Macroeconomics

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 already has 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, reduced effectiveness of monetary policy as a crisis instrument, and increasing inequality — among and within countries.

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

Last Updated: Apr 26, 2022

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. Failure to achieve sustainable development goals furthermore risk exacerbating debt.
• 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 132 million people into extreme poverty by 2030, underscoring the importance of zero-carbon growth strategies.
• Trade: Open trade within appropriate policy frameworks [DH1] is an engine of growth that creates jobs, reduces poverty, and increases economic opportunity, including for women in developing countries.

Last Updated: Apr 15, 2021

Supporting sustainable and inclusive economic growth

• In April 2019, governments from over 20 countries joined forces to launch the Coalition of Finance Ministers for Climate Action. Now, more than 70 Ministers of Finance have signed on to the Helsinki Principles, supporting effective carbon pricing and incorporation of climate change into macroeconomic policy, fiscal planning, budgeting, public investment management, and procurement.

• World Bank economists create country-specific reports — such as Country Economic Memoranda, Economic Updates, and Growth Reports — to address questions related to economic growth. These reports are critical inputs for the Bank’s dialogue with country authorities and, together with sector-specific reports, frame country strategies. 

Promoting macroeconomic stability

• 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.

• During the COVID-19 (coronavirus) pandemic, macroeconomic support focuses on assisting countries in the design of fiscal and monetary policies that help mitigate the health, economic, and social impact of the pandemic and support the economic recovery without undermining macroeconomic stability.

• The World Bank coordinates fiscal monitoring under the Debt Service Suspension Initiative, including working with the IMF to develop frameworks, guidance notes, quality control, and G-20 reports; and coordinating country level monitoring. A semi-annual Macro-Financial Review (MFR) informs senior management and staff about critical macro-financial developments in order to adapt strategic priorities and client engagement critical to achieving superior socioeconomic outcomes.

Strengthening public expenditure policies and management

• The World Bank prepares Public Expenditure 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 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).

• In Myanmar, the Bank program improved the efficiency of key business processes in the budget cycle — including budget formulation, execution, and reporting frameworks — and turned Myanmar into the only fragile or conflict-affected country with access to a fully consolidated dataset that supports policymaking.

Advancing macroeconomic policies for sustainable growth

• The First Sustainable and Inclusive Growth Development Policy Financing (DPF) to Côte d’Ivoire promotes sustainable growth by implementing structural reforms that improve incentives for sustainable private-sector investments in deforestation-free agriculture, energy efficiency and renewable electricity. The operation, which went into effect in 2020, has the largest share of climate co-benefits of any EFI DPF to-date (62.5%). Due to the climate measures, the government secured an additional US$67million in bilateral climate financing.

Promoting debt transparency

• In 2018, the Bank and the IMF announced a new collaborative work program, the Bank-Fund Multipronged Approach for Addressing Emerging Debt Vulnerabilities. This work is taking place in the context of the global development agenda — including the SDGs — and supports better monitoring of debt vulnerabilities, structural reforms to help reduce debt vulnerabilities, greater debt transparency, and scaled-up capacity building on debt management. 

• Working with the IMF, the Bank implemented the revised Debt Sustainability Framework for low-income countries, which allows creditors to tailor their financing terms in anticipation of future risks and helps countries balance the need for funds with the ability to repay their debts. The framework guides countries in supporting the SDGs, when their ability to service debt is limited.

• The Bank Group’s signature Debt Management Facility provides advisory support, training, analytical tools, and peer-to-peer learning that strengthen countries’ ability to manage debt. Since its inception in 2008, it has supported capacity building and reforms in over 75 countries and implemented more than 290 technical assistance missions. In 2019, the Bank launched the third phase of the facility to scale up support on debt management and transparency.

Promoting a system of global trade that benefits all

• The 2020 World Development Report focused on global value chains (GVCs). In the last 30 years, GVCs have helped poor countries grow faster, lifting many out of poverty, and today they account for almost half of global trade. The report calls for greater international cooperation to keep markets open, address policies that distort trade and strengthen policies, including taxes, that improve sustainability and equity of GVCs.

• The World Bank is supporting the African Union in the creation of the African Continental Free Trade Area, which has the potential to boost intra-regional trade and significantly reduce poverty. We are assessing the effects of tariff reductions on government revenues and quantifying the impact on trade, growth and poverty, including women and youth.  

• A series of studies on the Belt and Road Initiative shed light on the ambitious effort to improve regional cooperation and connectivity on a trans-continental scale. The studies are designed to help policymakers assess the effects of the BRI and to identify policies that will help maximize the benefits and mitigate the risks. 

Building effective and accountable institutions that serve all citizens

• The Tax Administration Modernization Project in Armenia has trained 35,000 tax inspectors, automated 96 percent of tax services and documents, and significantly reduced the time required for making tax payments (by 187 hours, or 37.5  percent). Since 2012, tax collection has improved from 16.3 to 21.0 percent of GDP.

• In Peru, technical assistance under an international tax project contributed to the collection of more than $120 million in additional revenue in 2018 due to audits by the tax administration of transfer pricing arrangements of multinational companies.

• A World Bank-financed project in Tajikistan helped double the number of active firms and individual taxpayers filing taxes, increased the average tax revenue collected per tax official by 85%, and reduced the number of hours spent on complying with tax-related regulations by 36 percent.

• The World Bank Group is supporting Sierra Leone’s effort to modernize revenue administration through automation of the Customs and Domestic Taxes Departments. Automated System for Customs Data was commissioned in January 2019. As a result, revenue collections doubled in the first quarter of 2019 over the same quarter in 2018.  

• In an effort to tackle international tax planning and evasion, World Bank Group technical assistance has allowed for the strengthening of anti-abuse rules in several countries, including Senegal, Nigeria, Liberia, Cape Verde, Mauritania, and Kenya. Revenue collections from audits have been substantial. In Kenya, for example, tax officials who received training successfully negotiated transfer-pricing audit adjustments that brought in additional tax revenue of $135 million in 2016. 

• Since 2015, the World Bank Group has provided support to Somalia on tax policy and administration as well as taxpayer education to improve voluntary compliance. During this period, revenue collection more than doubled, from $76 million in 2013 to $183 million in 2018, exceeding the target under the IMF Staff Monitored Program.

Last Updated: Jul 13, 2022