decel- cal sustainability, robust growth, and sequent flooding caused significant dam- eration reduced overall fiscal revenues. long-term poverty reduction. age, which led the authorities to declare However, expenditures increased given FIGURE 1 São Tomé and Príncipe / Domestic revenue and FIGURE 2 São Tomé and Príncipe / Actual and projected grants poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 25 100 25000 90 20 80 20000 70 15 60 15000 50 40 10000 10 30 20 5000 5 10 0 0 0 2010 2012 2014 2016 2018 2020 2022 2024 2010 2012 2014 2016 2018 2020 2022P International poverty rate Lower middle-income pov. rate Domestic Revenue Grants Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance, IMF, World Bank MTI. Source: World Bank. Notes: see Table 2. MPO 274 Apr 22 the continued pandemic-related needs. the current account, although this may be The domestic primary deficit is estimated offset by the higher costs of food and fuel to have deteriorated to around 3.8 percent Outlook imports. Private and official external capi- of GDP and debt-to-GDP ratio increased tal could finance a wider deficit. Address- to 95.6 percent in 2021, with new debt Real GDP growth is expected to increase ing prolonged unsettled external arrears in mostly from multilateral lenders. modestly to 2.8 percent in 2022, driven by the energy sector is the main challenge for Inflation stood at 9.5 percent in 2021 dri- higher agricultural production and exports debt sustainability. ven by higher food prices, mainly ex- (cocoa and palm oil), a more robust recov- Infrastructure destruction and economic plained by the hike in global commodity ery of tourism, and improved industrial disruption due to the December 2021 prices. The central bank continues to activity due to better conditions in the en- floods highlight the risks faced by São tighten liquidity that was earlier injected ergy sector and the implementation of ex- Tomé from climate events as well as the to support the economic response to the ternally financed projects. Additional fiscal need to focus on adaptation to climate pandemic: the growth rate of the mon- needs resulting from the floods, remaining change as a key priority in the country’s etary aggregate (M2) went from an in- pandemic-related expenditures, and the development strategy. Uninsured house- crease of 14 percent in 2020 to a contrac- slow recovery of domestic revenues are ex- hold losses due to the recent flooding and tion of 4.1 percent in 2021. pected to cause a deterioration of internal the potential increase in inflation of some To help poor families better absorb and external balances in 2022. While in- basic items, partially due to the current shocks and alleviate poverty, the author- flation dynamics should be generally increase in the price of grains, could in- ities have expanded youth skills training favourable, the introduction of the VAT crease poverty. These effects are mitigat- programs and the vulnerable families’ may lead to temporary increase in infla- ed by the continued economic recovery cash transfer program. They also extend- tion. Food inflation and insecurity may be that is expected to improve household ed the emergency COVID-19 shock re- further exacerbated by the increase in food earnings and the extension to the tempo- sponse program providing cash transfers prices triggered by the economic conse- rary cash program that will maintain el- to an additional 16,000 households in quences of the Russian invasion, war and evated levels of social protection cover- 2021 and 2022, which will help mitigate associated sanctions. age through end-2022. As a result, pover- the impacts of the flood and prevent an As global economic conditions improve, ty projections suggest little movement in increase in poverty. exports and tourism earnings will bolster overall poverty rates. TABLE 2 São Tomé and Príncipe / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 3.1 1.8 2.8 3.0 3.3 Real GDP growth, at constant factor prices 2.5 2.3 1.8 2.8 3.0 3.3 Agriculture 1.0 -1.1 1.1 2.4 3.2 3.5 Industry 0.7 4.4 -0.8 3.8 4.0 4.2 Services 3.2 2.2 2.5 2.6 2.7 3.1 Inflation (Consumer Price Index) 7.7 9.4 9.5 12.5 11.0 9.5 Current Account Balance (% of GDP) -19.9 -11.4 -10.8 -12.0 -9.6 -8.6 Fiscal Balance (% of GDP) -2.6 -4.9 -4.5 -3.7 -5.3 -4.7 Debt (% of GDP) 99.9 87.1 95.6 93.3 89.9 85.3 Primary Balance (% of GDP) -2.0 -4.5 -3.8 -3.3 -4.9 -4.3 a,b International poverty rate ($1.9 in 2011 PPP) 25.4 25.2 25.2 25.1 24.9 24.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 56.8 56.6 56.6 56.5 56.3 56.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 82.6 82.4 82.3 82.2 81.9 81.7 GHG emissions growth (mtCO2e) 1.2 0.8 0.9 0.8 1.0 1.1 Energy related GHG emissions (% of total) 39.3 39.6 39.9 40.1 40.3 40.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Projection using point to point elasticity at regional level with pass-through = 0.7 based on GDP per capita in constant LCU. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. b/ Actual data: 2017. Nowcast: 2018-2021. Forecast are from 2022 to 2024. Actual data: 2017. Nowcast: 2018-2021. Forecasts are from 2022 to 2024. MPO 275 Apr 22 Risks are mainly on the downside. A more prolonged conflict in Ukraine could in- SENEGAL Key conditions and crease pressure on food and energy prices, further reducing global demand and in- challenges creasing the risk of food insecurity in the rural regions. The COVID-19 crisis aggra- Table 1 2021 Over the last decade, Senegal benefited from vated emerging fiscal vulnerabilities, un- Population, million 17.2 enhanced international competitiveness, derlining the importance of transparent, GDP, current US$ billion 26.6 lower fertility rates, and structural transfor- effective fiscal and debt management in GDP per capita, current US$ 1549.2 mation. Pre-COVID, real GDP growth aver- the mid-term. In addition, insecurity a 7.6 International poverty rate ($1.9) aged around 6 percent between 2014-19, spreading from the Sahel and political tur- a 34.0 boosted by investment, private consump- moil in neighboring countries could nega- Lower middle-income poverty rate ($3.2) a 66.8 tion, and a favorable external environment. tively affect economic activity and invest- Upper middle-income poverty rate ($5.5) Gini index a 38.1 However, growth was less inclusive, charac- ments in the eastern provinces and reduce School enrollment, primary (% gross) b 83.0 terized by slow poverty reduction and stag- exports. Finally, Senegal is exposed to cli- b 67.9 nating inequality. The poverty incidence mate shocks (floods, droughts, and associ- Life expectancy at birth, years (using the national poverty line at FCFA ated health hazards), which could reduce Total GHG Emissions (mtCO2e) 39.1 332,539 a year) declined from 43 percent in agricultural productivity and adversely Source: WDI, Macro Poverty Outlook, and official data. 2011 to 37.8 percent in 2018/19 – falling short impact the recovering tourist industry. a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy of top performing sub-Saharan African (2019). countries, while socio-economic disparities persist. COVID-19 worsened the situation, especially in urban areas, where service ac- Recent developments Growth accelerated to 6.1 percent in tivities are concentrated. However, the 2021, from 1.3 percent in 2020, driven by poverty gap deteriorated more in rural ar- Growthacceleratedin2021to6.1percent(3.3 eas, suggesting that the rural poor suffered percent in per capita terms), from 1.3 percent industrial production and a recovery in most. In addition, the pandemic worsened in 2020 (-1.4 percent in per capita terms), dri- services as COVID-19 restrictions eased. non-monetary poverty with potential long- ven by private consumption and invest- The fiscal deficit remained at 6.2 percent term negative effects on human capital, no- ment. Industrial production and services of GDP, further increasing the debt-to- tably through lower school attendance. were strong while agriculture grew moder- Structural vulnerabilities hamper Sene- ately after arecord contribution in 2020. GDP ratio. Risks to the outlook include gal’s potential growth. Total factor pro- Inflation decelerated from 2.5 in 2020, to inflationary pressures, potentially exacer- ductivity declined from 2000 to 2014 and 2.2 in 2021 percent, due to a slower in- bated by a prolonged conflict in Ukraine, grew tepidly from 2015, highlighting both crease for food prices and lower telecom- regional insecurity, new COVID-19 vari- the low level of human capital and struc- munication prices. Food prices contributed ants, and extreme climate events. tural labor-supply constraints. In addition, 1.4 ppts in 2021, compared to 1.6 ppts in insufficient competition, and inadequate 2020 driven by robust domestic supply in financing have constrained the develop- H1-2021, from record production in 2020, ment of the private sector, limiting job cre- and fiscal measures implemented to limit ation in productive sectors. basic food price increases. However, food FIGURE 1 Senegal / Evolution of main macroeconomic FIGURE 2 Senegal / Actual and projected poverty rates and indicators real private consumption per capita Percent and percentage points Percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 12 0 100 700000 10 90 -2 600000 8 80 6 -4 70 500000 4 60 400000 -6 50 2 40 300000 0 -8 30 200000 -2 -10 20 -4 100000 10 -6 -12 2015 2017 2019e 2021p 2023p 0 0 GDP growth (%) 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Primary fiscal balance (% of GDP) International poverty rate Lower middle-income pov. rate Current account balance (% of GDP, rhs) Upper middle-income pov. rate Real priv. cons. pc Sources: Senegalese authorities and World Bank staff calculations. Sources: Senegalese authorities and World Bank staff calculations. Notes: see Table 2. MPO 276 Apr 22 prices started picking up in June 2021, growth drivers were concentrated in percent of GDP in 2022 up from a projected reaching 3.8 percent y/y in December 2021. urban areas, while rural areas remain 4.8 percent before the war, as fuel subsi- The current account deficit (CAD) widened more vulnerable to shocks as social dies rise and import duties and VAT tax slightly from 9.9 percent of GDP in 2020, to safety nets remain nascent. holidays are implemented to limit the in- 10.2 percent in 2021, driven by oil and gas in- crease in domestic food prices. The deficit vestment-related services imports, while should gradually narrow to reach the key export markets such as tourism re- WAEMU target of 3 percent by 2024, dri- mained subdued. The deficit was financed Outlook ven by a revenue based fiscal consolida- by strong hydrocarbon related foreign di- tion. The debt-to-GDP ratio should peak rect investment and commercial borrowing. The recovery momentum is jeopardized by at 73.1 percent in 2022, before gradually The fiscal deficit remained high for a sec- the conflict in Ukraine. Real growth is ex- decreasing driven by higher nominal GDP ond consecutive year, at 6.2 percent of pected to decelerate to 4.4 percent in 2022, and lower fiscal deficits. GDP in 2021 (6.3 percent of GDP in 2020) as private consumption and investment de- WAEMU reserves are expected to fall to as COVID response measures extended in- cline with higher food and energy prices around 5.5 months of imports in 2022 and to 2021. An increase in tax revenues partly and greater uncertainty. In 2023-2024, 5.3 months in 2023 and 2024, reflecting offset a drop in grants, with total expen- growth could average 9.5 percent, driven by faster growth in imports and a reduction in ditures at 25 percent of GDP. The debt- the expected start of hydrocarbon produc- net capital inflows (as a percent of GDP), to-GDP ratio reached 72.5 percent of GDP tion. Inflation is expected to peak at 3.8 per- as the environment for Eurobond is- end 2021, a +9.4 ppt increase since 2019. cent in 2022, due to trade disruptions exac- suances remains uncertain. Growth- Senegal’s monetary and exchange rate erbated by the conflict in Ukraine, with en- friendly fiscal consolidation and the imple- policies are managed by the Central Bank ergy and food prices rising the most. mentation of structural reforms are key to of West African States (BCEAO), which The CAD is expected to widen to 10.8 per- maintaining reserves at an optimal level. maintains a fixed peg between the CFA cent of GDP as import prices, notably for The poverty rate is expected to remain sta- Franc and the Euro. Its reserves reached energy, sharply increase. Hydrocarbon re- ble at around 34 percent in 2022 as growth 5.8 months of imports of goods and ser- ceipts should significantly improve CAD remains concentrated in urban areas. Re- vices in 2021, as a result of increased ex- balances in 2023-2024. The deficit will be fi- cent fiscal measures, including the removal ports, the August 2021 IMF SDR alloca- nanced by oil-sector related foreign invest- of regressive tax exemptions, should con- tion, and portfolio inflows linked to Eu- ment and a mix of concessional and com- tribute to alleviate poverty. Over the medi- robond issuances in the region (by Benin, mercial borrowing. um-term, poverty rates are expected to Côte d’Ivoire, Senegal and BOAD). Fiscal policy is expected to remain expan- gradually revert to pre-crisis levels with Poverty incidence (USD 3.2 a day, sionary for a third consecutive year as the more progressive fiscal measures, com- 2011 PPP) is estimated to have re- government tries to shield the population bined with the extension of social safety mained at around 34 percent in 2021. from the impacts of the Ukraine crisis. The nets, preventing vulnerable households Spatial inequalities increased as fiscal deficit is projected to increase to 6.8 from falling into poverty. TABLE 2 Senegal / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.6 1.3 6.1 4.4 8.5 10.6 Private Consumption 3.8 2.2 6.0 4.0 6.1 8.9 Government Consumption 7.5 2.6 5.4 11.5 10.4 7.8 Gross Fixed Capital Investment 10.3 4.3 5.0 3.3 4.3 5.3 Exports, Goods and Services 14.7 -13.2 14.7 9.1 16.9 16.0 Imports, Goods and Services 6.8 7.0 8.0 7.5 7.0 6.8 Real GDP growth, at constant factor prices 4.5 1.9 5.8 4.4 8.5 10.6 Agriculture 4.3 12.8 -1.0 5.1 5.4 6.5 Industry 5.0 -0.4 10.9 5.3 10.0 12.8 Services 4.3 -0.1 5.7 3.8 8.7 10.8 Inflation (Consumer Price Index) 1.0 2.5 2.2 3.8 2.9 2.6 Current Account Balance (% of GDP) -8.0 -9.9 -10.2 -10.8 -8.5 -5.8 Fiscal Balance (% of GDP) -3.9 -6.3 -6.2 -6.8 -3.9 -3.0 Debt (% of GDP) 63.1 67.8 72.5 73.1 69.7 64.5 Primary Balance (% of GDP) -2.0 -4.2 -4.2 -4.7 -1.7 -1.0 a,b International poverty rate ($1.9 in 2011 PPP) 7.6 7.6 7.5 7.4 7.3 7.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 33.9 34.0 33.8 33.7 33.3 32.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 66.7 66.7 66.4 66.1 65.4 64.5 GHG emissions growth (mtCO2e) 6.2 2.9 4.1 3.7 6.4 6.3 Energy related GHG emissions (% of total) 36.1 36.4 37.4 38.2 39.9 41.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2011-ESPS-II and 2018-EHCVM.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point to point elasticity at regional level with pass-through = 0,7 based on private consumption per capita in constant LCU. MPO 277 Apr 22 temporary roadside stalls to sell fruits and seafood products to cope with the SEYCHELLES Key conditions and shock. As tourism started to return, social protection programs were end- challenges ed as they became a burden to the na- tional budget. While the end of social Table 1 2021 Tourism and fisheries are the key sectors protection programs reduced govern- Population, million 0.1 of the Seychelles’ economy. The fishing ment fiscal pressures, there are reasons GDP, current US$ billion 1.4 industry, which is host to one of the to believe that poverty may have been GDP per capita, current US$ 13991.5 largest tuna canneries in the world, con- negatively affected. a 0.5 International poverty rate ($1.9) tributes to between 8 and 20 percent The recovery process may be hindered a 1.1 to GDP annually and the tourism sector by the emergence of new COVID-19 vari- Lower middle-income poverty rate ($3.2) a 5.2 contributes 30 percent to GDP. The coun- ants. In addition, Russia’s attack on Upper middle-income poverty rate ($5.5) Gini index a 32.1 try is also dependent on imports. This Ukraine is expected to increase the con- School enrollment, primary (% gross) b 100.8 lack of economic diversification exposes cerns around inflation since Russia is b 73.9 Seychelles to external shocks. These among the world's biggest oil exporters Life expectancy at birth, years shocks are transmitted through disrup- and a major grain exporter along with Total GHG Emissions (mtCO2e) 0.8 tions in international travel and tourism Ukraine, whose Black Sea ports have Source: WDI, Macro Poverty Outlook, and official data. demand, as well as through fluctuations been closed to shipping. a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy in fishing stocks and instabilities in the (2019). price of essential commodities such as food and fuel prices. Before the pandemic, Seychelles was Recent developments Real GDP increased by 7.9 percent in on a steady path to decrease poverty, 2021 and is projected moderate to 4.6 reaching around 5.0 percent in 2019 Economic growth is estimated at 7.9 (when measured against the poverty percent for 2021 due primarily to percent in 2022 as tourist arrivals de- line for upper middle-income countries a recovery in the tourism sector. cline because of the impact of the Russ- of USD 5.5 a day per capita in PPP Tourist arrivals rebounded in 2021 ian invasion of Ukraine. In the medium- terms). While the decline in the pover- following the reopening of borders term the fiscal balance is expected to re- ty rate has been driven by a rise in in late March 2021, and the emer- incomes from paid employment and gence of new tourist markets (Russia, turn to a sustainable path as the gov- self-employment and substantial bene- UAE and Israel). With the fishery ernment undertakes fiscal consolidation fits from various social protection pro- sector selling about 50 percent of and the economy continues to recover. grams, salary cuts and job losses in the the domestic artisanal catches to re- Poverty declined in 2021 due to im- tourism industry due to COVID-19 in- sorts and restaurants, the fishery sec- provement in economic growth. creased poverty rates to 6.6 percent in tor grew by 2.5 percent in 2021 as 2020. To limit the poverty impacts of the tourism sector recovered. Private the crises, the government introduced consumption also contributed to the several social protection programs and recovery in the economy. The aver- some low-income households opened age inflation rate was 10.0 percent in FIGURE 1 Seychelles / Fiscal balance and public sector debt FIGURE 2 Seychelles / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 10 120 16 120000 5 14 100 100000 12 0 80 80000 10 -5 60 8 60000 -10 6 40 40000 -15 4 -20 20 20000 2 -25 0 0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Primary Balance (LHS) Overall Balance (LHS) International poverty rate Lower middle-income pov. rate Public Sector Debt (RHS) Upper middle-income pov. rate Real GDP pc Sources: WDI and World Bank staff estimates. Source: World Bank. Notes: see table 2. MPO 278 Apr 22 2021 due to increased domestic de- mitigate the poverty impacts of COVID-19, The fiscal deficit is expected to contract mand and rising imported inflation poverty numbers for 2021 and 2022 could over the medium-term, as the govern- due to tight supply conditions. De- be higher than the above projection. ment continues fiscal adjustment. The spite a gradual revival of tourist ac- GOS introduced expenditure-saving tivity, the current account deficit re- measures in 2021 that are expected to mained high at -20.3 percent of GDP continue in the medium term, including: in 2021 (compared to -29.7 percent Outlook limiting new recruitments to key posi- in 2020). Gross international reserves tions in certain ministries and depart- stood at US$ 702 million at end-De- Economic growth is projected to average ments; freezing salaries for public ser- cember 2021 (4.8 months of imports). 5.1 percent over the medium-term. Given vice employees; freezing long term ser- Due to the withdrawal of the COVID-19 the structure of the domestic economy, its vice allowance; and limiting the intro- fiscal support package, the fiscal balance recovery is conditional on external devel- duction of new schemes of government deficit improved from 17.8 percent of GDP opments, specifically the revival of the service. In the medium-term, revenue in 2020 to 9.1 percent of GDP in 2021. The global travel and tourism industry. Tourist collection will increase, driven by a re- decline in transfers (to around 9.0 percent arrivals are projected to moderate to a sumption of economic activities as well of GDP in 2021 from 18.0 percent of GDP growth rate of 14 percent in 2022, relative as measures to improve tax policy such in 2020), reflects the removal of COVID-19 to 59 percent in 2021 (due to projected lost as: (i) the prevention of base erosion of measures such as the guarantee of salaries in tourist arrivals from Russia and Ukraine the corporate tax base through interna- to the private sector and the increase in al- (23 percent of arrivals in 2021)) and the tional profit shifting; (ii) streamlining of location to social protection to finance the economy is projected to grow by 4.6 per- VAT exemptions. unemployment relief scheme program cent. In 2023 and 2024, economic growth Poverty is projected to continue to de- which were all stopped in early 2021. is projected to be 5.6 percent and 5.0 per- cline gradually to 5.1 percent and 5.0 As a result of the increase in visitor ar- cent, respectively, as tourism continues to percent by 2023 and 2024 ($5.5 a day rivals, poverty is expected to decrease rebound. Food and oil prices are expected per capita line), respectively. Neverthe- from 5.3 percent in 2021 to 5.2 percent in to remain elevated in 2022 as the Russian less, this depends on the ability of the 2022. However, due to the end of the finan- invasion of Ukraine continues and cause tourism and services sectors to fully cial assistance for job retention program supply disruptions in commodity (wheat bounce back to their pre-COVID-19 levels that the government had introduced to and maize) and fuel. over the next few years. TABLE 2 Seychelles / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.0 -13.3 7.9 4.6 5.7 5.0 Private Consumption 4.8 -10.8 8.8 6.8 7.0 4.7 Government Consumption -0.2 4.3 2.3 0.4 -3.8 4.0 Gross Fixed Capital Investment -2.7 -37.7 22.1 7.1 9.7 3.5 Exports, Goods and Services 2.0 -39.6 12.2 16.8 17.8 17.4 Imports, Goods and Services 0.9 -38.2 14.3 15.3 14.4 14.9 Real GDP growth, at constant factor prices 1.8 -13.4 7.9 4.6 5.6 5.0 Agriculture 1.1 -0.2 3.1 1.0 1.4 1.1 Industry 2.1 0.7 3.6 2.4 2.0 2.0 Services 1.7 -15.4 8.7 5.0 6.2 5.5 Inflation (Consumer Price Index) 2.0 1.2 10.0 5.7 1.6 1.2 Current Account Balance (% of GDP) -18.8 -29.7 -20.3 -27.7 -23.0 -18.4 Net Foreign Direct Investment (% of GDP) 17.7 10.1 13.1 11.0 14.6 13.1 Fiscal Balance (% of GDP) 1.0 -17.8 -9.1 -5.7 -1.6 0.9 Debt (% of GDP) 58.7 102.3 76.5 79.6 76.8 73.5 Primary Balance (% of GDP) 3.6 -14.3 -6.6 -3.2 0.9 3.2 a,b International poverty rate ($1.9 in 2011 PPP) 0.5 0.7 0.6 0.5 0.5 0.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.1 1.5 1.2 1.2 1.0 1.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 5.0 6.6 5.3 5.2 5.1 5.0 GHG emissions growth (mtCO2e) 3.7 -2.8 7.3 5.8 6.3 5.3 Energy related GHG emissions (% of total) 79.8 80.6 81.5 82.1 82.8 83.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-HBS. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 279 Apr 22 interest payments to domestic revenue was estimated at 19.8 percent in 2020. Inflation SIERRA LEONE Key conditions and has remained elevated, largely in double digits, raising concerns for food security. challenges Economic growth has translated into mod- est per capita income gains because of Table 1 2021 Sierra Leone’s economy is highly depen- rapid population growth (averaging 2.1 Population, million 8.1 dent on mining and agricultural activities, percent per annum). About 80 percent of GDP, current US$ billion 4.1 making it vulnerable to external (e.g., com- the population is under the age of 35 years, GDP per capita, current US$ 504.4 modity prices and global demand) and do- making efforts to accelerate job creation a 43.0 International poverty rate ($1.9) mestic shocks (e.g., weather). Prior to the and increase access to public services (e.g., a 76.0 Ebola epidemic, mining, primarily iron healthcare and education) a critical chal- Lower middle-income poverty rate ($3.2) a 35.7 ore, accounted for 15 percent of GDP and lenge. Poverty (measured using the inter- Gini index School enrollment, primary (% gross) b 141.3 about 80 percent of merchandise exports. national poverty line of US$1.9 per day, Life expectancy at birth, years b 54.7 However, the sector has exhibited signifi- 2011 PPP) fell by 11.7 percentage points Total GHG Emissions (mtCO2e) 11.4 cant volatility in recent years, with iron ore over the last decade to 43 percent in 2018. output declining to almost zero in 2018–20. Since three-quarters of the poor live in rur- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. Thus, while growth averaged 4.2 percent al areas, poverty among subsistence farm- b/ WDI for School enrollment (2020); Life expectancy over the past decade, it has fluctuated ers remains a major challenge. (2019). widely (by 10.3 percent from the mean, two-thirds of the time). In 2015, the econ- omy was hit simultaneously by a collapse After contracting in 2020, Sierra in global commodity prices and the Ebola Recent developments Leone’s economy grew by 3.1 percent in epidemic. In 2020, the COVID-19 pandem- ic also affected domestic and external de- After contracting by 2 percent in 2020, the 2021, driven mainly by agriculture and mand concomitantly. Mobility restrictions economy grew by 3.1 percent in 2021, re- mining. The fiscal deficit remained ele- adversely impacted private sector employ- flecting the easing of mobility restrictions vated, despite improvements in rev- ment and incomes, especially in urban ar- as well as fiscal stimulus and structur- enues, driven by overruns in recurrent eas, leading to a likely increase in poverty. al reform efforts. Agriculture contributed spending. With growth averaging 4.4 The authorities have struggled to restore more than half of overall growth (1.9 per- macroeconomic stability and fiscal bal- centage points) due to increased private percent during the medium-term, pover- ances since the Ebola shock. Since 2014, the sector participation in input market. Both ty is expected to return to its 2019 level budget deficit has exceeded 5.5 percent of industry and services contributed 0.6 per- by 2023, but high inflation is eroding GDP, due to low domestic revenue mobi- centage points each, reflecting a grad- real incomes and may affect the outlook. lization (average of 12.6 percent of GDP) ual recovery of mining and manufactur- and expenditure overruns (average of 22.0 ing as well as trade and tourism. On the The Ukraine-Russia crisis presents risks percent of GDP). Sierra Leone is at high demand side, growth was driven by fi- to the outlook primarily through fluctu- risk of debt distress, with debt dynamics nal consumption and gross investments ations in commodity prices. partly affected by increased reliance on ex- (mainly public investment following the pensive domestic borrowing. The ratio of resumption of capital projects). Headline FIGURE 1 Sierra Leone / Real GDP growth and sectoral FIGURE 2 Sierra Leone / Actual and projected poverty and contributions to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant million LCU) 6 90 1.80 80 1.60 4 70 1.40 60 1.20 2 50 1.00 40 0.80 0 30 0.60 Agriculture 20 0.40 Industry 10 0.20 -2 Services GDP at Factor Cost 0 0.00 2011 2013 2015 2017 2019 2021 2023 -4 International poverty rate Lower middle-income pov. rate 2019 2020 2021e 2022f 2023f 2024f Real GDP pc Sources: StatSL and World Bank. Source: World Bank. Notes: See Table 2. MPO 280 Apr 22 inflation declined to 8.9 percent in March against US dollars, and 9 percent in the the level recorded in 2019 for longer than 2021, before it accelerated to 17.9 percent parallel market). However, gross external expected. The overall fiscal deficit is pro- (year-on-year) by end-December, reflect- reserves increased to US$933 million (6.1 jected to narrow to 3.0 percent of GDP by ing global food price increases as well months of imports), with the new Inter- 2024, driven by gains in domestic revenue as a combination of recovering domestic national Monetary Fund Special Draw- mobilization, expenditure rationalization, consumer demand and enduring supply ing Rights allocation (US$281 million) en- and public financial management reforms. chain disruptions. High food inflation in- hancing the country’s ability to cushion Fiscal policy would focus on protecting so- creased the share of the food insecure external shocks. cial expenditures to support human capital population from 50 percent (3.6 million) development. The current account deficit in 2015 to 57 percent (4.7 million) in is expected to narrow to 12.9 percent of 2020. The share of the population living GDP by 2024 as the recovery in the mining in poverty is estimated to have increased Outlook sector boosts export growth. during the early stages of the pandemic The outlook is subject to significant in 2020 (especially in urban areas among The economy is expected to gradually re- downside risks and uncertainties related the self-employed) by about 2 percentage cover, mainly due to mining and agricul- to the Ukraine-Russia crisis, the 2023 gen- points, before it fell marginally in 2021. ture. Real GDP growth is projected to av- eral elections, and the path of the pan- The overall fiscal deficit increased slightly erage 4.4 percent over the medium term demic. Wide fluctuations in commodity by 0.1 percentage points to 5.9 percent of (2022–24), with contributions from invest- prices due to the war in Ukraine can pose GDP in 2021, mainly due to higher-than- ments (especially in mining and agricul- both gains and losses for the economy, expected expenditure on wages, goods ture) on the demand side, and from agri- while a sharp rise in global food and fu- and services, and subsidies for electricity culture, tourism, construction, and mining el prices poses a risk of higher inflation generation. The expenditure overruns and manufacturing on the supply side. and potentially increased food insecuri- were aggravated by inflation as the price Headline inflation is expected to remain ty. Higher domestic inflation can cause of goods and services rose. However, rev- elevated in the coming years and decline expenditure overruns, while higher fu- enue collection improved remarkably, gradually to single digits as domestic food el prices, if not passed through to con- and tax revenue reached 15.3 percent of production increases by 2024 and offsets sumers, can put pressure on the gov- GDP, up from 13.8 percent of GDP in the the effect of high international prices. A ernment’s subsidy bill. On the upside, a previous year, due in part to one-off min- sustained increase in fertilizer and fuel sharp increase in the price of metals such ing revenues. Public debt increased from prices in 2022 due to the ongoing Ukraine- as iron ore can: (i) significantly affect the 76.3 percent in 2020 to an estimated 76.9 Russia conflict is likely to hamper agricul- mining outlook; (ii) present terms of trade percent of GDP in 2021, mainly because tural production. While strong overall gains; (iii) bolster the demand for Sierra of new multilateral borrowing. The cur- growth may reduce poverty, headwinds Leone’s iron ore as the world searches for rent account deficit widened with the re- from inflation, including the rise of fuel alternative sources; and (iv) increase gov- covery in domestic demand and the de- and fertilizer prices, may dampen ernment revenue from mining. preciation of the Leone (by 11 percent progress, keeping the poverty rate above TABLE 2 Sierra Leone / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.3 -2.0 3.1 3.9 4.4 4.8 Private Consumption 4.3 4.3 4.2 6.2 4.9 5.9 Government Consumption 5.1 2.7 0.1 0.0 15.7 0.9 Gross Fixed Capital Investment -34.2 -4.1 7.6 9.8 13.1 12.4 Exports, Goods and Services -1.6 -9.8 40.5 18.0 9.5 10.1 Imports, Goods and Services -7.0 7.5 18.4 12.4 13.1 7.8 Real GDP growth, at constant factor prices 5.3 -2.0 3.1 3.9 4.4 4.8 Agriculture 5.4 1.6 3.7 3.5 3.6 3.6 Industry 10.9 -7.1 3.8 9.4 4.7 4.7 Services 3.8 -5.9 2.0 2.9 5.5 6.7 Inflation (Consumer Price Index) 14.8 13.5 11.9 14.2 12.1 10.9 Current Account Balance (% of GDP) -15.3 -7.0 -13.7 -15.9 -13.9 -12.9 Net Foreign Direct Investment (% of GDP) 7.9 3.4 8.5 8.0 6.8 6.2 Fiscal Balance (% of GDP) -3.1 -5.8 -5.9 -5.0 -4.2 -3.0 Debt (% of GDP) 70.9 76.3 76.9 76.8 76.8 75.3 Primary Balance (% of GDP) -0.4 -2.7 -2.8 -2.0 -1.4 -0.1 a,b International poverty rate ($1.9 in 2011 PPP) 41.1 43.4 42.8 41.7 40.3 38.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 74.7 76.3 75.9 75.2 74.2 73.1 GHG emissions growth (mtCO2e) 3.1 1.4 3.0 3.0 2.7 2.8 Energy related GHG emissions (% of total) 15.1 14.6 14.5 14.4 14.3 14.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2011-SLIHS and 2018-SLIHS. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2011-2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 281 Apr 22 market. The traditional economic activities such as livestock production and the SOMALIA Key conditions and booming new services sectors such as telecommunications provide insufficient challenges jobs to move people out of poverty. With no monetary policy instruments and al- Table 1 2021 While Somalia is making gradual progress most no fiscal space, Somalia lacks the pol- a 15.2 Population, million towards building its foundational institu- icy options to respond to shocks or to in- GDP, current US$ billion 7.3 tions, key drivers of fragility prevail. De- vest in human and physical capital. Soma- GDP per capita, current US$ 480.0 cisions on power and resource sharing be- lia is addressing high levels of indebted- b 69.1 International poverty rate ($1.9) tween the Federal Government and the re- ness through the Heavily Indebted Poor b 37.0 gions are still to be made, particularly in Countries (HIPC) initiative, which pro- Gini coefficient c 33.0 sectors such as security and natural re- vides an anchor for implementing struc- School enrollment, primary (% gross) Life expectancy at birth, years d 57.4 sources. Decades of conflict destroyed in- tural reforms and accessing financing for frastructure, led to a flight of human capi- investments required to stimulate growth Sources: World Development Indicators (WDI), World Bank, UNFPA, and Macro Poverty Outlook. tal, and eroded the social contract. The cur- and reduce poverty. a/ Estimates based on 2013 population estimates by rent administration’s term ended in Febru- UNFPA and assumes an average annual population growth of 2.8 percent. ary 2021, but disagreements over election b/ Most recent value (2017). modalities have led to delays in the elec- c/ Somali Poverty and Vulnerability Assessment Report (World Bank, 2019). tions and contributed to rising tensions be- Recent developments d/ Life expectancy for 2019 from WDI. tween the regions. Poverty levels are high and widespread. The economy made a modest recovery in The international poverty rate (using the 2021, growing by an estimated 2.2 per- US$1.90/person/day poverty line) was esti- cent following a contraction of 0.3 percent The economy is showing modest signs of mated at 69 percent in 2017. Although re- in 2020. By February 2022, only 5.5 per- recovery with real GDP growth estimated mittance inflows support household con- cent of the population was fully vacci- at 2.2 percent in 2021, following a con- sumption, most Somalis will remain poor nated, raising the prospect of a lingering traction of 0.3 percent in 2020. Increased without growth in per capita income. Ex- COVID-19 pandemic. Economic activities private sector activity in urban areas, ternal shocks such as climatic disasters and in cities are the main drivers of growth the COVID-19 pandemic have led to a loss and higher demand for imported con- higher remittance inflows, and a rebound of livelihoods, increased food insecurity, sumer goods (y-o-y increase of 9 percent of exports are driving the recovery. How- and contributed to forced displacement. in 2021) is supporting consumption and ever, recurrent climatic shocks and politi- Economic growth has been low and investment. Credit to the private sector cal uncertainty are affecting the economy volatile due to persistent insecurity and grew by over 40 percent and remittance climatic shocks, leading to insufficient job inflows increased by 30 percent in 2021 and wellbeing of the population, con- creation. Real GDP growth averaged 2.9 compared to the previous year. Exports in tributing to forced displacement and percent between 2014 to 2021, on par with 2021 have recovered to the pre-COVID-19 widespread poverty. population growth rate. Overall employ- level, although a severe drought muted ment remains low, with just over half of performance in the fourth quarter. Infla- the population participating in the labor tion has remained below 5 percent due FIGURE 1 Somalia / Overall budget balance FIGURE 2 Somalia / Actual and projected poverty rates and real GDP per capita US$, Millions Poverty rate (%) Real GDP per capita (constant 2015 USD) 60 110 430 50 100 425 40 30 90 420 20 80 415 10 0 70 410 -10 60 405 -20 50 400 -30 2017 2019 2021 2023 -40 International poverty rate Lower middle-income pov. rate 2019Q1 2019Q3 2020Q1 2020Q3 2021Q1 2021Q3 Upper middle-income pov. rate Real GDP pc Sources: Somalia authorities and World Bank staff calculations. Source: World Bank. Notes: see table 2. MPO 282 Apr 22 to de facto dollarization. However, the poverty line in 2021 with the majority of FDI and encourage broad-based private worsening drought and the Ukraine/Rus- the population having experienced a re- sector activity, which will gradually sia crisis are pushing up prices and wors- duction in income compared to pre-pan- boost Somalia’s low domestic produc- ening the external position. A 35 percent demic levels. tive capacity. Climate shocks, political increase in both wheat and oil prices will risks, and insecurity pose significant widen the import bill by 2.2 percent of challenges to growth prospects. A pro- GDP in 2022. longing of the Russian invasion in The delayed election is contributing to fis- Outlook Ukraine could further exacerbate infla- cal challenges. While domestic revenue tionary pressures for food and fuel, mobilization improved in 2021 (rising by The COVID-19 vaccination rate is ex- which are likely to hurt the poor, and 9 percent compared to 2020), multilateral pected to pick up with increasing sup- increase the overall import bill. partners have withheld budget support port from development partners in the While the economic rebound has pushed until the elections are completed. Total ex- health sector. The economy is projected nominal GDP per capita to US$480 in penditures outstrip revenue collection (see to grow over the medium-term, but 2021 from US$471 in 2020, real per capita Figure 1) leading to liquidity pressures risks remain significant. Real GDP GDP declined by -0.5 percent per year on which were addressed through the 2021 growth is estimated at 3.0 percent in average between 2017 and 2021, depress- SDR allocation. To mitigate the impact of 2022 and is projected to reach 3.5 per- ing living standards for most Somalis. recent climatic shocks, the government’s cent in 2023. The outlook assumes sus- The international poverty rate is projected social safety net program, Baxnaano, has tained growth in remittances which will to remain at around 70 percent between been supported by development partners. boost investment and consumption; con- 2022 and 2024. Accelerating the pace of The need for humanitarian assistance re- tinued social protection measures to poverty reduction will require policy in- mains critical as over 4.1 million people are cushion household incomes, especially terventions and public investments that estimated to be food insecure. among the vulnerable; as well as elec- raise productivity, create jobs, and ex- Poverty in Somalia is deep and wide- tions dividends which will support im- pand pro-poor programs which focus on spread, increasing susceptibility to nega- proved business confidence and unlock women and youth. tive shocks. 70 percent of the population donor flows. Economic reforms and in- are projected to have lived below the creased public investment should attract TABLE 2 Somalia / Macro poverty outlook indicators (percent of GDP unless indicated otherwise) a 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.3 -0.3 2.2 3.0 3.5 3.9 CPI Inflation, annual percentage change 4.8 4.2 4.6 5.0 4.0 3.8 Current Account Balance -10.9 -11.7 -13.2 -12.9 -14.4 -15.3 Trade balance -66.3 -66.6 -69.4 -73.8 -76.2 -75.7 Private remittances 24.4 23.2 28.7 32.3 32.1 31.5 Official grants 29.4 29.9 28.2 29.8 30.8 30.1 b Fiscal Balance 0.3 0.1 -1.3 0.0 0.1 -1.1 Domestic revenue 3.5 3.0 3.1 3.2 3.7 4.0 External grants 1.7 4.2 2.0 3.3 3.5 2.3 Total expenditure 4.9 7.1 6.5 6.5 7.0 7.3 Compensation of employees 2.5 3.3 3.4 3.2 3.0 3.1 External debt 82.0 65.0 61.8 58.0 54.4 49.9 c,d International poverty rate ($1.9 in 2011 PPP) 67.7 69.5 69.8 69.7 69.4 68.7 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 88.5 89.4 89.5 89.5 89.3 89.0 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 97.8 98.0 98.0 98.0 97.9 97.9 Sources: Federal Government of Somalia, IMF, and World Bank staff estimates. Notes: e = estimate; f = forecast. a/ GDP baseline estimates 2019-20 are by Somalia National Bureau of Statistics (SNBS, June 2021). b/ Federal Government of Somalia (FGS). c/ Calculations based on 2017 SHFS-wave 2. Actual data: 2017. Nowcast: 2018-20. Forecasts are from 2022-24. d/ Projection using neutral distribution (2017) with pass-through = 1 based on private consumption per capita in constant US dollars. MPO 283 Apr 22 South Africa’s economy remains fragile and is only expected to get back to SOUTH AFRICA Key conditions and its 2019 real GDP level this year. After more than a decade of slow growth, challenges real GDP per capita is close to its 2015 level. As domestic growth drivers re- Table 1 2021 The global environment – especially favor- main weak, South Africa is vulnerable Population, million 60.0 able commodity prices – has driven South to changes in the global environment, GDP, current US$ billion 418.1 Africa’s economic recovery so far, support- including external demand and prices, GDP per capita, current US$ 6963.9 ing GDP growth, the current account, and inflationary pressures, and financing a 18.7 International poverty rate ($1.9) fiscal revenues. Households’ consumption conditions, especially in the context of a 37.3 growth has recovered from last year’s re- the Russia-Ukraine war and associated Lower middle-income poverty rate ($3.2) a 56.9 cession but the deteriorated labor market sanctions from other countries. Elevated Upper middle-income poverty rate ($5.5) Gini index a 63.0 is likely to hamper a more dynamic and global oil prices are expected to trans- School enrollment, primary (% gross) b 98.4 sustainable growth trend. Investment con- late into more inflation, which affects b 64.1 tinues to be weak amid persistent structur- the poor disproportionately. Higher Life expectancy at birth, years al constraints, such as electricity outages. metal prices should help cushion the Total GHG Emissions (mtCO2e) 565.7 Despite slow vaccination uptake (29.6 per- impact on the trade balance and growth Source: WDI, Macro Poverty Outlook, and official data. cent of the population is fully vaccinated), and support fiscal revenue. Domestical- a/ Most recent value (2014), 2011 PPPs. b/ Most recent WDI value (2019). the last wave of COVID-19 infections, dri- ly, additional waves of COVID-19 in- ven by the Omicron variant, has had limit- fections could translate into further job ed health and economic impacts. However, losses. A lack of improvement in living The South African economy rebounded some sectors, such as tourism, remain af- standards would threaten social stability fected by the global pandemic. and put additional pressure on already by 4.9 percent in 2021, driven by a The recovery has not improved social strained public finances. more favorable global environment and outcomes. Net jobs have continued to less severe economic impact of domestic contract over Q1-Q3 2021. The unemploy- COVID-19 waves. However, the recov- ment rate reached 34.9 percent end-Sep- ery has been jobless so far. Poverty has tember 2021. Labor force participation is Recent developments also low, resulting in only about 1 in reached levels not seen in over a decade, 3 South African of working age having South Africa’s economy started to re- which puts further pressure on budget a job. Consequently, poverty rates have cover in 2021, with GDP growth reach- spending. Domestic growth drivers re- climbed to the levels of more than a ing 4.9 percent. Buoyed by favorable main weak and structural reforms need decade ago, undoing years of progress. global demand and prices, the mining This social hardship translated into civil sector grew by 11.8 percent. Terms of to continue to achieve higher growth unrest in July 2021, causing significant trade are more than 10 percent high- and job creation. economic damage and putting pressure er than their pre-pandemic level, sup- on the government to increase social sup- porting the external sector. The mer- port, with calls from different stakehold- chandise trade balance recorded a sur- ers to introduce basic income support. plus of 7.2 percent of GDP in 2021. FIGURE 1 South Africa / Real GDP and employment FIGURE 2 South Africa / Actual and projected poverty rates and real GDP per capita In percent of Q1 2020 value Poverty rate (%) Real GDP per capita (constant LCU) 106 80 82000 103 70 80000 100 60 78000 97 50 76000 94 40 74000 91 30 72000 88 20 70000 85 10 68000 Sep-19 Jan-20 Sep-20 Jan-21 Sep-21 Jul-19 Jul-20 Jul-21 Mar-19 Nov-19 Mar-20 Nov-20 Mar-21 May-19 May-20 May-21 0 66000 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 International poverty rate Lower middle-income pov. rate Real GDP Employment Upper middle-income pov. rate Real GDP pc Sources: Stats SA, World Bank. Source: World Bank. Notes: see table 2. MPO 284 Apr 22 South Africa’s inflation rate has been rising 2024. To mitigate theses social impacts, but pressures have been more muted than Government has extended the Social Relief in other emerging countries, with inflation Outlook of Distress grant (“COVID-19” grant) pro- expectations well anchored within the vided to unemployed working-age adults Central Bank’s target band of 3-6 percent. Hampered by persistent structural con- by another year, for an estimated cost of Average inflation reached 4.6 percent last straints, GDP growth is expected to slow R44 billion. year while core inflation was 3.1 percent. down to 2.1 percent in 2022 and to average Despite recent improvements, South This allowed the South African Reserve 1.7 percent over the medium term. Weak Africa’s public finances remain in a dif- Bank (SARB) to maintain an accommoda- investment, electricity shortages, transport ficult situation. The revenue performance tive monetary policy stance. It only started and logistical costs, and bottlenecks con- is expected to be temporary. The govern- hiking the key repo rate end-2021. After tinue to weigh on economic activity. Im- ment has an ambitious consolidation plan, three 25 basis points increases, the mone- portant long-standing steps were taken which mostly relies on controlling the pub- tary policy rate stands at 4.25 percent. last year, including the increase in the li- lic sector wage bill. Slippages coming from Boosted by higher growth and commod- censing threshold for embedded electricity pressures from the wage bill, financially ity prices, fiscal revenue outperformed generation. However, more needs to be distressed SOEs, and social protection budget forecasts. Tax revenue is estimat- done to stimulate private investment and would put fiscal sustainability at risk. This ed at R1.55 trillion for fiscal year 2021, job creation. Inflation is projected at 5.5 would also crowd-out developmental ex- R182 billion more than in the budget percent in 2022, before returning to the penditure, as debt service costs are already (+2.9 percent of GDP). This windfall has SARB target rate in 2023-2024. the fastest spending category and repre- been used to increase spending, notably Unemployment is expected to remain el- sent about 15 percent of total spending. R38 billion (about 0.6 percent of GDP) to evated, projected at 33.4 percent in 2022, Prioritizing the allocation of limited re- mitigate the persistent effects of the pan- which will limit the potential for progress sources where they can have the highest demic after the July unrest, and to reduce on poverty and inequality. The upper-mid- impact will be critical to balance fiscal sus- the fiscal deficit, now projected at 5.8 per- dle-income-country poverty rate is esti- tainability and developmental needs. cent of GDP (against 7.8 percent of GDP mated to reach 58.6 percent this year and in the last MPO). decline only marginally to 58.3 percent in TABLE 2 South Africa / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.1 -6.4 4.9 2.1 1.5 1.8 Private Consumption 1.1 -6.5 5.7 3.0 2.8 2.4 Government Consumption 2.7 1.3 0.0 -0.9 -1.6 0.6 Gross Fixed Capital Investment -2.4 -14.9 2.0 5.5 4.4 4.4 Exports, Goods and Services -3.4 -12.0 9.9 2.5 2.5 3.0 Imports, Goods and Services 0.5 -17.4 9.4 6.0 5.0 5.0 Real GDP growth, at constant factor prices 0.1 -5.9 4.8 2.1 1.5 1.8 Agriculture -6.3 13.4 8.3 2.5 2.5 2.5 Industry -1.7 -12.6 6.2 1.6 1.2 1.2 Services 0.9 -4.3 4.2 2.3 1.6 2.0 Inflation (Consumer Price Index) 4.1 3.3 4.6 5.5 4.3 4.5 Current Account Balance (% of GDP) -2.6 2.0 3.7 0.4 -1.0 -1.5 Net Foreign Direct Investment (% of GDP) 0.5 1.5 9.5 0.4 0.5 0.5 Fiscal Balance (% of GDP) -5.1 -10.0 -5.8 -6.2 -5.9 -5.5 Debt (% of GDP) 57.4 70.7 69.1 73.7 76.6 78.4 Primary Balance (% of GDP) -1.5 -5.8 -1.4 -1.5 -0.9 -0.3 a,b International poverty rate ($1.9 in 2011 PPP) 19.4 21.4 20.5 20.3 20.3 20.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 38.2 40.8 39.6 39.4 39.3 39.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 57.7 59.8 58.8 58.6 58.5 58.3 GHG emissions growth (mtCO2e) 4.5 0.9 3.1 1.4 0.3 0.1 Energy related GHG emissions (% of total) 83.8 83.8 84.4 84.3 84.1 83.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2014-LCS. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2014) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 285 Apr 22 2.3 million South Sudanese remain refugees hosted in neighboring countries. SOUTH SUDAN Key conditions and While the signing of the 2018 peace deal started to bring positive economic out- challenges comes in FY2018/2019, the COVID-19 pan- demic and natural disasters halted this Table 1 2021 South Sudan is at a crossroads in its re- positive dynamic. With lower oil exports, Population, million 11.4 covery, reconstruction, and development government revenues, and disrupted agri- GDP, current US$ billion 5.0 path. Having gained independence in cultural production, the economy contract- GDP per capita, current US$ 437.3 2011 in what was expected to be a new ed by an estimated 5.1 percent in FY2020/ a 76.5 International poverty rate ($1.9) dawn for the conflict-torn country, op- 21, while 4 in 5 individuals remain under a 91.7 timism was high on the back of high the international poverty line. Going for- Lower middle-income poverty rate ($3.2) a 97.8 commodity prices, abundant natural re- ward, strengthening service delivery insti- Upper middle-income poverty rate ($5.5) Gini index a 44.2 sources, and international goodwill. tutions, governance, and economic and School enrollment, primary (% gross) b 73.0 However, weak institutions and recurring public financial management systems will b 57.8 cycles of conflict have curtailed progress. prove critical as the country seeks to build Life expectancy at birth, years Initial peace efforts proved futile as suc- resilience to future shocks, providing Total GHG Emissions (mtCO2e) 71.0 cessive peace agreements collapsed and building blocks for a diversified, inclusive, Source: WDI, Macro Poverty Outlook, and official data. the country relapsed to conflict in 2013 and sustainable growth path. a/ Most recent value (2016), 2011 PPPs. b/ WDI for School enrollment (2015); Life expectancy and again in 2016. The conflict precipitat- (2019). ed a macroeconomic crisis and economic decline with widening fiscal deficits, high and persistent inflation, and spiraling for- Recent developments South Sudan’s recovery is constrained by eign exchange rate premia. Oil produc- falling oil production and climate shocks. tion plummeted and did not recover to South Sudan faced significant head- pre-independence levels. winds in FY2020/21, with the pandemic, Consequently, the economy is projected to Consequently, a decade after indepen- floods, and violence flareups affecting contract by 0.8 percent in FY2021/22 de- dence, South Sudan remains caught in a economic activities. Consequently, the spite higher oil prices. Food insecurity de- web of fragility, economic stagnation, and economy is estimated to have contracted teriorated, and poverty is estimated to in- instability. Due to this fragility, real house- by 5.1 percent in FY2020/21 and poverty hold incomes declined and living stan- to increase by 2.3 percentage points. crease for the second consecutive year, dards deteriorated. Poverty and food in- Oil production declined by 0.3 percent, reaching 80 percent in FY2021/22. Liv- security remain major concerns and have as floods affected production and the ing conditions continue to be impacted by been reinforced by inadequate provision of COVID-19 pandemic delayed new in- violence, displacement, climate shocks, services, infrastructure deficits, displace- vestments to replace exhausted wells. In and inadequate service delivery. ment, and recurring climatic shocks. In the agriculture sector, cereal production 2021, there were 2 million internally dis- declined by 4 percent as flooding pre- placed persons in the country (55 per cent cipitated estimated losses of 38,000 tons of whom were women and girls), as com- of cereals and 800,000 livestock accord- pared to 1.7 million in 2020. An additional ing to FAO estimates. These events had FIGURE 1 South Sudan / Exchange rate developments FIGURE 2 South Sudan / Actual and projected poverty rates and real GDP per capita SSP/USD Percent Poverty rate (%) Real GDP per capita (constant LCU) 700 300 120 3500 600 250 3000 100 500 2500 200 80 400 2000 150 60 300 1500 40 100 1000 200 20 500 100 50 0 0 0 0 2009 2011 2013 2015 2017 2019 2021 2023 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 International poverty rate Lower middle-income pov. rate Spread, % (rhs) Official XR (lhs) Parallel XR (lhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 286 Apr 22 detrimental effects on household wellbe- percent in FY2020/21 from 20.3 percent in use of budgetary resources, are vital to ing as flooding was concentrated in ar- FY2019/20. South Sudan remains at a high create opportunities for the achievement eas that were already facing high levels risk of debt distress for both external and of faster and more inclusive growth. of food insecurity. overall public debt. High frequency data indicate that food Inflation averaged 43 percent in FY2020/ prices started increasing in February 2022. 2021 (compared to 33 percent in FY2019/ Nevertheless, inflation is expected to de- 2020) but was on a declining path in cline gradually over the medium term the first half of FY2021/2022. According Outlook and will benefit from improved fiscal and to official CPI data, the 12-month infla- monetary discipline, exchange rate mar- tion rate for Juba declined to 1.6 per- South Sudan’s economy is projected to ket liberalization, and deepening public cent in December 2021, from a peak of contract by 0.8 percent despite higher financial management reforms. Non-oil 93.8 percent in January 2021. This brings oil prices and improving macroeconomic tax revenue performance is projected at some degree of relief to households amid conditions in FY2021/22. These devel- 3.2 percent of GDP in FY2021/22, higher stalled disposable incomes. These pos- opments reflect falling oil production, than the 2.6 percent of GDP contained in itive developments are consistent with which is projected to decline by 7.2 per- the FY2021/22 budget, reflecting the Na- recent reform efforts. The premium be- cent in FY2021/22, and the impact of cli- tional Revenue Authorities’ efforts to ex- tween the official and parallel exchange mate shocks on agriculture. Neverthe- pand the tax base and the implementa- rates has been eliminated in 2021 and less, higher budget revenues are expect- tion of a range of measures to strengthen monetization of the fiscal deficit has ed to support domestic demand, with its tax administration functions. ceased since September 2020. growth in the services sector project- The fiscal deficit could narrow to 2.5 per- The FY2021/22 budget includes a fiscal sur- ed to recover to 4.7 percent in FY2021/ cent of GDP in FY2021/22 from an esti- plus equivalent to 1.1 percent of GDP, re- 22 from a contraction of 9.7 percent in mated 6.9 percent of GDP in FY2020/21, flecting a large planned fiscal adjustment previous year. Over the medium-term, on the back of a strong recovery of inter- from an estimated fiscal deficit of 6.9 per- growth could average around 2.5 – 4.0 national oil prices. In parallel, the current cent realized in FY2020/21. However, the percent, with developments in the non- account is expected to record a surplus of financing gap in the FY2021/22 budget is oil sectors and a recovery in consump- 0.3 percent of GDP in FY2021/22, from a estimated at 1.8 percent of GDP, despite a tion being the main contributing fac- deficit of 5.5 percent in FY2020/21, reflect- budgetary drawdown of SDRs equivalent tors. Poverty, in turn, is expected to re- ing higher oil export revenues, lower fi- to 2.7 percent of GDP. Due to higher oil ex- main stagnant at 80 percent in the com- nancial transfers to Sudan, and lower im- port values, lower financial transfers to Su- ing years. Successful implementation of port demand for capital projects especial- dan, and weaker import demand growth the ongoing public financial manage- ly in the oil sector. for capital projects, the current account ment reforms and macroeconomic sta- deficit is estimated to have narrowed to 5.5 bilization program, along with prudent TABLE 2 South Sudan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 9.5 -5.1 -0.8 2.5 4.0 Real GDP growth, at constant factor prices 3.2 9.5 -5.1 -0.8 2.5 4.0 Agriculture 9.9 6.0 -4.0 -1.3 2.1 3.4 Industry 20.9 27.5 -2.3 -4.0 0.9 3.1 Services -12.1 -9.6 -9.7 4.7 5.1 5.6 Inflation (Consumer Price Index) 63.6 33.3 43.1 24.0 16.0 12.1 Current Account Balance (% of GDP) -6.3 -20.3 -5.5 0.3 2.8 1.2 Net Foreign Direct Investment (% of GDP) -1.7 -0.4 0.9 0.9 0.8 2.1 Fiscal Balance (% of GDP) -1.0 -9.8 -6.8 -2.6 -1.8 -3.5 Debt (% of GDP) 32.7 40.7 57.6 53.7 49.2 44.9 Primary Balance (% of GDP) -0.5 -7.8 -4.4 -0.5 -0.2 -2.4 a,b International poverty rate ($1.9 in 2011 PPP) 79.6 77.0 79.3 80.2 80.2 79.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 92.9 91.9 92.7 93.1 93.0 92.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 98.3 97.9 98.2 98.4 98.4 98.3 GHG emissions growth (mtCO2e) 1.3 0.5 1.9 3.9 6.5 10.7 Energy related GHG emissions (% of total) 2.4 2.1 1.8 1.6 1.3 1.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2016-HFS-W3.Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 287 Apr 22 term. Priority policy actions should focus on saving lives, protecting poor and vul- TANZANIA Key conditions and nerable households, attracting new foreign and domestic investment, supporting an challenges employment-intensive and resilient recov- ery, and expanding the available fiscal Table 1 2021 Tanzania became a lower middle-income space while maintaining debt sustainabili- Population, million 61.4 country in July 2020 following a long ty. Achieving Tanzania’s development vi- GDP, current US$ billion 67.3 period of sustained income growth and sion of becoming a successful middle-in- GDP per capita, current US$ 1095.8 macroeconomic stability. In the last two come country by 2025 will require the gov- a 49.4 International poverty rate ($1.9) decades, GDP growth averaged 6.5 per- ernment to revise, strengthen, and expand a 76.8 cent annually and inflation remained low its existing efforts to support struggling Lower middle-income poverty rate ($3.2) a 91.8 while fiscal and current-account deficits firms while implementing structural re- Upper middle-income poverty rate ($5.5) Gini index a 40.5 remained manageable. Investment was a forms to address longstanding constraints School enrollment, primary (% gross) b 96.9 key driver of growth, with about three on private investment and women’s access b 65.5 quarters coming from private sources. In to economic opportunities. Life expectancy at birth, years recent years, however, private investment Total GHG Emissions (mtCO2e) 191.1 has declined with waning extractives FDI Source: WDI, Macro Poverty Outlook, and official data. and a more challenging business envi- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy ronment, including excessive bureaucra- Recent developments (2019). cy, high taxes, inadequate infrastructure, and skills shortages. High-frequency indicators suggest that eco- The poverty impact of economic growth has nomic activity is gradually recovering. The The Tanzanian economy is on a gradual waned in recent years. High population accommodation and restaurants, mining, recovery path. GDP growth increased growth, insufficient levels of education, low and electricity sectors drove a sharp re- agricultural productivity, and slow and un- bound of 5.2 percent in quarterly GDP dur- from 2.0 percent in 2020 to an estimat- even creation of more productive income ing Q3 2021. Leading indicators such as ce- ed 4.3 percent in 2021. As employment earning opportunities have hindered the in- ment production, electricity generation, and nonfarm business revenues recover, clusiveness of growth. The COVID-19 pan- private-sector credit, goods and services ex- the poverty rate should fall slightly in demic has further exacerbated these chal- ports, nonfuel goods imports, telecommu- lenges, reversing some of the gains in pover- nications, mobility, and tourist arrivals all 2022. Continued recovery hinges on eas- ty reduction achieved over the last decade, improved in 2021, though activity in most ing pandemic conditions and supportive especially in urban areas. The Tanzanian sectors remains below pre-pandemic levels. private sector policies, but faces risks government is implementing a nationwide Meanwhile, the preliminary findings from from an uncertain external environment. COVID-19 vaccination program, but the a recent survey suggest that by the end of Policy priorities should be to strengthen pace of vaccination remains slow. 2021, the proportion of heads of household The government will need to strengthen its indicating they were working was higher pandemic response while laying the than the pre-pandemic level by about 5 per- pandemic response in the short term while groundwork for inclusive private-sector- laying the groundwork for a private-sec- centage points, with stronger recovery for led growth. tor-led recovery over the medium-to-long men than for women. As a result, the World FIGURE 1 Tanzania / Real GDP growth forecasts under FIGURE 2 Tanzania / Actual and projected poverty rates alternative scenarios and real GDP per capita Percent change Poverty rate (%) Real GDP per capita (constant LCU) 7 100 800 90 700 6 6.1 80 5.8 5.7 600 5.4 70 5.3 5 60 500 4.3 50 400 4 40 300 30 3 200 20 10 100 2 2.0 0 0 2009 2011 2013 2015 2017 2019 2021 2023 1 International poverty rate Lower middle-income pov. rate 2018 2019 2020 2021e 2022p 2023p 2024p Upper middle-income pov. rate Real GDP pc Sources: World Bank Staff Estimates and Projections (2018-2024). Source: World Bank. Notes: See table 2. MPO 288 Apr 22 Bank estimates a real GDP growth rate of 4.3 is estimated to have declined marginally result in inflationary pressures and ex- percent. Inflation remained low and stable from 27.1 percent in 2020 to 27.0 percent panded current and fiscal deficits. An ac- averaging 3.7 percent in 2021 but increased in 2021, driven by the recovery of employ- celerated domestic vaccination program, to 4.0 in January 2022, largely driven by ment and agricultural growth. increased regional trade and cooperation, higher energy prices. and policy reforms designed to improve Tanzania’s current-account deficit has the business environment and support the widened slightly to 2.0 percent of GDP at growth of the private sector have some- end-September 2021, as imports grew Outlook what mitigated downside risks, but the faster than exports. The current-account emergence of new coronavirus variants, deficit was funded largely by external Tanzania’s real GDP growth rate is project- reduced capital flows, elevated debt levels, loans and, and to a lesser extent, by foreign ed to reach 5.3 percent in 2022 assuming persistent inflationary pressures, supply direct investment. The Tanzanian shilling continued easing of pandemic conditions bottlenecks, and the Russia invasion and remained relatively stable against the cur- and implementation of supportive policies associated sanctions continue to threaten rencies of major trading partners in 2021. for the private sector, but risks from an un- the projected recovery. Gross official reserves increased to about certain external environment have in- The international poverty rate is projected US$6.7 billion by end-October 2021. creased. The current-account deficit is pro- to fall by more than a percentage point to The fiscal deficit, which was largely fund- jected to widen to 3.9 percent of GDP in 2022 48.6 percent in 2021 and drop to below the ed by increased domestic borrowing, ex- due to rising imports (capital goods and oil), pre-crisis level. But to sustainably reduce panded to 4.2 percent of GDP in 2020/21 as which will more than offset an expected in- poverty, and lower the number of poor a result of significant shortfalls in revenue. crease in exports. The fiscal deficit is project- people, the recovery must create more The public and publicly guaranteed debt ed to widen to 3.7 percent of GDP in 2022, jobs, including for low-skilled workers, en- stock remained relatively low at US$29.6 driven by pandemic-related public spend- able small enterprises growth, and foster billion (40.6 percent of GDP) in October ing and the implementation of several ma- productivity of agriculture, on which 2021 and interest payment consumes jor capital projects, including SGR and the three-quarters of poor households depend. about 12 percent of domestic revenue. The Nyerere Hydro Power Project. Inflation driven by higher energy and latest joint IMF-World Bank Debt Sustain- Under alternative scenarios, real GDP is grain prices caused by the Russia-Ukraine ability Analysis, conducted in September expected to grow by between 4.5 and 5.5 crisis could undermine purchase power, 2021, concluded that Tanzania’s risk of ex- percent in 2022, below its long-run poten- with the poor and the urban consumers ternal debt distress had increased from tial growth rate of about 6 percent. Tanza- being particularly vulnerable to food price low to moderate. nia’s vulnerability to the global pandem- rises putting poverty reduction at risk. The The GDP per capita growth rate is estimat- ic remains high amid the slow vaccination government will need to carefully monitor ed at 1.3 percent in 2021, following a 1.0 rollout. Additionally, the Russia-Ukraine the impact of price rises on low-income percent of per capita GDP contraction in conflict would affect Tanzania through the groups and expand the TASAF social safe- 2020. Meanwhile, the national poverty rate commodity prices channel, which could ty net to affected population groups. TABLE 2 Tanzania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.8 2.0 4.3 5.3 5.7 6.1 Private Consumption 3.1 1.0 3.9 5.2 3.9 3.5 Government Consumption 2.3 7.4 10.9 6.2 3.6 3.3 Gross Fixed Capital Investment 8.0 2.4 7.5 8.2 8.0 8.9 Exports, Goods and Services 19.0 -8.6 2.2 5.2 7.5 7.6 Imports, Goods and Services -1.4 -7.6 13.3 12.6 6.3 5.2 Real GDP growth, at constant factor prices 5.8 2.0 4.3 5.3 5.7 6.1 Agriculture 3.5 3.1 3.5 3.8 4.1 3.9 Industry 10.3 2.5 6.5 7.6 8.2 8.6 Services 4.2 0.9 3.0 4.4 4.6 5.4 Inflation (Consumer Price Index) 3.5 3.4 3.7 4.5 4.2 4.0 Current Account Balance (% of GDP) -2.3 -1.6 -2.9 -3.9 -3.6 -3.1 Net Foreign Direct Investment (% of GDP) 2.0 1.1 1.0 1.3 1.4 1.6 Fiscal Balance (% of GDP) -2.2 -2.0 -3.5 -3.7 -3.2 -2.5 Debt (% of GDP) 38.3 38.7 38.8 39.0 39.1 38.8 Primary Balance (% of GDP) -0.5 -0.3 -1.7 -1.9 -1.3 -0.6 a,b International poverty rate ($1.9 in 2011 PPP) 49.3 50.4 49.8 48.6 48.0 47.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 76.7 77.5 77.1 76.3 75.8 75.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 91.8 92.1 92.0 91.6 91.4 91.3 GHG emissions growth (mtCO2e) 3.0 2.5 3.1 2.9 3.3 3.2 Energy related GHG emissions (% of total) 21.3 21.9 22.7 23.2 23.7 24.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-HBS. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 1 based on private consumption per capita in constant LCU. MPO 289 Apr 22 Despite the ongoing recovery, the Ukraine conflict could further increase TOGO Key conditions and food/fertilizer and energy price inflation and is a threat to poverty reduction and challenges could lead to increased social tensions. According to a household survey realized Table 1 2021 Togo experienced a robust economic by the National Statistics Office, over 30 Population, million 8.5 growth prior to the COVID-19, but with percent of Togolese households were un- GDP, current US$ billion 8.0 only limited impacts on living standards able to access main staple foods when GDP per capita, current US$ 940.1 and poverty. Growth averaged 5 percent needed, with poor and rural households a 24.1 International poverty rate ($1.9) between 2017-19 (2.4 percent in per capi- disproportionately affected (40 percent of a 51.8 ta terms), driven by private investment the poor and 43 percent of the rural Lower middle-income poverty rate ($3.2) a 78.0 as the business climate improved. Pru- households). Heightened regional insecu- Upper middle-income poverty rate ($5.5) National GINI (2018/19) 38.1 dent fiscal management underpinned rity could trigger higher security spend- School enrollment, primary (% gross) b 126.3 growth and helped reduce debt vulnera- ing and increase fragility in the north. b 61.0 bilities. However, growth did not trans- Other risks include domestic debt vulner- Life expectancy at birth, years late into higher living standards, i.e. ac- abilities and weather shocks, which could Total GHG Emissions (mtCO2e) 9.9 cess to electricity and safe drinking water negatively affect agricultural production. Source: WDI, Macro Poverty Outlook, and official data. were 52.2 percent and 60.3 percent re- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy spectively in 2018/19, whereas in rural ar- (2019). eas these were only 27.2 percent and 44.5 percent, respectively. Recent developments COVID-19 disrupted growth, fiscal con- Growth rebounded to pre-crisis levels in solidation, and poverty reduction. It After decelerating to 1.8 percent in 2020, 2021, reflecting health measure rollbacks heightened the urgency to deal with ma- growth rebounded in 2021 to 5.1 percent jor development challenges and to revert (2.7 percent per capita). The global eco- and a global recovery. Growth is expect- toward the WAEMU fiscal target to con- nomic recovery enabled export expansion, ed to stabilize in 2022 and strengthen tain debt vulnerabilities. Structural re- and domestic activity rebounded follow- in the medium term, supported by in- forms to improve infrastructure, notably ing containment measure abatements. Pri- vestment and consumption, while pover- in energy and telecommunications, gov- vate consumption picked-up, benefitting ernance and customs procedures would from increases in business activity and la- ty should decline. New debt manage- help Togo harness its potential as a trans- bor income (6.5 percent). Growth was par- ment and revenue mobilization measures port and logistics hub. Digital technology tially offset by rising inflation, at 4.3 per- should create fiscal space. Risks include also presents untapped opportunities for cent in 2021, as higher consumption de- slower global growth and higher infla- innovation in key economic sectors de- mand and supply chain disruptions raised tion due to the impact of the Ukraine spite large inequalities in access: the share food and energy prices. of the population aged 15 years or older The current account deficit widened to conflict, regional insecurity, debt vul- 3.2 percent in 2021, more than doubling with access to the internet was 6 percent nerabilities, and climatic shocks. and 35 percent, respectively, among the its 2020 level. Increases in imports out- poor and the nonpoor. paced exports due to import growth FIGURE 1 Togo / Evolution of fiscal indicators FIGURE 2 Togo / Actual and projected poverty rates and real GDP per capita Government balance (Percent of GDP) Public debt (Percent of GDP) Poverty rate (%) Real GDP per capita (constant LCU) 2 66 100 700000 1 64 90 600000 0 80 62 -1 70 500000 -2 60 60 400000 -3 58 50 40 300000 -4 56 -5 30 200000 54 -6 20 100000 -7 52 10 -8 50 0 0 2019 2020 2021 2022 2023 2024 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 International poverty rate Lower middle-income pov. rate Fiscal Balance (lhs) Primary Balance (lhs) Debt (rhs) Upper middle-income pov. rate Real GDP pc Sources: INSEED and World Bank staff estimates. Source: World Bank. Note: See table 2. MPO 290 Apr 22 from increasing domestic demand from some households into poverty: simulations WAEMU convergence criteria in 2024, with infrastructure projects and increases in show an increased poverty of about 4 per- delays to 2025 if additional expenditure re- private consumption. centage points, disproportionately affect- quirements materialize. Revenues should The fiscal deficit remained high at 6.5 per- ing urban populations. rise with GDP growth, supported by im- cent of GDP in 2021. Tax revenues re- provements in revenue management and bounded in 2021, reflecting an improve- tax holiday expirations. Total expenditure ment in economic conditions and new tax as a percent of GDP will decrease starting measures (digitalization of tax administra- Outlook in 2023, as counter-cyclical pandemic tion and tax registries), but remained be- spending winds-down. Public debt will low pre-crisis levels. Expansionary public Real GDP is projected to stabilize at 5 per- decrease to 64 percent of GDP in 2022, de- spending continued with the implementa- cent in 2022, 2.6 percent in per capita clining over the medium-term as growth tion of an ambitious investment program. terms, and accelerate over 2023-24. Down- outpaces a declining primary fiscal deficit, Reliance on external financing continues to ward revisions to the forecasts in 2022 to almost reach 60 percent in 2024. cover the fiscal deficit. Public debt in- mainly reflect the negative impacts of the WAEMU reserves will decrease to around creased from 60.3 percent of GDP in 2020 Ukraine conflict, through higher energy 5.5 months of imports in 2022 and 5.3 in to 64.7 percent in 2021. The risk of external and food prices, lower public investment 2023/24, reflecting fast growth in imports debt distress remains moderate, while the as authorities allocate more resources to and a reduction in net capital inflows (as a risk of overall debt distress was high. transfers to the poorest, and lower private percent of GDP), with uncertainty around Togo’s monetary and exchange rate poli- investment because of higher uncertainty. global monetary policy. Growth-friendly cies are managed by the BCEAO, which Growth should still be supported by the fiscal consolidation and implementation of maintains a peg between the CFA Franc “Togo 2025 Roadmap” public investments, structural reforms will be key to maintain- and the Euro. Reserves reached 5.8 before gradually giving way to private in- ing reserves at an optimal level. months of imports in 2021, due to a re- vestment following positive business cli- Extreme poverty declined to 22.4 percent covery in exports, an SDR allocation, and mate developments, but a changing global in 2021 (-0.9 percentage points from portfolio inflows. policy environment creates significant un- 2020), as food prices remain high. Ex- Poverty remains high and concentrated in certainty around the investment climate. treme poverty should decrease by one rural areas. The national poverty incidence The current account deficit will keep dete- percentage point to 21.4 percent in 2022 was 45.5 percent in 2018-19 (749.6 CFAF/ riorating, reaching 6.4 percent of GDP in and decrease in the medium-term, sup- day), while extreme poverty was 23.15 per- 2022, as rising import demand from in- ported by the scaling-up of Government cent (US$1.9 2011 PPP/day) in 2019. Pover- creased consumption and investment out- cash transfer programs. Inclusive service- ty projections estimate that extreme pover- paces export growth. sector programs and agricultural growth ty rate maintained at 23.2 percent between The fiscal deficit is projected to gradually will be needed for inclusive and sus- 2019 and 2020. Despite steady extreme decline from 5 percent of GDP in 2022. tained poverty reduction. poverty, the pandemic probably pushed Current forecasts indicate meeting the TABLE 2 Togo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 1.8 5.1 5.0 5.8 6.4 Private Consumption 3.0 -4.9 5.3 5.5 7.1 7.4 Government Consumption -2.9 21.1 6.4 0.2 7.0 8.9 Gross Fixed Capital Investment 20.2 13.7 8.9 12.9 2.7 2.5 Exports, Goods and Services 1.0 3.6 12.0 7.0 6.5 5.5 Imports, Goods and Services 1.2 4.1 13.8 10.5 6.9 6.1 Real GDP growth, at constant factor prices 4.4 1.9 5.1 4.9 5.9 6.4 Agriculture 1.9 4.0 6.0 5.6 3.6 5.9 Industry 6.5 0.8 6.8 7.3 5.6 7.3 Services 4.5 1.5 4.0 3.4 7.1 6.2 Inflation (Consumer Price Index) 0.7 1.8 4.3 6.0 4.0 2.0 Current Account Balance (% of GDP) -0.8 -1.5 -3.2 -6.4 -7.3 -6.3 Net Foreign Direct Investment (% of GDP) -4.2 -0.2 -0.3 -0.4 -0.5 -0.6 Fiscal Balance (% of GDP) -0.9 -6.9 -6.5 -5.0 -4.0 -3.1 Debt (% of GDP) 52.4 60.3 64.7 64.0 62.7 60.5 Primary Balance (% of GDP) 1.2 -4.6 -4.0 -2.6 -1.5 -0.6 a,b International poverty rate ($1.9 in 2011 PPP) 23.2 23.2 22.4 21.4 20.2 19.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 50.6 50.9 49.8 48.7 47.3 45.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 76.9 77.2 76.5 75.5 74.1 72.9 GHG emissions growth (mtCO2e) 1.9 1.4 3.3 3.6 4.2 4.4 Energy related GHG emissions (% of total) 29.7 27.8 26.6 25.4 24.3 23.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 291 Apr 22 which emphasizes infrastructure and has crowded out private sector borrow- UGANDA Key conditions and ing – needs to be replaced with one where the private sector drives growth. challenges The state can then provide support through a better balance of investments Table 1 2021 Compared to the strong performance in in human capital and infrastructure, Population, million 47.1 the 2000s, recent economic growth has alongside targeted regulations to pro- GDP, current US$ billion 34.6 slowed considerably. With reduced reform mote inclusive growth that reduces in- GDP per capita, current US$ 733.9 momentum, a less supportive external en- equality and ensures sustainability. The a 41.0 International poverty rate ($1.9) vironment, and other exogenous shocks prospects for this shift will also rely a 70.5 like droughts, growth since 2011 has bare- on maintaining macroeconomic stability; Lower middle-income poverty rate ($3.2) a 89.0 ly surpassed the high population growth better supporting the vulnerable, farm- Upper middle-income poverty rate ($5.5) Gini index a 42.7 rate. As a result, in the five years prior to ers, and small enterprises; increasing the School enrollment, primary (% gross) b 102.7 the COVID-19 crisis, per capita real GDP uptake of digital technologies; and more b 63.4 growth halved to 1.1 percent on average effective use of public resources. Life expectancy at birth, years per year. Total GHG Emissions (mtCO2e) 75.8 Structural transformation is key for Source: WDI, Macro Poverty Outlook, and official data. growth and poverty reduction. However, a/ Most recent value (2019), 2011 PPPs. b/ WDI for School enrollment (2017); Life expectancy most of the workforce remains in low pro- Recent developments (2019). ductivity jobs, and total factor productivity growth has been negative. Whereas the Uganda’s recovery slowed after the second services sector contributes to a large share COVID-19 wave and lockdown in Real GDP growth is expected to rise from of growth, many jobs are informal and mid-2021. Although Omicron introduced 3.4 percent in FY21 to 3.7 percent in low-skilled. Instead, the majority of the some uncertainty, the economy has since poor rely heavily on agriculture and re- rebounded, with the PMI increasing for FY22, as the economy reopens. The main vulnerable to climate change and the seventh successive month to a high of planned reduction in the fiscal deficit, to weather shocks. Although there were posi- 55.7 in February 2022. Economic condi- 3.5 percent of GDP by FY24, augurs well tive signs leading into the COVID-19 crisis tions continue to improve, buoyed by the for debt sustainability. Growth is expect- – including a decline in poverty, reduction reopening of schools, lifting of all mobility in the workforce employed in agriculture, restrictions, and a milder third wave of in- ed to average 5.7 percent in FY23 and take-off in agro-processing, and expansion fections. Over 5 of the 22 million target FY24, given the elevated trade, inflation, of the services sector – some of this has population (aged 18+) were fully vaccinat- and investment risks from the Russia- been reversed, and poverty and inequality ed by mid-February 2022. Ukraine crisis. Poverty should fall as in- have increased. Despite the economic rebound, inflation comes recover. As Uganda moves towards oil produc- has been modest, which has allowed the tion, achieving structural transformation central bank to maintain the policy rate at will require changing the growth model 6.5 percent to support the recovery. Lend- and role of the state. The current model ing rates remain high though, thereby of debt-financed public spending – slowing growth in private sector credit. An FIGURE 1 Uganda / Fiscal adjustment FIGURE 2 Uganda / Actual and projected poverty rates and real private consumption per capita Percent of GDP Percent of GDP Poverty rate (%) Real private consumption per capita (millions constant LCU) 16 60 100 3 14 90 50 12 80 2 40 70 10 60 2 8 30 50 6 40 1 20 30 4 10 20 1 2 10 0 0 0 0 2019 2020 2021 2022f 2023f 2024f 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 International poverty rate Lower middle-income pov. rate Public debt (rhs) Primary fiscal deficit (lhs) Tax (lhs) Upper middle-income pov. rate Real priv. cons. pc Sources: Ministry of Finance, Planning and Economic Development, and World Source: World Bank. Notes: see Table 2. Bank calculations. MPO 292 Apr 22 uptick in annual headline inflation to 3.2 significantly lower revenues for non-farm Inflationary and exchange rate pressures percent in February was anticipated, given household enterprises. may then induce monetary policy tight- the reopening of the economy and sudden ening, which would constrain the private increase in demand. sector recovery. Whilst gold imports and exports have The decline in the fiscal deficit will be dri- stalled in the first half of FY22 – due to Outlook ven by expenditure cuts (Figure 1), as mea- a new FY22 tax levy on gold exports – sures to enhance revenues will take longer coffee exports are up over 60 percent and Given a more positive COVID-19 and vac- to pay off. This adjustment will ultimately tourist receipts in early FY22 were ap- cine outlook, and the recent signing of the shift debt to a more sustainable path – proaching pre-COVID levels. This bodes final investment decision in the oil sector, peaking at around 54 percent of GDP in well for an improvement in the current growth was projected to accelerate to an FY23 – and limit private sector crowding account deficit compared to the sharp de- average of over 6 percent in FY23 and out. Nonetheless, debt vulnerabilities will terioration in FY21. FY24. Following Russia’s invasion of persist if spending pressures remain, new In line with government’s consolidation Ukraine, this average will likely drop to shocks arise, or reliance on non-conces- agenda, the fiscal deficit has narrowed to below 6 percent and possibly lower, given sional and/or domestic debt continues. an estimated 5 percent of GDP in the first the trade disruptions, higher commodity Even with stronger growth in the medium- half of FY22, driven by cuts to lower pri- prices, and increased risk aversion that term, per capita GDP will remain below ority recurrent spending (e.g. travel and may slow investments. Costlier inputs (e.g. the NDPIII target. As a result, zero growth workshops) and delaying investments that fertilisers and transport) will also pose is projected in private consumption per are not critical or ready. challenges for agricultural production, capita, which will keep the international With lower consumption growth – due to food security, and household incomes that poverty rate at about 41 percent in 2022. reduced remittances, limited credit, and are still recovering. Accelerated growth may reduce poverty to job losses – poverty increased from 27.5 The combination of pent-up domestic de- 39.3 percent by 2024, but this will depend to 32.7 percent (using Uganda’s official mand – as economic activity picks up – on how COVID-19 evolves, how long Rus- upper poverty line) after the first lock- and increasing commodity prices will ex- sia’s invasion continues, the pace of food down in 2020. Employment rates fell ert additional pressures on prices, which inflation, and any environmental shocks again after the second lockdown, accom- could raise inflation above the official that adversely affect households due to panied by increased food insecurity and target of 5 percent over the next year. their limited adaptive capacity. TABLE 2 Uganda / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.4 3.0 3.4 3.7 5.1 6.5 Private Consumption 5.9 2.0 4.2 2.8 4.4 4.6 Government Consumption 6.9 7.9 6.1 0.9 -0.6 0.7 Gross Fixed Capital Investment 9.9 -0.1 5.1 4.1 7.0 10.5 Exports, Goods and Services 6.3 -1.2 2.6 11.1 12.4 13.3 Imports, Goods and Services 8.6 -5.4 8.6 5.3 8.4 8.6 Real GDP growth, at constant factor prices 6.4 3.0 3.4 3.7 5.1 6.5 Agriculture 5.2 4.6 3.8 3.4 3.6 4.0 Industry 9.0 3.1 3.4 2.6 6.8 7.9 Services 5.6 2.2 3.3 4.6 4.9 6.9 Inflation (Consumer Price Index) 2.6 2.3 2.5 3.7 6.0 5.0 Current Account Balance (% of GDP) -7.1 -6.7 -10.2 -8.2 -7.9 -7.0 Net Foreign Direct Investment (% of GDP) 3.5 2.6 2.1 2.5 2.7 3.3 Fiscal Balance (% of GDP) -4.9 -7.1 -9.5 -7.5 -4.7 -3.5 Debt (% of GDP) 36.6 40.4 49.6 52.5 53.5 52.4 Primary Balance (% of GDP) -2.8 -4.8 -6.8 -4.4 -1.9 -0.7 a,b International poverty rate ($1.9 in 2011 PPP) 41.0 41.5 41.1 41.0 40.3 39.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 70.5 71.0 70.6 70.6 70.1 69.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 89.0 89.2 89.1 89.1 88.9 88.5 GHG emissions growth (mtCO2e) 2.5 1.8 2.8 3.9 4.0 4.1 Energy related GHG emissions (% of total) 31.9 31.3 31.0 31.4 31.9 32.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2019-UNHS.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 293 Apr 22 of these significant economic reforms, in- cluding to improve the efficiency and in- ZAMBIA Key conditions and clusiveness of public spending and pro- moting a private sector-led and export- challenges oriented growth path. To bear fruits on debt sustainability and growth, these re- Table 1 2021 The Zambian economy remains structural- form efforts will need to be complement- Population, million 18.9 ly fragile and vulnerable to external ed by comprehensive and timely debt re- GDP, current US$ billion 21.2 shocks. The economy was already weak structuring. In early 2021, Zambia asked GDP per capita, current US$ 1120.6 before the COVID-19 crisis, with declining for debt treatment under the G-20 Com- a 58.7 International poverty rate ($1.9) growth, increasing inflationary pressures, mon Framework (CF) to help restore a 75.4 a tightening fiscal space and weak external public debt to sustainable levels. Lower middle-income poverty rate ($3.2) a 88.1 balances. The public-investment-led Upper middle-income poverty rate ($5.5) Gini index a 57.1 growth model that relied heavily on debt School enrollment, primary (% gross) b 98.7 financing did not deliver sustained eco- Life expectancy at birth, years b 63.9 nomic growth or poverty reduction. As a Recent developments result, Zambia’s public debt became un- Total GHG Emissions (mtCO2e) 99.2 sustainable by 2019. The onset of the Economic activity picked up in 2021 with Source: WDI, Macro Poverty Outlook, and official data. COVID-19 crisis unraveled these structural GDP growth at an estimated 3.6% per an- a/ Most recent value (2015), 2011 PPPs. b/ WDI for School enrollment (2017); Life expectancy weaknesses and amplified existing macro- num, reflecting recovery from initial (2019). economic vulnerabilities. The country has COVID-19 shocks and lockdown mea- had persistently high poverty rates. Pover- sures, post-election market confidence, ty in Zambia is concentrated in rural areas and improved global copper price outlook. The Zambian economy grew by an esti- – where 80% of the poor reside. In contrast, Monetary policy stance tightened by a cu- mated 3.6% in 2021 following a 2.8% the recent surge following the COVID-19 mulative 100 basis points during the year, pandemic has disproportionately come as the central bank balanced between re- recession in 2020; bolstered by firmer from urban households. sponding to persistently high inflationary copper prices, favorable external de- The key challenge for Zambia is to re- pressures and weak aggregate demand. mand, good rainfall, and post-election store macroeconomic stability and debt Despite stronger revenue performance, market confidence. However, poverty re- sustainability and to return to an eco- the fiscal outturn was more expansion- nomic growth path that uplifts more ary than planned, resulting in a deficit mained high, at about 60%, reflecting Zambians out of poverty. Resolving the (on cash basis) of over 10% of GDP. the impact of the COVID-19 crisis. severe macroeconomic imbalances that Domestic revenues performed better on The medium-term outlook, while posi- built up over the past decade and cul- account of favorable copper prices and tive, faces downward risks from pro- minated into a debt crisis will require improved non-tax revenue collection. longed debt negotiations, low a combination of ambitious fiscal adjust- However, this was outweighed by ex- ment, structural fiscal reforms, and public penditure overruns in the run-up to the COVID-19 vaccination rates, and the elections, including in goods and ser- debt restructuring. The new administra- impact of the Russia-Ukraine war. tion, elected to office in August 2021, vices, and agriculture and fuel subsi- has shown willingness to undertake some dies. The large deficit was financed by FIGURE 1 Zambia / Developments in the current account FIGURE 2 Zambia / Actual and projected poverty rates and balance (2013-21) real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 60 100 8500 50 95 8000 90 40 85 7500 30 80 7000 20 75 70 6500 10 65 6000 0 60 5500 -10 55 2013 2014 2015 2016 2017 2018 2019 2020 2021 50 5000 Export of goods Imports of goods 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Copper exports Non-traditional exports International poverty rate Lower middle-income pov. rate Current account Upper middle-income pov. rate Real GDP pc Sources: Zambian authorities and World Bank staff estimates and projections. Source: World Bank. Notes: see table 2. MPO 294 Apr 22 further accumulation of domestic arrears holds reported a drop-in income from from inefficient subsidies to more social and increased domestic borrowing. nonfarm business, and that 1 in 3 report- spending (education, health, and social On the external sector, strong growth in ed a reduction or disappearance of wages protection), and bringing public services exports outpaced the rebound in imports due to the pandemic. Job losses have been closer to the communities. Implementation resulting in a large trade surplus and a cur- particularly severe in the tourism, manu- of structural reforms aimed at removing rent account surplus of 7.7% of GDP in facturing, and services sectors. Food secu- market distortions and bringing financial 2021. The Kwacha appreciated by 21% in rity indicators are also of increasing con- sustainability in the energy sector (electric- 2021, reflecting an improved reserve po- cern. A recent Socio-economic Impact As- ity and petroleum), improving transparen- sition from the new IMF SDR allocation, sessment conducted by the National Sta- cy, and fighting corruption, will also be high post-election consumer and investor tistical Office found that 9 in 10 house- critical to achieving this growth path. It confidence, and increased portfolio in- holds have experienced spikes in the also assumes normal rainfall patterns and flows from non-resident holders of domes- price of food, and that 64% of these had timely completion of the debt restructur- tic sovereign debt. However, the continued to reduce food consumption as a result. ing process. The pace of poverty reduction, weak fiscal position saw Zambia continue however, is expected to remain slow. At to accumulate external debt service ar- current growth rates, the poverty rate will rears, which amounted to $1.8 billion at fall by less than a percentage point by 2024. end-September 2021. Outlook Risks to the baseline outlook are tilted The effects of the pandemic on poverty downwards. A sustained upward trajecto- and vulnerability have continued in 2021. Growth is projected to pick up over the ry in global copper prices will boost cop- After an estimated 1.5 percentage point medium-term, averaging 3.8% in 2022-24, per production, domestic revenue, and ex- increase in the international poverty rate buoyed by an improved macroeconomic ternal stability. However, delays in con- between 2019 and 2020, the poverty head- environment; a positive copper price out- cluding the debt restructuring process and count is projected to have remained stag- look and stable and predictable mining risks of any COVID-19 resurgence given nant at 60% in 2021, with GDP per capita policy environment; and improved elec- the low vaccination rates could dampen growth projected to be at only 0.7% in tricity supply supported by new genera- market confidence and perpetuate an un- 2021. The rise in poverty has been largely tion capacity at Kafue Gorge. The outlook certain economic environment. Moreover, driven by falling incomes in urban areas, is anchored on government’s implementa- the impact of the Russia-Ukraine war on especially among those relying on em- tion of the macro-fiscal reforms outlined global oil and fertilizer prices presents key ployment income from the informal sec- in its 2022-24 medium-term budget plan, risks to Zambia’s economic recovery and tor. A World Bank Household Monitoring aimed at restoring fiscal sustainability and reform efforts. phone survey found that 4 in 5 house- credibility, re-orienting expenditure away TABLE 2 Zambia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.4 -3.0 3.6 3.3 3.6 4.0 Private Consumption 2.3 3.1 3.6 4.5 4.5 4.5 Government Consumption -10.1 10.8 3.6 -6.1 13.7 7.2 Gross Fixed Capital Investment -14.3 -35.8 -15.9 44.0 6.6 2.4 Exports, Goods and Services -7.2 10.7 24.3 -3.9 6.9 6.9 Imports, Goods and Services -13.7 -10.7 17.4 14.3 13.1 7.5 Real GDP growth, at constant factor prices 1.5 -2.5 3.6 3.3 3.6 4.0 Agriculture 7.7 17.2 14.2 3.0 4.0 4.0 Industry -3.3 0.6 1.8 3.3 3.5 3.9 Services 3.5 -6.2 3.2 3.3 3.6 4.0 Inflation (Consumer Price Index) 9.1 15.7 22.1 13.0 10.0 9.7 Current Account Balance (% of GDP) 0.6 12.8 10.7 3.7 4.3 4.1 Net Foreign Direct Investment (% of GDP) -0.6 -1.1 1.9 2.4 2.3 2.1 Fiscal Balance (% of GDP) -9.6 -11.0 -10.3 -7.8 -5.5 -4.6 Debt (% of GDP) 87.8 86.2 77.6 74.9 99.2 114.2 Primary Balance (% of GDP) -5.6 -7.7 -7.0 -4.3 -2.9 -2.4 a,b International poverty rate ($1.9 in 2011 PPP) 58.6 60.1 59.9 59.9 59.7 59.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 75.3 76.4 76.2 76.2 76.0 75.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 88.0 88.8 88.6 88.6 88.6 88.5 GHG emissions growth (mtCO2e) -1.8 2.0 3.2 2.6 2.9 2.6 Energy related GHG emissions (% of total) 11.6 11.5 10.8 10.6 10.8 11.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2015-LCMS-VII. Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2015) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 295 Apr 22 (42 percent). Inequality has also increased over the last decade, with the Gini coeffi- ZIMBABWE Key conditions and cient increasing from 42 in 2011 to 50.3 in 2019 – among the highest in the world. Un- challenges employment remained high at 19.1 percent in 2021. Table 1 2021 Macroeconomic challenges and natural In addition to further efforts to solidify Population, million 15.1 disasters have kept Zimbabwe’s growth macroeconomic stability, Zimbabwe’s re- GDP, current US$ billion 26.2 volatile. High inflation, unstable exchange covery needs to be underpinned by poli- GDP per capita, current US$ 1737.2 rates, and unsustainable debt have con- cies promoting productivity growth. a 39.5 International poverty rate ($1.9) strained macroeconomic stability and pro- These policies would include reducing a 63.8 ductivity growth. Trade integration has state intervention in the economy, less- Lower middle-income poverty rate ($3.2) a 82.8 declined, and foreign direct investment ening the regulatory burden, strengthen- Upper middle-income poverty rate ($5.5) Gini index a 50.4 (FDI) remained low, limiting transfer of ing governance and anti-corruption ef- School enrollment, primary (% gross) b 97.3 new technologies and investment in mod- forts, lowering barriers to regional trade b 61.5 ernizing the economy. After almost three integration, and removing forex retention Life expectancy at birth, years years of droughts, favorable rains boosted requirements. Service delivery needs to Total GHG Emissions (mtCO2e) 116.1 economic growth in 2021, supporting the be strengthened and household vulnera- Source: WDI, Macro Poverty Outlook, and official data. recovery. Steps to stabilize prices and ex- bility reduced through robust social safe- a/ Most recent value (2019), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy change rates, as well as relaxation of ty net programs. (2019). COVID-19 restrictions, improved the envi- ronment for doing business. As a result, after two years of recession, Zimbabwe’s GDP growth is estimated to have re- economy is estimated to have grown by 5.8 Recent developments bounded to 5.8 percent in 2021, reflecting percent in 2021. The extreme poverty rate has increased The economy rebounded in 2021 driven an exceptionally good harvest and relative steadily between 2011 and 2020, only de- by recovery of agriculture and industry stabilization of prices. Disinflation poli- clining in 2021 following exceptionally and relative stabilization of prices and ex- cies were effective in bringing down infla- good harvest and disinflation policies. In- change rates. GDP is estimated to have tion to double digits for the first time in ternational poverty rate was 22 percent in grown by 5.8 percent in 2021 after con- 2011, and it was estimated to be 41 percent tracting by 6.2 percent in 2020. An excep- two years. As a result, poverty levels de- in 2021 and 40 percent in 2022. Although tionally good agriculture season, coupled clined. The economy is projected to con- poverty remains an overwhelmingly rural with slowing inflation and higher re- tinue to recover in 2022, albeit at a slower phenomenon, in recent years it has in- mittances boosted domestic demand. Re- pace, as agriculture conditions worsen creased relatively faster in urban areas, laxed pandemic restrictions, good vac- and food and fuel prices surge. leading to an urbanization of poverty. cination levels, and favorable terms of Zimbabwe’s international poverty rate trade supported stronger industrial pro- (PPP $1.90/person/day) was half the level duction and exports, with exports of min- in sub-Saharan African in 2011 but by 2019, erals expanding by over 51 percent in a it was on par with the rest of the continent year. A widening of the current account FIGURE 1 Zimbabwe / Exchange rates FIGURE 2 Zimbabwe / Actual and projected poverty rates and real GDP per capita ZWL$/US$ Poverty rate (%) Real GDP per capita (constant LCU) 250 90 16000 80 14000 200 70 12000 60 10000 150 50 8000 40 100 6000 30 20 4000 50 10 2000 0 0 0 2011 2013 2015 2017 2019 2021 2023 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 International poverty rate Lower middle-income pov. rate Official exchange rate Parallel market exchange rate Upper middle-income pov. rate Real GDP pc Sources: Zimstat and World Bank staff estimates. Source: World Bank calculations using data from Zimstat PICES surveys 2011, 2017 and mini-PICES 2019. MPO 296 Apr 22 surplus in 2021 and the SDR allocation harvest of 2021. There was also a marked cent in 2022 from double digit-growth in helped increase international reserves. improvement in food security, with the 2021 on the account of falling rain lev- Disinflation policies were effective in share of population in severe or moderate els and rising prices of key agriculture bringing down inflation in 2021. Inflation food insecurity falling from 61 to 38 per- inputs. Mining production and exports slowed from 838 percent in July 2020 to cent between March and November 2021. are expected to benefit from continuing 60.7 percent in December 2021. Monetary The lack of improvement in the extreme high international prices while tourism, policy was further tightened in the end of poverty rate in urban areas suggests that trade, and transport are likely to start 2021 and in early 2022 to calm inflationary despite the reopening of the economy and recovering with positive spillover effects pressures from continuing distortions in loosening of mobility restrictions, intermit- on other sectors of the economy. The the foreign exchange market and rising in- tent closures continue to affect employ- risks to the outlook are significant with ternational prices. ment, incomes, and livelihoods of urban heightened global risks as global growth Fiscal policy remained relatively tight, residents. Social assistance programs play slows down and uncertainty about the with most of the additional spending fi- a limited role in reducing poverty and vul- pandemic remains. Domestic risks also nanced by SDRs. The fiscal balance turned nerability due to their low coverage and weigh on growth performance and are into a cash deficit of 1.5 percent of GDP. lack of poverty focus in targeting. linked to climatic shocks, expansionary Procurement of vaccines and higher fiscal and monetary policy in the run spending on agriculture and public infra- up to the 2023 parliamentary elections structure contributed most to the fiscal that might undermine disinflation poli- deficit. Revenue collection improved, dri- Outlook cies and keep large distortions in the for- ven by better performance of corporate in- eign exchange market, thereby delaying come tax, VAT, and money transfer tax. The economy is projected to continue to economic recovery. Public indebtedness worsened further as recover in the medium term, amid down- Poverty levels are expected to further de- the government assumed RBZ’s legacy side risks. GDP is projected to grow by cline in 2022, albeit marginally. As condi- debt, adding over US$2.5 billion to exter- 3.7 percent in 2022 but slowdown in the tions for a good harvest deteriorate, prices nal arrears and external debt reached medium term as the positive base effects remain high, and the capacity of the social US$14.5 billion. diminish. The downward revision to the system to target and reach the poor with Poverty levels decreased, reflecting the growth outlook is based on worsening adequate social safety nets is constrained. bumper maize harvest of the 2021 season. agriculture conditions as well as global If inflation is not adequately managed, the After peaking at 43 percent, in 2020, inter- price increases and supply side disrup- purchasing power of incomes will be erod- national poverty rate fell to 41 percent in tions due to the conflict in Ukraine and ed, putting more people in or at risk of 2021. The decline in poverty is primarily associated sanctions on Russia. Agricul- poverty and delaying improvements in ba- driven by rural areas thanks to the bumper ture output is set to contract by 1.5 per- sic service delivery. TABLE 2 Zimbabwe / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -6.1 -6.2 5.8 3.7 3.6 3.6 Private Consumption -19.9 -5.2 11.6 3.3 3.4 3.5 Government Consumption -1.7 -2.0 3.0 4.3 5.5 4.4 Gross Fixed Capital Investment -9.0 -3.0 6.2 4.9 4.8 4.0 Exports, Goods and Services 29.7 1.6 6.0 3.3 3.2 3.4 Imports, Goods and Services -29.5 9.8 25.1 2.9 3.4 3.5 Real GDP growth, at constant factor prices -7.5 -6.6 5.8 3.7 3.6 3.6 Agriculture -17.8 4.2 17.2 -1.5 2.5 2.7 Industry -11.1 0.0 6.4 4.6 3.6 4.1 Services -2.1 -13.6 2.5 4.3 3.9 3.5 Inflation (Consumer Price Index) 255.3 557.2 98.5 72.0 44.0 34.0 Current Account Balance (% of GDP) 4.6 3.6 4.0 2.6 0.3 -0.7 Net Foreign Direct Investment (% of GDP) -1.2 -0.8 -0.4 -0.7 -0.5 -0.4 Fiscal Balance (% of GDP) 0.2 1.7 -1.5 -1.7 -2.0 -1.1 Debt (% of GDP) 94.8 109.7 88.4 81.6 78.3 76.3 Primary Balance (% of GDP) 0.4 1.8 -1.4 -1.5 -1.9 -0.9 a,b International poverty rate ($1.9 in 2011 PPP) 39.5 42.7 40.9 40.1 39.4 38.6 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 63.8 66.7 65.2 64.6 63.7 63.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 82.8 84.4 83.6 83.0 82.7 82.3 GHG emissions growth (mtCO2e) -1.6 -2.9 2.3 1.2 0.7 0.8 Energy related GHG emissions (% of total) 12.6 10.5 10.4 10.1 9.5 8.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on 2019-PICES.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 297 Apr 22 Macro Poverty Outlook 04 / 2022