Mr. Prime Minister, Ministers of the Government, colleagues from other international organizations, think-tanks and academia, ladies and gentlemen.
It is a great pleasure to be with you at the first Skopje Economic Finance Forum which I understand is set to become an annual event. I would like to congratulate the authorities of North Macedonia for initiating this event and I hope to be with you in person at future events.
I have been asked to speak about global and regional challenges and prospects for recovery and growth.
Let me start by recalling that 2020 was an exceptionally challenging year worldwide, testing resilience and ability to adjust and adapt quickly, and with significant surrounding uncertainty. The pandemic had a severe impact, with the global economy estimated to have contracted by 4.3% last year. The deepest economic recession since World War II.
Since the beginning of the pandemic, the World Bank has been working with governments around the world to help tackle the wide-ranging impacts of the pandemic. Our primary goal has been to save lives and livelihoods.
In the Europe and Central Asia region, we have committed more than $1.7 billion to help emerging economies in the region address the immediate health emergency, increase health systems capacity, support poor and vulnerable people, bolster businesses, and procure and deploy vaccines.
Since April 2020, around $866 million has been approved through new emergency response projects, while an additional $904 million is being reallocated, used, or made available from existing projects and lending.
Now, let me turn to the road ahead. The outlook for 2021 is looking better overall. In June, the World Bank published its global economic outlook where we estimated the global economy would expand by 5.6 percent in 2021. In that report, we also presented scenarios for the global economy in 2021. In addition to a scenario under which we see global GDP growth of 5.6 percent, we also presented a less optimistic scenario. The 5.6% growth scenario assumes that vaccination rates accelerate and that governments at the same time undertake key reforms that encourage investment and job creation.
The less optimistic scenario assumes a slower vaccination rate and the emergence of new variants that threaten recovery. We are currently revisiting our projections, including for the Western Balkans. There are several factors that drive a favorable global economic outlook, including commodity prices and external demand which have been stronger than anticipated, driven by a robust recovery in a few large and important economic geographies including in the euro area. This has helped cushion some of the contraction from the domestic side while countries continue to grapple with the pandemic.
Having said that, what we have found is that forecasting accurately is difficult at this time given the uncertainty we are living with. Take for example the recent and rapid spread of the Delta variant which poses considerable risk to recovery, including a resumption of market volatility as markets are sensitive to negative developments. Many countries, including in the Western Balkans, enjoyed a much-needed re-bound in tourism over the summer but this is a sector that remains highly sensitive to the recent increase in cases of the Delta variant and the potential for new restrictions to movement.
Let me use my time to speak to what we see as the key challenges and opportunities for recovery and growth.
On the challenging side, clearly a key issue is to get the world’s population vaccinated.
This requires globally coordinated efforts, particularly in low-income countries. We keep hearing it, and it is right, the pandemic will not end until everyone has access to vaccines, including people in developing countries. Worldwide access to vaccines offers the best hope for arresting the pandemic, saving lives, and securing a broad-based economic recovery.
The World Bank is working closely with the IMF, the WHO and WTO to convene international support for stepped up financing to ensure more equitable access to vaccines. Governments, pharmaceutical companies, and organizations involved in vaccine procurement and delivery need to help increase transparency and build greater public information around vaccine contracts, options and agreements; vaccine financing and delivery agreements; and doses delivered and future delivery plans.
A second challenge is the fact that fiscal space has narrowed, and public debt has reached new historical peaks. This is also the case for several Western Balkan countries, including North Macedonia. What we worry about is that servicing such debt in the future may crowd out important public sector priorities.
A third challenge is knowing when to withdraw the fiscal and monetary policy support that was expanded and implemented in 2020 and the first half of 2021. The pandemic has certainly increased the role of the state in many parts of the world, including in the Europe and Central Asia region. This has often been warranted given the once in a century phenomenon of this global pandemic. As such, premature withdrawal can be risky, but a sustainable economic recovery will require that the private sector and private financing plays a larger role going forward as will pursuing rigorous reform agendas.
A fourth challenge and an area we monitor carefully is inflation, both globally and at the national level. The question is whether rising inflation is a temporary phenomenon or a longer-term development. If inflation proves not to be temporary, further tightening of monetary policy might be required. This could lead to deterioration in conditions for financing, which would affect many emerging markets and developing countries around the world.
But, the pandemic reminds us not only about the challenges we face as a global community, but also the opportunities. That is why the World Bank is working closely with countries around the world, including in the Western Balkans, to help ensure a sustainable, resilient, and inclusive recovery.
Let me mention a few areas where we see opportunities. First, we should focus on building back in a way that tackles global challenges such as climate change, extreme poverty and social inequality. A resilient recovery requires actions and policies that benefit both people and the planet, and which put green growth at the center of development goals.
This would involve accelerating energy transitions and decarbonization that can attract investment, improve quality of life and people’s health by cutting pollution and reducing health care costs.
Further, investments in health and education can create jobs and opportunities, improve people’s lives, and boost growth and productivity. The pandemic has highlighted that healthcare systems in many countries are underequipped and understaffed.
We believe that digitization provides many opportunities to achieve sustained and inclusive health and education outcomes.
I am glad to see that the World Bank program in North Macedonia includes support to the reform of the education, health and social assistance systems and supporting the preparation of a human capital development strategy.
We also urge countries across the Western Balkans to boost investment in and by the private sector and pursue key reforms that strengthen government institutions, the judiciary, and the business environment. Such reforms are critical for growth and poverty reduction, as well as faster accession to the EU.
Finally, as the crisis subsides, countries will need to rebuild fiscal buffers to safeguard macroeconomic stability.
In closing, while we see the signs of a global recovery, the pandemic continues to threaten with major health, social and economic impacts around the world, and especially in developing countries and especially in its ability to reverse important gains over the past decade in reducing poverty and inequality.
At the World Bank, we remain a committed partner to the countries in Europe and Central Asia as they chart a path forward, out of the pandemic and toward a brighter and more promising future for all their people. We look forward to participating in several of the discussions over the next two days to support North Macedonia chart its path.