I am delighted to join you today at the joint meeting of Rotary Clubs and it is a pleasure to celebrate together the 74th Independence Day. I wish I were present physically with you but as we live in another type of reality now, I can only praise technology for allowing us to convene virtually. I hope that each of you and your families are staying safe and healthy during these incredibly challenging times.
On this eve of India’s Independence Day, I would like to talk to you today about how the World Bank Group is mounting an unprecedent response to COVID-19 to help countries in need, including India.
Disrupting billions of lives and livelihoods, the COVID-19 pandemic threatens decades of hard-won development gains and demands an urgent, exceptional response. The severity of the pandemic is challenging the world’s health systems, while associated lockdowns and travel restrictions have upended normal life for most people – even as lockdowns ease in some countries.
The COVID-19 pandemic has triggered what is likely to be the deepest global recession since World War II. The global economy could shrink by 5.2 percent in 2020 before rebounding in 2021. The recession in advanced economies is hitting developing countries hard, and the World Bank now projects negative growth for over 150 countries in 2020.
Billions of jobs are under threat worldwide. Nearly 80 percent of the world’s informal economy workers – 1.6 billion people – have faced COVID-19 lockdowns and slowdowns in hard-hit industries including wholesale and retail, food and hospitality, tourism, transport and manufacturing. With 740 million women globally in informal employment and a majority employed in services, women are particularly hard hit by the crisis.
Remittance flows – an economic lifeline for many low-income families and a key source of revenues for many developing economies – are expected to fall by 20% in 2020. And we all know that India has been hit hard by all these three indirect impacts of the pandemic.
The COVID-19 crisis is exacting a massive toll on the poor and vulnerable. Millions of people will fall into extreme poverty, while millions of existing poor will experience even deeper deprivation – the first increase in global poverty since 1998.
The World Bank Group is mounting an exceptional crisis response to support developing countries address spillover effects from the massive, sudden stop in global economic activity. We expect to provide up to US$160 billion over the 15 months spanning between April 2020 and June 2021.
The World Bank Group’s objective is to assist countries to meet the dual challenge they now confront. First, addressing the health threat and the social and economic impacts of the COVID-19 crisis. And second, maintaining a line of sight to their long-term development vision when rebuilding back. The ambition of the World Bank Group crisis response is to help client countries assist at least one billion people impacted by the COVID-19 crisis and to restore momentum on what we call our Twin Goals: ending extreme poverty and promoting shared prosperity.
This response required a lot of careful thought. After a thorough review, we decided to structure it along three stages: relief, restructuring, and resilient recovery. The relief stage involves the emergency response to the health threats posed by COVID-19 and its immediate social, economic, and financial impacts. As countries bring the pandemic under control and start re-opening their economies, the subsequent restructuring stage focuses on strengthening health systems for pandemic readiness; restoring human capital; and restructuring, debt resolution, and recapitalization of firms and financial institutions. Finally, the resilient recovery stage entails taking advantage of new opportunities to build a more sustainable, inclusive, and resilient future in a world transformed by the pandemic.
Given the complexity of the impact of COVID, the World Bank Group is offering emergency support to health interventions for saving lives threatened by the virus but also social response for protecting poor and vulnerable people from the impact of the economic and social crisis triggered by the pandemic. There is also an economic response for saving livelihoods, preserving jobs, and ensuring more sustainable business growth and job creation.
This will be achieved by helping firms and financial institutions survive the initial crisis shock, as well as restructure and recapitalize to build resilience in recovery. Last but not least, we offer support for strengthening policies, institutions and investments for resilient, inclusive and sustainable recovery by Rebuilding Better.
Let me now say a few words about our health response, targeted at helping countries prevent, detect and respond to the health threat posed by COVID-19 and to strengthen national systems for public health preparedness. The World Bank Group’s emergency health response is already under implementation in 104 countries, with US$5.9 billion approved as of June 1st.
Our main actions were directed toward supporting countries to stop transmission through testing, isolating and treating, contact tracing and quarantining; communication that changed behaviors and built trust; developing general surveillance capacity and other core public health functions. Beyond the immediate threat, the World Bank Group will also help clients Rebuild Better, by strengthening core public health functions, investing in systems for pandemic preparedness; galvanizing health sector reforms especially in primary health care, and focusing on innovative approaches such as telemedicine, and digital technologies.
Let me also say a few words also about education. The developing world was already living a learning crisis pre-COVID-19, which has now grown even deeper with exacerbated inequality. School closures because of COVID are impacting learning for 1.5 billion students worldwide, half of whom lack access to a computer, and might result in school detachment.
The challenge is to recover learning losses of those who were in school, prevent dropout rates in basic and tertiary education, and reduce out-of-school populations. The World Bank Group is helping countries take measures to mitigate learning losses through multiplatform remote programs. Limited internet penetration precludes relying solely on online resources, and requires use of social networks, SMS, radio and print media.
There is also critical support to replace school feeding programs stopped by school closures. When schools reopen, the World Bank Group will provide support such as through protective facilities and health screening and help ensure access to school especially for girls through subsidies and other measures. Over time, our focus will shift to helping rebuild a more diversified, affordable and equitable education service, such as via consolidation of multiplatform remote learning, and investments to scale-up teachers’ capacity, including in digital skills.
Turning to India, the challenges that the Indian economy has been facing in the past few months are dire. In terms of the specific COVID-19 related support for India, the Bank provided financing for three projects during the April-June quarter. These include emergency support through a US$1 billion health project, a US$ 750 million social protection project, and a US$ 750 million economic response emergency operation to support micro-, small-, and medium-sized enterprises.
Offering support for MSMEs has been especially important since we all know the critical role they play in India’s economy. Various estimates suggest that 150 to 180 million people are employed by 75 to 80 million MSMEs in India. Of these, 100 to 130 million are hired workers and 50 to 55 million are self-employed or own account firms. Additionally, MSMEs are estimated to contribute to 40 percent of exports from India.
Unfortunately, the COVID crisis has severely hit the MSMEs. The cancellation of orders, loss of customers and clients, and supply chain disruptions, have caused a sharp fall in revenues. The lockdown has in fact raised a question mark on the sheer existence of many MSMEs, primarily because these are firms that have thin, if any, cash cushions to withstand the crisis.
Not only in India, but around the world, private companies have been hit hard by the pandemic. As the crisis unfolds, it has become apparent that COVID is leading to paradigm shifts in business models, reshaping businesses in lasting ways. Companies are being forced to rethink and realign their priorities and those who have already adjusted to the technology demands of the future are better equipped to survive and emerge from this crisis even stronger.
Besides being agile and tech savvy, companies will need to incorporate more Environmental Social and Governance principles in the way they operate as well as in the goods and services they produce and deliver. Companies have been under pressure for years from shareholders, customers, and civil society to become aware of their impact on environment and climate change, but now, because of the dramatic shifts brought about by the pandemic, they need to deliver on their promises in order to be deemed fit for the future.
The World Bank Group will continue to actively provide support to the Indian MSME sector. Over the coming months, the Bank plans to deliver US$1.25 billion in lending, with $750 million of this amount to support “MSME access to finance” and the rest being targeted at “Raising and Accelerating MSME Productivity”.
The World Bank, together with International Financial Corporation – the private sector arm of the World Bank Group – will support the Government of India through a Technical Assistance program to further the agenda of developing a robust ecosystem for MSME financing. The International Financial Corporation will provide direct support to Small Finance Banks via loans/equity together with other multilateral development financial institutions (MDFIs) and other partners. We will also focus on de-risking lending to MSMEs, possibly through a risk-sharing facility together with the IFC.
Significant steps have already been taken to deliver on the $750 million budgetary support on “MSME access to finance”. In July, the World Bank and the Government of India signed the agreement for the MSME Emergency Response Program to support increased flow of finance into the hands of MSMEs, severely impacted by the COVID-19 crisis. This lending operation has been carried out to address the immediate liquidity and credit needs of MSMEs so they can ‘keep the lights on’, to help viable firms survive, and to save jobs. This budgetary support will also help lay the foundations for a stronger MSME financing ecosystem in the recovery phase.
The Project has three pillars. First, channeling financing to MSMEs. Second, supporting non-financial banking companies (or NFBCs). And, third, incentivizing and mainstreaming the use of fintech in MSME lending and payments. The short-term measures in this operation will focus primarily on addressing liquidity and cash constraints to avoid worker layoffs – thus preserving jobs, livelihoods, and productive capacity.
The second lending project focuses on increasing the productive capacity of MSMEs through better linking MSMEs to domestic and international value chains, building MSME capacity (especially delivered digitally), addressing the challenge of delayed payments facing MSMEs in India, and increasing access to finance. In addition to new instruments and crowding in private sector investment, the fintech sector has the potential to close the gap in access to financial services and help firms address liquidity issues, which are critical due to financial shocks in the current crisis.
As COVID-19 sweeps the world and disrupts the way we interact and conduct business, innovative technologies can help by providing solutions to maintain social distancing, ensure business continuity, strengthen health-care outcomes, and prevent service disruptions.
In this regard, the World Bank Group continues to work with the Reserve Bank of India to operationalize the Fintech Regulatory Sandbox, which would provide the fintech players a space to test innovative products, services or business models in a live and time-bound market environment.
I think I could give many more examples of ways the WBG, governments, the private sector, and the development community are all working to help support people and shore up economies. While this crisis is truly unprecedented and is causing severe challenges and distress around the world, I remain optimistic that we will come out of this stronger than we were before the pandemic struck.
What is critical is that in all our efforts, we must build back while keeping a clear line of sight on the long-term development objectives of countries. It is very important for all of us, including India, to focus on the only silver lining of this crisis: the opportunity to rebuild better, in a more resilient, inclusive and sustainable way.
For an organization whose motto is “Service Above Self,” I know that Rotarians are working hard to help your neighbors as they deal with this crisis and will work hard to rebuild better. Because of people like you, I have great hope that we will come out of this crisis stronger than ever before.
It has been my pleasure to join you today. Thank you for welcoming me and I wish each of you a very happy Independence Day.