Thank you Faryar. It is a pleasure to be here today.
The recent developments are presenting additional challenges for the global economy by injecting a higher level of uncertainty into an already weak environment.
Now everything has to be re-thought while the specific effects of the new reality are still to be determined.
As you know well, the world has set itself ambitious goals, including the World Bank’s goals of ending extreme poverty by 2030 and promoting shared prosperity. We also now have a new set of targets, the Sustainable Development Goals and the Paris Agreement to limit climate change. These are important global commitments, but their implementation is facing serious challenges.
We see two types of risks: cyclical and secular.
Among the cyclical risks are the overall weak global environment, the slowdown in emerging markets and the end of the commodity super-cycle.
Even before the Brexit vote, we at the World Bank were concerned about the fragile global economy and increased volatility. In June we revised our global forecast to 2.4%, down from 2.9% we projected in January.
Apart from the US, we saw no real bright spot in the global economy. Europe was still struggling to recover, and Japan isn’t kick starting its economy as expected.
Developing and emerging economies that were engines of growth during the last decade, continue to underperform. Brazil and Russia are in recession, and China is rebalancing its economy to lower levels of growth. This in itself has injected some uncertainty.
Related to this development are weak global trade and very low commodity prices.
Commodity-exporting emerging market and developing economies, many of them home to millions of poor people, have been hit very hard. They alone account for 40% of the downward revision in the global economy. Growth in these economies is projected to advance at a meager 0.4% pace this year, a downward revision of 1.2 % from the January outlook.
Furthermore, we are concerned with the increased debt exposure and overall limited monetary and fiscal policy space.
But we cannot attribute the global downturn solely to cyclical factors: On the secular risk side, we see strong drivers undermining growth potential.
One of them are demographic trends. As the working-age population and productivity decelerate, growth will be harder to sustain, and the goals of the World Bank - ending poverty and promoting shared prosperity - will be much harder to achieve.
It will become ever more urgent to create jobs, enhance basic human development outcomes – like education and health – empower women, lengthen productive lives, and reduce inequality.
Automation will increasingly compete for jobs in agriculture, manufacturing, and some services. This will complicate the economic transformation for the poorest countries.
Demographic trends will demand sustainable health and welfare systems for aging populations and creating 500 million new jobs in developing countries where populations are growing rapidly, as in Africa and South Asia.
And then there are additional secular risks:
First, climate change. According to World Bank research unabated warming could create 100 million new poor people.
Second, the tense geopolitical situation and wide spreading conflicts create additional volatility. There are now 65 million people forcibly displaced within their own countries or live as refugees abroad.
In sum, we have a tough mix of risks. At a minimum these risks present a complex set of challenges. In a worst case scenario, they could result in a setback in which the poor and vulnerable will be affected most.
So the question is: What do our clients need from the World Bank to address these challenges?
With monetary policy measures exhausted, and fiscal policy constrained in many countries, structural reforms are seen as a solution to rekindle growth. They are now on the minds of governments around the world and we see a sharp increase in demand from countries for our services.
This is not just about lending money, but to make countries more resilient and build stronger foundations.
This includes a wide range of legal, regulatory, institutional, even logistical changes that directly or indirectly make investing more attractive. As you are well aware, the Bank has longstanding experience in supporting countries who are implementing these reforms.
Empirical evidence suggest that structural reforms can move the growth path to a higher trajectory.
We are responding to growing client demands by supporting reforms to spur growth and specific actions to bolster safety nets and protect the poor.
Examples of Bank policy support and advice include:
o Cutting low productivity expenditures while protecting the poor from reduced growth, for example through public expenditure reviews in Angola, Argentina, Brazil, Chile, and Peru. Or by helping to target energy subsidies to the poor in Ukraine and Nigeria; and improving the efficiency of social programs in Russia.
o Improving the effectiveness of tax systems in China, Indonesia, and Egypt.
o Enhancing debt management, for example by supporting subnational debt restructuring in China.
o Fostering diversification of the economy by relaxing investment rules in Indonesia and Argentina; expanding value added from resources like cashews and cacao in Cote D’Ivoire; improving trade logistics in Burkina Faso, China, Sri Lanka, Indonesia, Cote D’Ivoire and Morocco; and supporting labor reforms in Turkey, Poland and Serbia.
o We are also monitoring financial sector regulations and working on de-risking investments to developing countries.
o But we also cover areas like improving governance, increasing domestic resource mobilization through better tax systems, and general capacity building.
The way we can share expertise and experience, not just from North to South, but from South to South has proven to be critical both to save time and avoid mistakes.
Convening the right people in the right place, whether experts, policy makers or governments, still makes us the go-to partner for complex development approaches.
Let me close by saying that we are very closely aligned with the goals of our shareholders, whether they are donors, borrowers, or both.
At the heart of our work are our common goals of ending extreme poverty and promoting shared prosperity.
But in this fast changing environment with both cyclical and secular challenges, we need to continue to evolve as well.
Whether it is by developing new lending instruments, like offering catastrophic risk insurance to the poorest countries or launching the Pandemic Risk Facility. Or optimizing our balance sheets through efficiency gains and leveraging donor contributions in new ways for IDA, our fund for the poorest. Or by innovating our approach to addressing development challenges in highly fragile and conflict-affected areas by creating special economic zone in Jordan and Lebanon both major transition countries for refugees.
In everything we do, we partner. We cannot do it alone. Our relationships with other MDBs, the IMF, the UN, civil society groups, NGOs and, very importantly, the private sector are critical to deliver towards the ambitious goals the world has set for itself.
Global cooperation and compromising for larger goals has currently lost its popularity. But I can tell you that we still do it at the World Bank. Every day, when we address common global threats to achieve common global goals.