Securing core public services, getting money directly to people and maintaining the private sector will limit the harm and help prepare for recovery
WASHINGTON, June 2, 2020 – The coronavirus (COVID-19) pandemic and the economic shutdowns are dealing a
severe blow to the global economy and especially poorer countries. Developing countries and the international
community can take steps now to speed recovery after the worst of the health crisis has passed and blunt long-term
adverse effects, according to analytical chapters released today from the World Bank Group’s Global Economic
Prospects report.
Short-term response measures to address the health emergency and secure core public services will need to be
accompanied by comprehensive policies to boost long-term growth, including by improving governance and
business environments, and expanding and improving the results of investment in education and public health. To
make future economies more resilient, many countries will need systems that can build and retain more human and
physical capital during the recovery – using policies that reflect and encourage the post-pandemic need for new
types of jobs, businesses and governance systems.
The analysis has been released ahead of the June 8 issuance of the full report, which will include the Bank Group’s
latest forecasts for the global economy.
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“The scope and speed with which the COVID-19 pandemic and economic shutdowns have devastated the poor
around the world are unprecedented in modern times. Current estimates show that 60 million people could be
pushed into extreme poverty in 2020. These estimates are likely to rise further, with the reopening of advanced
economies the primary determinant,” said World Bank Group President David Malpass. “Policy choices made
today – including greater debt transparency to invite new investment, faster advances in digital connectivity, and a
major expansion of cash safety nets for the poor – will help limit the damage and build a stronger recovery. The
financing and building of productive infrastructure are among the hardest-to-solve development challenges in the
post-pandemic recovery. We need to see measures to speed litigation and the resolution of bankruptcies and
reform the costly subsidies, monopolies and protected state-owned enterprises that have slowed development.”
Deep recessions associated with the pandemic will likely exacerbate the multi-decade slowdown in economic
growth and productivity, the primary drivers of higher living standards and poverty reduction. Adding to the
inequality problem from slow trend growth, the poor and vulnerable are among the hardest hit by the pandemic and
economic shutdown – including through infection, school closures and lower remittance flows.
Measures needed to protect public health have undercut an already fragile global economy, causing deep
recessions in advanced economies and emerging market and developing economies (EMDEs) alike. EMDEs that
have weak health systems; those that rely heavily on global trade, tourism, or remittances from abroad; and those
that depend on commodity exports will be particularly hard-hit, the analysis notes.
In the long-term, the pandemic will leave lasting damage through multiple channels, including lower investment;
erosion of physical and human capital due to closure of businesses and loss of schooling and jobs; and a retreat
from global trade and supply linkages. These effects will lower potential output – the output an economy can sustain
at full employment and capacity – and labor productivity well into the future. Pre-existing vulnerabilities, fading
demographic dividends, and structural bottlenecks will amplify the long-term damage of deep recessions associated
with the pandemic.
“When the pandemic struck, many emerging and developing economies were already vulnerable due to
record-high debt levels and much weaker growth. Combined with structural bottlenecks, this will amplify the
long-term damage of deep recessions associated with the pandemic,” said Ceyla Pazarbasioglu, World Bank
Group Vice President for Equitable Growth, Finance and Institutions.“Urgent measures are needed to
limit the damage, rebuild the economy, and make growth more robust, resilient and sustainable.”
Policies to rebuild both in the short and long-term entail strengthening health services and putting in place very
targeted stimulus measures to help reignite growth. This includes efforts to maintain the private sector and get
money directly to people so that we may see a quicker return to business creation after this pandemic has
passed. During the mitigation period, countries should focus on sustaining economic activity with targeted
support to provide liquidity to households, firms and government essential services. At the same time,
policymakers should remain vigilant to counter potential financial disruptions.
During the recovery period, countries will need to calibrate the winding down of public support and should be
targeting broader development challenges. The analysis discusses the importance of allowing an orderly
allocation of new capital toward sectors that are productive in the new post-pandemic structures that emerge.
To succeed in this, countries will need reforms that allow capital and labor to adjust relatively fast – by
speeding the resolution of disputes, reducing regulatory barriers, and reforming the costly subsidies,
monopolies and protected state-owned enterprises that have slowed development.
For many countries, future economic resilience will depend on their ability to build and retain more human and
physical capital during the recovery. In a post-pandemic world, policies that reflect and encourage new types of
jobs, businesses, and governance systems will be essential. Enhancing transparency in financial commitments
and investment would also help rebuild confidence and facilitate investment growth.
Restrictions on mobility and the global recession have resulted in the steepest one-month drop in oil prices on
record, in March. The predominantly demand-driven plunge in oil prices, which came on the heels of disagreements
among oil producers about production targets, has been accompanied by a steep rise in global oil inventories. The
analysis also details the implications of the oil price plunge for the global economy and, in particular, for energyexporting EMDEs.
In the short-term, while restrictions on transport and travel remain in place, low oil prices are unlikely to provide
much support for growth and may, instead, compound the damage wrought by the pandemic by further
weakening the finances of producers. Low oil prices are likely to provide at best marginal support to global
activity early in the recovery.
“Oil-exporting emerging and developing economies entered the current crisis with eroded fiscal positions after
having drawn on them to weather the 2014-16 oil price drop. In addition to the unprecedented public health
crisis, these economies are now experiencing sharp economic downturns as their export revenues nosedive,”
said Ayhan Kose, Director of the World Bank’s Prospects Group. “Even if oil prices rise as global oil
demand recovers, the recent plunge in prices is another reminder for oil-exporting countries of the urgency to
continue with reforms to diversify their economies.”
Current low oil prices also present an opportunity to review energy pricing policies as energy-importing EMDEs
need to move away from costly subsidy schemes and allocate their limited fiscal resources for higher-priority
expenditures involving improvements in public health and education programs.
World Bank Group COVID-19 Response
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is
taking broad, fast action to help developing countries strengthen their pandemic response. We are supporting
public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private
sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15
months to help more than 100 countries protect the poor and vulnerable, maintain the private sector, and bolster
economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.
The World Bank
