Transcript Coping with the global economic crisis: countries and Armenia Aristomene Varoudakis

Coping with the global economic crisis:
Support by the World Bank to ECA
countries and Armenia
Aristomene Varoudakis
The World Bank
AIPRG Conference
Yerevan July 2009
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Outline
• Europe and Central Asia: Policy challenges in the face of the
global economic crisis
• World Bank Support to ECA countries
• Supporting Armenia to cope with the crisis: The new Country
Partnership Strategy
ECA region hit hardest
•
ECA entered the crisis vulnerable
– With macroeconomic and financial indicators showing more vulnerabilities
relative to other emerging regions (dependence on external financing,
remittances, commodities, higher private sector debt)
GDP growth (annual percent change)
CEE - Central and Eastern Europe; CIS - Commonwealth of Independent States
The impact of the crisis across ECA
countries has been uneven
– Depending on the transmission channels, the strength of fiscal positions, and
the quality of financial policies
15.0
Real GDP in ECA countries, %, (source: IMF, World Economic Outlook Database, April 2009 )
2008 prel.
11.6
10.0
10.0
9.8
9.0
2009 proj.
7.9
7.0
7.6
6.9
7.5
7.2
6.8
6.0
4.8
5.0
5.4
7.1
6.8
5.6
5.5
5.0
3.2
2.5
2.0
1.0
3.0
2.4
2.0
0.9
2.1
1.1
0.6
0.4
0.0
-0.7
-2.0
-2.0
-2.0
-2.0
-2.7
-5.0
-3.0
-3.3
-3.4
-3.5
-4.1
-3.6
-4.3
-5.0
-4.6
-5.1
-6.0
-8.0
-10.0
-10.0
-10.0
-12.0
-15.0
Growth forecasts have come down sharply,
especially in CIS
8
6
4
2
0
-2
-4
World
CEE
CIS
-6
Apr-08
Jul-08
Oct-08
Nov-08
Jan-09
Mar-09
Apr-2009
What ECA countries can do?
•
Fiscal policy options during the crisis are limited
– Many countries do not have sufficient fiscal space for stimulus packages
– Keeping trade channels open is the most promising way for ECA countries
to benefit from global recovery
•
Financial measures are necessary
– Stabilizing banking systems (not individual banks)
– Keeping capital market linkages strong is the only way for ECA countries to
finance some of their financing needs
•
Social policy actions should be a priority
– Social protection needs to target the poor and vulnerable
– Countries facing large increase in poverty need to increase effectiveness of
public expenditures to address emerging social risks
•
Medium-term issues should not be neglected: Governance, energy security,
ageing, Climate change
World Bank support to ECA countries
• Increased lending
• Expanded analytical & advisory work
• Improved IFI coordination for better
effectiveness of support
… increased lending
• Total lending more than doubled, from $4.2 billion in (fiscal year) 2008
to $ 9.3 billion in 2009 and projected at $11.5 billion in 2010
• Quick disbursing development policy loans (DPLs) to address immediate
financing needs and support structural reforms
• Credit lines (Financial Intermediary Loans) to provide medium term
resources for private bank lending
• Project loans to maintain financing for essential investments,
particularly in infrastructure, and support job creation
• Partial Risk Guarantees to attract private capital
• Increase in IFC lending and MIGA guarantees of shareholder loans by
parent banks to subsidiaries
… expanded analytical & advisory work
• Focus on financial sector, public expenditure, and social protection
issues
• FSAP follow-up and bank restructuring frameworks
• Public Expenditure Reviews to reflect need for re-allocation within
reduced fiscal envelope
• Assessment of social assistance programs to improve targeting and
scaling up
…. improved IFI coordination
• Closer work with IMF and EU—programs on bank restructuring
and social expenditures
• Joint EBRD, EIB and World Bank Group Action Plan: pledged up
to €24.5 billion to support banking sectors and to fund lending
to businesses in the region
• Vienna Initiative: dialogue between IFIs and commercial banks
active in the region so as to ensure coordination on crossborder issues and continued lending to the region.
IFI - International Financial Institutions; EBRD - European Bank for Reconstruction and Development; EIB –
European Investment Bank; IFC – International Finance Corporation
Helping Armenia cope with the crisis
•
Armenia was hit hard by the global economic crisis
Hard landing in Q4 of 2008
– GDP growth turned negative
– Growth of remittances fell to zero (from 40 percent in mid 2008,
further deteriorating in early 2009
– Exports shrank and FDIs declined
The outlook for 2009 and beyond presents serious challenges
– In 2009 Armenia will experience a substantial GDP contraction
– Recovery in 2010 will be slow
– Poverty will rise by 5 to 6 percentage points in 2009/10
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… the crisis has exposed key economic vulnerabilities
 Narrow economic and export base (27 percent of GDP produced in
construction, exports at just 10 percent of GDP and highly
concentrated)
 High dependence on remittances (17 percent of GDP)
 Narrow fiscal base, tax revenues at less than 17 percent of GDP
 High concentration of population just above poverty line
 Limited domestic competition in key sectors, especially in import of
food and fuel commodities, and narrow-based FDI
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… but Armenia entered the crisis with some
strengths
 Well-capitalized and liquid banking system with strong prudential
regulation
 Prudent fiscal policies and small fiscal deficit
 Low public debt
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Government’s Crisis Response Program
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•
•
•
•
•
•
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Mobilization of additional funding (more than 2 bn USD)
Letting Exchange Rate adjustment take place
SME support
Additional (big and small) construction projects
Budget revision (spending cuts)
Protection of social safety programs
Tax/customs reform Action Plan
No protectionism
Bank’s new partnership strategy with Armenia
(2009-12)
A Two-Pillar Approach:
 Mitigate the impact of the global economic crisis
and help protect the poor and vulnerable
 Address key structural and governance challenges
identified in Armenia’s Sustainable Development
Program (SDP), to help improve competitiveness
and position Armenia for post-crisis rapid growth
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Pillar 1: Addressing Vulnerability
– Lending:
• 3 new projects aimed at job creation through small
scale infrastructure
• SME Credit Line
• Rural and Social Infrastructure (Irrigation, water)
• Social Protection administration
• Series of budget support credits to help maintain
financing for safety net programs and pro-poor
expenditures
– Advisory: Poverty and vulnerability, macro and financial
sector analysis, fiscal stimulus advice, Health care,
Disaster Risk Management
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Pillar 2: Promoting Competitiveness and Growth
– Lending:
• Series of budget support credits focusing on 2nd gen. reforms
and public sector governance
• Public sector modernization project
• Education project
• Road transport and energy infrastructure projects
• IT sector project
• Agricultural competitiveness project
– Advisory: public sector governance, competition, selected areas of
infrastructure (energy efficiency, taxation of extractive industries,
private participation in roads), higher education, agriculture
competitiveness, Forestry and Livestock
What is new in the partnership?
• The Bank is scaling up lending in the transition from IDA to
IDA/IBRD status
- Previous 4-year CAS period lending was $217 million
- New CPS envisages $545 million ($150m IDA + $395m IBRD)
• Higher share of lending will be for infrastructure
• Enhanced partnership with IFC
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Thank you
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