East Asia and the Pacific Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Spring Meetings 2024 © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. East Asia and the Pacific 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 Apr 24 underpinned an estimated real growth rate of 5.4 percent in 2023. In 2023, internation- CAMBODIA Key conditions and al tourist arrivals quickly rebounded, reaching 5.5 million, representing 82.5 per- challenges cent of 2019’s level. The agriculture sector, especially crop production, continued to Table 1 2023 Despite external headwinds, Cambodia’s be resilient, rising to 36.8 million metric Population, million 16.9 economic recovery continues, although tons or 6 percent y/y in 2023. Within the GDP, current US$ billion 31.8 growth remains at a slower pace than during industry sector, the garment, travel goods, GDP per capita, current US$ 1876.0 the pre-COVID-19 period. The recovery is and footwear (GTF) manufacturing indus- a 110.0 School enrollment, primary (% gross) largely underpinned by a revival of services tries’ performance was subdued, caused a 69.6 and goods exports, which are contributing by the slowdown in global demand. How- Life expectancy at birth, years Total GHG emissions (mtCO2e) 77.1 to a partial reversal of the pandemic-related ever, the non-GTF industries, which in- Source: WDI, Macro Poverty Outlook, and official data. increase in poverty. In 2023, services ex- clude vehicle, electronic, and electrical a/ WDI for School enrollment (2022); Life expectancy ports improved with international tourist component manufacturing, expanded. (2021). arrivals increasing at 140 percent year-on- Compared to pre-pandemic levels, in 2023, year (y/y), while goods exports also ex- merchandise exports reached 160 percent panded, rising by 5 percent y/y. of 2019’s level or US$23.6 billion, boosted Goods imports, however, shrank, contracting by non-GTF product exports. Merchandise Despite continued external headwinds, by 18.5 percent y/y in 2023, caused by subdued imports also expanded, but at a slower domestic demand with stalled construction ac- pace, reaching 120 percent of 2019’s level Cambodia’s economic recovery and tivity. Thedeclineinthetradedeficit,together or US$24.4 billion caused mainly by sub- poverty reduction continue. This year’s with rising remittances and tourism receipts, dued imports of durable goods and con- economic growth is projected to margin- helped to improve the current account bal- struction materials as private consumption ally improve to 5.8 percent, driven ance, which is estimated to have reached an eased and construction activity stalled. mainly by a revival of services and unprecedented surplus of 2.4 percent of GDP This helped to improve the trade balance. in 2023. This helped ease pressures on the ex- Better external sector performance helped goods exports. This is expected to par- change rate, while inflation remained con- maintain the exchange rate, which hovered tially reverse the pandemic-related in- tainedasfoodandoilpricesmoderated. around riel 4,100 per U.S. dollar while crease in poverty. Downside risks include High global interest rates and decelerating boosting gross international reserves to weaker-than-expected global demand, credit growth continue to affect Cambo- reach US$19.9 billion - an 11.7 percent y/y dia’s financial sector, which is showing increase in 2023 and equivalent to about 7 global financial stress amid elevated debt signs of deleveraging. months of imports. The economic recovery and high borrowing costs, and a slower- supported job creation, while subdued in- than-anticipated recovery in China. Do- flation which was contained at 2.7 percent mestically, a faster-than-expected increase y/y in December 2023 maintained house- in non-performing loans could affect Recent developments hold purchasing power. To spur economic growth, the central macro-financial stability as the housing The recovery of the service sector and bank cut the foreign currency reserve re- market correction continues. the resilience of the agriculture sector quirement ratio by 2 percent, the largest FIGURE 1 Cambodia / Real GDP growth and contributions FIGURE 2 Cambodia / Merchandise exports, levels and to real sectoral growth growth rate Percent, percentage points US$ million Percent change y/y 10 2,000 70 Projections 8 60 5.8 6.1 6.4 50 6 1,500 40 4 30 2 1,000 20 10 0 0 -2 500 -10 -4 -20 2011 2013 2015 2017 2019 2021 2023e 2025p 0 -30 Agriculture Industry Services Net Taxes on Production Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Real growth GTF Non-GTF Growth of total exports (rhs) 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 Apr 24 cut during the post-pandemic period, to on goods and services, especially value- 7 percent in December 2023. Indicating added taxes, excises, and duties on im- improvements in capital inflows, broad ports, declined with softening imports. Outlook money once again expanded, growing at In contrast, government expenditure re- 12.5 percent in 2023, up from 8.2 per- mained elevated, rising to 27.9 percent This year’s economic growth is projected cent in 2022 as foreign currency deposit in 2023, driven by civil servant wage to marginally improve to 5.8 percent, dri- growth picked up. Meanwhile, the val- increases and election-related spending. ven mainly by a continued revival of ser- ue of approved FDI-financed investment As a result, the fiscal deficit (including vices and goods exports. The recovery, in (outside special economic zones) under grants) is estimated to have widened to conjunction with continued social assis- the qualified investment project scheme 6.4 percent of GDP in 2023. However, tance programs, should translate into a de- grew at a staggering 130.6 percent y/y government deposits (fiscal reserves) re- cline in poverty, reversing part of the likely in 2023. However, stalled construction mained healthy at 16.4 percent of GDP increase in poverty in 2020 and 2021. activity reduced demand for domestic in 2023 and public debt is low at 35 per- Real growth is projected to reach 6.1 per- credit, which decelerated to a 4.1 per- cent of GDP. cent and 6.4 percent in 2025 and 2026, re- cent y/y increase in 2023, a 20-year Household income and consumption fell spectively. The tourism and hospitality in- low, down from an 18.9 percent y/y in- between 2019/20 and 2021, with the de- dustries are likely to accelerate further, crease in 2022. High global interest rates cline in income per capita (5 percent) with a projected increase in international squeezed the returns on assets of the outpacing consumption per capita de- arrivals, reaching and surpassing the pre- banking and microfinance (MFI) sectors, cline (20 percent) over this period. The pandemic levels in the coming years, while which declined to 3.8 percent and 6.0 wide gap between income and consump- goods exports and FDI inflows are expect- percent in 2023, respectively, down from tion likely reflects two factors: travel re- ed to be further strengthened by the newly 7.0 percent and 17.6 percent in 2022, re- strictions and lockdown imposed during ratified free trade agreements and a sub- spectively. In parallel, the non-perform- the pandemic reduced household spend- stantial increase in private and public in- ing loan ratios rose to 5.4 percent and ing opportunities, and uncertainty re- vestment in key physical infrastructure. 6.7 percent in 2023, for Banks and MFIs, garding future incomes due to the pan- Downside risks include weaker-than-ex- respectively, up from 2.2 percent and demic led to increased savings. In ad- pected global demand, global financial 2.6 percent in 2022, respectively. dition, jobs in the manufacturing sector stress amid elevated debt and high borrow- Government revenue, which was buoyed rose, boosted by the increase in jobs in ing costs, and slower-than-anticipated re- by a short-lived, post-COVID consumer the non-GTF manufacturing industries. covery in China. Domestically, a faster- spending boom in 2022, significantly Jobs in the formal manufacturing sec- than-expected increase in non-performing eased and is estimated to have reached tor increased to 1.04 million in 2023, up loans could affect macro-financial stability only 20.3 percent of GDP in 2023. Taxes from 1.02 million in 2022. as the housing market correction continues. TABLE 2 Cambodia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.0 5.2 5.4 5.8 6.1 6.4 Private consumption -0.7 33.0 -16.1 2.2 7.3 7.3 Government consumption -28.3 23.3 10.5 10.7 0.7 1.1 Gross fixed capital investment 66.3 33.3 -24.8 -10.5 -20.9 -15.8 Exports, goods and services 13.5 20.7 6.9 10.3 14.3 16.9 Imports, goods and services 23.1 40.3 -12.4 3.8 7.6 12.7 Real GDP growth, at constant factor prices 2.9 5.1 5.4 5.9 6.1 6.4 Agriculture 1.2 0.7 1.4 1.4 1.4 1.5 Industry 9.4 8.3 4.8 7.4 7.7 8.1 Services -2.7 3.5 8.0 6.1 6.3 6.4 Inflation (consumer price index) 2.8 5.5 3.0 2.8 2.7 3.0 Current account balance (% of GDP) -39.7 -25.5 2.4 3.4 3.4 3.6 Net foreign direct investment inflow (% of GDP) 12.6 11.7 11.4 10.4 10.2 9.4 Fiscal balance (% of GDP) -7.2 -4.5 -6.5 -5.9 -4.3 -3.8 Revenues (% of GDP) 22.0 23.7 21.4 22.0 22.6 22.8 Debt (% of GDP) 36.3 37.0 34.8 35.8 35.3 35.1 Primary balance (% of GDP) -6.5 -4.0 -5.9 -5.3 -3.8 -3.3 GHG emissions growth (mtCO2e) 0.6 1.1 1.2 1.3 1.3 1.3 Energy related GHG emissions (% of total) 19.4 20.0 20.5 21.1 21.7 22.2 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 Apr 24 operating Australia’s Regional Processing Centre (RPC) for asylum-seekers. How- CENTRAL Key conditions and ever, phosphate deposits are heavily de- pleted and fishing revenues are volatile. challenges PACIFIC ISLANDS The RPC was to go on standby in 2023 but remains active due to recent asylum The Central Pacific faces major develop- seekers arrivals. In FY23, income from ment challenges due to exogenous fac- the RPC-related activities constituted 64 Table 1 KIR NRU TUV tors like climate change, small size, and percent of fiscal revenues and 92 percent Population, million 0.13 0.01 0.01 remoteness; and endogenous forces like of GDP. With RPC earnings uncertain, GDP, current US$ billion 0.22 0.15 0.06 concentrated, import-reliant, and volatile Nauru must find alternative sources of GDP per capita, current US$ 1702 11914 4908 economies. All three countries have trust growth. The latest IMF Debt Sustain- LMIC poverty rate ($3.65) 19.5 a b 20.9 19.6 c funds to stabilize volatile revenues and ability Assessment of September 2023 Gini index a b c finance long-term development. Howev- found public debt, accounting for 20.2 27.8 32.4 39.1 er, they all must diversify public rev- percent of GDP, to be sustainable. Re- Source: WDI, World Bank, and official data. Notes: The actual year for the table data is 2022. enues to reduce volatility and fund high cently Nauru has significantly reduced Abbreviations: LMIC = Lower middle-income; recurrent spending. domestic and external liabilities. It grap- KIR = Kiribati; NRU = Nauru; TUV = Tuvalu. Kiribati has a highly centralized economy, ples with environmental challenges from a/ Most recent value (2019), 2017 PPPs. b/ Most recent value (2012), 2017 PPPs. with public expenditure at 105 percent of climate change and the legacy of phos- c/ Most recent value (2010), 2017 PPPs. GDP in 2023. Recurrent spending is rapid- phate mining. A persistent effort to reha- ly expanding, particularly on public bilitate extensive former mine sites at the wages, social protection, and the copra center of the island remains a priority. subsidy. While this has benefited the coun- Tuvalu’s size, extreme remoteness, high try’s poor, it is distorting goods and labor import dependence, and vulnerability to markets, and creating fiscal imbalances as external shocks pose significant challenges In Kiribati, a large increase in public sec- volatile fishing license fees account for to development. Weak growth and widen- tor wages will support growth but add to over two-thirds of revenues. The IMF- ing fiscal deficits are forecast over the fiscal imbalances. In Tuvalu, the 2024 World Bank Debt Sustainability Analysis medium term due to declining fishing rev- Falepili Union Treaty now allows Tuval- from September 2023 concludes that, at 15 enues and official grants. This is projected percent of GDP, Kiribati’s external debt is to deplete sovereign wealth funds, which uans to emigrate to Australia, and this sustainable, but at high risk of debt dis- have already shrunk due to weak global will shape development priorities. Nauru tress. To address these challenges, Kiribati market returns. When these funds can no faces pressing financial risks as the only must contain recurrent spending, foster longer finance fiscal deficits the Govern- bank in the country plans to exit in 2024. private enterprise, and stabilize fiscal rev- ment plans to seek concessional external fi- enues using their sovereign wealth fund. nancing. The 2023 IMF-World Bank DSA Key challenges for growth and poverty re- Nauru must adapt to diminishing fiscal rev- assesses Tuvalu’s public debt, at 2.3 per- duction include a narrow economic base enues and identify new sources of growth in cent of GDP, to be sustainable but at high and vulnerability to climate change. the medium term. Public revenues, econom- risk of distress. Structural reforms are es- ic growth, and employment have historical- sential to promote resilience, sustain ly relied on phosphate mining, fishing, and growth, and encourage diversification. 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) 160 400 25000 140 350 120 20000 100 300 80 250 15000 60 200 40 20 150 10000 0 100 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, World Bank and IMF staff estimates and projections. Sources: Country authorities, World Bank and IMF staff estimates and projections. Notes: Nauru data are June years; Kiribati and Tuvalu are calendar years. Notes: Nauru data are June years; Kiribati and Tuvalu are calendar years. The Nauru Trust Fund was established in 2016. MPO 4 Apr 24 reopening in December 2022, allowing is to replace Bendigo Bank, the only bank infrastructure projects, and development in the country, which will exit by Decem- Recent developments partner support to resume. Inflation ber 2024. In the medium term, the winding slowed in 2023 but remains elevated at 7.2 down of the RPC requires Nauru to tighten In Kiribati, strong fishing revenues due to percent compared to 12.1 percent in 2022, fiscal spending and diversify its economic favorable weather conditions and the reflecting global developments. The fiscal base, for example through tourism, labor Phoenix Islands Protected Area reopening surplus of 1.1 percent of GDP in 2023 was mobility schemes, or expanding fishing lifted growth to 4.2 percent in 2023. In- largely due to increased donor funds. The revenues. The installation of the East Mi- flation reached 9.2 percent, due to higher total value of Tuvalu’s sovereign wealth cronesian Internet Cable in 2026 offers the food, beverage, and transportation prices funds decreased from 311 to 261 percent of opportunity to exploit its favorable time in the first half of the year. Growth is es- GDP between 2022 and 2023 due to global zone between Asia and the Americas, Eng- timated to have reduced poverty to 18.3 financial market returns. lish language, and widespread literacy, by percent in 2022 (US$3.65 lower-middle-in- providing online services. A new port pro- come line), below 19.5 percent in 2019. Do- vides opportunities for transshipment and mestic demand continues to be supported local value-addition to fishing products, by high recurrent spending on public Outlook but the donor-funded project is facing wages, social protection, and the copra heavy delays and cost overruns. subsidy. In 2023 this led to a fiscal deficit In Kiribati, growth is expected to increase to In Tuvalu, economic growth is projected of approximately 4 percent of GDP after 5.6 percent in 2024 due to a 38 percent in- to gradually soften to 2.2 percent by 2026 budget support. The RERF was worth 330 crease in public sector wages. This makes as gains from border re-opening subside percent of GDP in December 2023, down Kiribati a regional outlier in the share of and capital investment growth normalizes. from 370 percent in 2019 due to weak in- GDP spent on public employment, and cre- Growth is expected to be driven by con- vestment returns and GDP growth. ates fiscal imbalances. The wage rise was struction, hotels, finance, and public ad- In Nauru, the economy is estimated to have funded by loosening the RERF withdrawal ministration. The 2023 Australia-Tuvalu grown by 0.6 percent in FY23. Inflation was policy and risks depleting its balance over Falepili Union Treaty, where Australia will 6.3 percent, lifted by global factors and high- time. A rule that withdraws up to 3 percent provide a human mobility pathway for Tu- er transport costs. The fiscal surplus de- of the fund each year would allow annual valuans, is expected to impact migration, clined to 8.3 percent of GDP due to lower withdrawals, make budgeting easier, and remittances, and development over the RPC-related activities. This allowed the grow the real value of the fund over time. medium to long term. Inflation is expected Government to pass four supplementary The RERF could also be used to smooth to moderate to 3.2 percent by 2026 as glob- budgets to give extra support to SOEs and volatile revenues from fishing license fees, al inflation pressures and supply chain dis- public services, build cash buffers, and in- as is common in other resource-rich ruptions dissipate. Fiscal and current ac- vest in community housing. The Govern- economies. To boost shared prosperity, count deficits are projected over the medi- ment also made prepayments into the Inter- maintain its pace of poverty reduction, and um term as grants and fishing license fees generational Trust Fund which was 122 per- remove distortions that inhibit private sec- gradually decline. This will be financed by cent of GDP in June 2023, up from 111 per- tor activity, Kiribati should rationalize pub- drawing down the sovereign wealth cent in June 2022. A new Household Income lic wages and redirect copra subsidies to- funds, which are projected to decline to and Expenditure Survey will be collected wards targeting social protection and in- 229 percent of GDP over the medium term. between March 2024 and March 2025, which vesting in human capital. Further rises in re- Risks to the Central Pacific outlook are will enable living standards and other key current spending could jeopardize the substantial and include high global infla- socioeconomic indicators to be monitored. country's fiscal responsibility rules. tion and slowing global growth; shocks to In Tuvalu, growth is estimated to have In Nauru FY24 GDP growth is projected global commodity prices; volatile revenue reached 3.9 percent in 2023 from an av- to recover to 1.4 percent due to govern- flows, including grants from development erage of -0.6 percent in 2020-2022. This ment spending financed by better fishing partners; and the ever-present threat of cli- strong rebound is due to the border and RPC revenues. A pressing challenge mate-related natural disasters. TABLE 2 Central Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices Kiribati 8.5 3.9 4.2 5.6 2.0 2.1 Nauru 7.2 2.8 0.6 1.4 1.2 1.0 Tuvalu 1.8 0.7 3.9 3.5 2.4 2.2 Poverty rates of Kiribati a,b International poverty rate ($2.15 in 2017 PPP) 1.3 1.2 1.1 0.9 0.9 0.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 16.6 15.5 13.9 12.6 12.5 12.2 a,b Upper-middle income poverty rate ($6.85 in 2017 PPP) 66.6 65.3 63.2 59.5 59.2 59.0 Sources: World Bank and IMF. Notes: e = estimate; f = forecast. Country authorities and World Bank and IMF staff estimates. Nauru data are based on the fiscal year ended June. Kiribati and Tuvalu are calendar years. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 5 Apr 24 in 2023. Services demand, public infra- structure, and manufacturing investment CHINA Key conditions and contributed to the recovery in 2023, but the property market slump and subdued challenges exports weighed on growth. While hous- ing demand remains depressed, con- Table 1 2023 Domestic demand in China has remained sumer spending has been relatively re- Population, million 1411.9 sluggish and contributed to low inflation, silient in recent months. GDP, current US$ billion 17469.3 while the policy space for stimulus is con- The authorities have provided moderate GDP per capita, current US$ 12373.1 strained. Weak business confidence, in part macroeconomic stimulus. Monetary policy a 0.1 International poverty rate ($2.15) driven by the property market downturn, has been eased with reductions in the pol- a 2.0 has weighed on growth. At the same time, icy rates and the required reserves ratio Lower middle-income poverty rate ($3.65) a 24.7 the scope for monetary easing is limited by for banks and liquidity provision through Upper middle-income poverty rate ($6.85) Gini index a 37.1 the risk of exchange rate depreciation and the targeted credit support by the central School enrollment, primary (% gross) b 100.2 capital outflows while high debt has con- bank. The government provided modest b 78.2 strained the ability of some local govern- fiscal stimulus; however, many local gov- Life expectancy at birth, years ments to provide fiscal stimulus. ernments face financing constraints, limit- Total GHG emissions (mtCO2e) 13705.3 Over the medium term, economic growth ing the size of fiscal support. The authori- Source: WDI, Macro Poverty Outlook, and official data. is projected to further moderate due to ties have also reinforced high-level policy a/ Most recent value (2020), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy slowing productivity growth, diminish- commitment to level the playing field for (2021). ing returns to capital, and a shrinking private and foreign firms. working-age population. A more chal- Weak housing demand and high develop- lenging external environment and geo- er debt continue to constrain the property economic fragmentation also cloud Chi- sector. Despite lower mortgage rates and Following moderate post-pandemic na’s medium-term growth prospects. A downpayment ratios, housing demand re- firm commitment to and sustained im- mains weak and property prices continue growth of 5.2 percent in 2023, growth plementation of structural reforms would to fall. Meanwhile, property developers is projected at 4.5 percent in 2024. shore up sentiment and revive growth continued to face funding pressures, lead- Macroeconomic policies remain support- momentum this year while also reinforc- ing more than 20 percent contraction in ive of growth but the downturn in the ing new drivers of growth, including in housing starts in 2023. the service and green economy. Higher economic growth in 2023 lifted 30 property sector and weak business confi- million people out of poverty defined by dence weigh on domestic demand. the upper middle-income country line Poverty reduction, measured by the used by the World Bank ($6.85/day in 2017 World Bank poverty line for upper mid- Recent developments PPP). Though this is higher than the 21 dle-income countries is expected to con- million people who exited poverty using Economic activity picked up in 2023 fol- the same threshold in 2022, the overall tinue but at a slower pace in line with lowing the post-pandemic reopening, but pace of poverty reduction is still slower more moderate growth. the rebound was uneven. GDP growth than in the pre-pandemic years. Wage and rose from 3.0 percent in 2022 to 5.2 percent property income growth picked up in 2023 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 100000 8 90000 35 7 80000 6 30 70000 5 25 60000 4 20 50000 3 15 40000 2 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 2026 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 Apr 24 but was slower than the pre-pandemic dampen real estate investment, the real- slower pace of reform, and rising trade trend. Another income category that re- location of investment from real estate to protectionism. While the investment shift mains significantly affected by macroeco- manufacturing is likely to continue, due from real estate towards manufacturing nomic uncertainty is business income, to rising demand for low carbon technolo- has led to short-term improvement in the which accounts for around 16 percent gies and government support. Moreover, efficiency of capital allocation, there is of household income on average. The moderate fiscal expansion is expected to some risk that the rapid scale-up of in- volatility of business income growth (as support near-term growth. On the external vestment and growing state support measured by its coefficient-of-variation) side, export growth is expected to improve could lead to overcapacity and inefficien- over the 2022-2023 period jumped eight- on the back of a recovery of global trade, cy in certain sectors. On the upside, de- fold in comparison to the two years pre- while import growth is expected to decel- cisive policy actions, including larger fis- ceding the pandemic onset and likely rep- erate amid softer domestic demand. cal stimulus, faster restructuring in the resents an important drag on household Growth is projected at 4.3 percent in 2025 property sector, and measures to improve consumption growth. and 4.1 percent in 2026, in line with its market competition, could enhance busi- long-term potential. Consumer price infla- ness sentiment and lead to a higher-than- tion is expected to gradually increase to expected growth. 1.0 percent in 2024, as the output gap nar- Lower projected growth rates in the outer Outlook rows and the base effects of high commod- years will also weigh on the pace of pover- ity prices in 2023 fade. ty reduction which is expected to slow in Economic growth is projected at 4.5 per- Risks to the outlook are broadly balanced. 2024 and 2025. The poverty rate at the up- cent in 2024. Post-COVID pent-up con- Downside risks stem from a longer-than- per-middle income country line is expect- sumer demand has dissipated. While the expected contraction of the property sec- ed to fall to 15.3 and 13.6 percent for 2024 property sector downturn continues to tor, prolonged weakness in confidence, and 2025, respectively. TABLE 2 China / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 8.4 3.0 5.2 4.5 4.3 4.1 Private consumption 11.7 0.5 10.1 6.2 5.6 5.4 Government consumption 3.3 4.8 2.9 3.3 2.9 2.8 Gross fixed capital investment 3.1 3.3 3.7 4.1 4.0 3.7 Exports, goods and services 18.4 -2.3 -0.1 1.6 2.0 2.0 Imports, goods and services 10.3 -6.0 3.6 2.8 2.7 2.7 Real GDP growth, at constant factor prices 8.4 3.0 5.3 4.5 4.3 4.1 Agriculture 7.1 4.2 4.1 3.0 3.0 3.0 Industry 8.7 2.6 4.7 3.4 3.2 3.2 Services 8.5 3.0 5.8 5.5 5.2 4.8 Inflation (consumer price index) 0.9 2.0 0.2 1.0 1.5 2.0 Current account balance (% of GDP) 2.0 2.2 1.5 0.8 0.5 0.2 Net foreign direct investment inflow (% of GDP) 0.9 0.2 -0.9 -0.6 -0.3 0.1 a Fiscal balance (% of GDP) -4.0 -6.3 -5.8 -6.4 -4.4 -4.1 Revenues (% of GDP) 35.2 32.5 32.8 30.4 31.5 29.8 Debt (% of GDP) 46.9 50.4 54.2 57.5 58.7 55.5 Primary balance (% of GDP) -3.0 -5.2 -4.7 -5.4 -3.4 -3.2 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) 1.3 1.1 0.8 0.6 0.5 0.4 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 20.8 19.3 17.2 15.3 13.6 12.1 GHG emissions growth (mtCO2e) 5.4 3.1 2.6 2.9 3.1 3.1 Energy related GHG emissions (% of total) 82.6 82.7 82.8 82.9 83.0 83.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The adjusted fiscal balance adds up the public finance budget, the government fund budget, the state capital management fund budget and the social security fund budget. b/ Last grouped data available to calculate poverty is for 2020 provided by NBS. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2020) with pass-through = 0.85 based on GDP per capita in constant LCU. MPO 7 Apr 24 standards of living. The 2019-20 House- hold Income and Expenditure Survey FIJI Key conditions and (HIES) estimated the incidence of ex- treme poverty at 1.3 percent, which is in challenges line with other UMICs. Extreme poverty is low but Fiji's standard of living is be- Table 1 2023 Fiji is a tropical island nation of 900,000 low its UMIC peers. The upper middle- Population, million 0.9 people in the South Pacific Ocean. It is income poverty rate is 52.6 percent, near- GDP, current US$ billion 5.4 the second largest economy in the Pacific, ly double the UMICs’ average of 23.5 GDP per capita, current US$ 5804.3 most industrially advanced, and the cen- percent in the same period. a 1.3 International poverty rate ($2.15) ter for re-exports. Its closest major trading a 12.4 partners, Australia and New Zealand, are Lower middle-income poverty rate ($3.65) a 52.6 around 3,000km away. An average of one Upper middle-income poverty rate ($6.85) Gini index a 30.7 tropical cyclone (TC) passes through the Recent developments School enrollment, primary (% gross) b 108.0 Fijian waters each year. Tourism remains b 67.1 the main driver of growth and a key The economy has fully recovered with a Life expectancy at birth, years source of foreign exchange earnings. Fiji 28 percent growth (cumulative) during Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2017 PPPs. is an upper middle-income country 2022-2023 on the back of a swift tourism b/ WDI for School enrollment (2022); Life expectancy (UMIC) and its size, remoteness, and in- rebound of 4 percent above 2019 levels (2021). creasing exposure to climate change re- by the end of 2023. Moreover, the coun- strain economic development. These tercyclical fiscal response to the pan- structural constraints are amplified by demic and a pick-up in domestic de- substantial obstacles, such as human cap- mand contributed to the strong recov- Output surpassed pre-pandemic levels in ital and connectivity deficiencies, and in- ery. About 50 percent of the 2022 and adequate infrastructure. 2023 growth came from accommodation, 2023, supported by tourist arrivals above Economic growth averaged 3.3 percent transport, manufacturing, wholesale, re- 2019 levels. Fiscal policy has shifted to- in 2010-19. While the economy has ful- tail and finance sectors. This quick re- wards revenue-based consolidation to re- ly recovered now, the pandemic left covery is estimated to have reduced duce high debt accumulated during the behind high debt with limited fiscal poverty by UMIC standards (US$6.85 in pandemic. Growth is expected to revert to buffers for future shocks. Post-pan- 2017 PPP) from 67.2 percent in 2021 to demic, Fiji successfully reduced its fis- 52.1 percent in 2023. its long-term average of 3.3 percent over cal deficit considerably attributed to Inflation in Fiji has generally been much the medium term. Risks to the outlook in- the gradual phasing out of stimulus lower than elsewhere in the world ow- clude tropical cyclones and elevated com- measures and increased domestic rev- ing to price controls and various mit- modity prices. Structural reforms and di- enues. Additional efforts are required igation measures. The consolidation of to diminish fiscal deficits and address 9 percent and 15 percent VAT rates in versification beyond tourism are critical vulnerabilities associated with elevated August 2023, and higher import prices to enhance growth and reduce poverty. debt levels. and tariff rates led to a 5.1 percent (y/ Fiji had a poverty rate of 24.1 percent y) headline inflation in December, the in 2019/2020 as defined by the national highest in the last decade. However, 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) 25 80 14000 20 Agriculture 70 12000 Industry 15 60 Services 10000 10 Real GDP 50 8000 5 40 0 6000 30 -5 4000 20 -10 10 2000 -15 0 0 -20 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance, IMF, and World Bank staff estimates. Source: World Bank. Notes: see Table 2. Note: 2023(p) - p stands for provisional. MPO 8 Apr 24 it fell to 3.6 percent in January 2024, above 7 percent reflecting a decline in of- partially due to the diminishing impact ficial grants despite steady tourism earn- of tax changes and lower global food Outlook ings and remittances. Remittances are ex- prices. Monetary policy remains accom- pected to be above a tenth of GDP. The modative to support growth with the Growth is poised to decelerate in the medi- current account deficit will be largely fi- overnight policy rate maintained at 0.25 um term and is projected to average 3.3 nanced by official borrowing. Foreign re- percent since 2020. percent in 2025-2026, supported by manu- serves are projected to remain adequate The current account deficit decreased to facturing, wholesale and retail trade, and over the medium term at above 4 months 5.5 percent of GDP in 2023 due to an in- finance sectors. This deceleration comes as of retained imports. crease in tourism receipts and remittances, the initial post-pandemic demand boost The fiscal deficit is expected to narrow to partially from Fijians in various labor mo- for tourism gradually subsides and new 4.5 percent of GDP by 2026 due to revenue- bility schemes in Australia/New Zealand. source markets are constrained by limited generating reforms and expenditure ratio- Foreign reserves remained at a comfort- hotel capacity. However, strategic mea- nalization. The Government intends to re- able level of 5.7 months of retained imports sures such as diversifying beyond tourism, view the tax expenditure, advance the in- as of the end of 2023. enhancing infrastructure resilience and vestment appraisal and selection process, The fiscal deficit declined to 5.1 percent adaptation, investing in human capital, and freeze nominal spending over the of GDP in 2023 from an average of and harnessing talent are expected to be medium term. Public debt is projected to 11.6 percent in 2020-22 due to high drivers of sustained growth. stay around 80 percent by 2026. The World tax buoyancy and lower capital trans- The growth outlook is expected to reduce Bank Debt Sustainability Analysis 2024 as- fers. Gains from revenue measures in- poverty to below pre-pandemic levels to sesses public debt as sustainable but sub- troduced in 2023 were around 3.3 per- 49.9 percent in 2024 (compared to 52.6 ject to considerable risks. cent of GDP but were partly offset percent in 2019). Strong rebound in Risks to the outlook include persistent out- through higher public spending. The tourism and remittances are expected to migration and skilled labor shortages, deficit was financed through external positively impact the poorest 40 percent. global commodity price shocks, and natur- concessional and domestic borrowing. Headline inflation is projected to converge al disasters. Structural reforms, economic Public debt fell to 80.6 percent of GDP to 3 percent over the medium term as glob- diversification, and fiscal consolidation are in 2023 because of declining primary bal- al inflationary pressures subside. The cur- essential for building resilience, enhancing ance and high growth. rent account deficit is projected to remain growth, and reducing poverty. TABLE 2 Fiji / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -4.9 20.0 8.0 3.5 3.3 3.3 Real GDP growth, at constant factor prices -3.4 15.7 8.0 3.5 3.3 3.3 Agriculture 0.8 4.1 2.3 2.9 3.4 3.7 Industry -6.7 5.7 15.3 5.9 4.4 4.4 Services -3.1 21.1 6.9 2.9 3.0 2.9 Inflation (consumer price index) 3.0 3.1 5.1 3.3 3.2 3.1 Current account balance (% of GDP) -15.9 -17.3 -5.5 -7.4 -7.8 -7.8 Fiscal balance (% of GDP) -11.7 -10.3 -5.1 -7.3 -5.9 -4.5 a,b International poverty rate ($2.15 in 2017 PPP) 3.7 1.8 1.2 1.0 0.8 0.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 21.9 14.6 12.2 11.4 10.8 10.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 67.2 57.1 52.1 49.9 48.2 46.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 9 Apr 24 The small twin deficits, low public debt, ad- equate foreign reserves, and stable external INDONESIA Key conditions and financing constitute though robust buffers to manage downside risks. The challenge is challenges to sustain macroeconomic fundamentals to deliver faster, greener, and more inclusive Table 1 2023 Indonesia has successfully navigated the growth. This requires combining the robust Population, million 281.7 macroeconomic fallout of a series of global macroeconomic policy framework with GDP, current US$ billion 1371.2 shocks. Growth remains resilient. Yet, the structural reforms that boost efficiency, GDP per capita, current US$ 4866.7 economy is still 6.9 percent smaller than competitiveness, and productivity growth. a 2.5 International poverty rate ($2.15) if it had grown at pre-pandemic rate. This This includes implementing complex flag- a 20.3 gap reflects scarring effects on invest- ship laws: the jobs creation, the tax harmo- Lower middle-income poverty rate ($3.65) a 60.5 ments, labor inputs, and productivity. It nization, and the financial sector omnibus. Upper middle-income poverty rate ($6.85) Gini index a 37.9 is consistent with labor market outcomes, School enrollment, primary (% gross) b 100.6 which shows a recovery in labor force par- b 67.6 ticipation and employment but a deterio- Life expectancy at birth, years Total GHG emissions (mtCO2e) 1537.6 ration in job quality, with growth concen- Recent developments trated in low-wage informal jobs especially Source: WDI, Macro Poverty Outlook, and official data. in the services sector. After a post-pandemic high of 5.3 percent a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy Inflation is on a declining trend and infla- in 2022, GDP growth normalized to 5 per- (2021). tion expectations are anchored within the cent in 2023. Fifty three percent of GDP Bank Indonesia target band. However ad- growth came from private consumption as verse climate conditions and geopolitical consumer confidence remained high, Indonesia’s growth remains resilient, tensions have raised prices for basic foods, buoyed by declining inflation. Budget ex- supported by domestic demand and the energy, and transport, prompting price ecution delays rendered government con- stabilization measures and food aid pro- sumption sluggish, while global uncertain- services sector. Prudent macroeconomic grams to ease the impact on the poor. De- ty and declining commodity prices affect- policies have enabled the country to spite food price inflation trending below ed international trade and softened com- build buffers, navigate multiple global global averages, disparities exist, with the modity windfalls throughout the year. Net shocks, and accelerate poverty reduction. poorest districts facing higher price pres- export contribution to growth remained sures due to geographic and logistic fac- steady at 0.7 ppts, with a shift in compo- However, productivity growth is falling, tors, as well as policy impacts. sition as exports strongly decelerated and limiting wage growth and middle-class Indonesia is entering a new political and imports declined. Private investment ac- financial security. Implementing compet- economic cycle. A new President and Parlia- counted for 26 percent of GDP, one of the itiveness enhancing reforms and ment were elected in February 2024 with highest in East Asia. Meanwhile, services, strengthening social safety nets are key campaign promises to increase social particularly in wholesale and retail trade, spending and tax collections. On the econo- transportation, tourism, and communica- to reversing the declining productivity tion sectors, drove 54 percent of economic my, the end of the commodity cycle boom cycle, expanding economic security, and and high global interest rates present strong activity growth. Manufacturing also con- boosting growth potential. headwinds and limit macro policy space. tributed a solid 19 percent. 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 60.0 90 6 50.0 80 4 70 40.0 60 2 50 30.0 0 40 20.0 30 -2 20 10.0 10 -4 2019 2020 2021 2022 2023 0 0.0 Private consumption Government consumption 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Investment Net exports International poverty rate Lower middle-income pov. rate Statistical discrepancy 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 Apr 24 Headline inflation moderated to an aver- Despite the late acceleration in public LMIC poverty line. Improving the effec- age of 3.7 percent in 2023, as the base effect spending, the fiscal deficit fell from 2.4 per- tiveness of existing social safety net pro- from the 2022 fuel price hike was ab- cent of GDP in 2022 to 1.7 percent in 2023, grams could substantially reduce poverty sorbed. The trend continued in 2024. In- mainly due to overperforming tax rev- further, while social assistance will help flation recorded 2.8 percent (year-on-year) enue, more prominently VAT, while ex- limit the disproportionate impact of recent in February despite intensifying food price penditures were slightly below the budget food price hikes on vulnerable households pressures. Core inflation also trended target. Interest payments reached 2.1 per- and support the government’s inclusive downward, signaling a potential widening cent of GDP, in line with rising financing growth targets. of the output gap. costs. Public debt declined to 39 percent of The fiscal deficit is projected to average 2.3 The recovery in private consumption, ris- GDP, with the majority of the stock in do- percent in 2024-26. Revenues to GDP are ing employment, and wage growth led to mestic currency (71.7 percent) and maturi- expected to pick up as the effects of tax re- a decline in the poverty rate from 20.3 per- ties above one year (87.6 percent), reducing forms materialize, while non-tax revenues cent in 2022 to 18.1 percent in 2023, mea- currency and rollover risks. are expected to ease in line with lower sured at the international lower-middle-in- commodity prices. Spending is expected to come countries (LMIC) poverty line. Using remain tight in 2024 but gradually return the national line, poverty decreased from to pre-pandemic levels. A potential fiscal 9.5 to 9.4 percent. However, the labor mar- Outlook expansion could take place as the new ad- ket recovery remains incomplete, with a ministration starts implementing its prior- larger share of jobs concentrated in the in- GDP growth is projected to average 5 ity programs in 2025. formal sector, reaching 59.3 percent of em- percent in 2024-26, reflecting softer terms The outlook is subject to downside risks. ployment in 2023, up 3.4 ppts from 2019. of trade and a normalization towards High-interest rates could weigh on bor- After two years of surpluses, the current trend growth. Inflation is forecast to ease rowing costs and tighten access to ex- account shifted in 2023 to a small deficit to a 2.9 percent average and remain with- ternal financing. Geopolitical uncertainty of 0.1 percent of GDP due to worsening in BI’s revised target band of 2.5±1 per- and climate change related shocks could terms of trade. With policy rates among cent. Challenges to the external position disrupt global value chains and induce the highest in East Asia, tight monetary are expected to intensify. The current ac- a sharper decline in terms of trade, re- policy and stable macroeconomic condi- count deficit will gradually expand to sulting possibly in lower revenues and a tions softened portfolio flow volatility. 1.4 percent of GDP by 2026, as lower tighter fiscal position. Domestically, the Meanwhile, FDI dropped but remained commodity prices and soft global growth economic program of the new administra- the largest source of external financing. hamper exports. tion, which takes office in October, will Foreign currency reserves stayed ade- By 2025, growth is expected to lift over have important implications for medium- quate, covering 6 months of imports. 8 million people above the international term growth and resilience. TABLE 2 Indonesia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.7 5.3 5.0 4.9 5.0 5.0 Private consumption 2.0 5.0 4.9 4.9 5.0 5.0 Government consumption 4.3 -4.5 2.9 4.8 3.5 3.5 Gross fixed capital investment 3.8 3.9 4.4 4.5 5.4 6.0 Exports, goods and services 18.0 16.2 1.3 4.1 4.0 3.5 Imports, goods and services 24.9 15.0 -1.6 2.1 3.0 3.5 Real GDP growth, at constant factor prices 3.3 4.9 5.1 4.9 5.0 5.0 Agriculture 1.9 2.3 1.3 3.7 3.0 3.0 Industry 3.4 4.1 5.0 4.1 4.1 4.1 Services 3.5 6.5 6.1 5.9 6.3 6.2 Inflation (consumer price index) 1.6 4.1 3.7 3.0 2.9 2.9 Current account balance (% of GDP) 0.3 1.0 -0.1 -0.7 -1.2 -1.4 Net foreign direct investment inflow (% of GDP) 1.5 1.4 1.1 1.3 1.4 1.5 Fiscal balance (% of GDP) -4.6 -2.4 -1.7 -2.2 -2.3 -2.3 Revenues (% of GDP) 11.8 13.5 13.3 12.9 13.1 13.2 Debt (% of GDP) 40.7 39.5 39.0 38.4 38.0 37.3 Primary balance (% of GDP) -2.5 -0.4 0.4 -0.2 -0.3 -0.3 a,b International poverty rate ($2.15 in 2017 PPP) 3.6 2.5 1.9 1.5 1.2 0.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 22.4 20.3 18.1 16.3 14.7 13.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 60.7 60.5 58.9 57.0 55.2 53.5 GHG emissions growth (mtCO2e) 1.1 0.9 2.1 2.1 1.7 1.2 Energy related GHG emissions (% of total) 37.5 37.6 38.1 38.5 38.8 39.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2011-SUSENAS and 2023-SUSENAS. Actual data: 2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2011-2023) with pass-through = 1 based on GDP per capita in constant LCU. MPO 11 Apr 24 LAO PDR Key conditions and Recent developments challenges Economic activity grew at 3.7 percent in 2023, benefiting from the services sector re- Table 1 2023 Tighter monetary and fiscal policies covery. Increased tourism, transport and Population, million 7.6 and renewed efforts to enforce for- logistics services, mining, and foreign in- GDP, current US$ billion 15.1 eign exchange restrictions have had vestment supported growth, while elec- GDP per capita, current US$ 1983.1 limited impacts on restoring macro- tricity generation was weighed down by a 7.1 International poverty rate ($2.15) economic stability. The Lao kip weather conditions. a 32.5 continued to depreciate (albeit more Persistent depreciation reflects foreign Lower middle-income poverty rate ($3.65) a 70.5 mildly since October ), while infla- exchange liquidity constraints. In 2023, Upper middle-income poverty rate ($6.85) Gini index a 38.8 tion remained high. Limited foreign the central bank tightened monetary pol- School enrollment, primary (% gross) b 97.2 exchange liquidity and hence a icy, closed foreign exchange bureaus, and b 68.1 weaker kip have put pressure on started to enforce the repatriation of ex- Life expectancy at birth, years external public debt servicing, port receipts. Despite these measures, Total GHG emissions (mtCO2e) 49.4 which constrains fiscal space and the Lao kip still depreciated by 23 per- Source: WDI, Macro Poverty Outlook, and official data. exacerbates financial sector vulner- cent against the US dollar during Jan- a/ Most recent value (2018), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy abilities. Sizeable debt service de- uary 2023-February 2024, with the par- (2021). ferrals during 2020-2023 have pro- allel market premium reaching 11 per- vided temporary relief, but access cent. This factor feeds into high inflation, to international capital markets re- which remained at 25 percent in Feb- mains constrained. Public and pub- ruary 2024, while core inflation reached Economic growth remains significantly licly guaranteed debt (PPG) reached 26 percent. Food and transport price in- 112 percent of GDP in 2022, mostly creases were the key drivers. below pre-Covid-19 levels, partly due to due to the large currency depreci- The fiscal deficit remained at 0.2 percent a protracted period of macroeconomic in- ation. This value rises to over 120 of GDP in 2023, owing to stronger rev- stability. The Lao kip continues to de- percent if a currency swap and ex- enue collection, while public spending preciate, while average annual inflation penditure arrears are included. Ex- slightly increased. Domestic revenue re- ternal debt service deferrals accumu- covered, supported by price and ex- is expected to remain above 20 percent lated to 16 percent of GDP in 2023. change rate effects, higher resources tax, for the third consecutive year. Economic Average annual external debt repay- fees, value added tax (tax base expan- growth is forecast to pick up to 4 per- ment obligations remain at $1.3 bil- sion and price effect). Excise revenue cent in 2024, in a context of high eco- lion (9 percent of GDP) in the medi- was stable (as a share of GDP), as high- nomic uncertainty and limited reform um term. Therefore, a positive out- er volume sales, price increases, and come from ongoing debt renegotia- some rate increases were offset by lower progress. Progress in poverty reduction tions with large bilateral creditors is fuel excise rates. Public spending rose is estimated to have stalled in 2023. crucial to restoring debt sustainabili- slightly as higher capital spending and ty and economic growth. transfers more than offset a decline in 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 -2 10 2016 2017 2018 2019 2020 2021 2022 2023 2024 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 Apr 24 wages. Interest payments remained sta- swap, is expected to remain thin (covering ble (as a share of GDP), supported by less than two months of imports). the deferrals. Outlook The outlook is subject to significant domes- The current account deficit narrowed tic and external uncertainty. Limited foreign in 2023, supported by strong services Real GDP is projected to grow by 4 percent reserves, high public debt, and higher im- exports and lower primary income in 2024, led by a continued service sector ports will continue to pressure the kip and outflows. Foreign investment recov- recovery. This outlook assumes continued thus inflation, undermining household con- ered strongly, supported by invest- suspension of deferred debt service repay- sumption and investments in human capi- ment in the resource sectors. Gross ments. Inflation is expected to remain tal. Labour shortages could also threaten foreign reserves were reported at $1.8 above 20 percent, reflecting continued de- labour-intensive sector growth. Subdued billion in October 2023. Excluding the preciation pressure. Macroeconomic sta- global and regional economic growth $900 million swap arrangement, net re- bility is contingent on critical revenue re- would weaken external demand. Domestic serves is estimated to cover only 1.2 forms and a successful conclusion of ongo- risks include tight foreign exchange liquid- months of imports. ing debt negotiations. ity to refinance external debt, slow progress Employment improved in 2023. High in- Elevated debt service levels will con- with structural reforms, and deteriorating flation and a sharp currency depreciation tinue to constrain fiscal space. Revenue balance sheets in large banks. The outcome disproportionately affected wage employ- is expected to gradually increase with of ongoing debt negotiations will have sig- ment and non-farm businesses, incen- tax policy and administration improve- nificant implications for both debt sustain- tivising workers to switch from non-trad- ments, but high-interest obligations, if ability and macroeconomic stability. able service sectors to agriculture and fully paid, would crowd out other ex- High inflation will continue to affect real manufacturing. These shifts, coupled penditures. The outlook assumes a pri- household income. Macroeconomic insta- with increasing migration for higher mary surplus in the next few years, but bility will undermine the poverty outlook. wages, have caused labour shortages in no further deferrals in 2024 onward. As Despite the moderate growth, the poverty labour-intensive sectors. One-third of a consequence, the fiscal deficit is ex- rate is expected to remain steady in 2024. households saw their income stagnate pected to increase, reflecting full interest Meanwhile, a contraction in human capital or decline in 2023 and therefore were payments. External debt service obliga- spending will likely compromise prospects severely hit by the rising cost of living. tions average $1.3 billion per year dur- for poverty reduction in the long term. Food inflation stood high at 25 percent ing 2024-2027, keeping total public fi- Addressing macroeconomic instability re- in February 2024, forcing households to nancing needs high. quires five critical reforms: (i) restoring the reduce food consumption and switch to The current account deficit is expected to VAT rate to 10 percent, curbing tax exemp- cheaper food. Progress in poverty re- remain at around 3 percent, as improve- tions, and reforming health taxes; (ii) im- duction stalled, with the poverty rate ments in tourism, transport, and logistics proving the governance of public and pub- (measured at the lower-middle-income services, and remittances are offset by lic-private investments; (iii) finalising debt poverty line of $3.65 a day 2017 PPP) higher import and interest payments. De- negotiations; (iv) strengthening financial estimated to stagnate at around 32 per- spite the repatriation requirement of ex- sector stability; and (v) improving the cent in 2023. port proceeds, reserve adequacy, net of the business environment. TABLE 2 Lao PDR / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.5 2.7 3.7 4.0 4.1 4.1 Real GDP growth, at constant factor prices 2.5 2.7 3.7 4.0 4.1 4.1 Agriculture 2.3 1.6 2.4 2.7 3.1 3.1 Industry 7.6 3.3 2.6 3.6 3.4 3.3 Services -2.2 2.5 5.5 4.9 5.2 5.3 Inflation (consumer price index) 3.8 22.7 31.2 21.2 15.3 6.9 Current account balance (% of GDP) -2.9 -1.7 -1.3 -2.9 -3.5 -3.8 Fiscal balance (% of GDP) -1.3 -0.2 -0.2 -1.4 -1.5 -1.6 Revenues (% of GDP) 14.9 14.7 14.9 15.2 15.3 15.4 Debt (% of GDP) 77.9 95.9 95.2 94.7 94.1 93.7 Primary balance (% of GDP) 0.0 1.5 1.7 1.3 1.3 1.1 a,b International poverty rate ($2.15 in 2017 PPP) 7.0 6.9 6.8 6.7 6.6 6.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 32.0 31.9 31.7 31.4 31.1 30.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 70.0 69.9 69.6 69.3 69.0 68.7 GHG emissions growth (mtCO2e) 5.0 3.7 4.6 4.7 5.2 5.3 Energy related GHG emissions (% of total) 41.4 42.4 43.5 44.6 45.6 46.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2012-LECS and 2018-LECS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2012-2018) with pass-through = 0.5 based on GDP per capita in constant LCU. MPO 13 Apr 24 MALAYSIA Key conditions and Recent developments challenges Malaysia's economic growth moderated to 3.7 percent in 2023 (2022: 8.7 percent). Table 1 2023 Malaysia's economic growth moderated Domestic demand remained supportive Population, million 34.3 to 3.7 percent in 2023 (2022: 8.7 percent), of the economy. Private consumption GDP, current US$ billion 399.6 lower than the government’s target of continued to expand, albeit at a slower GDP per capita, current US$ 11648.7 4-5 percent. In 2024, growth is expected pace of 4.7 percent in 2023 (2022: 11.2 a 2.3 Upper middle-income poverty rate ($6.85) to pick up as the risk of a global re- percent), supported by continued im- a 40.7 cession recedes. The recovery in the provement in labor market conditions. Gini index b 97.8 tech cycle, which could boost electric Growth was also supported by the recov- School enrollment, primary (% gross) Life expectancy at birth, years b 74.9 and electronics (E&E) exports, could al- ery in the tourism sector, as the number Total GHG emissions (mtCO2e) 400.4 so have positive spillovers to growth. of tourist arrivals reached pre-pandem- However, growing geopolitical tensions ic levels. On the supply side, the con- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. could lead to supply disruptions, fur- struction and services sectors recorded b/ WDI for School enrollment (2022); Life expectancy ther weakening of external demand, and the highest growth, expanding at 6.1 per- (2021). rising commodity prices posing down- cent and 5.3 percent respectively (2022: side risks to the economy. 5 percent; 10.9 percent). Growth in the The narrowing of fiscal space remains manufacturing sector declined sharply to a key challenge for the government. 0.7 percent (2022: 8.1 percent) dragged The government recently announced down by a contraction in E&E manufac- Growth is expected to increase to 4.3 its plan to discontinue the pension turing, which contracted by 3.0 percent scheme for new civil servants and its (2022: 16.7 percent). percent in 2024, with domestic demand intention to review price controls and The external sector was significantly affect- continuing to be the main driver of subsidies in 2024. It has indicated that ed by the weaker external environment. growth. Narrow fiscal space remains a targeted subsidies to the public will After a marked expansion in 2022, gross key challenge for the economy, and the be given through direct cash transfers. exports contracted sharply by 7.9 percent PADU, the national household socioe- in 2023 (2022: 14.5 percent), reflecting the government has announced several conomic database, was launched as a slowdown in external demand, particular- spending efficiency measures, including foundation for identifying eligible ben- ly in E&E exports. Consequently, the cur- reviewing existing price controls and eficiaries. The details and timing for rent account surplus shrank to 1.2 percent subsidies. The incidence of national ab- the subsidies review, however, have of GDP in 2023 (2022: 3.1 percent). solute poverty in 2022 was still higher not been communicated. On the rev- Labor market conditions continued to im- enue front, the government introduced prove, with the unemployment rate declin- than the pre-pandemic level and remains several measures during the tabling of ing further to 3.3 percent in December 2023. a key focus for the government. Budget 2024, although the fiscal im- The labor force participation rate in Q4 2023 pact from these measures is expected remained stable at 70.1 percent (Q3 2023: to be marginal. 70.1 percent). Private sector nominal wages 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 Q1-2021 Q3-2021 Q1-2022 Q3-2022 Q1-2023 Q3-2023 0 0 Private Consumption Public Consumption 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 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 Apr 24 grew at a slower pace in Q4 2023, at 3.1 (2019: 5.6 percent). Using the international Growth is subject to several downside percent (Q3 2023: 3.4 percent). poverty line, at the upper-middle income risks. Global growth could be weaker Headline inflation continued to decline as line of $6.85 2017 PPP dollars a day, pover- than projected in the event of tighter cost pressures eased. In January 2024, in- ty fell to 2.3 percent in 2021 (2018: 3.4 per- monetary and financial conditions. Ris- flation stood at 1.5 percent. Core inflation cent). Meanwhile, inequality reduction has ing geopolitical tensions could also also moderated to 1.8 percent. The central stagnated. Income inequality, measured weaken external demand. Higher do- bank kept its overnight policy rate (OPR) by the Gini index based on household per mestic inflation and weaker real income at 3.00 percent in March and expects in- capita net income was 40.7 in 2021 (2018: growth could affect the strength of con- flation to remain modest as cost and de- 41.2). Different trends were observed sumption spending, especially for low- mand conditions stabilize. Monetary poli- across states, with some states experienc- income households. cy is deemed supportive of the economy. ing a widening in their income gap. Headline inflation is expected to moderate Despite the moderating inflation, lower-in- to around 2.5 percent in 2024, reflecting come households have experienced higher stable cost and demand conditions. This inflation. In December 2023, the inflation forecast, however, is subject to potential for the below RM3,000 (US$630) income Outlook changes in government subsidies and price group was 1.7 percent, above the headline control measures. Core inflation will also inflation of 1.5 percent, disproportionately Growth is forecasted to increase to 4.3 likely trend lower in 2024. impacting this group given their higher percent in 2024 on the expectation of a Poverty is expected to decline further. One spending on basic necessities. likely recovery in global growth and the of the government’s focuses is to improve In February, the ringgit remained on a de- easing of global financial conditions. Do- the people’s standard of living through di- preciating trend and was partly driven by mestic demand will continue to anchor rect cash transfers, apart from ensuring ac- Malaysia’s declining competitiveness. Sim- growth. Private consumption is expected cess to education, healthcare, and basic in- ilarly, the real effective exchange rate to grow by 5.2 percent (2023: 4.7 percent), frastructure. As announced recently, the (REER) has been on a downward trend, de- driven by supportive labor market condi- government’s target of zero hardcore preciating by 0.9 percent between July and tions and continuous household income poverty has been reached in some states. December 2023. support measures. Gross exports are pro- Nevertheless, a broader view and a more The latest official estimates show that the in- jected to grow by 4.8 percent (2023: -7.9 ambitious target of poverty eradication be- cidence of absolute poverty in 2022 re- percent), in tandem with the expected re- yond the current 0.2 percent of national mained higher than the pre-pandemic level covery in global trade. hardcore poverty is needed. TABLE 2 Malaysia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.3 8.7 3.7 4.3 4.4 4.3 Private consumption 1.9 11.2 4.7 5.2 5.4 5.4 Government consumption 6.4 4.5 3.9 2.8 1.5 1.2 Gross fixed capital investment -0.8 6.8 5.5 5.1 3.9 3.5 Exports, goods and services 18.5 14.5 -7.9 4.8 4.4 4.4 Imports, goods and services 21.2 15.9 -7.6 5.3 4.5 4.4 Real GDP growth, at constant factor prices 3.3 8.7 3.6 4.4 4.4 4.3 Agriculture -0.1 0.1 0.7 1.6 1.8 1.8 Industry 5.8 6.5 1.4 3.8 3.4 3.4 Services 2.1 11.3 5.4 5.1 5.4 5.2 Inflation (consumer price index) 2.5 3.3 2.6 2.5 2.5 2.1 Current account balance (% of GDP) 3.9 3.1 1.3 2.2 2.4 1.8 Net foreign direct investment inflow (% of GDP) 2.0 0.9 0.3 1.6 1.6 1.5 Fiscal balance (% of GDP) -6.4 -5.6 -5.0 -4.4 -3.6 -2.7 Revenues (% of GDP) 15.1 16.4 17.3 15.7 15.7 15.6 Debt (% of GDP) 63.3 60.3 64.3 63.9 64.5 64.4 Primary balance (% of GDP) -3.9 -3.2 -2.5 -1.8 -1.0 -0.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 2.3 1.7 1.5 1.4 1.2 1.0 GHG emissions growth (mtCO2e) 4.8 4.6 -0.6 1.4 1.8 2.0 Energy related GHG emissions (% of total) 64.4 65.6 65.1 65.4 65.8 66.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2022-HIS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.7 (Low (0.7)) based on private consumption per capita in constant LCU. MPO 15 Apr 24 MONGOLIA Key conditions and Recent developments challenges Despite the large contraction in agricul- tural production attributed to harsh Table 1 2023 While macro-fiscal conditions are improv- weather conditions, the economy Population, million 3.4 ing due to an ongoing mining exports achieved a robust growth rate of 7.1 per- GDP, current US$ billion 20.5 boom, without structural and fiscal re- cent in 2023. This economic expansion GDP per capita, current US$ 5956.6 forms to address the underlying fiscal vul- was mainly driven by coal mining and a 2.4 Lower middle-income poverty rate ($3.65) nerabilities and reduce the dependency on its related transportation services. Indeed, a 22.1 volatile mining, current positive develop- coal exports soared to unprecedented lev- Upper middle-income poverty rate ($6.85) a 31.4 ments could be short-lived. The current els in 2023, surging by 91 percent above Gini index School enrollment, primary (% gross) b 95.6 mining-led recovery, driven largely by ex- the pre-pandemic 2018-2019 average. This Life expectancy at birth, years b 71.0 ceptionally strong coal exports, while surge was primarily driven by China's Total GHG emissions (mtCO2e) 81.1 swift, has exacerbated existing climate and heightened demand for coal from Mon- development challenges, reinforcing the golia, aimed at replenishing stocks and Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2022), 2017 PPPs. importance of structural reforms to diver- bolstering China's steel exports, which b/ WDI for School enrollment (2022); Life expectancy sify the economy. Facing harsh weather heavily rely on coking coal as a key in- (2021). conditions for the second consecutive year, put. On the demand side, both public Mongolia's agriculture sector, pivotal for and private consumption supported the economic diversification, is under signifi- economy, spurred by rising household Mongolia's GDP growth is forecasted to re- cant risk, impacting economic growth, ele- income and the 2023 supplementary bud- main robust at 4.8 percent in 2024, despite vating domestic food prices, and hindering get, which increased public wages, pen- poverty reduction efforts in 2024. Driven sions, and social welfare benefits. Declin- adverse weather affecting the agricultural by a strong recovery in revenues, mainly ing inflation and rising wages boosted sector and a slowdown in coal exports from from coal exports, the government’s fiscal households’ real incomes, translating into the peak achieved in 2023. However, with position improved, resulting in a reduction a decrease in poverty in 2023. However, rising wages and pensions, the poverty in public debt. However, despite the coun- the labor market remains weaker than rate, measured at the lower-middle-in- try’s high exposure to external shocks, pol- in the pre-pandemic period with meager icy space to respond to future macroeco- employment growth and lower labor par- come poverty line, is projected to decrease nomic shocks remains limited given ele- ticipation rate. Headline inflation de- from 2.1 percent in 2023 to 1.9 percent in vated fiscal risks, including the offtake coal clined to 7.9 percent y-o-y in December 2024. Significant risks and challenges export contracts of Erdenes Tavan Tolgoi 2023, down from 16.9 percent in June persist, including renewed balance of pay- (a state-owned coal miner). Moreover, per- 2022, bolstering household purchasing sistent public spending pressures may power alongside higher household in- ment pressures, uncertainties in external reignite inflationary pressures, prop up come. The inflation rate of imported demand, and an overreliance on coal and demand for imports, and increase the risk goods decelerated as supply bottlenecks, other commodity exports. of “twin” fiscal and current account transportation costs, international energy deficits for this year. and food prices, as well as exchange rate 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 2023 2024 f 2025 f 2026 f 2010 2012 2014 2016 2018 2020 2022 2024 2026 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 Apr 24 depreciation eased. However, prices of slowdown is primarily attributed to a sig- commodity prices decline, elevated gov- domestically produced food, particularly nificant downturn in the agriculture sector ernment spending persists, and demand meat, remained elevated. caused by the dzud weather phenomenon, for imports builds. The fiscal balance recorded a surplus of characterized by extreme cold weather and Despite low poverty at the lower-middle- 2.6 percent of GDP, driven by robust rev- heavy snowfall, while growth in the ser- income line, several groups are still vulner- enue collection stemming from increased vices and mining sectors is expected to able to falling into poverty due to high in- coal exports and a thriving economy, re- persist, albeit at a slower rate. On the de- flation and recent climatic events. Rising sulting in a reduction in public debt, which mand side, net export growth is anticipat- food prices pose greater risks to poor non- stood at 44.1 percent of GDP by the end ed to undergo a downturn as coal exports agricultural households, who spend a larg- of 2023 (excluding the Bank of Mongolia’s revert to standard levels and imports of er share of their budget on purchased food. swap agreement with the People’s Bank of investment and consumer goods ascend. In addition, high reliance on agricultural China). The robust coal exports were par- Nevertheless, the growth trajectory for income among herder households means tially offset by increased imports of ser- 2024 is underpinned by robust private con- that the agricultural contraction can im- vices and consumption goods, leading to sumption and fiscal expansion including pede further poverty reduction. a modest current account surplus, the first augmented public wages, pensions, and In the medium term, growth is expected surplus since 2007. Gross international re- investment. Moreover, an anticipated to reach an average of 6.4 percent over serves stood at US$4.9 billion by end-2023, resurgence in private investments is bol- 2025-2026, driven by a substantial in- rebounding from their low of US$2.7 bil- stered by amplified lending to businesses crease in mineral production of the Oyu lion in August 2022, despite weaker net and stabilized production costs. Tolgoi mine, the largest copper mine in capital inflows and some payments on ex- Fiscal expansion and rising household in- Mongolia, which is planning to more than ternal debt obligations by the government, comes are expected to drive inflationary double its 2023 production by 2025. Nev- DBM (an SOE), and the central bank. pressures in 2024. The supply-side shock ertheless, the economy could face nega- from the expected agricultural contraction tive spillovers from a faster-than-antici- is poised to elevate domestic food infla- pated slowdown in the Chinese economy tion, pushing average headline inflation to (including due to a protracted real estate Outlook 8.5 percent in the outlook, slightly exceed- market slowdown which could dampen ing the central bank’s upper target of 8 per- demand for steel where Mongolian coal In 2024, economic growth is anticipated to cent. Deficits in the fiscal and current ac- is a major input), and an escalation of stay firm but moderate compared to the count balances are expected to reemerge geopolitical tensions resulting in a higher previous year, reaching 4.8 percent. This in 2024 as coal exports normalize, export price of imported oil. TABLE 2 Mongolia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.6 5.0 7.1 4.8 6.6 6.3 Private consumption -5.9 8.1 7.4 8.6 5.3 6.5 Government consumption 9.2 6.9 6.6 17.7 4.8 6.8 Gross fixed capital investment 17.7 13.2 7.0 17.1 9.8 6.1 Exports, goods and services -14.6 32.3 42.9 3.5 16.0 6.3 Imports, goods and services 13.6 29.1 21.0 9.2 14.7 6.6 Real GDP growth, at constant factor prices 0.4 4.2 7.0 4.8 6.6 6.3 Agriculture -5.5 12.0 -8.9 -9.5 8.0 6.5 Industry -2.2 -4.5 12.6 6.4 11.2 7.8 Services 3.9 6.9 9.0 7.7 3.8 5.3 Inflation (consumer price index) 7.3 15.2 10.6 8.5 8.3 7.5 Current account balance (% of GDP) -13.4 -13.2 0.7 -11.5 -10.2 -10.1 Net foreign direct investment inflow (% of GDP) 13.1 13.9 7.3 7.0 7.1 6.3 Fiscal balance (% of GDP) -3.0 0.7 2.6 -1.0 -0.7 -0.5 Revenues (% of GDP) 32.0 33.8 34.5 33.7 34.8 33.9 a Debt (% of GDP) 64.5 62.1 44.1 43.8 42.0 40.1 Primary balance (% of GDP) -1.1 2.1 4.2 0.2 0.4 0.5 b,c International poverty rate ($2.15 in 2017 PPP) .. 0.2 0.2 0.2 0.2 0.2 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 2.4 2.1 1.9 1.7 1.5 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 22.1 20.9 20.2 19.1 18.2 GHG emissions growth (mtCO2e) 2.0 3.6 0.5 3.1 3.5 4.2 Energy related GHG emissions (% of total) 30.5 31.4 33.1 33.5 34.5 35.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Debt excludes the BoM's liability under the PBOC swap line (8% of GDP as of end-2023). b/ Calculations based on EAPPOV harmonization using 2016-HSES, 2018-HSES, and 2022-HSES. The consumption aggregate was updated in 2022. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. c/ Projection using annualized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 17 Apr 24 the introduction of U.S. sanctions on two large state-owned banks, and the an- MYANMAR Key conditions and nouncement of restrictions on cross-border payments by international banks. The re- challenges sulting exchange rate depreciation has translated to high inflation (28.6 percent in Table 1 2023 Economic conditions have deteriorated June 2023), which has been further wors- Population, million 54.6 over the six months to March amid in- ened by elevated conflict and logistics con- GDP, current US$ billion 62.3 creased conflict. Conflict has escalated straints since October. GDP per capita, current US$ 1140.6 across much of Myanmar causing dis- Household incomes continue to be nega- a 2.0 International poverty rate ($2.15) placement, labor shortages, and in- tively impacted by successive shocks. 40 a 19.6 creased logistics costs. As of early percent of households surveyed in IFPRI’s Lower middle-income poverty rate ($3.65) a 68.2 March, the UN estimates that around Myanmar Household Welfare Survey re- Upper middle-income poverty rate ($6.85) School enrollment, primary (% gross) b 118.9 800,000 people have been displaced ported lower income in the first half of Life expectancy at birth, years b 65.7 since October 2023, bringing the total 2023 than a year earlier, while only 25 per- Total GHG emissions (mtCO2e) 246.2 number of internally displaced people cent reported an increase. According to IF- in Myanmar to about 2.8 million. A PRI, median real incomes fell by 10.2 per- Source: WDI, Macro Poverty Outlook, and official data. a/ Last official estimate based on 2017 Myanmar Living newly introduced national conscription cent over the same period. Conditions Survey, 2017 PPPs. law that mandates a two-year military b/ WDI for School enrollment (2018); Life expectancy service for citizens across various age (2021). groups dependent on occupational sta- tus has created additional uncertainty, Recent developments potentially triggering external migra- tion flows. Armed clashes have affect- Economic activity has deteriorated since GDP growth is estimated at just 1 per- ed vital trade routes with China, Thai- mid-2023. In the September 2023 round cent in FY2023/24 reflecting supply land, and most recently Bangladesh of the World Bank Firm Survey, firms re- chain and transport disruptions, and and India. As land border trade ac- ported operating at 56 percent of their ca- counts for around 15 percent of ex- pacity on average, 16 percentage points the impacts of elevated conflict and un- ports (excluding natural gas) and 21 lower than in March 2023. The services certainty. Sustained exchange rate de- percent of its imports, the disruption sector, including wholesale and retail preciation and high inflation have put of these routes has the potential to sig- trade, experienced the most severe down- further pressure on household real in- nificantly impact economic activity. turn due to a substantial drop in reported Macroeconomic volatility also increased sales compared to the previous year. The comes. Conflict and recently announced with renewed pressure on the exchange rate manufacturing purchasing managers’ in- conscription rules have also driven mi- and inflation reflecting a combination of in- dex (PMI) contracted from October 2023 gration and internal displacement, dis- ternal and external developments. The kyat through February 2024 as firms reported rupting livelihoods and creating labor has depreciated by almost a quarter against a steep decline in output and new orders, the US dollar over the year to February 2024. largely explained by a slowdown in do- shortages in some areas. Exchange rate pressures have increased mestic demand. Agriculture remained since mid-2023 given a decline in exports, constrained by high input costs, conflict, FIGURE 1 Myanmar / Real GDP growth and contributions to FIGURE 2 Myanmar / Official, parallel-market, and online real GDP growth by sector platform rates Percent, percentage points Kyat/USD 10 4,500 4,000 5 3,500 0 3,000 -5 2,500 -10 2,000 1,500 -15 Aug-21 Jan-22 Jun-22 Nov-22 Apr-23 Sep-23 Feb-24 2020 2021e 2022e 2023e 2024f 2025f Official reference rate Parallel market rate Agriculture Industry Services Real GDP growth Online platform rate Sources: Ministry of Planning and Finance and World Bank staff estimates. Sources: Central Bank of Myanmar and Social Media. MPO 18 Apr 24 trade restrictions, and flooding with As of the end of February 2024, the gap agricultural firms on average reporting between the parallel market rate and the to be operating at 62 percent of their ca- official reference rate had widened to Outlook pacity, 11 percentage points lower com- around 60-70 percent, with persistent pared to April 2023. shortages of US dollars at below market Real GDP growth is expected to slow to Headline inflation reached 28.6 percent rates. In December, the Central Bank of just 1 percent in FY23/24 and 2 percent the (yoy) in June 2023, moderating only Myanmar (CBM) partially eased foreign following year (down from 4 percent in slightly from its peak of 35 percent in currency restrictions: the foreign currency FY22/23), due to supply chain disruptions December 2022, explained by the surge surrender requirement was relaxed to 35 and the impacts of conflict-induced uncer- in food and transport prices reflect- percent of export earnings, down from 50 tainty on consumption, investment, and ing exchange rate depreciation and in- percent, while banks and licensed deal- productive activity. The agriculture sector creased conflict. The authorities intro- ers were allowed to trade forex at close- is particularly exposed to border trade dis- duced price control measures and ex- to-market exchange rates. In response to ruptions with over a third of agricultural port restrictions to respond to the sharp persistent exchange rate pressures, the exports going to China, India, and Thai- increase in food prices. However, more CBM sold about US$ 200 million between land via land. Moreover, high input costs recent data from the WFP indicates that December and January 2024 to meet ex- and trade barriers continue to reduce farm- food prices have increased further, by cess demand for forex. ers’ ability to invest and benefit from fa- 9 percent on average between July and The budget deficit widened to 6.4 percent vorable export prices. Manufacturing is December. At the same time, fuel prices of GDP during the fiscal year 2022/23, projected to slow due to power shortages, have increased by 4-6 percent between due to a revenue contraction that more logistics constraints, and subdued external December and February. than offset a modest spending decrease. demand. Wholesale and retail sales are ex- Myanmar ran a trade deficit of 1.3 per- Spending on goods and services declined pected to remain subdued due to ongoing cent of GDP in the six months to Sep- by nearly 2 percent of GDP, partially off- pressure on real household incomes. tember 2023, from a surplus of 0.1 per- set by increased capital spending. The The risks to the outlook are tilted towards cent of GDP in the same period a year deficit continued to be financed mainly the downside. Any further escalation of con- earlier, due to softer external demand from domestic sources with around 70 flict could severely obstruct land trade and and increased logistics constraints. percent of gross public financing needs supply chains, spur further internal dis- While exports contracted by 11 percent, (about 4.8 percent of GDP) covered by placement, and sharply reduce mobility, imports remained broadly stable. Man- the CBM. Total public debt remained consumption, and productive activity. Over ufacturing and agriculture exports de- above 60 percent of GDP, with the im- the medium to longer term, living standards clined by 19 and 8 percent, respectively, pact of budget deficits on the debt-to- are threatened by falling real wages, declin- due to weak global demand and con- GDP ratio continuing to be broadly offset ing labor productivity, labor outflows, and strained domestic production. by faster inflation. the erosion of human capital. TABLE 2 Myanmar / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022e 2023e 2024f 2025f Real GDP growth, at constant market prices 6.6 -9.0 -12.0 4.0 1.3 2.0 Real GDP growth, at constant factor prices 6.6 -9.0 -12.0 4.0 1.0 2.0 Agriculture 2.2 -5.7 -12.8 -2.2 -2.8 -2.0 Industry 8.0 -11.8 -8.2 8.0 1.5 2.9 Services 7.8 -8.4 -14.7 3.9 2.4 3.2 Inflation (consumer price index) 9.1 2.2 9.6 27.4 20.1 12.0 Current account balance (% of GDP) -1.8 -0.4 -2.4 -6.3 -6.8 -6.4 a Fiscal balance (% of GDP) -8.9 -7.6 -4.6 -6.4 -5.9 -5.4 Revenues (% of GDP) 20.7 16.2 22.1 19.8 19.1 18.9 a Public sector debt (% of GDP) 42.3 53.9 59.8 60.1 63.1 64.6 a Primary balance (% of GDP) -7.0 -5.2 -1.7 -4.1 -3.5 -3.2 GHG emissions growth (mtCO2e) 1.5 -2.4 1.8 0.4 -0.7 -0.2 Energy related GHG emissions (% of total) 17.0 15.1 15.6 15.3 13.6 12.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal estimates and projections are for years ended March. All other estimates and projections are for years ended September. MPO 19 Apr 24 reforms are needed to ensure a sustainable economic recovery that supports the liveli- NORTH PACIFIC Key conditions and hood of the bottom 40 percent of house- holds and poverty reduction. Based on the challenges ISLANDS Lower Middle Income Class Poverty Line of $3.65 (2017 PPP USD per person per Following a contraction in FY22, economic day), FSM has a poverty rate of 40.7 per- activity gained momentum in the North Pa- cent (2013 data) and RMI has a poverty Table 1 FSM MHL PLW cific in FY23 with a pick-up in capital pro- rate of 6.1 percent (2019 data). The lack of Population, million 0.11 0.04 0.02 jects, fisheries output, and tourism. Eco- recent household data for Palau and FSM GDP, current US$ billion 0.42 0.23 0.22 nomic activity is expected to further expand presents a challenge in monitoring devel- GDP per capita, current US$ 3835 5663 11022 in FY24 but downside risks to the outlook re- opment progress. In Palau, the 2023-2024 LMIC poverty rate ($3.65) 40.8 a 6.1 b main high. In the short term, the key chal- household income expenditure survey is Gini index a b lenges include (1) slower than expected re- currently concluding fieldwork and could 40.1 35.5 covery of tourist arrivals (particularly in be used for poverty measurement. Source: WDI, World Bank, and official data. Notes: The actual year for the table data is 2023. Palau); and (2) higher than expected global Abbreviations: LMIC = Lower middle-income; food and fuel prices due to an escalation of FSM = Federated States of Micronesia; PLW = Palau; geopolitical tensions and conflict. MHL = Republic of the Marshall Islands; Estimates for poverty rates and Gini index do not exist for Palau. The Compact of Free Association (COFA) Recent developments a/ Most recent value (2013), 2017 PPPs. agreement approved by the United States b/ Most recent value (2019), 2017 PPPs. on March 9, 2024, will deliver a total of In FSM, growth rebounded to 0.8 percent US$6.5 billion in assistance to the three in FY23, supported by the reopening of North Pacific countries over the next 20 borders, resumption of capital projects, Economic activity rebounded in FY23 in years starting in FY24. FSM will receive and an increase in national government the Federated States of Micronesia (FSM), US$3.3 billion, RMI US$2.3 billion, and wages. Inflation reached a decade high of the Republic of the Marshall Islands (RMI), Palau $889 million. The allocation of funds 6.2 percent reflecting the lagged effects of will be governed by the new Fiscal Proce- elevated global commodity prices and do- and Palau. Inflation subsided in FY23 in dures Agreement (FPA) and the new Com- mestic supply constraints. FSM registered RMI but remained high in FSM and Palau. pact Trust Fund Agreement, both of which fiscal surpluses of 1.6 percent of GDP in Poverty rates are expected to decline in the have been revised and updated, allowing FY23, from 7.8 percent in FY22. Govern- coming years, contingent on continued the countries greater autonomy and con- ment debt declined to 12.4 percent in FSM trol of the funds. in FY23 and the risk of overall debt distress growth. The newly approved Compact of Even with the approval of the new Com- has been upgraded to medium from high. Free Association (COFA) agreement with pact, implementing reform-based fiscal ad- In RMI, output expanded by 3 percent due the United States will deliver US$6.5 bil- justments, such as domestic revenue mo- to a revival in fisheries activity as well as lion in assistance to the region over the bilization and expenditure rationalization, strong demand for services. Inflation mod- next 20 years. Structural reforms are remain crucial to enhancing fiscal sustain- erated to 3 percent in RMI from 5 percent ability. Natural disasters and climate in FY22 as supply chain disruptions eased needed to boost long-term growth and change continue to pose a threat to eco- leading to a reduction in food and fuel achieve fiscal sustainability. nomic activity and livelihoods. Structural prices. A balanced budget was achieved as 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 14 Palau Palau Republic of the Marshall Islands 12 1.05 Republic of the Marshall Islands Federated States of Macronesia 10 1.00 Federated States of Macronesia 8 0.95 6 0.90 4 2 0.85 0 0.80 -2 0.75 -4 FY17 FY18 FY19 FY20 FY21 FY22(e) FY23(e) FY24(f) FY25(f) FY11 FY13 FY15 FY17 FY19 FY21 FY23(e) FY25(f) FY27(f) Sources: National sources, IMF WEO, and World Bank projections. Sources: National sources, EconMap, IMF WEO, and World Bank projections. MPO 20 Apr 24 COVID-19-related grants were withdrawn. for FY24 in RMI, with modest surpluses At 21.6 percent of GDP debt remains sus- expected from FY25 onwards due to new tainable, but the overall risk of debt dis- Outlook Compact funding. tress is high. In Palau, the recovery in tourism is pro- In Palau, economic growth recorded 0.8 In FSM, the economy is projected to ac- jected to lead to a double-digit expan- percent in FY23, as tourism activity picked celerate slightly to 1.1 percent in FY24, sion of 12.4 percent in FY24. GDP is up due to arrivals from Macau. While in- supported by the continued pick-up in projected to remain on a lower trajec- flation reduced from a peak of 13.3 percent public investment and the increase in tory until tourist arrivals reach pre-pan- in FY22, it remained high at 8.9 percent public sector wages. On the longer term, demic levels in FY26. Inflation in Palau in FY23 due to high food and fuel import FSM is faced with the risk of returning to is expected to decrease but remain high prices. A modest fiscal surplus of 0.3 per- a low-growth trajectory of below 1 per- at 5.9 percent in FY24 and decline fur- cent of GDP was driven by increased con- cent, as growth prospects are hampered ther from FY25 onwards. A large fiscal sumption tax collections. Debt remains by an increase in outmigration and the surplus of 2.7 percent of GDP is pro- sustainable and debt levels are estimated low efficiency of public investment. Infla- jected for FY24, as tourism activity leads to have reduced to 66.2 percent of GDP in tion is expected to remain high at 4 per- to an increase in revenues. Modest fis- FY23 as new debt taken during the pan- cent in FY24 before subsiding thereafter. cal surpluses are expected from FY25 demic is serviced. Following a surplus of 1.3 percent of GDP onwards due to continued increases in Poverty in the North Pacific is expected to in FY24, the fiscal balance is projected to tourism receipts and full implementa- have risen between 2020-2022 relative to turn into a small deficit in FY25 and there- tion of the tax reform bill. pre-crisis levels. Poverty is projected to de- after, amid declining fishing revenues and The outlook is subject to significant down- cline in RMI and Palau from FY23 onwards normalizing grants. side risks. Interest rates are expected to re- as these economies recover. A decline in In RMI, output is expected to grow by 3 main high globally and may create adverse poverty is also expected in FSM from FY23, percent in FY24 mainly driven by contin- spillover effects. If growth in advanced though the real incomes of the poor have ued expansion of the fishery sector and economies is slower than anticipated, the been subject to inflationary pressures. In strong construction and services activity. projected recovery in tourism may fail to both RMI and FSM, poverty reduction Economic activity is expected to reach materialize and weaken growth prospects could occur with even very low GDP pre-pandemic levels in FY24. In line with in Palau. Higher-than-expected global growth, if per capita GDP growth is higher easing global food and energy prices, in- food and fuel prices could reignite infla- due to population decline. In RMI, be- flation in FY24 is expected to subside to tionary pressures. The region’s vulnerabil- tween the 2011 and 2021 census data col- 2.5 percent, before further declining to 2 ity to natural disasters and climate change lections, the population declined from percent from FY25 onwards. A fiscal sur- remains an important underlying adverse 53,000 to 42,000. plus of 1.7 percent of GDP is projected risk to economic growth. TABLE 2 North Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2022e 2023e 2024f 2025f 2026f 2027f Real GDP growth, at constant market prices Federated States of Micronesia -0.9 0.8 1.1 1.7 1.1 0.8 Republic of the Marshall Islands -0.6 3.0 3.0 2.0 1.5 1.5 Palau -2.0 0.8 12.4 11.9 3.5 2.0 Poverty rates of the Republic of the Marshall Islands a,b,c International poverty rate ($2.15 in 2017 PPP) 0.8 0.8 0.8 0.8 0.6 0.6 a,b,c Lower-middle income poverty rate ($3.65 in 2017 PPP) 5.6 4.9 4.6 4.3 4.1 3.8 a,b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 30.0 27.7 25.7 24.0 23.4 22.3 Sources: ECONMAP, IMF, and Worldbank. Note: e = estimate; f = forecast. Values for each country correspond to their fiscal years ending September 30. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. c/ For 2022-2025 projections, no change in population is assumed due to a lack of updated population projections. MPO 21 Apr 24 lower middle-income class poverty line, and 74.2 percent are considered to be mul- PAPUA NEW Key conditions and tidimensionally poor. Access to basic ser- vices remains limited, with only 19 percent challenges GUINEA of the population having access to safe drinking water, and a mere 15 percent of Since gaining independence in 1975, the households having access to electricity, ac- economy has more than tripled. However, cording to the 2022 Socio-Demographic Table 1 2023 real GDP per capita has only seen an annu- and Economic Survey. Population, million 10.3 al increase of 0.9 percent—a sluggish rate GDP, current US$ billion 30.4 compared to other lower middle-income GDP per capita, current US$ 2942.7 resource-exporting nations. The growth International poverty rate ($2.15) a 39.7 trajectory has been marked by pronounced Recent developments a 67.7 fluctuations, reflecting high susceptibility Lower middle-income poverty rate ($3.65) a to shifts in international commodity prices. The economy has recovered to pre- Upper middle-income poverty rate ($6.85) 90.2 a The inclusiveness of growth has been lim- COVID output level but remains below Gini index 41.9 ited by the heavy reliance on capital in the the pre-COVID growth trajectory. The b 109.5 School enrollment, primary (% gross) resource sector and the underperformance COVID-19 crisis led to an economic con- b 65.4 Life expectancy at birth, years of the non-resource sector. traction in 2020-21 before recovering by Total GHG emissions (mtCO2e) 51.9 Weak human development outcomes pre- 5.2 percent in 2022. The recovery in the Source: WDI, Macro Poverty Outlook, and official data. sent missed opportunities for faster and extractive sector was driven by significant a/ Most recent value (2009), 2017 PPPs. more inclusive economic growth. Papua improvement in international prices of b/ WDI for School enrollment (2018); Life expectancy (2021). New Guinea (PNG) has one of the highest key export commodities, although the stunting rates in the world, affecting al- shutdown of the Porgera gold mine lim- most half of all children under the age of ited the rebound. Growth is estimated to five. Furthermore, 26 percent of youth (10 have slowed down to 2.7 percent in 2023, The economy has maintained growth mo- to 29-year-olds) find themselves outside of primarily attributed to reduced global de- mentum in 2023. High commodity prices training, education, and employment. mand and domestic supply constraints boosted revenues, helping fiscal consolida- Weak governance compounds the difficul- stemming from scheduled maintenance in tion. Inflation has decelerated, and the Bank ties in effectively addressing these chal- extractive facilities. of PNG allowed greater exchange rate flexi- lenges, with external shocks compounding The pandemic exacerbated underlying fragility-related risks. fiscal weaknesses, and the government bility. PNG’s growth model has not been Large segments of the population continue has embarked on a gradual fiscal con- sufficiently inclusive, with monetary to lag in socio-economic development. The solidation to safeguard debt sustainabil- poverty rates higher than peer countries. most recent Household Income and Ex- ity. As the economy recovered to pre- To make growth more inclusive, prudent penditure Survey, from 2010, revealed that pandemic level, the government reduced around 39 percent of the population lived the fiscal deficit from 8.8 percent of GDP macroeconomic management, better ser- below the poverty line of US$2.15 per day in 2020 to an estimated 4.4 percent of vices, enabling business environment, and (2017 PPP terms), with two-thirds of the GDP in 2023. Most of the improvement stronger resilience are needed. population (67.7 percent) living below the came from resource revenue. Meanwhile, 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 2021 2022 2023e 2024f 2025f 2026f 2017 2018 2019 2020 2021 2022 2023e 2024f 2025f 2026f 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 Apr 24 the non-resource primary balance, a bet- surveys, and food insecurity rates were in- Meanwhile, slower-than-expected eco- ter measure of the underlying fiscal posi- distinguishable from pre-pandemic esti- nomic growth could materialize through tion not affected by the volatile resource mates in the 2016-2018 DHS. lower export demand, a more pro- revenue, remained unchanged between nounced decline in commodity prices, 2021 and 2023. and the impact of droughts and other cli- Headline inflation fell from 6.3 percent in mate-related events. 2022Q3 to 1.4 percent in 2023Q2, year-on- Outlook The growth model has not been suffi- year, before inching up to 2.2 percent in ciently inclusive and needs an adjust- 2023Q3. Core inflation followed a similar Growth is projected to accelerate in 2024, ment. Imputed poverty based on common declining trend and stood at 1.3 percent in mostly due to the reopening of the Porg- variables across the 2009 HIES survey and 2023Q3. Since September 2023, the Bank of era gold mine. The mine restarted opera- the 2016-2018 Demographic and Health PNG reduced the policy rate three times, tions in 2024Q1 and is expected to reach Survey, suggest there was no change in by a cumulative 150 basis points, to 2 per- normal levels of production by mid-year. poverty from 2009- 2018 and therefore, cent. Supported by an IMF-funded pro- Brief violence and looting in January 2024 no significant trickling down of economic gram, BPNG took steps towards greater dented the economy. According to the growth during this period. When com- exchange rate flexibility and allowed, since Business Council, losses included assets paring the monetary poverty rate in PNG May 2023, gradual and moderate depreci- and property and forgone business rev- (based on the 2016-2018 DHS imputation) ation of kina to USD. enue. This would lower tax collections to the countries with a similar per capita Monetary poverty likely increased during and hurt investor sentiment. In addition, GDP, the average poverty rate at the In- the initial phases of the COVID-19 pandem- the dispute between the authorities and ternational Poverty Line of $2.15 (2017 ic before rebounding to pre-pandemic levels the main fuel importer led to disruptions PPP) is one-quarter of the poverty rate in by 2022. High-frequency mobile phone sur- in fuel provision to businesses and house- PNG (10.7 percent). To change the situ- veys conducted at the beginning of the pan- holds, further slowing economic activity. ation, the country needs to focus on (1) demic illustrate that food insecurity was sig- The medium-term growth is expected to ensuring prudent macroeconomic policy nificantly higher than measured during the settle at 3 percent. management, (2) deepening and widen- 2016-2018 Demographic and Health Survey This projection does not account for po- ing access to quality services to build hu- (DHS), despite the surveys being biased to- tential new resource mega-projects, like man capital; (3) enabling private sector ward better-off households. By the end of Papua LNG. Thus, the final investment development for job creation and inclu- the pandemic, food insecurity and employ- decision and the initiation of construction sive growth; and (4) promoting resilience ment had both strongly rebounded in these present an upside risk to the outlook. and environmental sustainability. TABLE 2 Papua New Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -0.8 5.2 2.7 4.8 3.6 3.0 Real GDP growth, at constant factor prices -1.0 5.8 2.7 4.8 3.6 3.0 Agriculture 1.1 3.1 4.2 3.9 3.3 3.3 Industry -7.8 5.6 -1.5 5.7 4.3 2.7 Services 4.4 7.1 5.5 4.5 3.2 3.1 Inflation (consumer price index) 4.5 5.3 2.2 4.1 4.8 4.8 Current account balance (% of GDP) 22.2 33.0 23.0 23.5 22.8 22.3 Net foreign direct investment inflow (% of GDP) -1.5 -1.2 -1.1 -1.3 -1.3 -1.3 Fiscal balance (% of GDP) -6.9 -5.3 -4.4 -3.9 -2.5 -1.3 Revenues (% of GDP) 15.2 16.7 19.0 18.8 19.0 19.0 Debt (% of GDP) 52.8 48.4 52.4 52.2 52.3 51.5 Primary balance (% of GDP) -4.4 -2.8 -1.8 -1.3 0.0 1.0 GHG emissions growth (mtCO2e) 0.2 0.2 0.1 0.1 0.0 0.0 Energy related GHG emissions (% of total) 10.6 10.5 10.4 10.3 10.1 9.9 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 Apr 24 and exports. Implementation of reforms and streamlining processes are needed PHILIPPINES Key conditions and to improve the investment environment and facilitate private sector participation challenges in key sectors to attract investments and boost exports. Table 1 2023 Elevated inflation, tighter monetary and Population, million 117.3 fiscal policies, and softer global growth GDP, current US$ billion 442.8 continued to weigh on domestic demand. GDP per capita, current US$ 3773.9 Inflation has declined, but significant up- Recent developments a 3.0 International poverty rate ($2.15) side risks merit sustained efforts to man- a 17.8 age price pressures. Timely and efficient The economy grew by 5.6 percent in 2023, Lower middle-income poverty rate ($3.65) a 55.3 imports can help stabilize domestic food supported by robust consumer spending Upper middle-income poverty rate ($6.85) Gini index a 40.7 supplies in the near term. However, despite elevated inflation. Steady remit- School enrollment, primary (% gross) b 91.9 higher international prices, costlier inputs tances, a strong labor market, and credit b 69.3 for key food commodities, and risks of growth buoyed private consumption. Ser- Life expectancy at birth, years disruptions to global supply chains high- vices drove growth on the supply side Total GHG emissions (mtCO2e) 267.4 light the need for longer-term improve- due to the tourism recovery, strong finan- Source: WDI, Macro Poverty Outlook, and official data. ments in agricultural productivity and cial services activities, and steady whole- a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy resilience. The government remains com- sale and retail growth. Soft external de- (2021). mitted to public investment despite fis- mand weighed on manufacturing and ex- cal consolidation, but maximizing the ports while the ongoing fiscal consolida- impact on economic activity depends on tion weighed on government consump- better budget execution and use of pub- tion. As public investment remained sup- Economic growth remained robust, at 5.6 lic-private partnerships. portive of growth, private investment was A modest acceleration in medium-term constrained by high-interest rates and percent in 2023, anchored on strong do- growth depends partly on successfully low export demand. mestic demand and the recovery of ser- containing inflation and transitioning to- Inflation reached 6.0 percent in 2023, vices. Growth is projected to rise to an av- wards more accommodative monetary above the 2-4 percent central bank target, erage of 5.9 percent between 2024-2026, policy, which will support private con- due to rising food prices. Core inflation sumption and investment spending. En- also rose to 6.6 percent in 2023. Both fueled by strengthening domestic demand suring that the budget continues to sup- headline and core inflation have settled due to a healthy labor market, declining port inclusive growth will require both within target in January 2024, suggesting inflation, and firming investment activi- prudent spending and urgent implemen- waning price pressures. In 2023, the ty. Poverty will gradually decline due to tation of revenue-enhancing reforms. Bangko Sentral ng Pilipinas raised the key improvements in the labor market, and These will be critical to continued and policy rate by 100 basis points to firmly an- more effective investments in human and chor inflationary expectations. To reduce declining inflation which will likely boost price levels, the government lowered im- physical capital. Subdued global growth, growth in household incomes. geopolitical risks, and trade fragmenta- port tariffs for key commodities and pro- tion could weigh on investment inflows vided support to vulnerable sectors. 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) 15 70 250000 10 60 200000 5 50 0 40 150000 -5 30 100000 Discrepancy -10 20 Imports Exports 50000 -15 10 Investments Government consumption -20 0 0 Household final cons. expenditure 2009 2011 2013 2015 2017 2019 2021 2023 2025 GDP -25 International poverty rate Lower middle-income pov. rate 2019 2020 2021 2022 2023 Upper middle-income pov. rate Real GDP pc Source: Philippines Statistics Authority. Source: World Bank. Notes: see Table 2. MPO 24 Apr 24 Ongoing fiscal consolidation and lower al- The continuous improvement in the labor lotments to local government units low- market and the easing of inflation will like- ered public spending. As a result, the fiscal Outlook ly boost growth in household incomes. deficit narrowed to 6.2 percent of GDP in Poverty is expected to continue to decline 2023 (7.3 percent in 2022). The national The growth outlook remains positive, av- but extreme climatic events continue to government debt declined to 60.2 percent eraging 5.9 percent in 2024-26, anchored pose risks. Poverty incidence using the of GDP in 2023 from 60.9 percent in 2022. on robust domestic demand. The medi- World Bank’s poverty line for lower-mid- The current account deficit narrowed to 2.6 um-term outlook will be driven by robust dle income countries of $3.65/day, 2017 percent of GDP in 2023 (4.5 percent in private consumption activity, supported PPP is projected to decrease from 17.8 per- 2022), supported by sustained remittance by declining inflation, a healthy labor cent in 2021 to 12.2 percent in 2024 and fur- inflows from overseas workers and robust market, and steady remittance inflows. ther decrease to 9.3 percent in 2026. service exports. Meanwhile, higher foreign Medium-term growth will be supported Risks to the outlook remain tilted to the borrowing of the government and resident by improving investment activity as pub- downside. On the domestic front, per- banks and residents’ currency deposit lic investment remains supportive of sistently high inflation would dampen withdrawals from abroad more than offset growth despite fiscal consolidation. The economic activity by keeping the policy lower FDI net inflows. normalization of monetary policy and im- rate higher for longer, erode purchasing The labor market continues to show steady plementation of several investment liber- power, and threaten to deepen poverty improvement and bodes well for house- alization laws will buoy private invest- and worsen economic vulnerability. Up- hold income growth and poverty reduc- ment growth. Meanwhile, export demand side risks to inflation include the possi- tion. Robust domestic activity led to the will strengthen over the forecast horizon, bility of supply disruptions due to on- creation of 1.5 million additional jobs in led by robust services export demand and going geopolitical tensions, further trade December 2023 from 49 million in Decem- a pick-up in goods trade as global growth restrictions, weakness in agriculture out- ber 2022, propelled by the recovery of con- rebounds gradually. put due to El Niño and extreme weather struction, hospitality industry, and agri- The fiscal deficit is expected to narrow to events, and wage pressures from tight- culture and forestry. The unemployment 3.8 percent of GDP by 2026. Fiscal consoli- ness in labor market conditions. The pos- rate was 3.1 percent in December 2023 and dation will be led by the reduction in pub- sibility of higher-than-expected global in- underemployment continues a downtrend lic spending, as the government trims re- flation, still tight global financing con- and was recorded at 11.9 percent in the current spending. In addition, the passage ditions, a further slowdown in growth same period. The recently released first- of several priority tax laws by 2025 is ex- of China, and escalating geopolitical ten- semester national poverty estimates show pected to strengthen revenues through the sions could cause a sharper-than-expect- that poverty incidence declined to 22.4 per- introduction of several new tax policy and ed growth slowdown which would fur- cent in 2023 (23.7 percent in 2021). administration reforms. ther dampen external demand. TABLE 2 Philippines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.7 7.6 5.6 5.8 5.9 5.9 Private consumption 4.2 8.3 5.6 5.9 6.2 6.0 Government consumption 7.2 4.9 0.4 2.2 3.1 5.0 Gross fixed capital investment 9.8 9.7 8.1 9.1 9.6 10.3 Exports, goods and services 8.0 10.9 1.3 3.8 4.7 4.9 Imports, goods and services 12.8 13.9 1.6 5.3 6.9 7.9 Real GDP growth, at constant factor prices 5.7 7.6 5.6 5.8 5.9 5.9 Agriculture -0.3 0.5 1.2 0.9 1.0 1.1 Industry 8.5 6.5 3.6 4.2 4.4 4.5 Services 5.4 9.2 7.2 7.2 7.3 7.1 Inflation (consumer price index) 3.9 5.8 6.0 3.6 3.0 3.0 Current account balance (% of GDP) -1.5 -4.5 -2.6 -2.2 -2.0 -1.8 Net foreign direct investment inflow (% of GDP) 3.0 2.3 2.0 2.0 1.9 1.8 Fiscal balance (% of GDP) -8.6 -7.3 -6.2 -5.1 -4.1 -3.8 Revenues (% of GDP) 15.5 16.1 15.7 15.9 16.1 16.3 National Government Debt (% of GDP) 60.4 60.9 60.2 59.8 59.5 58.7 Primary balance (% of GDP) -6.4 -5.0 -3.6 -2.5 -1.2 -0.9 a,b International poverty rate ($2.15 in 2017 PPP) 3.0 2.3 1.9 1.6 1.3 1.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 17.8 15.3 13.7 12.2 10.7 9.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 55.3 51.8 49.4 46.8 44.2 41.5 GHG emissions growth (mtCO2e) 5.9 5.2 5.4 5.6 5.7 5.7 Energy related GHG emissions (% of total) 57.1 57.8 56.9 57.8 57.9 59.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2021-FIES. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 1 (High (1)) based on GDP per capita in constant LCU. MPO 25 Apr 24 SOLOMON Key conditions and Recent developments challenges ISLANDS The economy returned to 1.9 percent growth in 2023, driven by the hosting of Solomon Islands is a small, secluded the Pacific Games in November 2023 and archipelago with 721,000 people scattered several large public infrastructure pro- Table 1 2023 across 90 inhabited islands. Geographic jects in the energy and transport sec- Population, million 0.7 dispersion, remoteness from global mar- tors. An uptick in international visitor ar- GDP, current US$ billion 1.5 kets, and vulnerability to natural calami- rivals has positively impacted the accom- GDP per capita, current US$ 2067.9 ties all provide substantial obstacles to modation, restaurant, and transport sec- International poverty rate ($2.15) a 26.6 development. Limited state capacity and tors. Increased participation in regional a 61.0 political economic dynamics frequently labor mobility programs contributed to Lower middle-income poverty rate ($3.65) a impede the design and implementation household incomes through remittances. Upper middle-income poverty rate ($6.85) 88.5 a of sound public policies. Poor infrastruc- Data from high-frequency phone surveys Gini index 37.1 ture, widespread underemployment, and – collected from April to September 2023 b 104.3 School enrollment, primary (% gross) a limited private sector pose significant – indicate that employment has largely b 70.3 Life expectancy at birth, years growth challenges. The Solomon Islands remained unchanged. Total GHG emissions (mtCO2e) 46.3 are particularly vulnerable to natural Inflation reached 4.7 percent in 2023, down Source: WDI, Macro Poverty Outlook, and official data. calamities such as earthquakes, cyclones, from 5.5 percent in 2022. In March 2023, a/ Most recent value (2012), 2017 PPPs. and tsunamis, which may cause signifi- the Central Bank of Solomon Islands (CB- b/ WDI for School enrollment (2019); Life expectancy (2021). cant economic harm. SI) tightened monetary policy by increas- Development challenges have been ex- ing the cash reserves ratio from 5 percent acerbated by a series of shocks that to 6 percent, in response to growing infla- have resulted in a significant economic tionary pressures. The financial sector re- decline during the previous years, in- mains relatively stable, with well-capital- The economy is expected to grow by 2.8 cluding a local COVID-19 outbreak in ized banks and adequate liquidity levels. percent in 2024, driven by national elec- 2022 and impacts from the Russian in- The current account deficit reached 11.6 tion preparations and public infrastruc- vasion in Ukraine. World Bank phone percent of GDP in 2023, due to a decline ture investments in the energy and trans- survey data indicates that food insecuri- in logging and agricultural exports. For- ty remains elevated, with an increasing eign reserves fell from 9.5 months of im- portation sectors. In the medium term share of the population worried about ports in 2022 to 8.4 months of imports by (2024-26), growth is projected to average not having enough food to eat. Ac- the end of 2023, still above the reserve ad- 2.9 percent of GDP, while the fiscal cording to the 2012/13 Household In- equacy range of four to seven months of deficit is expected to average 3.7 percent come and Expenditure Survey (HIES), imports. The current account deficit was fi- 61 percent of the population was con- nanced through external concessional bor- of GDP. State fragility, climate change, sidered poor based on the lower-mid- rowing and FDI inflows. and subdued global economic conditions dle-income poverty line ($3.65 per day The fiscal deficit in 2023 is estimated at 4.2 pose downside risks. in 2017 PPP). percent of GDP. Total revenues expanded FIGURE 1 Solomon Islands / Real GDP FIGURE 2 Solomon Islands / Fiscal balance Percent of GDP Index (2015=100) Percent of GDP 4 Real GDP, % change 118 8 3 Real GDP, Index (2015=100) (rhs) 116 6 2 114 4 112 1 110 2 0 108 0 -1 106 -2 -2 104 -3 102 -4 -4 100 -6 -5 98 2000 2003 2006 2009 2012 2015 2018 2021 2024 2018 2019 2020 2021 2022 2023 2024 2025 2026 Structural Budget Balance Budget Balance Sources: IMF and World Bank staff calculations. Sources: IMF and World Bank staff calculations. MPO 26 Apr 24 slightly to reach 28.8 percent of GDP. election preparations, a large infrastruc- the medium term, reaching 3.3 percent of The government managed to contain ex- ture pipeline, and increased mining activ- GDP in 2026. This partly reflects declining penditure growth, despite facing sub- ity. An uptick in the labor mobility pro- recurrent expenditure and the normaliza- stantial spending demands. Expendi- gram is expected to contribute to economic tion of development grants after the pan- tures decreased slightly to 33 percent in activity through the remittance channel. demic and election preparations. Public 2023, explained largely by a reduction Whilst inflation is projected to average 3.4 debt is sustainable, and the external and in development spending. percent during 2024-2026 amid cooling en- overall risk of debt distress is moderate. Public debt increased to 20.4 percent of ergy and food prices, this is above the av- Subdued global economic conditions, cli- GDP in 2023, up from 16.9 percent of GDP erage inflation experienced during the past mate shocks, low levels of cash buffers, in 2022. This was due to rising primary five years (2.7 percent). Nevertheless, and social instability pose downside fiscal deficit and lagging nominal GDP poverty is likely to decline with the pro- risks. The upcoming general elections in growth. As part of the COVID-19 re- jected economic growth and increasing re- 2024 may increase economic uncertain- sponse, the government issued domestic mittances. The new HIES, which is to be ty and increase the risk of unrest. The development bonds during 2020-22, close collected in 2024/25, will help update the rate of recovery in the tourism indus- to doubling the stock of development poverty measure. try and increasing participation in re- bonds from SI$360 million at the end of The current account deficit is projected to re- gional labor mobility programs may pro- 2020 to SI$650 million at the end of 2021. main substantial, averaging 9 percent of vide economic benefits, while second or- GDP over the period of 2024- 2026. This is der impacts of infrastructure investment primarily due to increased import needs may drive a stronger recovery. Subdued from infrastructure projects and an expect- global economic conditions – especial- Outlook ed decline in logging exports. International ly a Chinese growth slowdown – may reserves are expected to decline to 7 months lower demand for commodity exports, The economy is expected to grow by 2.9 of imports while remaining adequate. particularly logs, with negative conse- percent in the medium term (2024–26), After reaching 4.4 percent of GDP in 2024, quences for growth, the current account boosted by government spending on the fiscal deficit is projected to decline over balance, and government finances. TABLE 2 Solomon Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -0.6 -4.1 1.9 2.8 3.1 3.0 Real GDP growth, at constant factor prices -0.6 -4.1 1.9 2.8 3.1 3.0 Agriculture -1.0 -11.8 0.0 1.0 2.0 2.0 Industry 3.0 0.1 5.1 6.0 5.9 5.9 Services -1.1 -2.7 1.7 2.6 2.7 2.5 Inflation (consumer price index) -0.1 5.5 4.7 3.7 3.3 3.3 Current account balance (% of GDP) -5.1 -13.3 -11.6 -10.3 -9.4 -7.4 Net foreign direct investment inflow (% of GDP) 1.5 2.5 2.0 1.9 1.7 1.7 Fiscal balance (% of GDP) -3.6 -4.1 -4.2 -4.4 -3.4 -3.3 Revenues (% of GDP) 31.2 32.6 28.8 30.8 31.4 31.3 Debt (% of GDP) 15.4 16.9 20.4 24.0 26.3 28.4 Primary balance (% of GDP) -3.4 -3.8 -3.7 -4.0 -2.8 -2.7 GHG emissions growth (mtCO2e) 0.0 0.0 0.0 0.0 0.0 0.0 Energy related GHG emissions (% of total) 0.4 0.4 0.4 0.4 0.4 0.4 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 Apr 24 In Samoa, growth rebounded strongly by 8 percent in FY23, following three consecu- SOUTH PACIFIC Key conditions and tive years of economic contraction. Growth was fueled by a strong pick-up in tourism challenges ISLANDS post-border reopening and robust remit- tance inflows supporting consumption. In- Due to their high exposure to tourism flation surged to 12.0 percent in FY23 but and travel, the countries are susceptible has been easing in recent months.The cur- Table 1 WSM TON VUT to external shocks such as those caused rent account deficit narrowed significantly Population, million 0.23 0.11 0.33 by COVID-19. Combined with the nat- to 4 percent of GDP in FY23 compared to GDP, current US$ billion 0.93 0.55 1.10 ural disasters, shocks have resulted in 11.3 percent of GDP in FY22, primarily on GDP per capita, current US$ 4114 5156 3323 significant setback in economic growth account of strong tourism earnings and re- LMIC poverty rate ($3.65) 10.5 a b 1.6 34.9 c and fiscal sustainability. Supply bottle- mittances. The government recorded an- Gini index a b c necks, particularly in the aftermath of other year of fiscal surplus of around 3 per- 38.7 27.1 32.3 disasters, amid heightened demand, in- cent of GDP in FY23, supported by buoy- Source: WDI, World Bank, and official data. Notes: The actual year for the table data is 2023. cluding for reconstruction, continue to ant revenue collections and lower recur- Abbreviations: LMIC = Lower middle-income; exert pressures on prices and threaten rent expenses. A recently published report WSM = Samoa; TON = Tonga; VUT = Vanuatu. livelihoods. Fiscal policy should aim to on the 2022 Samoa Labor Force Survey a/ Most recent value (2013), 2017 PPPs. b/ Most recent value (2021), 2017 PPPs. support more adaptive and targeted so- showed positive employment trends be- c/ Most recent value (2019), 2017 PPPs. cial protection systems while continuing tween 2017 and 2022, with unemploy- to build fiscal space to mitigate vul- ment dropping from 14.5 percent to 5.0 nerability to external shocks. Finally, percent, youth unemployment (ages boosting potential growth through in- 15-24) dropping from 31.9 percent to 13.4 creased investment will require imple- percent, and informality dropping from The economies of Samoa, Tonga, and menting structural reforms that foster a 37.3 percent to 25.3 percent. Vanuatu expanded, largely driven by a conducive environment for business and In Tonga, the economy expanded by an resurgence in travel and reconstruction the private sector. In the near term, this estimated 2.6 percent in FY23, rebounding activities, while benefitting from remit- includes ramping up reconstruction ef- from a contraction in FY22. As borders re- tances. Although economies are projected forts in Tonga and Vanuatu following opened, strong domestic demand support- recent natural disasters. ed by remittances and a pick up in tourist to recover to pre-pandemic levels in arrivals bolstered growth. Inflation 2024-25, uncertainties in the global envi- reached about 10 percent in FY23, driven ronment pose risks to the outlook and the by prolonged domestic supply disrup- pace of economic growth. To increase po- Recent developments tions. The current account deficit widened to 7.9 percent in FY23 as imports increased tential growth, governments must em- In FY23, for the first time since the pan- to support reconstruction and recovery. bark on structural reforms that can boost demic, all three countries experienced The fiscal accounts showed a small surplus investment, and adapt fiscal policy to pro- positive economic growth. Headline in- of 0.4 percent of GDP in FY23, primarily mote resilience to mitigate future shocks. flation surged but began to recede in the due to increased grants and slower-than- later months. expected execution of expenditures related 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 FY2023e FY2025f FY2017 FY2019 FY2021 FY2023e FY2025f Sources: National sources and World Bank projections. Sources: National sources and World Bank projections. MPO 28 Apr 24 to reconstruction. World Bank phone sur- of reconstruction activities, coupled with re- veys conducted in late 2023 reveal that covery in agriculture and tourism. Inflation about half the households were worried Outlook is anticipated to subside in FY24 and reach about their finances in the upcoming below the 5 percent reference rate in FY25. month. About 11 percent of the poorest A gradual economic recovery is expected, The current account deficit is forecasted to group are facing severe food insecurity, with Tonga and Vanuatu potentially re- persist at a high level of 7.1 percent of GDP as opposed to 3 percent in the richest turning to pre-pandemic GDP levels by in FY4, driven by substantial imports amid group, reflecting the influence that per- 2024, and Samoa by 2025. Adverse global modest export performance. The fiscal bal- sistent high inflation may have on liveli- economic growth, trade, and tourism de- ance is anticipated to swing back into deficit hoods. According to the 2021 Household velopment; geopolitical tensions; and per- in FY24-25, due to normalization in grants Income and Expenditure Survey (HIES), sistent threats to natural disasters present and upsurge in expenditure related to re- the poverty rates were 1.6 percent based downside risks. These factors could slow construction efforts. Following sluggish ex- on the lower-middle-income poverty line economic recovery, hampering progress in ecution in FY23, reconstruction projects are of $3.65 (2017 PPP USD) and 21.5 percent poverty reduction. expected to gather momentum in FY24 with based on the upper-middle-income pover- In Samoa, the economy is projected to this trend continuing in FY25. With the pro- ty line of $6.85 (2017 PPP USD). grow by a further 4.5 percent in FY24, fol- jected steady economic growth, the poverty In Vanuatu, despite the impact of twin lowed by an average growth of 3.3 percent rate measured with the upper-middle-in- cyclones earlier in the year and growth in FY25 and FY26. The continued recovery come poverty line is likely to decline to initially being downgraded, growth in tourism and spillovers to construction 16.7 percent in 2026. reached 2.5 percent in FY23. Economic and other service sectors, combined with In Vanuatu, the economy is projected to activity was mainly attributed to the in- increased public investment are expected grow by 3.7 percent in 2024, mostly driven dustry and services sectors, especially as to drive growth. Inflation is estimated to by the infrastructure investment, such as tourist arrivals improved, reaching 65 halve in FY24 and continue to decline over the upgrade of airports and roads con- percent of pre-covid levels as of 2023. the medium term. The current account struction, significantly scaled up in the In the agriculture sector, the contraction deficit is expected to narrow to 3.0 percent 2024 budget. As the implementation of the from cyclone damage was less severe of GDP over the medium term, supported capital budget is expected to continue over than anticipated, as economic activity is by tourism recovery and continued remit- 2024-2026, expansionary fiscal policy will concentrated in the north, which was less tance inflows. A fiscal deficit of 2.5 percent continue to support growth. Reconstruc- affected by the cyclones. Inflation is es- of GDP is estimated for FY24 as grants rev- tion efforts are expected to stimulate eco- timated to have averaged 9.3 percent, enue normalizes and expenditure increas- nomic activity over the medium term. In- mainly owing to domestic supply chain es to support the hosting of the Common- flation is projected to remain above the re- disruptions caused by the cyclone im- wealth Heads of Government Meeting serve bank band of 0-4 percent in the near pacts, minimum wage factors, and high scheduled for October 2024. The fiscal term. A current account deficit of 4.5 per- food prices. A current account deficit of deficit is expected to narrow to approxi- cent of GDP is projected for 2024, partially 4.1 percent of GDP is estimated, as pick mately 1.5 percent of GDP over the medi- offsetting the modest recovery of tourism up in remittances and tourism increased um term. While direct projections of and goods exports. The fiscal deficit is pro- demand for imports. Vanuatu faced an poverty rates are not available, regional jected at 7.6 percent of GDP due to higher estimated fiscal deficit of 4 percent of peers with a similar trajectory of economic capital expenditures, despite improved GDP bolstered by strong Value Added recovery are expected to return to pre-pan- fishing revenues. The poverty rate mea- Tax (VAT) revenue amid delayed project demic poverty levels in FY25. sured with the lower-middle-income spending an improvement from 2022. The In Tonga, growth is projected to maintain poverty line is projected to remain high, government is working towards rolling its upward momentum, reaching 2.5 per- around 43 percent until 2026. Given the out the Universal Cash Transfer (UCT) cent, before subsequently easing in FY25 country’s relatively high population initiative, which aims to support house- and further down in FY26. The short-term growth, the growth in per capita income is hold recovery from the dual cyclones. growth is underpinned by the ramping up not strong enough to reduce poverty. TABLE 2 South Pacific Islands / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022e 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices Samoa -7.1 -5.3 8.0 4.5 3.6 3.0 Tonga -2.7 -2.0 2.6 2.5 2.2 1.6 Vanuatu 0.6 1.9 2.5 3.7 3.5 3.1 a,b Poverty rate Tonga (Upper-middle income poverty rate, $6.85 in 2017 PPP) 21.5 22.3 21.1 18.7 17.3 16.7 Vanuatu (Lower-middle income poverty rate, $3.65 in 2017 PPP) 41.5 42.4 43.2 42.8 42.6 42.9 Sources: World Bank and IMF. Notes: e = estimate; f = forecast. Financial years for Samoa and Tonga are July-June, for Vanuatu it is January-December. Samoa improved the methodology for GDP calcula- tion and revised the historical data in March 2022 GDP release. a/ Calculations based on EAPPOV harmonization, using 2021-HIES for Tonga and 2019-NSDP for Vanuatu. b/ Projection using neutral distribution with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 29 Apr 24 THAILAND Key conditions and Recent developments challenges Thailand's recovery trajectory slowed compared to its ASEAN peers due to Table 1 2023 Thailand’s recovery diverged further weak manufacturing and public invest- Population, million 71.8 from peers such as Malaysia and the ment despite robust private consumption. GDP, current US$ billion 514.9 Philippines due to external and internal Overall, for 2023, the economy grew by GDP per capita, current US$ 7171.8 challenges. Weak external demand 1.9 percent, down from 2.5 percent the a 12.2 Upper middle-income poverty rate ($6.85) weighed on manufacturing while the previous year. Thailand’s output recovery a 35.1 delayed budget caused public invest- from pre-pandemic levels further lagged Gini index b 101.6 ment to slow. The economy is expected behind peers by 14 percent. School enrollment, primary (% gross) Life expectancy at birth, years b 78.7 to pick up in 2024, bolstered by private Good export contracted, albeit less than Total GHG emissions (mtCO2e) 480.2 consumption and tourism recovery, with ASEAN peers. In 2023, goods exports upside risks to domestic demand if the contracted 1.7 percent (year-on-year), de- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. Digital Wallet program (THB 10,000 or clining from the previous 5.4 percent. b/ WDI for School enrollment (2022); Life expectancy USD 286 transfer to 50 million Thais) This contraction was driven by declines (2021). is rolled out. The measure has the po- in exports of manufacturing, including tential to boost growth but will increase agro-manufacturing, hard disk drives, the public debt. plastics, and metal and steel, while ex- Fiscal responses to high energy prices have ports of agricultural and automotive slightly slowed the path toward consolida- products expanded. Thailand's economic recovery lagged fur- tion but supported the recovery. Headline The Thai baht remained stable as the cur- inflation remained the lowest in ASEAN rent account shifted to surplus, despite on- ther behind ASEAN peers as growth dis- in part due to continued energy subsidies going capital outflows. In December, the appointed at 1.9 percent in 2023. Growth and lower global energy prices. current account turned positive, reaching 5 was hampered by a weak external sector In the medium term, the country is percent of GDP, with Q4 recording a sur- and delayed budget approval. Inflation re- facing the challenge of addressing the plus of 1.2 percent of GDP. This improve- rising spending needs associated with ment was driven by a surplus in goods mained negative for the third consecutive aging, environmental degradation, cli- trade, attributed to a decrease in the im- month due to falling energy and food mate change, and the need to rebuild port bill. Additionally, deficits in services, prices as well as energy subsidies. While the policy buffers to prepare for future primary, and secondary income narrowed, private consumption and tourism are ex- shocks. substantial potential lies in im- supported by increased tourism receipts pected to support the recovery, the out- plementing structural reforms and mo- and income transfers. In January, the bilizing private financing for low-car- Nominal Effective Exchange Rate (NEER) look for 2024 is weaker than previously bon growth. The escalating impact of remained stable, in contrast to the depre- projected due to dimmer export and pub- climate events on low-income house- ciation of other major ASEAN currencies. lic investment prospects. holds remain a significant obstacle to This stability was linked to anticipated im- poverty reduction. provements in the current account balance 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 2023 2024f 2025f 2026f 0 0 Private consumption Government consumption 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 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 Apr 24 as tourist arrivals surged. However, net points, while Bangkok experienced an in- could boost near-term growth by approx- foreign portfolio outflows surged to THB crease in poverty. Household debt re- imately 1 percent. 37 billion, marking the largest outflows in mained high at 90.6 percent of GDP, the Headline inflation will slow to a regional four months, primarily due to outflows highest in ASEAN in 2023Q1. low of 1 percent in 2024 due to energy sub- from the equity market. sidies and falling global energy prices, Headline inflation declined the fastest while food prices and core inflation are ex- in ASEAN and remained negative for pected to remain positive. Core inflation four consecutive months at -1.1 percent Outlook is expected to be supported by strong do- (yoy) in January due to the ongoing mestic consumption and the closing out- energy subsidies, falling global energy Growth is projected to accelerate from 1.9 put gap. The current account surplus will prices and domestic fresh food prices, percent in 2023 to 2.8 percent in 2024. The remain at 1.3 percent of GDP in 2024, dri- and a slow recovery. Core inflation re- outlook for 2024 is weaker than previous- ven by both goods and services trade as mained stable at 0.5 percent. The Bank ly projected due to dimmer export and well as reduced oil import bills. of Thailand maintained a neutral stance public investment prospects. Tourism and Risks to outlook are more balanced, with with its policy rate at 2.5 percent due private consumption will be key drivers. upside risks to domestic demand if the to lowered inflation pressure and con- Goods exports are expected to grow due Digital Wallet is rolled out. However, tinued strong domestic demand. In Jan- to favorable global trade despite the slow- risks persist due to heightened geopolit- uary, the Thai baht was stable linked to ing Chinese economy. Tourism recovery ical conflict and high oil prices, which the expected improved current account is projected to return to pre-pandemic could trigger another inflationary surge balance as tourist arrivals surged, while levels in mid-2025. Tourist arrivals are given the country’s dependency on ener- capital outflows continued. projected to reach 90 percent of pre-pan- gy imports and increase inequality while Per capita household consumption surged demic levels in 2024, with Chinese visi- eroding fiscal space unless social assis- by 8.1 percent between 2021 and 2022, with tors expected to reach 62 percent of pre- tance is better targeted. the bottom 40 percent experiencing even pandemic levels. Public investment will The poverty headcount, measured at the faster growth. The national poverty rate be hampered by prolonged delay in bud- upper-middle-income poverty line of $6.85 dropped from 6.3 percent to 5.3 percent get approval for FY2024. Public debt is in 2017 PPP, was estimated at 12.2 percent during the same period. However, this de- projected to remain slightly above 60 per- in 2021 and is anticipated to decline to 10.3 cline varied across regions; the northeast cent of GDP. While the planned Digital percent in 2023 and maintain a downward saw the largest drop by 2.4 percentage Wallet is not included in the baseline, it trajectory throughout 2024 and 2025. TABLE 2 Thailand / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.6 2.5 1.9 2.8 3.0 3.1 Private consumption 0.6 6.2 7.1 3.4 3.0 2.8 Government consumption 3.7 0.1 -4.6 1.7 2.5 2.0 Gross fixed capital investment 3.1 2.3 1.2 2.7 3.1 3.1 Exports, goods and services 11.1 6.1 2.1 5.0 3.7 3.6 Imports, goods and services 17.8 3.6 -2.2 4.1 4.1 3.4 Real GDP growth, at constant factor prices 1.9 3.2 1.9 2.8 2.9 3.1 Agriculture 2.5 1.4 1.9 1.6 2.2 2.0 Industry 6.0 3.6 -2.3 1.2 2.7 2.7 Services -0.3 3.1 4.3 3.8 3.2 3.5 Inflation (consumer price index) 1.2 6.1 1.2 1.0 1.8 1.1 Current account balance (% of GDP) -2.0 -3.2 1.3 1.3 3.0 4.2 Net foreign direct investment inflow (% of GDP) -0.8 0.8 -0.4 -1.0 -1.1 -1.0 Fiscal balance (% of GDP) -6.7 -4.4 -2.3 -1.9 -2.3 -2.1 Revenues (% of GDP) 19.8 19.8 20.8 21.1 22.3 22.3 Debt (% of GDP) 57.7 59.7 62.1 62.6 61.8 61.0 Primary balance (% of GDP) -5.4 -3.1 -1.1 0.2 -0.3 -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) 0.6 0.5 0.4 0.3 0.2 0.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.2 11.0 10.3 9.1 8.1 7.1 GHG emissions growth (mtCO2e) 2.7 1.6 1.9 1.3 2.7 3.1 Energy related GHG emissions (% of total) 53.7 53.0 52.5 51.4 50.5 49.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2014-SES, 2020-SES, and 2021-SES. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2014-2020) with pass-through = 1 based on GDP per capita in constant LCU. MPO 31 Apr 24 account for less than 4 percent of total ex- ports. In contrast, a lack of domestic pro- TIMOR-LESTE Key conditions and duction necessitates imports to meet do- mestic consumption, resulting in suscepti- challenges bility to commodity price volatility. Timor-Leste is facing a fiscal cliff. Gov- Table 1 2023 Despite development gains since inde- ernment spending reached 87 percent of Population, million 1.4 pendence, Timor-Leste remains a fragile GDP in 2023, among the highest globally, GDP, current US$ billion 1.7 post-conflict country grappling with eco- while non-oil-related revenue stood at GDP per capita, current US$ 1275.8 nomic challenges stemming from its size merely 14.1 percent of GDP. To bridge a 24.4 International poverty rate ($2.15) and geographical location. An institution- the resulting large budget gap, Timor- a 69.2 al framework for macroeconomic man- Leste is drawing down on its diminishing Lower middle-income poverty rate ($3.65) a 28.7 agement, supported by the Petroleum Petroleum Fund. The balance of the Fund Gini index School enrollment, primary (% gross) b 110.7 Fund (PF), the country's sovereign wealth stood at 18.2 billion by the end of 2023 Life expectancy at birth, years b 67.7 fund, has facilitated major infrastructure (10.6 times of GDP). However, due to Total GHG emissions (mtCO2e) 5.5 improvements. Advances in basic health- the cessation of oil and gas production, care access and school enrollment rates the revenues of the Petroleum Fund are Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2014), 2017 PPPs. have also materialized. However, low and outweighed by the annual withdrawals b/ WDI for School enrollment (2020); Life expectancy volatile economic growth persists, hinder- needed to finance the budget. Official es- (2021). ing progress in development outcomes timates predict that the Petroleum Fund and poverty reduction. will be depleted by 2034. The govern- Fragility is exacerbated by a lack of eco- ment must urgently identify alternative nomic diversification and significant fiscal sources to replace the rapidly declining The economy continues to recover follow- and external imbalances. The economy revenues from the oil and gas sector. Al- heavily relies on the public sector, benefit- ternatively, significant spending cuts are ing the pandemic and Cyclone Seroja. ing primarily certain public-sector-linked inevitable, leading to a sharp decrease in Growth decelerated to an estimated 2.1 service sectors such as construction. Diver- public service provision. percent of GDP in 2023 due to election- sifying the economy has been a perennial related fiscal drag. Inflation peaked at 9.0 goal of the government, but progress has percent (y/y) in November 2023 but has been hindered by a lack of enabling fac- since declined. Medium-term growth is tors, including unreliable electricity and Recent developments access to finance. Ample bank liquidity has expected to reach 4.0 percent, supported not been channeled to the real sector, with Following the pandemic-induced decline largely by increased government infra- the loan-to-deposit ratio remaining low. of 8.3 percent in 2020, the non-oil economy structure spending. Downside risks in- Challenges in assessing borrower risk and expanded by 2.9 percent and 4.0 percent the absence of a robust legal framework in 2021 and 2022, respectively. Despite the clude escalated global commodity prices of persist as structural impediments to access gains, economic output has not returned to food and energy. to finance. Oil and gas production ended its pre-pandemic levels. Amidst challenges in 2023, leaving coffee as the main com- in budget implementation, attributable to modity export. Tourism-driven services electoral processes, fiscal drag resulted in a FIGURE 1 Timor-Leste / Public and private investment are FIGURE 2 Timor-Leste / Actual and projected poverty rates still below the 2015 level. and real GDP per capita Index (2015=100) Poverty rate (%) Real GDP per capita (constant LCU) 150 90 1600 80 1400 125 70 1200 60 100 1000 50 800 75 40 600 30 50 20 400 Household Consumption 200 Public investment 10 25 Private investment 0 0 Non-profit institutions serving households (NPISHs) cons. 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Government Consumption 0 International poverty rate Lower middle-income pov. rate 2015 2016 2017 2018 2019 2020 2021 2022 Real GDP pc Source: Timor-Leste Ministry of Finance. Source: World Bank. Notes: see Table 2. MPO 32 Apr 24 deceleration of growth in the non-oil econ- seeing the largest reduction. As of Decem- to the dependence on coffee as the pri- omy to an estimated 2.1 percent in 2023. ber 2023, 87 percent of the rectified budget mary export commodity. Nevertheless, the post-pandemic recovery was executed. The fiscal deficit is estimat- Inflation is projected to ease in 2024, driven has been driven by consumption. Public ed to have declined to 44.4 percent of GDP by a moderation in global commodity and private investment levels remain be- from close to 60 percent in 2022. prices. Reduced inflation rates in Timor- low their 2015 peak, constraining future The impact of recent developments on Leste's trading partners are expected to output potential and productivity. poverty reduction remains uncertain due lessen the impact of imported inflation. Consumer price inflation remained high, to the absence of updated data. Between The fiscal deficit is expected to hover averaging 8.4 percent during 2023, driven 2007 and 2014, poverty dropped from around 45 percent of GDP over the medi- by escalating prices of food, non-alco- 50.4 percent to 41.8 percent. When as- um term. The budget shortfall is being cov- holic beverages, alcohol, and tobacco. sessed using an internationally compara- ered through withdrawals from the rapid- Price pressures were contained by an ap- ble poverty line of US$2.15 per person ly declining Petroleum Fund. preciation of the US Dollar, legal tender per day (2017 PPP), the decline is even The outlook is subject to several down- in Timor-Leste. starker, with poverty rates dropping from side risks. Slow global growth may nega- The government has set an ambitious 40.9 percent in 2007 to 24.4 percent in tively affect the returns of the Petroleum target of creating 50,000 jobs over the 2014. A new Living Standards Survey is Fund. Extreme weather events, notably next five years. However, the lack of eco- planned for 2024. those associated with El Niño, could dis- nomic dynamism has hindered job cre- rupt rice availability and imports. Ad- ation for the rapidly expanding work- ditionally, high energy prices are likely force. Labor force participation has stag- to increase transportation and electricity nated at approximately 30.6 percent in Outlook costs domestically. the past decade. Labor productivity has Reaching the government's target of 5 per- decreased, and employment is increasing- Economic growth is projected to average cent annual economic growth will depend ly concentrated in sectors with the lowest 4.1 percent in 2024 and 2025. The gov- on policies that support a sustainable, di- labor productivity. ernment's focus on capital expenditure versified economy. As such, strong contri- The 2023 budget was revised down by 12 and infrastructure investment, increasing butions of private consumption and in- percent to improve budget execution and the budget from 18.4 percent of GDP in vestment are crucial. The success of the align with the new government’s objec- 2023 to 24.5 percent of GDP in 2024, is private sector, in turn, depends on policies tives. Expenditures, excluding wages and likely to drive growth. However, export that foster an environment conducive to salaries, were cut, with capital spending growth may face constraints, largely due dynamism and expansion. TABLE 2 Timor-Leste / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.9 4.0 2.1 3.6 4.5 4.0 Private consumption -2.7 14.0 3.0 4.0 5.0 5.5 Government consumption 2.9 -0.2 3.1 2.4 2.4 1.4 Gross fixed capital investment -6.1 29.4 10.8 10.6 10.7 9.3 Exports, goods and services 79.3 30.3 1.0 2.0 2.0 2.0 Imports, goods and services -9.0 22.8 5.5 5.0 5.0 5.0 Real GDP growth, at constant factor prices 3.9 3.8 2.1 3.6 4.5 4.0 Agriculture 5.5 5.4 2.9 2.9 2.9 2.9 Industry -14.0 38.2 2.4 2.4 2.4 2.4 Services 4.0 2.6 1.9 3.9 5.0 4.3 Inflation (consumer price index) 3.8 7.0 8.4 3.3 2.8 2.5 Current account balance (% of GDP) 2.8 -17.0 -20.4 -41.7 -42.8 -45.1 Net foreign direct investment inflow (% of GDP) -4.3 -4.1 1.7 1.7 1.6 1.6 a Fiscal balance (% of GDP) -47.0 -60.7 -44.0 -43.1 -45.6 -47.6 Revenues (% of GDP) 45.5 43.4 42.2 40.7 39.0 37.5 Debt (% of GDP) 15.2 15.2 18.3 19.4 19.7 22.0 Primary balance (% of GDP) -46.8 -60.5 -44.0 -43.1 -45.5 -47.6 b,c International poverty rate ($2.15 in 2017 PPP) 28.8 27.8 27.5 26.6 25.4 24.4 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 72.9 72.1 71.9 71.2 70.2 69.4 GHG emissions growth (mtCO2e) -3.3 -2.8 -2.7 -2.4 -2.1 -5.0 Energy related GHG emissions (% of total) 7.9 8.4 9.0 9.6 10.3 11.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The ESI is part of total revenue, while excess withdrawals from the PF is a financing item. b/ Calculations based on EAPPOV harmonization, using 2007-TLSLS and 2014-TLSLS. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. c/ Projection using annualized elasticity (2007-2014) with pass-through = 1 based on GDP per capita in constant LCU. MPO 33 Apr 24 on corporate bond issuance in late 2022. Reflecting these developments, the indus- VIETNAM Key conditions and trial sector (industry and construction) grew by a tepid 3.7 percent in 2023 com- challenges pared to 7.8 percent in 2022. Meanwhile, services sector growth slowed to 6.8 per- Table 1 2023 After a difficult year, Vietnam’s growth cent compared to 10 percent in 2022 as Population, million 98.9 is expected to pick up moderately in the strong recovery of domestic and for- GDP, current US$ billion 426.9 2024. External demand for Vietnam’s ex- eign tourism was offset by moderating GDP per capita, current US$ 4318.1 ports is expected to firm gradually dur- wholesale and retail sales. The agricul- a 1.0 International poverty rate ($2.15) ing the year and domestic real estate tural sector grew by 3.8 percent in 2023 a 4.2 market is expected to start recovering in compared to 3.4 percent in 2022. Lower middle-income poverty rate ($3.65) a 19.7 late 2024. However, tight global finan- Headline and core inflation slowed as Upper middle-income poverty rate ($6.85) Gini index a 36.1 cial conditions, heightened financial sec- the economy cooled. Average headline School enrollment, primary (% gross) b 123.1 tor vulnerabilities, and underinvestment inflation in 2023 came in at 3.25 percent b 73.6 in backbone infrastructure are chal- (y/y), well below the 4.5 percent infla- Life expectancy at birth, years lenges to Vietnam’s short and medium- tion target as transport costs softened Total GHG emissions (mtCO2e) 515.2 growth prospects. and domestic consumption moderated. Source: WDI, Macro Poverty Outlook, and official data. Core inflation averaged 4.1 percent (y/ a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy y) in 2023 due to higher housing prices (2021). and construction materials. Recent developments Amid slower growth, employment and in- come growth weakened. Total employ- Real GDP growth decelerated from a ment growth slowed, dipping from 2.2 to strong post-pandemic rebound of 8 per- 0.8 percent (y/y) between the first and last cent in 2022 to 5 percent in 2023, well be- quarters of 2023. Average monthly real in- Vietnam’s real GDP is expected to grow low potential. This slower growth reflect- come growth slowed to an estimated 1.3 by 5.5 percent in 2024. Poverty is expect- ed weak external demand and a down- percent during 2022–23 compared to 8.3 ed to decline from 3.9 percent in 2023 to turn in the real estate market. Vietnam’s percent in 2017–19. After a slight rise in 3.6 percent in 2024. Downside risks to exports declined by 2.5 percent (y/y) as poverty (LMIC) in 2022, poverty is estimat- demand from key export markets cooled. ed to fall to 3.9 percent in 2023 despite growth include slower-than-expected Meanwhile, in the real estate market, the slower growth. growth in main trade partners and deteri- number of projects for residential hous- The balance of payments registered a oration of asset quality in Vietnam’s ing and transactions fell by 46.8 percent surplus of 1.1 percent of GDP in the banking sector. On the upside, stronger- (y/y) and 18.8 percent (y/y), respective- first three quarters of 2023, compared to than-expected global growth could lift ly. The downturn was driven by low- a deficit of 7.2 percent of GDP regis- er demand due to higher interest rates tered in 2022, underpinned by a large growth above the baseline forecast. and slowing construction due to financ- current account surplus (5.1 percent of ing constraints experienced by property 2023 GDP). The current account surplus developers due to tightening regulations was driven by a mounting surplus in the 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 80.0 20 80 70.0 15 70 60.0 10 60 5 50.0 50 0 40.0 40 -5 30.0 30 -10 20 20.0 -15 10 10.0 -20 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0.0 Gov. cons. Exports GFCF 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Imports Inventories Private cons. 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 Apr 24 merchandise trade balance (11.1 percent 3.9 percent in 2023 to 3.6 percent in 2024. ex- of GDP) as real imports contracted more pected weak revenue collection and a civil than real exports. On the other hand, Outlook service salary increase, but the government the financial account registered a small will revert to fiscal tightening in 2025-2026, deficit (0.6 percent of GDP), as a net out- Real GDP is expected to grow by 5.5 percent in line with the Financial Strategy for flow of short- and medium-term capi- in 2024 and inch up to 6.5 percent by 2026. 2021-2030. The current account is expected tal (-$15.5 billion) outweighed a robust We expect a gradual recovery of external de- to remain in surplus, thanks to continued re- FDI disbursement (US$13.7 billion). In mand which will in turn support labor mar- covery of goods exports and tourism. The addition, large errors and omissions sug- ket recovery and firm consumer confidence. poverty rate (LMIC) is projected to fall from gest continued unrecorded capital out- The real estate market is forecast to turn the 3.9 percent in 2023 to 3.6 percent in 2024. flows amid persistent interest rate gaps corner in late 2024 and into 2025 as financing The risks to the outlook are broadly bal- with major economies. constraints for developers ease and housing anced. Slower-than-expected growth in To bolster economic activity, the author- demand recovers to trend. A new Land Law partner countries could further dampen ex- ities adopted supportive macroeconomic and other real estate related laws that will ternal demand for Vietnam’s exports. A policies. The State Bank of Vietnam cut come into effect will enhance land valuation slower recovery of the real estate market policy rates by 150 basis points. How- and land use, providing additional support could weigh on private sector investment. ever non-performing loans rose from 1.9 to the recovery. This in turn is expected to Finally, heightened financial vulnerabilities percent in December 2022 to 4.9 per- support recovery of private domestic invest- could affect the banking sector. On the up- cent in September 2023, despite reintro- ment. The CPI will rise slightly from an av- side, stronger-than-expected global growth duced forbearance measures. The fiscal erage of 3.2 percent in 2023 to 3.5 percent in could support a faster recovery of Viet- stance was moderately expansionary 2024, reflecting an increase in the prices of nam's export sector. as deficit rose to 1.2 percent of GDP education and health services, before mod- Continued efforts to speed up the imple- in 2023 from 0.2 percent in 2022 due erating to 3.0 in 2025-2026. The fiscal deficit mentation of public investment would help to higher public investment and low- is projected to widen to 1.6 percent of GDP support aggregate demand in the short run er revenues. While the disbursement given expected weak revenue collection and while also helping to close emerging infra- volume of public investment rose 33.3 a civil service salary increase, but the gov- structure gaps. On the monetary side, the percent compared to 2022, it only con- ernment will revert to fiscal tightening in space for additional interest rate cuts is lim- stituted 73.5 percent of planned 2023 2025-2026, in line with the Financial Strategy ited due to the interest rate differential be- budget. Public and publicly guaran- for 2021-2030. The current account is expect- tween domestic and international markets. teed debt registered 39.8 percent of ed to remain in surplus, thanks to continued The authorities should improve the banking GDP, significantly below the 60 per- recovery of goods exports and tourism. The sector supervisory framework, including cent debt-to-GDP threshold. poverty rate (LMIC) is projected to fall from monitoring and resolution. TABLE 2 Vietnam / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.6 8.1 5.0 5.5 6.0 6.5 Private consumption 2.2 7.7 3.5 5.0 5.5 6.5 Government consumption 4.5 3.6 4.9 4.5 4.5 4.4 Gross fixed capital investment 2.8 5.6 4.1 5.5 7.4 8.5 Exports, goods and services 14.0 5.0 -2.5 3.5 4.9 5.5 Imports, goods and services 15.8 2.2 -4.3 4.0 5.0 6.0 Real GDP growth, at constant factor prices 2.6 8.4 5.2 5.6 5.9 6.4 Agriculture 3.7 3.5 3.8 3.0 3.0 3.0 Industry 3.2 7.9 3.7 8.3 8.0 7.9 Services 1.7 10.1 6.8 3.9 4.8 5.9 Inflation (consumer price index) 1.8 3.1 3.2 3.5 3.0 3.0 Current account balance (% of GDP) -1.3 -0.3 1.9 1.7 1.6 1.7 Net foreign direct investment inflow (% of GDP) 4.2 3.7 4.3 4.3 4.3 4.3 Fiscal balance (% of GDP) -1.4 -0.2 -1.3 -1.6 -1.1 -1.1 Revenues (% of GDP) 18.8 19.0 17.2 15.2 15.3 14.6 Debt (% of GDP) 38.7 34.0 37.3 37.7 36.9 33.3 Primary balance (% of GDP) -0.2 0.7 -0.4 -0.5 0.0 -0.1 a,b International poverty rate ($2.15 in 2017 PPP) .. 1.0 0.9 0.8 0.7 0.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 4.2 3.9 3.6 3.3 2.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 19.7 18.7 17.6 16.5 15.3 GHG emissions growth (mtCO2e) 1.2 6.4 4.4 5.4 5.5 5.6 Energy related GHG emissions (% of total) 64.2 64.8 64.6 64.6 64.5 64.3 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 2016-VHLSS, 2020-VHLSS, and 2022-VHLSS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2016-2020) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 35 Apr 24 Macro Poverty Outlook 04 / 2024