East Asia and the Pacific Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Spring Meetings 2022 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. East Asia and the Pacific Spring Meetings 2022 Cambodia Malaysia Solomon Islands Central Pacific Islands Mongolia South Pacific Islands China Myanmar Thailand Fiji North Pacific Islands Timor-Leste Indonesia Papua New Guinea Vietnam Lao PDR Philippines MPO 2 Apr 22 dustries, as well as agriculture, have fully recovered. In contrast, the important travel CAMBODIA Key conditions and and tourism sector - one of Cambodia’s main growth drivers, accounting for about challenges 2 million jobs and a quarter of GDP during the pre-pandemic period - remained sub- Table 1 2021 COVID-19 infections have resurged since dued. Labor market pressures have been Population, million 16.9 February 2022, caused primarily by the magnified by an increased number of mi- GDP, current US$ billion 28.5 Omicron variant. About 83 percent of the grant workers who have returned home GDP per capita, current US$ 1686.4 population have received two doses of from abroad. a 105.4 School enrollment, primary (% gross) coronavirus vaccine. Cambodia has shifted Cambodia’s total goods (excluding gold) a 69.8 to a strategy for “living with COVID-19” exports accelerated to 22.8 percent in 2021, Life expectancy at birth, years Total GHG Emissions (mtCO2e) 69.7 enabling a broad-based economic recovery driven mainly by surging goods exports Source: WDI, Macro Poverty Outlook, and official data. to take shape. While strong domestic eco- to the United States which expanded 42.4 a/ WDI for School enrollment (2020); Life expectancy nomic momentum continues, a general percent (figure 2). The trade (and current (2019). slowdown in global demand is looming. account) deficit, however, significantly Financial market tightening in the United widened, largely caused by rising imports States, changes in the growth and compo- of a few major items, especially gold used Under the baseline scenario, the growth sition of economic activity, especially in as a hedge against volatility. projection for 2022 remains at 4.5 per- China, and the war in Ukraine, will neg- Inflation has edged up further, reaching atively affect the external environment. In 4.1 percent in January 2022. Supported by cent, as a stronger domestic recovery addition, an unmanageable resurgence of central bank open market operations, the supported by the rollback of mobility re- Omicron or new variants could disrupt nominal exchange rate continued to be strictions is offset by worsening global economic recovery. Rising energy and broadly stable, hovering at riel 4,100 per demand and rising commodity prices. food prices could dampen consumer confi- U.S. dollar. Gross international reserves, The recovery is expected to remain un- dence and worsen people’s welfare, nega- however, declined marginally, reaching tively impacting poverty reduction. In ad- US$ 19.7 billion (9 months of imports) in derpinned by domestic economic activity dition, high credit growth and concentra- December 2021, down from US$21.2 bil- and agricultural commodity exports, tion of domestic credit in the construction lion at the end of 2020. while Cambodia’s export-oriented manu- and real estate sector remain a key risk to Monetary conditions continued to be ac- facturing is expected to face headwinds. Cambodia’s financial stability. commodative. Broad money growth accel- erated to 16.3 percent in 2021, compared to Inflationary pressures are projected to 15.3 percent in 2020. Thanks to improved increase, led by rising food and oil confidence in the banking system and con- prices triggered by the war in Ukraine . Recent developments tinued capital inflows, deposit growth out- Risks to baseline forecast are broadly paced its pre-pandemic growth rate, in- balanced and Cambodia maintains poli- The economic recovery has held up but creasing at 17.2 percent, while domestic remains uneven. Traditional growth dri- credit grew 24.1 percent in December 2021. cy space that it could deploy should vers, especially the garment, travel goods, The annual budget for 2022 is character- these risks materialize. footwear, and bicycle manufacturing in- ized by continued (countercyclical) fiscal FIGURE 1 Cambodia / Real GDP growth and contributions FIGURE 2 Cambodia / Merchandise (excluding gold) exports to sectoral growth Percent, percentage points US$ million YTD, y/y, percent change 8 2,500 30 Projections GTF Non-GTF Exports (rhs) 6 25 2,000 4 20 1,500 15 2 10 0 1,000 5 -2 0 -4 500 2011 2013 2015 2017 2019 2021e 2023p -5 Agriculture Industry Services Net Taxes on Production 0 -10 Real growth Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Source: Cambodian authorities and World Bank staff projections. Notes: e = es- Source: Cambodian authorities. Note: GFT = garment, travel goods, and timate; p = projection. footwear (and other textile products). MPO 3 Apr 22 support with the fiscal deficit expected to down the pace of poverty reduction as it widen to 6.0 percent of GDP. Expenditure weighs on household budgets. is budgeted to reach 26.7 percent of GDP, Outlook Over the medium term, the economy is driven by continued fiscal support to mit- expected to trend back to potential, grow- igate the impacts of the pandemic and Despite a general slowdown in global de- ing at around 6 percent. The new Law expansion of public investment. External mand, growth is projected to hold up at 4.5 on Investment, the Cambodia-China and borrowing is expected to finance about 60 percent this year under the baseline sce- Cambodia-Republic of Korea free trade percent of the deficit, while the rest is nario, thanks to the rollback of mobility agreements and the Regional Comprehen- to be financed by a drawdown of gov- restrictions made possible by Cambodia’s sive Economic Partnership are expected ernment deposits (fiscal reserves) which high vaccination rate. The recovery is ex- to help boost investment and trade in the stood at 17.4 percent of GDP in December pected to remain underpinned by domes- coming years. On the upside, a less per- 2021, down from 23.7 percent of GDP at tic economic activity and agricultural com- sistent global shock could improve the the end of 2020. modity exports. Under the downside sce- outlook for Cambodia. The cash transfer program has been the nario, growth is projected to reach only However, the negative impacts of the coro- largest component of the government’s 3.8 percent in 2022. The downside scenario navirus on jobs and welfare are expected support package. As of February 2022, it assumes a deterioration in domestic eco- to continue as the services sector, especial- covered 690,000 households (2.7 million nomic conditions caused by rising infla- ly the travel, tourism, and hospitality in- individuals) or approximately 19 percent tion, while external conditions worsen dustries, are facing persistent headwinds. of households. The program has dis- caused by a marked slowdown in external It is crucial to implement structural re- bursed US$ 593 million since the launch demand. Cambodia’s export-oriented forms embedded in the economic recovery in June 2020, thus far mitigating some manufacturing is expected to face head- plan to improve Cambodia’s external com- of the negative impacts for the poor and winds in the coming months, with a less petitiveness. Addressing supply side bot- vulnerable households. favorable external environment which is tlenecks by reducing costs of doing busi- The official poverty rate measured at the being reshaped by cyclical slowdown in ness, logistic, and energy, while eliminat- national poverty line declined by 1.6 per- the U.S and structural slowdown in China. ing rigidities in major labor market regula- centage points per year over the period In addition, the energy and food prices tions that prevent a robust recovery of the 2009-2019/20, driven substantially by ris- hike due to the economic consequences of job market remains key to a sustained eco- ing labor (especially wage) earnings. the war in Ukraine is expected to slow nomic recovery and job creation. TABLE 2 Cambodia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.1 -3.1 3.0 4.5 5.8 6.6 Private Consumption 7.0 -0.8 1.3 1.3 1.4 1.5 Government Consumption 10.0 12.5 -28.3 7.2 14.2 16.6 Gross Fixed Capital Investment 6.9 11.2 -11.8 4.0 9.6 9.0 Exports, Goods and Services 7.8 1.1 14.9 16.5 17.2 18.5 Imports, Goods and Services 6.0 7.3 21.7 12.0 13.5 14.8 Real GDP growth, at constant factor prices 6.8 -3.1 2.8 4.5 5.8 6.5 Agriculture -0.5 0.4 1.1 1.3 1.5 1.5 Industry 11.3 -1.4 7.4 8.6 9.1 9.2 Services 6.2 -6.2 -1.0 1.6 4.1 5.6 Inflation (Consumer Price Index) 3.2 2.9 3.5 6.5 4.5 4.0 Current Account Balance (% of GDP) -15.2 -12.0 -28.5 -15.8 -13.6 -13.2 Net Foreign Direct Investment (% of GDP) 13.2 13.0 12.7 12.9 13.9 15.0 Fiscal Balance (% of GDP) 1.5 -4.3 -5.7 -6.0 -4.9 -3.7 Debt (% of GDP) 28.2 34.4 34.8 35.6 35.8 36.7 Primary Balance (% of GDP) 1.9 -3.7 -5.2 -5.5 -4.3 -3.1 GHG emissions growth (mtCO2e) 2.6 -1.5 -0.4 1.5 2.5 2.5 Energy related GHG emissions (% of total) 23.0 22.2 22.1 23.3 25.0 26.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 4 Apr 22 the population were below the national poverty line, and high shares of the pop- CENTRAL Key conditions and ulation were deprived of non-monetary needs, such as access to clean water, san- challenges PACIFIC ISLANDS itation, and electricity. Nauru faces the challenge of adjusting Until the emergence of the highly trans- to reduced fiscal revenues and finding missible Omicron variant, the Central Pa- new sources of economic growth and Table 1 2020 cific countries had been spared from se- jobs over the medium term. Economic Population, million vere health impacts due to the pandemic. growth, employment and public revenues Kiribati 0.12 However, in January 2022 an outbreak have been highly dependent on activity Nauru 0.01 took hold in Kiribati’s capital, with the associated with Australia’s Regional Pro- Tuvalu 0.01 GDP, US$, billion virus managing to evade the strict quar- cessing Centre (RPC) for asylum seekers, Kiribati 0.19 antine protocols for inbound travelers. phosphate mining and fishing. However, Nauru 0.11 Nauru and Tuvalu remain COVID-free phosphate resources have now been fully Tuvalu 0.05 thus far, but may have to grapple with exploited, and the RPC is now transi- GDP per capita, current US$ the rapid spread of the virus as they re- tioning to a new ‘enduring capability’ Kiribati 1671 open their borders. In the long term, the arrangement with Australia, which will Nauru 8867 Central Pacific faces major development see the facility continue to operate on a Tuvalu 4663 challenges due to extreme vulnerability significantly reduced scale. Sources: WDI, World Bank staff estimates. to climate change, small size, remoteness, In Tuvalu, fishing license fees are projected heavily reliance on external grants, near- to decline as the El Nino cycle wanes. total dependence on imports for foods Strengthening public financial manage- Growth rates in Kiribati, Nauru and Tu- and fuel, and limited sources of revenue. ment is a priority, in particular reining in valu remain far below pre-pandemic lev- All three countries have invested in trust the elevated fiscal costs of overseas health funds in order to stabilize volatile rev- care and improving procurement proce- els. While Tuvalu and Nauru remain enues and provide long-term develop- dures to ensure more cost-effective capital COVID-free, the fast spread of ment financing, but fiscal sustainability spending. Though no recent data on COVID-19 in Kiribati in January 2022 remains an important challenge. poverty is available, in 2010 an estimated highlighted the need to reinforce pre- In recent years, Kiribati’s growing rev- 26 percent of the population lived below enues from fisheries have allowed the the national poverty line. paredness. Higher commodity prices, ex- government to rapidly increase public acerbated by the Ukraine-Russia war, will spending to tackle the country’s high add to inflationary pressures and hold rates of poverty and deprivation. How- back growth. A narrow economic base ever, with the available fiscal space now Recent developments and vulnerability to climate change are exhausted, Kiribati will now need to fo- cus on the quality of public spending – Kiribati experienced a modest economic key challenges for growth and poverty re- rather than the quantity – in order to recovery in 2021, with estimated 1.5 per- duction in the Central Pacific. achieve further development gains. Ac- cent growth. COVID-19 border closures cording to a 2019 survey, 21.9 percent of had resulted in a 0.5 percent contraction FIGURE 1 Central Pacific Islands / Sources of revenue, FIGURE 2 Central Pacific Islands / Sovereign wealth fund 2016-2021 balances Percent of GDP Fund balance, % of GDP (lines) Per capita value, A$ (bars) 200 500 25000 450 150 400 20000 350 100 300 15000 50 250 200 10000 0 150 100 5000 50 Kiribati Nauru Tuvalu 0 0 Fishing license fees Regional Processing Centre .TV domain Other revenue 2016 2017 2018 2019 2020 Grants Kiribati Nauru Tuvalu Sources: Country authorities, and World Bank and IMF staff estimates and projec- Sources: Country authorities, and World Bank and IMF staff estimates and pro- tions. Notes: Nauru data are June years; Kiribati and Tuvalu are calendar years. jections. Notes: Nauru data are June years; Kiribati and Tuvalu are calendar years. The Nauru Trust Fund was established in 2016. MPO 5 Apr 22 in 2020, with major disruption to business school reconstruction. Buoyant fishing li- now launching a vaccine campaign for un- travel, development projects, and fresh cense revenues, the country’s main source der-18s. The highly successful vaccination fish exports. However, increased public of revenue, rose to an estimated 56 percent campaign has allowed for the gradual re- spending on social benefits in 2021 out- of GDP in 2020, much higher than expect- turn of international travel, with quaran- weighed the ongoing effects of the border ed. The fiscal deficit is expected to widen tine requirements now removed for vac- measures, and supported a modest return to 7 percent of GDP in 2021 due to a 20 per- cinated travelers from Australia. Nonethe- to growth. This included a new unemploy- cent fall in fishing license fees and an in- less, modest growth of only around 1 per- ment benefit for all 18–60-year-olds with- crease in expenditures, including addition- cent is expected in FY22, due to the ex- out a formal job. This is expected to help al COVID related spending and planned pected wind-down of RPC activity in the reduce poverty given that more than three air service investment. The total stock of second half of the year. However, a re- quarters of Kiribati’s adult population are sovereign wealth funds for Tuvalu, com- turn to more robust growth of around 2.5 eligible to receive support, but the broad prising the Tuvalu Trust Fund (TTF), the percent in FY23 and the medium term is coverage of the program dilutes the ben- Consolidated Investment Fund (CIF), and projected, once the new port infrastruc- efits to the Bottom 40. At an annual cost the Tuvalu Survival Fund (TSF), is around ture comes online. Although the RPC of 12 percent of GDP, the benefit has also 292 percent of GDP at end-2021. wind-down will place growing pressure introduced significant fiscal pressures. on government finances over the medium Nonetheless, a 14.5 percent of GDP draw- term, a balanced budget is projected for down from the sovereign wealth fund lim- FY22. This is due to off-budget RPC in- ited the 2021 fiscal deficit to an estimated Outlook come from previous years being recog- at 3.7 percent of GDP. As of end 2021, the nized as revenues, cushioning the impact value of the sovereign wealth fund stood at In Kiribati, moderate growth of about 1.8 of the RPC wind-down, as well as strong 490 percent of GDP. percent is projected in 2022. Although a fisheries revenue performance. In Nauru, growth is projected to have lockdown in the first quarter has subdued Tuvalu, with nearly 90 percent of adults reached 1.5 percent in FY21, with stronger activity, supportive fiscal policy measures fully vaccinated, is considering options than expected activity related to the RPC and the expected gradual return of inter- for a gradual reopening of the borders and a major port redevelopment project national construction projects from the sec- with key countries, such as Fiji (the main helping to offset the effects of border clo- ond half of 2022 will help to safeguard the hub for Tuvalu). Growth is therefore pro- sures. In FY21, the fiscal cost of COVID-19 recovery. After a slow start, the double jected to rebound to 3.5 percent in 2022 amounted to 5 percent of GDP, including dose vaccination rate has now reached 77 and to climb steadily to 4 percent by funding for the vaccine rollout and subsi- percent of adults (as of 3 March 2022), 2024. The fiscal deficit will reach 2.9 per- dies to maintain vital air and sea freight opening up the possibility that quarantine cent of GDP in 2022 as expenditures fall links. However, with better-than-expected measures could be relaxed later this year. back closer to pre-COVID levels while revenues from the RPC, Nauru was still Meanwhile, inflationary pressures are ex- revenues are projected to fall by over 10 able to achieve an estimated surplus of 11 pected to build in 2022, in line with inter- percent of GDP. Fishing license fees are percent of GDP. With this surplus and a national trends in food and fuel prices. The expected to fall to 41.5 percent of GDP drawdown on cash reserves, Nauru made fiscal deficit is expected to reach 6.0 per- in 2022 from 43.5 percent in 2021. On the a contribution worth 19 percent of GDP to cent of GDP in 2022, after accounting for other hand, tuna transshipment in Funa- its Intergenerational Trust Fund in FY21, budget support grants and a 7.8 percent of futi, reinstated in February 2022 after a bringing the fund balance to 109 percent of GDP drawdown on the sovereign wealth two-year ban due to COVID-19, is expect- GDP. Meanwhile, in the first two quarters fund. Kiribati’s ample cash reserves mean ed to bring additional revenues amount- of FY22, RPC activity continued to exceed that projected deficits can be sustainably fi- ing to 2 percent of GDP. Over the medi- expectations. This, along with strong fish- nanced over the medium term, but further um-term, the fiscal deficit is projected to eries revenue receipts, has generated a fis- expenditure growth would put this assess- remain below 3 percent of GDP. cal surplus for the year to-date. ment at risk. The authorities’ fiscal anchors Risks to the Central Pacific outlook are In Tuvalu, the pandemic impacted travel on sovereign wealth fund drawdowns and substantial and include the unpredictabil- and trade but the country avoided a re- maintaining adequate cash reserves pro- ity of the pandemic; volatility in revenue cession. The economy grew an estimated vide important sustainability safeguards. flows, including budget support from de- 2.5 percent in 2021, supported by the infra- In Nauru, 96 percent of eligible adults are velopment partners; and the ever-present structure projects linked to the airport and fully vaccinated, and the government is threat of climate-related natural disasters. TABLE 2 Central Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021f 2022f 2023f 2024f Real GDP growth, at constant market prices Kiribati -0.5 -0.5 1.5 1.8 2.5 2.3 Nauru 1.0 0.7 1.5 0.9 2.6 2.4 Tuvalu 13.9 1.0 2.5 3.5 3.8 4.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) Kiribati 16.2 17.8 17.6 17.4 17.2 16.8 Sources: World Bank and IMF. e = estimate; f = forecast. Note: Country authorities and World Bank and IMF staff estimates. Nauru data are based on the fiscal year ended June. Kiribati and Tuvalu are calendar years. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 6 Apr 22 rapidly and remained below potential since the second half of 2021, as significant CHINA Key conditions and fiscal policy and regulatory tightening, a downturn in the housing market, and fre- challenges quent COVID outbreaks weighed on eco- nomic activities. Table 1 2021 After a swift rebound, China’s economic The surveyed urban unemployment rate Population, million 1412.4 recovery lost momentum in the second returned to 2019 levels and about 12.7 mil- GDP, current US$ billion 17755.1 half of last year. Domestic demand has lion new jobs were created in 2021, exceed- GDP per capita, current US$ 12571.2 slowed, and the global economic environ- ing China’s annual target of 11 million new a 0.1 International poverty rate ($1.9) ment has worsened significantly with the urban jobs. After a marked slowdown in a 1.7 war in Ukraine. In addition, COVID in- 2020, disposable household income grew Lower middle-income poverty rate ($3.2) a 15.8 cursions have become more frequent and strongly in 2021 by 8.1 percent y/y with Upper middle-income poverty rate ($5.5) Gini index a 38.2 widespread. China is currently experienc- faster growth among rural households. School enrollment, primary (% gross) b 103.2 ing the largest COVID wave since the With rising household income, per capita b 76.9 end of the national lockdown in March consumption expenditure also accelerated Life expectancy at birth, years 2020 with more than 50,000 cases since by 12.6 percent y/y. As overall conditions Total GHG Emissions (mtCO2e) 12892.3 the start of 2022. improved, the poverty rate resumed its Source: WDI, Macro Poverty Outlook, and official data. Over the medium term, China’s potential pre-pandemic declining trend, and is ex- a/ Most recent value (2019), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy growth is decelerating due to structural pected to fall below 12.3 percent in 2021 (2019). factors. The economy has embarked on a when considering the upper-middle in- structural slowdown reflecting adverse de- come countries’ poverty line of $5.50/day mographics, tepid productivity growth per person (2011 PPP). and rising constraints to a growth model Although activity data for the first two With rising external headwinds and do- that relies excessively on investment. To months point to a robust start in 2022, avert a sharper slowdown China needs to COVID outbreaks, a challenging external mestic challenges, economic growth is revive productivity growth and rebalance environment, housing market downturn projected to slow to 5.0 percent y/y in the economy along multiple dimensions: and a still-sluggish consumption recovery 2022. By 2022, 10.8 percent of the popu- from exports and investment to greater re- hint at further downside pressure on near- lation in China are expected to fall below liance on domestic consumption, from term economic activity. Faced with grow- state-led to more market-driven growth, ing downside pressure on growth, policy- the $5.50/day per person poverty line and from high to low-carbon growth. makers have shifted to a more accom- (2011 PPP). The near-term outlook is modative monetary and fiscal policy highly uncertain with risks tilted to the stance. While the government set the 2022 downside amid frequent COVID out- quota for special local government bond breaks, an ongoing housing market cor- Recent developments issuance to finance infrastructure projects at RMB 3.65 trillion, the actual quota might rection, and the war in Ukraine. Full-year GDP growth in 2021 accelerated be substantially higher at about RMB 4.7 to 8.1 percent y/y. After a strong rebound trillion due to the carryover of last year’s in the first half of 2021, growth cooled bond proceeds. In addition, the State FIGURE 1 China / Real GDP growth and contributions to real FIGURE 2 China / Actual and projected poverty rates and GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 9 30 90000 8 80000 7 25 70000 6 20 60000 5 4 50000 15 3 40000 2 10 30000 1 20000 0 5 10000 -1 2013 2015 2017 2019 2021e 2023f 0 0 Private consumption Government consumption 2016 2018 2020 2022 Gross capital formation Net Exports International poverty rate Lower middle-income pov. rate Statistical Discrepancy GDP Upper middle-income pov. rate Real GDP pc Source: China’s National Bureau of Statistics; World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 7 Apr 22 Council extended some of the tax and fee Private investment growth is expected to consumer confidence and trigger larger reduction policies for SMEs to the end of weaken as manufacturing investment and more prolonged economic disrup- 2023. The PBOC has implemented multiple slows owing to weaker external demand, tions. Meanwhile, more severe financial policy easing measures since last Decem- and real estate investment remains sub- stress among property developers could ber including cuts in various interest rates dued with the authorities maintaining create negative spillovers to upstream and regulators have finetuned housing their focus on reining in financial risks in sectors and weigh on investment and con- policies in recent months to support the re- the property sector. The growth projection sumption. On the external side, risks al estate sector. assumes substantial loosening of fiscal pol- could transmit through a stronger than icy to stem these headwinds which are ex- expected slowdown in global demand pected to lead to accelerated infrastructure and a longer lasting shock to commodity investment. Given the projected economic prices. In a downside scenario with a Outlook growth for 2022, the poverty rate mea- more dominant COVID shock growth sured at $5.50/day per person is expected could slow to 4.0 percent in 2022. While On the back of increasing headwinds, Chi- to fall to 10.8 percent, with more than a China has policy space to act, using ex- na’s GDP growth is expected to slow to third of the poor residing in urban areas. cessive stimulus to boost investment 5.0 percent in 2022. The recent and wide- The decline represents 22 million fewer could further aggravate domestic imbal- spread Omicron wave will further delay poor people than in 2021. ances and delay the shift towards high the recovery in private consumptions and The outlook is highly uncertain with risks quality growth. In light of these consider- service-led activities. On the external side, tilted to the downside. The key downside ations, should China face further negative China is expected to face a decline in its risk are more severe and protracted shocks, policy makers may want to set- terms of trade as well as a decline in export COVID outbreaks, which could impair tle for lower growth and maintain policy demand, with the growth contribution of production and domestic supply chains buffers rather than jeopardize hard-won net exports likely turning negative in 2022. with knock on effects on investor and rebalancing gains. TABLE 2 China / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.0 2.2 8.1 5.0 5.2 5.1 Private Consumption 6.5 -1.8 12.2 5.6 6.6 6.5 Government Consumption 6.0 3.2 4.3 7.1 4.1 4.4 Gross Fixed Capital Investment 5.3 3.2 2.7 4.2 5.1 4.8 Exports, Goods and Services 2.2 1.4 17.5 3.8 3.1 3.0 Imports, Goods and Services -1.7 -1.7 9.9 5.8 4.3 4.3 Real GDP growth, at constant factor prices 6.0 2.2 8.1 5.0 5.2 5.1 Agriculture 3.1 3.1 7.1 3.2 3.1 3.1 Industry 4.9 2.5 8.2 4.8 4.6 4.5 Services 7.2 1.9 8.2 5.4 6.0 5.8 Inflation (Consumer Price Index) 2.9 2.5 0.9 2.2 2.0 1.9 Current Account Balance (% of GDP) 0.7 1.9 1.8 1.3 1.2 1.1 Net Foreign Direct Investment (% of GDP) 0.4 0.7 1.2 0.9 0.9 0.8 a Fiscal Balance (% of GDP) -4.6 -8.6 -4.4 -7.1 -5.5 -4.3 Debt (% of GDP) 38.5 45.4 45.1 49.3 51.4 52.3 Primary Balance (% of GDP) -3.6 -7.4 -3.2 -5.8 -4.1 -3.0 b,c International poverty rate ($1.9 in 2011 PPP) 0.1 0.1 0.1 0.0 0.0 0.0 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.7 1.5 1.0 0.8 0.6 0.5 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.8 15.0 12.3 10.8 9.3 7.9 GHG emissions growth (mtCO2e) 2.5 1.5 5.8 2.3 1.7 1.2 Energy related GHG emissions (% of total) 81.8 81.9 82.0 81.8 81.7 81.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ The adjusted fiscal balance adds up the public finance budget, the government fund budget, the state capital management fund budget and the social security fund budget. b/ Last grouped data available to calculate poverty is for 2019 provided by NBS.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2021 to 2024. c/ Projections based on GDP growth estimates, using a neutral distribution assumption with pass through 0.85 to per capita household consumption. MPO 8 Apr 22 goals, leading to a sharp increase in public debt. The compound effect of lost liveli- FIJI Key conditions and hoods across sectors and asset damage from the natural disasters exposed a sig- challenges nificant proportion of the population to in- creased poverty and vulnerability. Exclud- Table 1 2021 Fiji is a small island nation in the South ing the impact of the COVID assistance Population, million 0.9 Pacific Ocean with a population of about measures, poverty rate based on the up- GDP, current US$ billion 4.7 900,000. Remoteness, natural hazards, and per-middle income poverty line is estimat- GDP per capita, current US$ 5163.1 climate change represent major obstacles ed to have increased by 11 percentage a 2.6 International poverty rate ($1.9) to development. Tourism is the main dri- points in 2020 from the pre-pandemic lev- a 17.8 ver of the economy and a major source of el. The Government introduced several Lower middle-income poverty rate ($3.2) a 55.5 foreign exchange, contributing nearly 40 measures to mitigate these impacts, in- Upper middle-income poverty rate ($5.5) School enrollment, primary (% gross) b 116.5 percent of GDP, prior to COVID-19. In re- cluding top-ups through existing social Life expectancy at birth, years b 67.4 cent years to 2019, growth was under- programs and the National Provident pinned by robust tourism, rising house- Fund unemployment assistance. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2011 PPPs. hold consumption, and extensive recon- b/ Most recent WDI value (2019). struction after major natural disasters. Be- fore the onset of the global pandemic, Fiji’s poverty rate was 17.8 percent and 55.5 per- Recent developments Reopening of Fiji’s borders to tourism in cent based on the lower and upper middle- December 2021 marked a major step to- income poverty lines, respectively. Reopening of Fiji’s borders to tourism in The COVID-19 pandemic presented Fiji December 2021 after a 21-month closure wards economic recovery. The economy is with an economic crisis of unprecedented marked a major step towards economic re- expected to reach the pre-pandemic level scale. The country recorded one of the covery. Border reopening was enabled by a by 2024, supported by private consump- steepest economic contractions in the COVID-19 vaccination rate of over 90 per- tion and investment. The outlook remains world and the worst in its history. Follow- cent and the adoption of best-practice ing the onset of the pandemic and border COVID-19 control policies and protocols. highly uncertain as the tourism sector closures in 2020, the tourism sector col- Tourists and visitors have begun returning may recover slower than expected. Risks lapsed with a ripple effect on all segments from the country’s traditional source mar- also include re-emergence of COVID-19, of the economy. Real GDP contracted by kets, especially Australia. The initial fig- cyclones and floods, and the impact of the 15.2 percent in 2020 and a further 4.1 per- ures show the arrivals to be around 45 per- cent in 2021 in the wake of the Delta vari- cent of pre-COVID-19 levels. However, Russia-Ukraine war. Speeding up eco- ant outbreak. The country was also hit by while this is a positive sign, recovery is nomic recovery will require structural re- Tropical Cyclone (TC) Harold and TC Yasa likely to be slow and risks remain due to forms while fiscal consolidation is needed in 2020, and TC Ana in 2021 with extensive the emergence of potential new variants, to ensure that the public debt returns to a damage to agriculture, public buildings, a highly vulnerable population given the downward trajectory. and tourism facilities. These shocks aggra- high prevalence of non-communicable dis- vated pre-existing fiscal vulnerabilities eases, and the risk of cyclones and floods. and upended the authorities’ fiscal policy The high dependence on tourism adds to FIGURE 1 Fiji / Real GDP growth and contributions to real FIGURE 2 Fiji / Actual and projected poverty rates and real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 80 14000 5 70 12000 60 0 10000 50 -5 8000 40 6000 -10 30 4000 -15 20 10 2000 -20 2017 2018 2019 2020 2021 2022 2023 2024 0 0 Private Consumption Government Consumption 2019 2021 2023 Capital Formation Net Exports International poverty rate Lower middle-income pov. rate GDP Growth Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy, and IMF and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 9 Apr 22 the vulnerability of sustained recovery 2020, reflecting the drop in the service poorest and most vulnerable as food ac- and highlights the need for diversified balance. Tourism receipts in 2021 fell by counts for about 40 percent of their con- sources of growth. The structural reform 94 percent from the pre-pandemic level. sumption basket. The Government is com- agenda includes building climate re- Pressure on the balance of payments has mitted to fiscal consolidation with the fis- silience and creating a more supportive en- been cushioned by the influx of external cal deficit projected to fall to 4.0 percent vironment for private-sector-led growth. financing through loans and grants from of GDP in 2024 from 12.1 percent in 2022. Attracting more FDI and expanding the multilateral and bilateral creditors. This is This will be achieved through efforts to role of the private sector in the economy supplemented by strong growth in per- mobilize domestic revenues, including will require modernizing the legal and sonal remittances, which rose by 42 per- through the revenue measures announced regulatory framework. cent in 2021 from 2019, the sale of Energy in the Revised Budget in March. In par- A steep fall in revenue and rise in expen- Fiji Limited (EFL) shares abroad and the allel, spending will be contained through ditures due to fiscal stimulus to mitigate additional 2021 IMF SDR allocation. Re- strict wage bill control and a reduction in the impact of the pandemic widened the serves remained stable, US$1,570 million operating subsidies and capital outlays. fiscal deficit to 8.1 percent of GDP in 2020 (9.9 months of prospective imports) at The risk of debt distress has heightened and 12.8 percent in 2021. As a result, the end-December 2021. with the debt-to-GDP ratio projected to public debt-to-GDP ratio increased to 87 climb to 90.9 percent of GDP in 2022, re- percent in 2021 from 51.6 percent in 2019. flecting borrowing to counter the impact Monetary policy was eased to counter the of COVID-19 and the contraction in nom- impact of COVID-19 and remains accom- Outlook inal GDP. Public debt is assessed as sus- modative. The Central Bank cut the tainable over the medium-term, contingent overnight policy rate from 0.50 to 0.25 per- Outlook is subject to considerable uncer- on fiscal consolidation, the resumption of cent in the first quarter of 2020. Inflation tainty and hinges on the tourism sector’s growth and commitment to borrow pri- fell to a historic low of -2.8 percent at end- performance. Growth is projected to recov- marily on concessional terms. The current December 2020, in the context of a sub- er to 6.3 percent in 2022 and rise to 7.7 per- account deficit is expected to narrow to 8.8 stantial output gap, and on account of low- cent by 2023 driven by increased private percent of GDP in 2022 and converge to 6.8 er food and fuel prices as well as reduced consumption and investment supported percent of GDP by 2024 due to increases in tariffs and taxes (implemented to mitigate by tourism and remittances. Poverty is ex- the services and secondary income balance the impact of the pandemic). Inflation re- pected to follow a downward trend, al- on account of higher anticipated tourism merged in the second half of 2021 due to though it is not anticipated to return to and remittance inflows. Risks to growth in- the surge in global commodity prices and pre-pandemic levels by 2024. The Russia- clude a drop in tourism appetite, a new continued supply chain disruptions, reach- Ukraine war is likely to add to inflationary wave of COVID-19 in Fiji or Australia and ing 3 percent at year-end. The current ac- pressures and dampen external account New Zealand, impacts of adverse natural count deficit widened to 15.6 percent of and may also impact tourism. Higher food disasters, and the economic consequences GDP in 2021, relative to 13.2 percent in and energy prices will especially harm the of the Russia-Ukraine war. TABLE 2 Fiji / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.4 -15.2 -4.1 6.3 7.7 5.6 Inflation (Consumer Price Index) -0.9 -2.8 3.0 4.5 3.0 2.7 Current Account Balance (% of GDP) -12.6 -13.2 -15.6 -8.8 -7.0 -6.8 Fiscal Balance (% of GDP) -4.3 -8.1 -12.8 -12.1 -6.4 -4.0 a,b International poverty rate ($1.9 in 2011 PPP) 2.6 4.9 5.9 4.9 3.7 3.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 17.8 25.4 28.0 25.2 21.5 20.0 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 55.5 66.2 69.0 65.9 61.9 59.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Calculations based on EAPPOV harmonization, using 2019-HIES.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 10 Apr 22 public consumption and exports. This came on the back of a counter-cyclical INDONESIA Key conditions and fiscal and monetary response to the pan- demic, higher commodity prices, and a challenges pick-up in external demand. On the sup- ply side, more than 60 percent of the Table 1 2021 Sound macro fundamentals prior to the contribution to growth in 2021 came Population, million 276.4 pandemic allowed Indonesia to build fi- from the manufacturing, wholesale & GDP, current US$ billion 1186.1 nancial and fiscal buffers to respond to the trade, construction, and telecom sectors GDP per capita, current US$ 4291.8 crisis. However, the country faces several reflecting growing demand especially in a 2.2 International poverty rate ($1.9) long-term structural challenges that can af- sectors less affected by COVID-19 restric- a 18.0 fect the recovery phase. Prudent macro tions. Leading indicators in February al- Lower middle-income poverty rate ($3.2) a 50.2 management has been constrained by low so pointed to sustained recovery in do- Upper middle-income poverty rate ($5.5) Gini index a 37.3 tax effort, shallow financial markets and mestic demand, with Purchasing Manag- School enrollment, primary (% gross) b 106.4 competitiveness challenges. Indonesia has er Index, consumer confidence and retail b 71.7 responded well to the crisis, including in sales improving. Life expectancy at birth, years terms of addressing these challenges Price pressures remained low despite in- Total GHG Emissions (mtCO2e) 1755.8 through structural reforms to boost taxa- flation reaching a 20-month high of 2.1 per- Source: WDI, Macro Poverty Outlook, and official data. tion and investment. cent (yoy) in February. This reflects rising a/ Most recent value (2021), 2011 PPPs. b/ WDI for School enrollment (2018); Life expectancy Indonesia faces short-term cyclical chal- food prices due to restrained supply, high- (2019). lenges that can weigh on the recovery. As er commodity prices, and in line with the COVID-19 may become endemic, a strat- narrowing output gap. Higher tobacco du- egy for accelerating the vaccination pro- ties and adjustment in non-subsidized Indonesia’s economy is recovering sup- gram over a protracted period is needed. LPG prices also raised administered ported by growing commodities exports Risks from US monetary tightening could prices. Nevertheless, the inflation rate re- also increase the cost of external financing, mains within Bank of Indonesia’s target and accommodative fiscal policy. This and rising tensions in Europe is worsening range (2-4 percent). helped reduce poverty closer to pre-pan- the external environment. Meanwhile, em- The external position remained sound demic levels. Medium term growth will ployment and incomes have not returned despite tightening global monetary be supported by rising private consump- to pre-pandemic levels, especially among conditions. Indonesia ended the year vulnerable households, and social assis- with a small current account surplus tion and investment as aggregate de- tance program coverage among targeted of 0.3 percent of GDP, the first since mand picks up and structural reforms groups remains low. 2011. This follows a solid performance start paying off. Downside risks remain by exports (up 46.1 percent) driven by elevated and could derail recovery, in- commodities and manufactured goods. cluding worsening global conditions and The position was supported by a sta- renewed COVID-19 outbreaks. Recent developments ble Real Effective Exchange Rate (REER) and capital flows as well as Growth rebounded from -2.1 percent in improvement in the secondary income 2020 to 3.7 percent in 2021, supported by balance due to government grants for FIGURE 1 Indonesia / Real GDP growth and contributions FIGURE 2 Indonesia / Poverty rate is declining albeit at a to real GDP growth slower pace than pre-pandemic years Percent, percentage points Percent 8 100 PPP USD $1.9 Poverty Rate 6 PPP USD $3.2 Poverty Rate 4 PPP USD $5.5 Poverty Rate 80 2 0 60 -2 -4 40 -6 -8 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 20 Private consumption Government consumption Investment Net exports Stat. discrepancy Change in inventories 0 GDP 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Sources: National Statistics Agency and World Bank. Sources: National Statistics Agency and World Bank. Note: Forecast is from 2021 onwards. MPO 11 Apr 22 COVID-19 support. Foreign reserves are 2022 in line with strengthening growth adequate covering 7.2 months of imports prospects. The recently approved Tax Har- by end 2021. Outlook monization Law will increase tax rates, Fiscal policy has been accommodative to broaden the tax base, facilitate tax compli- offset the pandemic’s fallout. The fiscal A recovery in private consumption and in- ance, and introduce a carbon tax. package has focused on health, social as- vestment supported by structural reforms Poverty is projected to continue falling as sistance, and firms support. This was are expected to boost growth to 5.3 percent the recovery fuels private consumption. made possible by commodity and oil in the medium-term. Net exports will par- However, the pace of decline, based on low- price windfalls that boosted fiscal rev- tially offset this as domestic demand boosts er-middle income countries poverty line of enues to 11.8 percent. The fiscal deficit imports, while exports ease following mod- $3.2 per day in PPP terms, will be halved narrowed from 6.1 to 4.6 percent of GDP eration in external demand. As the output from -3.0 pp/year in pre-pandemic years in 2020-2021. Monetary policy has also gap closes further, inflation is expected to 2014-2019 to -1.5 pp/year going forward been accommodative thus far but may increase over the medium term to 3.3 per- (2019-2024). Whether this progress is tighten going forward in line with tighter cent by 2024, slightly below the upper band achieved depends on the degree to which global financial conditions. The authori- target of the central bank. With improve- the recovery is inclusive of vulnerable ties announced a rise in the reserve re- ments in domestic demand, the outlook groups. Meanwhile, strengthened efforts quirements ratio starting in March 2022, projects a return to a current account deficit. are needed to mitigate the pandemic’s long- although the policy rate has remained However, external financing needs will re- term scarring impacts on productivity and unchanged since February 2021. Private main moderate at 2.2 percent of GDP (aver- inequality through the human capital chan- sector credit increased slightly in recent age 2022-2024) aligned with an increase in nel. Projections indicate large losses in life- months but has remained weak through- FDI. As such, foreign reserves are expected time earnings due to learning losses during out the pandemic. to exceed 7.8 months of imports. widespread school closures in 2020-2021. Poverty continued to decline, getting clos- The fiscal stance is expected to tighten with the Downside risks to the outlook remain ele- er to its pre-pandemic level. In September 2022 fiscal deficit projected at 3.7 percent of vated. Risks are stemming from faster-than- 2021, the poverty headcount rate, based GDP. Consistent with its previous announce- expected global financial tightening and on the national poverty line, fell to 9.7 ments, the government is committed to return contagion effects from EMs that can render percent after peaking at 10.2 percent in tothelegallymandated3percentofGDPdeficit external financing more expensive, pan- 2020. Progress was observed in both ur- by 2023. The consolidation path will be an- demic-related fiscal shocks that could derail ban and rural areas, stemming from em- chored on scaling back the economic recovery pro-growth programs, further scarring with ployment growth in manufacturing, program and on boosting domestic revenue implications on productivity and competi- wholesale & trade, as well as in the food mobilization. The recovery spending will ease tiveness, and changing global demand and and accommodation sectors. from4.0percentofGDPin2021to2.6percentin inflation related to the Russia-Ukraine war. TABLE 2 Indonesia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -2.1 3.7 5.1 5.3 5.3 Private Consumption 5.2 -2.7 2.0 4.7 5.0 5.2 Government Consumption 3.3 2.0 4.2 1.4 1.5 4.4 Gross Fixed Capital Investment 4.5 -5.0 3.8 5.6 6.4 6.5 Exports, Goods and Services -0.5 -8.1 24.0 14.7 10.3 8.3 Imports, Goods and Services -7.1 -16.7 23.3 14.9 11.0 10.0 Real GDP growth, at constant factor prices 5.0 -1.6 3.3 5.2 5.3 5.3 Agriculture 3.6 1.8 1.8 3.8 3.9 3.9 Industry 3.8 -2.8 3.4 4.1 4.4 4.4 Services 6.4 -1.5 3.6 6.6 6.4 6.5 Inflation (Consumer Price Index) 2.8 2.0 1.6 2.7 3.1 3.3 Current Account Balance (% of GDP) -2.7 -0.4 0.3 -0.9 -1.4 -1.9 Net Foreign Direct Investment (% of GDP) 1.8 1.3 1.4 1.6 1.8 1.9 Fiscal Balance (% of GDP) -2.2 -6.1 -4.6 -3.7 -3.0 -3.0 Debt (% of GDP) 30.0 39.3 40.7 42.9 43.2 43.4 Primary Balance (% of GDP) -0.5 -4.1 -2.6 -1.5 -0.6 -0.5 a,b International poverty rate ($1.9 in 2011 PPP) 2.7 2.3 2.2 1.7 1.4 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 19.9 18.8 18.0 16.0 14.2 12.6 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 52.2 51.0 50.3 47.9 45.5 43.2 GHG emissions growth (mtCO2e) 2.4 -0.8 1.4 1.9 1.9 1.8 Energy related GHG emissions (% of total) 34.5 34.0 34.7 35.7 36.7 37.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2011-SUSENAS and 2021-SUSENAS.Actual data: 2021. Forecastss are from 2022 to 2024. b/ Projection using annualized elasticity (2011-2021) with pass-through = 1 based on GDP per capita in constant LCU. MPO 12 Apr 22 (especially fuel) and additional exchange rate depreciation pressures, which would LAO PDR Key conditions and increase inflation. Moreover, a slower- than-expected economic recovery in key challenges trading and investment partners may cur- tail external demand. However, high min- Table 1 2021 Unaddressed debt challenges can hamper eral prices and the opening of the Lao- Population, million 7.4 medium-term economic growth. High China railway (in December 2021) will GDP, current US$ billion 18.7 public debt levels and rising debt service likely support merchandise exports and GDP per capita, current US$ 2539.0 obligations pose liquidity and solvency the domestic services sector – especially a 18.3 National Official Poverty Rate problems that compound other macroeco- transport and logistics services. a 10.0 nomic vulnerabilities – such as low rev- Domestic and external uncertainty affects International poverty rate ($1.9) a 37.4 enue collection and limited foreign re- economic prospects. COVID-19 vaccina- Lower middle-income poverty rate ($3.2) Gini index a 38.8 serves. A positive conclusion of ongoing tion rates have improved, with 58 percent School enrollment, primary (% gross) b 98.8 debt renegotiations will be vital for of the population fully vaccinated, but a b 67.9 restoring macroeconomic stability. Grow- large Omicron outbreak could still under- Life expectancy at birth, years ing debt service requirements, in a con- mine economic activity. Tightening global Total GHG Emissions (mtCO2e) 42.3 text of declining revenues and expendi- macroeconomic conditions and geopoliti- Source: WDI, Macro Poverty Outlook, and official data. ture consolidation, have narrowed the fis- cal tensions could impact Lao PDR a/ National Statistics Office. Most recent value (2018). b/ WDI for School enrollment (2020); Life expectancy cal space for investments in human and through higher commodity prices (espe- (2019). physical capital that are essential for cially fuel) and additional exchange rate long-term growth. While the financial sec- depreciation pressures, which would in- tor provided some support to mitigate the crease inflation. Moreover, a slower-than- The economic recovery is expected to con- impacts of COVID-19, vulnerabilities are expected economic recovery in key trading tinue in 2022, mainly supported by in- high and forbearance measures impede a and investment partners may curtail exter- clear assessment of bank balance sheets. nal demand. However, high mineral prices dustry and services, with growth project- Improved connectivity and trade integra- and the opening of the Lao-China railway ed to accelerate to 3.8 percent. However, tion present an opportunity for greater (in December 2021) will likely support growing macroeconomic vulnerabilities – economic dynamism, but need to be ac- merchandise exports and the domestic ser- mainly stemming from a high debt bur- companied by structural reforms to en- vices sector – especially transport and lo- hance export competitiveness. gistics services. den – and external shocks may affect the Domestic and external uncertainty affects outlook. Labor market conditions remain economic prospects. COVID-19 vaccina- subdued, while rising fuel and food prices tion rates have improved, with 58 percent are threatening poverty and food security. of the population fully vaccinated, but a Recent developments Addressing macroeconomic imbalances large Omicron outbreak could still under- mine economic activity. Tightening global GDP growth is estimated to have rebound- will be critical to laying the foundation ed to 2.5 percent in 2021, driven by indus- macroeconomic conditions and the Russ- for sustained economic growth and sup- ian invasion of Ukraine could impact Lao try (particularly mining, energy and some port poverty reduction. PDR through higher commodity prices manufacturing subsectors) and agriculture FIGURE 1 Lao PDR / Real GDP growth and contributions to FIGURE 2 Lao PDR / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 8 100 25 90 6 80 20 70 4 60 15 50 2 40 10 0 30 20 5 -2 10 2015 2016 2017 2018 2019 2020 2021 2022 0 0 Agriculture Industry 2007 2009 2011 2013 2015 2017 2019 2021 2023 Services Net Taxes on Production International poverty rate Lower middle-income pov. rate Real GDP growth Upper middle-income pov. rate Real GDP pc Sources: Lao Statistics Bureau and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 13 Apr 22 – both of which were supported by solid burden on households. The share of – owing to the difficult fiscal situation. Pri- external demand. However, the services adults employed fell from 76 percent in vate investment and exports will provide sector continued to struggle. Inflation in- Q2 2021 to 69 percent in Q4 2021, follow- an important stimulus to the economy, al- creased from less than 2 percent in Febru- ing an outbreak of COVID-19. Disrup- though higher imports will partly offset ary 2021 to 7.3 percent in February 2022 tions to economic activities led to a de- these trends. Existing macroeconomic vul- (year-on-year), mainly driven by fuel cline in household income, with 63 per- nerabilities and a less conducive external prices and a sharp depreciation against the cent of households experiencing a fall in environment – due to tighter macroeco- US dollar. Nevertheless, the annual aver- household income between Q2 and Q4 nomic conditions and the war in Ukraine age inflation rate declined from 5.1 percent 2021, of which 21 percent saw their in- – will avert a faster economic recovery. In in 2020 to 3.8 percent in 2021. come reduced by more than half. In- a downside scenario where domestic and The fiscal deficit declined significantly in come losses combined with rising food external risks materialize, economic 2021, owing to a recovery in revenue and ex- prices present a threat to poverty and growth could slow to 3.3 percent in 2022. penditure cuts. Revenue collection re- food insecurity. Constrained by limited Domestic labor market conditions are ex- boundedmainlyduetonon-taxrevenueand fiscal space, government assistance pro- pected to improve gradually following consumption taxes. Expenditure curbs con- grams were limited and mainly targeted the growth rebound, although permanent tinued with the postponement of new capi- formal workers. The poverty headcount job losses and business closures induced talprojects–whichledtoa24percentdecline rate (measured at the lower-middle-in- by COVID-19 will continue to put pres- in capital spending. With limited access to come poverty line or $3.2 (2011 PPP) a sure on household income. Rising food international capital markets, financing day) is estimated to have marginally de- and fuel prices undermine households’ needs were met through strong short-term clined from 36.9 percent in 2020 to 36.8 purchasing power and, without adequate domestic bank borrowing at the end of 2021. percent in 2021. relief measures, put them at risk of falling The current account deficit improved, into poverty. partly due to a large merchandise trade Addressing internal and external imbal- surplus. Merchandise exports grew by 22 ances will be key to accelerate economic percent – owing to electricity, minerals, Outlook growth and improve welfare. The deterio- and several agricultural and manufac- rating public debt situation is a main con- tured products – supported by strong Economic activity is expected to recover cern, with external debt repayments aver- external demand and commodity prices. gradually to 3.8 percent in 2022, support- aging around $1.3 billion a year over Merchandise imports also increased, dri- ed by merchandise exports and the ser- 2022-2025 – about half of the average do- ven by fuel, vehicles, and machinery. vices sector – especially transport and lo- mestic revenue. Upside risks to the outlook Nonetheless, trade in services remained gistics services (linked to the new rail- include a positive outcome from the ongo- subdued and external debt service pay- way) as well as wholesale and retail activ- ing debt renegotiations – providing much- ments are elevated. High demand for for- ities. In contrast, tourism will likely take needed fiscal space for growth-enhancing eign currency (especially to service exter- longer to rebound. Infrastructure con- expenditures – and a fast and effective im- nal debts) coupled with limited reserve struction (including power projects and plementation of planned revenue-enhanc- buffers contributed to a strong deprecia- highway extensions) is also expected to ing measures. A strengthened legal frame- tion against the US dollar – 22 percent as contribute to the recovery. From the de- work for foreign currency management of February 2022 (year-on-year). mand side, private consumption will in- may enhance foreign reserve buffers, while The labor market remains subdued, and crease, although public consumption and business environment reforms would help rising food prices place an additional public investment will remain constrained boost growth and job creation. TABLE 2 Lao PDR / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 0.5 2.5 3.8 4.0 4.2 Real GDP growth, at constant factor prices 5.5 0.5 2.5 3.8 4.0 4.2 Agriculture 1.2 3.2 2.3 2.2 2.5 2.6 Industry 5.6 4.0 7.6 5.2 4.0 3.4 Services 7.0 -3.5 -2.2 2.9 4.4 5.7 Inflation (Consumer Price Index) 3.3 5.1 3.8 6.0 5.5 5.0 Current Account Balance (% of GDP) -8.1 -1.5 1.3 -2.7 -4.6 -5.4 Fiscal Balance (% of GDP) -3.3 -5.2 -1.4 -2.9 -2.6 -2.3 Debt (% of GDP) 59.0 62.3 77.9 79.0 79.3 79.2 Primary Balance (% of GDP) -1.6 -3.7 -0.1 -0.1 0.1 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 9.7 9.8 9.7 9.5 9.3 9.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 36.8 36.9 36.7 36.4 35.9 35.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 69.8 70.0 69.8 69.4 69.0 68.5 GHG emissions growth (mtCO2e) 1.9 3.2 4.1 4.4 5.0 4.7 Energy related GHG emissions (% of total) 48.0 48.5 49.5 50.6 51.9 53.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2012-LECS and 2018-LECS.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2012-2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 14 Apr 22 MALAYSIA Key conditions and Recent developments challenges For the year 2021, the economy grew at 3.1 percent (2020: -5.6 percent). Overall, Table 1 2021 Malaysia is gradually emerging from the recovery in 2021 was driven by im- Population, million 32.8 the worst wave of the pandemic. With provement in both private and public GDP, current US$ billion 372.7 vaccination program making impres- spending. On the supply side, the econo- GDP per capita, current US$ 11371.2 sive progress, most economic and so- my was supported by the rebound in the a 0.0 International poverty rate ($1.9) cial sectors are now allowed to oper- manufacturing, services, and mining sec- a 0.3 ate. Nearly 100 percent of adults are tors. Nevertheless, it is important to note Lower middle-income poverty rate ($3.2) a 2.9 fully vaccinated, and 64 percent have that the economic performance in 2021 re- Upper middle-income poverty rate ($5.5) Gini index a 41.1 received their booster (third dose) in mains below pre-pandemic levels. School enrollment, primary (% gross) b 104.4 early March 2022. The government has Conditions in the labor market have im- b 76.2 also announced its plans to transition proved. The unemployment rate declined Life expectancy at birth, years into endemicity, which include the re- to 4.3 percent in 4Q 2021 (4Q 2020: 4.8 Total GHG Emissions (mtCO2e) 358.5 opening of international borders be- percent), partly driven by the various la- Source: WDI, Macro Poverty Outlook, and official data. ginning April 2022. As such, this is ex- bor market incentives. Wages for manu- a/ Most recent value (2015), 2011 PPPs. b/ Most recent WDI value (2019). pected to contribute to the recovery of facturing and services grew at 4.7 percent the economy. and 1.2 percent respectively in 4Q 2021. Nonetheless, key challenges remain. Employment was less volatile in the sec- Fiscal space is expected to remain con- ond half of 2021, according to the World strained, limiting the room for fiscal Bank High-Frequency (HiFy) Phone Sur- The economy is projected to expand by policy to play a bigger redistributive vey. As a result, more than half of house- 5.5 percent in 2022, supported by a role. Gaps in the social protection sys- holds who fell into lower-income brackets recovery in domestic demand and an tem remain/persist, leaving out several by June 2021 have recovered to pre-pan- expansion in exports. Downside risks vulnerable groups such as youth and demic levels by November 2021. Howev- informal workers. In addition, the er, disruptions to employment and labor to growth remains, with the military triple shocks of COVID-19, food in- income remain greater among the poor conflict in Ukraine emerging as a key flation, and floods may deplete poor and vulnerable, including younger and risk. While the economy is projected to and vulnerable Malaysians’ resilience less educated workers. be on a recovery path, COVID-19, toward future shocks, and in turn, Inflation has been on an upward trend, food inflation, and floods are expected widen socioeconomic inequalities consistent with a closing output gap. The among Malaysians. Recognizing this, CPI rose to 3.2 percent in December 2021 to weigh down progress on wellbeing the government’s top priorities are to (Nov: 3.3 percent). The upward trend is of the poor and vulnerable. ensure effective fiscal policies and de- mainly due to the rise in food and fuel velop inclusive social protection as prices, and base effects. Higher food prices stated in the Twelfth Malaysia Plan were largely due to supply-related factors (2021-2025) and the Budget 2022. including adverse weather conditions and FIGURE 1 Malaysia / Real GDP growth and contributions to FIGURE 2 Malaysia / Actual and projected poverty rates and real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 20 20 35000 15 18 30000 10 16 5 14 25000 0 12 20000 -5 10 8 15000 -10 -15 6 10000 -20 4 5000 -25 2 Q1-2017 Q2-2018 Q1-2019 Q4-2019 Q3-2020 Q2-2021 0 0 Private Consumption Public Consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 GFCF Change in Inventory International poverty rate Lower middle-income pov. rate Net Exports Real GDP,y/y Upper middle-income pov. rate Real priv. cons. pc Sources: Department of Statistics Malaysia and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 15 Apr 22 higher prices of animal feed stocks. The exposure to Russia and Ukraine is mini- Fiscal space is expected to remain limited government announced that it has taken mal. In the exchange rate market, the ring- in 2022 highlighting the need to rebuild fis- steps to stabilize prices on crucial food git is on a depreciating trend. Between 1 cal buffers over the medium-term. A rise items such as rice and meat, including to January to 28 February 2022, the real ef- in commodity prices provides only tem- extend the price controls on selected items fective exchange rate (REER) depreciated porary fiscal relief. Government revenue and provide additional subsidies. Going by 0.4 percent, and is slightly undervalued has been on a downward trend since 2012, forward, the central bank expects average relative to fundamentals. and operating expenditures have grown inflation to remain moderate and core in- markedly over time, resulting in signifi- flation to be modest. Reflecting this, mon- cant budget rigidity. However, in the ab- etary policy stance is expected to remain sence of a fiscal rule for commodities, the unchanged in the near term. Outlook risk of fiscal policy pro-cyclicality increas- In late 2021, 11 states were hit with floods es. The government has proposed intro- displacing an estimated 70,000 people; re- The economy is expected to recover this ducing a Fiscal Responsibility Act (FRA) sulting in devastating losses of RM6.1 bil- year, with growth projected at 5.5 percent, which could establish a path for medium- lion (0.4 percent of GDP). Households in supported by a rebound in domestic de- term fiscal consolidation. the Klang Valley areas were hardest hit, mand and continued expansion in exports. The welfare of poor and vulnerable house- involving damages to dwellings and ve- The external sector will continue to lend holds remains precarious given multiple hicles. The Malaysian Family Flood Aid its support especially electric and electron- shocks. Findings from the HiFy survey worth RM1.4 billion (0.1 percent of GDP) ic (E&E) goods and medical rubber gloves. show that, even after receiving government was allocated to alleviate the burden on While economic recovery remains under- assistance, more than 60 percent of lower- households and businesses. way in early 2022, the balance of risks re- income households with monthly income In January 2022, the central bank kept its mains tilted to the downside. The unfold- RM4,000 or below (USD$958 current prices) overnight policy rate (OPR) at 1.75 percent, ing developments surrounding the self-assessed having inadequate financial and reiterated its view that monetary pol- Ukraine military conflict has emerged as a resources to cover their basic needs in icy remained accommodative. In the do- key risk. Other risks include weaker-than- late-2021. Meanwhile, one-quarter of mestic financial markets, there has been an expected global growth, a worsening in households reported having savings that increased in volatility given the Ukraine supply chain disruptions, and the emer- will last only for three months or less, while military conflict. However, direct portfolio gence of more severe COVID-19 variants. 16 percent do not have savings at all. TABLE 2 Malaysia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.4 -5.6 3.1 5.5 4.5 4.4 Private Consumption 7.7 -4.3 1.9 8.5 6.2 5.9 Government Consumption 1.8 3.9 6.6 1.8 0.5 0.5 Gross Fixed Capital Investment -2.1 -14.5 -0.9 6.9 2.8 2.8 Exports, Goods and Services -1.0 -8.9 15.9 4.3 4.3 4.2 Imports, Goods and Services -2.4 -8.4 18.5 4.5 4.4 4.3 Real GDP growth, at constant factor prices 4.5 -5.6 3.1 5.5 4.5 4.4 Agriculture 2.0 -2.2 -0.2 4.1 3.2 2.7 Industry 2.6 -6.2 5.7 4.2 3.7 3.6 Services 6.2 -5.7 1.9 6.7 5.2 5.2 Inflation (Consumer Price Index) 0.7 -1.1 2.5 2.7 2.0 1.9 Current Account Balance (% of GDP) 3.5 4.2 3.5 4.1 3.7 3.7 Net Foreign Direct Investment (% of GDP) 0.4 0.2 2.1 1.7 1.8 1.8 Fiscal Balance (% of GDP) -3.4 -6.2 -6.4 -5.9 -5.3 -4.6 Debt (% of GDP) 52.4 62.1 63.5 65.1 66.2 67.2 Primary Balance (% of GDP) -1.2 -3.8 -3.9 -3.8 -3.3 -2.6 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.1 0.1 0.1 0.1 0.1 0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.4 1.6 1.6 1.2 1.1 0.9 GHG emissions growth (mtCO2e) -1.4 -6.6 0.2 1.3 1.0 1.3 Energy related GHG emissions (% of total) 58.7 56.3 56.2 56.5 56.7 57.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2011-HIS and 2015-HIS.Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2011-2015) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 16 Apr 22 imported inputs and consumer goods, re- inforcing the need for structural reforms. MONGOLIA Key conditions and challenges Table 1 2021 Recent developments Mongolia’s recovery remained subdued in Population, million 3.3 2021 despite high commodity prices, as After a strong economic rebound in early GDP, current US$ billion 15.5 COVID-related restrictions on cross-bor- 2021, the recovery stalled in the last three GDP per capita, current US$ 4647.3 der traffic imposed by China especially quarters due to trade disruptions. Growth a 28.4 National Official Poverty Rate during H2 weighed on exports and dis- consequently was disappointing, reaching a 32.7 rupted imports of production inputs and only 1.4 percent following the contraction Gini index b 103.4 consumer goods. While domestic activities of 4.4 percent in 2020. Economic growth School enrollment, primary (% gross) Life expectancy at birth, years b 69.9 were supported by continued fiscal relief was mainly supported by a strong re- Total GHG Emissions (mtCO2e) 62.4 and stimulus measures as well as a roll- bound of coal mining in Q1, significant im- back of mobility restrictions enabled by provement in copper ore grade, and recov- Source: WDI, Macro Poverty Outlook, and official data. a/ National Statistics Office. Most recent value (2018). high vaccination rates, the economy re- ery in the services sector. In contrast, the b/ Most recent WDI value (2019). mains below its pre-pandemic level and manufacturing sector stagnated, and con- far from its potential. Meanwhile, sus- struction contracted significantly, amid tained policy support has eroded fiscal supply shortages caused by border disrup- After posting 1.4 percent real GDP space, and public debt – already high be- tions. Agriculture also contracted reflect- growth in 2021, growth will remain mod- fore COVID-19 – has increased sharply, ing an outbreak of foot-and-mouth disease now standing at 92 percent of GDP (in- and harsh weather conditions. est at 2.5 percent this year. Despite con- cluding the central bank’s liability under Despite continued income support, private tinued policy support and higher com- the People’s Bank of China swap line). consumption declined as COVID-19 re- modity prices, the recovery is dragged Public debt risks are further aggravated by strictions constrained mobility, rising in- down by protracted logistical bottlenecks sizable contingent liabilities including the flation weighed on real incomes, and Development Bank of Mongolia’s external households increased precautionary sav- and the effects of the war in Ukraine. Ad- bond (US$800 million). External pressures ing amid persistent uncertainty. Invest- ditional significant risks include infla- could be compounded by rising fuel prices ment recovered strongly, but this was tionary pressures, dwindling fiscal space, associated with the war in Ukraine as well mainly driven by a build-up of coal in- and widening external imbalances. Amid as tighter global financing conditions that ventories as exports to China were stalled could complicate the rollover of upcoming due to border frictions. FDI and subsidized the modest recovery, poverty will only fall large foreign debt repayments. Rapidly ac- loans under the government stimulus pro- back to pre-COVID levels in 2023. celerating inflation and the appreciation of gram also supported private investment in real exchange rate are further constraining the mining and services sectors. available policy space. The pandemic ex- Following two years of expansionary fiscal acerbated vulnerabilities associated with policies, policy space has eroded with per- Mongolia’s limited diversification of trade sistent fiscal imbalances threatening sus- and trading partners and overreliance on tainability. Public spending increased in FIGURE 1 Mongolia / Real GDP growth and contributions to FIGURE 2 Mongolia / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 25 40 10 20 9 35 15 8 30 10 7 25 6 5 20 5 0 15 4 -5 3 -10 10 2 -15 5 1 -20 0 0 2017 2018 2019 2020 2021 2022f 2023f 2024f 2010 2012 2014 2016 2018 2020 2022 2024 Final consumption Gross capital formation International poverty rate Lower middle-income pov. rate Net exports Real GDP growth Upper middle-income pov. rate Real GDP pc Sources: National Statistics Office and World Bank. Source: World Bank. Notes: see Table 2. MPO 17 Apr 22 2021 mostly driven by the generous but to above 6 percent in 2023-2024, as the un- poorly targeted Child Money Program derground mining phase of OT becomes (CMP). The headline budget deficit Outlook operational during H2 2023. Poverty mea- nonetheless narrowed to 3.1 percent of sured at the poverty line recommended for GDP amid a one-off tax arrears collection Economic growth is projected to remain lower-middle income countries ($3.20 (2.3 percent of GDP). The budget deficit is modest at 2.5 percent in 2022. This forecast PPP) is projected to return to the pre- projected to increase in 2022, driven by in- reflects the impact of the war in Ukraine COVID level in 2023. creases in capital spending, the continua- through higher prices of imported food, Risks are significant and tilted to the tion of some COVID-related stimulus mea- fuel and fertilizers coupled with lingering downside. In a downside scenario, eco- sures, and a discretionary pension increase border frictions with China. Coal exports nomic growth could fall to 0.7 percent in (of around 1.5 percent of GDP). Mean- are expected to only recover towards the 2022 if border restrictions with China per- while, the financing of the CMP through end of the year when border frictions with sist throughout the year, and if the war the Future Heritage Fund has weakened China may ease, following investments in in Ukraine leads to persistently higher en- the fiscal framework and long-term sus- upgrading border crossing and logistics fa- ergy prices and tighter global liquidity. tainability. Public debt is expected to in- cilities and an anticipated gradual loosen- Moreover, rising food inflation pressure crease and fiscal buffers to further erode. ing of COVID-related restrictions. As labor could prompt poverty to remain above the Inflation accelerated sharply to 14.2 per- market conditions improve with the re- pre-COVID level as the urban poor spends cent (y/y) by February 2022, due to supply opening of the economy, domestic de- nearly 40 percent of their consumption on bottlenecks amid border closures as well mand is expected to recover driven by con- food. Heightened risks put a premium on as accelerating credit growth. Substantial tinued government support, rising invest- preserving macroeconomic policy space. real exchange rate appreciation and weak ment and strengthening household con- Better targeting fiscal measures to the poor exports led to a widening current account sumption. The recent agreement with Rio would help contain fiscal imbalances and deficit and the erosion of gross internation- Tinto over Mongolia’s largest copper mine, preserve valuable policy space in view of al reserves from over 7 months (in Oyu Tolgoi (OT), will continue to support significant risks. Once the recovery is more mid-2021) to 3.7 months of imports as of steady FDI inflows. While the anticipated entrenched, Mongolia should shift to- February 2022. The erosion of confidence drop in the quality of OT mining output wards fiscal consolidation to ensure exter- related to the war in Ukraine and the per- - following last year’s improvement - will nal and public debt sustainability. Struc- sistent border frictions fueled increasing weigh on mining output this year, the ac- tural reforms, including measures to re- demand for foreign exchange, prompting celeration of investments will provide duce trade and transport costs, and facil- banks to ration FX liquidity. This has start- short-term support to the construction and itate foreign investment and domestic en- ed to affect some import payments. To services sectors and expand mining capac- trepreneurship, would help lay the foun- stem these pressures the central bank ity in the long run. Over the medium-term, dation for more diversified and hence raised its policy rate by 250 basis points. economic growth is expected to accelerate more resilient growth in the medium term. TABLE 2 Mongolia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 -4.4 1.4 2.5 5.8 6.8 Private Consumption 5.8 2.1 -6.5 8.9 7.6 7.0 Government Consumption 12.3 14.6 5.3 5.3 5.8 6.1 Gross Fixed Capital Investment 14.0 -21.1 14.0 16.3 17.5 16.2 Exports, Goods and Services 12.0 -5.3 -14.5 4.0 18.0 17.1 Imports, Goods and Services 8.6 -15.5 9.6 5.7 17.5 17.8 Real GDP growth, at constant factor prices 5.1 -3.9 0.0 2.5 5.8 6.8 Agriculture 5.2 5.8 -5.5 3.0 4.1 5.5 Industry 3.1 -4.4 -2.8 1.2 7.9 6.1 Services 6.4 -6.5 3.6 3.0 5.1 7.6 Inflation (Consumer Price Index) 7.3 3.7 7.1 10.5 7.5 6.8 Current Account Balance (% of GDP) -15.2 -4.3 -12.7 -15.6 -13.8 -11.6 Net Foreign Direct Investment (% of GDP) 16.4 12.2 13.1 12.6 11.8 11.1 Fiscal Balance (% of GDP) 1.4 -9.4 -3.1 -4.8 -4.8 -4.4 a Debt (% of GDP) 68.4 77.3 79.5 83.6 81.7 80.0 Primary Balance (% of GDP) 3.6 -6.8 -1.1 -2.8 -1.9 -1.1 b,c International poverty rate ($1.9 in 2011 PPP) 0.5 0.6 0.6 0.6 0.6 0.6 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.6 5.5 5.5 5.4 4.9 4.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 26.0 26.9 26.9 26.7 25.4 24.0 GHG emissions growth (mtCO2e) 6.9 1.3 3.5 4.3 5.3 5.6 Energy related GHG emissions (% of total) 41.7 40.8 41.7 42.1 43.3 44.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Debt excludes contingent liabilities (DBM bond of 5% of GDP) and central bank's liability under the PBOC swap line (12% of GDP) by 2021. b/ Calculations based on EAPPOV harmonization, using 2016-HSES and 2018-HSES.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. c/ Projection using annualized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 18 Apr 22 The official kyat reference rate has depre- ciated by around a quarter against the US MYANMAR Key conditions and dollar since January 2021, and the spread between the official reference rate and the challenges rates available on the market has increased sharply, indicating persistent exchange Table 1 2021 A further wave of COVID-19 cases has in- rate pressures. CPI inflation picked up to Population, million 54.8 creased health risks and economic chal- almost 10 percent (year-on-year) in Octo- GDP, current US$ billion 64.3 lenges. Reported COVID-19 cases rose ber 2021, reflecting exchange rate depreci- GDP per capita, current US$ 1173.4 rapidly in February before declining in ation, supply constraints and increases in a 14.9 Lower middle-income poverty rate ($3.2) March. Although this recent outbreak ap- transport costs. Local fuel prices have a 54.3 pears to have been less severe than initially more than doubled over the past year, in Upper middle-income poverty rate ($5.5) b 112.3 expected, testing has remained limited and part due to increases in global oil prices. School enrollment, primary (% gross) Life expectancy at birth, years b 67.1 there has likely been significant underre- Surveys indicate that rising input costs are Total GHG Emissions (mtCO2e) 219.0 porting of cases. Moreover, the pandemic a severe constraint to production across continues to pose health and economic the economy. In recent weeks, electricity Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017), 2011 PPPs. risks given that only 38 percent of the pop- outages have also become increasingly fre- b/ WDI for School enrollment (2018); Life expectancy ulation was fully vaccinated as at the end quent and long-lasting, negatively impact- (2019). of February and treatment options are dif- ing households and critically affecting the ficult to access. ability of businesses to operate. Indicators of conflict suggest that the se- Following the estimated 18 percent con- curity environment has deteriorated traction in FY21, GDP is projected to ex- markedly since mid-2021, including in pand by 1 percent in FY22, consistent states and regions which have historically Recent developments been relatively peaceful. At the same time with some stabilization in the economy as demand has fallen, firms have needed While some real-time indicators have im- but at a very low level. A deteriorating to devote scarce resources to dealing with proved in recent months, they remain con- security environment, elevated inflation- security-related operating constraints and sistent with a much lower level of economic ary pressures and worsening power out- ensuring the safety of their staff and cus- activity than prior to the February coup. tomers. Logistics have been hampered by Mobility has recovered to pre-coup levels ages are exacerbating the severe supply- an increase in the presence of security after falling 70 percent below pre- and demand- side constraints associated checkpoints and roadblocks, increasing COVID-19 baseline levels in July, though with the aftermath of the February 2021 transport times and costs. The ongoing mobility at retail, recreation and transport military coup. Livelihoods remain under threat of conflict has also affected busi- venues remains 30–40 percent below pre- severe strain and poverty is expected to nesses’ confidence, and appetite to hire COVID-19 levels. Manufacturing survey staff and invest. data indicate that the rate of contraction in have more than doubled in 2022 com- An additional rise in fuel prices due to the output, employment, and new orders has pared with pre-COVID levels. conflict in Ukraine is exacerbating the severe eased since mid-2021. But the Purchasing supply-side constraints already affecting Managers’ Index dipped in early 2022 due agricultural producers and manufacturers. to conflict-related disruptions, raw material FIGURE 1 Myanmar / Real GDP growth and contributions to FIGURE 2 Myanmar / Manufacturing purchasing managers’ real GDP growth by sector index (PMI) / Mobility (month average) Percent, percentage points PMI Index value Percent deviation from baseline 10 55 -20 50 -30 5 45 -40 0 40 -50 -5 35 -60 -10 30 -70 -15 25 -80 20 -90 -20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 2018 2019 2020 2021f 2022f Headline_PMI Retail and recreation (rhs) Agriculture Industry Services Real GDP growth Public Transport (rhs) Sources: Ministry of Planning and Finance and World Bank staff estimates. Sources: Google COVID-19 Community Mobility Reports and IHS Markit. MPO 19 Apr 22 shortages, higher input prices, and elec- of some basic food items increasing the associated rise in global gas prices tricity outages. sharply, and agricultural production con- would have a positive impact on govern- Agriculture and manufacturing exports strained by higher input costs, in Decem- ment revenues and overall economic ac- have picked up in recent months. Some ber the UN estimated that some 12 million tivity in Myanmar. But the positive GDP border crossings with China have re- people (about 22 percent of the popula- impacts of higher gas prices are unlikely opened – after closing in mid-2021 due to tion) are moderately food insecure in to benefit most of the population and will the third wave of COVID-19 – although Myanmar, with an additional 1.2 million likely be more than offset by the nega- cross-border trade remains subject to re- severely food insecure. tive GDP impacts of higher fuel prices on strictions. Foreign direct investment (FDI) other sectors. commitments have risen modestly since Downside risks are elevated. A further es- mid-2021, as has the number of company calation in conflict would reduce demand, registrations. But several large internation- Outlook disrupt logistics and supply chains, and in- al firms have announced their withdrawal crease the constraints faced by businesses. from Myanmar over the same period. Following the estimated 18 percent con- If recent sharp increases in global oil prices Economic deterioration continues to dam- traction in FY21, GDP is projected to in- persist, it would exacerbate broader infla- age livelihoods, which for many have been crease by 1 percent in FY22, consistent tionary pressures, stretching household under severe strain since early 2020. Many with some stabilization but at a very low budgets further and increasing firms' households are experiencing declines in level. Continued export demand for gar- costs. Continued power outages would se- real income due to employment losses ments and a modest resumption of con- verely restrict the operating capacity of and/or reduced work hours and wages, struction work are expected to support businesses, with higher fuel prices making combined with higher prices. While there overall activity. On the other hand, the the use of back-up generators less viable. is considerable uncertainty around these agriculture sector is expected to contract Additional waves or new variants of estimates, micro-simulations imply that due to credit and logistics constraints and COVID-19 remain a risk, particularly in the share of Myanmar's population living increases in fuel and fertilizer prices, the context of still low vaccination rates. A in poverty in 2022 (using national poverty which will be further exacerbated by the further contraction in economic activity is lines) has more than doubled compared to conflict in Ukraine. With gas export earn- possible in FY22 to the extent that one or levels before COVID-19 hit. With the price ings of around 5 percent of GDP in FY21, more of these downside risks materialize. TABLE 2 Myanmar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2017 2018 2019 2020 2021e 2022f Real GDP growth, at constant market prices 5.8 6.4 6.8 3.2 -18.0 1.0 Real GDP growth, at constant factor prices 5.8 6.4 6.8 3.2 -18.0 1.0 Agriculture -1.5 0.1 1.6 1.7 -12.5 -3.2 Industry 8.7 8.3 8.4 3.8 -20.3 3.3 Services 8.1 8.7 8.3 3.4 -18.9 1.4 Inflation (Consumer Price Index) 4.7 5.9 8.5 5.8 3.6 10.0 Current Account Balance (% of GDP) -3.1 -4.7 -2.8 0.1 -2.7 0.7 a Fiscal Balance (% of GDP) -2.7 -2.9 -3.7 -6.6 -8.8 -8.0 Debt (% of GDP) 34.4 38.4 37.5 41.6 57.2 62.5 a Primary Balance (% of GDP) -1.3 -1.7 -2.4 -5.2 -7.0 -6.6 GHG emissions growth (mtCO2e) 3.9 0.7 0.3 -0.7 -5.1 0.1 Energy related GHG emissions (% of total) 14.7 15.1 15.4 15.0 12.9 12.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (October 1st -September 30th). MPO 20 Apr 22 physical viability of numerous islands, particularly in RMI. Finally, governments NORTH PACIFIC Key conditions and need to implement structural reforms to ensure sustainable economic recovery that challenges ISLANDS supports livelihood of the bottom 40 per- cent of households. However, the lack of More than 95 percent of the population in recent household data makes it challeng- Palau is fully vaccinated from COVID-19, ing to monitor development progress and Table 1 2021 and almost 70 percent of the population impacts of shocks while also limits the po- Population, million has received a third booster dose. The vac- tential for evidence-based policy. Federated States of Micronesia 0.12 cination rate is relatively lower in FSM and Republic of the Marshall Islands 0.06 RMI. Palau’s border is now open for fully Palau 0.02 vaccinated international travelers. Howev- North Pacific GDP, US$, billion 0.19 er, tourist arrivals are yet to recover with Recent developments Federated States of Micronesia 0.40 monthly arrival per end-January was only Republic of the Marshall Islands 0.24 6% of pre-COVID number. In the short The economic impact of the pandemic Palau 0.22 term, the key challenges facing the North drove FSM and RMI into the second year North Pacific 0.86 Pacific are: (1) The vaccine rollout and of consecutive recession in FY21. Output is GDP per capita, current US$ management of the pandemic, to pave the estimated to have contracted by a further Federated States of Micronesia 3475 way for relaxed border restrictions and 3.2 percent in FSM and 2.5 percent in RMI Republic of the Marshall Islands 4337 gradual recovery of international arrivals. in FY21. Ongoing strict border closures Palau 12405 (2) To support a sustainable and inclusive and related trade disruptions have cur- North Pacific 4433 economic recovery while managing fiscal tailed construction activity, transport and Sources: WDI, World Bank staff estimates. risks (particularly in Palau). domestic consumption. Large parts of FSM Over the medium term, the key challenge and RMI government revenues have been is the scheduled expiry of Compact-related relatively protected from the downturn in COVID-19 has led to recessions in the Fed- grants and programs in 2023-2024. This domestic activity, particularly donor erated States of Micronesia (FSM), Repub- poses a key structural risk to long-term fis- grants and fishing revenues. Grants, com- lic of the Marshall Islands (RMI) and Palau. cal sustainability, considering the limited bined with substantial fiscal buffers in space for additional debt. This is exacer- FSM, provided fiscal space for stimulus, A gradual recovery is projected from FY22. bated by the fact that the projected annual which was rolled out during FY20 and In the short term, moderate fiscal surpluses distributions from the nations’ Compact- FY21. FSM and RMI registered fiscal sur- are projected for FSM and RMI, while related trust funds are not sufficient to ful- pluses of 1.3 percent and 2.8 percent of Palau’s fiscal deficit will remain sizable. ly offset the expiring fiscal transfers. Given GDP in FY21, respectively. Medium-term fiscal risks are substantial, this risk, reform-based fiscal adjustments, In Palau, the pandemic has severely impact- such as domestic revenue mobilization ed the economy. The tourism industry and primarily due to the scheduled expiry of US and expenditure rationalization, are criti- its related business activities (around 40 Compact-related fiscal transfers, highlight- cal to cover fiscal gaps. Natural disasters percent of GDP) have been curtailed and ing the importance of structural reforms. and climate change also pose a threat to trade flows are severely disrupted. GDP is livelihoods. Sea level rise threatens the estimated to have contracted further by 17.1 FIGURE 1 North Pacific Islands / Overall fiscal balance FIGURE 2 North Pacific Islands / Formal sector (share of GDP) employment (Index, 2017=100) Percent of GDP Index 30 110 Palau 25 Republic of the Marshall Islands 20 105 Federated States of Micronesia 15 100 10 5 95 0 Palau -5 90 -10 Republic of the Marshall Islands -15 85 -20 Federated States of Micronesia -25 80 FY17 FY18 FY19 FY20(e) FY21(e) FY22(f) FY23(f) FY24(f) FY17 FY18 FY19 FY20(e) FY21(e) FY22(f) Sources: National sources via EconMap and World Bank projections. Sources: National sources via EconMap and World Bank projections. MPO 21 Apr 22 percent in FY21, after more than 90 per- arrival. The Palauan economy is project- percent of GDP in FY20 to 2.2 percent of cent drop in tourist arrivals. The fiscal ed to grow by 7.2 percent, on the back of GDP by FY24. Palau is projected to have deficit widened to over 18 percent in gradual recovery of the tourist arrivals to a fiscal deficit of 2.6 percent of GDP in 2021 driven by a decline in non-grant around one-third of the pre-crisis level. FY23 before return to a balance in FY24 revenues and a rise in health spending However, strong resurgence of the virus due to increase in tourism receipt and full and relief measures for firms and house- globally or local outbreaks could neces- implementation of tax reform bill. holds. This deficit has been financed by sitate a significant tightening of contain- Poverty in the North Pacific is expected external borrowing, which is estimated to ment measures and delays in reopening, to have risen relative to pre-crisis levels. have raised general government debt to which can derail the recovery and damp- The sharp economic contraction in FY20 around 85 percent of GDP from around en growth prospects. Fiscal surpluses of and FY21 led to formal-sector job losses 39 percent in FY19. 2.8 percent and 2.5 percent of GDP are and lower demand for goods in the infor- projected in FSM and RMI, as tax rev- mal economy. The rebound in formal sec- enues recover in line with economic ac- tor jobs in FY22 is expected to be slow. tivity. Another large deficit of 12.1 per- For Palau, the severe impacts on econom- Outlook cent is projected in Palau, as non-grant ic activity and jobs have led to increased revenues remain around 7 percent below vulnerability for substantial number of The timing and shape of the economic pre-crisis levels. households that predominantly work in recovery in the North Pacific depends GDP is not expected to recover to pre- the tourism sector. For FSM and RMI, on when international arrivals can fully crisis levels until FY23 in RMI and FY24 many households rely on annual remit- resume and the fallout of the Russia- in FSM. For Palau, GDP is projected to tance inflows (around 6 percent and 13 Ukraine war. For FSM and RMI, easing remain on a relatively lower trajectory, percent of GDP, respectively) that border restrictions will facilitate entry compared to pre-pandemic level, until dropped in FY21 and is estimated to re- of foreign workers, merchandise imports tourist arrivals fully recover in FY24. For main depressed in FY22 due to the im- and business travels, while for Palau, in- all three countries, the negotiation with pacts of the pandemic on US labor market crease in international arrivals will boost the U.S on Compact-related fiscal trans- conditions. There are only recent poverty the tourism recovery. Conditional on the fers is ongoing, and the terms and timing estimates for RMI, in which poverty is easing of restrictive arrivals by mid-2022 remain uncertain. Fiscal risks are tilted predicted to fall slightly in FY22, if eco- and a recovery in global economy, a to the downside with potential reduction nomic growth materializes. In FSM, the rebound is projected in FY22. The in grant revenues. Under current policies, country with the highest poverty rate in economies of the FSM and RMI are pro- the FSM will face a fiscal cliff in FY24 and the North Pacific, poverty reduction is jected to grow by 0.4 percent and 3.0 per- projected fiscal deficit of 4-5 percent of likely to be slower, given the huge share cent, due to the expected pick-up in con- GDP from FY24 onwards. In RMI, the fis- of informal sector and lower rebound of struction, tourists, and foreign workers cal surplus is projected to decline from 5 economic growth in FY22. TABLE 2 North Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020e 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices Federated States of Micronesia 1.2 -1.8 -3.2 0.4 3.2 1.9 Republic of the Marshall Islands 6.6 -2.2 -2.5 3.0 2.4 2.6 Palau -1.9 -9.7 -17.1 7.2 16.2 4.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) Republic of the Marshall Islands 22.5 24.0 26.7 24.5 24.1 23.0 Sources: ECONMAP, IMF, and Worldbank. e = estimate; f = forecast. Note: Values for each country correspond to their fiscal years ending September 30. (a) Calculations based on EAPPOV harmonization, using 2019-HIES. (b) Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 22 Apr 22 surveys conducted by the World Bank and UNICEF in mid-2021, more than half of PAPUA NEW Key conditions and households reported relying on subsis- tence agriculture as their main source of challenges GUINEA employment. More than two-thirds of households reported at least one episode The COVID-19 crisis has come on top of of food insecurity in the previous 30 days, PNG’s structural economic challenges, no- while nearly 40 percent of households re- Table 1 2021 tably the boom-and-bust cycles driven by ported insufficient access to water for Population, million 9.1 swings in natural resource sector exports. drinking and handwashing. GDP, current US$ billion 25.3 These cycles have been exacerbated by GDP per capita, current US$ 2773.8 sub-optimal fiscal and public expenditure a 39.9 management as expenditure goes up dur- National Poverty Rate Gini index a 41.9 ing booms, followed by spending cuts Recent developments b when the boom ends. Pandemic-related School enrollment, primary (% gross) 116.0 b global and domestic travel restrictions On the back of a strong global economic re- Life expectancy at birth, years 64.5 have weakened external and domestic de- covery, PNG reversed its downward eco- Total GHG Emissions (mtCO2e) 65.7 mand. In 2020, this has led to an economic nomic growth trajectory in 2021. The econ- Source: WDI, Macro Poverty Outlook, and official data. contraction, a sizable fiscal deficit, and omy contracted by 3.5 percent in 2020 be- a/ Most recent value (2009/10). National values b/ Most recent WDI value (2019). higher unemployment, and these out- fore returning to positive growth of 1 per- comes were only partially reversed in 2021. cent in 2021. The impact of COVID-19 on PNG has a highly dispersed and frag- economic output has been smaller than in mented population, low level of urban- many other EAP economies. The reasons The economy rebounded modestly in ization, significant gender disparities, for this include: low tourism exposure, 2021, supported by agriculture in the high exposure to natural disasters, high good performance of the agriculture sec- context of limited COVID-19 mobility degree of resource dependence, and in- tor, a time lag in the spread of COVID-19 restrictions. Rising fiscal deficit and ter-communal violence in some regions. within the country, fiscal stimulus, and the Weak governance severely constrains the recovery of commodity prices. However, the economic contraction placed the ability to effectively manage this chal- growth has lagged global and regional av- country at high risk of debt distress, lenging context. Fragility-related risks are erages. Economic performance in 2021 was requiring a fiscal consolidation. After exacerbated by the socio-economic im- constrained by falling gold and liquefied two years of contraction, the extractive pact of exogenous shocks, such as earth- natural gas (LNG) production that result- sector is projected to be the main dri- quakes and COVID-19. ed in a decline in extractive sector output Socio-economic development is lagging for for a second consecutive year. ver of GDP growth in 2022. With low large sections of the population in PNG. The Despite reversing the trajectory of the vaccination rates, limited fiscal space, last available nationally representative widening fiscal deficit, it remained large at and general elections in mid-2022, un- household survey, from 2010, suggested over 7 percent GDP in 2021. Public debt ex- certainty remains high. that about 38 percent of the population was ceeded 50 percent of GDP, and the coun- living below the US$1.90 per day (2011 PPP try is now classified at high risk of debt terms) poverty line. According to phone distress, according to the World Bank–IMF FIGURE 1 Papua New Guinea / Real GDP growth and FIGURE 2 Papua New Guinea / Key fiscal and debt contributions to real GDP growth indicators Percent, percentage points Percent of GDP 6 60 4 50 40 2 30 0 20 -2 10 -4 0 -6 -10 2018 2019 2020e 2021e 2022f 2023f 2024f 2017 2018 2019 2020e 2021e 2022f 2023f 2024f Extractive sector Non-extractive economy Revenue Expenditure Real GDP growth Overall balance Public debt, net Source: World Bank staff estimates and forecast. Source: World Bank staff estimates and forecast. MPO 23 Apr 22 Debt Sustainability Analysis. Contingent 2020. Employment and income levels in Meanwhile, uncertainty remains high. on prudent fiscal policies to be implement- mid-2021 were largely unchanged com- The Omicron variant of COVID-19 has ed, debt remain sustainable. The Bank of pared to December 2020. Preliminary been spreading fast in PNG, the least vac- PNG maintained the Kina Facility Rate at 3 analysis from the December 2021 survey cinated country in the EAP region. Less percent. Despite an accommodative mon- shows that most households continued us- than 6 percent of the adult population etary policy, private sector lending re- ing detrimental coping strategies such as received at least one vaccine dose, with mained flat due to subdued economic con- selling assets or drawing down on savings. 4 percent fully vaccinated. There is lit- ditions. Parliament passed amendments to Overall, the survey results are consistent tle prospect of a rapid increase in vacci- the Central Bank Act in December 2021 with a stall in economic recovery. nation rates, given high rates of vaccine that expanded its mandate beyond main- hesitancy. Combined with the low capac- taining price stability to also promoting ity of the public health system, this pos- employment and economic growth. The es a risk of higher casualties and a nega- current account surplus remained substan- Outlook tive impact on domestic economic activi- tial owing to depressed imports and high ty. Meanwhile, after the recent widening commodity prices. However, due to the In 2022, PNG is navigating a fragile re- of fiscal deficits, the government is ex- large debt repayments of the extractive covery. On the positive side, the extractive pected to implement a gradual fiscal con- sector, shortages of foreign currency re- sector is projected to rebound, driven by solidation. The fiscal space for a signif- main a key challenge. the planned reopening of the Porgera gold icant policy response in case of an eco- The impact of COVID-19 on livelihoods mine. Extractive sector growth is projected nomic shock is limited. The repercussions of the poor and vulnerable households to be the main driver of overall GDP of the Russia–Ukraine war might imply was severe, according to four rounds of growth in 2022 at 4.0 percent. High com- short-term gains from higher commod- a World Bank mobile phone survey con- modity prices will amplify this effect, sup- ity prices. However, the medium-term ducted between June 2020 and December porting the external accounts and provid- growth impact is likely to be negative due 2021. More than one-quarter of those ing (potentially) higher dividends to the to higher global uncertainty and lower working in January 2020 were estimated state-owned companies that hold shares in growth. Additionally, general elections in to have stopped working by December joint projects in the resource sector. mid-2022 heighten political uncertainties. TABLE 2 Papua New Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020e 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 -3.5 1.0 4.0 2.7 2.5 a Extractive sector 11.3 -8.4 -6.2 6.8 2.9 2.4 Non-extractive economy 1.4 -1.1 4.2 2.9 2.6 2.6 Inflation (Consumer Price Index), period average 3.7 4.9 5.1 7.2 5.1 4.9 Current account balance (% GDP) 22.1 19.5 20.5 21.9 21.5 20.8 a Extractive sector 26.1 21.3 21.0 22.8 22.9 22.4 Non-extractive economy -4.0 -1.8 -0.5 -0.9 -1.4 -1.6 Overall fiscal balance (% of GDP) 5.0 -8.6 -7.6 -6.0 -4.9 -3.9 Non-resource primary balance (% of non-extractive GDP) -6.1 -10.4 -8.8 -6.9 -5.2 -3.6 Public debt, net (% of GDP) 40.2 48.9 52.3 52.4 53.7 53.6 Sources: World Bank staff estimates and forecast. e = estimate; f = forecast. (a) The extractive sector comprises mining, quarrying, petroleum and gas production. MPO 24 Apr 22 The new administration to take office in June 2022 would have to carefully manage PHILIPPINES Key conditions and rising vulnerabilities on the macroeconom- ic policy front, accelerate physical and hu- challenges man capital investments, and pursue structural reforms to strengthen long-term Table 1 2021 The Philippines swiftly contained its recovery. Rebuilding a narrowing fiscal Population, million 111.0 largest COVID-19 outbreak in early 2022. space can be achieved by carefully pursu- GDP, current US$ billion 392.5 Metro Manila and other key regions were ing fiscal consolidation. Ensuring inclusive GDP per capita, current US$ 3534.3 placed under Alert Level 1 since March and quality growth matters as the coun- a 2.7 International poverty rate ($1.9) 1, allowing for unimpeded cross-border try pursues its Ambisyon Natin objective a 17.0 travel and a return to full-capacity in of reaching middle class society by 2040. Lower middle-income poverty rate ($3.2) a 46.9 workspaces, establishments, and public Upper middle-income poverty rate ($5.5) Gini index a 42.3 transportation. Progress in mass vaccina- School enrollment, primary (% gross) b 99.1 tion, amid declining vaccine hesitancy, Life expectancy at birth, years b 71.2 continues to help drive domestic activity Recent developments as nearly 60 percent of the population are Total GHG Emissions (mtCO2e) 214.4 fully vaccinated, with about 13.0 percent The economy expanded by 5.6 percent year- Source: WDI, Macro Poverty Outlook, and official data. having received boosters. Current macro- on-year in 2021, fueled by a faster-than-ex- a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). economic policies remain supportive of pected recovery in the second half of the growth, although policy space continues year. However, output remained below to narrow given rising public debt and in- pre-pandemic level by around 5.0 percent, Following a deep contraction in 2020, the creasing inflationary expectation. whereas many regional peers have closed Risks remain tilted to the downside the gap. Strong external demand buoyed economy rebounded in 2021 supported by with significant implications on the manufacturing exports, while public in- strong manufacturing and public invest- macroeconomic policy setting. Foremost vestment drove growth in construction. The ment. Economic policies have been sup- is the possibility of new COVID-19 vari- relaxation of containment measures, espe- portive of the recovery, but policy space is ants which could lead to a resurgence cially towards the end of the year, drove a in infections, possible re-introduction of rebound in services. However, agriculture narrowing. Poverty has likely improved containment measures, and additional struggled with a contraction in livestock between 2020 and 2021, but remains burden on fiscal support. In addition, production due to the African Swine Fever. above pre-pandemic levels. The economy the upcoming national election raises On the expenditure side, private consump- is projected to grow by about 5.6 percent uncertainty on policy continuity and tion was a key growth engine. Public invest- per year over the medium term, anchored priorities of the next administration. On ment accelerated, but uncertainty and weak the external front, the Russia-Ukraine confidence dampened private investment. on more robust domestic activities. How- war heightens the inflationary pressure Goods exports benefitted from a supportive ever, the outlook is subject to downside already experienced in global markets, external environment. risks from external and domestic sources. which could accelerate the tightening The fiscal deficit rose to 8.6 percent of GDP of the monetary policy in advanced in 2021 fueled by an acceleration in public economies and in the Philippines. spending and a sharp decline in non-tax FIGURE 1 Philippines / Real GDP growth and contributions FIGURE 2 Philippines / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 70 200000 180000 60 5 160000 50 140000 0 40 120000 100000 -5 30 80000 Net exports 20 60000 -10 Discrepancy 40000 Investments 10 20000 -15 Government Consumption Household Final Consumption Expenditure 0 0 GDP Growth 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021 Upper middle-income pov. rate Real GDP pc Source: Philippines Statistics Authority. Source: World Bank staff calculations. MPO 25 Apr 22 revenues. Public spending increased by 2.3 slows in view of fiscal consolidation. Capi- percent of GDP, anchored on public invest- tal growth may be tempered by rising inter- ment growth, and fiscal support measures. Outlook est rates and lingering uncertainty from the The central government debt increased external environment. from 54.6 percent of GDP in 2020 to 60.5 The economy is projected to grow at 5.7 Poverty incidence is estimated at 18.3 percent of GDP in 2021. percent in 2022 and 5.6 percent on average percent in 2021, based on the lower mid- The central bank kept the key policy rate in 2023-24. Growth will draw strength dle-income poverty line of 3.2 dollars a at 2.0 percent despite headline inflation from the domestic environment with de- day, 2011 PPP. Following current growth breaching the 2-4 percent target in 2021. clining COVID-19 cases, looser restric- projections, poverty incidence will de- The uptick in headline inflation was due tions, and wider reopening. The strong do- crease to 16.2 percent in 2022, and contin- to rising global oil prices and a surge in mestic condition will help compensate for ue to decline through 2024. The Russia- food inflation as a result of food produc- the weak external environment, reeling Ukraine war may induce inflation spikes tion challenges from the African Swine from a global growth deceleration, rising that may slowdown the decline in pover- Fever and weather-related disturbances. inflation, and geopolitical turmoil. ty, mainly through the knock-on effect of Labor force participation is 60.5 percent in The reopening will benefit the contact-in- fuel price increases on food prices that January 2022, the same rate in January tensive services sector, while public invest- disproportionately hurt the poor and eco- 2021. Female participation notably in- ment will support construction and indus- nomically vulnerable. creased by 1.2 percentage points, while un- try. Agriculture is expected to grow mod- Significant risks emanate from the exter- employment decreased to 6.4 percent from estly as structural weaknesses persist. On nal environment. Central banks in ad- 8.8 percent in the same period. The labor the expenditure side, private consumption vanced economies have signaled immi- market improvement may have helped will expand with recovering employment nent interest rate hikes, which could lead lower poverty between 2020 and 2021, but and remittances, boosted by election-relat- to financial volatility in emerging mar- it remains above pre-pandemic levels. ed spending. Consumption growth could kets. Rising global commodity and ener- There are danger signs of the low quality have been higher if not for the Russia- gy prices will intensify inflationary pres- of jobs generated with workers moving to Ukraine war driving inflationary pressure sure. Domestically, the political transition self-employment and low-skilled wage oc- on fuel and food. Public consumption is ex- risks policy discontinuity that may under- cupation, which can jeopardize future pected to grow in line with the bigger na- mine market confidence. While the coun- poverty reductions. The labor shift and hu- tional budget, while public infrastructure try has entered a benign phase of the man capital deterioration have increased investments will contribute to capital for- pandemic, threat of a new variant-driven inequality. The Gini coefficient is estimat- mation growth. Net exports will be weaker surge hangs over the outlook. Neverthe- ed to increase from 42.3 percent in 2018 to amid a subdued external environment. In less, the country has adopted systems 45.0 percent in 2021, and would have been 2023-2024, private consumption will be sup- that allow more public mobility and lo- higher without the social assistance given ported by sustained remittances and do- calized responses to outbreaks, reducing at the height of the pandemic. mestic activities, while public consumption adverse economic impacts. TABLE 2 Philippines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.1 -9.6 5.6 5.7 5.6 5.6 Private Consumption 5.9 -7.9 4.2 5.5 5.6 5.6 Government Consumption 9.1 10.5 7.0 9.2 7.8 6.5 Gross Fixed Capital Investment 3.9 -27.5 9.6 12.3 10.1 9.4 Exports, Goods and Services 2.6 -16.3 7.8 7.6 7.3 7.0 Imports, Goods and Services 2.3 -21.6 12.9 12.3 10.3 9.0 Real GDP growth, at constant factor prices 6.1 -9.6 5.6 5.7 5.6 5.6 Agriculture 1.2 -0.2 -0.3 1.0 1.1 1.1 Industry 5.5 -13.2 8.2 6.5 6.2 5.9 Services 7.2 -9.2 5.3 6.0 6.1 6.1 Inflation (Consumer Price Index) 2.4 2.4 3.9 4.2 3.5 3.3 Current Account Balance (% of GDP) -0.8 3.2 -1.8 -4.0 -3.5 -3.3 Net Foreign Direct Investment (% of GDP) 2.3 1.9 2.7 2.8 3.0 3.0 Fiscal Balance (% of GDP) -3.4 -7.6 -8.6 -7.1 -6.0 -5.1 General Government Debt (% of GDP) 34.1 48.1 54.6 56.2 56.9 57.0 Primary Balance (% of GDP) -1.5 -5.5 -6.4 -4.6 -3.5 -2.6 a,b International poverty rate ($1.9 in 2011 PPP) 2.2 3.7 3.1 2.6 2.1 1.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 15.0 20.4 18.3 16.3 14.6 12.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 44.2 50.8 48.5 46.0 43.4 40.9 GHG emissions growth (mtCO2e) 3.3 -12.2 0.6 2.3 2.1 2.0 Energy related GHG emissions (% of total) 58.8 54.8 55.1 54.8 54.4 54.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2018-FIES.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 26 Apr 22 non-agricultural income during the period January-June 2021. Food insecurity re- SOLOMON Key conditions and mains prevalent, as more than two thirds of households had at least one episode of challenges ISLANDS food insecurity in the month leading up to the survey. Common coping strategies, Solomon Islands is a country with 700,000 such as reducing food consumption or sell- people dispersed across 90 inhabited is- ing assets, could make those households Table 1 2021 lands. The country faces large economic, further vulnerable. Population, million 0.7 development and governance challenges Strong and timely containment measures GDP, current US$ billion 1.6 shaped by its geographical dispersion, re- had been successful in preventing local GDP per capita, current US$ 2322.0 moteness to international markets, and transmission of the coronavirus until 2022, National Basic Needs Poverty Rate a 12.7 vulnerability to natural disasters. In ad- when a community outbreak rapidly b 104.3 dition to the socio-geographic character- spread through a largely unvaccinated pop- School enrollment, primary (% gross) b istics, capacity constraints, as well as a ulation. At the end of February 2022 about Life expectancy at birth, years 73.0 fragile political landscape pose a contin- 30 percent of the population had received at Total GHG Emissions (mtCO2e) 46.4 uous threat to sustainable development. least one dose. The country expects to re- Source: WDI, Macro Poverty Outlook, and official data. These challenges make the planning, de- open its borders in the second half of 2022. a/ Solomon Islands National Statistics Office. Most recent value (2013). livery and management of infrastructure b/ Most recent WDI value (2019). systems challenging and this has resulted in a large infrastructure gap. The need for economic diversification is urgent given Recent developments The economy is expected to shrink by economy’s over-reliance on the logging sector. The government’s attempt to find The economy was set to grow by 0.4 per- -2.9 percent in 2022, reflecting the neg- new sources of economic growth is con- cent in 2021. However, at the end of No- ative impact of the recent civil unrest strained by several impediments, includ- vember 2021, protests at the Parliament and widespread community transmis- ing limited human capital and an unfa- building escalated into looting and riot- sion of the coronavirus. These events vorable business environment. ing, causing severe damage and losses have broad-based economic impacts and Development challenges have been fur- to buildings and goods, estimated at 7 ther exacerbated by the COVID-19 pan- percent of GDP. The civil unrest, driven create pressure on the fiscal accounts. demic which caused a sharp economic by a complex web of local grievances Risks to the outlook include a further contraction and adversely affected peo- and a lack of economic opportunities, re- spread of the coronavirus, higher im- ple’s livelihoods. According to a mobile duced the economic growth rate by 0.3 ported inflation, a return of social un- phone survey collected from June to Au- percentage points in 2021 (to 0.1 percent), gust 2021, there is no sign of employ- with knock-on effects in 2022. This re- rest, and climate-related disasters. ment recovery. To the contrary, the sur- flects lower economic activity in the retail vey indicates a decline in the share of and wholesale sector, which accounted working individuals since the start of the for half of all the civil unrest damage. pandemic. More than half of all house- The fiscal deficit deteriorated to 5.4 percent holds experienced reductions in their of GDP in 2021. In the month of December FIGURE 1 Solomon Islands / Real GDP growth, actual, FIGURE 2 Solomon Islands / Fiscal balance pre-unrest trend and post-unrest forecast Percent Index US$ billion LCU Percent of GDP 8 160 6 6 6 140 4 5 4 120 2 4 2 100 0 3 0 80 -2 -2 60 2 -4 -4 40 1 -6 -6 Real GDP (post-unrest), % change 20 Real GDP (pre-unrest), Index (2013=100) (rhs) 0 -8 Real GDP (post-unrest), Index (2013=100) (rhs) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -8 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total expenditure Total revenue Fiscal balance (rhs) Source: World Bank staff estimates. Source: World Bank staff estimates. MPO 27 Apr 22 2021, the revenue loss due to riots is esti- represents a sharp deterioration compared by a further drawdown on the cash buffers mated at 0.6 percent of GDP. In response, to the pre-unrest projection for 2022 (4.5 per- and a combination of domestic and exter- the government introduced austerity mea- cent growth). Investments to replace dam- nal lending. An expected rebound of eco- sures limiting payments to payroll, essen- aged productive capacity caused by the ri- nomic activity and spending consolidation tial items and COVID-19 related expendi- ots are unlikely to gain pace until later in the will lead to a narrowing of the fiscal deficit tures, though this only partially offset the year. Furthermore, the lockdown to contain in 2023-2024. Similarly, the current account revenue loss. The remaining fiscal gap in COVID-19 is likely to dent output in con- deficit will shrink over the medium term 2021 was financed by a reduction in cash tact-intensive sectors, including services, reflecting smaller fiscal deficit and reduc- buffers, which stood 3 percent of GDP at which represents about 55 percent of out- tion in construction-related imports. the end of 2021. put. Following a contraction in 2022, COVID-19 remains a major risk to the eco- The current account deficit widened to 5.2 growth is projected to rebound to 5.3 per- nomic outlook. A low vaccination in- percent of GDP in 2021, reflecting a large cent of GDP in 2023 and to moderate to 3.8 take—particularly among low-educated trade deficit which was partially offset by percent in 2024. Infrastructure investment, and female populations— may lead to the current transfers. The trade deficit was a return of business tourism and increased maintenance of a closed border policy, mainly driven by an increase in imports of mining activity are expected to support while a further community transmission machineries, fuel and basic manufactures growth over the medium-term. may have human capital implications and and export of fish and agricultural prod- The deficit in both external and fiscal ac- hamper economic recovery. The Russia- ucts, as well as minerals. counts will widen in 2022, to 18.3 per- Ukraine war may lead to sustained high cent and 7.7 percent of GDP, respectively. commodity prices – especially fuel, which High demand for imported construction would have inflationary effects and nega- materials and machinery will drive cur- tive implications on the external accounts Outlook rent account deficit. A combination of (refined petroleum constitutes 20 percent of lower economic activity and elevated imports). A further deterioration of domes- Output is projected to contract by 2.9 per- spending on COVID-response and busi- tic economic conditions may lead to a return cent in 2022, reflecting the impact of the ness recovery will increase the fiscal of social unrest, while natural disasters re- civil unrest and COVID-19 lockdown. This deficit. The deficit, in turn, will be financed main a significant risk for Solomon Islands. TABLE 2 Solomon Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.2 -4.3 0.1 -2.9 5.3 3.8 Real GDP growth, at constant factor prices 1.3 -4.3 0.1 -2.9 5.3 3.8 Agriculture -4.4 -2.3 -0.6 -6.6 2.2 -1.2 Industry 6.3 -12.7 6.8 -1.9 18.7 17.7 Services 2.8 -2.7 -1.4 -1.4 2.9 1.5 Inflation (Consumer Price Index) 1.6 3.0 -0.2 8.8 3.5 3.5 Current Account Balance (% of GDP) -9.8 -1.6 -5.2 -18.3 -17.7 -14.0 Net Foreign Direct Investment (% of GDP) -1.8 -0.4 -1.5 -2.9 -3.1 -2.8 Fiscal Balance (% of GDP) 0.7 -4.9 -5.4 -7.7 -4.9 -4.5 Debt (% of GDP) 8.3 14.0 20.6 23.7 25.6 26.8 Primary Balance (% of GDP) 1.2 -4.2 -5.1 -7.3 -4.4 -4.0 GHG emissions growth (mtCO2e) 0.0 0.0 0.0 0.1 0.1 0.1 Energy related GHG emissions (% of total) 0.9 0.9 0.9 0.9 0.9 1.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 28 Apr 22 balance between catalyzing a sustainable and inclusive economic recovery and SOUTH PACIFIC Key conditions and maintaining macroeconomic balance in the face of several competing pressures. With challenges ISLANDS limited fiscal space and low capacity to carry debt, governments need to prioritize Natural disasters and external shocks pose strategic measures that lay the foundation a constant threat to livelihoods, economic for the economic recovery, while also sup- Table 1 2021 growth, and fiscal sustainability in the porting livelihoods for the bottom 40 per- Population, million South Pacific. Enhancing resilience to exter- cent of households. Effective implementa- Samoa 0.20 nal shocks is crucial to supporting long-run tion of structural reforms will be critical to Tonga 0.10 growth and achieving sustainable improve- ensure a sustainable economic recovery. Vanuatu 0.31 GDP, US$, billion ments in living standards and poverty re- Samoa 0.79 duction. Economic activity may remain de- Tonga 0.50 pressed for another six to nine months as au- Vanuatu 1.00 thorities remain cautious about border re- Recent developments GDP per capita, current US$ opening to prevent overburdening their Samoa 3954 weak public health systems. The delayed re- Border closures helped temporarily con- Tonga 4993 covery creates significant potential for scar- tain the pandemic but created economic Vanuatu 3253 ring effects in the longer term, particularly downturns. Substantial donor funding Sources: WDI, World Bank staff estimates. in the tourism sector. Lost firms and jobs cushioned the negative impact on fiscal create adverse structural changes to the and external balances. While the economy that are not reversed when aggre- COVID-19 vaccination roll-out has been The economies of Samoa, Tonga and Van- gate demand recovers. These changes progressing well in Samoa and Tonga with uatu have been hit by natural disasters would disproportionately affect the lower approximately 90 percent of the adult pop- educated, whose skills may not be as trans- ulation fully vaccinated as at end-February and the COVID-19 pandemic. These ferable to other sectors. The economic 2022, it has been relatively slow in Van- South Pacific countries just recorded their shocks and slow recovery also greatly in- uatu. It lags with only 48 percent of the first COVID outbreaks. Tonga’s outbreak crease the risk of poverty, particularly as adult population fully vaccinated. was amid a volcanic eruption and subse- households deplete savings and assets to The Samoan economy recorded a histor- cope with lost incomes. ical-high recession in FY21. While border quent tsunami. Strict travel restrictions The main immediate challenge for all three closure prevented domestic transmission have hit tourism-related activity with countries is to contain the domestic of COVID-19, it resulted in a sharp con- negative spillovers on the rest of the econ- COVID-19 outbreak. In addition, Vanuatu traction of tourism and related industries, omy. Governments need to continue sup- needs to sustain its recent uptick in vacci- and hindered construction activity. De- porting the vulnerable and embark on nations to minimize health and economic spite policy support and robust remit- impacts from the outbreak while Tonga tances, real GDP declined by 8.1 percent. structural reforms to support inclusive needs to prioritize response and recovery Poverty is likely to have risen from the pre- economic recovery. from the recent tsunami. The near-term pandemic level, with urban areas affected challenge will be to strike an appropriate more due to the higher concentration of FIGURE 1 South Pacific Islands / Overall fiscal balance FIGURE 2 South Pacific Islands / Current account balance Percent of GDP Percent of GDP 8 20 Samoa 6 15 Tonga 4 10 2 Vanuatu 5 0 0 -2 -5 -4 -10 -6 -8 -15 Samoa Tonga Vanuatu -10 -20 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Sources: National sources and World Bank projections. Sources: National sources and World Bank projections. MPO 29 Apr 22 jobs in the service sector. Substantial de- The twin deficits are expected to narrow velopment partner grants, spending un- over the medium-term consistent with the der-execution and favorable tax revenue Outlook economic recovery. outturn, reflecting improved tax compli- In Tonga, the economy is expected to con- ance and the phased rollout of the Tax In- The near-term outlook remains dependent tract by 1.6 percent in FY22, reflecting the voice Monitoring System (TIMS) helped on the duration of COVID-19 related travel impact of the recent tsunami on agricultur- attain a fiscal surplus of 1.9 percent of restrictions and the economic fallout from al production, the commercial sector and GDP. The current account recorded a sub- the Russia-Ukraine war. Among others, tourism, aggravating the COVID-related stantial deficit (15.3 percent of GDP) as achieving herd immunity through vaccina- impact. Borders are expected to remain tourism receipts came to a standstill. tion is a key trigger for border reopening. closed until end of FY22 as the country bat- The Tongan economy is estimated to have Most of the adult population are expected to tles its first COVID-19 outbreak. Growth is contracted by 0.8 percent in FY21, due to the be fully vaccinated by end-March 2022 in expected to rebound to 3.2 percent in FY23 impacts of COVID-19 and TC Harold—a Samoa and Tonga. In Vanuatu, vaccination and FY24 driven by reconstruction activi- category 5 cyclone that struck the country in demand has increased substantially due to ty, recovery in agriculture production, and April 2020. These shocks have resulted in a the community transmission of the gradual pick-up in tourism receipts. The slowdown in the tourism, retail, and agri- COVID-19. Tourism activity is expected to fiscal and current account deficits are pro- culture sectors. However, a severe contrac- be sluggish in the near-term and gain mo- jected to remain elevated in FY23-24 as re- tion was avoided due to the fiscal stimulus mentum over the medium-term. While pre- construction activities and recovery efforts implementation, ramp-up of reconstruction mature border reopening could have impli- take place, before narrowing over the activities from TC Gita (2018) and TC cations on the domestic COVID situation, medium term. Harold, and buoyant remittance inflows. A economic activity will be constrained for as In Vanuatu, GDP growth is expected to marginal fiscal deficit of 0.4 percent of GDP long as international travel restrictions re- accelerate to 3-4 percent between was recorded, supported by relatively high main in place. The implication is that pover- 2022-2024, supported by a gradual pick grants and better-than-expected domestic ty rates across the three countries will grad- up in tourism and cyclone reconstruction revenue collections. Robust remittances and ually decline as economic activity picks up activity. In tandem, the poverty rate is lower service imports helped attain a cur- and jobs become available but will remain projected to gradually decline from 36.6 rent account surplus (5 percent of GDP). higher than pre-pandemic levels until full percent in 2022 to 35.9 percent in 2024. In Vanuatu, following a deep economic re- economic recovery is achieved. In the near term, the community trans- cession in 2020, growth is estimated to In Samoa, an economic contraction of 0.3 mission of COVID-19 is negatively affect- have recovered to 1.2 percent in 2021. The percent is projected in FY22, reflecting the ing growth. The fiscal deficit is projected economic recovery was underpinned by global growth slowdown and COVID-relat- to deepen in 2022 – due to lower ECP rev- continued fiscal stimulus, which support- ed impact but is projected to accelerate to 3.8 enues and increased COVID-spending but ed livelihoods and funded reconstruction percent by FY24. The recovery is expected to narrow onwards. A balanced budget is ex- activity related to TC Harold. A sizeable be driven by a gradual resumption of tourist pected by 2024 as the recently passed Tax fiscal deficit of 6 percent of GDP was activity from FY23, spillovers to other sec- Administration Act helps boost tax rev- recorded in 2021, driven by a fall in sov- tors and ramping up of capital projects. The enues and the COVID stimulus is gradual- ereign rents, particularly lower Economic fiscal balance is projected to record a ly withdrawn. These are expected to out- Citizenship Program (ECP) receipts, deficit of 2.9 percent of GDP as develop- weigh the projected decline in ECP rev- alongside increased expenditures. The cur- ment partner grants normalizes and capi- enues. Similarly, the current account rent account recorded a deficit of 8 percent tal expenditure picks up pace. With the de- deficit is projected to gradually narrow to of GDP, predominantly driven by subdued layed recovery in tourism, the current ac- approximately 4.4 percent of GDP by 2024, tourism receipts. count deficit is projected to persist in FY22. driven by a recovery in travel receipts. TABLE 2 South Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices Samoa 4.4 -2.6 -8.1 -0.3 2.5 3.8 Tonga 0.7 0.7 -0.8 -1.6 3.2 3.2 Vanuatu 3.9 -6.8 1.2 2.0 4.1 3.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) Vanuatu 32.3 37.6 36.9 36.6 36.1 35.9 Sources: World Bank and IMF. e = estimate; f = forecast. Note: Financial years for Samoa and Tonga are July-June, for Vanuatu it is January-December. (a) Calculations based on EAPPOV harmonization, using 2019-NSDP. (b) Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 30 Apr 22 sheets would reduce potential output over the longer-term. THAILAND Key conditions and The Ukraine-Russia war is likely to have a substantial impact on domestic oil prices challenges and consumer prices as Thailand is a net commodity importer. High consumer Table 1 2021 The economy is on a recovery path fol- prices will weigh on household welfare. As Population, million 70.0 lowing the reopening of borders and re- the economic recovery is expected to be GDP, current US$ billion 506.0 laxation of lockdown measures. Growth is gradual, continued but scaled-down social GDP per capita, current US$ 7233.4 projected to reach 2.9 percent in 2022 after assistance and government relief programs a 6.4 Upper middle-income poverty rate ($5.5) expanding by just 1.6 percent in 2021. are necessary to mitigate the welfare impact a 35.0 However, risks to growth are skewed to of rising prices on household livelihoods. Gini index b 102.2 the downside as several uncertainties School enrollment, primary (% gross) Life expectancy at birth, years b 77.2 cloud the outlook. The global trajectory of Total GHG Emissions (mtCO2e) 392.2 the pandemic remains unpredictable and Source: WDI, Macro Poverty Outlook, and official data. the probability of future new vaccine-re- Recent developments a/ Most recent value (2020), 2011 PPPs. sistant strains of coronavirus could affect b/ WDI for School enrollment (2020); Life expectancy domestic consumption and border restric- The economy expanded by 1.6 percent in (2019). tions. The recovery will in part depend on 2021 as a surge in COVID-19 cases hit eco- continued progress with the vaccination nomic activity. This followed a contraction rollout and booster shots, the ongoing im- of 6.2 percent in 2020 - the worst since the The economy expanded by just 1.6 percent plementation of other preventive and test- Asian Financial Crisis. Private consump- in 2021 as tourism remained dormant and ing/tracing measures, and the sustained re- tion weakened due to the COVID-19 out- a surge in COVID-19 cases hit economic opening of international borders. break and the containment measures in The pandemic shock is expected to inflict 2021. Goods exports were the main source activity. Economic activity is expected to lasting scars on productivity and socioeco- of growth, following the pickup in global return to pre-pandemic levels by early nomic development in Thailand. A decline demand. The economy gained traction in 2023 supported by private consumption in capital investment in 2020 diminished the fourth quarter, growing by 1.9 percent and services exports. The pace of recovery is potential output, exacerbating the adverse (yoy), up from -0.2 percent in the previous effects of demographic aging and slow fac- quarter. Contributing factors included the expected to remain protracted and hinges tor reallocation. Employment and learning relaxation of lockdown measures, the re- on the evolution of COVID-19 infections, losses were uneven with vulnerable groups opening of borders for vaccinated visitors, the resumption of tourism, and the fallout disproportionately affected, worsening in- and continued COVID-19 relief measures. from the Ukraine-Russia war. Goods ex- equalities in income and human capital ac- The central government fiscal deficit ports are likely to be affected by weakening cumulation. Meanwhile, increasing levels widened significantly in FY21 (year ended of corporate and household debt could pose September) to 8.7 percent of GDP due to global demand. Government relief mea- risks, including risks to the financial sector further increases in pandemic-response sures are expected to gradually decline, once existing forbearance measures expire. spending. Expenditures rose to 26.4 per- amid ongoing fiscal consolidation. On the other hand, a deferral of productive cent of GDP, up from 23.5 percent in FY20. investments due to weakened firm balance Public debt increased to 57.8 percent of FIGURE 1 Thailand / Real GDP growth and contributions to FIGURE 2 Thailand / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8 30 180000 6 160000 25 4 140000 2 20 120000 0 100000 15 -2 80000 -4 10 60000 -6 40000 5 20000 -8 2017 2018 2019 2020 2021 2022f 2023f 2024f 0 0 Private consumption Government consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross Fixed Investment Net exports International poverty rate Lower middle-income pov. rate Change in inventories* GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank staff calculations and NESDC. Note: * Includes statistical Source: World Bank. Notes: see Table 2. discrepancy. MPO 31 Apr 22 GDP. The central bank continued to pur- peers. The poverty headcount rate (based Ukraine-Russia war. However, second- sue accommodative monetary policy and on the upper middle-income poverty line round inflation pressures are projected to the targeted distribution of liquidity sup- of 5.5 dollars a day, 2011 PPP) was esti- remain contained due to the remaining port to SMEs. The current account balance mated to have declined from 6.4 percent in output gap, price administration, and an- turned negative for the first time in 8 years 2020 to 6.2 percent in 2021 due to signifi- chored inflation expectations. at 2.2 percent of GDP, reflecting the widen- cant fiscal support to households. The pace of recovery will hinge on the ing service exports deficit due to muted evolution of COVID-19 infections and the tourism receipts and soaring freight costs. resumption of tourist arrivals. Despite the The Real Effective Exchange Rate (REER) reopening of borders, the pace of the depreciated by 4.8 percent in 2021, the sec- Outlook tourism recovery is likely to be gradual ond worst-performing currency in Asia af- due to the ongoing Omicron wave, con- ter the Japanese yen. The economy is expected to return to pre- tinued travel restrictions by China, and Employment has picked up following the pandemic levels by early 2023. Growth is the Ukraine–Russia war. relaxation of lockdown measures and the projected to reach 2.9 percent in 2022 and 4.3 Labor market conditions are expected to reopening of borders, but labor market percent in 2023, driven by increased private gradually improve as the tourism sector conditions remained weaker than before consumption and services exports. But continues to recover. Social assistance in- the pandemic. The unemployment rate de- weakening global demand will slow come is expected to rise due to an expan- clined to 1.6 percent in Q4 2021 but re- growth in goods exports. The fallout from sion of eligible beneficiaries of the state mained above the level of 1.0 percent in the Ukraine-Russia war will weigh on do- welfare card scheme from 13.5 million in 2019. Average household income grew 4.5 mestic consumption, external demand, and 2021 to 20 million in 2022. Following the percent per year (in nominal terms) during tourism. Government relief measures are growth rebound, the expansion of the so- 2019 – 2021, driven by incomes from social expected to gradually decline amid fiscal cial assistance programs, and the continu- assistance and COVID-19 relief measures. consolidation. Headline inflation is expect- ation of the COVID-19 recovery programs, Household debt surged during the same ed to rise markedly to 3.7 percent in 2022 household income is expected to increase period, reaching 89.3 percent of GDP in due to supply-side driven factors, including and the poverty headcount rate is project- 2021, which is high compared to regional the surge in global oil prices following the ed to decline to 5.8 percent in 2022. TABLE 2 Thailand / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -6.2 1.6 2.9 4.3 5.1 Private Consumption 4.0 -1.0 0.3 3.8 4.1 3.7 Government Consumption 1.6 1.4 3.2 0.9 2.5 2.9 Gross Fixed Capital Investment 2.0 -4.8 3.4 4.0 4.9 3.3 Exports, Goods and Services -3.0 -19.7 10.4 6.7 5.7 7.8 Imports, Goods and Services -5.2 -14.1 17.9 6.5 5.1 5.3 Real GDP growth, at constant factor prices 2.2 -5.6 1.6 2.8 4.3 5.1 Agriculture -0.5 -3.2 1.3 1.3 1.2 1.2 Industry -0.7 -5.3 3.4 4.8 3.9 3.9 Services 4.2 -6.0 0.6 1.9 4.9 6.3 Inflation (Consumer Price Index) 0.7 -0.8 1.2 3.7 0.9 1.1 Current Account Balance (% of GDP) 7.0 4.2 -2.2 -2.4 0.2 2.2 Net Foreign Direct Investment (% of GDP) -1.0 -4.8 0.6 0.5 0.5 0.5 Fiscal Balance (% of GDP) 0.4 -4.5 -7.8 -3.9 -2.2 -2.0 Debt (% of GDP) 40.9 50.1 57.7 62.6 63.2 61.8 Primary Balance (% of GDP) 1.4 -3.6 -6.5 -2.8 -0.9 -0.8 a,b International poverty rate ($1.9 in 2011 PPP) 0.1 0.0 0.0 0.1 0.1 0.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.3 0.3 0.3 0.3 0.2 0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 6.2 6.4 6.2 5.8 5.3 4.7 GHG emissions growth (mtCO2e) 0.0 -6.0 1.8 -0.7 1.8 3.6 Energy related GHG emissions (% of total) 61.3 59.5 60.1 59.4 59.6 60.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2014-SES, 2019-SES, and 2020-SES.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2014-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 32 Apr 22 structural reform agenda includes creat- ing a more supportive environment for TIMOR-LESTE Key conditions and private-sector-led growth and building a more climate-resilient economy. challenges Table 1 2021 Economic growth driven by public spend- Population, million 1.3 ing has generated low returns in the past Recent developments GDP, current US$ billion 1.7 and is fiscally unsustainable going forward. GDP per capita, current US$ 1283.8 Between 2013 and 2020, GDP growth aver- After a relatively slow start, the vaccination a 22.0 International poverty rate ($1.9) aged 0.3 percent per year, well below the campaign has accelerated rapidly. As of a 65.9 EAP average of 6.0 percent. Public spending March, 21, 2022, 72.5 percent of eligible Lower middle-income poverty rate ($3.2) a 28.6 skyrocketed in 2007-2016 and remained one adults are fully vaccinated while more than Gini index School enrollment, primary (% gross) b 112.5 of the highest in the world (71.2 percent of 85 percent adults have received at least one Life expectancy at birth, years b 69.5 GDP in 2020). But high public spending did dose. The government has started vaccinat- Total GHG Emissions (mtCO2e) 6.5 not boost growth as expected and led to a ing children and adolescents aged between large fiscal deficit of 18.2 percent of GDP in 12 and 18 years old. Booster shots have been Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014), 2011 PPPs. 2020. The fiscal deficit can be financed using made available since early this year. Timor- b/ Most recent WDI value (2019). the Petroleum Fund (about 19 times 2021 Leste is in the early phase of the third wave GDP) in the short to medium term. Howev- of transmission primarily driven by Omi- er, the Petroleum Fund will be depleted by cron. Also, of concern is the surge of Dengue The economy is showing signs of moder- 2032 under current spending trajectories. cases. There have been some 20 deaths and Timor-Leste has had eight different gov- more than 3 000 reported cases of dengue ate recovery from the dual COVID-19 ernments since independence twenty years fever since January 2022. and natural disaster shocks in 2021. The ago. Recent political instabilities, particu- The country had a challenging year in 2021 economy is projected to grow by 2.4 per- larly in 2018 and 2020, have caused con- as the economy was adversely impacted by cent in 2022 on the back of public spend- siderable delays in the approval, promul- the surge of COVID-19 cases and major ing and a strong COVID-19 vaccination gation, and execution of the state budgets. flooding caused by Tropical Cyclone Seroja. Public investment declined by 17.9 percent High spending to respond these shocks has campaign. Risks to the outlook include and 49.1 percent in 2019 and 2020, respec- led to a budget deficit of 44.2 percent of GDP the recurrence of COVID-19 outbreaks tively. A political consensus around key in 2021, but authorities were only able to ex- and political uncertainty due to the up- policy and regulatory reforms to support ecute 71 percent of the allocated budget. The coming Presidential election. Long-term economic recovery and overcome socio- 2022 budget was opportunely approved economic challenges is urgently needed. and promulgated on time in December 2021 growth prospects remain contingent on Timor-Leste is vulnerable to natural haz- and January 2022, respectively. the ability of the Government to promote ards and ranked 20th amongst countries The dual shocks in 2021 might also increase private sector growth and to build a more with the highest disaster risks. The April poverty. Measured by an international climate-resilient economy. 2021 natural disasters and related recov- poverty line of US$1.90 per day per capita ery costs have eroded fiscal space and (2011 PPP), poverty was estimated to have undermined macroeconomic stability. The increased from 24 to 27 percent between FIGURE 1 Timor-Leste / Real GDP growth and contributions FIGURE 2 Timor-Leste / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 90 1600 80 1400 5 70 1200 60 0 1000 50 800 -5 40 600 30 -10 20 400 10 200 -15 0 0 2018 2019 2020 2021e 2022f 2023f 2024f 2007 2009 2011 2013 2015 2017 2019 2021 2023 Private consump. Public consump. Investment International poverty rate Lower middle-income pov. rate Net exports Growth Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 33 Apr 22 2019 and 2021. It is difficult to capture the COVID-19 infection rates. On the demand should help narrow the current account impact of COVID-19 at the household level side, a gradual rebound in private con- deficit. The financial account surplus will due to very limited data as the latest Timor- sumption, supported by public sector expand, although mainly due to divest- Leste Survey of Living Standard was in wages and personal benefit transfer, and ments of the Petroleum Fund used to cover 2014. According to the nationally represen- higher execution of Government expen- both the fiscal and current account deficits. tative Socio-Economic Impact Assessment diture will drive economic growth. Yet, Consumer price inflation is projected to (SEIA) 2.0 survey conducted by the General it is concerning to note that the sustain- gradually pick up, reflecting the increase Directorate of Statistics, Ministry of Finance able sources of revenue for the 2022 bud- in higher Government spending and the and the UNDP in July-August 2021, around get are set considerably below what is re- global energy prices. 40 percent of the employed population lost quired to cover even the recurrent spend- The presidential vote is scheduled on their jobs since the COVID-19 pandemic ing. Without major revenue reforms, fis- March 19 with a potential runoff for the outbreak in March 2020. As of March 2021, cal deficit is projected to hover at around two top candidates on April 19. There 90 percent of them reported that they were 40 percent of GDP in the medium term. is also a possibility of an early Par- back in employment. But this is character- Net exports will continue to be a drag liamentary elections in case the elected ized by informal work arrangements with on growth due to structural external sec- President is from the opposition. As the unstable earnings and low productivity. tor imbalances (lack of diversified exports country moves into an electoral period, and high import demand). policymaking and reform processes can External pressures will persist in the short be stalled. term, owing in part to import-intensive in- Risks to the forecast are skewed to the Outlook frastructure projects. Border re-openings, downside. Worsening of the political en- if carefully managed, will gradually sup- vironment, new waves of COVID-19, and The economy is projected to expand by 2.4 port the tourism sector. High oil prices and impact of climate changes and natural dis- percent in 2022 with the decline of slightly higher oil and gas production aster events could slow the recovery. TABLE 2 Timor-Leste / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.1 -8.6 1.6 2.4 2.8 3.0 Private Consumption 3.7 -2.5 1.6 2.9 3.7 3.8 Government Consumption 3.2 4.9 3.1 4.9 1.5 1.5 Gross Fixed Capital Investment -17.4 -42.5 19.5 12.3 13.1 14.0 Exports, Goods and Services -17.2 -51.1 13.1 11.8 13.8 14.0 Imports, Goods and Services -6.5 -8.5 5.6 9.8 6.4 7.0 Real GDP growth, at constant factor prices 2.0 -8.3 1.6 2.4 2.8 3.2 Agriculture 2.5 5.1 2.9 2.9 2.9 -1.2 Industry 4.8 -28.5 2.4 2.4 2.4 16.7 Services 1.2 -7.1 1.1 2.2 2.9 2.0 Inflation (Consumer Price Index) 0.9 0.5 3.8 2.5 2.6 2.3 Current Account Balance (% of GDP) 7.8 -19.3 -33.5 -42.7 -49.1 -55.4 a Fiscal Balance (% of GDP) -29.9 -26.1 -44.2 -46.2 -47.6 -51.6 b,c International poverty rate ($1.9 in 2011 PPP) 23.6 27.0 27.2 27.0 26.6 26.2 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 67.4 70.5 70.6 70.4 70.1 69.8 GHG emissions growth (mtCO2e) 1.5 -5.7 1.8 3.2 3.8 3.9 Energy related GHG emissions (% of total) 9.7 9.5 9.6 9.7 9.7 9.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ The ESI is part of total revenue, while excess withdrawals from the PF is a financing item. b/ Calculations based on EAPPOV harmonization, using 2007-TLSLS and 2014-TLSLS.Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. c/ Projection using annualized elasticity (2007-2014) with pass-through = 1 based on GDP per capita in constant LCU. MPO 34 Apr 22 market outcomes for women and infor- mal workers were more adversely im- VIETNAM Key conditions and pacted than men’s. challenges Table 1 2021 The economy is recovering from extensive Recent developments Population, million 98.2 Q3-2021 lockdowns associated with the GDP, current US$ billion 362.6 April 2021 COVID-19 outbreak. The vac- Vietnam’s economy grew by 2.6 percent in GDP per capita, current US$ 3693.7 cination of over 78 percent of population 2021, well below its pre-pandemic trend of a 1.8 International poverty rate ($1.9) facilitated adoption of a “Living with 7.0 percent. After a strong expansion in the a 6.6 COVID-19” strategy and the opening of first semester, the April 2021 COVID out- Lower middle-income poverty rate ($3.2) a 22.4 the economy in Q4-2021. However, Viet- break led to extensive lockdowns in ma- Upper middle-income poverty rate ($5.5) Gini index a 35.7 nam is experiencing a surge in infections jor economic centers and a 6.2 percent (y/y) School enrollment, primary (% gross) b 117.2 related to the OMICRON variant in contraction of GDP in Q3. As restrictions b 75.4 Q1-2022 and will be affected by global ef- were being lifted, the economy bounced Life expectancy at birth, years fects of the war in Ukraine. back strongly, growing by 5.2 percent (y/ Total GHG Emissions (mtCO2e) 419.7 In the medium term, Vietnam’s vision to y) in Q4. Industrial production rebounded Source: WDI, Macro Poverty Outlook, and official data. become an upper-middle income econo- quickly once Q3-2021 restrictions were re- a/ Most recent value (2018), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy my will depend on its ability to evolve moved, growing by 4.0 percent thanks to (2019). from its current growth model to a pro- strong external demand. Because of their ductivity and innovation led growth sensitivity to social distancing measures, model. The government’s institutional ca- services were hit hardest, growing by only Vietnam’s economy is expected to grow pacity to shepherd major structural re- 1.2 percent, much lower than its pre-pan- by 5.3 percent in 2022, given the policy forms will be a key lever in this transi- demic growth rates. tion, which will need to focus on building The April 2021 COVID-19 outbreak and of living with COVID, strong perfor- a digitally transformed, greener and more ensuing measures to contain it had signifi- mance by export-oriented manufacturing resilient economy. cant negative impacts on the labor market and domestic demand recovery. Poverty In 2021, inequality in both monetary and in Q3-2021. About 60 percent of the labor is expected to decline in 2022, but at a non-monetary dimensions is expected to force reported experiencing negative labor increase, compounding the increase in market impacts, which ranged from loss of slower pace than pre-COVID. Over 78 inequality that occurred because of the jobs to reduced hours, temporary business percent of the population is fully vacci- COVID-19 crisis in 2020. Households in closures, and reduced pay. By Q4-2021, nated, but the economy still faces seri- the bottom 20% of the population expe- major indicators showed signs of recovery ous downside risks from possible new rienced the slowest income recovery in- as economic activities resumed in major variants, the global ripple effects of the to Q1-2021 even before the Q3-2021 lock- hub, but not yet to their pre-outbreak lev- downs. Poor households were less able els. Poverty reduction is estimated to have Russian invasion of Ukraine, rising stagnated in 2021 under assumptions that to cope with the impact from income commodity prices and economic slow- shocks and were more reliant on external the population experienced these impacts down in its major export markets. sources such as borrowing. The labor uniformly across the distribution, or there FIGURE 1 Vietnam / Real GDP growth and contributions to FIGURE 2 Vietnam / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 25 90 50 20 80 45 15 70 40 10 35 60 5 30 50 0 25 40 -5 20 30 -10 15 20 10 -15 10 5 -20 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. MPO 35 Apr 22 was no increase in inequality (Figure 2). which has been slow, highlighting con- However, it is likely crisis impacted more sumers and investors uncertainty. The cur- those at the bottom of the distribution. Outlook rent surge in infections may lead to tempo- Widening inequality of even two percent rary labor supply and production disrup- would lead to a rise in poverty. Vietnam’s GDP is expected to grow by 5.3 tions. Since a strong economic rebound was While monetary policy was relatively ac- percent growth in 2022 and thereafter to sta- underway at the start of the year, if the gov- commodative, the impact of the COVID bilize at around 6.5 percent in a scenario ernment deploys a strong fiscal policy sup- shock in 2020 and 2021 was compounded with eased mobility restrictions domestical- port, the impact on economic growth could by lack of an effective countercyclical fis- ly and internationally. The services sector is be mitigated. Monetary policy will need to cal policy. The State Bank of Vietnam expected to gradually recover during the remain accommodative, with continued kept refinancing rate at 4.0 percent (below year as consumer confidence is restored and vigilance to contain financial sector risks. pre-pandemic rate), encouraged banks to foreign tourism is expected to gradually re- Additional shocks could lead to a low case waive or reduce interest payment, and sume from mid-2022 onward. Manufactur- scenario where GDP grows 4 percent in provided guidance on forbearance, ensur- ing exports is expected to grow at a slower 2022, recovering to 6 percent and 6.5 percent ing ample liquidity in the market. On the pace mirroring moderating growth in Viet- in 2023 and 2024, respectively. other hand, the government’s fiscal re- nam’s main export markets (the United Poverty reduction is expected to resume in sponse was modest and piecemeal, de- States, European Union, and China). 2022 assuming GDP growth recovery to spite availability of ample fiscal space. However, the outlook is subject to height- pre-COVID rates, but the impact of the crisis The support packages, which totaled ened risks to the downside. Slowing may have longer term effects on rising in- about 2.0 percent of GDP in 2021, were growth in major trading partners and equality. Higher inequality can have eco- largely composed of tax and land rent de- terms-of-trade shock due to the Russian in- nomic and human capital consequences for ferrals but included limited social assis- vasion of Ukraine and associated sanctions the country. Sold assets cannot produce fu- tance. Public investment, which was suc- may affect recovery. This could be com- ture income while the uneven quality and cessfully ramped up to support economy pounded by new COVID-19 variants. Eco- continuity of education during COVID-19 recovery in 2020 also experienced slower nomic recovery will also hinge on the re- crisis has consequences for human capital execution in 2021. covery of the domestic private demand, formation and lifetime earning potentials. TABLE 2 Vietnam / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.2 2.9 2.6 5.3 6.5 6.5 Private Consumption 7.4 0.5 2.0 3.9 6.0 7.0 Government Consumption 5.8 6.2 2.9 5.6 5.4 5.2 Gross Fixed Capital Investment 8.3 4.1 4.0 6.0 8.2 8.5 Exports, Goods and Services 6.7 5.0 14.0 9.2 8.6 8.1 Imports, Goods and Services 9.5 3.4 16.2 8.2 8.4 8.4 Real GDP growth, at constant factor prices 7.6 3.4 2.6 5.3 6.5 6.5 Agriculture 2.0 2.7 2.9 2.0 2.0 2.0 Industry 9.6 4.7 4.0 6.2 7.9 7.9 Services 7.5 2.6 1.2 5.4 6.3 6.4 Inflation (Consumer Price Index) 2.8 3.2 1.8 3.6 4.0 4.0 Current Account Balance (% of GDP) 3.7 3.7 -0.8 0.8 1.1 0.9 Net Foreign Direct Investment (% of GDP) 4.7 4.5 4.2 4.3 4.3 4.4 Fiscal Balance (% of GDP) -0.4 -3.9 -3.8 -3.5 -2.8 -2.3 Debt (% of GDP) 43.6 44.1 45.5 46.4 45.2 44.0 Primary Balance (% of GDP) 1.0 -2.6 -2.5 -2.2 -1.3 -0.9 a,b International poverty rate ($1.9 in 2011 PPP) 1.7 1.0 1.0 0.9 0.9 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 6.0 5.0 4.9 4.6 4.2 3.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 18.8 18.6 17.4 16.1 14.9 GHG emissions growth (mtCO2e) 9.6 2.6 2.4 8.1 9.4 9.5 Energy related GHG emissions (% of total) 64.9 64.6 64.3 65.7 67.4 69.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2014-VHLSS and 2018-VHLSS.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2014-2018) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 36 Apr 22 Macro Poverty Outlook 04 / 2022