Economic Policy

The world has entered a new era of rapid global change driven by major shifts in demographics, wealth, technology, and climate.

But economic growth has been uneven, has come at the expense of the environment, and has already slowed due to climate damages. Global challenges — including fiscal strains on governments exacerbated by the COVID-19 pandemic, conflicts, environmental degradation, resource depletion, and record levels of displacement — are threatening recent gains. These challenges are compounded by intensifying systemic risks, including trade tensions, rising debt levels, and increasing inequality.

To accelerate sustainable economic growth and inclusion, developing countries must tackle a variety of challenges. These include low levels of productivity and international competitiveness, inefficient public spending, inadequate domestic resource mobilization, price distortions from fiscal systems that discourage sustainability, lack of economic resilience, increasing debt levels, and the rising danger of climate change.

Economic growth must benefit all and be sustainable. The World Bank Group is working with its clients and partners to develop smart economic policies that foster sustainable and inclusive economic growth, and address challenges to economic stability including climate change. Priority areas include:

• Fiscal policy: Fiscal policy is key to developing sustainable trajectories for revenues, expenditures, and deficits and the management of fiscal risks, with an emphasis on determining fiscal space and funding sources and improving public expenditure management.
• Domestic resource mobilization: Better tax systems are one of the largest untapped resources to promote poverty reduction and support climate, health, and other key government objectives.
• Debt: Debt is a critical form of financing for the sustainable development goals, but only when borrowing is done at sustainable levels and in a transparent fashion. 
• Economics of climate change: Climate change is no longer seen simply as an environmental problem. It is recognized as a serious financial, economic, and social problem that, left unmitigated, could push an additional 130 million people into extreme poverty by 2030, underscoring the importance of zero-carbon growth strategies.

Promoting macroeconomic stability and sustainable and inclusive growth

• The World Bank supports countries in the design and implementation of economic reforms to strengthen macroeconomic stability. Examples include assistance in the design of fiscal, revenue and debt strategies, structural reforms, and the removal of distortions that result in unsustainable balance of payments and financial sector positions.
• World Bank economists create country-specific reports — such as Country Economic Memoranda (CEM) and Economic Updates — to address questions related to economic growth. The CEM is a comprehensive analysis of a country's economic developments, prospects, and policy agenda. It serves as a basis for dialogue between the World Bank and the government of the country, as well as other stakeholders. The CEM identifies policy reforms for key economic sectors and provides recommendations to promote growth, reduce poverty, and improve people's lives. It also serves as a source of information and analysis for aid groups and other donors. The CEM aims to guide policy decisions and support the country's economic development efforts.

Strengthening public expenditure policies and management

• The World Bank prepares Public Finance Reviews for many of its client countries, which provide feedback and advice on enhancing countries’ overall fiscal discipline and allocative and operational efficiency of their public revenue and expenditure programs.

• The BOOST Program operates in over 80 countries to make available previously unattainable micro-fiscal data in accessible, comparative, and usable formats in support of expenditure analyses (counting 100+ PERs and related analytics), lending operations (Development Policy Financing and Program for Result), and fiscal transparency (almost 40 countries publicly disseminate data in the Open Budget Portal).

Promoting debt management and transparency

• The World Bank provides technical advice for countries to strengthen their debt management capacity as part of lending operations and through advisory services.
• The Debt Management Facility (DMF) program offers advisory services and technical assistance, training, and peer-to-peer learning to 86 developing countries around the world. The goal of the Facility is to reduce debt-related vulnerabilities by strengthening debt management capacity, processes, and institutions, and improving debt transparency. By the end of FY23, 44 DMF countries published Debt Management Strategies, 11 countries published Annual Borrowing Plans, and 43 DMF countries published Debt Statistical Bulletins.
• We also run the Government Debt and Risk Management (GDRM) program, in partnership with Switzerland’s State Secretariat for Economic Affairs (SECO). Since 2011, the program has worked with middle-income countries to develop robust debt and risk management frameworks to reduce their vulnerability to financial shocks. Current participants include Albania, Azerbaijan, Colombia, Egypt, Ghana, Indonesia, North Macedonia, Morocco, South Africa, Serbia, Peru, Ukraine, and Vietnam.
• Working with the International Monetary Fund (IMF), the Bank implemented the Debt Sustainability Framework (DSF) for low-income countries, which allows multilateral institutions and other creditors to assess risks to debt sustainability in lower-income countries. The framework classifies countries based on their assessed debt-carrying capacity, estimates threshold levels for selected debt burden indicators, evaluates baseline projections and stress test scenarios relative to these thresholds, and then combines indicative rules and staff judgment to assign risk ratings of debt distress. The framework guides countries in supporting the SDGs, when their ability to service debt is limited.