Transcript Social and Structural Implications of the Crisis

The World Bank
Europe and Central
Asia (ECA)
Economic Update
Annual Meetings
Istanbul
October 3, 2009
More than $350 billion of ECA’s foreign debt matures in 2010
Source: World Bank, DEC Prospects Group
Economic Update
The Crisis Hits Home
Office of the Chief Economist
Human Development Sector Management Unit
Poverty and Economic Management Sector Management Unit
Europe and Central Asia Region
World Bank
Annual Meetings
Istanbul, October 2009
Main points



Good news for enterprises, but foreign debt clouds the
future

Industrial production stopped falling in mid-2009

But $350 billion of external debt due in 2010
Bad news for families as poverty and unemployment
rise, while household debt clouds the future

Poverty will rise by almost 15 million instead of falling by 15 million in 2009

Stress tests indicate more debt distress likely for households in 2010
Tough times ahead for governments, and social
security debt clouds the future
4

Fiscal deficits will rise from 1.5 to 5.5 percent of GDP in 2009

Stress tests indicate pension deficits rising to 5-6 percent of GDP
Good news for enterprises, but
foreign debt clouds future
5
Industry has stopped shrinking
Industrial production, percentage change (saar)
Middle-East & North Africa
East Asia &
Pacific
South
Asia
Developing
Europe & Central Asia
Latin America
6
Source: World Bank, DEC Prospects Group.
Interest rates are lower
Emerging-market bond spreads have fallen but remain higher than pre-crisis levels
1200
Corporate bonds
(CEMBI Global)
1000
800
600
Sovereign bonds
(EMBI Global)
400
Before Lehman Brothers
200
0
7
Source: World Bank, DEC Prospects Group
Business regulations are better
Countries that made at least one
positive reform in 2008 (%)
Leading Ten Doing Business
Reformers in 2008
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Rwanda
Kyrgyz Republic
Macedonia, FYR
Belarus
United Arab Emirates
Moldova
Colombia
Tajikistan
Egypt, Arab Rep
Liberia
Source: World Bank, Doing Business 2009
8
But debt obligations loom large
More than $350 billion of ECA’s foreign debt matures in 2010
9
Source: World Bank, DEC Prospects Group
Bad news for families as poverty
and unemployment rise, while
household debt distress clouds the
future
10
Poverty will rise
Increases in poverty and vulnerability (change in people living on <$5/day)
This graph needs to be redone,
with a stacked bar chart with both
Poverty (<$2.50) and vulnerability
(2.50-5.00)
11
Source: World Bank Staff
Poverty will rise everywhere
Share of households below national poverty lines
Most recent poverty estimate
Forecasted poverty in 2009
Armenia
23.8
(2007)
29.7
Azerbaijan
10.8
(2008)
11.8
Bulgaria
9.7
(2007)
11.3
Latvia
19.8
(2008)
26.9
Romania
5.7
(2008)
7.4
Russia
13.5
(2008)
15.5
Tajikistan
53.1
(2008)
57.9
Turkey
17.4
(2008)
21.9
Note: Estimates are not comparable across countries
12
Note: Estimates are not comparable across countries.
Source: World Bank Staff
Rising job losses
Registered unemployment has risen in almost every country since mid-2008
Source: World Bank Staff
13
Job losses most in middle-income ECA
Growth of unemployment rates, 2009 over 2008, percent
14
Source: World Bank Staff
Unemployment in Turkey has doubled
Registered unemployment in Turkey, February 2008 to August 2009
15
Source: World Bank staff
Incomes in Turkey have been falling
Evidence from Turkey finds a particularly large hit to self employment income
16
Source: World Bank-UNICEF Survey
The sources of household distress
Shocks are transmitted to households through financial, product and labor markets
Most recent poverty estimate
Armenia
Forecasted poverty in 2009
23.8
(2007)
29.7
10.8
(2008)
11.8
Bulgaria
9.7
(2007)
11.3
Latvia
19.8
(2008)
26.9
(2008)
7.4
(2008)
15.5
53.1
(2008)
• Income/Employment
Shock
17.4
(2008)
57.9
Azerbaijan
Financial Market
• Credit Market Shock
Product
Market • Relative5.7
Price Shock
Romania
Russia
Tajikistan
Labor Market
Turkey
13.5
21.9
Note: Estimates are not comparable across countries
Source: World Bank 2009: The Crisis Hits Home
17
Household stress tests show distress
Severe Stress likely in Bosnia, Croatia, Estonia and Hungary
Bosnia & Herzegovina
Croatia
Estonia
Hungary
50
40
30
20
10
0
I
II
III IV V ALL
I
II
III IV V ALL
I
II
III IV V ALL
I
II
III IV V ALL
% of debt-holding households that are not vulnerable
% of debt-holding households that are vulnerable, prior to the simulation
% of debt-holding households that become vulnerable, as a result of the simulation
Debt repayment as a % of household income (median), prior to the simulation
Debt repayment as a % of household income (median), as a result of the simulation
18
Source: World Bank Staff
Tough times ahead for governments,
and pension debt clouds the future
19
Rapid fiscal deterioration in 2009
Central and Eastern European government accounts were hit sooner
Fiscal Balance (% GDP), 2000-2010
2
1
0
-1
-2
-3
-4
-5
-6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
CEE + Turkey
20
CIS
Source: World Bank Staff
Social protection spending
ECA spends a lot on public pensions (percent of GDP)
21
Source: World Bank staff estimates and OECD Social Expenditure Database.
Most data from 2000 to 2003.
Good coverage of social assistance
Is lowest in ECA’s poorest countries, but compares favorably with other regions
22
Source: World Bank Staff
And reasonable targeting
Not all goes to poor, but accuracy compares favorably with programs in other regions
23
Source: World Bank Staff
Reforms needed for social security
The reforms that help the most are inflation indexing and higher retirement ages
24
Source: World Bank staff
Messages

Crisis is not over. Countries in Emerging Europe and
Central Asia face a slow recovery


Tighter money ahead. Post-crisis growth will likely be
lower, and fiscal deficits higher


No green shoots for workers
Smaller budgets for governments
Fiscal consolidation, not indiscriminate cuts. More
efficiency of spending can mean more growth and more
equity

25
Better prospects for both families and firms
How the World Bank is helping



Supporting budgets

Increased lending (IBRD/IDA): $3.8bn in 2007, $4.2bn in 2008, $9.3bn in 2009

Operations in Armenia, Bulgaria, Georgia, Hungary, Latvia, Poland, Romania,
Serbia, Tajikistan, Turkey, and Ukraine
Strengthening institutions

Helping countries such as Belarus, FYR Macedonia and Turkey improve
social assistance programs

Helping middle income countries strengthen banking systems

Helping all countries improve social service delivery mechanisms
Improving policies
26

Public expenditure reviews, e.g., in Poland, Lithuania, Russia, and Latvia to
identify areas for efficiency

Economic reports, e.g., in Croatia and Central Asia to strengthen integration
in Europe and Eurasia
More information
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27
World Bank, 2009: The Crisis Hits
Home: Stress Testing Households in
Europe and Central Asia, Report No.
50158-ECA.
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