As prepared for delivery
The global economy is facing significant headwinds, especially with a continued upsurge of conflicts.
In order for the World Bank to achieve our new mission, “To create a world free of poverty – on a livable planet,” we need peace and stability.
We see increased fragmentation, both among advanced and developing economies, declining trade, and very weak investment.
Rapid economic growth in developing APEC economies, especially in East Asia, has propelled unparalleled poverty reduction over the past decades.
Since 1990, the number of people living in extreme poverty ($2.15 per day, 2017 PPP) was reduced by over 1.3 billion. More than three quarters of those escaping extreme poverty were in the East Asia Pacific region.
However, recent shocks, including the COVID-19 pandemic and conflicts, have had a profoundly negative effect on growth, both globally and in APEC economies. Higher debt levels, the unwinding of policy support, reduced consumer and investor confidence and a new wave of protectionism are contributing to lower growth – we estimate growth at 2.1% globally in 2023.
At the current pace of growth, the global economy is not on a path to eliminating extreme poverty nor to achieve the Sustainable Development Goals by 2030.
More worryingly, the recent shocks came at a time when deeper challenges to growth were already becoming apparent, even in developing East Asia, which has been the engine of the world’s growth and continues to outperform most regions.
- Firstly, despite the emergence of new technologies, productivity growth is slowing down across emerging markets and developing countries – East Asia has not been immune.
- Secondly, the large young labor force was a key source of past economic growth. Working age populations are now shrinking in many countries, and nowhere faster than in East Asia, which risks growing old before it grows rich.
- Thirdly, the slowdown is taking place in the context of global fragmentation. In 2022 alone, almost 3,000 new protectionist measures were imposed on global trade – three times more than in 2019 and a decade high.
- Lastly, and looming over all these factors is accelerating climate change.
More than half of global losses from natural disasters already occur in East Asia and the Pacific and we estimate the impacts from climate change could exceed 10% of GDP in economies such as the Philippines or Vietnam by 2050.
In the current global economic context, there are no easy solutions to restore rapid economic growth. Instead, policy makers need to navigate a more difficult path of structural reforms to enhance foundations for stronger and more resilient, broad-based, and sustainable growth.
Reforms, especially for the service sector, will play a particularly important role. Services already contribute more than manufacturing to productivity growth in major East Asian economies. Digitalization is boosting service productivity further.
Unleashing more growth in the service sector will require policies that improve regulation, enable competition, and facilitate investment and innovation, in particular in digitalization.
The World Bank is supporting such reforms across the region, for example by expanding financial inclusion through digital finance in the Philippines, and by supporting financial sector reforms in Indonesia.
Yet nearly 3 billion people remain offline, primarily in developing countries. Broadband infrastructure is essential for digitalization. APEC economies will need to invest more in broadband networks in order to ensure that all businesses and households have access to high-speed internet and put special emphasis on the previously underserved and underrepresented communities.
The combination of services reform and digitalization will create new opportunities and enable firms and individuals to create new opportunities. For example, distance education and telemedicine supported by well-selected, trained, and motivated local staff have led to better learning and health outcomes in the region, though there remains significant inequality in access.
To reap the full benefits of innovative, more service-oriented economies, we also need to invest more in people, especially the young, with better education and health systems.
Finally, to revitalize growth, countries ought to steer clear of a harmful cycle of trade restrictions and, instead, seek enhanced integration where feasible, while at the same time diversifying trading partners. This strategy of diversification has a direct implication for energy and transport linkages.
We all need to work together to address climate change. APEC economies are already heavily affected by climate change but are also contributing to it.
East Asia and the Pacific accounts for one-third of global greenhouse gas emissions and 60 percent of the world’s coal consumption. This means investing in clean energy and electrification at scale, enhancing energy efficiency, avoiding new coal plant construction while accelerating the retirement of old coal plants.
The green transition presents a wide range of innovation opportunities that can become the region’s new growth drivers if leveraged effectively.
Adaptation should also remain a priority given region’s exposure to natural disasters, including extreme weather events related to climate change, especially for the small Pacific Island economies.
The World Bank is committed to supporting APEC economies. We have numerous programs that are aimed at supporting the economic policies implemented by country authorities, and projects designed to improve peoples’ livelihoods.
We have put a strong emphasis on climate action in many of our operations. In East Asia and the Pacific, 46 percent of new World Bank commitments in fiscal year 2022 contributed to climate action.
Some of the Bank’s most innovative solutions have been first piloted across APEC economies. We tested Emission Reduction-Linked Bonds in Vietnam. In Indonesia, the Bank is supporting government’s National Mangrove Rehabilitation Program. The project aims to enhance the management of mangroves and the livelihoods of local communities in selected coastal areas. In the Philippines, one of the most disaster-prone countries in the world, the World Bank has supported disaster recovery systems and resilience. This included catastrophe bonds, contingent financing for disaster response, local government catastrophe risk insurance programs and national indemnity insurance, as well as interventions to strengthen infrastructure and flood management.
We’re also working with Peru to support reforms to promote greener production, private investments in sustainable commercial forest plantations, and climate-smart agriculture; and with Mexico to mitigate the loss of forests’ carbon storage capacity. In Chile, the Bank is supporting the development of the Green Hydrogen Facility (GHF) as a risk-sharing mechanism to mobilize commercial financing and to achieve fair and sustainable socio-economic development with local communities. In Peru, the World Bank is supporting the strengthening of the public health emergency preparedness and response.
Today’s development challenges are daunting and global in nature. However, at the World Bank, we remain optimistic that the right policy solutions and investments can revitalize growth, revive poverty reduction, and increase resilience against future shocks.
Internally, we are working on transforming the World Bank to better support countries to tackle global challenges. We are improving our operational model, for more speed and scale. And given the recurrent crises, we are expanding our toolkit for crisis preparedness, response, and recovery. This includes Climate Resilient Debt Clauses for small states to temporarily pause repayments in case of a severe natural disaster, and rapid access to resources for emergency response. We are also working on enhanced disaster risk financing instruments.
We look forward to continuing working with APEC economies toward a sustainable, equitable, and inclusive future for all.