East Asia and the Pacific Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Annual Meetings 2023 © 2023 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. 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East Asia and the Pacific Annual Meetings 2023 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 1 Oct 23 The baseline economic outlook remains positive, driven mainly by the recovery of CAMBODIA Key conditions and the services sector, especially tourism and improvements in agricultural production. challenges Relatively strong economic growth, in con- junction with a significant scale-up of so- Table 1 2022 Cambodia’s post-pandemic economic re- cial assistance programs, should translate Population, million 16.8 covery has continued to gain steam despite into a decline in poverty, reversing part of GDP, current US$ billion 29.6 weaker external conditions. International the likely increase in 2020 and 2021. GDP per capita, current US$ 1765.4 arrivals have risen strongly in 2023, lead- a 102.9 School enrollment, primary (% gross) ing a broader recovery in the services sec- a 69.6 tor. While subdued external demand has Life expectancy at birth, years Total GHG emissions (mtCO2e) 75.9 dampened merchandise exports, goods Recent developments Source: WDI, Macro Poverty Outlook, and official data. imports have also moderated, driven a/ Most recent WDI value (2021). largely by a decline in gold imports. Over- While merchandise exports have declined all, the current account deficit has nar- in response to weaker external demand, rowed, easing pressure on the exchange services exports have recovered strongly. rate and foreign exchange reserves. Mean- During the first seven months of 2023, while, inflation has eased as food and oil international arrivals reached 3.0 million, prices moderated. up from 0.7 million during the same pe- Despite external headwinds, economic There are signs of renewed appetite for riod in 2022. Indicating a relatively rapid growth is gaining momentum, under- investment in the construction and real recovery of the tourism sector, during pinned by the post-COVID recovery of estate sector with the value of approved the first seven months of 2023, Cam- the services sector, especially the construction permits growing for the first bodia’s international arrivals reached 80 time since mid-2020. However, tight percent of the arrival number recorded tourism sector. GDP growth is projected global financial conditions and subdued during the same period in 2019, com- to pick up to 5.5 percent in 2023 and external demand have dampened invest- pared to 66.6 percent and 58.5 percent 6.1 percent in 2024, partially reversing ment in the tradeable sectors where the for Thailand and Vietnam, respectively. the pandemic-related increase in poverty. value of approved investment projects Despite less favorable weather conditions has declined. Moreover, the ongoing con- with erratic rainfall, as of July 2023, Downside risks include weaker-than-ex- centration of domestic credit in the con- agricultural cultivation improved, reach- pected global demand, a prolonged tight- struction, real estate, and mortgage sec- ing 1.5 million hectares or 24.5 percent ening of global financial conditions, or a tors which accounted for 35 percent of y/y increase. On the other hand, Cam- renewed oil and food price shock. Do- the total remains an important risk to fi- bodia’s merchandise exports have weak- nancial stability. To this end, the non- ened, with increased volatility. During mestically, the concentration of domestic performing loan ratios for the banking the first seven months of 2023, goods ex- credit in the construction sector remains and microfinance sectors which margin- ports shrank by 3.7 percent. Merchandise a key risk to financial stability. ally increased to 4 percent and 3.1 per- imports have also moderated as gold im- cent, respectively in the second quarter ports plummeted, narrowing the current of 2023 need close monitoring. account deficit. This in turn has eased FIGURE 1 Cambodia / Real GDP growth and contributions FIGURE 2 Cambodia / Merchandise exports, levels and to sectoral growth growth rate (y/y) Percent, percentage points US$ million Percent change y/y 10 2,000 80 Projections GTF 8 Non-GTF 6.1 6.3 Growth of total exports (rhs) 60 5.5 6 1,500 4 40 2 1,000 20 0 0 -2 500 -4 -20 2011 2013 2015 2017 2019 2021 2023p 2025p Agriculture Industry Services Net Taxes on Production 0 -40 Real growth Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Sources: Cambodian authorities and World Bank staff projections. Source: Cambodian authorities. Notes: e = estimate; p = projection. Notes: GTF = garment, travel goods, and footwear (and other textile products); y/y = year-on-year; and rhs = right-hand scale. MPO 2 Oct 23 pressure on the exchange rate which re- revenue plateaued, growing at 1.7 percent mained broadly stable during the first y/y. Excises and duties on imports de- seven months of 2023, hovering at clined with softening imports. Central Outlook around 4,100 Cambodian riel per US dol- government expenditure, however, accel- lar. Gross international reserves rose to erated, rising at 10.6 percent y/y, driven The economy is projected to pick up to US$18.4 billion in June 2023, up from by civil servant wage increases, election- 5.5 percent in 2023, thanks mainly to the US$17.7 billion at the end of 2022, cover- related spending, and a continued capital revival of the services sector and im- ing about 7 months of imports. spending boost. provements in agricultural production. In Moderating food and oil prices eased in- Since its launch in June 2020, the 2024, the economy is expected to im- flation further, with CPI inflation reach- COVID-19 cash transfer program has prove further, growing at 6.1 percent as ing 1.9 percent y/y in July 2023, down been the largest component of the gov- goods exports are projected to also im- from 2.8 percent at end-2022. Neverthe- ernment’s fiscal intervention, having dis- prove and gradually diversify, while FDI less, the central bank has started to tight- bursed US$1.1 billion as of July 2023. inflows will likely be boosted by the new en monetary policy to maintain the re- Moreover, the government has doubled Law on Investment. silience of the banking and financial sec- its conditional cash transfer program to Given the relatively fast pace of growth, tor. The foreign currency reserve require- approximately US$380 for each pregnant the pace of poverty reduction is expected ment ratio for banks and financial insti- woman bearing one child up to the age of to accelerate. Downside risks include tutions has been raised to 9 percent since two with IDPoor cards from August 2023. weaker-than-expected global demand, a January 2023, up from 7 percent. Broad This assistance program has also expand- protracted period of tighter global finan- money marginally expanded, growing at ed its coverage to include female workers cial conditions, and/or a renewed oil and 9.2 percent in June 2023, up from 8.2 per- who are members of the National Social food price shock. cent at the end of 2022 as foreign curren- Security Fund, female civil servants, and Over the medium term, the economy is ex- cy deposit growth picked up. During the intern and contract government officials. pected to trend back to potential, growing same period, domestic credit to the pri- The increase in cash aid and their cover- at 7 percent. The tourism and hospitality vate sector decelerated further to 10.8 per- age expansion serves to further alleviate industries are likely to accelerate further, cent y/y, down from 18.9 percent as bor- the negative impacts experienced by poor with a projected increase in international rowing costs increased. and vulnerable households. The incidence arrivals, while exports and FDI inflows are After a rapid recovery in 2022, in part reflect- of poverty under the national poverty line expected to be strengthened by the newly ing gains from revenue administration im- was 17.8 percent in 2019/20, but poverty ratified free trade agreements, a substan- provements, growth in government rev- is expected to have worsened in 2021 due tial increase in private and public invest- enue collection has slowed. During the first to the economic impacts of the pandemic ment in key physical infrastructure, and half of 2023, central government domestic and associated lockdowns. structural and sectoral reforms. TABLE 2 Cambodia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -3.1 3.0 5.2 5.5 6.1 6.3 Private consumption -4.0 -0.7 33.0 -16.1 10.1 7.3 Government consumption 12.5 -28.3 23.3 12.8 6.9 4.0 Gross fixed capital investment -2.7 6.8 52.2 -33.1 -24.8 1.8 Exports, goods and services -11.3 13.5 20.7 6.9 10.3 14.3 Imports, goods and services -8.9 23.1 40.3 -12.4 3.8 12.4 Real GDP growth, at constant factor prices -3.1 2.9 5.1 5.5 7.5 6.5 Agriculture 0.6 1.2 0.7 1.5 1.5 1.5 Industry -1.4 9.4 8.3 4.0 8.0 9.6 Services -6.3 -2.7 3.5 9.2 9.5 5.1 Inflation (consumer price index) 2.9 2.8 5.5 2.5 2.5 2.0 Current account balance (% of GDP) -12.4 -42.6 -24.4 -13.4 -11.5 -9.6 Net foreign direct investment inflow (% of GDP) 13.5 12.6 12.6 11.4 12.2 12.6 Fiscal balance (% of GDP) -4.9 -7.2 -4.8 -6.9 -4.9 -4.0 Revenues (% of GDP) 23.8 22.0 23.2 22.7 23.8 24.5 Debt (% of GDP) 36.1 36.3 36.7 36.8 36.4 36.4 Primary balance (% of GDP) -4.3 -6.5 -4.2 -6.3 -4.3 -3.5 GHG emissions growth (mtCO2e) 0.6 1.6 3.4 4.2 5.8 7.5 Energy related GHG emissions (% of total) 20.5 22.4 25.0 28.1 32.1 36.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 3 Oct 23 have historically relied on phosphate mining, fishing, and operating Australia’s CENTRAL Key conditions and Regional Processing Centre (RPC) for asylum-seekers. However, phosphate de- challenges PACIFIC ISLANDS posits are heavily depleted, fishing rev- enues are volatile, and the RPC transi- The Central Pacific faces major develop- tioned to an ongoing standby setting on ment challenges due to exogenous factors July 1, 2023. In FY23, income from the Table 1 2022 like climate change, small size, and re- RPC and associated activities constituted Population, million moteness; and endogenous forces like con- 64 percent of fiscal revenues and 92 per- Kiribati 0.13 centrated, import-reliant, and volatile cent of GDP. With RPC earnings slated Nauru 0.01 economies. All three countries have trust to end in FY27, the imperative to gener- Tuvalu 0.01 funds to stabilize volatile revenues and ate alternative sources of growth is para- GDP, current US$, billion provide long-term development financing. mount. The latest assessment from the However, they all must diversify their fis- IMF’s DSA in February 2022 found Nau- Kiribati 0.22 cal revenues to reduce volatility and effec- ru’s public debt, accounting for 27.1 per- Nauru 0.15 tively fund high recurrent spending. cent of GDP, to be sustainable. Signif- Tuvalu 0.06 Over the past five decades, steady urban icant strides have been taken in recent GDP per capita, current US$ migration in Kiribati to the capital, South years to reduce domestic and external li- Kiribati 1702 Tarawa has contributed to overcrowding, abilities. Nauru grapples with environ- Nauru 11914 reliance on imported foods, and higher mental challenges from climate change Tuvalu 5335 non-communicable diseases (NCDs). Re- and the legacy of phosphate mining. A Sources: WDI, World Bank staff estimates. cent years have seen a rapid expansion in persistent effort to rehabilitate extensive recurrent spending, particularly on social former mine sites at the center of the is- protection and the copra subsidy. This in- land remains a priority. troduces significant fiscal vulnerabilities, The public sector in Tuvalu dominates the given Kiribati’s dependence on volatile economy and private sector development The economies of Kiribati and Tuvalu are fishing revenues. The most recent IMF- is restricted by inadequate infrastructure recovering in 2023 after borders reopened World Bank LIC-DSA report from Septem- and limited economies of scale. As a large in 2022. In Nauru, however, growth will ber 2023 ranks Kiribati’s external debt, net importer, rising international commod- moderate in the coming years due to which stands at 15 percent of GDP, as sus- ity prices are a concern as they erode real tainable but at high risk of debt distress. household incomes. Although no recent changes to its Regional Processing Cen- To address these challenges, Kiribati must data on poverty is available, in 2010 an es- tre. All countries remain highly exposed curtail recurrent spending, foster private timated 26 percent of the population lived to the risks of global inflation and slowing enterprise, and increase the production of below the national poverty line. Structural global growth. In the longer term, the key nutritious crops to mitigate NCDs. reforms are critical to promote resilience, Nauru must adapt to diminishing fiscal sustain growth, and help diversify the challenges for economic growth and revenues and identify new sources of economy. The 2023 IMF-World Bank DSA poverty reduction are narrow economic growth in the medium term. Public rev- assesses Tuvalu at high risk of debt dis- bases and vulnerability to climate change. enues, economic growth, and employment tress, but debt is deemed sustainable. FIGURE 1 Central Pacific Islands / Selected fiscal revenues FIGURE 2 Central Pacific Islands / Trust Fund balances Percent of GDP Fund balance, % of GDP (lines) Per capita value, A$ (bars) 160 500 25000 450 120 400 20000 350 80 300 15000 40 250 200 10000 0 150 100 5000 50 Kiribati Nauru Tuvalu Fishing license fees Regional Processing Centre 0 0 .TV domain Other revenue 2016 2017 2018 2019 2020 2021 2022 2023 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 4 Oct 23 the depreciation of the Australian dollar government revenues by 10 percent of (legal tender), and domestic supply short- GDP, so spending must tighten commen- Recent developments age from a drought. There was a current surately to achieve a balanced budget and account surplus in 2022 with robust meet fiscal responsibility ratios. The Gov- In Kiribati, growth fell to 1.2 percent grants and fishing revenue offsetting the ernment plans to reduce spending on trav- in 2022 due to COVID-19 restrictions. In large trade deficit. The fiscal surplus of el, subsidies and donations, operations, in- June 2023, inflation was 11.2 percent (y/y), 8.8 percent of GDP in 2022 was due to vestment, and social benefits. Donor-fi- due to higher food, beverage, transporta- delayed disbursement of budget support nanced development of a solar farm, air- tion, and recreation prices. Growth is es- originally expected in 2021 and large de- port upgrades, and a new port have sup- timated to have reduced poverty to 18.3 velopment partner grants. Public debt de- ported activity. However, many inputs percent in 2022 (US$3.65 lower-middle-in- clined from 12.2 percent of GDP in 2020 have been imported and the port faces come line), below 19.5 percent in 2019. to 10.1 percent in 2022 as no external heavy delays and cost overruns. Looking Domestic demand continues to be sup- loans were signed. The total value of Tu- forward, Nauru must diversify its econom- ported by high recurrent spending on so- valu’s sovereign wealth funds decreased ic base, for example through tourism, labor cial protection and the copra subsidy. In to 274 percent of GDP at end-2022. This mobility schemes, or expanding fishing 2022 this, alongside weak fishing revenues, decline from the 311 percent recorded in revenues. The installation of the East Mi- led to a fiscal deficit of approximately 10 2021 was influenced by developments in cronesian Internet Cable in 2026 offers the percent of GDP after budget support and the global financial markets. opportunity to exploit its favorable time Revenue Equalization Reserve Fund zone between Asia and the Americas, Eng- (RERF) drawdowns. The RERF was worth lish language, and widespread literacy, by 370 percent of GDP in June 2023, down providing online services. from 480 percent in 2021 due to weak in- Outlook Tuvalu’s economy is expected to grow by vestment returns and GDP growth. 3.9 percent in 2023, before moderating to Nauru’s economy is estimated to have In Kiribati, growth is expected to rebound 2.2 percent by 2026 as dividends from bor- grown by 2.0 percent in FY23 (ending to 2.5 percent in 2023 as donor-led invest- der re-opening and capital investment nor- June 2023). Inflation was 3.4 percent, lift- ment resumes with the border reopening. malize. Inflation is expected to moderate to ed in part by global factors including the Fishing revenues are expected to gradually 3.2 percent by 2026 as global inflation pres- War in Ukraine. Fiscal performance was return to historical averages, and govern- sures and supply chain disruptions dissi- better than expected due to resilience to ment services are likely to continue sup- pate. Persistent current account deficits are COVID-19 and the extension of the RPC porting growth. RERF withdrawals are projected over the medium term as major to June 2023. This allowed the Govern- projected to be modest but highly uncer- revenue streams such as development ment to pass four supplementary bud- tain in the coming years due to the volatile grants and fishing license fees gradually gets to provide extra support to SOEs and withdrawal rule. While the rule is an im- decline. Following moderate surpluses in public services, build cash buffers, and in- portant fiscal anchor, a more stable version 2023-24, the Government is expected to in- vest in community housing. The Govern- such as withdrawing a fixed share of assets cur fiscal deficits over the medium term. ment also made prepayments into the In- would make budgeting easier. To boost Public debt is sustainable, but the risk of tergenerational Trust Fund which was 126 growth and remove distortions that inhibit debt distress is high. Total sovereign percent of GDP in March 2023, up from private sector activity, Kiribati should wealth funds to GDP are projected to de- 115 percent in June 2022. redirect copra subsidies towards targeted cline over the medium term. The Tuvalu economy recovered moderate- social protection and human capital invest- Risks to the Central Pacific outlook are ly in 2020-21 with an average growth rate ment. Any further increases in untargeted substantial and include high global infla- of 1.3 percent, mainly driven by the ser- fiscal transfers could jeopardize the Gov- tion and slowing global growth; shocks to vices sector (supply side), and government ernment’s fiscal responsibility rules. global commodity prices; volatile revenue consumption and public investment (de- In FY24, Nauru’s GDP growth is projected to flows, including grants from development mand side). In 2022, inflation spiked to 12 fall to 1.5 percent due to the gradual wind- partners; and the ever-present threat of cli- percent due to global supply disruptions, down of the RPC. This is expected to reduce mate-related natural disasters. TABLE 2 Central Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices Kiribati -1.4 7.9 1.2 2.5 2.4 2.3 Nauru 0.7 3.4 2.9 2.0 1.5 1.0 Tuvalu -4.3 1.8 0.7 3.9 3.5 2.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) Kiribati 21.3 17.9 18.3 17.8 17.2 16.6 Sources: World Bank and IMF. e = estimate; f = forecast. Notes: Country authorities and World Bank and IMF staff estimates. Nauru data are based on the fiscal year ended June. Kiribati and Tuvalu are calendar years. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 5 Oct 23 0.8 percent q/q sa in Q2, from 2.2 percent in Q1. Private consumption has weakened CHINA Key conditions and amid lackluster consumer confidence. Real disposable income per capita growth in the challenges first half of 2023 remained below its pre- pandemic rate, held back by slower wage Table 1 2022 China’s post-COVID recovery started and property income growth, and lower Population, million 1412.2 strong in the first quarter of 2023, led by social assistance. Secondary market hous- GDP, current US$ billion 17915.6 a rebound in consumer spending, but eco- ing prices in lower-tier cities have fallen GDP per capita, current US$ 12686.5 nomic activity has slowed since April. The more than 20 percent below the 2021 peak, a 0.1 International poverty rate ($2.15) drivers that could sustain the growth mo- hurting household wealth of which prop- a 2.0 mentum—further improvements in the la- erty is a key component. While real estate Lower middle-income poverty rate ($3.65) a 24.7 bor market and household incomes, a re- investment continued to contract, invest- Upper middle-income poverty rate ($6.85) Gini index a 37.1 covery in business confidence and private ment in infrastructure and manufacturing School enrollment, primary (% gross) b 104.1 investment, and a turnaround in the hous- held up. Aided by policy, state-owned en- b 78.2 ing market—are yet to gain traction. In ad- terprise capital spending and public infra- Life expectancy at birth, years dition, the global environment has become structure investment have supported Total GHG emissions (mtCO2e) 14105.2 less favorable, characterized by slower growth since the start of 2023. Source: WDI, Macro Poverty Outlook, and official data. growth, tighter financial conditions, and On the external side, exports declined in a/ Most recent value (2020), 2017 PPPs. b/ Most recent WDI value (2021). heightened geo-economic tensions. the first seven months with softening ex- Over the medium term, China is confront- ternal demand, while imports declined ed with declining growth potential that re- faster, alongside weak domestic demand flects its maturing economy, as well as and falling international commodity structural challenges such as slowing pro- prices. China's outbound tourism surged China’s growth has slowed substantially ductivity growth and a shrinking working- by 64.5 percent y/y to US$ 87.6 billion in since April. Domestic demand has weak- age population. Furthermore, high debt the first half of 2023, following the easing ened, reflecting subdued consumer and and diminishing returns to physical capital of travel restrictions. business confidence, an incomplete labor accumulation constrain the space for in- To address the faltering growth, the au- vestment-driven growth in the future. thorities have moderately eased monetary market recovery, and persistent property Geopolitical tensions and rising protec- policy. The People’s Bank of China low- market turmoil. Slowing global growth, tionism have disrupted global value ered the key policy rates by 25 basis points meanwhile, has tempered external de- chains, foreign investment flows, and ac- year-to-date. However, high-interest rates mand. From a low base in 2022, growth cess to some technologies. in other major economies and the risk of is forecast at 5.1 percent in 2023, before capital outflows constrain the room for further monetary easing. returning to a trend of structural deceler- Fiscal policy, however, has been less ac- ation thereafter. Poverty reduction is ex- Recent developments commodative than in the same period last pected to pick up in 2023, but slow in year due to financing and execution con- 2024 in line with more moderate growth. The economy has slowed substantially straints of local governments. Funding since April, with growth decelerating to pressures for local governments, due to the 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 (constant LCU) 9 40 90000 8 35 80000 7 30 70000 6 5 60000 25 4 50000 20 3 40000 2 15 30000 1 10 20000 0 5 10000 -1 2013 2015 2017 2019 2021 2023e 2025f 0 0 Private consumption Government consumption 2016 2018 2020 2022 2024 Gross capital formation Net Exports International poverty rate Lower middle-income pov. rate Statistical Discrepancy GDP Upper middle-income pov. rate Real GDP pc Sources: China’s National Bureau of Statistics and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 6 Oct 23 sharp decline in land sales, and a limited 19.7 percent in 2022. Mobility restrictions growth is expected to return to a path of pipeline of new infrastructure projects and a relatively weak labor market limited structural deceleration. Growth is project- have raised the risk of budget under-ex- welfare gains in 2022. Urban households re- ed to slow to 4.4 percent in 2024 and 4.3 ecution. Overall, the consolidated deficit duced consumption despite a slight increase percent in 2025. narrowed to 2.7 percent of GDP in the first in their disposable income, while rural Risks to the outlook are tilted to the half of 2023, from 4.2 percent in the same households were affected to a lesser extent downside. The property market turmoil period last year. with average consumption increasing in and the possibility of prolonged weak- Policy support has also, so far, failed 2022. The weakness in consumer and busi- ness in sentiment, private consumption to stabilize the property sector. The au- ness confidence has also transmitted to the and investment, and hiring decisions thorities lowered mortgage rates, offered labor market, with rising youth unemploy- could weigh on domestic demand. Ex- tax breaks, and introduced a moratorium ment based on the latest available data. ternally, risks emanate from a sharper- on developer loans. However, depressed than-expected tightening in global finan- housing demand, weak developer bal- cial conditions and heightened geopoliti- ance sheets, and excess capacity in lower- cal tensions that can further suppress ex- tier cities remain unaddressed and con- Outlook ports and investment growth. strain the recovery. Poverty reduction is expected to pick up Recognizing the weakness in consumer Growth is projected at 5.1 percent in 2023, pace in 2023, following higher growth and business confidence, the authorities from a low base of 3.0 percent in 2022. This this year, but slow down again in 2024 have issued guidance to deepen reforms moderate post-COVID recovery is driven in line with more moderate growth ex- and support consumption, private firms, by persistent weakness in consumer senti- pectations. The poverty rate at the upper small businesses, and foreign investment. ment and below-trend income growth and middle-income country line is expected The challenge now rests on translating the job creation. Weak housing demand and to fall to 17.6 percent in 2023 and 15.9 guidance into specific policies and imple- debt distress among property developers percent in 2024. Continued urbanization menting them effectively. are expected to continue to constrain real means that the share of the poor residing Modest growth in 2022 resulted in 17 mil- estate investment, while investment in in- in urban areas is projected to continue to lion people being lifted out of poverty at frastructure will be buoyed by policy sup- grow, reaching 41 and 42 percent in 2023 the upper middle-income country line port. Exports are expected to weigh on and 2024, respectively. If access to public ($6.85/day in 2017 PPP), compared to growth due to softer external demand. services is extended to all migrants in ur- around 50 million per year in 2018 and Some policy support has been announced ban areas, it can boost private consump- 2019. The poverty rate at the upper mid- but the impact on growth is expected to tion as a driver of growth and reduce ur- dle-income country line is estimated at be muted. Following this year’s recovery, ban-rural inequalities. TABLE 2 China / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices 2.2 8.4 3.0 5.1 4.4 4.3 Private consumption -1.7 11.7 0.5 9.4 5.4 5.3 Government consumption 3.1 3.3 4.8 2.7 3.4 2.9 Gross fixed capital investment 3.2 3.1 3.3 3.3 4.5 4.4 Exports, goods and services 1.7 18.4 -2.3 -0.1 2.2 2.0 Imports, goods and services -1.4 10.3 -6.0 1.5 2.5 2.3 Real GDP growth, at constant factor prices 2.2 8.4 3.0 5.1 4.4 4.3 Agriculture 3.1 7.1 4.1 2.9 3.0 3.0 Industry 2.5 8.7 3.8 3.7 3.4 3.2 Services 1.9 8.5 2.3 6.4 5.3 5.3 Inflation (consumer price index) 2.5 0.9 2.0 0.5 1.6 2.1 Current account balance (% of GDP) 1.7 2.0 2.2 1.6 1.2 0.8 Net foreign direct investment inflow (% of GDP) 0.7 0.9 0.2 -0.6 -0.3 0.1 a Fiscal Balance (% of GDP) -8.5 -4.0 -6.4 -6.4 -4.5 -4.0 Revenues (% of GDP) 34.8 35.2 32.3 32.1 31.7 31.4 Debt (% of GDP) 45.4 46.9 50.5 54.9 56.3 57.0 Primary balance (% of GDP) -7.5 -3.0 -5.3 -5.1 -3.1 -2.5 b,c International poverty rate ($2.15 in 2017 PPP) 0.1 0.1 0.1 0.1 0.1 0.1 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.0 2.0 1.7 1.3 1.0 0.8 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 24.7 20.9 19.7 17.6 15.9 14.3 GHG emissions growth (mtCO2e) 1.7 8.2 6.0 5.7 3.1 2.4 Energy related GHG emissions (% of total) 82.9 82.9 83.3 83.5 83.4 83.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The adjusted fiscal balance adds up the public finance budget, the government fund budget, the state capital management fund budget and the social security fund budget. b/ Last grouped data available to calculate poverty is for 2020 provided by NBS. Actual data: 2020. Nowcast: 2021-2022. Forecasts are from 2023 to 2025. c/ Projection using neutral distribution (2020) with pass-through = 0.85 based on GDP per capita in constant LCU. MPO 7 Oct 23 incidence of extreme poverty at 1.3 per- cent, which is on par with other Upper FIJI Key conditions and Middle-Income Countries (UMICs). Al- though extreme poverty is low in Fiji, challenges the country trails behind its UMIC peers in delivering higher living standards to Table 1 2022 Fiji is a small island nation in the South its population. The upper middle-income Population, million 0.9 Pacific Ocean. Most of the 870,000 pop- poverty rate stands at 52.6 percent, nearly GDP, current US$ billion 4.9 ulation live on the two large islands. It double the UMICs’ average of 23.5 per- GDP per capita, current US$ 5321.5 is the second largest economy in the Pa- cent in the same period. a 1.3 International poverty rate ($2.15) cific, most industrially advanced, and the a 12.4 center for re-exports. Tourism is the main Lower middle-income poverty rate ($3.65) a 52.6 engine of growth contributing about 40 Upper middle-income poverty rate ($6.85) Gini index a 30.7 percent of GDP and a key source of Recent developments School enrollment, primary (% gross) b 113.7 foreign exchange earnings. Remoteness, b 67.1 size, vulnerability to natural disasters, The economy is estimated to have a V- Life expectancy at birth, years and strong dependency on imports and shaped growth, expanding by 18.6 per- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2017 PPPs. tourism are binding constraints to cent in 2022. This is driven by a 71 b/ Most recent WDI value (2021). growth. Improving climate resilience, percent resurgence in total tourist ar- structural reforms, fiscal sustainability, rivals compared to 2019 levels, particu- and the investment environment would larly from Australia, New Zealand, and help unlock economic potential. the US. By the end of July 2023, arrivals After nearly a decade of consecutive had reached 101 percent of July 2019. growth, averaging 3.7 percent in This growth is accompanied by an in- Border reopening in late 2021 has led to a 2010-18, the economy contracted in 2019 crease in investment and consumption V-shaped growth rebound. Full output owing to domestic fiscal and monetary activities, as evidenced by the rise in recovery to pre-pandemic level is expected policy tightening and a downswing in new consumption loans and remittances. by the end of 2023. Tourism will continue global trade. A combined impact of The double-digit recovery is primarily COVID-19 and three tropical cyclones driven by services-related sectors, in- to be a key sectoral driver of growth over deepened the contraction to 22.1 percent cluding accommodation, transportation, the medium term. Risks to the outlook in- (cumulative) during 2020-21 and exac- wholesale trade, and finance. Economic clude tropical cyclones and high interna- erbated pre-pandemic fiscal vulnerabili- recovery is estimated to have reduced tional commodity prices. Structural re- ties. The reopening of international bor- poverty by UMIC standards (US$6.85 in ders in December 2021 has spurred eco- 2017 PPP) from 67.3 percent to 59.2 per- forms are critical to enhance growth and nomic recovery and employment. cent in the same period. raise living standards, while macro stabil- Prior to the COVID-19 pandemic, Fiji had Annual inflation was 3.1 percent in 2022 ity hinges on fiscal consolidation. a poverty rate of 24.1 percent in 2019/2020 (y/y) due to low prices of alcoholic bever- as defined by the national standards of liv- ages and food items and decreased to 0.3 ing. The 2019-20 Household Income and percent in July 2023 (y/y) on account of Expenditure Survey (HIES) estimated the lower fuel and kava prices. The inflation FIGURE 1 Fiji / Real GDP growth and sectoral contributions FIGURE 2 Fiji / Actual and projected poverty rates and real to real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 80 14000 15 70 12000 10 60 10000 50 5 8000 40 0 6000 30 -5 4000 20 -10 10 2000 Agriculture Industry -15 0 0 Services Real GDP 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 International poverty rate Lower middle-income pov. rate 2016 2018 2020p 2022(f) 2024(f) Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy, IMF, and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 8 Oct 23 mitigation measures outlined in the FY23 The current account deficit is projected Budget have played a role in stabilizing to decline over the medium term from the effects of price increases. Monetary Outlook 9.7 percent of GDP in 2023 to 7.3 per- policy remains accommodative to support cent in 2026 on account of higher recovery with the overnight policy rate In 2023, GDP is projected to grow by 7.7 tourism earnings and remittances. The maintained at 0.25 percent since 2020. The percent and is expected to surpass its pre- imbalance will be largely financed current account deficit increased to 17.3 pandemic level if tourist arrivals reach 95 through borrowing. Foreign reserves are percent of GDP in 2022 as imports re- percent of the 2019 level. It is expected to projected to remain adequate over the bounded. Foreign reserves were at a com- remain above 3 percent over the medium medium term. fortable level at 6.9 months of import cov- term, assuming a complete recovery in The fiscal deficit is projected to decrease er as of end-2022 and stood at 6.3 months tourism. Downside risks to the outlook are to 5.8 percent of GDP in 2023, and by July 2023. related to natural disasters and interna- further over the medium term, as div- The fiscal deficit declined to 10.2 percent tional commodity price shocks. Headline idends from revenue reforms initiated in 2022 owing to tax policy reforms and inflation is expected to grow from August through the FY24 Budget materialize. reduced capital transfers. It was financed 2023 onwards reflecting the VAT rate in- Public debt to GDP is projected to fall through external concessional and domes- crease announced in the FY24 Budget and to 83.3 percent in 2023, and further to tic borrowing. Public debt to GDP is forecast to peak at 4.7 percent (y/y) in 80.2 percent by 2026. The new Govern- dropped to 86.1 percent in 2022 because 2023 before gradually falling to below 3 ment is supportive of fiscal consolida- of declining primary balance and higher percent over the medium term. tion and has already begun preparing economic growth. In June 2023, the IMF The growth outlook is expected to reduce a new national development plan, set categorized Fiji’s overall risk of sovereign poverty to below pre-pandemic levels, to be finalized before the FY25 Bud- stress as moderate in its Debt Sustainabil- reaching 51.4 percent in 2024 (compared get. In the medium term, the Govern- ity Analysis. This assessment considers Fi- to 52.6 percent in 2019). The revival of the ment is expected to maintain a prudent ji’s exposure to significant macroeconomic tourism sector and remittances is expect- fiscal policy, improve public financial shocks, including those related to natural ed to have a positive impact on the poor- management, and implement growth- disasters and contingent liabilities. est 40 percent. enhancing reforms. TABLE 2 Fiji / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -17.0 -5.1 18.6 7.7 4.0 3.3 Real GDP growth, at constant factor prices -13.4 -3.7 13.2 7.7 4.0 3.3 Agriculture 3.3 0.5 2.3 4.9 5.2 5.6 Industry -10.6 -8.3 4.6 13.2 7.3 5.0 Services -16.8 -2.9 18.0 6.6 2.8 2.3 Inflation (consumer price index) -2.8 3.0 3.1 4.7 3.5 2.9 Current account balance (% of GDP) -13.6 -15.2 -17.3 -9.7 -9.3 -8.0 Fiscal balance (% of GDP) -12.8 -11.7 -10.2 -5.8 -4.5 -3.4 a,b International poverty rate ($2.15 in 2017 PPP) 2.9 3.7 1.9 1.3 1.1 0.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.5 22.0 15.2 12.6 11.8 11.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 64.4 67.3 58.0 53.4 51.1 49.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. Actual data: 2019. Nowcast: 2020-2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 9 Oct 23 as it benefitted from increased household purchasing power resulting from both de- INDONESIA Key conditions and clining inflation and currency apprecia- tion. Investment and exports contributed challenges 1.0 percentage points each, despite declin- ing global commodities prices. Table 1 2022 Indonesia’s growth remains robust amidst Poverty reduction has accelerated under- Population, million 279.1 an uncertain global outlook. Inflation has pinned by the economic rebound in 2022. GDP, current US$ billion 1319.1 subsided and poverty rates are back to pre- The headline poverty rate fell from 22.4 GDP per capita, current US$ 4725.7 COVID levels. However, signs of moder- percent in 2021 to 20.3 percent in 2022, a 2.5 International poverty rate ($2.15) ating demand are appearing. Slowing ex- when measured using the poverty line for a 20.3 ports, softening consumer confidence, and Lower-Middle Income Countries. Growth Lower middle-income poverty rate ($3.65) a 60.5 moderating private credit growth present in the services sector has boosted job cre- Upper middle-income poverty rate ($6.85) Gini index a 37.9 challenges to sustaining the momentum. ation. The unemployment rate dropped School enrollment, primary (% gross) b 90.1 Indonesia’s fiscal stance––with small and had nearly returned to its pre-pan- b 67.6 deficits and low debt––is well-positioned demic level by February 2023. Life expectancy at birth, years to mitigate the potential impact of global Inflation is easing faster than anticipated Total GHG emissions (mtCO2e) 1986.6 shocks. However, achieving stronger long- and has already returned within Bank In- Source: WDI, Macro Poverty Outlook, and official data. run growth will require increased and im- donesia’s (BI) target range. Headline infla- a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy proved expenditures, necessitating contin- tion declined to 3.1 percent (y/y) in July (2021). uous efforts to improve revenue collection. 2023 largely because of a decline in global Indonesia will soon be entering a pro- oil prices, a better harvest, and government longed election cycle which could slow the interventions at the sub-regional level to Despite global uncertainty, Indonesia’s pace of structural reform and hinder im- alleviate food supply bottlenecks. Head- growth remains robust, supported by the provements in economic productivity. line and core inflation have been converg- This is concerning as estimates indicate ing as inflation becomes more broad- release of pent-up demand and favorable that productivity growth has declined over based. This reflects an overall increase in terms of trade. This has contributed to ac- the past decade and requires continuous demand for goods and services while oth- celerated poverty reduction. Inflation is policy focus. er short-term inflation drivers subside. rapidly abating, twin deficits remain mod- The current account surplus decreased to only 0.1 percent of GDP in 2023H1 on ac- est, and adequate forex reserves provide an count of worsening terms of trade given external shock buffer. Implementing com- Recent developments weakening demand in major trading part- petitiveness-enhancing reforms and ners and declining prices of key export strengthening social safety nets remain In- Growth remains resilient in 2023, pro- commodities. Both exports and imports ex- donesia’s primary challenges. These ac- longing Indonesia’s post-pandemic recov- perienced contractions (4.4 percent and 2.8 ery. GDP grew 5.1 percent (y/y) in percent, respectively). Despite tightening tions are critical for reversing declining 2023H1 after expanding 5.4 percent in global financing conditions, Indonesia’s productivity, maintaining economic secu- 2022H2. Private consumption took the macroeconomic stability provided some rity, and boosting growth potential. lead, contributing 2.7 percentage points, support to portfolio inflows and foreign FIGURE 1 Indonesia / Real GDP growth and contributions FIGURE 2 Indonesia / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant million LCU) 8 100 50.0 90 45.0 6 80 40.0 70 35.0 4 60 30.0 2 50 25.0 40 20.0 0 30 15.0 20 10.0 -2 10 5.0 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Private consumption Government consumption 0 0.0 Investment Net exports 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Stat. discrepancy Change in inventories International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Sources: National Statistics Agency and World Bank. Source: World Bank. Notes: see Table 2. MPO 10 Oct 23 direct investment in 2023H1. This has Inflation will continue moderating, with prices will weigh on revenue performance, shored up forex reserves which, as of July, global energy prices trending downward, while public spending is expected to re- were equivalent to 6.2 months of imports. while inflation expectations remain well- main around 15 percent of GDP. With a The fiscal stance remained prudent in anchored within BI’s target band. diminishing energy subsidy bill, a transi- 2023H1. Revenues rose 5.3 percent (y/y) The current account is expected to record tion towards medium-term priorities, in- supported by robust sales taxes and non- a small deficit in 2023 and expand to -1.0 cluding health, social assistance, and infra- oil and gas revenue sources. This was percent of GDP by 2025, as lower commod- structure investment, is anticipated. Nev- partially offset by softening commodity ity prices and weaker global growth ham- ertheless, concerns regarding the quality windfalls as export taxes on crude palm per exports. Foreign direct investment is of spending and constraints in disburse- oil were set to zero in July 2022 and oil expected to remain the largest source of ex- ment persist. The government is expected and gas revenues declined. Total spend- ternal financing as recent competitiveness to comfortably meet its gross fiscal financ- ing rose only slightly over the same pe- reforms yield results. BI’s monetary stance ing needs (averaging 4.6 percent of GDP in riod (0.9 percent). Strong growth in out- will continue to be favorable for attracting 2023-25) given ample domestic liquidity. lays on personnel and interest payments capital inflows. Consequently, foreign cur- The outlook is subject to several down- was largely offset by a decline in sub- rency reserves will remain adequate and side risks. Sustained global monetary sidy spending. Setting aside energy subsi- above 6 months of imports. tightening could slow growth, weigh on dies, spending grew 5.8 percent. Overall, Sustained growth, combined with the gov- Indonesia’s exports, elevate financing the fiscal balance recorded a surplus of 0.7 ernment’s commitment to boost social as- costs, and tighten access to external fi- percent of GDP in 2023H1 and public debt sistance programs, is expected to acceler- nancing. Deteriorating global conditions declined to 36.4 percent of GDP. ate poverty reduction. As a result, the could also induce a sharper decline in poverty rate is expected to decline by 1.7 the terms of trade, resulting in lower rev- percentage points per year, on average, un- enues and a tighter fiscal position. Down- til 2025. Strengthening social safety nets side risks to poverty reduction are strong- Outlook and early warning systems to foresee and ly linked to vulnerability to shocks, in- prepare for shocks will also be crucial to cluding climate change. Nonetheless, In- The economy is projected to grow by 5.0 maintaining economic security. donesia’s small twin deficits, low debt percent in 2023, before easing slightly to The fiscal stance is projected to remain levels, adequate forex reserves, stable ex- 4.9 percent in both 2024 and 2025 reflect- conservative with an average deficit of 2.3 ternal financing, and growth performance ing the impact of softer terms of trade. percent over 2023-25. Lower commodity should provide robust buffers. TABLE 2 Indonesia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -2.1 3.7 5.3 5.0 4.9 4.9 Private consumption -2.7 2.0 4.9 4.8 4.9 4.8 Government consumption 2.1 4.2 -4.5 4.2 3.1 3.5 Gross fixed capital investment -5.0 3.8 3.9 4.4 4.6 4.9 Exports, goods and services -8.4 18.0 16.3 3.3 4.0 4.0 Imports, goods and services -17.6 24.9 14.7 1.8 2.4 2.5 Real GDP growth, at constant factor prices -1.6 3.3 4.9 4.9 4.9 4.9 Agriculture 1.8 1.9 2.3 3.8 3.5 3.0 Industry -2.8 3.4 4.1 4.1 4.1 4.1 Services -1.5 3.5 6.5 6.0 6.0 6.1 Inflation (consumer price index) 2.0 1.6 4.2 3.9 3.3 3.0 Current account balance (% of GDP) -0.4 0.3 1.0 -0.1 -0.5 -1.0 Net foreign direct investment inflow (% of GDP) 1.3 1.5 1.1 1.0 1.3 1.5 Fiscal balance (% of GDP) -6.1 -4.6 -2.4 -2.2 -2.3 -2.3 Revenues (% of GDP) 10.7 11.8 13.5 12.6 12.4 12.6 Debt (% of GDP) 39.3 40.7 39.5 39.1 39.0 38.4 Primary balance (% of GDP) -4.1 -2.5 -0.4 -0.1 -0.2 -0.3 a,b International poverty rate ($2.15 in 2017 PPP) 3.8 3.6 2.5 2.0 1.6 1.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 23.5 22.4 20.3 18.3 16.6 15.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 60.8 60.7 60.5 58.6 56.8 55.1 GHG emissions growth (mtCO2e) -0.4 1.1 0.7 1.2 1.1 0.9 Energy related GHG emissions (% of total) 30.1 30.7 30.9 31.5 32.2 32.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2011-SUSENAS and 2022-SUSENAS. Actual data: 2022. Forecasts are from 2023 to 2025. b/ Projection using annualized elasticity (2011-2022) with pass-through = 1 based on GDP per capita in constant LCU. MPO 11 Oct 23 LAO PDR Key conditions and Recent developments challenges Economic activity benefited from a recov- ery in the services sector, despite macro- Table 1 2022 Macroeconomic instability remained economic instability. Increased tourism, Population, million 7.5 the key challenge in the first half of transport, and logistics services, and for- GDP, current US$ billion 15.2 2023, despite tighter macroeconomic eign investment supported economic GDP per capita, current US$ 2012.5 policies and measures to strengthen growth in the first half of 2023. However, a 18.3 National Official Poverty Rate foreign exchange management. The merchandise export growth has been mut- a 7.1 Lao kip continued to depreciate ed, while labour shortages are affecting International poverty rate ($2.15) a 32.5 against most foreign currencies, while construction and manufacturing. Lower middle-income poverty rate ($3.65) Gini index a 38.8 consumer price inflation remained Depreciation pressures have persisted in School enrollment, primary (% gross) b 98.5 high. A weaker kip has further am- 2023, albeit more moderate than in 2022. b 68.1 plified pressures on external public In early 2023, the central bank issued kip Life expectancy at birth, years debt servicing, which constrains fiscal savings bonds and raised the policy in- Total GHG emissions (mtCO2e) 44.0 space and exacerbates financial sector terest rate and reserve requirement ra- Source: WDI, Macro Poverty Outlook, and official data. vulnerabilities. Pressures would have tios. Despite these measures, the Lao kip a/ National Statistics Office. Most recent value (2018). b/ Most recent WDI value (2021). been insurmountable in the absence still depreciated by 12 percent against the of sizeable debt service deferrals since US dollar between January and July 2023. 2020 (cumulatively equivalent to 8 per- The weakening of the kip reflects con- Macroeconomic instability has persisted cent of GDP). Public and publicly siderable foreign exchange liquidity con- guaranteed debt (PPG) reached 112 straints. A recent government bond is- in the first half of 2023, amid a lack of percent of GDP at the end of 2022, suance in the Thai market was significant- critical structural reforms and a debt re- mostly due to the large currency de- ly undersubscribed. structuring agreement. The Lao kip con- preciation. This value rises to over 120 Inflation remained high at 28 percent in Ju- tinues to depreciate, while inflation re- percent of GDP if expenditure arrears ly 2023. Food and transport price increases are included, some of which are ex- were the key drivers. mains in the double digits. Economic pected to be settled through domes- The fiscal balance improved in the first growth has been downgraded to 3.7 per- tic bond issuances. Average annual ex- half of 2023, owing to stronger revenue cent in 2023, owing to extreme weather ternal debt repayment obligations re- collection and containment of public events, labour shortages, persistent depre- main at $1.3 billion over the medi- spending. Total revenue recovered to 7.2 ciation and inflation, and growing diffi- um term. Debt distress is weighing on percent of GDP in H1-2023, mostly sup- economic growth prospects. A positive ported by higher import duties, natural culties in meeting financing needs. The outcome from ongoing debt renegoti- resource taxes, and fees. Consumption poverty rate, measured at the lower-mid- ations with large bilateral creditors – taxes were stagnant as a ratio to GDP, dle-income poverty line, is estimated at coupled with structural and fiscal re- with higher prices and a recovery in eco- 31.7 percent in 2023. forms – is crucial to restoring debt nomic activity offsetting the lower fuel sustainability and accelerating growth. excise and VAT rates introduced in 2022. 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 (constant million LCU) 8 100 25.0 90 6 80 20.0 70 4 60 15.0 50 2 40 10.0 30 0 20 5.0 10 -2 2016 2017 2018 2019 2020 2021 2022 2023 0 0.0 Agriculture Industry 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 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 12 Oct 23 On the other hand, public spending re- Inflation is expected to remain in the dou- would weaken external demand. Further in- mained tight. Total expenditure was con- ble digits in 2023. Macroeconomic stabil- terest rate increases in advanced economies tained at 5.5 percent of GDP in H1-2023. ity is contingent on critical fiscal reforms could add to depreciation pressures and The current account balance improved in and a successful conclusion of ongoing thus domestic inflation. Domestic risks in- the first half of 2023, supported by a recov- debt negotiations. clude challenges with refinancing external ery in tourism and lower primary income High debt levels will continue to con- debt (particularly given the limited access to outflows. Foreign investment appears to strain fiscal space. Revenue is expected to international capital markets), slow be recovering. Foreign reserves were re- gradually increase with economic activi- progress with structural reforms, and dete- ported at $1.5 billion in June 2023. ty and tax administration improvements, riorating bank balance sheets. Overall, employment improved in the first but high-interest payment obligations will Macroeconomic instability, coupled with half of 2023, but non-farm employment de- crowd out other expenditures. The out- recent extreme weather events, under- clined compared to the previous year. look assumes a primary surplus in the mines the poverty outlook, with the pover- High inflation and sharp currency depre- next few years, but the fiscal deficit is ex- ty rate expected to be around 31.7 percent ciation have disproportionately affected pected to increase, reflecting a growing in 2023. Recent droughts, followed by wage employment and non-farm business- debt service burden. External debt service floods, highlight the country’s vulnerabil- es, incentivizing workers to switch to obligations average $1.3 billion per year ity to climate change and are expected to farming and agricultural business activi- during 2023-2026, keeping total public fi- weigh on households’ farm income and ties. More than half of households saw nancing needs high. consumption. Growing migration to Thai- their income stagnate or decline in May The current account deficit is expected to land could provide partial support to 2023 compared to the previous year and remain at around 3 percent of GDP, as im- household income (through workers’ re- therefore were severely hit by the rising provements in tourism, transport services, mittances), but it will also cause labour cost of living. Food inflation hit 43 percent and remittances are offset by higher im- shortages and undermine the recovery in June 2023 (year-on-year), forcing house- port demand and interest payment oblig- prospects for labour-intensive sectors. holds to reduce food consumption and ations. Despite the requirement for ex- High inflation will continue to affect real switch to cheaper food. Progress in pover- porters to remit export receipts, reserve ad- household income, especially wages, ty reduction stalled, with the poverty rate equacy is expected to remain thin (cover- which have consistently failed to keep (measured at the lower-middle-income ing less than two months of imports). pace with the rising cost of living. Mean- poverty line of $3.65 a day 2017 PPP) esti- The outlook is subject to significant domes- while, a contraction in human capital mated at around 31.9 percent in 2022. tic and external uncertainty. In the near spending will likely compromise prospects term, the recovery will likely benefit from a for poverty reduction in the long term. rebound in the services sector, natural re- Addressing macroeconomic instability re- source exports, and workers’ remittances. quires five critical reforms: (i) restoring the Outlook However, structural imbalances associated VAT rate to 10 percent and curbing tax ex- with limited foreign reserves, high public emptions to raise domestic revenue; (ii) GDP is projected to grow by 3.7 percent debt, and higher import demand will con- improving the governance of public and in 2023, led by a continued recovery in the tinue to put pressure on the kip and infla- public-private investments; (iii) finalizing services sector. This outlook assumes the tion, undermining household consumption ongoing debt negotiations; (iv) strengthen- continuation of debt service deferrals by and investments in human capital. Subdued ing financial sector stability; and (v) im- large creditors during the forecast period. global and regional economic growth proving the business environment. TABLE 2 Lao PDR / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices 0.5 2.5 2.7 3.7 4.1 4.3 Real GDP growth, at constant factor prices 0.5 2.5 2.7 3.7 4.1 4.3 Agriculture 3.2 2.3 1.6 2.2 2.4 2.8 Industry 4.0 7.6 3.3 3.5 3.5 3.7 Services -3.5 -2.2 2.5 4.6 5.2 5.5 Inflation (consumer price index) 5.1 3.8 22.7 31.4 15.2 8.5 Current account balance (% of GDP) -5.9 -2.9 -1.7 -3.4 -3.9 -4.0 Fiscal balance (% of GDP) -5.2 -1.3 -0.2 -1.7 -1.6 -1.8 Revenues (% of GDP) 12.7 14.9 14.7 14.9 15.0 15.3 Debt (% of GDP) 62.3 77.9 95.9 95.4 94.8 94.7 Primary balance (% of GDP) -3.7 0.0 1.5 1.4 1.4 1.5 a,b International poverty rate ($2.15 in 2017 PPP) 7.0 7.0 6.9 6.8 6.7 6.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 32.2 32.0 31.9 31.7 31.4 31.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 70.2 70.0 69.9 69.6 69.3 69.0 GHG emissions growth (mtCO2e) 4.4 11.2 -3.8 -6.5 0.1 1.0 Energy related GHG emissions (% of total) 46.8 51.1 48.2 43.7 42.7 42.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2012-LECS and 2018-LECS. Actual data: 2018. Nowcast: 2019-2022. Forecasts are from 2023 to 2025. b/ Projection using annualized elasticity (2012-2018) with pass-through = 0.5 based on GDP per capita in constant LCU. MPO 13 Oct 23 in income inequality. Official statistics re- ported that the Gini index, which mea- MALAYSIA Key conditions and sures household gross income inequality, remained largely unchanged at 40.4 per- challenges cent in 2022, compared to 40.7 in 2019. The trend, however, varies across states, with Table 1 2022 Against the backdrop of decelerating glob- Kelantan, Pulau Pinang, and the Federal Population, million 33.9 al growth and persistent uncertainties, Territory of Kuala Lumpur, for example, GDP, current US$ billion 407.0 Malaysia's economic growth is expected to experiencing growing income inequality. GDP per capita, current US$ 11993.2 moderate in 2023. On the domestic front, a 3.4 Upper middle-income poverty rate ($6.85) several key challenges persist. The narrow- a 41.2 ing fiscal space remains a concern, as gov- Gini index School enrollment, primary (% gross) b 103.9 ernment tax revenue keeps declining, Recent developments Life expectancy at birth, years b 74.9 while rigid expenditures on salaries, pen- Total GHG emissions (mtCO2e) 436.8 sions, and interest payments continue to Economic growth moderated to 2.9 per- rise. This is exacerbated by various spend- cent in 2023Q2 compared to 5.6 percent Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2017 PPPs. ing inefficiencies, including broad-based in 2023Q1, primarily because of a decel- b/ WDI for School enrollment (2020); Life expectancy fuel subsidies and distortionary price con- eration in external demand. The slow- (2021). trols. The government has recently intro- down also reflected reduced output in duced its medium-term economic plan, the the E&E and commodities sectors and 'Madani Economy,' which aims to reduce the high base effects from 2022. Nonethe- the fiscal deficit to 3 percent of GDP or be- less, the economy continued to receive low. In October 2023, when presenting its support from domestic demand. House- Growth is expected to slow to 3.9 percent Budget for 2024, the government is antici- hold spending remained resilient, driven pated to reveal additional details about the by improvements in the labor market. in 2023 amid a substantial deceleration in subsidy reform plans. Private consumption expanded by 4.3 per- external demand. Nevertheless, domestic Despite the post-pandemic recovery, cent in 2023Q2. Furthermore, the contin- demand will continue to support econom- Malaysia's poverty rate has not returned ued advancement of multi-year infrastruc- ic resilience. A limited fiscal space re- to its pre-pandemic level. According to ture projects provided support to invest- the latest government estimates, the ab- ment activity, which grew by 5.1 percent. mains a key challenge for the economy. solute poverty rate stood at 6.2 percent in Higher tourist arrivals also contributed Meanwhile, nearly 490,000 Malaysian 2022. This marks a decline from the pan- positively to tourism-related activities. households continue to live below the na- demic peak of 8.4 percent in 2020 but is The weaker external environment con- tional poverty line and exhibit slower re- above the pre-pandemic rate of 5.6 per- tributed to an overall slowdown in in- covery from the pandemic. This under- cent in 2019. All states, except the Fed- ternational trade. Both gross exports and eral Territories of Putrajaya and Labuan, imports experienced an approximately 9.4 scores the urgency of strengthening social reported an increase in absolute poverty. percent contraction in 2023Q2; the decline safety nets and restoring fiscal buffers. While absolute poverty rose in urban ar- in imports was primarily related to weak- eas, it decreased in rural regions. ening intermediate imports. The growth Malaysia has experienced some flattening of the manufacturing sector declined to FIGURE 1 Malaysia / Real GDP growth and contributions to FIGURE 2 Malaysia / Actual and projected poverty rate and real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 20 25 35000 15 30000 20 10 25000 15 20000 5 10 15000 0 10000 -5 5 5000 -10 Q3-2020 Q1-2021 Q3-2021 Q1-2022 Q3-2022 Q1-2023 0 0 Private Consumption Public Consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 GFCF Change in Inventory Upper middle-income pov. rate Real priv. cons. pc Net Exports Real GDP growth Sources: Department of Statistics Malaysia and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 14 Oct 23 0.1 percent in 2023Q2, in contrast to the and sukuk increased to 13.7 percent of the range of 2.5 and 3.0 percent in 2023. This 3.2 percent expansion observed in 2023Q1. total value outstanding in June 2023 (De- primarily reflects the relaxation of global This deceleration was primarily attributed cember 2022: 13.2 percent). Concerns about supply constraints and the stabilization of to sluggish global semiconductor sales. weak global growth affected investor sen- commodity prices. The current account surplus widened to timent which partly contributed to the The economy is expected to face significant 2.1 percent of GDP in 2023Q1 on higher weakening of both the ringgit and the real external risks. Deeper global growth proceeds from travel receipts and invest- effective exchange rate (REER). In the first shocks could potentially result in a more ment income from abroad, which helped eight months of 2023, the ringgit has expe- significant slowdown than anticipated. On offset a reduced goods surplus. rienced a 5.4 percent depreciation. the domestic front, key sources of down- Labor market conditions continued to im- side risk are linked to uncertainties sur- prove, with the unemployment rate declin- rounding domestic inflation. Higher do- ing further to 3.4 percent in June 2023. Ad- mestic inflation could weigh on the ditionally, the labor force participation rate Outlook strength of consumption spending. An up- increased to 70.0 percent. Growth in pri- side shock to inflation may also prompt vate sector wages slowed to a still robust Following a strong rebound of 8.7 percent further monetary tightening. 3.8 percent in 2023Q2. in 2022, Malaysia's economic growth is As the economy continues to grow, it Inflation eased to 2.0 percent in July 2023, the projected to moderate to 3.9 percent in is expected that poverty and income in- lowest level in nearly a year. Core inflation 2023. The main driver of growth is ex- equality will further decrease, provided it also moderated to 2.8 percent. The central pected to be domestic private sector is accompanied by policies that enhance bank anticipates that headline inflation will spending. Private consumption is forecast- its inclusiveness. Meanwhile, around continue to ease in the coming months on ed to expand at a relatively robust rate of 490,000 Malaysian households remain lower cost factors. In the most recent mone- 5.2 percent in 2023. This will be sustained vulnerable and are grappling with the af- tary policy committee meeting in Septem- by improvements in labor market condi- termath of COVID-19. This underscores ber, the overnight policy rate (OPR) was tions and the government's ongoing the importance of having effective and maintained at 3.0 percent, following a 25-ba- household income support initiatives. well-targeted social protection programs. sis point increase in May 2023. The central Gross exports are projected to contract by The government's initiative to establish bank stated that the monetary policy stance 5.8 percent, contrasting with a 14.5 percent PADU (Pangkalan Data Utiliti Ke- remains supportive of the economy. growth in 2022, because of subdued global bangsaan), the national household socioe- In the domestic financial markets, portfolio growth prospects and weakening interna- conomic database, as a basis for identi- inflows into the bond market helped offset tional trade momentum. fying eligible beneficiaries, plays a criti- outflows from the equity market. Reflect- Headline consumer price inflation is pro- cal role in ensuring broader coverage and ing this, foreign holdings of debt securities jected to moderate, falling within the enhanced protection. TABLE 2 Malaysia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -5.5 3.3 8.7 3.9 4.3 4.2 Private consumption -3.9 1.9 11.2 5.2 6.1 5.9 Government consumption 4.1 6.4 4.5 0.9 0.8 0.8 Gross fixed capital investment -14.4 -0.8 6.8 5.1 3.6 3.5 Exports, goods and services -8.6 18.5 14.5 -5.8 3.7 3.1 Imports, goods and services -7.9 21.2 15.9 -6.3 4.3 3.7 Real GDP growth, at constant factor prices -5.5 3.3 8.7 4.0 4.3 4.2 Agriculture -2.4 -0.1 0.1 0.4 1.9 1.8 Industry -6.1 5.8 6.5 2.4 3.5 3.4 Services -5.4 2.1 11.3 5.5 5.1 5.0 Inflation (consumer price index) -1.1 2.5 3.3 2.6 2.6 2.5 Current account balance (% of GDP) 4.2 3.9 3.1 2.6 2.6 2.5 Net foreign direct investment inflow (% of GDP) 0.2 2.0 0.9 1.7 1.6 1.5 Fiscal balance (% of GDP) -6.2 -6.4 -5.6 -5.0 -4.0 -3.5 Revenues (% of GDP) 15.9 15.1 16.4 15.4 15.3 15.3 Debt (% of GDP) 62.0 63.3 60.3 62.1 63.2 63.8 Primary balance (% of GDP) -3.8 -3.9 -3.2 -2.5 -1.5 -1.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 3.3 3.2 2.7 2.5 2.3 2.1 GHG emissions growth (mtCO2e) -2.0 5.6 6.6 2.1 3.4 3.2 Energy related GHG emissions (% of total) 59.6 61.5 63.4 63.7 64.5 65.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2014-HIS and 2019-HIESBA. Actual data: 2018. Nowcast: 2019-2022. Forecasts are from 2023 to 2025. b/ Projection using annualized elasticity (2013-2018) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 15 Oct 23 MONGOLIA Key conditions and Recent developments challenges Economic growth accelerated to 6.2 per- cent in the first half of 2023 (up from Table 1 2022 A sharp increase in coal exports in H1 5.0 percent in 2022) driven by coal ex- Population, million 3.4 2023, following the resolution of pandem- ports which exceeded pre-pandemic lev- GDP, current US$ billion 17.2 ic-related trade disruptions at the Chinese els in H1 by about 60 percent. Public GDP per capita, current US$ 5073.6 border supported robust economic growth consumption also supported the econo- a 7.5 Lower middle-income poverty rate ($3.65) and improved fiscal and external balances my, while the recovery of private con- a 37.7 while simultaneously underscoring Mon- sumption (at 2.7 percent y-o-y in H1) Upper middle-income poverty rate ($6.85) a 32.3 golia’s high dependency on volatile min- was dampened by high inflation and by Gini index School enrollment, primary (% gross) b 102.4 ing revenues. the slow recovery in the labor market Life expectancy at birth, years b 71.0 Significant fiscal structural challenges per- with the labor participation rate still be- Total GHG emissions (mtCO2e) 60.5 sist despite the recent cyclical improve- low pre-pandemic levels. Private invest- ment in public finances. Following higher- ment also remained weak, dragged down Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2017 PPPs. than-expected revenues coming from min- by banks’ reluctance to increase riskier b/ Most recent WDI value (2021). ing, the government passed budget loans (e.g., business loans). From the pro- amendments that reversed recent reforms duction side, nearly 90 percent of growth to enhance the targeting of the Child Mon- was explained by mining and transporta- ey Program (CMP) – the country’s largest tion activities (mostly linked to mineral social assistance program with fiscal ex- exports), with the underground project penditure of 2.7 percent GDP- returning of Oyu Tolgoi (OT), which commenced Following a strong rebound in mineral the program to universal coverage. At the in March 2023, supporting the mining exports, Mongolia’s GDP growth is same time, the government also increased sector’s output. In contrast, the growth forecast to reach 5.1 percent in 2023 public sector wages, pensions, and invest- of non-mining industries was feeble, and and the poverty rate, measured at the ment. Overall, these amendments added agricultural production contracted amid total expenditures equivalent to 3.1 per- harsh weather conditions. While headline lower-middle-income poverty line, is cent of GDP. Meanwhile, Mongolia’s debt inflation dipped below 10 percent for the projected to fall to pre-pandemic levels and fiscal risks remain high. Although im- first time in two years, elevated prices by the end of 2023 (6.3 percent). How- mediate external financing pressures eased continue to erode household purchasing ever, significant risks and challenges lie somewhat due to the export recovery, the power, limiting progress in poverty re- rollover of some external bonds in H1 duction and household welfare. ahead including high inflation stymieing 2023, and the recent extension of the fi- Despite the rapid increase in government poverty reduction, persistent high debt nancing agreement with the People Bank spending with the recent budget amend- and increasing fiscal risks, and continu- of China (PBOC, extended to 2026), the ment, the fiscal balance was in surplus (3.0 ous balance of payment pressures. level of international reserves remains low percent of GDP) as of July, due to an ex- (US$3.9 billion or 3.6 months of import ceptionally strong revenue outturn result- coverage as of August 2023). ing mainly from buoyant coal revenues. 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 (constant million LCU) 25 60 12.0 20 50 10.0 15 10 40 8.0 5 30 6.0 0 -5 20 4.0 -10 10 2.0 -15 -20 0 0.0 2019 2020 2021 2022 2023f 2024f 2025f 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 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 16 Oct 23 After a large deficit in H1 2022 (15.8 per- consumption (on the back of increased levels (6.3 percent) under the lower-middle- cent of GDP), the current account balance pensions, social welfare, and wages), and income poverty line of $3.65 in 2017 PPP. recorded a surplus in H1 2023 (1.5 percent large public investment (through the bud- The medium-term growth outlook re- of GDP) supported by coal exports (which get and quasi-fiscal activities) are expected mains robust underpinned mostly by fa- reached 41 million tons in the first eight to support growth. In contrast, private in- vorable prospects for mining output. Dri- months of 2023, up from 25 million tons vestment is forecast to remain weak, amid ven by the OT underground mine, min- in the same period of 2019, a previous tight credit conditions and high produc- ing production is expected to more than record), which were only partially offset tion costs. With the rapid recovery in do- double compared to current levels by by increased imports of investment goods mestic demand, exacerbated by more ex- 2025, progressively increasing govern- and services (related to coal transportation pansionary fiscal policy, inflation is ex- ment revenues, reducing the balance of and tourism). At the same time, net capital pected to remain elevated throughout payment pressures, and boosting foreign inflows (including foreign direct invest- 2023. Notwithstanding the expansion in reserves. However, the need for economic ments) remained weaker compared to pre- government expenditures, solid mining diversification persists to avoid large and pandemic levels. revenue is anticipated to result in a narrow repeated boom and bust cycles resulting fiscal deficit in 2023. Despite a projected from the country’s mining dependency. decline in the current account deficit, the The outlook is subject to downside risks, balance of payments pressure is expected including a deterioration of external bal- Outlook to remain significant in 2023, with sus- ances resulting from weaker external de- tained import growth, limited FDI inflows, mand from China, more restrictive exter- The Mongolian economy is expected to and sizable bond payments due. nal credit conditions from further tighten- grow by 5.1 percent in 2023, driven by the Sustained economic growth and rising real ing of monetary policy in advanced continued recovery in mining production wages are predicted to contribute to im- economies, persistent risks associated with and services, while agriculture production provements in household welfare and sizable contingent liabilities and large is anticipated to contract due to the harsh poverty reduction, although elevated infla- DBM’s bonds payments, and uncertainties spring/winter. From the demand side, dy- tion hinders further progress: poverty in related to existing large (and confidential) namic exports, a recovery in household 2023 is projected to fall to pre-pandemic offtake coal export agreements. TABLE 2 Mongolia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -4.4 1.6 5.0 5.1 6.1 6.8 Private consumption 2.1 -5.9 8.1 5.7 12.0 2.5 Government consumption 14.6 9.2 6.9 14.7 9.4 8.4 Gross fixed capital investment -21.1 17.7 13.2 6.0 15.4 1.7 Exports, goods and services -5.3 -14.6 32.3 40.3 3.6 23.1 Imports, goods and services -15.5 13.6 29.1 16.8 18.4 13.4 Real GDP growth, at constant factor prices -3.9 0.4 4.2 5.1 6.1 6.9 Agriculture 5.8 -5.5 12.0 -6.0 12.5 2.0 Industry -4.4 -2.2 -4.5 11.1 4.2 12.5 Services -6.5 3.9 6.9 5.3 5.3 5.2 Inflation (consumer price index) 3.7 7.1 15.2 10.2 7.1 7.0 Current account balance (% of GDP) -5.0 -13.4 -13.4 -4.2 -14.1 -5.9 Net foreign direct investment inflow (% of GDP) 12.6 13.1 14.1 8.1 9.2 8.8 Fiscal balance (% of GDP) -9.1 -3.0 0.7 -0.9 -0.7 0.0 Revenues (% of GDP) 27.6 32.0 33.8 34.5 34.7 35.5 a Debt (% of GDP) 79.0 64.5 62.2 54.7 52.3 50.6 Primary balance (% of GDP) -6.7 -1.1 2.1 0.9 0.7 1.3 b,c International poverty rate ($2.15 in 2017 PPP) 0.8 0.8 0.8 0.8 0.8 0.8 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 7.5 7.5 6.9 6.3 5.6 4.9 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 37.7 37.7 36.5 35.2 33.5 31.7 GHG emissions growth (mtCO2e) -0.3 -1.1 3.6 1.6 3.6 4.0 Energy related GHG emissions (% of total) 36.7 37.7 36.8 37.6 38.1 38.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Debt excludes contingent liabilities and the BOM's liability under the PBOC swap line (11% of GDP) by 2022. b/ Calculations based on EAPPOV harmonization, using 2016-HSES and 2018-HSES. Actual data: 2018, 2020. Nowcast: 2019, 2021, 2022. Forecasts are from 2023 to 2025. c/ Projection using annualized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 17 Oct 23 22-year-olds enrolled in schools and ter- tiary institutions declining from 69.2 per- MYANMAR Key conditions and cent in 2017 to 56.8 percent in 2023. Cyclone Mocha hit Myanmar in May challenges causing severe damage to livelihoods and the economy in Rakhine state and the Table 1 2022 Myanmar’s economy showed signs of im- Sagaing region. The cyclone is reported Population, million 54.2 provement in early 2023, but the recovery to have affected about 1.2 million people, GDP, current US$ billion 59.4 has been fragile and uneven across sec- resulting in damage to buildings, agricul- GDP per capita, current US$ 1095.7 tors. The exchange rate remained rela- ture assets, and public infrastructure es- a 19.6 Lower middle-income poverty rate ($3.65) tively stable between January and May, timated at around US$2.24 billion (or 3.4 a 68.2 and prices stabilized, albeit at high levels. percent of GDP). Upper middle-income poverty rate ($6.85) b 112.3 But power outages became more frequent School enrollment, primary (% gross) Life expectancy at birth, years b 65.7 and prolonged, with 42 percent of firms Total GHG emissions (mtCO2e) 245.2 surveyed by the World Bank in March Source: WDI, Macro Poverty Outlook, and official data. citing electricity shortages as their biggest Recent developments a/ Last official estimate based on 2017 Myanmar Living constraint. The business environment Conditions Survey, 2017 PPPs. weakened further with the expansion of Key indicators of economic performance b/ WDI for School enrollment (2018); Life expectancy trade and foreign exchange restrictions. slowly trended upwards in the first half (2021). Conflict continues to spur displacement of 2023 but remained consistent with an and labor shortages in affected areas economy still well below pre-pandemic while increasing logistics costs. More re- levels. Firms surveyed by the World Bank cently, external sector weaknesses have reported operating at 75 percent of their Myanmar’s economy showed signs of sta- resurfaced, with renewed downward capacity on average in March 2023, 9 per- bilization in the first half of 2023, but the pressure on the kyat exchange rate since centage points higher than a year earlier, recovery was constrained and uneven. the end of June. with particularly large improvements Labor market conditions remain precari- among firms in the services sector. As of The business environment remains chal- ous and inequalities in household welfare August, the manufacturing Purchasing lenging due to frequent power outages, have worsened. In the Myanmar Subna- Managers Index (PMI) had expanded for restrictive trade and financial policies, lo- tional Phone Survey (MSPS) conducted at seven consecutive months, reflecting rising gistics constraints, and ongoing conflict. the end of 2022 and early 2023, about half output and new orders as consumer de- of surveyed households reported a de- mand increased, especially for locally pro- In early 2023, almost half of all house- crease in incomes over the past year, while duced items. Retail sales improved with holds reported experiencing income losses only 15 percent reported an increase. High fewer firms reporting challenges from a over the previous year. Lately, weaker ex- inflation and declining labor productivity lack of sales, also suggesting a gradual ports, restrictions on cross-border pay- have resulted in a 15 percent drop in real boost in consumer demand. While agricul- ments by correspondent banks, and the wages over the five years to end-2022, with tural production is estimated to have significant impacts on food security. weakened, high farmgate prices and de- imposition of sanctions have triggered re- clines in some input costs supported an in- Myanmar faces risks of a generational loss newed external pressures. in human capital with the share of 6 to crease in profitability. FIGURE 1 Myanmar / Real GDP growth and contributions to FIGURE 2 Myanmar / Official, parallel-market, bank-counter, real GDP growth by sector and remittance exchange rates Percent, percentage points Kyat/USD 10 4,500 5 4,000 0 3,500 3,000 -5 2,500 -10 2,000 -15 1,500 -20 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 2019 2020 2021e 2022e 2023f 2024f Official reference rate Parallel market rate Agriculture Industry Services Real GDP growth Bank counter rate Remittance rate Sources: Ministry of Planning and Finance and World Bank staff estimates. Sources: Central Bank of Myanmar and Money changers. MPO 18 Oct 23 Inflationary pressures persist. Consumer launch of a higher denomination 20,000 environment. Trade and financial flows price inflation eased to 27.5 percent (yoy) kyat banknote which fueled renewed infla- have the potential to be disrupted follow- in the March quarter, but prices remain tion and devaluation expectations. ing restrictions on cross-border payments at high levels. Inflation peaked at 35 per- The fiscal deficit widened to 5.4 percent of to and from Myanmar. The expansion in cent in December 2022 reflecting increases GDP in the year to March 2023 from 4.7 the manufacturing sector is expected to in fuel and food prices and the lagged im- percent of GDP in the six months to March moderate as export demand softens, com- pacts of a sharp kyat depreciation between 2022, driven by a combination of increased pounded by the exit of major global brands July and September 2022. spending and a slight decline in revenue. such as H&M and Primark from Myan- Exports fell by 16 percent in the six months While recurrent spending continues to dri- mar’s garments sector. High farmgate to March 2023 while imports remained ve overall expenditure, there has been a prices and easing pressure on input prices broadly stable, resulting in a widening of substantial fall in spending on health and are expected to boost agriculture produc- the trade and current account deficit. Agri- education. Public debt is estimated at 63 tion during the 2023/24 planting seasons culture and manufactured exports (includ- percent of GDP in 2023. Public debt to but ongoing conflict and weather shocks ing garments and natural gas) declined by GDP is estimated to have increased by remain major constraints. 7 and 11 percent, respectively, reflecting more than 20 percentage points since 2019, The outlook is subject to significant weaker external demand, constrained do- driven by relatively large fiscal deficits, a downside risks and longer-term scarring mestic production as well as the ongoing significant contraction in GDP, and ex- to Myanmar’s development prospects is impact of foreign exchange surrender re- change rate valuation effects. likely. A worsening of conflict, an addi- quirements, onerous trade license require- tional slump in electricity supply, sharper ments, and a substantially overvalued offi- than expected inflationary pressure, exac- cial exchange rate. erbation of financial sector vulnerabilities, While the parallel market exchange rate re- Outlook or a further deterioration in the trade and mained broadly stable in the first half of business environment could result in low- 2023, it depreciated by around a quarter GDP is expected to grow by 3 percent in er growth. Longer-term prospects for liv- against the US dollar over the three the year ending September 2023, with ing standards remain dim due to broad- months to August. The depreciation coin- growth slowing to 2 percent in the follow- based declines in productivity and wages, cided with the announcement of U.S. sanc- ing year. Recent exchange rate volatility is and the ongoing erosion of human cap- tions on two large state-owned banks, the likely to lead to renewed pressure on infla- ital, with the education sector remaining imposition of restrictions on cross-border tion, particularly in the cost of imported in- at a standstill and children continuing to payments by international banks, and the puts, adding to constraints in the business drop out of schools. TABLE 2 Myanmar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022e 2023f 2024f Real GDP growth, at constant factor prices 6.8 3.2 -18.0 3.0 3.0 2.0 Agriculture 1.6 1.7 -12.5 -3.0 -2.0 4.0 Industry 8.4 3.8 -20.6 8.6 5.5 2.0 Services 8.3 3.4 -18.7 1.7 3.4 1.1 Inflation (consumer price index) 8.5 5.8 3.6 18.3 24.0 12.0 Current account balance (% of GDP) -0.2 -2.0 -1.4 -3.3 -5.7 -6.5 a Fiscal Balance (% of GDP) -3.2 -7.0 -9.2 -4.7 -5.4 -6.4 a Public Sector Debt (% of GDP) 38.7 42.2 60.0 61.5 63.0 64.4 a Primary Balance (% of GDP) -1.6 -5.3 -6.6 -2.0 -2.7 -3.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Fiscal estimates and projections are for years ended March. All other estimates and projections are for years ended September. MPO 19 Oct 23 change continue to pose a threat to economic activity and livelihoods. Finally, structural NORTH PACIFIC Key conditions and reforms are needed to ensure a sustainable economic recovery that supports the liveli- challenges ISLANDS hood of the bottom 40 percent of house- holds. The lack of recent household data pre- COVID-19 outbreaks in FY22 stalled eco- sents a challenge in monitoring develop- nomic activity in the North Pacific by de- ment progress and assessing the effects of Table 1 2022 laying border reopening plans in FSM and shocks, which also limits the potential for Population, million RMI and halting the recovery of tourism evidence-based policymaking. Federated States of Micronesia 0.11 in Palau. Economic activity is expected to Republic of the Marshall Islands 0.04 gain momentum in FY23, but downside Palau 0.02 risks to the outlook remain high. In the GDP, US$, billion short term, the key challenges facing the Recent developments North Pacific include (1) monetary policy Federated States of Micronesia 0.39 tightening in major markets, (2) slow re- The pandemic drove FSM into the third con- Republic of the Marshall Islands 0.21 covery of tourist arrivals (particularly in secutive year of recession in FY22, with a fur- Palau 0.22 Palau), and (3) fiscal risks. ther contraction of 0.6 percent. In RMI, out- GDP per capita, current US$ Although all three countries have come to put also declined significantly in FY22 by 4.5 Federated States of Micronesia 3586 an agreement with the U.S. on a new fiscal percent due to a decrease in fish production. Republic of the Marshall Islands 5277 chapter of the Compact, the agreement has Inflation increased to 4.4 percent in RMI and Palau 11065 yet to be approved by the U.S. Congress. 5 percent in FSM in FY22 driven by rising Sources: WDI, World Bank staff estimates. In addition, several challenges persist that global commodity prices due to the war in could hinder long-term fiscal sustainabili- Ukraine. FSM and RMI registered fiscal sur- ty. First, details of the new fiscal chapters pluses of 1.6 percent and 0.7 percent of GDP are not yet public, so it is unclear if the in FY22, respectively. Government debt de- Following recessions in FY22, economic ac- shortcomings of the previous agreement clined to 22 percent of GDP in RMI and to 14 tivity is projected to gain momentum in have been addressed. Second, the fiscal percent in FSM. Debt remains sustainable FY23 in the Federated States of Micronesia chapter is not in perpetuity and will expire but the overall risk of debt distress is high in (FSM), Republic of the Marshall Islands again, subject to negotiations. Third, the both countries. (RMI), and Palau. Modest fiscal surpluses new agreement can reduce incentives to In Palau, output contracted by 2.3 percent enact meaningful fiscal reforms, especially in FY22, due to a lack of tourism activity are projected in RMI and Palau, in con- in FSM and RMI, where the reform agenda while inflation surged to 13.2 percent due trast to large deficits in FSM. Although has progressed slowly. to higher food and fuel import prices dri- an agreement was reached with the Unit- Even with the renewal of the fiscal chapter of ven by the war in Ukraine. The fiscal ed States on the renewal of Compact-re- the Compact, implementing reform-based deficit remained sizeable at 3.1 percent of fiscaladjustments,suchasdomesticrevenue GDP in FY22. The deficit has been financed lated fiscal transfers, structural reforms mobilization and expenditure rationaliza- by concessional external borrowing, caus- are needed to boost long-term growth and tion, remains crucial to enhancing fiscal sus- ing general government debt to rise to 90 achieve fiscal sustainability. tainability. Natural disasters and climate percent of GDP. Despite rising levels, debt FIGURE 1 North Pacific Islands / Real GDP, relative to FIGURE 2 North Pacific Islands / Consumer price inflation 2019 GDP Percent of GDP Percent 1.10 16 Palau Palau Republic of the Marshall Islands 14 1.05 Republic of the Marshall Islands Federated States of Micronesia 12 Federated States of Micronesia 1.00 10 8 0.95 6 0.90 4 0.85 2 0 0.80 -2 0.75 -4 FY19 FY20 FY21 FY22(e) FY23(e) FY24(f) FY25(f) FY26(f) FY10 FY12 FY14 FY16 FY18 FY20 FY22(e) FY24(f) FY26(f) Sources: National sources, IMF WEO, and World Bank projections. Sources: National sources, EconMap, IMF WEO, and World Bank projections. MPO 20 Oct 23 remains sustainable due to the concession- spillovers from the reopening of borders, In FSM, following a surplus of 1.4 per- al nature of new debt. a pick-up in construction activity, and cent of GDP in FY23, a deficit of 5.9 per- Poverty in the North Pacific is expected to increased capital expenditure. Similarly, cent of GDP is projected in FY24, fur- have risen relative to pre-crisis levels. The RMI’s economy is expected to grow by ther widening to reach 7 percent of GDP sharp economic contraction in FY20 and 3 percent mainly driven by a recovery by FY26 predicated on the expiration of FY21 led to formal-sector job losses and low- in the fishery sector. However, GDP in the compact in 2023. In Palau, the deficit er demand for goods in the informal econo- both RMI and FSM is only expected to is projected to decline to -0.5 percent of my. In Palau, the disruption in tourism ac- reach pre-pandemic levels in FY24. In GDP in FY23, as non-grant revenues re- tivities likely led to increased vulnerability line with easing global food and energy main below pre-crisis levels. Modest fis- of households employed in the sector. In prices, inflation in FY23 is expected to cal surpluses are expected from FY24 on- FSM and RMI, many households rely on an- subside to 4.7 percent in FSM and to 3 wards due to an increase in tourism re- nual remittance inflows that are estimated to percent in RMI, before further declining ceipts and full implementation of the tax have dropped in FY21. In RMI, poverty is es- in FY24. Despite a recovery in tourism, reform bill. timated to have fallen in FY21, and then risen the Palauan economy is expected to con- The outlook is subject to significant in FY22, with a reduction projected in FY23. tract by 1.4 percent in FY23. GDP is pro- downside risks. Interest rates are expect- A decline in poverty is also expected in FSM jected to remain on a lower trajectory ed to remain high globally and may cre- from FY23, given the projected return to eco- until tourist arrivals reach pre-pandemic ate adverse spillover effects. If growth nomic growth. levels in FY26. Inflation in Palau is ex- in advanced economies is slower than pected to remain high at 14.5 percent in anticipated, projected recovery in FY23, partly due to the introduction of tourism may fail to materialize and new consumption taxes. It is then project- weaken growth prospects in Palau. The Outlook ed to decline starting from FY24. region’s vulnerability to natural disas- A fiscal surplus of 0.1 percent of GDP ters and climate change remains an im- In FY23, FSM’s economy is projected to ex- is projected for FY23 in RMI, with small portant underlying adverse risk to eco- pand by 2.8 percent, supported by positive surpluses expected from FY24 onwards. nomic growth. TABLE 2 North Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021e 2022e 2023f 2024f 2025f 2026f Real GDP growth, at constant market prices Federated States of Micronesia -3.2 -0.6 2.8 2.8 1.3 0.8 Republic of the Marshall Islands 1.0 -4.5 3.0 3.0 1.8 1.5 Palau -12.1 -2.3 -1.4 10.4 10.5 5.1 a,b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) Republic of the Marshall Islands 30.0 32.1 30.6 28.8 27.1 25.9 Sources: ECONMAP, IMF, and Worldbank. e = estimate; f = forecast. Notes: 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. c/ For 2022-2025 projections, no change in population is assumed due to a lack of updated population projections. MPO 21 Oct 23 around 39.7 percent of the population lived below the poverty line of US$2.15 per PAPUA NEW Key conditions and day (2017 PPP terms), and a staggering 74.2 percent are considered to be multidi- challenges GUINEA mensionally poor. Access to basic services remains limited, with only 19 percent of Since gaining independence in 1975, the the population having access to safe drink- economy has more than tripled. Howev- ing water, and a mere 15 percent of house- Table 1 2022 er, real GDP per capita has only seen an holds having access to electricity, accord- Population, million 10.1 annual increase of 0.9 percent—a sluggish ing to the 2022 Socio-Demographic and GDP, current US$ billion 31.6 rate compared to other lower middle- Economic Survey. GDP per capita, current US$ 3112.0 income resource-exporting nations. The International poverty rate ($2.15) a 39.7 economy’s growth trajectory has been a marked by pronounced fluctuations, re- Lower middle-income poverty rate ($3.65) Upper middle-income poverty rate ($6.85) a 67.7 90.2 flecting its high susceptibility to shifts in Recent developments a international commodity prices. The in- Gini index 41.9 clusiveness of this growth has been limit- Buoyed by high commodity prices and the b 116.0 School enrollment, primary (% gross) ed by the resource sector’s heavy reliance removal of COVID-19 restrictions, the b 65.4 Life expectancy at birth, years on capital and the underperformance of economy underwent a robust recovery in Total GHG emissions (mtCO2e) 64.5 the non-resource sector. The COVID-19 2022, a momentum that has extended into Source: WDI, Macro Poverty Outlook, and official data. crisis has exacerbated existing structural 2023. The ongoing growth of the non-re- a/ Most recent value (2009), 2017 PPPs. economic challenges. source sector is apparent in the strong fis- b/ WDI for School enrollment (2018); Life expectancy (2021). Weak human development outcomes pre- cal revenue generation and a noteworthy sent missed opportunities for faster and 5.3 percent expansion in formal employ- more inclusive economic growth. Papua ment growth in 2023Q1. By contrast, the New Guinea (PNG) has one of the highest resource sector growth seems to be lag- After reaching pre-COVID level in stunting rates in the world, affecting al- ging, following its strong rebound in 2022. 2022, the economy has maintained most half of all children under the age of The government continued with fiscal con- growth momentum in 2023, supported five. Furthermore, a significant portion of solidation to safeguard macroeconomic by the non-extractive sector. High com- the country’s youth—nearly two million stability. The fiscal deficit is estimated to modity prices boosted fiscal revenue, help- individuals—find themselves outside of have narrowed to 5.4 percent of GDP in training, education, and employment. 2022 after reaching a peak of 8.8 percent in ing fiscal consolidation. Reducing debt Weak governance compounds the difficul- 2020. Most of the improvement can be at- risk remains vital. Inflation has decelerat- ties in effectively addressing these chal- tributed to resource revenue. By contrast, ed, but the risk of renewed price pressures lenges, with external shocks compounding the non-resource primary balance, which remains elevated. Enhancing real incomes fragility-related risks. provides a more accurate measure of the Large segments of the population continue underlying fiscal position, has barely im- for poorer households requires sustained to lag in socio-economic development. The proved. In 2023, the mid-year data indicate lower inflation and faster and more inclu- most recent Household Income and Ex- that tax revenue, including from corporate sive economic growth. penditure Survey, from 2009, revealed that and personal income taxes, has exceeded 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 5 50 4 40 3 2 30 1 20 0 10 -1 0 -2 -3 -10 -4 -20 2018 2019 2020 2021e 2022e 2023f 2024f 2025f 2017 2018 2019 2020 2021e 2022e 2023f 2024f 2025f 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 22 Oct 23 expectations. This is a testament to the collected in 2023Q2 suggest that house- materialize through lower demand for strengthened non-resource economy. Ac- hold incomes remain under pressure and PNG’s exports and a more pronounced cording to the latest World Bank–IMF food insecurity continues to be a wide- decline in commodity prices. Additional- DSA, the country remains at high risk of spread problem. In addition, most house- ly, the impact of droughts and other cli- debt distress. Conditional on the imple- holds reported being worried about their mate-related events on agricultural out- mentation of the authorities’ plans for fur- finances in the months ahead. put could have adverse effects on poor ther fiscal consolidation and conservative and vulnerable households. financing strategies, PNG’s external and Although the recent fiscal performance is overall debt is judged as sustainable. promising, achieving deeper fiscal consol- Headline inflation decelerated to 1.7 per- Outlook idation would require the implementation cent in 2023Q1, but the core inflation re- of more reforms. Resource revenue is not mained around 5 percent, close to historic Growth is projected to slow to 3 percent projected to experience a significant in- averages. The Bank of PNG has kept the in 2023, primarily attributed to reduced crease from commodity prices in 2024-25, policy rate at 3.5 percent since early 2023, global demand and domestic supply con- in contrast to the boost seen in 2022. Mean- after a cumulative increase of 50 basis straints stemming from scheduled main- while, containing the growth of expendi- points in 2022 to contain inflationary pres- tenance in extractive facilities along with tures becomes increasingly difficult, con- sures. Driven by high commodity prices, the delayed reopening of the Porgera sidering the substantial requirements for particularly oil and natural liquified gas gold mine. The non-extractive economy investments in human capital and infra- (NLG), the external current account is expected to post robust growth. In structure. Therefore, it is recommended achieved a historic surplus in 2022. By the 2024, growth is projected to accelerate that the government prioritizes domestic end of 2022, international reserves covered to 5 percent, largely owing to the full- revenue mobilization, including increased about nine months of imports. However, year impact of the Porgera reopening. dividend collection from state-owned enti- the current account surplus is expected to The medium-term growth is expected to ties within the resource sector. ease in 2023. settle at 3 percent. Enhancing the real incomes of poor and Data from a series of phone surveys con- The baseline projection does not account near-poor households requires a sustained ducted by the World Bank indicate that for potential new resource mega-projects, fall in inflation accompanied by faster and by 2022Q3 employment had rebounded like Papua LNG. Thus, the final invest- more inclusive economic growth. Global from the COVID-related restrictions im- ment decision and the initiation of con- experience from resource-rich countries posed by the government. However, 40 struction could present an upside risk demonstrates that enduring enhancements percent of households reported income to the outlook. Meanwhile, significant in livelihoods stem from rechanneling a reductions, while over a third of house- downside risks persist because of the considerable portion of resource extraction holds experienced moderate food insecu- fragile state of the global economy. Slow- earnings into both physical and human rity. Preliminary results from survey data er-than-expected economic growth could capital investments. TABLE 2 Papua New Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -3.2 0.1 4.3 3.0 5.0 3.1 Real GDP growth, at constant factor prices -2.9 0.1 4.3 3.0 5.0 3.1 Agriculture 4.7 4.5 4.9 3.6 4.1 3.3 Industry -7.5 -7.8 5.6 -0.6 5.9 2.9 Services -1.3 5.5 3.0 5.7 4.7 3.2 Inflation (consumer price index) 4.9 4.5 5.3 5.0 4.9 4.8 Current account balance (% of GDP) 19.4 21.9 33.0 22.9 23.0 22.0 Net foreign direct investment inflow (% of GDP) -3.5 -1.4 -1.2 -1.1 -1.2 -1.2 Fiscal balance (% of GDP) -8.9 -6.8 -5.3 -4.4 -3.9 -2.4 Revenues (% of GDP) 14.7 15.0 16.7 18.9 18.6 18.9 Debt (% of GDP) 48.8 52.2 48.4 52.2 50.9 50.7 Primary balance (% of GDP) -6.2 -4.3 -2.8 -1.8 -1.4 0.0 GHG emissions growth (mtCO2e) 0.4 0.5 0.6 0.6 0.7 0.7 Energy related GHG emissions (% of total) 11.9 11.8 11.7 11.5 11.3 11.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 23 Oct 23 price shocks that disproportionately affect the poor. Furthermore, implementing re- PHILIPPINES Key conditions and forms that strengthen the resilience of edu- cation, human settlements, and healthcare challenges systems will mitigate the effects of climate change, public health crises, and natural Table 1 2022 High inflation, tight fiscal and monetary disasters in both the short and long term. Population, million 115.6 policies, budget execution delays, and GDP, current US$ billion 404.3 subdued global growth dampened the GDP per capita, current US$ 3498.5 Philippines’ growth momentum. In the International poverty rate ($2.15) a 3.0 near term, essential factors for boosting Recent developments a 17.8 growth include containing price pressures Lower middle-income poverty rate ($3.65) a 55.3 and improving budget utilization. Given GDP growth decelerated to 5.3 percent (y/ Upper middle-income poverty rate ($6.85) Gini index a 40.7 agriculture’s susceptibility to extreme y) in 2023 from 7.8 percent in 2022. The School enrollment, primary (% gross) b 92.4 weather events, an enhanced and rapid slowdown was driven by a simultaneous b 69.3 food importation system will bolster do- easing in private consumption and invest- Life expectancy at birth, years mestic food supply. This will enable price ment growth, dampened by increased in- Total GHG emissions (mtCO2e) 274.5 stability despite recent increases in wages, flation, elevated borrowing costs, and dis- Source: WDI, Macro Poverty Outlook, and official data. transportation fares, and the price of im- sipating pent-up demand. Despite the re- a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). ported rice. Implementing the govern- bound in tourism, services growth moder- ment’s medium-term fiscal consolidation ated. The manufacturing and mining sec- strategy will help strengthen the coun- tors also experienced a slowdown in re- try’s fiscal sustainability. sponse to weakening external demand, To improve long-term growth potential, it contributing to an overall dampening of Recovery momentum decelerated in the is imperative to address structural chal- industry growth. first half of 2023 driven by a moderation lenges, including underinvestment in Headline inflation dropped to 4.7 percent in domestic activity amidst persistent physical and human capital, and low pro- (y/y) in July from its peak of 8.7 percent in weakness in external demand. Growth is ductivity. Effective implementation of pro- January amid improved domestic food pro- investment reforms in renewable energy duction and importation, and a decline in fu- expected to average 5.7 percent annually and sectors like trade, transport, and el prices. Core inflation remained elevated at between 2023-2025, as domestic demand telecommunications will generate econo- 6.7 percent in July, although it was below its improves helped by a robust labor mar- my-wide productivity gains. In addition, peak of 8.0 percent in March reflecting eas- ket, decelerating inflation, and the effects implementing reforms that encourage pri- ing demand-side pressures. Decelerating of recent investment policy reforms. vate sector participation in physical and inflation allowed the central bank to pause human capital investments will enhance its monetary policy tightening. Poverty is expected to gradually decline growth potential even within the con- The balance of payments position re- alongside economic recovery and labor straints of limited fiscal space. Effective versed to a surplus in the first seven market improvements. public spending in agriculture will boost months of 2023 supported by a steady in- productivity and enhance local food sup- flow of remittances, net foreign borrow- ply, thereby reducing the impact of food ings by the government, and a narrower 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) 12 80 250000 8 70 200000 4 60 50 150000 0 40 -4 30 100000 -8 20 Discrepancy 50000 -12 Net exports 10 Investments -16 Government consumption 0 0 Household final consumption expenditure 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 GDP International poverty rate Lower middle-income pov. rate 2018 2019 2020 2021 2022 Upper middle-income pov. rate Real GDP pc Source: Philippines Statistics Authority. Source: World Bank. Notes: see Table 2. MPO 24 Oct 23 trade gap owing to weaker imports and are often linked to lower wages, account- new tax measures and reforms focused the recovery in services exports. Mean- ed for the largest share of workers at 30.3 on broadening the tax base. while, reserves remained consistently sta- percent as of June 2023. Despite improvements in the labor mar- ble, equivalent to 7.5 months’ worth of ket, elevated inflation will dampen the imports during the first half of 2023. growth of household incomes in real The fiscal deficit declined to 4.8 percent of terms. The escalation of climate shocks GDP in 2023, owing to continuous fiscal Outlook could further erode income growth, par- consolidation efforts and underspending. ticularly affecting poor households that The reduced deficit was in part driven by a Growth is projected to average 5.7 per- rely heavily on agriculture. These factors rise in tax revenues, with the government cent in 2023-25. Economic activity will could contribute to the slower pace of surpassing its collection target. Although be supported by domestic demand, led poverty reduction. The poverty incidence, the central government debt ratio inched by private consumption and the expec- measured using the World Bank’s pover- up to 61.0 percent of GDP in 2023, the debt tation that recent reforms will buoy in- ty line for lower-middle income countries composition remains favorable, character- vestment. However, growth is projected of $3.65/day, 2017 PPP, is projected to de- ized by long-term, domestic, and peso-de- to moderate to 5.6 percent in 2023 due to crease from 17.8 percent in 2021 to 13.7 nominated debt obligations. high inflation, tight financial conditions, percent in 2023, and subsequently de- The financial system remains resilient, as and a weak external environment. Infla- crease further to 10.7 percent in 2025. banks are generally well-capitalized and tion will increase marginally in 2023 due The outlook is subject to significant exter- maintain ample capital and liquidity to the materialization of risks to food in- nal risks. Persistently high global inflation buffers. Nonetheless, the expansion of total flation, before returning to within the tar- owing to tight labor markets and linger- outstanding loans in June was affected by get range in 2024 amid improvements in ing geopolitical uncertainty could result elevated interest rates, primarily affecting food supply and lower global commodity in a prolonged period of high global pol- the loan growth for production activities. prices. The global growth slowdown will icy rates. In addition, a weaker-than-an- The labor market continues to show exert pressure on both goods exports and ticipated recovery in China could further steady improvement. Employment rose manufacturing output. dampen trade. Domestically, El Niño and from 46.6 million in June 2022 to 48.8 mil- The fiscal deficit is expected to fall to 4.1 additional shocks from natural disasters lion in June 2023, propelled by the recov- percent of GDP by 2025. Efforts to re- could potentially reverse the current infla- ery of the hospitality industry. Robust job duce public spending will continue un- tion trajectory and weaken domestic de- creation in services contributed to a de- til 2026, led by the decline in recurrent mand. Finally, delays in the execution of cline in the unemployment rate from 6.0 spending. The government is expected to the government’s catch-up spending pro- to 4.5 percent. Despite these gains, po- strengthen tax collections beginning in gram could have adverse effects on short- sitions in elementary occupations, which 2024 through the introduction of several term growth prospects. TABLE 2 Philippines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -9.5 5.7 7.6 5.6 5.8 5.8 Private consumption -8.0 4.2 8.3 5.9 6.2 6.2 Government consumption 10.5 7.2 4.9 2.1 5.7 6.1 Gross fixed capital investment -27.3 9.8 9.7 6.0 7.1 9.5 Exports, goods and services -16.1 8.0 10.9 3.8 7.6 7.7 Imports, goods and services -21.6 12.8 13.9 3.7 8.6 10.1 Real GDP growth, at constant factor prices -9.5 5.7 7.6 5.6 5.8 5.8 Agriculture -0.2 -0.3 0.5 0.5 1.1 1.2 Industry -13.1 8.5 6.5 4.2 5.9 6.0 Services -9.1 5.4 9.2 7.1 6.3 6.4 Inflation (consumer price index) 2.4 3.9 5.8 5.9 3.6 3.0 Current account balance (% of GDP) 3.2 -1.5 -4.4 -3.6 -3.3 -3.1 Net foreign direct investment inflow (% of GDP) 1.9 3.0 2.3 2.5 2.7 2.8 Fiscal balance (% of GDP) -7.6 -8.6 -7.3 -6.0 -5.1 -4.1 Revenues (% of GDP) 15.9 15.5 16.1 15.7 15.8 15.9 National Government Debt (% of GDP) 54.6 60.4 60.9 61.1 61.4 60.9 Primary balance (% of GDP) -5.5 -6.4 -5.0 -3.3 -2.5 -1.3 a,b International poverty rate ($2.15 in 2017 PPP) .. 3.0 2.3 1.9 1.6 1.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 17.8 15.3 13.7 12.2 10.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 55.3 51.8 49.4 46.8 44.3 GHG emissions growth (mtCO2e) -1.8 9.7 7.6 5.3 5.3 5.4 Energy related GHG emissions (% of total) 58.6 61.0 62.6 62.9 63.6 64.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2021-FIES. Actual data: 2021. Nowcast: 2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2021) with pass-through = 1 (High (1)) based on GDP per capita in constant LCU. MPO 25 Oct 23 most households reported being worried about their finances in the month ahead. SOLOMON Key conditions and According to the 2012/13 Household In- come and Expenditure Survey (HIES), 61 challenges ISLANDS percent of the population was considered poor based on the lower-middle-income Solomon Islands is a small archipelago of poverty line of $3.65 (2017 PPP USD per 721,000 people spread across 90 inhabit- person per day). Table 1 2022 ed islands. Geographical dispersion, iso- Population, million 0.7 lation from global markets, and suscep- GDP, current US$ billion 1.6 tibility to natural disasters all pose sig- GDP per capita, current US$ 2210.5 nificant challenges to the nation's econo- Recent developments International poverty rate ($2.15) a 26.6 my. Limited state capacity and political a 61.0 economy dynamics tend to constrain the The economy has been impacted by three Lower middle-income poverty rate ($3.65) a design and implementation of effective shocks: the COVID-19 pandemic, the Upper middle-income poverty rate ($6.85) 88.5 a public policies. Major growth obstacles 2021 civil unrest, and Russia’s invasion Gini index 37.1 include poor infrastructure, high unem- of Ukraine. These events have led to a b 104.3 School enrollment, primary (% gross) ployment, and a small private sector. The 4.1 percent growth contraction in 2022, b 70.3 Life expectancy at birth, years Solomon Islands is also susceptible to nat- the third year of economic decline in a Total GHG emissions (mtCO2e) 46.4 ural disasters like earthquakes, cyclones, row. However, the Solomon Islands is Source: WDI, Macro Poverty Outlook, and official data. and tsunamis that can inflict substantial returning to growth in 2023, driven by a/ Most recent value (2012), 2017 PPPs. economic harm. the hosting of the Pacific Games, elec- b/ WDI for School enrollment (2019); Life expectancy (2021). Challenges to the development of the tion preparations, and several large in- country have been further complicated by frastructure projects in the energy and the multiple shocks that occurred in the transport sectors. past three years, which caused a sharp eco- After a deflationary period in 2021 reflect- The Solomon Islands economy is return- nomic contraction. The recovery is slow, ing subdued domestic activity, inflation ing to growth – 1.8 percent in 2023 – thus continuously affecting livelihoods. more than doubled from 4.3 percent in driven by the hosting of the Pacific Data from a series of phone surveys con- June 2022 to 9.1 percent in December 2022, Games, election preparations, and sever- ducted by the World Bank indicate that by reflecting higher import prices and the in- al large infrastructure projects in the the second half of 2022, employment had cipient economic recovery. In response to recovered from COVID-related restric- rising inflationary pressures, the Central energy and transport sectors. In the tions. However, 40 percent of households Bank of Solomon Islands tightened its medium term, growth is expected to av- reported income reductions, while over a monetary policy stance in March 2023 and erage 2.5 percent of GDP, while the fis- third experienced moderate food insecuri- raised the cash reserves ratio from 5 per- cal deficit is projected to average 3.9 ty. Preliminary results from the survey da- cent to 6 percent. ta collected in the first half of 2023 sug- The current account deficit reached percent of GDP. State fragility and an gest that household incomes remain under 13.3 percent of GDP in 2022, due to uncertain global environment pose risks pressure and food insecurity continues to a decline in exports of logging and to the outlook and the rate of recovery. be a widespread problem. In addition, agricultural products. Foreign reserves FIGURE 1 Solomon Islands / Real GDP FIGURE 2 Solomon Islands / Fiscal balance Percent change Index (2015=100) Percent of GDP 4 114 8 Real GDP, % change 3 6 Real GDP, Index (2015=100) (rhs) 112 2 110 4 1 2 0 108 0 -1 106 -2 -2 104 -3 -4 102 -4 -6 -5 100 2000 2003 2006 2009 2012 2015 2018 2021 2024 2020 2021 2022 2023 2024 2025 Structural Budget Balance Budget Balance Sources: IMF and World Bank staff calculations. Sources: IMF and World Bank staff calculations. MPO 26 Oct 23 fell from 11.5 months of imports in The fiscal deficit is projected to decline av- 2021 to 9.5 months of imports by the eraging 3.9 percent of GDP over the period end of 2022. The increase in the cur- Outlook 2023-25 due to reforms in tax policy, eco- rent account deficit has been financed nomic recovery, and the consolidation of through external concessional borrowing The economy is expected to recover in the recurrent spending after pandemic highs. and FDI inflows. medium term with an average growth rate Public debt is sustainable, and the risk of The fiscal deficit is estimated at 4.1 percent of 2.5 percent over the period 2023-25, debt distress is moderate. of GDP in 2022. Total revenues expanded boosted by the Pacific games and a large Subdued global economic conditions, cli- slightly to reach 32.6 percent of GDP in infrastructure project pipeline. An uptick mate shocks, low levels of cash buffers, 2022. The government managed to contain in the labor mobility program is expected and social instability pose downside expenditure growth, despite facing sub- to also contribute to economic activity risks. General elections in 2024 raise the stantial spending demands. Expenditure through the remittance channel. Whilst in- potential of political instability and civil increased to 36.8 percent in 2022, owing to flation is projected to average 3.9 percent unrest, as well as economic uncertainty. the increase in development expenditure during 2023-25 amid cooling energy and The rate of recovery in the tourism in- on the Pacific Games and to a lesser extent food prices, the forecast is well above the dustry and increasing participation in recurrent expenditure. average inflation experienced during the regional labor mobility programs may Public debt increased to 16.9 percent of past five years (2.7 percent). offer economic advantages, while ad- GDP in 2022, up from 15.4 percent of The current account deficit is projected to ditional infrastructure investment may GDP in 2021. This was due to a rising remain large, averaging 10.9 percent of stimulate a stronger recovery. Russia’s primary fiscal deficit and lagging nominal GDP over the period of 2023-25. This is invasion of Ukraine may continue to ex- GDP growth. As part of the COVID-19 primarily driven by strong import increas- ert pressure on prices, which could af- response, the government issued domes- es associated with infrastructure projects fect vulnerable communities. Subdued tic development bonds during 2020-22, and an anticipated reduction in logging ex- global economic conditions may lower close to doubling the stock of develop- ports. International reserves are projected demand for commodity exports, partic- ment bonds from 2.8 percent of GDP at to decline to 7 months of imports but re- ularly logs, with negative consequences the end of 2020 to 4.9 percent of GDP at main within the reserve adequacy range for growth, the current account balance, the end of 2021. over the medium term. and government finances. TABLE 2 Solomon Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -3.4 -0.6 -4.1 1.8 2.7 3.1 Private consumption -2.3 12.1 -7.8 -8.7 3.8 8.4 Government consumption -2.4 -26.6 -0.5 -11.5 1.5 3.4 Gross fixed capital investment 4.5 7.7 19.6 19.7 -6.8 -10.3 Exports, goods and services -28.1 -13.2 -6.8 38.4 5.7 4.9 Imports, goods and services -20.7 -8.7 2.2 17.4 0.1 2.8 Real GDP growth, at constant factor prices -3.4 -0.6 -4.1 1.8 2.7 3.1 Agriculture -3.8 -1.0 -11.8 0.0 1.5 2.0 Industry -4.1 3.0 0.1 5.1 6.2 5.9 Services -3.0 -1.2 -0.9 1.8 2.3 2.8 Inflation (consumer price index) 3.0 -0.1 5.5 4.7 3.7 3.3 Current account balance (% of GDP) -1.6 -5.1 -13.3 -12.7 -10.3 -9.9 Net foreign direct investment inflow (% of GDP) 0.4 1.5 2.5 2.5 2.5 2.4 Fiscal balance (% of GDP) -2.5 -3.6 -4.1 -3.9 -4.5 -3.4 Revenues (% of GDP) 33.4 31.2 32.6 28.8 31.1 31.7 Debt (% of GDP) 13.5 15.4 16.9 22.3 25.9 27.9 Primary balance (% of GDP) -2.3 -3.4 -3.8 -3.4 -4.1 -2.7 GHG emissions growth (mtCO2e) 0.0 0.0 0.0 0.0 0.0 0.0 Energy related GHG emissions (% of total) 0.8 0.8 0.8 0.8 0.8 0.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 27 Oct 23 The economy of Samoa experienced its third consecutive year of economic con- SOUTH PACIFIC Key conditions and traction in FY22, declining by 5.3 percent. This marks a cumulative contraction of challenges ISLANDS over 15 percent since FY20, primarily as a result of the impacts of COVID-19. Infla- External shocks and natural disasters tion surged to 8.8 percent on an annual av- constantly threaten livelihoods, econom- erage basis in FY22. The current account Table 1 2022 ic growth, and fiscal sustainability in the deficit narrowed to 11.6 percent of GDP in Population, million South Pacific. Supply chain disruptions, FY22 compared to 14.6 percent of GDP in Samoa 0.22 including during the aftermath of nat- FY21, primarily on account of robust re- Tonga 0.11 ural disasters and spillovers from Rus- mittances. A fiscal surplus persisted in Vanuatu 0.32 sia’s invasion of Ukraine continue to ex- FY22, supported by substantial grants, ro- GDP, US$, billion ert pressure on food and fuel prices. bust revenue collections, and under-execu- Making social protection systems more tion of capital expenditure. In 2018, 22.7 Samoa 0.83 adaptive and targeted would help ad- percent of the population lived under the Tonga 0.50 dress the main immediate challenge of national poverty line defined by the "cost Vanuatu 1.07 limiting harm to the most vulnerable of basic needs". GDP per capita, current US$ households from rising inflation and fu- The economy of Tonga contracted by an Samoa 3746 ture shocks. For Tonga and Vanuatu, the estimated 2.0 percent in FY22. The vol- Tonga 4695 pace of reconstruction needs to be accel- canic eruption and subsequent tsunami Vanuatu 3344 erated. The near-term challenge will be in January 2022 led to a sharp fall in Sources: WDI, World Bank staff estimates. to lay the foundation for inclusive eco- agricultural production, travel, and com- nomic recovery in the face of competing mercial services. Inflation surged to 8.5 pressures. Finally, increasing potential percent in FY22, rising from 1.4 percent growth hinges on the pivotal role of the in FY21. The current account deficit The economies of Samoa, Tonga, and private sector in economic recovery, in- widened to 6.3 percent in FY22, driven Vanuatu have been hit by multiple shocks, cluding in tourism and investment. This by an upsurge in food and building ma- including natural disasters and the will require implementing structural re- terials coupled with subdued exports. COVID-19 pandemic. While the forms that create an enabling environ- The fiscal balance remained in deficit at economies are now recovering, uncertain- ment for private investors. 0.7 percent of GDP on account of sig- nificantly higher reconstruction spending ties in the global environment pose risks amid lower domestic revenue. Accord- to the outlook. To increase potential ing to a series of phone surveys con- growth and achieve inclusive recovery, Recent developments ducted by the World Bank, employment governments must embark on structural has recovered to its pre-disaster level, While economic recovery accelerated in though the increased jobs were mainly in reforms and move towards targeted and Vanuatu, the economies of Samoa and the informal sector. Around 54 percent adaptive social protection systems to sup- Tonga contracted during FY22. Inflation of adults were employed in the second port the most vulnerable. has been rampant in all countries. quarter of 2023, a rise from 49 percent in FIGURE 1 South Pacific Islands / Overall fiscal balance FIGURE 2 South Pacific Islands / Inflation (annual average) Percent of GDP Percent 8 14 6 12 10 4 8 2 6 0 4 -2 2 Samoa Samoa -4 0 Tonga Tonga -6 -2 Vanuatu Vanuatu -8 -4 FY2017 FY2019 FY2021 FY2023f FY2025f FY2017 FY2019 FY2021 FY2023f FY2025f Sources: National sources and World Bank projections. Sources: National sources and World Bank projections. MPO 28 Oct 23 July/August 2022 and 53 percent in Decem- could derail the recovery path and may A fiscal surplus of 0.4 percent of GDP is ber 2021. A relatively large share of low- hamper the translation of recovery into estimated for FY23 owing to high level of er-income households still face severe food poverty reduction. grants and slower execution of reconstruc- insecurity, with 10 percent facing such is- In Samoa, the economy is projected to tion spending. However, fiscal deficits are sues compared to 3 percent among high- grow by 6.0 percent in FY23, followed by projected for FY24-25 as reconstruction ac- income households. an average growth of 3.6 percent in FY24 celerates and grants gradually normalize. In Vanuatu, economic recovery accelerat- and FY25. The recovery in tourism and While the overall risk of debt distress is ed in 2022, reaching growth of 1.9 percent spillovers to other sectors combined with high and debt service is projected to in- compared to 0.6 percent in 2021. The re- increased public investment are expect- crease sharply from FY24 onwards, public covery was attributed to fiscal stimulus, in- ed to drive growth. Inflation is estimat- debt remains sustainable. creased industrial production, elevated ed at 12 percent in FY23 and is expected In Vanuatu, the economy is projected to agricultural output, and the reopening of to remain elevated in FY24 amid strong grow by 1.5 percent in FY23. The impact borders. Inflation averaged 12.4 percent in domestic demand. The current account of twin cyclones on tourism and agri- 2022 compared to a marginal 0.7 percent deficit is expected to narrow to 3.0 per- culture has had a negative effect on the in 2021. A current account deficit of 2.2 cent of GDP over the medium term, sup- economy. Reconstruction efforts are ex- percent of GDP was reported, mainly due ported by tourism recovery and contin- pected to stimulate economic activity to weak tourism revenues and higher de- ued remittance inflows. A fiscal surplus over the medium term. Inflation is pro- mand for imported industrial materials of 3.1 percent of GDP is estimated for jected to remain elevated in the near term, and transportation equipment. A fiscal FY23 as revenues continue to outperform reaching 8.3 percent in FY23, and gradu- deficit of 6.6 percent of GDP was recorded expectations. However, a fiscal deficit of ally stabilize within the Reserve Bank of in 2022 due to a drop in revenue collection 1.5 percent of GDP is projected for FY24 Vanuatu’s target range of 0 to 4 percent from 45.7 percent of GDP in 2021 to 38.1 as grants revenue normalizes and expen- over the medium term. Vanuatu is project- percent in 2022. This drop was partly at- diture increases driven by the govern- ed to record twin deficits in the near term tributed to a weakness in revenues from ment’s preparations to host the Common- owing to additional spending for recon- the Economic Citizenship Program (ECP). wealth Heads of Government Meeting struction and recovery. A current account scheduled for October 2024. While the deficit of 3.4 percent of GDP is projected overall risk of debt distress is high, public for FY23, which partially offsets the mod- debt is assessed as sustainable. est recovery expected in tourism and other Outlook In Tonga, growth is projected to rebound goods exports. A fiscal deficit of 3.6 per- to 2.6 percent in FY23, followed by an av- cent of GDP is also projected for FY23, The economies are projected to experience erage growth of 2.4 percent in FY24 and with an expectation for it to widen over a gradual recovery. Projections suggest FY25. However, should additional delays the medium term. This widening is expect- that Tonga and Vanuatu could attain pre- in reconstruction occur, this would subse- ed to be driven by higher spending, a de- pandemic GDP levels by 2024, while quently impede the pace of economic re- cline in ECP revenues, and a slowdown in Samoa is expected to reach this point a covery. Inflation will remain elevated in grants as cyclone-related assistance scales year later. The outlook is subject to mul- FY23 but is expected to ease from FY24 and back. While the overall risk of debt distress tiple downside risks amid uncertainties in reach below the Reserve Bank of Tonga’s 5 is high, public debt is assessed as sustain- global commodity price movements, a de- percent reference rate in FY25. The current able. The poverty rate, based on the lower- celeration in growth, and elevated inflation account deficit is projected to widen to 7.9 middle-income poverty line (US$3.65 per in key trading partners. Vulnerability to percent of GDP in FY23 and is expected to day in 2017 PPP terms), is projected to natural disasters and climate change fur- remain high in FY24 due to significant re- gradually decline starting in 2025, as GDP ther compound the risks. These factors construction needs amid modest exports. growth accelerates. TABLE 2 South Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022e 2023f 2024f 2025f Real GDP growth, at constant market prices Samoa -3.1 -7.1 -5.3 6.0 4.0 3.2 Tonga 0.5 -2.7 -2.0 2.6 2.5 2.2 Vanuatu -5.0 0.6 1.9 1.5 2.6 3.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) Vanuatu 39.7 41.1 42.0 43.4 44.1 44.1 Sources: World Bank and IMF. e = estimate; f = forecast. Notes: Financial years for Samoa and Tonga are July-June, for Vanuatu it is January-December. Samoa improved the methodology for GDP calculation and revised the historical data in March 2022 GDP release. a/ Calculations based on EAPPOV harmonization, using 2019-NSDP. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 29 Oct 23 Financial stress related to debt overhang and the escalating impact of climate events THAILAND Key conditions and on low-income and vulnerable households remain significant obstacles to achieving challenges poverty reduction. Table 1 2022 The economic recovery faces major head- Population, million 71.7 winds from the global trade slowdown. GDP, current US$ billion 495.4 Contracting goods exports weigh on man- Recent developments GDP per capita, current US$ 6910.0 ufacturing activity and private investment. a 12.2 Upper middle-income poverty rate ($6.85) By contrast, a strong labor market and Growth decelerated more than expected a 35.1 falling inflation support private consump- to 1.8 percent (y/y) in 2023Q2, amid the Gini index b 101.7 tion and, therefore, the recovery. Although global trade slowdown, but remained flat School enrollment, primary (% gross) Life expectancy at birth, years b 78.7 inflation has fallen to a regional low, risks on a quarterly basis. Private consumption Total GHG emissions (mtCO2e) 438.4 to inflation persist through the potential remained robust, buoyed by a strong la- supply disruptions caused by El Niño and bor market and the gradual tourism re- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. geopolitical tensions. covery. By June, tourism arrivals reached b/ WDI for School enrollment (2022); Life expectancy Fiscal response to high energy prices sup- 80 percent of their pre-pandemic level (2021). ported the recovery but slowed the path helped by the reopening of China and toward consolidation. The forthcoming matching that of ASEAN peers. Manu- formation of a government following the facturing production, however, contracted national elections in May 2023, would by 4.6 percent in the first half of 2023, Thailand’s economic recovery continued support the implementation of ongoing mirroring the decline in goods exports, to trail ASEAN peers, and the decrease in public investment projects and scaling up private investment, and global trade. of social assistance transfers. The exist- The current account registered a deficit of goods exports is adding to the challenge. ing transfers have provided livelihood 1.5 percent of GDP in 2023Q2, reflecting In 2023, private consumption and grad- support to low-income households and net remittance outflows of profits and div- ual recovery in tourism will contribute to played a significant role in reducing idends and a reduced goods trade surplus. a pick-up in economic growth and pover- poverty. Nonetheless, the occurrence of This negative trend, however, marked an additional shocks, such as a resurgence in improvement compared to the same pe- ty reduction. Falling inflation and energy energy prices, could increase inequality riod last year, helped by the recovery of subsidies will reduce the pressure on liv- and further erode fiscal space, unless so- tourism receipts. During 2023Q2, the ing costs and private consumption. The cial assistance expenditure programs are Nominal Effective Exchange Rate (NEER) latter, however, will delay fiscal consoli- better targeted. depreciated, aligning with the current ac- dation. Elevated household debt, climate In the medium term, Thailand faces struc- count deficit and portfolio outflows amidst tural challenges that limit its growth po- political uncertainty. impacts, and geopolitical tensions pose tential. These obstacles include aging, cli- Headline inflation experienced the greatest downside risks to the outlook. mate change, insufficient capital invest- decline among ASEAN countries, reaching ment accumulation, declining export com- a mere 0.4 percent (y/ y) in July, while petitiveness, and sizable household debt. monetary and fiscal measures sought to 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 40 180000 6 160000 35 4 140000 30 2 120000 25 0 100000 20 -2 80000 15 -4 60000 10 40000 -6 5 20000 -8 2017 2018 2019 2020 2021 2022 2023f 2024f 2025f 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. Source: World Bank. Notes: see Table 2. Note: *Includes statistical discrepancy. MPO 30 Oct 23 curb cost-of-living pressures. This drop a more rapid growth rate. The poverty projected to reach their pre-pandemic level was primarily driven by a fall in energy headcount rate, at the 6.85 dollars a day by the end of 2024. prices, with no significant upward pres- (2017 PPP) poverty line, was estimated at Headline inflation is projected to moderate sure on other prices. Core inflation de- 12.2 percent in 2021. The consumption- to 1.5 percent in 2023, which is lower than clined compared to last year but re- based Gini index stood at 35.1 points, the levels seen in most emerging market mained above its pre-pandemic level. In while the income-based Gini index was economies. This trend is attributed to eas- August, the Bank of Thailand continued higher at 43.1 points. It is anticipated ing global energy prices and the ongoing its normalization efforts by raising its that both poverty and inequality mea- implementation of price caps. However, policy rate to 2.25 percent, citing infla- sures will have decreased in 2022. House- there are still upside risks to core inflation tionary risks linked to the El Niño impact hold debt remained elevated at 90.6 per- related to increased consumption and el- on food prices. Nevertheless, the estimat- cent of GDP in 2023 Q1, driven primarily evated global food prices. With the slow ed real policy rate remained lower com- by real estate and personal loans. progress of fiscal consolidation owing to pared to those of ASEAN peers. The fis- extended energy subsidies, public debt is cal deficit of the central government nar- expected to remain above 60 percent of rowed in FY2023 owing to the expiration GDP till the end of 2023. The current ac- of emergency COVID-19-related expendi- Outlook count is expected to shift from its substan- tures. Nonetheless, the process of fiscal tial deficit over the past two years and en- consolidation remained gradual due to Growth is projected to accelerate from 2.6 ter positive territory in 2023. subsidies aimed at alleviating the cost-of- percent in 2022 to 3.4 percent in 2023, pri- The labor market is expected to remain ro- living pressures. marily driven by the recovery of tourism bust, supported by the ongoing economic Household spending accelerated in 2022, and strong private consumption. Goods recovery. A slowdown in inflation will supported by economic growth and labor exports, however, are expected to contract ease some pressures on households, while market recovery. The unemployment rate by 2.1 percent (in US dollar terms) owing the expansion of the state welfare card dropped to 1.1 percent in 2023Q1, down to reduced demand from major advanced scheme is expected to additionally con- from 1.5 percent in 2022Q1. The average economies. The long transition towards a tribute to poverty reduction in 2023. Con- wage for private sector jobs increased by new government will delay public and pri- sequently, the projected poverty head- 1.9 percent, with most gains registered vate investment. Growth in 2024 and 2025 count, measured at the upper-middle-in- in the agricultural and service sectors. is projected at 3.5 percent and 3.3 percent, come poverty line of $6.85 in 2017 PPP, Per capita household consumption grew respectively. Tourism and private con- is anticipated to decline to 9.1 percent in by 8.1 percent between 2021 and 2022, sumption are expected to offset the sub- 2023 and maintain a downward trajectory with the bottom 40 percent experiencing dued external demand. Tourist arrivals are throughout 2024 and 2025. TABLE 2 Thailand / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -6.1 1.5 2.6 3.4 3.5 3.3 Private consumption -0.8 0.6 6.3 5.0 4.7 4.2 Government consumption 1.4 3.7 0.2 -2.6 1.1 2.5 Gross fixed capital investment -4.8 3.1 2.3 1.8 2.6 3.9 Exports, goods and services -19.7 11.1 6.8 4.8 5.8 4.2 Imports, goods and services -13.9 17.8 4.1 0.6 3.8 2.8 Real GDP growth, at constant factor prices -5.3 1.9 2.6 3.4 3.5 3.3 Agriculture -2.9 2.6 0.5 2.6 2.2 2.2 Industry -5.1 6.0 -1.0 -1.1 0.1 1.3 Services -5.6 -0.5 4.9 6.0 5.4 4.4 Inflation (consumer price index) -0.8 1.2 6.1 1.5 0.7 1.3 Current account balance (% of GDP) 4.2 -2.1 -3.5 0.5 2.6 3.6 Net foreign direct investment inflow (% of GDP) -4.7 -0.9 0.4 -0.5 -0.8 -1.0 Fiscal balance (% of GDP) -4.5 -7.0 -4.5 -2.4 -2.1 -2.2 Revenues (% of GDP) 20.7 20.0 19.8 20.2 20.1 20.0 Debt (% of GDP) 50.1 57.8 59.7 60.2 59.6 59.5 Primary balance (% of GDP) -3.6 -5.7 -3.2 -0.5 -0.2 -0.3 a,b International poverty rate ($2.15 in 2017 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.7 0.6 0.4 0.3 0.2 0.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 13.2 12.2 11.0 9.5 8.2 7.1 GHG emissions growth (mtCO2e) -4.1 4.2 0.3 0.3 2.9 2.8 Energy related GHG emissions (% of total) 57.4 58.6 58.3 57.7 58.2 58.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2014-SES, 2020-SES, and 2021-SES. Actual data: 2021. Nowcast: 2022. Forecasts are from 2023 to 2025. b/ Projection using annualized elasticity (2014-2020) with pass-through = 1 based on GDP per capita in constant LCU. MPO 31 Oct 23 TIMOR-LESTE Key conditions and Recent developments challenges Timor-Leste’s economy continued its re- covery in 2022, expanding by 3.9 percent, Table 1 2022 Timor-Leste grapples with economic, fueled by public consumption and in- Population, million 1.3 developmental, and governance chal- vestment. Private investment rose, largely GDP, current US$ billion 1.6 lenges stemming from its size, geo- due to base effects, following two con- GDP per capita, current US$ 1188.2 graphic isolation, and vulnerability to secutive years of decline, while net ex- a 24.4 International poverty rate ($2.15) natural disasters. In addition, capacity ports continued to be a drag on growth. a 69.2 constraints and a fragile post-conflict Despite the implementation of fiscal mea- Lower middle-income poverty rate ($3.65) a 28.7 political landscape continuously threat- sures such as the food basket program, Gini index School enrollment, primary (% gross) b 110.7 en sustainable development. and thirteen-month salaries, which result- Life expectancy at birth, years b 67.7 The fiscal deficit reached 64 percent ed in elevated government spending and Total GHG emissions (mtCO2e) 5.7 of non-oil GDP in 2022, nearly double a larger fiscal deficit, private consumption the pre-pandemic annual average. The displayed only modest growth due to Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014), 2017 PPPs. current account records a substantial challenges in the labor market. b/ WDI for School enrollment (2020); Life expectancy deficit due to diminishing primary in- Headline inflation has continued to decline (2021). come from petroleum revenue and since early 2023, reaching 7 percent in June persistent trade deficits. The Petroleum 2023. Food price inflation was the dominant Fund (PF), the country's sovereign contributor. This can be attributed in part The economy continued its recovery in wealth fund, has seen unsustainable to a combination of domestic costs, higher 2022, achieving a growth rate of 3.9 withdrawals to offset these deficits. Es- taxes on sugar and sugar-sweetened bever- timates from the Ministry of Finance ages, and elevated global prices. percent. Growth was driven by high suggest that at the current pace of The termination of oil and gas production government spending, leading to a spending and revenue collection, the from Timor-Leste’s Bayu-Undan field in record high fiscal deficit of 64 percent of PF will be fully depleted by 2034. 2023Q1 led to a shift in the country’s cur- non-oil GDP. Annual inflation has con- Timor-Leste is highly susceptible to rent account, transforming it from a sur- tinued to decline. Growth is projected to natural hazards. The nation also plus in 2021 to a deficit. The country con- faces tropical cyclones approximately tinues to face a persistent trade deficit, pri- average 3.4 percent in the medium term, every five years. The most recent sig- marily driven by consistently high import contingent upon sustained political sta- nificant event, Tropical Cyclone Sero- levels and an increasing demand for capi- bility and a resurgence in private in- ja in 2021, brought heavy rainfalls tal goods essential or domestic infrastruc- vestment following the inauguration of that triggered widespread landslides ture development. and flooding. Such heightened ex- The end of oil and gas production also puts the new government. Downside risks in- posure to disasters carries notable pressure on the budget. Ensuring fiscal clude natural disasters and potential de- macroeconomic risks, leading to de- sustainability in Timor-Leste has become lays in reform implementation. creased investment, increased pover- more challenging. Despite the rollback of ty, and a weak revenue base. pandemic-related government spending in FIGURE 1 Timor-Leste / Despite the end of the pandemic, FIGURE 2 Timor-Leste / Actual and projected poverty rates public transfers are still rising and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 60 90 1600 Loan Interest and Related Payments Loan Principal Repayments 80 1400 50 6.8 Public Grants Capital 70 1200 Personal Benefit Payments 60 40 13.5 1000 Public Grants 50 1.3 800 30 40 8.4 600 30 20 0.1 400 20 9.2 34.0 10 200 10 23.1 12.3 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0 International poverty rate Lower middle-income pov. rate Pre-COVID (2017-19) During COVID (2020-21) Post-COVID (2022) Real GDP pc Source: Timor-Leste Ministry of Finance. Source: World Bank. Notes: see Table 2. MPO 32 Oct 23 2022, total spending continued to rise. line of US$2.15 per person per day (2017 Although global food prices have some- Government expenditure in the amended PPP), the decline is even starker, with what moderated since the Russian inva- 2022 budget was 123 percent of GDP, sur- poverty rates dropping from 40.9 percent sion of Ukraine, projections suggest that passing the pre-pandemic average of 82.6 in 2007 to 24.4 percent in 2014. Yet, the they will remain higher than pre-war lev- percent. This increase was partly due to 2021 Labor Force Survey shows that labor els. This can be attributed, in part, to ongo- the government's efforts to protect the force participation decreased from 67 per- ing inflationary pressures impacting trans- population from soaring commodity cent in 2016 to 35 percent in 2021, notably portation and processing costs. The cessa- prices. Consequently, there was a signifi- low compared to similar-sized nations, tion of oil production will hasten the de- cant uptick in the share of public transfers suggesting that many in the labor force pletion of the Petroleum Fund's balance. in overall government expenditure from are struggling to find stable employment, In the coming five years, total withdrawals the pre-pandemic period through 2022. potentially affecting their quality of life. are expected to exceed the net return on The average share rose from 21.6 percent A new Living Standards Survey is investment by approximately 200 percent. of GDP pre-pandemic to 54.3 percent in planned for 2024. Subsequent withdrawals are likely to re- 2022 (Figure 1). quire the liquidation of the Petroleum The changes in government resulting from Fund's capital assets. the Parliamentary elections in May 2023 The risks are tilted to the downside. have led to a deceleration in the rate of Outlook These include the possibility of disrup- government spending. By the end of July tions to government programs following 2023, the budget execution rate had de- In the medium term (2023 to 2025), an av- changes in government, particularly con- clined to 35.5 percent, with the execution erage annual growth rate is projected at cerning fiscal consolidation and structur- of the capital budget specifically remain- 3.4 percent. It hinges on the assumption of al reforms. Other risks encompass natur- ing below 10 percent. The new govern- political stability and the implementation al disasters and persistently high global ment also opted to withdraw revenue poli- of structural reforms, which are likely to inflation. The cessation of oil production cy reforms related to excises on sugar, sug- lead to increased contributions from pri- in the Timor Sea shifts fiscal sustainabil- ary beverages, and import duties. vate consumption and investment toward ity to the forefront. Achieving the 5 per- The impact of recent developments on economic activity. The government's pri- cent economic growth target, as outlined poverty reduction remains uncertain due oritization of tackling infrastructure bot- in the new government program, criti- to the absence of updated data. Between tlenecks is anticipated to foster growth by cally depends on fostering private sector 2007 and 2014, poverty dropped from 50.4 streamlining the implementation of di- development, nurturing human capital, percent to 41.8 percent. When assessed us- verse infrastructure projects. Export and enhancing competitiveness through ing an internationally comparable poverty growth is expected to face constraints. structural reforms. TABLE 2 Timor-Leste / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022e 2023f 2024f 2025f Real GDP growth, at constant market prices -8.3 2.9 3.9 2.4 3.5 4.3 Private consumption -3.1 -2.7 1.8 4.0 4.5 5.8 Government consumption 4.9 3.5 6.9 2.9 -2.2 -1.2 Gross fixed capital investment -42.5 -13.0 44.8 -1.2 26.0 20.5 Exports, goods and services -51.1 151.9 0.0 10.0 9.0 9.0 Imports, goods and services -7.1 -9.1 19.6 2.0 6.0 7.0 Real GDP growth, at constant factor prices -8.3 3.8 -0.2 6.6 3.5 4.2 Agriculture 0.6 5.5 1.2 7.3 2.9 2.9 Industry 659.5 -90.3 9.6 -4.3 2.4 2.4 Services -29.6 32.6 -0.7 6.7 3.7 4.6 Inflation (consumer price index) 0.5 3.8 7.0 5.5 3.3 2.8 Current account balance (% of GDP) -19.5 2.8 -17.8 -44.0 -51.7 -56.9 Net foreign direct investment inflow (% of GDP) -4.6 -4.3 -4.3 -4.1 -4.1 -4.0 a Fiscal Balance (% of GDP) -25.9 -47.0 -63.7 -56.1 -53.5 -50.4 Revenues (% of GDP) 46.1 45.5 45.6 44.2 43.3 42.2 Debt (% of GDP) 13.8 15.2 15.9 14.0 9.3 2.3 Primary balance (% of GDP) -25.8 -46.8 -63.5 -56.1 -53.4 -50.4 b,c International poverty rate ($2.15 in 2017 PPP) 29.3 28.8 27.8 27.4 26.5 25.4 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 73.3 72.9 72.1 71.8 71.2 70.3 GHG emissions growth (mtCO2e) -4.4 -3.2 -2.7 -2.6 -2.3 -2.0 Energy related GHG emissions (% of total) 9.3 9.9 10.6 11.3 12.1 12.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The ESI is part of total revenue, while excess withdrawals from the PF is a financing item. b/ Calculations based on EAPPOV harmonization, using 2007-TLSLS and 2014-TLSLS. Actual data: 2014. Nowcast: 2015-2022. Forecasts are from 2023 to 2025. c/ Projection using annualized elasticity (2007-2014) with pass-through = 1 based on GDP per capita in constant LCU. MPO 33 Oct 23 H1-2022 to 2.7 percent in H1-2023, due to weaker consumer confidence and stag- VIETNAM Key conditions and nating real disposable income growth. In- vestment growth declined from 3.9 per- challenges cent in H1-2022 to 1.1 percent in H1-2023, due to weakening private domestic in- Table 1 2022 After last year’s strong rebound, the econ- vestment, which was only partially offset Population, million 98.2 omy is now facing domestic and external by increased public investment. Industrial GDP, current US$ billion 408.7 headwinds in 2023. Weaker global GDP sector growth fell to 1.1 percent in GDP per capita, current US$ 4162.8 and trade have dampened external de- H1-2023 from 7.7 percent in H1-2022, led a 0.7 International poverty rate ($2.15) mand for Vietnamese exports, in turn by the contraction in exports. The services a 3.8 weighing on growth. Meanwhile, domes- sector grew by 6.3 percent in H1-2023, Lower middle-income poverty rate ($3.65) a 18.7 tic demand has also slowed but is still in part reflecting the ongoing recovery in Upper middle-income poverty rate ($6.85) Gini index a 36.8 expected to remain the main driver of the tourism sector. Agriculture grew by School enrollment, primary (% gross) b 118.4 growth. Accelerated public investment 3.3 percent (y/y) in H1-2023, continuing b 73.6 implementation and bolstering consumer to perform on trend. Life expectancy at birth, years and investor confidence will be key to Headline inflation fell from 4.9 percent (y/ Total GHG emissions (mtCO2e) 494.8 short-term growth. y) in January 2023 to 2.1 percent (y/y) in Ju- Source: WDI, Macro Poverty Outlook, and official data. In the longer term, Vietnam has the ambi- ly 2023, due to the slowdown of fuel prices a/ Most recent value (2020), 2017 PPPs. b/ Most recent WDI value (2021). tion to reach high-income status by 2045. and weakening domestic consumption. To achieve this objective, Vietnam needs to However, core inflation decelerated at a boost productivity by improving financial slower pace, from 5.2 percent (y/y) in Janu- sector fundamentals, resolving institution- ary to 4.1 percent (y/y) in July 2023, partly al bottlenecks in public investment to ad- due to higher costs of construction materi- Vietnam’s real GDP growth is expected dress infrastructure deficit, and creating an als and housing. to slow to 4.7 percent in 2023, due to enabling environment for a more produc- The economic downturn affected labor weaker private consumption, a property tive domestic private sector, all while ad- market conditions. In an April 2023 sur- market slump, and a sharp deceleration in dressing environmental sustainability and vey, 60 percent of businesses cut their la- climate change risks. bor force by at least 5 percent. Real dispos- external demand. Despite slower growth, able income growth stagnated in H1-2023 poverty is expected to decline from 3.2 in (3.4 percent y/y). 2022 to 3.0 percent in 2023. The economy Despite external headwinds, Vietnam’s faces risks associated with slower-than- Recent developments external position improved in Q1-2023, expected growth in advanced economies recording a current account surplus of 1.5 Real GDP growth slowed to 3.7 percent percent of GDP. The merchandise trade and China, more persistent weakness of in H1-2023, reflecting a slump in external balance improved as imports contracted domestic demand, and heightened domes- demand and weakening domestic de- more sharply than exports, partly due tic financial sector weaknesses. mand. Exports contracted by 12 percent to falling imports of intermediate goods. y/y in H1-2023. Final consumption Meanwhile, the deficit in services trade growth slowed from 6.1 percent in balance narrowed as international tourists 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 (constant million LCU) 25 90 70.0 20 80 60.0 15 70 10 50.0 60 5 50 40.0 0 40 30.0 -5 30 -10 20.0 20 -15 10.0 -20 10 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 0 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. Notes: see Table 2. MPO 34 Oct 23 returned. The financial account remained economy, but the estimated execution rate is projected to fall from 3.2 percent in 2022 to in surplus, driven by resilient FDI and remained low at 30.5 percent of the 3.0 percent in 2023. portfolio inflows. An overall BOP surplus planned investment budget, due to chronic The outlook is subject to heightened risks. allowed the SBV to accumulate foreign implementation challenges. Slower-than-expected growth in advanced reserves which reached US$88.7 billion economies and China could further damp- at the end of H1-2023 (equivalent to 3.3 en external demand for Vietnam’s exports. months of imports). Additional monetary policy tightening in To address faltering growth, the SBV Outlook major advanced economies could reignite loosened monetary policy to support eco- exchange rate pressures on the local cur- nomic activity. The key policy rates were Vietnam’s economy is expected to grow by rency and lead to capital outflows. Do- cut by a cumulative 150 basis points be- 4.7 percent in 2023 due to weaker external mestically, heightened financial vulnera- tween March and June 2023. Despite and domestic demand, recovering to a pro- bilities and risks warrant close monitor- these cuts credit growth moderated to 7.8 jected 5.5 percent in 2024 and to 6.0 percent ing and reforms. percent in June 2023, reflecting slowing in 2025. Domestic demand is expected to be In the short term, fiscal policy should private sector investment, including in re- the main driver of growth, albeit expanding continue supporting aggregate demand. al estate sectors, and persistent weakness at a slower rate than last year. CPI Inflation is A full implementation of the investment in investor confidence. Meanwhile, amid estimated to average 3.5 percent in 2023, due budget, supported by steps to ease cum- the slowdown in the real estate sector, as- to expected civil service salary increases, bersome public investment procedures, set quality deteriorated with nonperform- moderating to 3.0 percent in 2024 and 2025 would bring public investments to 7.1 ing loans rising from 1.9 percent in De- assuming stable commodity and energy percent of GDP in 2023, up from 5.5 cember 2022 to 2.9 percent in March 2023, prices. The fiscal balance is estimated to reg- percent in 2022 supporting aggregate de- compelling the SBV to re-introduce regu- ister a deficit of 0.7 percent of GDP in 2023, mand. Maintaining an accommodating latory forbearance measures. with fiscal policy remaining moderately monetary policy is appropriate, but fur- The 2023 mid-year fiscal balance registered supportive of the economy but the govern- ther interest rate cuts would increase the a smaller estimated surplus (1.5 percent of ment will revert to a conservative fiscal rate differential with global markets, po- GDP), compared to 5.2 percent of GDP in stance in 2024, in line with the Financial tentially putting pressure on the exchange H1-2022, as revenues contracted by 7 per- Strategy for 2021-2030. The current account rate. To mitigate heightened financial cent while expenditure increased by 12.8 is expected to improve further, thanks to a risks, increasing banks' capital buffers percent in H1-2023 (y/y). Higher public in- modest recovery of exports, continued re- and enhancing the banking sector super- vestment (43 percent increase y/y in covery of international tourism, and re- visory framework would promote finan- H1-2023) provided some support to the silient remittances. The poverty rate (LMIC) cial sector resilience and stability. TABLE 2 Vietnam / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices 2.9 2.6 8.0 4.7 5.5 6.0 Private consumption 0.4 2.0 7.8 6.0 6.0 6.5 Government consumption 1.2 4.7 3.6 4.8 4.8 4.4 Gross fixed capital investment 4.1 3.7 5.8 5.3 5.9 6.7 Exports, goods and services 4.1 13.9 4.9 2.1 3.1 4.1 Imports, goods and services 3.3 15.8 2.2 3.0 3.5 4.5 Real GDP growth, at constant factor prices 3.1 2.6 8.3 4.9 5.4 5.9 Agriculture 3.0 3.3 3.4 2.2 2.2 2.1 Industry 4.4 3.6 7.8 6.6 7.4 7.3 Services 2.0 1.6 10.0 4.2 4.4 5.7 Inflation (consumer price index) 3.2 1.8 3.1 4.5 3.5 3.0 Current account balance (% of GDP) 4.3 -1.0 -0.3 0.2 0.5 1.0 Net foreign direct investment inflow (% of GDP) 4.4 4.2 3.7 4.2 4.2 4.0 Fiscal balance (% of GDP) -2.9 -3.4 -3.6 -0.7 -0.3 -0.2 Revenues (% of GDP) 18.4 18.4 19.1 18.6 19.7 19.3 Debt (% of GDP) 41.3 39.3 34.7 36.0 35.2 34.4 Primary balance (% of GDP) -1.5 -2.2 -2.4 0.3 0.8 0.8 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.6 0.5 0.5 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.8 3.7 3.2 3.0 2.8 2.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 18.7 18.3 16.8 16.0 15.0 14.1 GHG emissions growth (mtCO2e) 3.0 2.6 6.9 4.5 4.9 5.6 Energy related GHG emissions (% of total) 65.1 64.7 65.3 64.9 64.6 64.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2016-VHLSS and 2020-VHLSS. Actual data: 2020. Nowcast: 2021-2022. Forecasts are from 2023 to 2025. b/ Projection using annualized elasticity (2016-2020) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 35 Oct 23 Macro Poverty Outlook 10 / 2023