In the past 30 years, Malaysia has successfully curtailed high poverty rates and reduced income inequalities. Its goal is to attain high income status by 2020 while ensuring that growth is sustainable.
Read More »
‘Financial Inclusion and Access to Financing’Thank you very much.It is a pleasure to be here today and talk about financial inclusion.Financial inclusion is critical in the fight against poverty, yet ... Show More +too many people have no access to financial tools or credit.An estimated 2.5 billion people in the world do not have access to formal financial services linked to account. This includes 80 percent of the people living on less than $2 per day. Up to 200 million small businesses globally lack the financing which they need.Financial development matters because it not only promotes growth, it is also a catalyst for ensuring that prosperity is widely shared. So the deficit in financial access can hold people back from moving out of poverty and increasing inequality.People who are “unbanked” find it difficult to save, plan for the future, start a business, or recover from crisis or loss.Access to financial services improves access to health and education - through cheaper payments or remittances, better savings options and access to credit.Without access to affordable financial services or credit small businesses are constrained in their ability to invest, grow and create jobs.Emerging evidence indicates that access to financial services can enable individuals and firms to smooth consumption, manage risk, and invest in education, health, and enterprises.For example:In Kenya, access to a basic savings account led to an average 38-56% increase in productive investment and 37% higher personal expenditures at household level.In India and Mexico the expansion of bank branches and other access points has been linked to reduced rural poverty, increased incomes and employment.In India, bribe payments went down by 47% as a result of more efficient and better targeted social transfers to the poor, made through accounts rather than in cash.In Brazil, similar measures lowered administrative costs by 82%.Women still face more severe constraints to accessing and using financial services than men.Women in developing economies are 20 percent less likely than men to have an account and 17 percent less likely to have borrowed formally in the past year.Women also have less access to safe, regulated, savings services. Too often legal barriers prevent them to open bank accounts or get credit for their businesses. They are therefore more likely to use informal – and often riskier and more expensive – mechanisms.Women entrepreneurs in developing countries are more likely than men to cite access to finance as a primary constraint, which constrains productivity and economic activity.If women had better access to the formal financial system it would increase asset ownership and serve as a catalyst to greater economic empowerment.Even a basic financial tool such as a deposit account at a formal financial institution can be of great value. A formal account provides a safe place to save and creates a reliable payment connection with family members, an employer, or the government.But most importantly, when women earn money and have more control over household spending, they spend in ways that benefit children by investing in education and health.It is therefore our goal at the World Bank Group to achieve universal financial access - by 2020.We want both women and men globally to have access to a bank account or an electronic instrument, like a mobile phone, to store money, send and receive payments.This is a basic building block for people to manage their financial lives. It can be the stepping stone to full financial inclusion, providing a pathway to accessing a broader range of responsible financial services provided through stronger and more diverse financial sectors.Increasing financial inclusion in ASEAN will be critical for achieving universal access.ASEAN countries represent 12.3% of the world’s unbanked, with Indonesia accounting for 5.9% and Vietnam for 2.1%, given their relatively large populations.Small and medium size enterprises make up 96% of all firms in ASEAN countries overall, and contribute between 23%-58% to GDP.Yet less than 15% of those firms are estimated to have sufficient access to credit.There is impressive progress to expand financial access and to tackle these constraints, across the ASEAN region.ASEAN central banks and governments have taken the lead in setting ambitious goals for financial access and inclusion. The national commitments by Indonesia, Malaysia and Philippines are notable examples.Moreover, in 2014 ASEAN adopted the Yangon Outcomes making financial inclusion a key policy objective for all its member countries.At the World Bank Group we are looking forward to support the execution of this agreement, including the work program of the new Financial Inclusion Advisory Group for ASEAN. It is of critical importance that the private sector is providing more and more innovative financial services.National authorities can enable and encourage the private sector to invest more in financial services by following through with their commitments to create a more conducive regulatory and policy environment.One of the key benefits for government will be more effective ways to deliver services to their people.Better access to accounts, linked to the digitization of cash payments can help governments and firms to better target subsidy and benefits programs.It will also reduce leakages thereby increase public expenditure savings.The World Bank Group is therefore scaling up its financial, technical, and knowledge support to national authorities and to the private sector.We have agreed to assist ASEAN in:Measuring levels of financial development;Monitoring compliance with core international standards for financial sector supervision;Upgrading financial infrastructure development, such as payments, remittances, and credit information systems; andBuilding capacity for the application and enforcement of financial sector laws and regulations to give the unbanked access to low cost and safe financial services.The World Bank Group is supporting financial inclusion strategies in very practical ways:We convene donors and other international financial institutions to address financial inclusion barriers in ASEAN countries.For example: We support authorities in Indonesia and Vietnam to bring low income people into the financial system through digitizing social transfers. We have launched a new program of technical support with Indonesia to expand access points for financial services through agent networks, raise levels of financial awareness and capability, and strengthen regulation and supervision of non-bank financial institutions. In the Philippines, Vietnam, and Indonesia we are providing technical support for financial education and consumer protection. While in Myanmar we are designing a comprehensive new program of financing and technical support that covers payments infrastructure, supervisory capacity, and the expansion of access points.We are very pleased that as chair of ASEAN in 2015, Malaysia has made financial inclusion one of its top priorities and has requested the support of development partners, including the World Bank Group, to achieve further progress in ASEAN.We are scaling up a partnership with Malaysia, including through a new World Bank Group office, to mobilize Malaysia’s expertise to assist countries in ASEAN and other regions of the world to scale up financial inclusion. Malaysia has world-class expertise on critical areas for financial inclusion, including Islamic finance, payment systems, mobile financial services, prudential regulation and supervision, corporate governance, small and medium size enterprise finance, capital markets, and development finance.Malaysia has made notable progress towards universal financial access. The long-term vision and leadership of Bank Negara Malaysia and the Ministry of Finance have played a critical role in achieving this.Let me highlight that we are also developing new guidance and models which harness the potential of innovative financial services which leverage digital payments, data, and technology, including through the G-20 and Standard-Setting Bodies.I want to make one final point before I take your questions:We are very concerned about the so called de-risking by banks and the affects it may have on the cost of remittances, global trade, and financial crime.Take for example remittances. They are an important source of revenue for lower income countries, including in ASEAN -- Philippines 9.8%, Vietnam 6.4%. We worry that more people will be driven into unregulated channels. Our message is that risks should be managed, not avoided altogether.We are working with the G20 Global Partnership for Financial Inclusion to collect data on the phenomenon of de-risking so that we can have a better understanding of the problem and how to address this issue.I look forward to hearing from you how we can further support you to meet your financial inclusion priorities in each ASEAN country, and in the region as a whole. according to Global Findex survey data Show Less -
The Role of Fiscal and Monetary Policies in Reducing Poverty and Promoting Shared ProsperityYour Excellencies, Ladies and Gentlemen,It is a pleasure and honor for me to attend this meeting today and s... Show More +peak on a topic close to my heart: the role of fiscal and monetary policies in reducing poverty and promoting shared prosperity.As you know, this topic is broad and I will focus on a few key issues. Let me begin with what we all know -- the most important function of fiscal and monetary policies is to maintain macroeconomic stability. A stable macro environment is an essential prerequisite for reducing poverty and promoting shared prosperity for two reasons.First, without macro stability it is impossible to sustain the growth we need to improve the welfare of the extreme poor as well as of those at the bottom of the income distribution.Second, the clearest manifestation of macro instability – high and variable inflation – hurts the poor the most.From the East Asian Crisis to the Global CrisisI know that I don’t need to stress the importance of macroeconomic stability to this audience. Historically, the countries of this region have had strong macroeconomic fundamentals, as the World Bank’s East Asian Miracle study, among others, recognized this over 20 years ago. However, the East Asian crisis in 1997 and subsequent collapse in growth showed us all that macro stability could not be taken for granted.But the countries in this region recovered quickly with strong stabilization measures and applying the right lessons. So, policymakers in this region were ready when a global crisis threatened economic stability and growth in 2008. Today, developing East Asia – including ASEAN – is the fastest-growing part of the developing world and one of the engines of global economic growth.So, what do these two crises and the responses to them show us about fiscal and monetary policies? I think three key measures have helped ASEAN countries to be more resilient today: -- the need to be fiscally prudent; to use monetary policies to target low inflation; and to maintain flexible exchange rates.On aggregate fiscal policy, ASEAN countries have done well in rolling back the stimulus programs they implemented in the wake of the global financial crisis and in reducing fiscal deficits.Monetary policies, implemented by generally independent central banks, have also been tightened from their accommodative stances in the aftermath of the crisis so as to target low and stable inflation.Finally, more flexible exchange rates have helped to manage current account balances and foreign exchange reserves better than in the past.These aggregate fiscal and monetary policies are essential for maintaining stability and necessary for eliminating poverty and boosting shared prosperity. But they are not enough. Let me suggest two specific aspects of fiscal and monetary policies that can further support the focus on poverty and shared prosperity within ASEAN. Rebuilding Fiscal Space and Using It WellAmong the priorities for the countries in ASEAN is the need to rebuild fiscal space. By this I mean the ability to mobilize resources for public spending without adversely affecting the sustainability of the government’s fiscal position or that of the economy. There are both short- and long-term reasons for countries in ASEAN to expand fiscal space at this time.In the short term, countries in ASEAN as elsewhere need to be ready to adopt counter-cyclical fiscal policies if the global recovery were to slow significantly. As the World Bank’s recent Global Economic Prospects report suggests, counter-cyclical fiscal policy works most effectively when economies have fiscal space, i.e., low fiscal deficits and moderate debt burdens. Where countries have fiscal space, their fiscal multipliers can be 20 percent larger.This was one reason that the stimulus packages that many ASEAN countries used in 2008 and 2009 were effective -- they were implemented in contexts where fiscal buffers had been rebuilt. However, those stimulus packages also meant that deficits and debt climbed steeply thereafter. And while ASEAN economies have generally done well in reducing deficits and restoring fiscal buffers, debt burdens still remain large in many economies. Rebuilding fiscal space is also important for the longer term since ASEAN countries will need to finance infrastructure as well as health care and long-term care costs as their populations’ age. Developing East Asia will require about US$ 750 billion annually to finance new infrastructure. Beyond this gap, infrastructure investment is contributing much less to growth than is consumption, in part because public investment has fallen both due to budgetary restraint and implementation constraints. While we need private financing on board, experience from richer OECD economies shows that the public sector will need to continue to have a major role particularly in infrastructure and health care spending.How can this fiscal space be created? Increasing revenues is the most important priority. A number of ASEAN countries collect revenues of the order of only about 15 percent of GDP, which is low by the standards of comparable low- and middle-income countries. They need a stronger effort to raise revenues through reforms in tax policy as well as improvements in tax administration. In most ASEAN countries, more than a third of all government expenditures and a significant share of service delivery have now been decentralized. So, increasing the capacity and responsibilities for revenue mobilization by local governments will be critical.Finally, many countries in ASEAN also have the scope to increase revenues through reducing tax expenditures – a topic that my colleague discussed in an earlier session in the context of reducing tax competition.Not only does fiscal space need to be rebuilt; the available fiscal resources obviously also need to be used well. Improving the quality of public spending by reallocating expenditures to more productive uses that are better targeted to the poor is particularly important in this regard.Reducing energy subsidies is one way to achieve this. It can help by freeing up the space for expansions in pro-poor areas like health, education and social protection. Energy subsidies are typically regressive in that they benefit the relatively well off. Such subsidies have other costs as well: they encourage waste and discourage investments in a more diversified energy mix that increases the share of renewables. In the long run, they lower the energy supply and impose environmental costs by worsening pollution and congestion.The recent dramatic fall in oil prices offers an exceptional opportunity for subsidy and tax reforms in oil-importing countries, especially since these low oil prices will likely persist for some time. Among ASEAN countries, Indonesia and Malaysia have already used this opportunity to take the politically-difficult step of reducing fuel subsidies. But sustaining this policy shift in the long run will be more challenging. Governments will need to ensure that energy prices are market based so that when prices rise, the price increase is passed on to consumers without hurting the poor. This may require building safety nets to soften the impact of higher prices. Even where countries do not subsidize petroleum products, lower oil prices offers an opportunity to consider raising revenues in a much less distortionary way than through taxes on labor or capital. Generally, petroleum products within the ASEAN are lightly taxed at present suggesting that revenues could be raised by adjusting tax rates.Strengthening the Institutional Foundations for Monetary PolicyEffective monetary policies play a key role in reducing extremely poverty and promoting shared prosperity by helping protect the poor against high and variable inflation. They can also help foster financial deepening and financial inclusion. Achieving these goals can be a difficult balancing act given the openness and global integration of ASEAN economies and the volatility of financial flows and exchange rates. The divergence of monetary policies among the advanced economies and the possibility that U.S. interest rates will rise in the coming months add to the challenge of implementing monetary policy.Given these complex challenges, many ASEAN countries face the task of strengthening the institutional foundations for conducting monetary policy. By this I mean three things.First, efforts to enhance Central Bank independence need to continue while the technical capacity to conduct monetary policy is strengthened.Second, monetary policy needs to be made more rules based. Here, experience elsewhere suggests that inflation targeting (or in some cases, targeting nominal GDP) can be an effective rule to follow even in middle-income countries. Moving away from targeting monetary aggregates or exchange rates provides greater flexibility to policy makers and transparency for enterprises and individuals.Finally, as the ASEAN Economic Community comes into being at the end of this year, and integration moves beyond trade in goods to trade in services, especially in the financial sector, there will be greater need for policy coordination and cooperation across the Community.So, despite the progress that has been made, there remains an unfinished agenda to ensure that fiscal and monetary policies play their role in eliminating poverty and boosting shared prosperity. Thank you once again for giving me this opportunity to share my thoughts on these issues. Show Less -