Millions Could Be Lifted Out of Poverty, But Countries Face Significant Risks
WASHINGTON, June 18, 2019—China’s Belt and Road Initiative (BRI) could speed up economic development and reduce poverty for dozens of developing countries—but it must be accompanied by deep policy reforms that increase transparency, improve debt sustainability, and mitigate environmental, social, and corruption risks, a new World Bank Group study on the BRI transportation corridors has found.
Through independent, empirical analysis, the Belt and Road Economics study is designed to help policymakers in developing countries weigh the potential benefits and risks of participating in BRI projects. It assesses the network of proposed transportation projects in about 70 countries along land and maritime BRI corridors that connect Asia, Europe, and Africa. It also provides a series of policy recommendations to help developing countries along those corridors maximize potential benefits while mitigating a variety of risks.
“Achieving the ambitions of the Belt and Road Initiative will require equally ambitious reforms from participating countries,” said Ceyla Pazarbasioglu, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions. “Improvements in data reporting and transparency—especially around debt—open government procurement, and adherence to the highest social and environmental standards will help significantly.”
If implemented fully, the initiative could lift 32 million people out of moderate poverty—those who live on less than $3.20 a day, the analysis found. It could boost global trade by up to 6.2 percent, and up to 9.7 percent for corridor economies. Global income could increase by as much 2.9 percent. For low-income corridor economies, foreign direct investment could rise by as much as 7.6 percent. At the same time, the cost of BRI-related infrastructure could outweigh the potential gains for some countries.
The study, by a team of World Bank Group economists led by Michele Ruta, found that complementary policy reforms will be essential for countries to unlock BRI-related gains. Real income for BRI economies could be two to four times larger if trade facilitation is improved and trade restrictions are reduced. In addition, stronger labor-mobility and adjustment policies would ensure that gains are more equally shared.
Yet, the analysis found, BRI also entails significant risks that are exacerbated by a lack of transparency and weak institutions in participating economies. Many BRI projects cross borders, so coordination among all economies within a corridor is critical. Among the 43 corridor economies for which detailed data is available, 12—most of which already face elevated debt levels—could suffer a further medium-term deterioration in their outlook for debt sustainability. It could boost global carbon emissions by 0.3 percent—and by up to 7 percent in countries with low emissions levels.
“BRI’s success depends on the implementation of policy measures in three broad categories: transparency, country-specific gaps, and multilateral cooperation,” said Caroline Freund, the World Bank’s Director for Macroeconomics, Trade, and Investment. “Greater transparency is necessary at all levels, from project planning to budgeting and procurement and public reporting of debt levels. For countries to benefit fully from BRI, they will need to work together. In addition, many countries need to strengthen environmental standards, adopt social safety nets, and improve labor mobility.”