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World Bank Says Poorest Countries Have Three Things Going for Them


Even before the Covid pandemic, the world’s poorest and most vulnerable economies – including ASEAN members Cambodia, Laos and Myanmar – faced big challenges.

Recovery from Covid-related economic slumps is now compounded by soaring inflation, rising interest rates and wider problems like climate change.

A LOST DECADE OF DEVELOPMENT?

According to a forthcoming book by the World Bank, the key risk for the 75 economies that can get cheap loans and grants from the bank’s International Development Association (IDA) is a ‘lost decade of development’.

Despite the gloomy outlook, however, it sees ‘reasons for optimism’ as poor and vulnerable IDA countries have three factors in their favour.

“First, progress is possible,’ says an advance edition of the book – ‘The Great Reversal: Prospects, Risks, and Policies in International Development Association (IDA) Countries’ – released in Washington Monday.

The bank notes that a dozen countries have graduated from IDA status since 2000 including India in 2014, Vietnam
in 2017 and Mongolia in 2020.

In the nineties, successful graduates among East Asian economies included the Philippines in 1993, and China and Indonesia in 1999. Going back further, South Korea graduated in 1973 and Thailand in 1979. Overall, thirty-six countries have graduated since the IDA’s founding in 1960,

‘Second,’ the book says, ‘many IDA countries have rich natural resources and favourable demographic profiles, although both advantages need to be managed effectively for their potential to be realised.

‘If these advantages can be harnessed, they should significantly benefit economic growth and development.’

REFORMS TO ACCELERATE INVESTMENT

The third positive factor for the world’s poorest and most vulnerable countries is their potential to boost investment.

‘Experience shows that it is possible to accelerate investment growth and deliver transformative structural change by undertaking comprehensive policy reforms,’ the book says.

The World Bank says a third of the current IDA economies have low-
income status with the remaining two-thirds mostly lower-middle income.

Apart from Cambodia, Laos and Myanmar, other IDA countries in East Asia and the Pacific include Timor-Leste, Papua New Guinea and several small island economies. In South Asia, only India has graduated, leaving Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka with IDA status. In Central Asia, Kazakhstan has graduated but not the Kyrgyz Republic, Tajikistan or Uzbekistan

SUCCESSFUL GRADUATES: CHINA, INDIA AND KOREA

Big economies that graduated from IDA status ‘are now important engines of the global economy,’ the book notes.

In both China and South Korea, incomes per capita more than doubled in the decades before and after graduation.

And in China and India, the number of extreme poor has plunged by more than one billion over the past 30 years.

In South Korea, government policies enhanced returns on private capital, driving a post-war boom that began in the 1960s.

Similarly, India’s policy reforms in the 1990s targete
d economic distortions, strengthening the private sector and promoting foreign investment and trade.

‘Many IDA graduates were able to make significant, lasting, and growth enhancing changes to the structure of their economies,’ the book says.

SOLAR ENERGY AND TOURISM POTENTIAL

Among natural resource potentials in today’s IDA countries, the World Bank underlines solar energy.

Daily photovoltaic power potential in IDA countries exceeds 5 kilowatt hours per installed kilowatt peak – a measure of the average daily energy produced by a solar panel system per unit of peak capacity.

By contrast, the potential is less than 5 kilowatt hours in other emerging markets and developing economies, and less than 4 kilowatt hours in advanced economies.

‘With appropriate policies, activation of this solar potential could enhance energy access and resilience in IDA countries, in turn supporting further investment and growth opportunities.’ the book says.

The World Bank also notes ‘significant economic potential’ from tou
rism in many IDA countries. ‘Promoting tourism, however, comes with risks related to resource depletion and environmental degradation.’

But ‘benefits associated with tourism, such as deepening local value chains, enhanced human capital accumulation, and infrastructure investment, can become mutually reinforcing.’

‘SUBSTANTIAL DEMOGRAPHIC DIVIDENDS’

The bank sees ‘substantial demographic dividends’ for IDA countries as the share of their working-age populations grows significantly over the next 50 years while labour forces in most of the rest of the world decline.

‘This trend is already underway,’ it says, noting the annual average of 32 births per 1,000 population in IDA countries between 2000 and 2021. That compares with only 19 births in other emerging markets and developing economies in the same period.

By contrast, working-age people as a share of total population have been declining in the advanced economies for more than a decade.

And in non-IDA emerging markets and developing economies, the share
of working-age people is projected to start falling in the 2030s.

‘The expected growth in working-age populations in IDA countries could have sizable economic impacts,’ the bank says.

‘A one percentage point rise in the proportion of the working-age population can lead to an enhancement in GDP per capita growth by 1-3 percent.’

INVESTMENT SHOULD BE TOP PRIORITY

The bank concludes that ‘urgent action is needed’ to address the exceptional challenges faced by the current cohort of IDA countries.

‘The priority should be creating the conditions to support stronger investment growth,’ it says.

‘Investments are necessary to enhance the technological capacity and resilience of education, public health, and training systems.

‘Embracing digitalisation and fostering connectivity can boost the efficiency of health and education spending while enhancing resilience.’

LEARNING FROM HISTORY

According to the bank, ‘history offers many examples of previous IDA countries implementing successful policy packages, acceler
ating investment, and achieving significant development progress.’

For the current IDA cohort, ‘a brighter future is possible,’ it says.

‘Through strategic policy making and concerted efforts, IDA countries can chart a course toward long-term shared prosperity, inclusive growth, and greater resilience in the face of adversity.’

IDA graduation is different from the United Nations process for graduating from least-developed country (LDC) status.

The Asian Development Bank said last week that Cambodia was ‘well-positioned’ to pass its second consecutive triennial review this year, potentially graduating out of the LDC category in 2027.

According to the latest review, income per capita of US$1,590 put Cambodia above the LDC threshold of US$1,306.

Source: Agence Kampuchea Presse

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