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. Macro Poverty Outlook Spring Meetings 2024 5 41 87 East Asia Europe and Latin America and the Pacific Central Asia and the Caribbean 6 Cambodia 42 Albania 88 Argentina 8 Central Pacific Islands 44 Armenia 90 Bahamas, The 10 China 46 Azerbaijan 92 Barbados 12 Fiji 48 Belarus 94 Belize 14 Indonesia 50 Bosnia and Herzegovina 96 Bolivia 16 Lao PDR 52 Bulgaria 98 Brazil 18 Malaysia 54 Croatia 100 Chile 20 Mongolia 56 Georgia 102 Colombia 22 Myanmar 58 Kazakhstan 104 Costa Rica 24 North Pacific Islands 60 Kosovo 106 Dominica 26 Papua New Guinea 62 Kyrgyz Rep. 108 Dominican Rep. 28 Philippines 64 Moldova 110 Ecuador 30 Solomon Islands 66 Montenegro 112 El Salvador 32 South Pacific Islands 68 North Macedonia 114 Grenada 34 Thailand 70 Poland 116 Guatemala 36 Timor-Leste 72 Romania 118 Guyana 38 Vietnam 74 Russian Federation 120 Haiti 76 Serbia 122 Honduras 78 Tajikistan 124 Jamaica 80 Türkiye 126 Mexico 82 Ukraine 128 Nicaragua 84 Uzbekistan 130 Panama 132 Paraguay 134 Peru 136 St. Lucia 138 St. Vincent and the Grenadines 140 Suriname 142 Uruguay MACRO POVERTY MPO 2 Apr 24 145 185 203 Middle East Sub-Saharan and North Africa South Asia Africa 146 Algeria 186 Afghanistan 204 Angola 148 Bahrain 188 Bangladesh 206 Benin 150 Djibouti 190 Bhutan 208 Botswana 152 Egypt, Arab Rep. 192 India 210 Burkina Faso 154 Iran, Islamic Rep. 194 Maldives 212 Burundi 156 Iraq, Rep. 196 Nepal 214 Cabo Verde 158 Jordan 198 Pakistan 216 Cameroon 160 Kuwait 200 Sri Lanka 218 Central African Rep. 162 Lebanon 220 Chad 164 Libya 222 Comoros 166 Morocco 224 Congo, Dem. Rep. 168 Oman 226 Congo, Rep. 170 Palestinian territories 228 Côte d'Ivoire 172 Qatar 230 Equatorial Guinea 174 Saudi Arabia 232 Eritrea 176 Syrian Arab Rep. 234 Eswatini 178 Tunisia 236 Ethiopia 180 United Arab Emirates 238 Gabon 182 Yemen, Rep. 240 Gambia, The 242 Ghana 244 Guinea 246 Guinea-Bissau 248 Kenya 250 Lesotho 252 Liberia 254 Madagascar 256 Malawi 258 Mali 260 Mauritania 262 Mauritius 264 Mozambique 266 Namibia Spring Meetings 2024 268 270 Niger Nigeria 272 Rwanda 274 São Tomé and Príncipe OUTLOOK 276 Senegal 278 Seychelles 280 Sierra Leone 282 Somalia 284 South Africa 286 South Sudan 288 Sudan 290 Tanzania 292 Togo 294 Uganda 296 Zambia 298 Zimbabwe MPO 3 Apr 24 The Macro Poverty Outlook is jointly produced by the Poverty and Equity and the Macroeconomics, Trade and Investment Global Practices of the World Bank. The cutoff date for information for most countries was March 29, 2024. 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 5 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 6 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 7 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 8 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 ($6.85 in 2017 PPP) 66.6 65.3 63.2 59.5 59.2 59.0 Sources: World Bank and IMF. Notes: e = estimate; f = forecast. Country authorities and World Bank and IMF staff estimates. Nauru data are based on the fiscal year ended June. Kiribati and Tuvalu are calendar years. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 9 Apr 24 in 2023. Services demand, public infra- structure, and manufacturing investment CHINA Key conditions and contributed to the recovery in 2023, but the property market slump and subdued challenges exports weighed on growth. While hous- ing demand remains depressed, con- Table 1 2023 Domestic demand in China has remained sumer spending has been relatively re- Population, million 1411.9 sluggish and contributed to low inflation, silient in recent months. GDP, current US$ 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 10 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 ($6.85 in 2017 PPP) 20.8 19.3 17.2 15.3 13.6 12.1 GHG emissions growth (mtCO2e) 5.4 3.1 2.6 2.9 3.1 3.1 Energy related GHG emissions (% of total) 82.6 82.7 82.8 82.9 83.0 83.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The adjusted fiscal balance adds up the public finance budget, the government fund budget, the state capital management fund budget and the social security fund budget. b/ Last grouped data available to calculate poverty is for 2020 provided by NBS. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2020) with pass-through = 0.85 based on GDP per capita in constant LCU. MPO 11 Apr 24 standards of living. The 2019-20 House- hold Income and Expenditure Survey FIJI Key conditions and (HIES) estimated the incidence of ex- treme poverty at 1.3 percent, which is in challenges line with other UMICs. Extreme poverty is low but Fiji's standard of living is be- Table 1 2023 Fiji is a tropical island nation of 900,000 low its UMIC peers. The upper middle- Population, million 0.9 people in the South Pacific Ocean. It is income poverty rate is 52.6 percent, near- GDP, current US$ 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 12 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 ($6.85 in 2017 PPP) 67.2 57.1 52.1 49.9 48.2 46.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 13 Apr 24 The small twin deficits, low public debt, ad- equate foreign reserves, and stable external INDONESIA Key conditions and financing constitute though robust buffers to manage downside risks. The challenge is challenges to sustain macroeconomic fundamentals to deliver faster, greener, and more inclusive Table 1 2023 Indonesia has successfully navigated the growth. This requires combining the robust Population, million 281.7 macroeconomic fallout of a series of global macroeconomic policy framework with GDP, current US$ 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 14 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 ($6.85 in 2017 PPP) 60.7 60.5 58.9 57.0 55.2 53.5 GHG emissions growth (mtCO2e) 1.1 0.9 2.1 2.1 1.7 1.2 Energy related GHG emissions (% of total) 37.5 37.6 38.1 38.5 38.8 39.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2011-SUSENAS and 2023-SUSENAS. Actual data: 2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2011-2023) with pass-through = 1 based on GDP per capita in constant LCU. MPO 15 Apr 24 LAO PDR Key conditions and Recent developments challenges Economic activity grew at 3.7 percent in 2023, benefiting from the services sector re- Table 1 2023 Tighter monetary and fiscal policies covery. Increased tourism, transport and Population, million 7.6 and renewed efforts to enforce for- logistics services, mining, and foreign in- GDP, current US$ 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 16 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 ($6.85 in 2017 PPP) 70.0 69.9 69.6 69.3 69.0 68.7 GHG emissions growth (mtCO2e) 5.0 3.7 4.6 4.7 5.2 5.3 Energy related GHG emissions (% of total) 41.4 42.4 43.5 44.6 45.6 46.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2012-LECS and 2018-LECS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2012-2018) with pass-through = 0.5 based on GDP per capita in constant LCU. MPO 17 Apr 24 MALAYSIA Key conditions and Recent developments challenges Malaysia's economic growth moderated to 3.7 percent in 2023 (2022: 8.7 percent). Table 1 2023 Malaysia's economic growth moderated Domestic demand remained supportive Population, million 34.3 to 3.7 percent in 2023 (2022: 8.7 percent), of the economy. Private consumption GDP, current US$ 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 18 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 ($6.85 in 2017 PPP) 2.3 1.7 1.5 1.4 1.2 1.0 GHG emissions growth (mtCO2e) 4.8 4.6 -0.6 1.4 1.8 2.0 Energy related GHG emissions (% of total) 64.4 65.6 65.1 65.4 65.8 66.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2022-HIS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.7 (Low (0.7)) based on private consumption per capita in constant LCU. MPO 19 Apr 24 MONGOLIA Key conditions and Recent developments challenges Despite the large contraction in agricul- tural production attributed to harsh Table 1 2023 While macro-fiscal conditions are improv- weather conditions, the economy Population, million 3.4 ing due to an ongoing mining exports achieved a robust growth rate of 7.1 per- GDP, current US$ 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 20 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 ($6.85 in 2017 PPP) .. 22.1 20.9 20.2 19.1 18.2 GHG emissions growth (mtCO2e) 2.0 3.6 0.5 3.1 3.5 4.2 Energy related GHG emissions (% of total) 30.5 31.4 33.1 33.5 34.5 35.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Debt excludes the BoM's liability under the PBOC swap line (8% of GDP as of end-2023). b/ Calculations based on EAPPOV harmonization using 2016-HSES, 2018-HSES, and 2022-HSES. The consumption aggregate was updated in 2022. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. c/ Projection using annualized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 21 Apr 24 the introduction of U.S. sanctions on two large state-owned banks, and the an- MYANMAR Key conditions and nouncement of restrictions on cross-border payments by international banks. The re- challenges sulting exchange rate depreciation has translated to high inflation (28.6 percent in Table 1 2023 Economic conditions have deteriorated June 2023), which has been further wors- Population, million 54.6 over the six months to March amid in- ened by elevated conflict and logistics con- GDP, current US$ 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 22 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 23 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 24 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 ($6.85 in 2017 PPP) 30.0 27.7 25.7 24.0 23.4 22.3 Sources: ECONMAP, IMF, and Worldbank. Note: e = estimate; f = forecast. Values for each country correspond to their fiscal years ending September 30. a/ Calculations based on EAPPOV harmonization, using 2019-HIES. b/ Projection using neutral distribution (2019) with pass-through = 1 (High) based on GDP per capita in constant LCU. c/ For 2022-2025 projections, no change in population is assumed due to a lack of updated population projections. MPO 25 Apr 24 lower middle-income class poverty line, and 74.2 percent are considered to be mul- PAPUA NEW Key conditions and tidimensionally poor. Access to basic ser- vices remains limited, with only 19 percent challenges GUINEA of the population having access to safe drinking water, and a mere 15 percent of Since gaining independence in 1975, the households having access to electricity, ac- economy has more than tripled. However, cording to the 2022 Socio-Demographic Table 1 2023 real GDP per capita has only seen an annu- and Economic Survey. Population, million 10.3 al increase of 0.9 percent—a sluggish rate GDP, current US$ 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 26 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 27 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 28 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 ($6.85 in 2017 PPP) 55.3 51.8 49.4 46.8 44.2 41.5 GHG emissions growth (mtCO2e) 5.9 5.2 5.4 5.6 5.7 5.7 Energy related GHG emissions (% of total) 57.1 57.8 56.9 57.8 57.9 59.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2021-FIES. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 1 (High (1)) based on GDP per capita in constant LCU. MPO 29 Apr 24 SOLOMON Key conditions and Recent developments challenges ISLANDS The economy returned to 1.9 percent growth in 2023, driven by the hosting of Solomon Islands is a small, secluded the Pacific Games in November 2023 and archipelago with 721,000 people scattered several large public infrastructure pro- Table 1 2023 across 90 inhabited islands. Geographic jects in the energy and transport sec- Population, million 0.7 dispersion, remoteness from global mar- tors. An uptick in international visitor ar- GDP, current US$ 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 30 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 31 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 32 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, $3.65 in 2017 PPP) 41.5 42.4 43.2 42.8 42.6 42.9 Sources: World Bank and IMF. Notes: e = estimate; f = forecast. Financial years for Samoa and Tonga are July-June, for Vanuatu it is January-December. Samoa improved the methodology for GDP calcula- tion and revised the historical data in March 2022 GDP release. a/ Calculations based on EAPPOV harmonization, using 2021-HIES for Tonga and 2019-NSDP for Vanuatu. b/ Projection using neutral distribution with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 33 Apr 24 THAILAND Key conditions and Recent developments challenges Thailand's recovery trajectory slowed compared to its ASEAN peers due to Table 1 2023 Thailand’s recovery diverged further weak manufacturing and public invest- Population, million 71.8 from peers such as Malaysia and the ment despite robust private consumption. GDP, current US$ 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 34 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 ($6.85 in 2017 PPP) 12.2 11.0 10.3 9.1 8.1 7.1 GHG emissions growth (mtCO2e) 2.7 1.6 1.9 1.3 2.7 3.1 Energy related GHG emissions (% of total) 53.7 53.0 52.5 51.4 50.5 49.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2014-SES, 2020-SES, and 2021-SES. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2014-2020) with pass-through = 1 based on GDP per capita in constant LCU. MPO 35 Apr 24 account for less than 4 percent of total ex- ports. In contrast, a lack of domestic pro- TIMOR-LESTE Key conditions and duction necessitates imports to meet do- mestic consumption, resulting in suscepti- challenges bility to commodity price volatility. Timor-Leste is facing a fiscal cliff. Gov- Table 1 2023 Despite development gains since inde- ernment spending reached 87 percent of Population, million 1.4 pendence, Timor-Leste remains a fragile GDP in 2023, among the highest globally, GDP, current US$ 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 36 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 ($3.65 in 2017 PPP) 72.9 72.1 71.9 71.2 70.2 69.4 GHG emissions growth (mtCO2e) -3.3 -2.8 -2.7 -2.4 -2.1 -5.0 Energy related GHG emissions (% of total) 7.9 8.4 9.0 9.6 10.3 11.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The ESI is part of total revenue, while excess withdrawals from the PF is a financing item. b/ Calculations based on EAPPOV harmonization, using 2007-TLSLS and 2014-TLSLS. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. c/ Projection using annualized elasticity (2007-2014) with pass-through = 1 based on GDP per capita in constant LCU. MPO 37 Apr 24 on corporate bond issuance in late 2022. Reflecting these developments, the indus- VIETNAM Key conditions and trial sector (industry and construction) grew by a tepid 3.7 percent in 2023 com- challenges pared to 7.8 percent in 2022. Meanwhile, services sector growth slowed to 6.8 per- Table 1 2023 After a difficult year, Vietnam’s growth cent compared to 10 percent in 2022 as Population, million 98.9 is expected to pick up moderately in the strong recovery of domestic and for- GDP, current US$ 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 38 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 ($6.85 in 2017 PPP) .. 19.7 18.7 17.6 16.5 15.3 GHG emissions growth (mtCO2e) 1.2 6.4 4.4 5.4 5.5 5.6 Energy related GHG emissions (% of total) 64.2 64.8 64.6 64.6 64.5 64.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on EAPPOV harmonization, using 2016-VHLSS, 2020-VHLSS, and 2022-VHLSS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2016-2020) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 39 Apr 24 Europe and Central Asia Albania Kazakhstan Russian Federation Armenia Kosovo Serbia Azerbaijan Kyrgyz Republic Tajikistan Belarus Moldova Turkey Bosnia and Herzegovina Montenegro Ukraine Bulgaria North Macedonia Uzbekistan Croatia Poland Georgia Romania MPO 41 Apr 24 time of high interest rates. To address the gap in human capital investment and the ALBANIA Key conditions and need for climate-resilient infrastructure, while maintaining support for the most challenges vulnerable, Albania will need to imple- ment a Medium-Term Revenue Strategy to Table 1 2023 The Albanian economy has shown consid- strengthen domestic revenues. Unlocking Population, million 2.8 erable resilience in the face of consecutive further growth is conditional on the swift GDP, current US$ billion 22.7 shocks during 2019-2022, which included implementation of the government’s pro- GDP per capita, current US$ 8219.5 the 2019 earthquake, the pandemic and the gram, anchored in the EU accession aspira- a 3.9 International poverty rate ($2.15) ensuing economic turmoil, and Russia’s tion, and built on reforms tackling produc- a 11.3 invasion of Ukraine. Prudent macroeco- tivity, including improving the business Lower middle-income poverty rate ($3.65) a 34.2 nomic policies supported a strong eco- environment, and expanding Albania’s in- Upper middle-income poverty rate ($6.85) Gini index a 36.0 nomic rebound, with real GDP growth av- tegration into foreign markets. School enrollment, primary (% gross) b 95.6 eraging 6.9 percent in 2021 and 2022, and b 76.5 GDP exceeding its pre-pandemic level in Life expectancy at birth, years 2022. A key factor in Albania’s resilience Total GHG emissions (mtCO2e) 7.6 has been the proximity to the EU, which Recent developments Source: WDI, Macro Poverty Outlook, and official data. is a source of investment and remittances, a/ Most recent value (2018), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy and a main market for exports. Tourism In 2023, GDP growth is estimated at 3.3 (2021). has emerged as a key growth driver, help- percent. Based on the performance of the ing to improve external imbalances and first three quarters of 2023, trade, tourism partially contributing to a steady appreci- and real estate led growth on the supply ation of the lek in recent years. The avail- side, followed by construction and energy Growth in 2023 is estimated at 3.3 ability of hydropower, which meets 85 production. Private domestic demand and percent of domestic energy demand in a net exports drove growth on the demand percent, led by private consumption, year with average precipitation, has pro- side. Leading economic indicators suggest tourism and construction. Price pres- vided some insulation from the energy growth accelerated during Q4 with sures continued to ease. Growth is pro- crisis and contributed to containing the tourist arrivals hitting a record high, and jected at the same levels in 2024, led country’s greenhouse gas emissions. Al- construction activity accelerating. In- bania’s key development challenges are its creased income from employment, eco- by services. Poverty is expected to con- declining population, partially due to out- nomic sentiment indicators and strong tax tinue declining as labor income increas- migration; the poor quality of the labor revenues, suggest a steady growth in Q4. es. Medium-term prospects hinge on force and the low quality of jobs created; Employment grew by 1.2 percent yoy in the recovery of the global economy and the moderate pace of structural reforms, Q3 2023 notably in services, while declin- on the pace of domestic reforms. The especially in the areas of private sector en- ing in agriculture and manufacturing. In- vironment and governance; and rising fis- creasing wages and employment incen- EU accession aspirations provide an tivized labor force participation (ages 15+), cal pressures, due to government respons- anchor to speed up convergence. es to multiple crises, climate risks, contin- which peaked at 76.1 percent. Average gent liabilities, and debt refinancing at a private sector wages grew by 14.5 percent FIGURE 1 Albania / Economic sentiment index (ESI) and FIGURE 2 Albania / Actual and projected poverty rates and GDP growth real GDP per capita Real GDP Growth (percent, y/y,not sa) ESI Poverty rate (%) Real GDP per capita (constant LCU) 25 140 45 800000 20 120 40 700000 15 35 600000 100 30 10 500000 80 25 5 400000 20 60 0 300000 15 40 200000 -5 10 GDP growth (lhs) 20 5 100000 -10 ESI (rhs) 0 0 -15 0 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Sources: Instat and Bank of Albania. Source: World Bank. Notes: see Table 2. MPO 42 Apr 24 in Q3 2023. Unemployment went down spending in 2024 and buy back an existing envisioned in the Medium-Term Revenue to 10.5 percent in Q3 2023 marking a Eurobond maturing in 2025. Strategy. Public debt is expected to de- further decline in annual terms. Given cline further to 58.2 percent of GDP in strong GDP per capita growth in 2023, 2024, and also in the medium term, as a poverty is projected to have declined by result of higher nominal growth and the 1.8 percentage points to 21.7 percent. Outlook achievement of a positive primary bal- The annual inflation rate dropped to 3.9 ance. Given Albania’s growing reliance percent in December 2023 from a record Growth is expected to remain robust at 3.3 on external financing, risks related to the high of 8.3 percent in October 2022, as a percent in 2024, in the context of tight global exchange rate, interest rate, and refinanc- result of downward pressures from low- financial conditions and limited economic ing remain elevated. er food and energy import prices, do- growth in Europe. Nevertheless, increased Further increases in food and energy mestic currency appreciation and mon- tourism and construction are expected to prices are a key risk to growth, as they etary policy normalization. The banking drive exports, consumption, and invest- could affect real disposable income, slow system remains resilient, despite increas- ment growth at rates similar to the pre-pan- poverty reduction and potentially con- ing interest rates. demic period. The inflation rate is projected strain the fiscal space. As a small, open The government recorded an improved to start converging toward the 3 percent tar- economy, Albania is highly exposed to ex- fiscal position in 2023, on account of get by early 2025. Economic sentiment re- ternal shocks, such as a recession in the both stronger revenue collection and low- mains positive (Figure 1), though showing EU or further tightening of financing con- er spending. Revenues from profits, per- signs of moderation. ditions in international capital markets be- sonal income taxes and social security Albania’s primary balance is projected yond the current year. contributions increased, reflecting higher to reach 0.2 percent of GDP in 2024 and Risks to growth emanate from natural dis- statutory minimum wages and private stay at similar levels in observance of asters, and unfavorable global conditions. sector wage growth. A five-year Eu- the fiscal rule. Fiscal consolidation is ex- Fiscal risks emanate from public-private robond of EUR 600 million was issued pected both revenue and spending side. partnerships and SOEs, in addition to the with a 5.9 percent coupon, higher than On revenues, Government plans to con- country’s hydropower-based energy sec- the 3.5 percent in 2021, to prefinance tinue improvement of tax administration, tor, mainly due to variation in hydrology. TABLE 2 Albania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 8.9 4.9 3.3 3.3 3.4 3.5 Private consumption 4.3 7.4 2.5 2.6 2.7 2.8 Government consumption 7.8 -4.8 2.8 3.8 6.6 3.2 Gross fixed capital investment 19.2 6.5 1.3 3.2 1.4 2.6 Exports, goods and services 52.0 7.5 6.5 5.1 5.8 5.7 Imports, goods and services 31.5 13.1 3.4 3.6 3.9 3.7 Real GDP growth, at constant factor prices 8.2 5.3 3.2 3.3 3.4 3.5 Agriculture 1.8 0.1 -0.2 1.6 1.6 1.6 Industry 13.6 7.7 1.2 1.0 1.1 1.1 Services 8.1 5.9 5.4 4.9 5.0 5.1 Inflation (consumer price index) 2.6 6.7 4.8 3.0 3.0 3.0 Current account balance (% of GDP) -7.8 -6.0 -3.8 -4.5 -4.5 -4.4 Net foreign direct investment inflow (% of GDP) 6.5 6.7 6.8 6.7 6.7 6.7 Fiscal balance (% of GDP) -4.6 -3.7 -1.4 -2.3 -2.7 -2.9 Revenues (% of GDP) 27.5 26.8 27.9 27.8 27.8 27.9 Debt (% of GDP) 75.4 65.3 59.8 58.2 57.3 56.7 Primary balance (% of GDP) -2.7 -1.8 0.7 0.2 0.2 0.2 a,b International poverty rate ($2.15 in 2017 PPP) 2.4 1.8 1.6 1.4 1.2 1.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 7.3 5.7 4.9 4.3 3.8 3.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 27.1 23.5 21.7 20.2 18.7 17.4 GHG emissions growth (mtCO2e) 1.1 -4.0 -3.4 -2.9 -2.7 -2.3 Energy related GHG emissions (% of total) 45.5 44.5 44.2 43.8 43.5 43.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2014- and 2019-SILC-C. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2013-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 43 Apr 24 private consumption grew by 6.3 percent (yoy), contributing to half of total growth. ARMENIA Key conditions and Public consumption and investment (up by 18 and 10 percent, respectively) had a challenges similar combined contribution. Private consumption was fueled by a 12.5 percent Table 1 2023 Armenia has weathered multiple crises increase in real average wages, improve- Population, million 2.8 since 2020. Thanks to sound macro- ments in employment, and cash transfers GDP, current US$ billion 24.2 economic management (inflation target- provided by the government to refugees GDP per capita, current US$ 8715.8 ing, adherence to a fiscal rule, and in Q4 2023. On the supply side, growth a 0.8 International poverty rate ($2.15) sound financial sector oversight) and was driven by an 11 percent (yoy) in- a 10.0 government mitigation measures, Arme- crease in services, primarily due to Lower middle-income poverty rate ($3.65) a 51.3 nia was able to recover from the signif- growth in trade and ICT services. Growth Upper middle-income poverty rate ($6.85) Gini index a 27.9 icant contraction in 2020 resulting from in industry slowed to 5.5 percent (yoy) School enrollment, primary (% gross) b 92.9 the Covid-19 pandemic and the military due to a 6.6 percent contraction in the b 72.0 conflict with Azerbaijan, while maintain- mining sector and a slowdown in man- Life expectancy at birth, years ing macroeconomic stability. Meanwhile, ufacturing growth. Construction grew by Total GHG emissions (mtCO2e) 13.1 large money transfers from Russia con- 16 percent, (yoy), while agricultural Source: WDI, Macro Poverty Outlook, and official data. tributed to high average annual growth growth remained flat. a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). of 10.7 percent in 2022-2023. The unemployment rate decreased from In recent years, the authorities aimed 13.7 percent in 2022 to an average of 12.5 at reducing corruption and improving percent in the first three quarters of 2023, the business environment, in particular benefitting from strong economic activi- through improvement in tax and customs ty. The poverty rate, measured by Upper- administration; however, important struc- Middle-Income poverty line (UMIC), de- Growth exceeded expectations by reach- tural challenges persist, resulting in an creased by 0.4 percentage points, to 51.3 ing 8.7 percent in 2023, fueled by con- undiversified economic structure, a nar- percent in 2022. sumption and investment. Average infla- row export base, insufficient private in- Average inflation dropped from 8.6 per- vestment, low productivity, challenges to cent in 2022 to 2 percent in 2023, largely tion dropped from 8.6 percent in 2022 to attracting FDI, and limited human capi- driven by declines in food and transport 2 percent in 2023. Poverty and unem- tal. Armenia also faces significant geopo- prices. The Central Bank of Armenia has ployment continued to decline. The eco- litical tensions and is highly vulnerable gradually cut the policy rate by 200 basis nomic outlook is subject to significant un- to climate related hazards. points since January 2023, to 8.75 percent certainty due to ongoing border tensions by the end of January 2024. Credit to the economy in 2023 increased with Azerbaijan, geopolitical turmoil, in- by 22 percent in nominal terms (yoy), dri- tegration of refugees, and a possible slow- Recent developments ven mostly by an increase in dram-denom- down in trading partner economies. inated loans. This lowered loan dollariza- Growth reached 8.7 percent in 2023, ex- tion to 36 percent as of end-2023. Financial ceeding expectations. On the demand side, stability indicators remain sound, with the FIGURE 1 Armenia / Real GDP growth and contributions to FIGURE 2 Armenia / 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) 15 70 3.5 10 60 3.0 5 50 2.5 0 40 2.0 30 1.5 -5 20 1.0 -10 10 0.5 -15 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 0.0 Private Consumption Government Consumption 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Investment Net Export International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: Statistical Committee of Armenia and World Bank staff projections. Source: World Bank. Notes: see Table 2. MPO 44 Apr 24 Capital Adequacy Ratio at 20 percent and dropped to 4.6 percent of annual GDP, to gradually converge towards the 4.5 the Non-Performing Loans ratio below 2.5 from 7.7 percent in the same period of 2022 percent potential growth rate. Average in- percent. However, the profitability of the (affected by a 44 percent rise in the net out- flation is forecasted to gradually rise to- banking system declined in 2023. flow of non-commercial money transfers). ward the inflation target of 4 percent in The budget registered a 4.1 percent of GDP Tourism-related service inflows increased the medium term. deficit in 2023, all financed by domestic by 47 percent (yoy) in the nine months The budget deficit is projected to deterio- sources on a net basis. Total revenues over- of 2023 and partly mitigated the deterio- rate to 4.7 percent in 2024 (owing to sup- performed by 3 percent compared to the ration of the current account deficit, es- port to refugees amounting about 2 per- original plan, supported by a 17 percent timated at 2.8 percent of GDP in this cent of GDP), followed by fiscal consol- (yoy) nominal increase in tax collection, fu- period. The Armenian dram started to idation in the medium term. Capital ex- eled by strong economic growth. Current gradually depreciate in late 2023 and by penditures are expected to increase over expenditures (including social transfers to end-2023 was 2.9 percent weaker against the medium term as a percent of GDP to refugees) and capital expenditures in- the USD (yoy). Gross international re- address the infrastructure gap. The cur- creased by 22 and 27 percent (yoy) in nom- serves decreased by USD 510 million in rent account deficit is projected to deteri- inal terms, respectively. The government 2023 and reached USD 3.6 billion, covering orate to 3.2 percent of GDP in 2024 but to debt increased from 46.7 percent at 3 months of import. remain manageable at around 3.5 percent end-2022 to 48.1 percent end-2023. in the medium term. In the first nine months of 2023, the ex- Due to robust economic performance port and import of goods remained ro- and low inflation, the UMIC poverty bust, increasing by 34 and 43 percent Outlook rate is projected to decline gradually to (yoy in nominal USD), respectively, large- 47.7 percent in 2024. ly driven by re-exports. However, in this Growth is expected to ease to 5.5 percent Downside risks are related to ongoing ten- period the trade deficit increased to 8.8 in 2024 as the surge in investment mod- sions with Azerbaijan, geopolitical tur- percent of annual GDP, from 6.3 percent erates and net exports remain negative. moil, integration of refugees, and a possible in the same period of 2022. Remittances Growth in the medium-term is projected slowdown in trading partner economies. TABLE 2 Armenia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.8 12.6 8.7 5.5 4.9 4.5 Private consumption 2.8 5.5 6.3 6.0 5.8 5.1 Government consumption -6.2 6.3 17.9 9.2 5.8 5.5 Gross fixed capital investment 23.6 9.0 14.4 6.2 6.0 5.9 Exports, goods and services 18.6 59.3 28.7 5.2 5.6 6.6 Imports, goods and services 12.9 34.5 28.3 6.7 7.0 7.8 Real GDP growth, at constant factor prices 5.6 13.2 8.4 5.5 4.9 4.5 Agriculture -0.8 -0.7 0.2 0.9 1.2 1.4 Industry 2.6 9.2 5.5 5.3 4.7 5.0 Services 8.7 18.2 11.1 6.3 5.5 4.7 Inflation (consumer price index) 7.2 8.6 2.0 3.0 3.5 4.0 Current account balance (% of GDP) -3.5 0.8 -2.3 -3.2 -3.4 -3.5 Net foreign direct investment inflow (% of GDP) 2.5 4.9 2.0 2.0 2.1 2.2 Fiscal balance (% of GDP) -4.5 -2.2 -4.1 -4.7 -3.5 -3.1 Revenues (% of GDP) 24.9 25.1 25.8 26.0 26.2 26.6 a Debt (% of GDP) 60.2 46.7 48.1 49.0 48.6 48.2 Primary balance (% of GDP) -2.0 0.1 -1.2 -1.4 -0.3 -0.2 b,c International poverty rate ($2.15 in 2017 PPP) 0.5 0.8 0.8 0.9 0.9 0.9 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 8.7 10.0 9.3 8.9 8.6 8.3 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 51.7 51.3 49.1 47.7 46.6 45.6 GHG emissions growth (mtCO2e) 2.4 6.4 14.7 14.5 12.8 11.2 Energy related GHG emissions (% of total) 63.2 65.7 70.0 73.5 76.1 78.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Excludes CBA debt. b/ Calculations based on ECAPOV harmonization, using 2010-ILCS, 2018-ILCS, and 2022-ILCS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. c/ Projection using annualized elasticity (2010-2018) with pass-through = 0.8 based on GDP per capita in constant LCU. MPO 45 Apr 24 subdued (3.7 percent, yoy). The decline in transport sector output, which had exhib- AZERBAIJAN Key conditions and ited robust growth in 2022 due to boom- ing air cargo transportation, weighed challenges down non-energy sector expansion. However, the construction sector expe- Table 1 2023 Azerbaijan’s continued reliance on hydro- rienced notable growth, fueled by in- Population, million 10.2 carbons as a major source of export and creased public investment in reconstruc- GDP, current US$ billion 72.7 fiscal revenues remains its main vulnera- tion. On the demand side, strong public GDP per capita, current US$ 7111.1 bility. This challenges long-term growth investment helped compensate for ane- a 99.8 School enrollment, primary (% gross) prospects because of declining oil produc- mic growth in private investment, while a 69.4 tion, oil price volatility, and the global consumption growth eased compared to Life expectancy at birth, years Total GHG emissions (mtCO2e) 53.8 transition away from fossil fuels. 2022. The unemployment rate edged down Source: WDI, Macro Poverty Outlook, and official data. Constraints to private sector development to 5.5 percent in 2023. a/ Most recent WDI value (2021). include a large state footprint in the econ- Inflation fell sharply in the second half of omy, lack of a level playing field for com- 2023, driven by a decline in global food panies, shallow financial markets, and a prices and subdued domestic demand. weak human capital base. End of period inflation for 2023 reached Mitigation efforts around the world can 2.1 percent, approaching the lower limit substantially reduce Azerbaijan’s resource of the CBAR’s inflation target interval of rents through declining global fossil fuel 4 +/-2 percent. Since October 2023, the Economic growth slowed to 1.1 percent demand and prices. Carbon border ad- CBAR cut the policy rate three times by in 2023, as a result of declining crude justment measures could further adverse- a total of 125 basis points, bringing it to oil production and lackluster growth in ly impact the economy. Azerbaijan’s host- 7.75 percent as of end January 2024. ing of COP29 in November 2024 may be Buoyant oil and gas prices contributed the non-energy sector. Annual inflation an opportunity to boost climate mitiga- to maintaining a robust external position. fell sharply to 2.1 percent as both exter- tion and adaptation efforts. Elimination of Hydrocarbon exports declined by 13 per- nal and domestic pressures eased. Buoy- distorting fossil fuel subsidies could sub- cent while non-hydrocarbon exports grew ant energy prices sustained sizable ex- stantially reduce emissions and boost the by 10 percent in 2023 compared to 2022. green transition. Over nine months, the current account ternal and fiscal surpluses. In the medi- balance (CAB) surplus reached 12.5 per- um-term, growth is projected to converge cent of GDP, as a substantial trade sur- to about 2.5 percent as the fall in crude oil plus offset the widening deficit in the pri- production eases and non-energy sector Recent developments mary income balance (driven by profit repatriation from energy companies). Re- growth picks up. Economic growth decelerated to 1.1 per- mittance flows, primarily from Russia, de- cent in 2023, down from 4.6 percent in clined in nine months of 2023 by 64 per- 2022. This slowdown was attributed to a cent from the record-high levels seen in contraction in crude oil production, while 2022, while remaining larger than in 2021. growth in the non-energy sector remained Financial outflows decreased significantly FIGURE 1 Azerbaijan / Non-oil GDP growth and oil price FIGURE 2 Azerbaijan / Official poverty rate and unemployment rate US$ per bbl Percent Percentage of population Percent 120 12 10 10 Crude oil price, avg (lhs) Official poverty rate (lhs) Non-oil GDP growth (rhs) Unemployment rate (rhs) 100 9 8 8 80 6 6 6 60 3 4 4 40 0 2 2 20 -3 0 0 0 -6 Sources: State Statistical Committee, World Bank data, and World Bank staff Source: State Statistical Committee. estimates. Notes: The World Bank has not yet reviewed the official national poverty rates for 2013–2022.*Preliminary. MPO 46 Apr 24 as capital repatriation from natural gas owing to moderate domestic demand production companies eased. growth and stabilization in global food The strong external position allowed the Outlook prices. The external balance is expected to CBAR to accumulate reserves, which in- stay in surplus in the medium term, with creased by 29 percent in 2023, to USD 11 Economic growth is anticipated to reach CAB averaging 7.5 percent of GDP, sup- billion, covering six months of imports. 2.3 percent in 2024, driven by a less pro- ported by favorable energy prices, while The fiscal surplus expanded to 8 percent nounced decline in crude oil output at- growth in imports is expected to stabilize. of GDP in 2023, buoyed by favorable oil tributed to the commissioning of new oil Money transfers are anticipated to cool and gas prices and despite a notable in- platforms. Non-energy sector growth is further in 2024. crease in spending, which grew by 5.5 expected to improve to 4 percent in 2024, The fiscal position is expected to main- percent in real terms. This spending surge primarily due to robust expansion in the tain a surplus in 2024-2026, averaging was primarily driven by a 13 percent construction sector fueled by public sec- 3.2 percent of GDP, bolstered by a real increase in capital spending, with tor investments in reconstruction. Oth- steady revenue flow from the energy the majority directed towards reconstruc- er sectors are expected to sustain their sector. However, the fiscal surplus is es- tion needs. The non-energy primary bal- growth rates. On the demand side, con- timated to ease in the medium term ance is estimated at 21 percent of non-ener- sumption growth is expected to stabi- as the government has delayed reaching gy GDP, in line with the targets set for the lize while investment growth is projected the fiscal target (set at non-energy pri- fiscal rule. Due to the substantial fiscal sur- to remain moderate, supported by public mary balance as a percent of non-energy plus, SOFAZ assets grew by 14 percent in investment but held back by anemic pri- GDP at 17.5 percent) to 2027, allowing 2023, reaching USD 56 billion, equivalent vate investment growth. In the medium for increased spending. to 77 percent of GDP. term, growth is forecast to hover around The main downside risks relate to a Credit to the economy experienced a 2.4 percent but could accelerate if backed fall in energy prices, which would im- marked increase of 9 percent (yoy) in real by a faster pace of implementation of pact economic activity. Upside risks terms in 2023, with the NPL ratio easing structural reforms. include the potential increase in natur- to 1.8 percent. The deposit portfolio fell Inflation is projected to remain low, av- al gas production due to a new field by 6.5 percent in real terms. eraging 2.2 percent in the medium term, becoming operational. TABLE 2 Azerbaijan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.6 4.6 1.1 2.3 2.4 2.4 Private consumption 7.0 4.9 4.0 3.8 3.7 3.6 Government consumption 3.8 6.3 8.1 5.1 6.9 6.8 Gross fixed capital investment -6.0 5.7 9.6 5.4 3.9 3.5 Exports, goods and services 5.6 3.3 -2.9 0.4 0.5 0.6 Imports, goods and services 2.5 3.2 1.9 2.7 2.7 2.7 Real GDP growth, at constant factor prices 5.6 4.6 1.1 2.3 2.4 2.4 Agriculture 3.3 3.4 3.2 3.0 3.0 3.0 Industry 4.1 2.4 -0.9 0.2 0.2 0.2 Services 8.6 8.5 3.8 5.3 5.3 5.2 Inflation (consumer price index) 6.7 13.8 2.1 2.2 2.3 2.3 Current account balance (% of GDP) 15.2 29.7 9.5 7.9 6.5 5.4 Net foreign direct investment inflow (% of GDP) -4.1 -1.4 -1.1 -1.0 -1.0 -0.9 Fiscal balance (% of GDP) 4.2 5.8 8.1 5.2 2.0 0.6 Revenues (% of GDP) 36.5 31.6 40.7 38.1 34.5 32.0 Debt (% of GDP) 16.2 11.0 8.5 7.7 10.5 12.4 Primary balance (% of GDP) 4.8 6.1 8.4 5.4 2.2 0.8 GHG emissions growth (mtCO2e) 4.4 -3.0 -0.6 0.5 1.1 1.3 Energy related GHG emissions (% of total) 64.1 62.9 62.7 63.0 63.3 63.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 47 Apr 24 border for passenger and cargo transporta- tion. Prolonged adherence to accommoda- BELARUS Key conditions and tive policies presents challenges, necessi- tating a delicate balance between preserv- challenges ing social benefits, wages, economic sup- port, and overall stability. This, coupled Table 1 2023 Strong economic growth in 2023 exceeded with a deteriorating current account, ex- Population, million 9.2 expectations, but it stretched the coun- change rate and price controls, and labor GDP, current US$ billion 74.8 try’s production capacities and the limits force constraints, heightens the risk of sig- GDP per capita, current US$ 8156.6 of economic policies. Extensive adminis- nificant inflationary pressures. a 0.0 International poverty rate ($2.15) trative measures, combined with expan- Finally, Belarus's economy grapples with a 0.1 sionary monetary and fiscal policies, were its Soviet-era structure and a focus on Lower middle-income poverty rate ($3.65) a 1.3 crucial to bolster domestic demand. How- quantitative growth, with diminishing Upper middle-income poverty rate ($6.85) Gini index a 24.4 ever, potential GDP declined following prospects for economic diversification. School enrollment, primary (% gross) b 94.7 the prolonged effects of sanctions and b 72.4 subpar investment activity. Life expectancy at birth, years To adapt to sanctions, the economy es- Total GHG emissions (mtCO2e) 88.9 tablished new trade routes and redirected Recent developments Source: WDI, Macro Poverty Outlook, and official data. exports, particularly of potash fertilizers a/ Most recent value (2020), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy and refined oil products, through Russia, In 2023, Belarus's economy expanded by (2021). albeit at higher logistical costs. In the 3.9 percent. Key drivers were the manu- medium term, the authorities’ focus is facturing industry, particularly machinery on addressing supply issues and enhanc- and equipment, (9.2 percent), trade (12.7 On the back of a strong recovery in 2023, ing local production by substituting im- percent) and the construction sector (11 the economy has now reached its capacity ports. However, heightened reliance on percent). Conversely, the IT and transport the Russian market, amidst escalating sectors decreased by 14.2 percent and 2.8 limits and is navigating the challenges competition facing Belarusian products, percent, due to sanctions and labor migra- stemming from economic sanctions tar- poses a notable risk and exposes Belarus tion, while the agricultural sector margin- geting key currency-earning sectors, im- to vulnerability stemming from weakened ally declined. On the demand side, private peding exports and altering trade routes. external demand, particularly in the event consumption, boosted by subdued infla- of a deteriorating economic outlook in tion and increased demand from consumer The growth trajectory faces further hur- Russia. Addressing labor market rigidities lending and wages (11 percent real in- dles due to constraints and efficacy con- will become increasingly imperative, crease), was the main contributor. A mod- cerns surrounding price controls, mone- alongside necessary investments aimed at est investment recovery, primarily from tary policies, and external demand from stimulating potential growth. budgetary and quasi-budgetary sources, Eastern markets. With monetary and fis- Heightened security concerns and geopo- also contributed to growth. litical tensions add further strain to the Inflation slowed to 5.8 percent due to base cal policies nearing their limits, there is a effects and price controls, prompting a economic outlook, especially with the po- growing risk stemming from the coun- tential introduction of additional sanc- base interest rate reduction from 12 per- try’s decreasing potential growth. tions, such as the closure of the western cent in January to 9.5 percent in June 2023. FIGURE 1 Belarus / Quarterly real GDP growth and FIGURE 2 Belarus / Actual and projected poverty rates and contributions to real quarterly GDP growth real private consumption per capita Percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 40 25 7000 30 6000 20 20 10 5000 0 15 4000 -10 -20 3000 10 -30 -40 2000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 5 1000 2021 2022 2023 HH Consumption GG Consumption 0 0 Gross Capital Formation Exports 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Imports Stat discrepancy Lower middle-income pov. rate Upper middle-income pov. rate GDP growth Real priv. cons. pc Source: World Bank calculations based on Belstat data. Source: World Bank. Notes: see Table 2. MPO 48 Apr 24 The exchange rate fluctuations are largely In 2023, households' real disposable in- strong domestic demand and restricted in tandem with the fluctuating value of come rose by 6.3 percent, from a 3.6 per- foreign trade, imports are expected to sur- the Russian ruble against major curren- cent decline in 2022. Although employ- pass export growth, resulting in a negative cies. Belarusian ruble depreciated against ment fell by 1.5 percent, this was balanced net export contribution. major hard currencies while conversely by increases in real wages and pensions. In the medium term, as economic stimuli modestly appreciating against the Russ- Poverty, measured by the national poverty effectiveness wanes, growth is expected to ian ruble, as Russia being Belarus’ largest line, decreased from 3.9 percent in 2022 to lag potential. While macroeconomic stabil- export destination country. 3.6 percent in 2023. ity is upheld administratively, inflation The financial sector exhibited resilience, and exchange rate volatility pose chal- marked by a notable 30 percent surge lenges. Inflationary pressures and market in banking sector profits, predominantly distortions resulting from price controls is driven by state-owned banks. The prima- Outlook likely to dampen consumer confidence. In- ry source of this growth stemmed from vestments, except in sectors aligned with investments in state bonds. Concurrently, With production capacities maxed out and Russian exports such as oil, fertilizers, and the proportion of non-performing assets inventories rising due to slower export defense, are projected to slow down as the remained stable. growth, economic prospects look grim. economy remains isolated. Consequently, Growing domestic demand and sanctions Mounting inflationary pressures and trade the economy may face a trajectory of close weakened the external position, leading to flow concentration pose significant risks. In to zero growth. Inflation is forecast to rise a current account deficit of 2 percent of 2024, growth is expected to hinge on expan- to 7.4 percent in 2024 and remain above GDP in Q1-Q3 2023. The trade surplus de- sionary policies, support for state-owned historical averages in the medium term if clined by 90 percent, driven by imports enterprises, targeted lending, domestic bor- administrative measures persist. (17.7 percent), surpassing export growth rowing, and sustained growth in disposable Lower external demand and commodity (4.8 percent). Furthermore, a double-digit income. GDP growth is forecasted at 1.2 prices are expected to weigh on the cur- decline in remittances exacerbated the cur- percent as the economy fully recovers from rent account balance, leading to currency rent account, leading to a shift from a recession. Consumption will remain the pressures. The fiscal outlook is anticipat- USD2.2 billion surplus the previous year primary driver of demand, albeit at a re- ed to deteriorate, with fiscal deficits ex- to a USD1 billion deficit, primarily funded duced intensity, with more modest public pected as the government pursues eco- by foreign direct investments. Despite this, wage increases and social spending index- nomic stimulus and job preservation mea- there was no significant impact on external ation compared to 2023. Similarly, invest- sures. Despite higher inflationary pres- debt (-8 percent) or on foreign reserves ments, still below pre-2022 levels, are an- sures, poverty levels are forecast to remain (USD8.2 billion as of March 2024). ticipated to contribute positively. Despite relatively unchanged in 2024 and 2025. TABLE 2 Belarus / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.4 -4.7 3.9 1.2 0.7 0.5 Private consumption 4.9 -1.2 4.1 2.5 2.0 1.9 Government consumption -0.8 -0.1 1.4 0.2 0.0 0.0 Gross fixed capital investment -5.5 -13.3 12.1 1.8 1.4 1.3 Exports, goods and services 10.1 -12.3 23.1 3.2 2.6 2.5 Imports, goods and services 5.7 -11.4 29.1 4.7 4.1 4.0 Real GDP growth, at constant factor prices 2.4 -4.7 3.7 1.4 0.7 0.5 Agriculture -4.1 4.4 -0.4 2.0 2.3 2.3 Industry 3.1 -6.2 8.0 1.9 1.2 1.2 Services 3.0 -5.1 1.1 0.8 0.0 -0.4 Inflation (consumer price index) 9.5 15.2 5.1 7.4 6.1 5.8 Current account balance (% of GDP) 3.1 -0.6 -3.4 -4.8 -5.2 -6.0 Net foreign direct investment inflow (% of GDP) 1.9 1.8 2.7 1.9 1.9 1.8 Fiscal balance (% of GDP) 0.0 -2.1 1.7 0.4 -0.6 1.1 Revenues (% of GDP) 37.5 33.9 35.8 36.7 36.2 36.0 Debt (% of GDP) 35.8 38.7 37.7 37.1 38.2 33.6 Primary balance (% of GDP) 1.7 -0.5 2.8 1.3 0.3 1.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.1 0.1 0.1 0.1 0.0 0.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 1.0 1.0 0.7 0.7 0.6 0.5 GHG emissions growth (mtCO2e) 7.0 -4.3 0.6 -0.3 -0.2 -0.3 Energy related GHG emissions (% of total) 63.9 62.9 63.0 62.7 62.5 62.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2020-HHS. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 49 Apr 24 the challenges posed by a declining popu- lation and deceleration in total factor pro- BOSNIA AND Key conditions and ductivity in the longer run. Adding to these challenges is the gradual introduc- challenges HERZEGOVINA tion of the EU CBAM (2026) which is ex- pected to adversely impact BiH’s export To initiate EU accession negotiations, BiH competitiveness from 2030 onwards. needs to address four key reforms within To ensure sustained longer-term trend Table 1 2023 the identified 14 priorities. Specifically, growth between 3 and 4 percent, the im- Population, million 3.2 legislation concerning the prevention of plementation of economic and energy GDP, current US$ billion 24.2 money laundering, conflict of interest, and structural reforms is paramount. However, GDP per capita, current US$ 7563.4 the law on courts requires immediate at- the pace of reform implementation re- School enrollment, primary (% gross) a 87.8 tention. In parallel, meeting the economic mains sluggish due to political frictions, a 75.3 criteria for EU accession necessitates ad- the disruptive influence of frequent elec- Life expectancy at birth, years dressing internal market fragmentation. tions, and fragmented responsibilities be- Total GHG emissions (mtCO2e) 24.5 This involves strengthening country-wide tween entities and cantons. Addressing Source: WDI, Macro Poverty Outlook, and official data. regulatory and supervisory institutions, these impediments is essential for BiH to a/ WDI for School enrollment (2022); Life expectancy (2021). enhancing transparency and efficiency of chart a trajectory towards a more pros- the oversized public sector, and reducing perous and resilient economic future. the footprint of state-owned enterprises. BiH has shown macroeconomic stability and resilience over the past decades, in- cluding during the COVID-19 pandemic. Recent developments Driven by the drop in exports, real out- This resilience is attributed to three eco- put growth halved to 1.9 percent in nomic anchors: the currency board (which In 2023, real GDP growth slowed in line 2023 compared to the previous year. ties the BiH mark to the euro), the state- with the timid growth in the EU. Real wide collection of indirect taxes through output growth halved to 1.9 percent com- Slower private consumption helped rein ITA, and the prospects of EU membership pared to 2022, driven by a 6 percent de- in inflation, which stood at 6.1 percent which guide the reform agenda. cline in exports and nearly stagnant in- in 2023 as food prices remained high. Despite these achievements, real income vestments, which rose a mere 1.6 per- Upcoming municipal elections may dou- growth has averaged around 2 percent cent after growing 18 percent in 2022. ble the fiscal deficit in 2024, yet public from 2009 to 2023, resulting in stagnant The lower exports and stagnant invest- living standards, with real per capita con- ment were offset in part by stronger debt remains moderate. EU leaders have sumption around 40 percent of the EU27 government consumption. announced the commencement of acces- average. Faster convergence with the Inflation slowed to 6.1 percent in 2023, sion negotiations upon the fulfillment of EU27 had proved challenging due to low from 14 percent the year before. This membership criteria. investment rates, and a growth model deceleration resulted from a drop in heavily reliant on private consumption. transport prices and a deceleration in The necessity for structural reforms has prices of housing, water, electricity, and become even more apparent considering gas, offsetting high food prices which FIGURE 1 Bosnia and Herzegovina / Real GDP growth and FIGURE 2 Bosnia and Herzegovina / Labor market contributions to real GDP growth indicators Percent, percentage points Percent 8 45 40 6 Q3 2022 Q4 2022 Q1 2023 35 4 Q2 2023 Q3 2023 30 2 25 20 0 15 -2 10 -4 5 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 Agriculture Industry Services GDP Emp. Rate (15-89) Unemp. Rate (15-74) Sources: BiH Agency for Statistics (BHAS) and World Bank staff calculations. Sources: LFS 2022 – 2023 report and World Bank staff calculations. MPO 50 Apr 24 grew at 10.7 percent in 2023 compared account inflows. The external deficit was The attention of policy makers is currently to 22.3 percent in 2022. 80 percent financed by FDI inflows, mainly on the municipal elections in 2024 and meet- Despite the considerable growth slow- into the foreign-owned banking sector. ing the legislative requirements for initiat- down, labor market indicators showed ing EU accession negotiations. Hence, there an improvement. The overall employment appears little space for economic structural rate increased to 41.8 percent in Q3 2023 reforms in 2024. compared to 40.3 percent in Q3 2022, Outlook The upcoming elections will likely further while the unemployment rate shrunk to widen the fiscal deficit to 1.7 percent of 13.6 percent, a 1.2 percentage points de- Against the backdrop of an expected im- GDP in 2024. Nonetheless, the fiscal stance cline from Q3 2022. This reduction in provement in the EU economic landscape, should be firmly on track toward an over- unemployment, observed for individuals real GDP growth in BiH is set to increase all balanced outcome, and primary sur- with both low and high levels of educa- to 2.6 percent in 2024, and 3.3 percent in pluses, by 2025-26 leaving the consolidated tion, occurred alongside a higher econom- 2025. This growth is underpinned by high- general government debt hovering around ic activity rate, which rose 1.5 percentage er exports facilitated by strengthened for- 36 percent of GDP. points to 48.3 percent. eign demand and an uptick in private con- The outlook is clouded by downside Higher government spending contributed sumption supported by stronger real in- risks. These risks entail a possible escala- to a fiscal deficit of 0.9 percent of GDP comes as inflation further decelerates to tion of market disruptions and uncertain- in 2023, almost twice as large as the year low single digits. By 2026, real output ty stemming from the war in Ukraine as before. The deficit was driven by an es- growth is projected to accelerate to 4 per- well as the volatility in the Middle East timated 16 percent increase in subsidies, cent fueled by exports and private con- and Red Sea, an important trade route. social benefits and transfers in the FBiH, sumption stemming from improved eco- These factors could reignite inflationary and an 11 percent increase in the same nomic conditions in the EU, and tightening pressures and adversely impact the frag- spending items in RS. Nevertheless, pub- labor markets in BiH. Despite the upswing ile recovery in the EU, affecting the de- lic debt in BiH remains relatively low at in exports of goods and services from 2024 mand for BiH exports. Finally, geopolit- around 35 percent of GDP. to 2026, the CAB is expected to deteriorate ical conditions pose a risk of exacerbat- Meanwhile, the current account deficit to over 5 percent of GDP due to higher ing domestic political frictions, undermin- widened to 4.7 percent in 2023, or 3.9 per- imports of consumer goods in line with ing the much needed push for economic cent of GDP after adjusting for net capital robust growth in private consumption. structural reforms. TABLE 2 Bosnia and Herzegovina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.3 3.8 1.9 2.6 3.3 4.0 Private consumption 4.0 3.0 2.0 2.3 2.8 3.2 Government consumption 6.1 2.7 4.1 4.6 1.5 3.7 Gross fixed capital investment 33.9 18.1 1.6 7.6 5.8 1.7 Exports, goods and services 5.0 9.9 -6.0 4.0 5.0 6.0 Imports, goods and services 8.0 12.0 -3.0 6.0 4.0 3.0 Real GDP growth, at constant factor prices 7.4 4.2 1.9 2.6 3.3 4.0 Agriculture 3.4 3.5 3.1 3.0 3.2 3.2 Industry 10.0 1.4 -3.4 2.8 3.2 3.2 Services 6.8 5.5 3.8 2.5 3.3 4.4 Inflation (consumer price index) 2.0 14.0 6.1 2.7 1.0 0.5 Current account balance (% of GDP) -2.4 -4.5 -4.7 -4.8 -5.4 -5.2 Net foreign direct investment inflow (% of GDP) 3.3 3.0 3.2 3.4 3.9 3.9 Fiscal balance (% of GDP) -0.3 0.4 -0.9 -1.7 -0.2 -0.4 Revenues (% of GDP) 43.2 39.9 39.4 39.3 39.7 38.6 Debt (% of GDP) 37.8 35.8 36.2 36.2 35.9 35.3 Primary balance (% of GDP) 1.0 1.2 -0.1 -0.9 0.5 0.4 GHG emissions growth (mtCO2e) 4.3 -2.3 -1.7 0.4 1.9 2.6 Energy related GHG emissions (% of total) 87.0 86.7 86.4 86.2 86.0 85.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 51 Apr 24 In comparative terms, poverty levels re- main relatively high by EU standards. Sim- BULGARIA Key conditions and ilarly, Bulgaria's inequality has been the highest in the EU for years in a row, with challenges the Gini coefficient at 40.8 in 2021. Since early 2021, the country has been Table 1 2023 Even if Bulgaria has gradually converged marred by political instability and lost mo- Population, million 6.4 to average EU incomes since the turn of mentum for the reform agenda. This was GDP, current US$ billion 102.2 the century, its development path has re- briefly interrupted by two short-lived reg- GDP per capita, current US$ 15997.1 mained uneven. By 2022, its GDP per ular governments that tried to step up ef- a 0.7 International poverty rate ($2.15) capita reached 62.1 percent of the EU av- forts and deliver on major policy goals, in- a 2.0 erage GDP per capita in purchasing pow- cluding milestones under the National Re- Lower middle-income poverty rate ($3.65) a 5.8 er parity but Bulgaria remained the poor- covery and Resilience Plan. Yet, renewed Upper middle-income poverty rate ($6.85) Gini index a 39.0 est member state. Moreover, institution- political turmoil threatens to send the School enrollment, primary (% gross) b 87.3 al and governance weaknesses continue country back into an early elections spiral, b 71.5 to hinder the country’s faster productivi- with reduced appetite for reform. Life expectancy at birth, years ty growth and development. Total GHG emissions (mtCO2e) 50.5 Bulgaria succeeded to weather the recent Source: WDI, Macro Poverty Outlook, and official data. crises relatively well, not least due to a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). timely fiscal support for households and Recent developments businesses. Economic growth declined only moderately in 2020, followed by a Despite the stagnation of some of its key robust recovery in 2021-2022. The fiscal export markets, Bulgaria’s economy man- position remained strong despite in- aged to stay afloat thanks to robust private creased discretionary spending in re- consumption. Nevertheless, the economy’s Bulgaria’s economy slowed down in sponse to the shocks. The bottom-line expansion slowed down to 1.8 percent in 2023 in tune with trends in key trading deficit did not surpass the 3 percent limit 2023, as strong household consumption partners. Inflation kept decelerating, but in any of the crisis years and public debt (+5.4 percent) and reduced contribution – at projected 23.8 percent of GDP in 2023 from negative net exports were offset by the pace is slow and puts at risk the – remains among the lowest in the EU. stagnating government consumption and country’s eurozone accession bid for In 2015-2020, Bulgaria's economic growth a slump of gross capital formation. The lat- 2025. Real wage increases outpaced pro- improved living standards for the average ter fell by 18.1 percent due to a drawdown ductivity growth in 2023, fueling con- and poorest 40 percent of households. on inventories built up in 2021-2022, and cerns about competitiveness. A reescala- These improvements led to a notable 9.6 likely cautiousness by businesses to rein- percentage points reduction in poverty vest in inventories during a slowdown. tion of political uncertainty threatens (using the US$6.85 poverty line) over the The deceleration of economic activity re- the government’s reform agenda. period. However, in 2021, this positive sulted in a moderate decline of employ- trend was reversed due to inflationary ment in the second half of the year. Yet, pressures and reduced employment rates nominal wages kept rising at double-digit among the unskilled. rates y/y throughout 2023. Real average FIGURE 1 Bulgaria / Real GDP growth and contributions to FIGURE 2 Bulgaria / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 16 25000 10 14 20000 5 12 10 15000 0 8 -5 6 10000 -10 4 5000 -15 2 0 0 Imports Exports 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Gross fixed capital formation Private consumption International poverty rate Lower middle-income pov. rate Public consumption GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank and Bulgarian National Statistical Institute. Source: World Bank. Notes: see Table 2. MPO 52 Apr 24 wage growth thus came close to 5 percent still-high food and energy prices that af- end-2023 - going forward. Credit growth for 2023, exceeding labor productivity fected adversely those whose nominal remained almost unabated at 12.4 percent growth and fueling concerns about the wages have not kept apace with inflation. y/y at end-2023 (against 12.7 percent at country’s competitiveness. The energy cost burden varies across end-2022), with credit to households even Consumer price growth kept decelerating households due to different consumption accelerating to 15.9 percent, against 14.6 throughout 2023 to reach 3.8 percent y/y patterns and energy needs, with single-el- percent at end-2022. Similarly, construc- by January 2024. Yet, disinflation has been derly households particularly affected. tion permits for residential buildings kept slow and annual average inflation reached growing at double-digit rates in Q4/2023. a 15-year high of 9.5 percent in 2023. Political risks have re-escalated after a Following the rapid deterioration of the failed PM rotation between the two ruling fiscal position in early 2023, the balance Outlook coalition partners that toppled the most re- improved later in the year as measures for cent regular government in March 2024. strengthening revenue collection bore The economy’s growth is expected to pick The country is now heading towards a new fruit. WB estimates suggest that on accrual up in 2024-2025 with the expected recov- round of early elections – the 6th in about basis the fiscal deficit reached 2.4 percent ery in the eurozone. Bulgaria’s target to three years – which threaten to slow re- of GDP in 2023, or below the 3 percent join the eurozone in 2025 may be diffi- form momentum and jeopardize the Maastricht ceiling. The EC’s Convergence cult but not impossible to reach, should achievement of key policy goals such as Report on Bulgaria’s readiness for euro- there be a stable government and the dis- near-term eurozone membership. zone accession is expected in June 2024. inflation trend continues in the coming The government’s budget sets a (cash- For the moment, inflation remains the on- months, as expected. basis) 3 percent fiscal deficit target for ly challenging Maastricht criterion for ac- Even if the banking sector remains stable 2024 on the back of an ambitious capital cession, but the gap between actual in- and highly profitable (with net profit up 64 spending program. Thus, consolidation flation rates and the line benchmark is percent in 2023), the ongoing credit expan- seems to have been put off beyond 2024. shrinking rapidly. sion – mirrored by a construction boom The current account is projected to keep Poverty reduction (using the 6.85$ pover- – fuels concerns about the build-up of a its slight surplus in 2024-2026 due to the ty line) is expected to have slowed down construction-credit bubble. The latter may expected downward adjustment of im- in 2023 and reached 5.12 percent, mostly lead to a painful correction and increase of port prices of key raw materials and the due to decelerated economic growth and non-performing loans – at 3.63 percent at increase of net services export. TABLE 2 Bulgaria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.7 3.9 1.8 2.1 3.1 2.7 Private consumption 8.5 3.9 5.4 2.6 3.4 3.6 Government consumption 0.4 5.5 -0.4 5.9 3.4 3.0 Gross fixed capital investment -8.3 6.5 3.3 4.0 1.3 2.6 Exports, goods and services 11.2 11.6 -1.9 4.8 5.8 6.0 Imports, goods and services 10.7 15.0 -6.3 6.3 5.5 6.6 Real GDP growth, at constant factor prices 8.0 5.3 1.8 2.1 3.1 2.7 Agriculture 28.8 -4.4 -3.9 4.3 1.2 1.0 Industry 1.7 12.1 0.9 4.7 5.2 5.3 Services 8.8 3.9 2.6 1.1 2.5 1.9 Inflation (consumer price index) 3.3 15.3 9.5 5.9 4.2 2.0 Current account balance (% of GDP) -1.7 -1.4 1.6 1.6 2.0 2.2 Net foreign direct investment inflow (% of GDP) 1.8 2.4 3.1 2.5 2.7 2.6 Fiscal balance (% of GDP) -2.7 -0.8 -3.1 -2.9 -2.7 -2.6 Revenues (% of GDP) 37.7 38.6 36.5 38.1 38.7 38.9 Debt (% of GDP) 23.9 22.6 23.7 23.2 23.2 22.8 Primary balance (% of GDP) -2.3 -0.4 -2.6 -2.5 -2.3 -2.3 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.5 0.5 0.5 0.5 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.0 1.8 1.7 1.7 1.6 1.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 5.8 5.2 5.1 5.0 4.8 4.6 GHG emissions growth (mtCO2e) 7.1 6.3 -0.4 0.6 0.6 0.1 Energy related GHG emissions (% of total) 78.7 75.9 75.0 73.8 72.6 71.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 53 Apr 24 the post-2030 period and still relatively low labor market participation and ad- CROATIA Key conditions and verse demographic trends. The uncertain external outlook and geopolitical tensions challenges still pose downside risks to growth but are partially mitigated by Croatia's im- Table 1 2023 Croatia's economic activity continues to proved economic resilience. Risks to fiscal Population, million 3.8 show resilience, which is reflected in an ac- sustainability are moderate: despite the GDP, current US$ billion 82.0 celerated convergence with average EU in- short-term deterioration of the fiscal bal- GDP per capita, current US$ 21401.9 comes over the last three years. The coun- ance in 2024, the downward trajectory of a 0.3 International poverty rate ($2.15) try's GDP per capita is set to exceed 75 the debt-to-GDP ratio is expected to con- a 0.4 percent of the EU average in 2023, up by tinue over the medium term. Moreover, Lower middle-income poverty rate ($3.65) a 1.8 9 p.p. compared to 2019. The recent GDP the banking sector remains resilient, with Upper middle-income poverty rate ($6.85) Gini index a 28.9 growth acceleration is largely due to the private sector debt and NPLs staying rel- School enrollment, primary (% gross) b 95.9 booming tourism sector and the strong in- atively low, while external vulnerabilities b 76.4 flow of EU funds. Economic activity was appear manageable, given the high posi- Life expectancy at birth, years also underpinned by supportive fiscal pol- tive current and capital account balance. Total GHG emissions (mtCO2e) 17.5 icy, strong labor market, and large inflows Source: WDI, Macro Poverty Outlook, and official data. of workers’ remittances, which fostered ro- a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). bust personal consumption growth. Over the last year, Croatia was, however, not Recent developments spared from the adverse effects of infla- tionary pressures and tighter monetary Croatia ended 2023 on a strong note. After policy that weighed on business invest- a modest expansion in the third quarter (in Croatia's economic growth at 2.8 percent ments and external demand. The medium- q-o-q terms), real GDP growth accelerated remained well above EU average in 2023, term outlook remains relatively favorable in the last quarter with an annual growth supporting income convergence. Poverty on the back of robust domestic demand, an rate surpassing 4 percent, primarily reflect- has likely stayed stagnant at 1.4 percent improved external environment, and sub- ing strong domestic demand. Overall, real stantial EU funding. GDP growth in 2023 stood at 2.8 percent in 2023. The medium-term outlook is Notwithstanding the significant economic and was one of the highest in the EU. relatively favorable due to robust domes- progress, there remains ample room to The largest contribution came from pri- tic demand, underpinned by a tight la- improve the quality of the institutional vate consumption, which was supported bor market, a strong inflow of EU framework and to address shortcomings by favorable labor market developments funds, and slowly improving external in the business environment, two of Croa- and falling inflation, leading to an im- tia's long-standing issues. Lifting poten- provement in real disposable incomes. In- demand. Fiscal policy is set to be expan- tial growth through structural reforms vestment activity, primarily supported by sionary with significant increase in that augment productivity over the next public sector investments financed by EU spending in 2024, but public debt will couple of years will be especially im- funds, also contributed positively. On the remain on a declining path. portant in the context of possible reduc- other hand, business investments remain tion in EU funds available to Croatia in stubbornly low compared to EU peers. FIGURE 1 Croatia / Real GDP growth and contributions to FIGURE 2 Croatia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 9 18000 8 16000 10 7 14000 5 6 12000 5 10000 0 4 8000 3 6000 -5 2 4000 1 2000 -10 2017 2018 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 0 Final consumption Gross fixed capital formation 2009 2011 2013 2015 2017 2019 2021 2023 2025 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: CROSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 54 Apr 24 Services exports continued to provide for services price inflation, which remains improved external environment, while strong support to growth, whereas goods elevated. Despite falling inflation, the growth in services exports is expected to exports declined. The trade balance im- World Bank 2023 Rapid Assessment Sur- slow down given the strong performance proved following the decline in imports vey reports that most Croatians (78 per- in recent years and the reduced price-com- which in part seems to have been linked cent) expected the increase in their total petitiveness of the Croatian tourism sector. to a relatively strong fall in inventories. On household income would not catch up Investment growth is expected to deceler- the supply side, growth was primarily with inflation. Poverty is expected to re- ate but remain relatively strong, supported supported by the services sector and con- main at 1.4 percent in 2023. by EU funds and improved private sector struction, while manufacturing activity investments. While personal consumption was suppressed, consistent with sluggish growth is expected to decelerate following growth in Croatia’s main trading partners. less expansionary fiscal policy in 2025, im- Net inflow of FDI remained significant but Outlook provements in the external environment, a large share of investments in real estate less restrictive monetary policy, as well as makes it less relevant for raising the coun- Over the medium term, the country's an ample amount of EU funds will contin- try’s growth potential. The labor market growth rate, at around 2.8 percent, is ex- ue to support economic activity. Inflation remained strong throughout 2023, with the pected to exceed the average for the EU. is set to continue its declining trend and strongest employment growth observed in In 2024, growth is projected to accelerate gradually narrow towards the ECB tar- sectors linked to tourism and construction. to 3.0 percent reflecting positive carry-over get of close to 2 percent by the begin- At the same time, nominal wage growth effects from 2023, strengthening external ning of 2025, but risks remain given up- picked up, which, amid falling inflation, demand, as well as expansionary fiscal ward wage pressures. At the same time, resulted in a strong rise in real wages. De- policy. In addition, a strong labor market, fiscal balance is expected to worsen sig- spite robust growth and high inflation which is reflected in a relatively high share nificantly in 2024, largely reflecting rise having a favorable impact on revenue of companies reporting shortages of labor in wage bill and social benefits, but it is performance, the significant rise in the and a strong rise in public sector wages, set to remain relatively contained over the government wage bill led to deterioration will further support increase in real in- forecast horizon. Together with continued of the general government budget bal- comes. Against this backdrop, personal nominal economic growth, this will allow ance. Inflation steadily declined through- consumption growth is expected to accel- for a further decline in the public debt-to- out 2023, and in January 2024 reached erate in 2024 and be the main driver of GDP ratio that is forecast to reach 56 per- 4.8 percent. The slowdown has been con- growth. The dynamics of goods exports cent at the end of 2026. Poverty is expected sistent across major components, except could also strengthen in response to the to gradually fall to 1.0 percent by 2026. TABLE 2 Croatia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 13.8 6.3 2.8 3.0 2.8 2.7 Private consumption 10.6 6.7 3.0 3.7 2.8 2.7 Government consumption 3.0 2.7 2.8 2.9 2.9 2.8 Gross fixed capital investment 6.6 0.1 4.2 2.1 3.3 3.4 Exports, goods and services 32.7 27.0 -2.9 2.8 3.2 3.3 Imports, goods and services 17.3 26.5 -5.3 3.1 3.3 3.5 Real GDP growth, at constant factor prices 12.2 7.9 2.3 3.0 2.8 2.7 Agriculture 9.6 -4.3 0.4 0.9 1.0 1.0 Industry 12.4 2.7 -0.5 1.7 2.2 2.2 Services 12.3 10.5 3.4 3.6 3.1 2.9 Inflation (consumer price index) 2.7 10.7 8.4 3.9 2.3 2.2 Current account balance (% of GDP) 1.0 -2.8 1.0 1.6 1.6 2.4 Net foreign direct investment inflow (% of GDP) 5.2 5.4 3.5 3.4 3.4 3.2 Fiscal balance (% of GDP) -2.5 0.1 -0.3 -2.3 -1.8 -1.6 Revenues (% of GDP) 46.1 45.0 46.6 45.4 45.5 45.8 Debt (% of GDP) 78.1 68.2 60.7 58.2 56.9 56.0 Primary balance (% of GDP) -1.0 1.5 0.9 -1.2 -0.6 -0.5 a,b International poverty rate ($2.15 in 2017 PPP) 0.3 0.3 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.4 0.4 0.4 0.4 0.4 0.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 1.8 1.4 1.4 1.3 1.1 1.0 GHG emissions growth (mtCO2e) 4.2 -1.1 -0.1 0.7 0.4 0.3 Energy related GHG emissions (% of total) 87.5 86.8 86.6 86.2 85.8 85.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 55 Apr 24 performance, notably fueled by a surge in construction activities (+17 percent in GEORGIA Key conditions and real terms). Strong growth in tourism revenues (+17 percent in USD terms) also challenges supported growth. Annual inflation slowed sharply to 0 Table 1 2023 Georgia has made notable gains in income percent at end-2023 from 9.8 percent in Population, million 3.7 growth and poverty reduction over the December 2022, reflecting falling glob- GDP, current US$ billion 30.5 past decade. As a result of sound macro- al food and energy prices, and lari ap- GDP per capita, current US$ 8212.4 economic management, GNI per capita preciation. Rental prices grew by 4 per- a 5.5 International poverty rate ($2.15) (constant 2017 USD) increased from USD cent in 2023 (compared to 37.4 percent a 19.1 9,580 in 2010 to USD 15,880 in 2022. Pover- in 2022), while the introduction of refer- Lower middle-income poverty rate ($3.65) a 55.4 ty (measured by the USD 6.85 poverty line ence prices for medicines exerted down- Upper middle-income poverty rate ($6.85) Gini index a 34.2 in 2017 PPP) declined from 70.6 percent in ward pressure on inflation. Core infla- School enrollment, primary (% gross) b 104.5 2010 to an estimated 47.7 percent in 2022. tion stood at 2.0 percent in December b 71.7 Nevertheless, structural challenges persist, (yoy). In response, the National Bank of Life expectancy at birth, years notably weak productivity and limited Georgia cut the monetary policy rate 6 Total GHG emissions (mtCO2e) 18.3 high-quality job creation. About a third of times, from 11 to 8.25 percent between Source: WDI, Macro Poverty Outlook, and official data. workers remain engaged in low-produc- May 2023 and March 2024. a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy tivity agriculture, and Georgia also has Credit nominally grew by 18 percent (2021). a large share of self-employed in other (yoy) as of end-December, while de- sectors. Access to finance remains a major posits increased by 14 percent (yoy) obstacle for SMEs, while skills mismatches (both adjusted for foreign exchange ef- are reported to be an impediment for most fects, in nominal terms), driven by firms. Due to its high degree of trade strong growth in domestic currency de- openness and dependence on tourism, posits (28 percent, yoy). As a result, de- Georgia is vulnerable to external shocks. posit dollarization fell by 5.4 percentage After two years of double-digit growth, In December 2023, Georgia was granted points (ppt) over the last year, to 50.8 the economy expanded by 7.5 percent in candidate status by the European Union percent as of end-2023. 2023, driven by strong investment. (EU). The EU accession process offers According to preliminary estimates, the unique opportunities to boost reforms current account deficit narrowed slightly Poverty and unemployment continued to achieve prosperity and converge with in 2023, to 4.3 percent of GDP. The trade to decline. Growth is expected to decel- other member states. deficit of goods widened by 19 percent erate in 2024, given tight monetary pol- in nominal terms (USD). Exports grew by icy, a slowdown in trading partners, 8 percent (yoy) in nominal terms (USD), and heightened geopolitical risks. driven by the re-exports of used cars, Recent developments while import growth reached 12 percent. Service exports remained supported by Growth in 2023 is estimated at 7.5 the continued post-COVID-19 recovery in percent, driven by robust investment tourism. International reserves increased FIGURE 1 Georgia / Gross money transfers from abroad and FIGURE 2 Georgia / Actual and projected poverty rates and tourism proceeds real GDP per capita Million US$ Poverty rate (%) Real GDP per capita (constant LCU) 1600 80 25000 1400 70 1200 20000 60 1000 50 15000 800 40 600 30 10000 400 20 200 5000 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 0 2019 2020 2021 2022 2023 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Others RF EU US Tourism proceeds Upper middle-income pov. rate Real GDP pc Sources: Geostat, NBG, and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 56 Apr 24 to USD 5.0 billion, equivalent to around debt below 38 percent of GDP. Revenue 4.2 months of imports of goods in the and tax collection are projected to contin- same year. The Georgian lari appreciated Outlook ue their solid performance in 2024, with by around 10 percent vis-à-vis the US additional profit tax revenues in the fi- dollar in 2023. Growth is expected to ease to 5.2 percent nancial sector (0.5 ppt of GDP) and high- The fiscal deficit narrowed in 2023, reach- in 2024 as a result of tight monetary policy, er taxation of gambling (rendering 0.5 ing 3.0 percent of GDP (including pri- a slowdown among trading partners, and ppt of GDP increase). Current expens- vatization proceeds). General government heightened geopolitical risks. Growth is es are set to increase by 0.8 percentage revenues increased by 14.2 percent, while projected to stabilize at around 5 percent of points, to 23.0 percent of GDP, to be off- tax collection rose by 13.5 percent in GDP for 2025-26 as Georgia benefits from set by a slight decline in public invest- 2023 in nominal terms. Current spending the gradual recovery among its trading ment (to 8 percent of GDP). grew by 14.6 percent, reflecting increases partners. The poverty rate is expected to There are substantial risks to the out- across the board. Capital spending rose by keep declining gradually. look, reflecting uncertainties. A more 4.6 percent in nominal terms. At end-2023, Inflation is expected to converge to its rapid reversal in money inflows, weak- public debt was estimated at 38.1 percent 3 percent target by end-2024. Monetary er tourism revenues, and an increase of GDP, slightly down from end-2022, dri- policy is expected to continue easing in global commodity prices could hin- ven by lower financing needs and rapid gradually in 2024. der growth and increase debt levels economic growth. Despite dwindling money transfers, the and financing needs. Other risks in- Poverty has been declining, supported current account deficit should remain clude tighter global financial condi- by an increase in real wages (by around well below pre-COVID-19 levels in the tions and climate change-related risks. 17 percent in 2023), social protection medium term. An adequate monetary and fiscal pol- measures, and declining food prices. The 2024 state budget law reflects the icy stance with adequate buffers is The job market experienced a strong re- government’s commitment to pursuing expected to help cushion potential covery, with unemployment falling from gradual consolidation by reducing the fis- shocks while exchange rate flexibility 20.6 percent in 2021 to a record low of cal deficit to 2.5 percent (including priva- should help shield reserve levels by 16.4 percent in 2023. tization revenues) and maintaining public supporting an adjustment in imports. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.6 11.0 7.5 5.2 5.0 5.0 Private consumption 12.3 -2.8 3.2 3.1 3.3 3.7 Government consumption 7.1 -0.8 6.2 8.2 2.6 2.4 Gross fixed capital investment -4.8 9.9 32.2 6.9 5.9 9.8 Exports, goods and services 23.5 37.4 8.2 8.2 8.6 8.3 Imports, goods and services 8.8 16.9 8.6 6.3 5.7 7.6 Real GDP growth, at constant factor prices 12.2 9.8 7.9 5.2 5.0 5.0 Agriculture 2.3 -1.8 -2.8 2.5 2.5 3.0 Industry 1.0 15.1 5.1 5.0 5.0 5.0 Services 17.4 9.6 10.0 5.5 5.2 5.1 Inflation (consumer price index) 9.6 11.9 2.5 2.3 3.0 3.0 Current account balance (% of GDP) -10.3 -4.5 -4.3 -5.9 -5.4 -5.2 Net foreign direct investment inflow (% of GDP) 4.9 7.1 4.3 4.6 4.8 4.6 Fiscal balance (% of GDP) -7.0 -3.5 -3.0 -2.9 -2.6 -2.5 Revenues (% of GDP) 24.9 26.6 27.6 28.0 27.7 27.2 Debt (% of GDP) 49.0 39.1 38.1 37.0 36.1 35.5 Primary balance (% of GDP) -5.7 -2.4 -1.5 -1.1 -0.8 -0.6 a,b International poverty rate ($2.15 in 2017 PPP) 5.5 4.3 3.5 3.1 2.6 2.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.1 15.0 13.0 12.0 11.0 10.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 55.4 47.7 43.7 40.8 38.7 36.2 GHG emissions growth (mtCO2e) 3.6 0.9 -0.8 0.2 0.2 0.6 Energy related GHG emissions (% of total) 56.4 57.6 57.5 57.5 57.4 57.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-HIS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 57 Apr 24 2022), with almost 80 percent from non- resource sectors. KAZAKHSTAN Key conditions and While unemployment decreased slightly from 4.9 percent in 2022 to 4.7 percent in challenges 2023, real incomes contracted 0.3 percent yoy due to high inflation. To ease the bur- Table 1 2023 Kazakhstan's growth has slowed from den on living standards, the authorities Population, million 19.8 10 percent over 2000-2007 to below 4 once again raised the minimum wage, by GDP, current US$ billion 259.7 percent over the last 10 years, high- 21.4 percent in nominal terms in 2023. This GDP per capita, current US$ 13088.5 lighting the vulnerabilities of an econ- effectively doubled its level from 2021 (70 a 0.0 International poverty rate ($2.15) omy still dependent on hydrocarbons percent, real terms), exceeding inflation a 0.3 and with stagnant productivity growth. over the same period, and it helped to re- Lower middle-income poverty rate ($3.65) a 10.6 Looking ahead, adjusting to the global duce the poverty rate to 8.8 percent (at Upper middle-income poverty rate ($6.85) Gini index a 29.2 green transition presents significant USD 6.85/day) in 2023. School enrollment, primary (% gross) b 100.9 challenges for Kazakhstan. Slowing food prices and tight monetary b 70.2 Revitalizing economic growth and pro- policy helped ease price pressure. In Feb- Life expectancy at birth, years ductivity will require bolder steps to en- ruary 2024, inflation decelerated to 9.3 per- Total GHG emissions (mtCO2e) 294.3 able the private sector to thrive and dri- cent yoy from a peak of 21.3 percent a year Source: WDI, Macro Poverty Outlook, and official data. ve economic diversification by reducing ago, but inflation expectations remain el- a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy the state’s footprint and boosting compe- evated. In line with the recent reversal in (2021). tition across the economy, complement- price dynamics, in February 2024, the cen- ed with strengthening human capital and tral bank cut the policy rate by 0.5 percent policies to support decarbonization. to 14.75 percent. The current account has swung from a sur- Economic growth is projected to slow to plus of 3.5 percent in 2022 to a deficit of 3.8 percent of GDP in 2023. This deterio- 3.4 percent in 2024 before regaining Recent developments ration was driven by a 6.6 percent fall in momentum in subsequent years, driven exports due to lower oil prices and import by new oil production coming online. Real GDP grew by 5.1 percent in 2023 growth of 20.1 percent. FDI inflows contin- Inflation is expected to decrease but re- thanks to increased oil production, fiscal ued, reaching an estimated 1.9 percent of stimulus, and robust consumption. Oil GDP, and this helped to finance the deficit. main above the central bank target. production jumped by 6 percent yoy, ac- However, momentum has weakened as Downside risks include weakening glob- counting for one-third of growth. Despite major investment projects in the oil sector, al demand and prices for oil, and poten- stagnant real incomes and tight monetary financed through FDI, near completion. tial disruptions to exports. Global decar- policy, strong consumer and business Gross international reserves remained sta- bonization efforts pose a long-term chal- sentiment was evident in retail trade ble in 2023, providing approximately sev- growth (7 percent, real terms), car sales (8 en months of import cover. The tenge has lenge, necessitating a transition towards percent), and new business registrations been relatively stable against the US dollar. a new, sustainable growth model. (10 percent). Capital investment picked The consolidated budget moved into a up 14 percent yoy in 2023 (9 percent in deficit of 1.6 percent in 2023, down from a FIGURE 1 Kazakhstan / Real GDP growth and contributions FIGURE 2 Kazakhstan / Poverty rate, percent of population to real GDP growth living on less than $6.85 (PPP) per day Percent, percentage points Percent of population 6 40 35 4 actual 30 forecast 25 2 20 0 15 Non-oil sector Oil sector 10 -2 Net taxes Real GDP growth 5 -4 0 2020 2021 2022 2023e 2024f 2025f 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Sources: Statistical Office of Kazakhstan and World Bank staff estimates. Source: World Bank staff estimates. MPO 58 Apr 24 surplus of 1.2 percent of GDP in 2022. This oil production temporarily raises it to 4.7 the government aims to comply with deterioration was due to increased spend- percent in 2025. Lower growth expecta- the fiscal rule by bringing budget ing on social welfare programs, housing, tions for 2024 reflect reduced oil produc- spending down to pre-crisis levels. and utility infrastructure, along with rising tion expectations due to maintenance at Poverty is expected to fall to 7.9 percent interest payments, which collectively major fields and Kazakhstan's adherence (at USD 6.85/day) in 2024 as growth drove expenditures up by 1.6 percent of to OPEC+ production cuts. continues and inflation subsides, though GDP. Revenues declined by 1.2 percent of Inflation is expected to gradually de- elevated food prices remain a key chal- GDP due to lower oil-related tax income. cline but remain above the 5 percent tar- lenge for the poorest households. The banking sector remains resilient, sup- get in 2024. The planned utility tariff in- The outlook faces downside risks. ported by robust capital and liquidity creases and the potential for a sustained Lower growth in major trading part- positions that exceed regulatory require- budget deficit could hinder the project- ners like China and the EU, could ments. Profitability was boosted in 2023 ed downward trend. substantially worsen Kazakhstan's out- by high interest rates. Non-performing The current account deficit is expected to look, as would a weakening of oil loans amounted to only 3 percent of the decrease in 2024 and beyond, driven by an prices. Stubborn inflation and the in- loan portfolio in 2023, but this warrants increase in oil exports. creased likelihood of climate-related close monitoring given rising household The fiscal deficit is projected to in- shocks risk setting back poverty reduc- indebtedness and elevated interest rates. crease to 2.7 percent of GDP in 2024, tion progress. Disruptions to oil exports, primarily due to lower oil-related rev- such as unexpected maintenance in ex- enues, before gradually decreasing to isting fields or delays in oil production 1.2 percent by 2026. Sustained growth coming online from the new Tengiz oil- Outlook in non-oil sectors and improved tax field, could hinder oil output and eco- collection efforts will contribute to nomic growth. Lastly, there are risks to Economic growth is projected to moder- growth in non-oil revenues. Following growth arising from the geopolitical situ- ate to 3.4 percent in 2024 before increased a series of fiscal stimulus measures, ation and trade flows with Russia. TABLE 2 Kazakhstan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.3 3.2 5.1 3.4 4.7 3.6 Private consumption 6.3 2.0 4.3 5.0 5.2 5.2 Government consumption -2.4 9.1 3.1 1.5 0.9 0.5 Gross fixed capital investment 2.6 3.6 5.2 4.0 4.5 3.7 Exports, goods and services 2.3 10.2 5.5 0.0 6.4 1.6 Imports, goods and services -0.3 11.6 4.1 3.8 5.0 4.1 Real GDP growth, at constant factor prices 4.1 2.9 5.0 3.3 4.7 3.4 Agriculture -2.2 9.1 -7.7 3.0 3.0 2.0 Industry 4.5 2.7 5.7 3.4 6.0 3.8 Services 4.4 2.5 5.8 3.3 3.9 3.3 Inflation (consumer price index) 8.5 20.3 9.8 8.0 6.7 5.6 Current account balance (% of GDP) -1.3 3.5 -3.8 -3.1 -2.3 -1.2 Net foreign direct investment inflow (% of GDP) 1.0 3.5 1.9 2.1 2.1 2.1 Fiscal balance (% of GDP) -4.3 1.2 -1.6 -2.7 -2.1 -1.2 Revenues (% of GDP) 17.6 22.8 21.8 19.5 19.5 19.5 Debt (% of GDP) 23.7 22.5 22.3 23.9 26.3 27.5 Primary balance (% of GDP) -3.1 2.6 0.0 -0.9 -0.3 0.6 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) 0.3 0.3 0.2 0.2 0.1 0.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 10.6 10.7 8.8 7.9 6.7 6.0 GHG emissions growth (mtCO2e) 3.2 -4.4 2.2 0.8 2.3 1.2 Energy related GHG emissions (% of total) 71.9 71.3 72.8 73.8 75.2 76.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-HBS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 59 Apr 24 term, growth is expected to reach around 4 percent, but risks remain elevated. KOSOVO Key conditions and Heightened geopolitical tensions may reignite inflation and scar investment challenges confidence. A further increase in outward migration could negatively impact the Table 1 2023 Kosovo is a unilaterally Euroized econo- supply and cost of labor. To accelerate Population, million 1.8 my and a net importer of food and en- poverty reduction, Kosovo needs to GDP, current US$ billion 10.5 ergy, reliant on outdated lignite power strengthen the drivers of job creation and GDP per capita, current US$ 5926.7 generation, which is insufficient to cover enhance private sector productivity. To fa- a 34.2 Upper middle-income poverty rate ($6.85) winter heating demand. Against this cilitate this transition and spur growth, it a 29.0 backdrop, stabilization in international is critical to enhance the regulatory envi- Gini index b 76.8 food and energy prices positively im- ronment, reduce infrastructure gaps, and Life expectancy at birth, years Source: WDI, Macro Poverty Outlook, and official data. pacted inflationary trends, the current ac- strengthen human capital. a/ Most recent value (2017), 2017 PPPs. count, and fiscal risks. Weaker growth in b/ Most recent WDI value (2021). the EU and trading partners dampened demand for Kosovo’s goods exports. In 2023, real GDP growth moderated to an Recent developments estimated 3.1 percent, mainly on account of a lower contribution of exports. De- GDP growth reached 3 percent for the spite recent gains in employment, only first three quarters of 2023. Compared 39 percent of the working-age population to the same period of the previous year, Amid a challenging external environ- was active in the labor market (22 per- growth was driven by resilient con- ment, GDP growth rose by an estimated cent for women) during 2022. Although sumption (2.7 percent y/y), service ex- 3.1 percent in 2023, on the back of lower the growth model has traditionally relied ports (8.5 percent y/y), and investment international commodity prices, robust on consumption financed by remittances activity (3.5 percent y/y); merchandise and diaspora spending, there has been a exports contracted by 6.7 percent y/y. diaspora flows and strong credit growth. recent shift towards a more export-driven On the supply-side, services continue to Over the medium term, growth is project- growth model. ICT services and manu- be a key contributor to growth. Agri- ed to stabilize at around 4 percent, sup- factured goods exports have seen en- culture recorded a positive performance ported by increasing real incomes and couraging growth, in turn supporting (3.3 percent y/y), favored by decreas- job creation. More than half of foreign ing input prices. In 2023, consumer in- higher investment. However, higher com- direct investments in 2023 remained fo- flation continued its downward path, modity prices or tighter labor markets cused on construction, but implementa- averaging 5 percent. Food and bever- could lead to renewed inflation and lower tion of the new energy strategy could age prices grew faster (8.6 percent y/ private demand. diversify investment. y). In contrast, transport costs decreased Kosovo's human capital outcomes fall be- (-1.9 percent y/y). Labor market formal- hind peers. In addition, the working-age ization continued, as reflected in a 2.9 population shrank in 2022, likely due percent y/y increase in formal employ- to outward migration. In the medium ment by November 2023. In 2023, the FIGURE 1 Kosovo / Consumer price inflation FIGURE 2 Kosovo / Actual and projected poverty rate and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 15 70 7000 60 6000 12 HCPI Core Inflation 50 5000 9 40 4000 6 30 3000 20 2000 3 10 1000 0 0 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 -3 Upper middle-income pov. rate Real GDP pc Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Jul'22 Jan'23 Jul'23 Source: Kosovo Statistics Agency. Source: World Bank. Notes: see Table 2. MPO 60 Apr 24 current account deficit narrowed, reach- in 2023 to 21.7 percent, driven by growth expected to remain resilient on the back ing 7.7 percent of GDP, from 10.3 percent and higher employment. of strong diaspora-driven service exports, in 2022, largely due to a reduction of im- and a pickup in goods exports, driven by port costs and strong service export per- a recovery in foreign demand, continued formance. Remittance inflows remained diversification into non-commodity goods strong in 2023, growing 10 percent y/y. Outlook and regulatory reforms. Growth acceler- Net FDI inflows increased by 12 percent ation and further labor market outcome y/y, on account of quadrupling reinvest- GDP growth is expected to accelerate to improvements (on top of a 5-percentage ed earnings; equity and debt investments 3.7 percent in 2024, supported by contin- point increase in employment from 2020 dropped by 8 percent y/y. By year-end, ued stabilization of international prices. to 2022) are expected to contribute to fur- the fiscal deficit reached 0.2 percent of Tailwinds from the post-pandemic recov- ther poverty reduction. Nevertheless, an GDP, driven by continued positive rev- ery are fading while the drag from ex- increase in commodity prices could lead enue growth. Nominal tax revenues grew ternal market uncertainty remains high. to renewed inflation. The CAD is expect- by 13 percent, reflecting compliance and GDP growth is expected to pick up to- ed to narrow, driven by strong service formalization gains. Meanwhile, budget wards Kosovo’s potential of around 4 exports and a continued decline in com- expenditures increased by 13.2 percent, percent, driven by resilient diaspora in- modity prices, although at a slower than driven by increases in capital expendi- flows and a gradual pickup in invest- expected pace due to the drag in goods tures (32.4 percent). In 2023, public and ment. Continued stabilization of interna- exports. Driven by increases in capital publicly guaranteed debt (PPG) fell to tional prices helped by the unwinding of spending, the fiscal deficit is expected to 17.2 percent of GDP, down from 20 per- the energy shock, is expected to boost widen to around 1 percent, remaining cent in 2022, driven by an improvement consumer and investor confidence. To- within the fiscal rule limit. Persisting un- in the budget balance. The financial sec- gether with resilient labor markets, these certainties associated to both geopolitical tor remains robust. By December 2023, factors are expected to support private tensions and domestic politics, and a fur- credit increased by 13 percent y/y, while consumption. Higher public and private ther slowdown in the EU entail significant capital buffers and asset quality re- investments in energy generation associ- risks. Accelerating the economic conver- mained adequate, with non-performing ated with the implementation of the ener- gence with the EU requires prioritizing re- loans remaining stable at 2 percent. gy strategy, as well as energy reforms, are forms in the fiscal, governance, education, Poverty is estimated to have decreased expected to boost investment. Exports are and energy sectors. TABLE 2 Kosovo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.7 4.3 3.1 3.7 3.9 3.9 Private consumption 7.3 3.4 2.9 3.1 3.8 4.0 Government consumption 9.0 0.2 6.7 1.4 3.8 3.2 Gross fixed capital investment 13.0 -3.2 3.6 7.5 4.4 4.1 Exports, goods and services 76.8 18.9 6.9 3.0 4.0 5.0 Imports, goods and services 31.4 5.4 5.7 3.8 3.9 4.4 Real GDP growth, at constant factor prices 7.8 5.2 3.1 3.7 3.9 3.9 Agriculture -2.5 4.5 3.4 2.3 2.5 1.8 Industry 7.8 4.0 3.7 3.5 4.0 4.2 Services 9.7 6.1 2.6 4.0 4.1 4.1 Inflation (consumer price index) 3.4 11.6 5.0 2.9 2.5 2.2 Current account balance (% of GDP) -8.7 -10.3 -7.7 -7.5 -6.6 -5.8 Net foreign direct investment inflow (% of GDP) 4.0 6.3 6.4 5.2 5.3 5.7 Fiscal balance (% of GDP) -1.3 -0.5 -0.2 -1.1 -1.1 -1.1 Revenues (% of GDP) 27.4 27.9 29.3 28.5 28.4 28.6 Debt (% of GDP) 21.1 19.7 17.2 17.9 18.1 19.1 Primary balance (% of GDP) -0.9 -0.1 0.2 -0.6 -0.7 -0.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 26.2 23.4 21.7 19.7 17.6 15.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2017-HBS. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2017) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 61 Apr 24 KYRGYZ Key conditions and Recent developments challenges REPUBLIC After growing at 9.0 percent in 2022, real GDP is estimated to have expanded by 6.2 The Kyrgyz Republic remains one of percent in 2023. The services sector has dri- the poorest countries in the region ven growth, particularly services associat- Table 1 2023 with poverty stubbornly high at above ed with transit trade since Russia's inva- Population, million 6.9 11 percent and an estimated additional sion of Ukraine. On the demand side, GDP, current US$ billion 14.0 31 percent of the population vulnera- growth has been supported by higher con- GDP per capita, current US$ 2023.9 ble to poverty if the economy suffers sumption and exports. International poverty rate ($2.15) a 0.7 any shocks. Consumer price inflation decreased from a 12.5 The Kyrgyz Republic is subject to 13.8 percent in 2022 to 10.8 percent in 2023, Lower middle-income poverty rate ($3.65) a significant economic risks. Domestic as global food and fuel price pressure abat- Upper middle-income poverty rate ($6.85) 62.2 a prices are sensitive to rising global ed and domestic monetary policy re- Gini index 28.8 food and fuel prices and interna- mained tight. b 94.2 School enrollment, primary (% gross) tional earnings depend on gold ex- According to official statistics, the current b 71.9 Life expectancy at birth, years ports and remittances. There is also account deficit amounted to 66.2 percent Total GHG emissions (mtCO2e) 13.4 a risk that remittances may decline of GDP (US$3.4 billion) in H1 2023, the Source: WDI, Macro Poverty Outlook, and official data. with economic and financial impli- largest deficit to date, with ‘errors and a/ Most recent value (2021), 2017 PPPs. cations. The economy has limited omissions’ of 57 percent of GDP which b/ WDI for School enrollment (2022); Life expectancy (2021). gross international reserves (GIR) is likely driven by under-reporting of ex- to absorb shocks, while non-discre- ports. Imports increased by 38 percent tionary fiscal expenditure is high in H1 2023, while exports soared by 52 and the country is at a moderate percent (both in US$ terms) due to the risk of debt distress. resumption of gold exports, growth in Economic growth was 6.2 percent and Economic opportunities and job cre- tourism, and services related to transit inflation was 10.8 percent in 2023. The ation are limited due to a stagnant trade. Income inflows declined due to fiscal balance was positive (1.2 percent private sector, constrained by a weak a drop in inward remittances from 30.8 of GDP) owing to strong revenue per- competitive environment, undue ad- percent of GDP in H1 2022 to 25.6 per- vantage enjoyed by poorly performing cent a year later. formance. GDP growth is projected to de- SOEs, high levels of informality, and The deterioration in the external bal- cline to 4.5 percent in 2024, reflecting a a restrictive business environment. Pri- ance put pressure on the exchange slowdown in the services sector, and in- vate sector-led growth will require rate, weakening the Kyrgyz Som flation is expected to moderate to 5 per- ambitious reforms to reduce the cost against the US dollar by 4.4 percent of regulatory compliance, ensure a lev- in 2023. The central bank sold US$650 cent. The fiscal deficit as a share of GDP el playing field, remove barriers for million of GIR to limit excess fluctua- is projected to widen due to lower tax cross-border trade, and maximize tions in the exchange rate. GIR recov- revenues and higher capital spending. spillovers from FDI. ered slightly to 3.1 months of import FIGURE 1 Kyrgyz Republic / Headline, food and fuel FIGURE 2 Kyrgyz Republic / Real GDP growth and poverty inflation rate Percent Percent of population Percent 80 35 12 30 60 8 25 40 4 20 20 15 0 10 0 -4 5 -20 0 -8 Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Jul'22 Jan'23 Jul'23 2007 2009 2011 2013 2015 2017 2019 2021 2023e 2025f Headline Food Fuel GDP growth (rhs) Lower middle-income pov. rate (lhs) Source: Kyrgyz authorities. Sources: Kyrgyz authorities and World Bank staff. MPO 62 Apr 24 cover by the end of 2023, but this re- The fiscal surplus is projected to turn into mains below comfortable levels. a deficit of 1.6 percent of GDP in 2024 The government’s fiscal position re- Outlook owing to lower tax revenues. The deficit mained strong in 2023. The budget is is expected to widen further to 2.4 per- estimated to have run a surplus of GDP growth is expected to decline to 4.5 cent of GDP by 2026, mainly due to high- 1.2 percent of GDP in 2023, supported percent in 2024 as growth in the services er capital spending. by increases in tax and non-tax rev- sector slows. On the demand side, con- High consumer prices and job insecurity enues. Alongside strong revenues, ex- sumption growth would moderate de- will continue to be the most significant penditures increased, specifically wages spite a slight increase in remittance in- concerns for the welfare of the population. and salaries, social benefits, and pen- flows, while investment and net exports In 2024, the poverty level is expected to de- sions. The fiscal surplus and economic are expected to support growth. Annual crease slightly, with the continued effect of growth have led to a lower public debt GDP growth is expected to slow down stabilizing inflation, social protection ini- level of 45.5 percent of GDP as of end- to 4 percent over the medium term in tiatives, and growth. December 2023, down from 46.9 percent the absence of structural reforms to raise Risks to this outlook remain significant. a year earlier. potential growth. There are external risks to growth, mainly After a remarkable decline by 6.2 per- Assuming the central bank maintains a arising from the geo-political situation and centage points to 12.5 percent in 2021, prudent monetary stance and global food trade flows with Russia. Marked deterio- the poverty rate (measured at US$ 3.65/ and fuel prices remain stable, inflation is ration of the Russian economy may flow day) increased slightly to 13 percent projected to decline to within the target on through lower remittances and export in 2022 on the back of high consumer range of 5 to 7 percent by the end of 2024 demand. Possible upward spikes in global price inflation. However, it is estimated and remain stable in the medium term. food and fuel prices might reverse the to have declined to 11.2 percent in The current account deficit is project- downward trend and push inflation into 2023 as inflation softened amid econom- ed at 10.5 percent of GDP in 2024 and double digits. ic growth. Progress in poverty reduc- narrowing to 7.7 percent by 2026 as Increasing the potential growth will require tion is also supported by social assis- external demand for non-gold goods bold reforms to improve governance and re- tance improvements such as pension in- improves, exports of services continue duce corruption, remove administrative creases, expansion of cash grants under to grow, and remittance inflows barriers to private sector development, im- “Social Contract” program, and the in- gradually increase. The deficit is ex- prove the electricity sector by adjusting tar- crease in transfers under the “Ui-Bulogo pected to be financed by inward FDI iffs to achieve cost recovery, and reduce the Komok” program. and external borrowing. footprint of SOEs in the economy. TABLE 2 Kyrgyz Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.5 9.0 6.2 4.5 4.2 4.0 Private consumption 18.8 17.0 5.8 4.9 4.0 4.0 Government consumption 0.5 4.4 2.3 0.6 0.5 0.3 Gross fixed capital investment 8.0 6.9 9.4 15.0 15.5 16.0 Exports, goods and services 16.4 -1.6 49.7 21.5 20.4 17.5 Imports, goods and services 38.8 66.7 29.5 13.5 13.1 13.0 Real GDP growth, at constant factor prices 5.5 9.4 6.2 4.5 4.2 4.0 Agriculture -4.5 7.3 0.6 2.5 2.2 2.3 Industry 6.5 11.9 2.7 5.3 6.0 6.0 Services 14.5 10.1 11.9 5.6 4.7 4.4 Inflation (consumer price index) 11.9 13.9 10.8 8.4 7.0 5.5 Current account balance (% of GDP) -8.0 -42.7 -25.2 -10.5 -8.3 -7.7 Net foreign direct investment inflow (% of GDP) 6.1 4.2 3.7 3.9 3.9 3.5 Fiscal balance (% of GDP) -0.3 -1.3 1.2 -1.6 -1.9 -2.4 Revenues (% of GDP) 31.8 34.6 37.2 31.9 29.6 27.9 Debt (% of GDP) 55.8 46.9 45.5 44.8 44.5 44.1 Primary balance (% of GDP) 1.2 0.0 2.3 -0.5 -1.0 -1.6 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.7 0.6 0.5 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 12.5 13.0 11.2 10.2 9.3 8.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 62.2 61.3 58.4 56.6 55.1 53.6 GHG emissions growth (mtCO2e) 4.6 -1.0 0.6 0.4 0.7 0.8 Energy related GHG emissions (% of total) 65.9 64.6 64.3 63.7 63.0 62.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2016-KIHS, 2019-KIHS, and 2022-. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2016-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 63 Apr 24 Moldova faces structural challenges in- cluding low productivity growth, gover- MOLDOVA Key conditions and nance deficiencies, a large state footprint, limited competition, an imbalanced busi- challenges ness environment, and tax distortions. The country remains vulnerable to ad- Table 1 2023 Moldova is facing unprecedented chal- verse weather events and energy shocks Population, million 2.5 lenges due to the spillover effects of Rus- due to its heavy dependence on energy GDP, current US$ billion 16.5 sia's invasion of Ukraine, which resulted imports and limited diversification in en- GDP per capita, current US$ 6583.5 in an energy and refugee crisis, straining ergy sources. Climate change worsens a 0.3 Lower middle-income poverty rate ($3.65) households, the economy, and public fi- these vulnerabilities, increasing the fre- a 14.4 nances. Despite significant efforts to miti- quency and severity of droughts and oth- Upper middle-income poverty rate ($6.85) a 25.7 gate these crises through fiscal measures er natural hazards, thereby posing sub- Gini index School enrollment, primary (% gross) b 106.5 and monetary policies, dwindling house- stantial risks to Moldova's agricultural Life expectancy at birth, years b 68.8 hold incomes and persistent high risks sector and livelihoods. With EU candidate Total GHG emissions (mtCO2e) 18.4 continue to stifle private consumption status, strong reform momentum and and investment confidence, resulting in growth-enhancing, climate-resilient in- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. sluggish growth in 2023 after the reces- vestments are needed to foster long-term, b/ Most recent WDI value (2021). sion in 2022. While a moderate economic sustainable development and conver- recovery and improved household in- gence toward EU income levels. comes are expected for 2024, there are significant macroeconomic risks, includ- ing the potential intensification of the war Despite avoiding another energy crisis, in Ukraine, additional energy disruptions, Recent developments Moldova has grappled with the fallout and headwinds from the upcoming elec- from Russia's invasion of Ukraine, facing tions in 2024 and 2025. Spillovers from the war continue to weigh reduced incomes and a strained economy, Moldova's medium-term prospects hinge on the economy. The economy has grown resulting in sluggish growth in 2023. on structural reforms and progress to- by 0.7 percent in 2023, driven by a strong ward EU accession. Despite sustained rebound in the agriculture sector, which Structural reforms and EU integration economic growth over two decades, grew by 31.9 percent after the 2022 drought. are crucial amid persistent poverty and poverty remains pervasive, particularly in The industry and services sectors contract- economic challenges, including low pro- rural regions, with limited access to ser- ed, despite notable growth in IT, health, ductivity and climate vulnerabilities. De- vices and viable economic opportunities. and accommodation and food services sec- Traditional means of poverty alleviation, tors, amid high input costs, lower demand spite the expected 2024 recovery, signifi- such as remittances and social assistance, from trading partners, and heightened cant risks remain, including the ongoing are slowing, while low labor force par- risk. On the demand side, net exports con- war, potential energy shocks, and head- ticipation and employment rates impede tributed positively to growth, supported winds from the upcoming elections. a shift to employment-focused poverty by services exports and reduced imports reduction, underscoring the urgency for amid weak domestic demand. Private con- structural reforms. sumption and investments contracted due FIGURE 1 Moldova / Actual and projected macroeconomic FIGURE 2 Moldova / Actual and projected poverty rates and indicators real private consumption per capita Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 15 40 80000 10 35 70000 5 30 60000 0 25 50000 -5 20 40000 15 30000 -10 10 20000 -15 5 10000 -20 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 0 0 Real GDP, % change 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Current account balance, % GDP Lower middle-income pov. rate Upper middle-income pov. rate Fiscal balance Real priv. cons. pc Source: World Bank, based on national statistics. Source: World Bank. Notes: see Table 2. MPO 64 Apr 24 to reduced disposable income, elevated in- reach 36 percent of GDP by 2023, fueled by Reforms for economic diversification and terest rates, and uncertainties stemming new loan disbursements. competitiveness, aligned with the EU ac- from the war in Ukraine. High food and fuel prices reduced pur- cession agenda, along with positive fiscal Albeit a 5.8 percent decline in remit- chasing power, with government energy measures and favorable interest rates, will tances, the current account deficit im- subsidies providing some relief. Poverty drive medium-term growth. proved to 11.9 percent of GDP in 2023, rates, as measured by the US$6.85 2017 Average inflation is projected to decline driven by lower trade balance alongside PPP poverty line, are expected to have further in 2024 as commodity prices ease improvements in primary and secondary stayed broadly constant, marginally and to remain within the target corridor accounts. Following a decline in direct in- dropping from 15.4 percent in 2022 to in the medium term. However, inflation vestments, the CAD was primarily fund- 15.0 percent in 2023. remains highly susceptible to geopolitical ed through cash, deposits, and trade tensions due to the war in Ukraine. loans. External debt decreased by 2.8 per- While the CAD is expected to narrow in centage points compared to end-2022, 2024, supported by service exports and reaching 63.3 percent of GDP. Outlook a gradual recovery in remittances, it is Inflation decelerated rapidly in 2023 due to expected to remain above pre-pandemic timely monetary responses in 2022 and de- The economy is expected to grow by 2.2 levels because of elevated import prices clining food and fuel prices, reaching 4.6 percent in 2024, underpinned by rising real and transport costs. percent in January 2024. With the easing wages, a positive fiscal impulse, and sub- The fiscal deficit is anticipated to remain of inflation, the Central Bank reduced the dued inflation. Private consumption and high at 4.1 percent of GDP in 2024 due to base interest rate from 17 percent in early investments are expected to underpin spending pressures, including support for 2023 to 4.25 by November 2024. growth, backed by an accommodative households, jobs, refugees, and infrastruc- Total revenues increased by 11.8 percent, monetary stance. Net exports are expected ture. The deficit is projected to decrease driven by income taxes, social contribu- to hinder growth, reflecting increased de- in the medium term, reaching 3 percent of tions, and excise duties on imported mand-driven imports. On the production GDP in 2026 as fiscal support is phase out. goods. Elevated expenditures on social side, the service sector, particularly IT, As inflationary pressures ease, the pover- programs, wages, and interest payments transport and public services, is expected ty rate, as measured by the US$6.85 2017 offset the revenue increase, reflecting in- to underpin growth. The contribution of PPP poverty line, is expected to decrease flationary pressures and higher financing the industrial sector will trailing pre-war to 13.3 percent in 2024. With the antici- needs. As a result, the fiscal deficit levels, largely due to weak external de- pated economic recovery and normaliza- widened to 5.2 percent of GDP. Public and mand. Agriculture sees modest gains amid tion of inflation, poverty is projected to publicly guaranteed debt is forecasted to higher input costs and good yields in 2023. decline further to 11.2 percent in 2025. TABLE 2 Moldova / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 13.9 -4.6 0.7 2.2 3.9 4.5 Private consumption 17.3 -4.8 -0.5 1.8 3.3 3.8 Government consumption 4.4 4.8 -2.2 0.8 0.7 0.2 Gross fixed capital investment 1.9 -10.5 -1.3 3.3 4.1 5.6 Exports, goods and services 17.5 29.7 5.1 3.5 5.7 5.9 Imports, goods and services 21.2 18.2 -5.1 2.9 3.9 4.3 Real GDP growth, at constant factor prices 13.4 -4.2 1.5 2.2 3.9 4.5 Agriculture 50.3 -23.5 31.9 2.3 3.8 3.8 Industry 0.5 -10.3 -10.0 4.6 4.8 5.2 Services 12.4 3.0 -0.1 1.5 3.6 4.4 Inflation (consumer price index) 5.1 28.7 13.4 4.9 5.2 5.0 Current account balance (% of GDP) -12.4 -17.1 -11.9 -10.7 -9.9 -9.1 Net foreign direct investment inflow (% of GDP) 1.6 0.8 2.5 2.6 2.5 2.3 Fiscal balance (% of GDP) -1.9 -3.2 -5.2 -4.1 -3.4 -3.0 Revenues (% of GDP) 32.0 33.3 34.1 33.0 32.6 32.4 Debt (% of GDP) 33.8 35.9 36.0 39.5 39.3 38.9 Primary balance (% of GDP) -1.1 -2.0 -3.6 -2.8 -2.1 -1.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.3 0.4 0.4 0.3 0.3 0.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 14.4 15.4 15.0 13.3 11.2 9.8 GHG emissions growth (mtCO2e) 10.8 -3.0 29.9 2.1 2.5 3.2 Energy related GHG emissions (% of total) 66.9 67.4 72.5 71.9 72.1 73.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-HBS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.7 (Low (0.7)) based on private consumption per capita in constant LCU. MPO 65 Apr 24 of the budget without adversely affecting the debt trajectory. MONTENEGRO Key conditions and A new government, appointed in October 2023, placed EU accession at the top of challenges its agenda. In the first three months of the new government, the country made Table 1 2023 Montenegro’s small, open, and service- key judiciary and prosecution appoint- Population, million 0.6 based economy is vulnerable to external ments, unblocking the reform processes GDP, current US$ billion 7.4 shocks, while the country’s strategies and in the area of the rule of law, a cor- GDP per capita, current US$ 11996.9 policies have not always been conducive nerstone of Montenegro’s EU accession a 2.1 International poverty rate ($2.15) to enhancing resilience. After a 15.3 per- process. Delivering on committed reforms a 3.8 cent contraction in 2020, the economy re- is important for advancing Montenegro’s Lower middle-income poverty rate ($3.65) a 12.3 bounded swiftly in 2021-22, averaging 9.7 long-term development prospects. Upper middle-income poverty rate ($6.85) Gini index a 34.4 percent growth per annum. Growth re- School enrollment, primary (% gross) b 100.7 mained robust in 2023 at an estimated 6 b 73.8 percent, driven by booming tourism and Life expectancy at birth, years Total GHG emissions (mtCO2e) 3.5 private consumption, also supported by Recent developments an influx of foreigners, primarily Russian Source: WDI, Macro Poverty Outlook, and official data. and Ukrainian citizens. In 2023, real GDP growth reached 6 per- a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy Montenegro successfully reduced its pub- cent, driven by a strong tourism season (2021). lic debt from 103.5 percent of GDP in and solid private consumption, under- 2020 to 60.7 percent in 2023, aided greatly pinned by higher public sector wages, em- by high nominal GDP growth. However, ployment gains, and household borrow- Montenegro’s economy performed strong- growth is expected to moderate in the ing, though it slowed down in the second ly in 2023, with an estimated GDP medium term, while financing needs are half of the year. In 2023, real retail trade high due to large debt repayments in an grew by 7.7 percent, while tourist growth of 6 percent. However, economic environment of uncertain global condi- overnight stays grew by 32.1 percent. In- growth is expected to moderate in 2024, tions. While one-off revenues resulted in dustrial production increased by 6.4 per- and the fiscal deficit is projected to widen a fiscal surplus in 2023, a return to fiscal cent, but the value of construction works during 2024-27 owing to higher social deficits is expected in the medium term. contracted by 7.9 percent. The Parliament adopted the 2024 budget In 2023 employment reached a historic and capital spending. The country is also with a fiscal deficit of 3.2 percent of GDP; high, with gains across all sectors. In Q3, facing high financing needs due to sig- it includes an increase in the minimum the LFS data showed record employment nificant debt repayments in an environ- monthly pensions from €300 to €450. In and activity rates of 58.7 percent and 66.5 ment of high financing costs. Prudent March, Montenegro issued a 7-year $750 percent, respectively, while the unemploy- fiscal and debt management policies are million Eurobond at a coupon rate of 7.25 ment rate dropped to 11.8 percent, the low- percent. Yet, financing needs in the medi- est on record. Administrative data show required, alongside structural reforms similar trends continued into Q4. um term remain high and leave little or aimed at safeguarding and enhancing no fiscal room for other policy changes ei- In 2023, inflation moderated to 8.6 percent, development prospects. ther on the revenue or expenditure side while real net average wages increased by FIGURE 1 Montenegro / Real GDP growth and contributions FIGURE 2 Montenegro / Actual and projected poverty rates to real GDP growth and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 20 30 7000 15 25 6000 10 5000 5 20 4000 0 15 -5 3000 -10 10 2000 -15 5 1000 -20 2018 2019 2020 2021 2022 2023e 2024f 2025f 2026f 0 0 Final consumption Gross fixed capital formation 2012 2014 2016 2018 2020 2022 2024 2026 Change in inventories Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real priv. cons. pc Sources: MONSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 66 Apr 24 2.3 percent. Hence, poverty (income be- Poverty is projected to decline by 1.5 low $6.85/day in 2017 PPP) is projected to percentage points from 2023 to 7.5 have declined to 9 percent in 2023. Outlook percent in 2026. Montenegro’s financial soundness indica- The 2024 budget increased the min- tors improved in 2023. In September, the The growth outlook is positive albeit chal- imum pensions and capital spending, average capital adequacy ratio was at lenged by an unfavorable global environ- which are expected to contribute to a 20.7 percent, while non-performing loans ment. Coming from a very high base, fiscal deficit of 3.6 percent of GDP in declined to 5.9 percent from 6.7 percent growth is expected to moderate to 3.4 per- 2024. The deficit is expected to decline of total loans a year earlier. By Janu- cent in 2024, still led by private consump- gradually to 3.5 percent of GDP in ary 2024, banking sector lending and de- tion and service exports, with investment 2025 and 3.4 percent of GDP in 2026. posits increased by 12.1 and 3.6 percent in the tourism and energy sectors making Additional fiscal consolidation measures y/y respectively. a slight positive impact. Public investment would, however, result in a better fiscal The current account deficit (CAD) nar- is also expected to provide positive contri- performance. Public debt is expected rowed to 11.4 percent of GDP in 2023, bution to growth. The possibility of some to stabilize at around 62.5 percent of owing to strong exports, despite a de- announced, but not budgeted, large public GDP through 2024–26. Maintaining debt cline in net income accounts because of investments and airport concessions could sustainability requires strong fiscal dis- higher dividend and interest payments. further boost growth, but the fiscal space is cipline, particularly given challenging Net FDI fell by 45 percent, financing limited. Considering a closure of the ther- global financial conditions and Mon- just half of the CAD, the remainder being mal power plant in 2025 for reconstruction, tenegro’s sizable financing needs over financed from reserves. which will necessitate greater energy im- 2024-26. The announced policies of re- One-off revenues and strong economic ac- ports, growth is expected to slow down to ducing labor taxes and/or contributions tivity resulted in a 0.5 percent of GDP fis- around 2.8 percent, and then bounce back without compensatory measures repre- cal surplus in 2023. Revenues increased in 2026 to 3 percent. While the CAD is ex- sent a risk to public finances. by 28 percent, supported primarily by pected to narrow to 11.0 percent of GDP The outlook is clouded by potential one-off revenues worth 2.3 percent of in 2024, energy imports in 2025 would in- downside risks. Elevated geopolitical un- GDP. Expenditure growth was more crease it again to an estimated 11.6 per- certainties could dampen growth moderate, at 12.8 percent, despite an 18.7 cent of GDP but are expected to remain prospects for Montenegro's trading part- percent increase in public wages and high- largely financed by net FDI. Inflation is ners, while the high cost of external fi- er social transfers. Public debt declined to expected to soften to 3.9 percent in 2024 nancing poses a risk given the country's an estimated 60.7 percent of GDP. and further to 2.5 percent in 2025. substantial financing needs. TABLE 2 Montenegro / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 13.0 6.4 6.0 3.4 2.8 3.0 Private consumption 4.0 9.7 5.4 3.4 3.4 3.3 Government consumption 0.5 1.5 3.1 2.8 2.7 1.8 Gross fixed capital investment -12.3 0.1 4.8 3.4 3.5 3.3 Exports, goods and services 81.9 22.7 8.6 4.4 3.9 3.8 Imports, goods and services 13.7 21.3 5.2 3.9 4.5 3.5 Real GDP growth, at constant factor prices 13.2 6.3 5.4 3.0 2.8 3.1 Agriculture -0.5 -2.9 -1.0 -0.5 0.0 0.0 Industry 1.4 -5.2 3.4 2.2 -5.0 6.0 Services 19.1 10.6 6.6 3.6 4.9 2.7 Inflation (consumer price index) 2.4 13.0 8.6 3.9 2.5 2.0 Current account balance (% of GDP) -9.2 -12.9 -11.4 -11.0 -11.6 -11.3 Net foreign direct investment inflow (% of GDP) 11.7 13.2 6.3 7.1 7.0 7.0 Fiscal balance (% of GDP) -2.1 -4.9 0.5 -3.6 -3.5 -3.4 Revenues (% of GDP) 44.0 38.6 42.8 41.5 41.7 41.8 Debt (% of GDP) 84.0 69.2 60.7 63.5 62.6 61.3 Primary balance (% of GDP) 0.2 -3.3 2.3 -1.6 -1.2 -0.9 a,b International poverty rate ($2.15 in 2017 PPP) 2.1 2.0 1.8 1.8 1.7 1.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.8 3.1 2.9 2.7 2.7 2.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.3 10.2 9.0 8.6 8.0 7.5 GHG emissions growth (mtCO2e) 3.9 2.6 2.6 0.8 -2.2 -0.4 Energy related GHG emissions (% of total) 67.8 69.2 70.3 70.6 71.0 71.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-SILC-C. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 67 Apr 24 and energy. The main policy rate has been stabilized at 6.3 percent since Sep- NORTH Key conditions and tember 2023, but increased interest rates have slowed the pace of private sector challenges MACEDONIA corporate borrowing to 3.3 percent y/y in December 2023. Real growth continued to slow down for Navigating overlapping crises has left last- the third year in a row after the brisk ing scars in North Macedonia, slowing the Table 1 2023 post-pandemic recovery in 2021. Inflation pace of growth and income convergence Population, million 1.8 eased from double-digit growth in 2022 with the EU. The growth recovery post- GDP, current US$ billion 14.3 to a rate of 9.4 percent in 2023. However, pandemic has been slower than in regional GDP per capita, current US$ 7831.4 rising wages risk keeping inflation higher peers. Bolstering sustainability, boosting Upper middle-income poverty rate ($6.85) a 19.1 for longer and a slower return to the productivity, and bridging structural re- a 33.6 long-term average. Poverty reduction is form gaps will be critical to enable long- Gini index b estimated to have continued in 2023, al- term growth in the context of heightened School enrollment, primary (% gross) 92.1 b beit at a slower pace vis-à-vis pre-pan- uncertainty and vulnerability. Life expectancy at birth, years 74.5 demic trends, with the poverty rate pro- Total GHG emissions (mtCO2e) 9.5 jected to fall marginally by 0.3 percentage Source: WDI, Macro Poverty Outlook, and official data. points in 2023, given the rise in real in- a/ Most recent WDI value (2021). b/ Most recent value (2019), 2017 PPPs. comes as employment stagnates. Recent developments Fiscal consolidation continues to be chal- lenging as the deficit remains sticky at Output growth subsided to 1 percent y/y above 5 percent and recent spending com- in 2023 as consumption slowed while im- mitments related to the construction of a ports and inventories declined after a Real growth decelerated for the third major highway to Albania and public sec- surge in the previous year. Growth was consecutive year since the post-pandemic tor wage increases have put additional driven by services, in particular retail rebound amidst lingering inflationary spending pressure on medium-term fiscal trade, finance, real estate, and ICT, while plans. New strategic investments in the en- agriculture, manufacturing, and construc- pressures, stretched public finances, and ergy sector that have come with new tax tion fell into negative territory. higher borrowing costs. Poverty reduc- expenditures also add to rising fiscal risks, Compared to the previous quarter, labor tion continued as a result of crisis-sup- including through guaranteed purchase li- market indicators in Q4 2023 showed ris- port measures still in place and rising abilities for the energy sector SOE. Public ing unemployment to 13 percent, while the wages. Fiscal consolidation remains a debt increased back to 62 percent of GDP youth unemployment rate stood 2 pp at end-2023, breaching the newly intro- higher at 32.5 percent. The labor force par- priority in a context of higher mandato- duced fiscal rule (effective from 2025), ticipation rate (ages 15+) lingers at a low ry spending commitments and a build- while expenditure arrears remain continu- 52.2 percent, while the employment rate up of fiscal risks. The outlook over the ously high at around 3 percent of GDP. fell marginally to 45.4 percent. Nominal forecast horizon remains positive, but Monetary tightening has helped contain wage growth continued to be brisk and still-high inflation expectations amid low- reached 16.4 percent in December 2023, downside risks prevail. ered imported price pressures from food outpacing inflation by close to 13 pp. FIGURE 1 North Macedonia / Fiscal performance FIGURE 2 North Macedonia / Actual and projected poverty rate and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 70 -1 45 350000 60 40 300000 -3 35 50 250000 30 40 -5 25 200000 30 20 150000 20 15 -7 100000 10 10 5 50000 0 -9 0 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 Guarantees (lhs) Foreign debt (lhs) Upper middle-income pov. rate Real GDP pc Domestic debt (lhs) Fiscal deficit with PESR (rhs) Sources: North Macedonia State Statistics Office, Ministry of Finance, and World Source: World Bank. Notes: see Table 2. Bank staff calculations. Note: Fiscal deficit with PESR included. MPO 68 Apr 24 Headline inflation fell to 3.6 percent in by year-end. The current account ended to slow thereafter to 2 percent. The base- December 2023, but core inflation is still 2023 in surplus, as the trade deficit nar- line scenario is built on the assumption hovering above 5 percent. Inflationary rowed to 18.9 percent of GDP and remit- that the impact of geopolitical tensions pressures resulting from rising wages are tances and incomes from abroad remained subsides over the forecast horizon and set to continue as the minimum wage in- strong. Net FDI inflows remained robust at that the focus on the EU accession agenda creases in April 2024. 3.8 percent of GDP. remains in place after the general elec- The fiscal deficit (with the state roads fi- tions in May 2024. Poverty rates are pro- nances included) is estimated at 5.2 per- jected to maintain a slow decline, falling cent of GDP for 2023 after two technical by a further 1.8 percentage points over budget reallocations to accommodate ad- Outlook the forecast period. ditional spending for wages and transfers. Against several downside risks over the The deficit grew despite a revenue boost The medium-term outlook remains posi- medium term, further progress with EU from PIT, CIT, and social contributions as tive, but risks are tilted to the downside. accession negotiations can provide an im- VAT collections disappointed and excises While real GDP growth ended 2023 at 1 petus for growth and accelerate income turned out lower, while transfers ended percent, reflecting delays in the take-off of convergence with EU peers. Following up higher than initially planned. highway construction works, weaker ex- on pending structural reforms and en- Banking sector stability has been main- ternal demand, and lingering price pres- suring fiscal sustainability is critical for tained in line with an increase in the sures, it is expected to step up in the medi- boosting potential growth, which has de- capital adequacy ratio to 18.4 percent in um term. GDP growth is forecasted to be clined to below 2 percent in the post- Q3 2023, and a gradual return of the 2.5 percent in 2024, rising towards 3.0 per- pandemic period. Importantly, scaling up liquidity rate above 20 percent. At the cent over the medium term. This projec- decarbonization efforts accompanied by same time, the NPL ratio remained con- tion assumes strong growth in public in- putting a price on carbon can strengthen stant at 2.8 percent. vestments and a gradual recovery of con- domestic public revenues and maintain The stability of the pegged exchange rate sumption and exports. international competitiveness ahead of was maintained throughout 2023, and FX Inflation is projected to remain above the the implementation of the EU Carbon reserves stood above 4 months of imports long-term average at 3 percent in 2024, but Border Adjustment Mechanism. TABLE 2 North Macedonia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.5 2.2 1.0 2.5 2.9 3.0 Private consumption 8.7 3.8 2.4 1.4 2.5 2.5 Government consumption 0.9 -5.0 -0.6 15.0 3.3 2.7 Gross fixed capital investment -5.5 3.4 -16.7 2.7 3.1 2.8 Exports, goods and services 14.3 11.4 -0.1 5.1 5.6 5.6 Imports, goods and services 14.8 12.4 -5.8 5.1 4.5 4.3 Real GDP growth, at constant factor prices 4.0 2.4 1.0 2.5 2.9 3.0 Agriculture -8.7 -5.0 -3.8 1.2 1.1 1.1 Industry -5.1 -1.9 7.6 1.6 1.4 1.4 Services 8.9 4.6 -0.6 2.9 3.6 3.7 Inflation (consumer price index) 3.2 14.2 9.4 3.0 2.0 2.0 Current account balance (% of GDP) -2.8 -6.1 0.7 -1.8 -2.1 -2.1 Net foreign direct investment inflow (% of GDP) 3.3 5.0 3.8 4.6 4.4 4.3 Fiscal balance (% of GDP) -5.3 -4.5 -4.9 -4.5 -4.0 -3.8 Fiscal balance with the state roads (% of GDP) -5.7 -4.8 -5.2 -4.8 -4.2 -4.1 Revenues (% of GDP) 32.1 32.1 34.9 35.4 35.9 36.5 Debt (% of GDP) 60.3 59.0 62.0 62.5 62.7 62.2 Primary balance (% of GDP) -4.1 -3.4 -3.4 -2.7 -1.9 -1.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 18.8 17.8 17.6 16.8 16.1 15.7 GHG emissions growth (mtCO2e) 1.2 -0.8 -2.7 -2.9 -3.0 -2.9 Energy related GHG emissions (% of total) 71.5 71.1 70.0 68.8 67.6 66.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2020-SILC-C. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 69 Apr 24 transitions, advancing inclusion, and ad- dressing labor shortages despite nearly POLAND Key conditions and 1 million refugees from Ukraine easing some pressure. The technological trans- challenges formation and ambitious EU decar- bonization objectives, where Poland is Table 1 2023 The Polish economy has weathered global lagging other EU Member States (MS), Population, million 39.1 and regional external shocks thanks to require investment and planning, includ- GDP, current US$ billion 808.6 a well-diversified economic structure, in- ing ensuring a just transition that con- GDP per capita, current US$ 20681.2 tegration into regional value chains, a tains growing regional disparities, with a 1.0 Upper middle-income poverty rate ($6.85) commitment to macroeconomic stability, political uncertainty potentially affecting a 28.6 a sound financial sector, and domestic la- investments until the end of the electoral Gini index b 95.8 bor markets that have supported signifi- cycle in May 2025. School enrollment, primary (% gross) Life expectancy at birth, years b 75.6 cant wage growth and private consump- Total GHG emissions (mtCO2e) 318.9 tion, feeding into long-term poverty re- duction and median income growth. The Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. crises have yet weakened the fiscal stance, Recent developments b/ Most recent WDI value (2021). and the energy crisis resulting from the invasion of Ukraine has led to a sharp After a robust 5.3 percent real GDP growth increase in inflation which reduced pur- in 2022, economic expansion decelerated chasing power of households and has markedly in 2023, to 0.2 percent. Private started to weigh down on growth. consumption was the main drag contract- A pro-EU administration took office in De- ing due to high inflation, tighter financing cember 2023 marking the first political conditions, and the unwinding of house- Poland’s GDP growth decelerated transition in 8 years. It faces steep chal- hold support measures. This is despite a sharply in 2023 as high inflation, tighter lenges, notably that of improving the qual- robust labor market and double-digit in- financing conditions, and an unwinding ity of institutions, particularly the rule of creases in average and minimum wages. law. The Polish economic model is also External demand contracted as major inventory cycle weighed on growth. The at a crossroads: it requires boosting pro- trade partners' economic situations wors- outlook is positive with a newly elected ductivity through stimulating innovation, ened. Exports significantly slowed in H2 pro-EU government that has unlocked decarbonizing the energy sector, tackling 2023. To the upside, firms’ strong finan- EU funds, should boost investors’ confi- rising inequality, and reskilling and up- cial performance and the electoral cycle grading of the labor force in a context of bolstered private and public investments. dence, and address structural challenges, a rapidly aging population. Greater effi- Inflation peaked at 18.4 percent year-on- notably Poland’s needed green transition. ciency in public spending and tax expen- year (y/y) in February 2023, then slowed ditures is needed to rebuild fiscal buffers down, reaching 3.9 percent y/y in Janu- and accommodate spending on health, ary 2024, due to falling global commodity defense, and renewable energy. prices, a stronger zloty, and fewer sup- Medium-term economic prospects hinge ply disruptions. Measures like the exten- on achieving the technological and green sion of the zero VAT on essentials and FIGURE 1 Poland / Potential output growth, and FIGURE 2 Poland / Actual and projected poverty rate and contributions to potential output growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 6 7 80000 5 6 70000 60000 4 5 50000 3 4 40000 2 3 30000 2 1 20000 1 10000 0 0 0 -1 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real GDP pc TFP Capital Labour Potential Sources: GUS and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 70 Apr 24 fuel price caps until H1 2024 kept prices disruptions among vulnerable workers, of VAT on basic foodstuffs and the phasing lower. The National Bank of Poland start- reductions in the coverage of targeted out of energy price caps. On an annual av- ed its monetary easing cycle with a 75 minimum-income programs and in the erage, it should stabilize at around 5 per- basis points (bps) cut in September 2023, real value of the Family 500 program, cent and move closer to the NBP target ending an early monetary tightening cy- and declining purchasing power amid in- of 2.5 percent (+/- 1 percent band) in the cle started in October 2021 (665 bps). flation. The Gini coefficient of inequality medium term. The zloty 10 percent’s real appreciation continued the upward trajectory visible Revenue shortfalls (from the tax reforms in 2023 mirrored positive government-re- since 2017. and exemptions), increased defense and lated risk perceptions. election-related spending, are expected to The banking sector remains well capital- keep the general government deficit at ized and higher interest rates allowed for 5 percent of GDP in 2024. Expenditure further improvement in capital adequacy. Outlook pressures will remain high, suggesting a Continuous strengthening will be granted slow pace of fiscal consolidation. Public to finance growing investment needs, in Economic growth is set to accelerate to 3 debt is sustainable and should remain be- the context of an accelerated green transi- percent in 2024 and 3.4 percent in 2025, low 60 percent of GDP in the forecast pe- tion. The terms of trade shock that led to fueled by increased private consumption, riod, but the off-budget debt contracted in a current account deficit in 2022 reversed, as declining inflation and ongoing wage recent years increases fiscal risks. Poland returning the CAB to surplus in 2023. Un- growth persist due to a tight labor market issued its largest Eurobond to date in Jan- targeted measures to protect households and a staged increase of the minimum uary 2024 at favorable terms (115 bps and firms from the energy and food price wage in 2024. Boosts in the universal fam- above mid-swaps for the 10-year and at shocks contributed to the widening of the ily transfers from 500 to 800 PLN per 160 bps for the 20-year). fiscal deficit to 5.6 percent of GDP, as did month, the expansion of the 14th month In 2024, poverty reduction is expected higher debt service costs and the time- pension, along with investment driven by to resume due to expanded untargeted lagged impact of the PIT reform. structural reforms and unlocked EU funds, social programs, a strong labor market, Mid-2023 saw a resumption of real wage will support growth, especially in 2025. and higher minimum wages, feeding into growth due to slowing inflation and in- Net exports’ contribution to growth higher living standards for families, re- creases in nominal and real wages, ending should turn negative in 2024 as domestic tirees, and working poor households. a prolonged period of real wage declines. demand fuels imports while EU exports However, socially vulnerable households Extreme poverty rates (national concept) remain weak. remain at risk due to long-term reduc- remained slightly above those in 2017, due Inflationary pressures are expected during tions in the coverage and adequacy of to lingering impacts of pandemic labor H2 2024 primarily due to the reinstatement minimum income programs. TABLE 2 Poland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.9 5.3 0.2 3.0 3.4 3.2 Private consumption 6.1 5.3 -1.0 3.6 3.5 3.2 Government consumption 5.0 0.3 2.9 2.6 3.0 2.1 Gross fixed capital investment 1.2 4.9 8.4 1.4 6.3 5.5 Exports, goods and services 12.3 6.7 -1.9 0.5 4.0 3.5 Imports, goods and services 16.1 6.8 -8.3 1.7 5.1 4.0 Real GDP growth, at constant factor prices 6.6 5.5 1.1 3.0 3.4 3.2 Agriculture -11.5 1.1 2.2 0.2 0.1 0.1 Industry 1.9 7.0 -1.0 3.0 3.1 3.1 Services 9.7 5.0 2.1 3.1 3.7 3.3 Inflation (consumer price index) 5.1 14.4 11.4 5.4 4.3 3.6 Current account balance (% of GDP) -1.2 -2.4 1.6 0.1 -0.4 -0.8 Net foreign direct investment inflow (% of GDP) 3.8 3.7 2.3 2.5 2.5 2.5 Fiscal balance (% of GDP) -1.8 -3.8 -5.6 -5.0 -4.4 -3.8 Revenues (% of GDP) 42.3 39.9 40.1 40.2 40.3 40.5 Debt (% of GDP) 53.6 49.3 51.4 53.0 53.9 55.6 Primary balance (% of GDP) -0.7 -2.2 -3.3 -2.6 -2.6 -2.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 1.0 1.0 1.0 0.9 0.8 0.8 GHG emissions growth (mtCO2e) 3.6 -3.9 -0.2 0.8 1.2 1.2 Energy related GHG emissions (% of total) 86.8 85.9 86.0 86.1 86.3 86.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC and 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2018-2021) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 71 Apr 24 ROMANIA Key conditions and Recent developments challenges Growth decelerated to 2.1 percent y-o-y in 2023, impacted by higher inflation and Table 1 2023 Romania has made considerable progress weaker external demand. Investment (up Population, million 18.6 in economic performance and conver- 12 percent y-o-y), boosted by EU funds GDP, current US$ billion 343.8 gence with the European Union but faces was the main driver. The contribution of GDP per capita, current US$ 18460.5 challenges in fostering growth that is private consumption remained significant a 2.1 International poverty rate ($2.15) more inclusive and sustainable, both eco- (up 2.9 percent y-o-y), supported by low a 3.3 nomically and environmentally. Chal- unemployment (close to pre-pandemic Lower middle-income poverty rate ($3.65) a 7.4 lenges include regional disparities, weak levels) and minimum wage and pension Upper middle-income poverty rate ($6.85) Gini index a 34.1 institutions, skilled labor shortages, poor increases, which partially offset the impact School enrollment, primary (% gross) b 90.8 connectivity, and vulnerabilities to nat- of high energy and food prices on dispos- b 73.0 ural hazards and climate change. Pro- able incomes. Trade and current account Life expectancy at birth, years cyclical fiscal policies have stimulated deficits narrowed due to higher services Total GHG emissions (mtCO2e) 65.7 consumption, resulting in persistently surplus and reduced goods deficit amid Source: WDI, Macro Poverty Outlook, and official data. high twin deficits. import compression driven by slower a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). Romania has made notable achievements consumption growth. Construction re- in diminishing poverty and inequality mained the main growth driver (up 11 despite facing unprecedented challenges, percent y-o-y) but faced reduced momen- including the COVID-19 pandemic and tum due to a deceleration in residential Russia's invasion of Ukraine. Neverthe- construction. Industry shrank for the sec- The Romanian economy grew by 2.1 per- less, Romania's poverty and inequality ond consecutive year due to elevated pro- cent in 2023, supported by EU-financed remain among the highest in the EU, duction costs, especially in energy-inten- investment and resilient consumption. and there are still significant disparities sive sectors. Nominal net wages grew Successful issuance of the first public among the country's regions. The key by 15.5 percent y-o-y in December 2023, challenges in the short term are to curb above headline inflation, driven by wage green bond in February 2024 will support inflation and address fiscal pressures, increases in the private sector as the mini- the green transition. Growth will acceler- which are particularly significant in the mum wage increase fueled companies’ la- ate in 2024, converging towards potential 2024 election year, while simultaneously bor costs. Headline inflation eased to 10.4 in the medium term. Fiscal and current tackling the persistently high poverty percent in 2023, supported by reduced account deficits will marginally decline. rate. To achieve a sustainable recovery energy and food market pressures and and support fiscal consolidation ef- improved inflation expectations. The Na- Poverty reduction is estimated to have de- forts, it is vital to implement the re- tional Bank of Romania has maintained celerated in 2022 and 2023 due to slower forms under the National Recovery a tight monetary policy stance, keeping growth and inflationary pressures. and Resilience Plan (NRRP) and there- the policy rate at 7 percent since January by maximize and efficiently absorb 2023. Private sector credit growth decel- sizeable EU funds. erated to 6.4 percent y-o-y in December FIGURE 1 Romania / Real GDP growth and contributions to FIGURE 2 Romania / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 30 40 70000 35 60000 20 30 50000 10 25 40000 20 0 30000 15 20000 10 -10 5 10000 -20 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Gov. cons. GFCF Private cons. International poverty rate Lower middle-income pov. rate Imports Exports GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 72 Apr 24 2023 from 12.1 percent y-o-y in December faced energy poverty, spending about 8.7 pressures in the context of the 2024 multi- 2022, reflecting the slowdown in loans to percent of their budget on energy, with level national and EU elections. households (up 1.4 percent y-o-y). 17.8 percent struggling to pay utility bills, As fiscal consolidation is expected to accel- The fiscal deficit declined to an estimated one of the highest rates in the EU. By erate with the resumption of the Excessive 5.7 percent of GDP in 2023 from a pan- 2022, 15.2 percent of households strug- Deficit Procedures and the new economic demic-related high of 9.3 percent in 2020, gled to heat their homes, one of the high- governance framework, efficient EU fund thanks to an expenditure-based consolida- est rates in the EU, exacerbated by rising absorption is key for a sustainable, green, tion. Additional tax measures implement- energy costs. Despite price caps, the bur- and inclusive recovery. The Government ed in January 2024 are expected to bring den on household budgets remains signif- has already received EUR6.3 billion (out of around one percent of GDP in extra rev- icant, especially at the lower end of the 28.5 billion by 2026) through the perfor- enue this year, supporting fiscal consol- welfare distribution, indicating that the mance-based NRRP, reflecting the achieve- idation. However, more is required to most economically disadvantaged seg- ment of reform milestones in areas of de- accommodate higher recurrent spending ments of the population bear the brunt carbonization, database interoperability to in the short to medium term, stemming of these price increases. In 2023, poverty reduce red tape, and fiscal and pension re- from the schedule of the recently adopted ($6.85/day PPP) is projected to have de- forms. The NRRP funds and associated pension reform. The Ministry of Finance clined slowly, reaching 6.6 percent. structural reforms are essential for a sus- launched in mid-February 2024 two euro- tainable reduction of the fiscal deficit over denominated bond tranches with 7-year the medium term, alongside strengthened and 12-year maturities. The 12-year lifelong skills formation and private capital tranche, Romania’s inaugural green bond Outlook mobilization, boosting potential growth. issue, valued at EUR2 billion, was over- With the growth acceleration, a slightly subscribed more than 4 times, underscor- Economic growth is expected to acceler- faster poverty reduction is expected in ing the potential for sovereign green ate in 2024 to an estimated 3.3 percent, 2024. Maintaining or strengthening social bonds to facilitate the shift towards a supported by private consumption (ben- safety nets during fiscal consolidation can greener economy. efiting from rising disposable incomes) help protect vulnerable populations from Poverty reduction ($6.85/day PPP) is pro- and EU-financed investment. Romania’s falling deeper into poverty, as some of the jected to decelerate, with a modest de- short-term growth prospects are damp- fiscal measures (i.e., higher VAT) can dis- cline of 0.5 percentage points (from 7.4 ened by external shocks mainly stemming proportionately affect low-income house- percent in 2021 to 6.9 percent in 2022) from the ramifications of Russia’s inva- holds. Adequate support for those facing due to slower growth and inflation. In sion of Ukraine, persistent structural fis- economic hardships can be a crucial aspect 2021, around 25 percent of the population cal challenges, and political and social of poverty reduction. TABLE 2 Romania / 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 4.1 2.1 3.3 3.8 3.8 Private consumption 7.2 5.8 2.9 3.5 4.7 4.8 Government consumption 1.8 -3.3 2.9 2.1 1.4 1.2 Gross fixed capital investment 2.9 5.9 12.0 8.4 7.9 7.8 Exports, goods and services 12.6 9.7 -2.1 5.4 6.0 6.2 Imports, goods and services 14.8 9.5 -1.8 7.5 8.2 8.3 Real GDP growth, at constant factor prices 5.3 3.6 2.1 3.3 3.8 3.8 Agriculture 13.7 -23.4 10.2 1.8 2.1 2.1 Industry 0.9 -4.6 -2.3 0.7 1.6 1.9 Services 6.8 9.4 3.4 4.4 4.7 4.6 Inflation (consumer price index) 5.1 13.8 10.4 6.3 3.9 3.2 Current account balance (% of GDP) -7.2 -9.1 -7.0 -6.3 -6.1 -5.9 Net foreign direct investment inflow (% of GDP) 3.7 3.5 2.1 2.9 3.1 3.2 Fiscal balance (% of GDP) -7.1 -6.3 -5.7 -5.5 -4.8 -4.3 Revenues (% of GDP) 32.9 33.7 34.0 34.7 36.4 36.7 Debt (% of GDP) 48.6 47.2 48.9 50.4 51.7 52.6 Primary balance (% of GDP) -5.6 -4.7 -4.3 -4.1 -3.4 -3.0 a,b International poverty rate ($2.15 in 2017 PPP) 2.1 2.0 1.9 1.8 1.7 1.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.3 3.1 2.9 2.8 2.6 2.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.4 6.9 6.6 6.2 5.7 5.4 GHG emissions growth (mtCO2e) 2.2 -7.9 -4.2 -0.9 -0.3 -0.6 Energy related GHG emissions (% of total) 92.0 91.9 91.9 92.0 92.2 92.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2014-EU-SILC and 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2013-2021) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 73 Apr 24 accelerated outmigration, which has con- tributed to inflationary pressure. Over- RUSSIAN Key conditions and all, loss of skilled workers, restrictions on imports of technological goods, and loss challenges FEDERATION of productive FDI is expected to depress medium- to long-term growth prospects. After the initial recessionary impact of sanctions in 2022, the economy has re- Table 1 2023 turned to growth in 2023, supported by fis- Population, million a 143.8 cal stimulus including military spending Recent developments GDP, current US$ billion 2020.3 and credit expansion, and by successfully GNI per capita, Atlas method, current US$ a 11610.0 mitigating the impact of the sanctions. Re- Russia's economy rebounded in 2023 with Upper middle-income poverty rate ($6.85) b 4.1 strictions on trade and financing from the GDP growth of 3.6 percent. Growth was c 36.0 G7 countries and EU resulted in trade di- driven by manufacturing (+ 7 percent), re- Gini index d version to China, India, Türkiye, Central flecting a large increase in military related School enrollment, primary (% gross) 104.1 d Asia and the South Caucasus, and invest- activity and import substitution, as well as Life expectancy at birth, years 69.4 ment in new infrastructure and logistics. a rebound in trade related services (+7.3 Total GHG emissions (mtCO2e) 1565.8 Matching this process, the share of Rus- percent), the financial sector (+8.6 percent) Sources: WDI, MPO, Rosstat. sia’s external trade transactions in curren- and construction (+7 percent). Despite the a/ Most recent value (2021). b/ Most recent value (2020), 2017 PPPs. cy of countries which introduced sanc- sanctions on oil-related exports, extrac- c/ Most recent value (2020). tions dropped from about 80 percent in tives output declined by only 2 percent. d/ Most recent WDI value (2019). 2021 to below 30 percent in 2023. The Household consumption grew by 6.1 per- medium to long-term economic prospects cent, and investment rose by 10.5 percent, remains dull, however. Russian business- supported by subsidized mortgages and es and households continue to be affected military spending. by great uncertainty, restrictions on ex- The economic rebound was partly fueled port of a wide range of goods, persisting by expansionary fiscal policy, with gener- Economic growth is expected to decrease gaps in supply of some technological al government expenditures rising by 1.3 to 2.2 in 2024, and 1.1 percent in equipment, and higher trade costs. Re- percent of GDP, and investment from the 2025. Stronger momentum from 2023 strictions on Russia’s exports have put sovereign wealth fund reaching 0.6 per- and continuation of loose fiscal policy pressure on the external balance, ex- cent of GDP. Total revenues increased by underpin the growth projections. Export change rate, and fiscal receipts. The fiscal 0.4 percent of GDP, as the drop in oil position has deteriorated, with energy re- and gas revenues was compensated by volumes are expected to increase in ceipts compressed by the sanctions, and an increase in non-oil/gas revenues. As 2024 after two years of contraction. a sharp increase in general government a result, the general government deficit Poverty is projected to experience a spending on defense and national securi- widened from 1.4 percent in 2022 to 2.3 modest decline between 2024 and 2026. ty, and social transfers. Moreover, there is percent of GDP in 2023. a scarcity of labor for activities not relat- The current account remained in surplus ed to the military, and the labor market in 2023, but shrank five-fold compared has further significantly tightened due to to 2022, as export receipts slumped, and FIGURE 1 Russian Federation / Real GDP growth and FIGURE 2 Russian Federation / Actual and projected contributions to real GDP growth poverty rate and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 12 16 800000 14 700000 8 12 600000 4 10 500000 0 8 400000 6 300000 -4 4 200000 -8 2 100000 2022 2023 2024 2025 2026 Stat error Import 0 0 Export Change in inventories 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Gross fixed capital formation Consumption Upper middle-income pov. rate Real GDP pc GDP growth Sources: Rosstat and World Bank. Source: World Bank. Notes: see Table 2. MPO 74 Apr 24 imports rebounded. Capital outflows per- Credit to the private sector grew by 17.4 policy aimed at adjustment to sanctions sisted, adding to the pressure on the ex- percent in real terms in 2023 (yoy), in through trade diversion and import sub- change rate. The ruble depreciated by 20 part thanks to government support mea- stitution, as well as rapid military pro- percent via-a-vis the US dollar in 2023 but sures, including a RUB 100 billion recap- duction will support domestic demand stabilized later in 2024, aided by the cen- italization of VTB. as the main growth driver. Investment tral bank foreign exchange sales. growth is expected to moderate, as macro Economic output exceeding its potential prudential regulations are tightened and and ruble depreciation have fueled infla- subsidized mortgage programs, nar- tionary pressures. CPI inflation increased Outlook rowed. Elevated expenditures are expect- to 7.6 percent by December 2023, with ed to keep the general government bal- average of 6 percent for the year. The It is presently difficult to produce growth ance in deficit of 2.1 percent of GDP this central bank raised interest rates by 8.5 forecasts for Russia due to the significant year, and only gradually to decline there- percentage points to 16 percent by De- changes to the economy associated with after. Average annual CPI inflation is ex- cember 2023, and tightened macro pru- Russia’s invasion of Ukraine, and the de- pected to increase to 6.9 percent in 2024 dential regulations. The authorities tight- cision by Russia to limit publication of and then gradually approach the target ened new FX surrender requirements for economic data, notably related to external of 4 percent by 2026. The current account some exporters. trade, financial and monetary sectors. surplus is expected to decrease to 2.1 per- Unemployment reached the historically Available data limits our ability to assess cent of GDP in 2024 from 2.5 percent a low rate of 3 percent in 2023, largely as- the economic performance. year before mostly due to import growth. sociated with the military effort and the This outlook assumes that Russia’s inva- Poverty is expected decline marginally emigration abroad of large numbers of sion of Ukraine and existing sanctions will between 2024 and 2026. young Russian men. In 2023, there was continue. Growth of 2.2 percent is expect- Possible further rounds of mobilization also a reallocation of labor toward sec- ed in 2024 before decreasing to 1.1 percent and sanctions are negative risk to the base- tors engaged in military production and in 2025 and 2026. Fiscal stimulus is expect- line growth projections. Stricter compli- import substitution. ed to maintain the economy above its po- ance to sanctions, particularly that affect The banking sector recorded a profit of tential level, with fiscal policy, monetary inflows of oil and gas revenues, or disrupt RUB 3, 3 trillion (US$36 billion) in 2023, and quasi-fiscal policy not fully coordi- nascent trade patterns for commodities, compared to RUB 0.2 trillion in 2022. nated in this respect. Expansionary fiscal may have a significant impact. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.9 -1.2 3.6 2.2 1.1 1.1 Private consumption 11.9 -1.1 6.0 1.4 1.2 1.2 Government consumption 2.9 3.0 3.7 2.8 2.3 2.1 Gross fixed capital investment 9.3 6.7 10.5 4.5 3.2 3.2 Exports, goods and services 3.3 -13.9 -8.2 1.0 1.5 1.5 Imports, goods and services 19.1 -11.0 16.9 3.2 2.0 2.0 Real GDP growth, at constant factor prices 6.5 -0.3 3.4 2.2 1.1 1.1 Agriculture 1.3 7.0 0.5 1.2 1.2 1.2 Industry 4.3 0.4 1.5 2.0 1.4 1.4 Services 8.0 -1.1 4.5 2.3 1.0 0.9 Inflation (consumer price index) 6.7 13.7 6.0 6.9 4.4 4.2 Current account balance (% of GDP) 6.6 10.3 2.4 2.0 1.1 1.0 Net foreign direct investment inflow (% of GDP) -1.4 -1.2 -1.3 -1.0 -0.9 -0.8 a Fiscal balance (% of GDP) 0.8 -1.4 -2.3 -2.1 -1.7 -1.3 Revenues (% of GDP) 35.4 34.2 34.5 36.1 35.3 34.9 Debt (% of GDP) 17.2 16.7 17.1 17.8 18.6 18.7 a Primary balance (% of GDP) 1.6 -0.5 -1.2 -0.7 -0.2 0.3 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 3.3 3.6 3.3 3.1 3.0 2.9 GHG emissions growth (mtCO2e) 4.4 -2.8 2.9 2.0 1.0 1.0 Energy related GHG emissions (% of total) 91.0 90.6 90.5 90.3 90.1 90.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and Primary Balance refer to general government balances. b/ Calculations based on ECAPOV harmonization, using 2020-HBS. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 75 Apr 24 SERBIA Key conditions and Recent developments challenges Weak GDP growth in Q1 and Q2 2023 (0.9 and 1.6 percent, y/y) was caused by a de- Table 1 2023 Growth in 2023 is estimated at 2.5 per- cline in investment and consumption. Population, million 6.6 cent, y/y, higher than previously pro- However, in the second half of the year GDP, current US$ billion 75.6 jected thanks to a better-than-expect- consumption started to increase (com- GDP per capita, current US$ 11397.7 ed performance of the agriculture and pared to the same period of 2022), thus a 1.6 International poverty rate ($2.15) construction sectors, and a strong re- leading to an overall positive contribution a 2.9 covery of the energy sector, after the to GDP growth in 2023. On the other hand, Lower middle-income poverty rate ($3.65) a 7.9 2022 crisis. On the expenditure side, net exports made a positive contribution to Upper middle-income poverty rate ($6.85) Gini index a 33.4 net exports and, to a lesser extent, growth in the first half of the year thanks to School enrollment, primary (% gross) b 96.6 consumption, were the main drivers lower energy imports, which turned into a b 72.7 of growth in 2023 while investment negative contribution in the second half of Life expectancy at birth, years had a negative contribution. Consump- the year as external demand weakened. Total GHG emissions (mtCO2e) 65.1 tion started to recover only in the Labor market indicators remained broad- Source: WDI, Macro Poverty Outlook, and official data. second half of the year because of ly unchanged in 2023. The unemployment a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy persistent inflation, and overall in- rate reached 9.1 percent in Q4 2023 (a (2021). vestment decreased primarily due to slight increase compared to Q3) thus lower inventories. As wages have leading an annual average unemploy- started to post growth in real terms ment rate of 9.5 percent in 2023. Wages and inflation decelerates, it is expect- increased by 14.8 percent in nominal The growth of the Serbian economy ed that consumption will start to re- terms in 2023 compared to 2022. cover more rapidly. In order to re- Poverty (based on the upper-middle in- accelerated in the second half of 2023 solve the problem of chronically low come line of $6.85/day in 2017 PPP) is es- bringing GDP growth for the year as investment, Serbia primarily needs to timated to have slightly declined from 7.9 whole to 2.5 percent. The incidence of remove bottlenecks for private sec- percent in 2021 to 7.5 percent in 2022. In poverty declined to an estimated 7.5 tor investment including those relat- 2023, poverty reduction continued due to ed to governance, competition and strong economic growth and improving la- percent. Growth is expected to accelerate the business environment. bor market conditions, though it was part- further in 2024, but risks to the outlook Over the medium term, under the ly countered by an output decline in agri- are tilted to the downside. Poverty reduc- baseline scenario, the Serbian economy culture, rising inflation at the end of the tion is projected to continue, although at is expected to grow at around 3-4 year, and the phasing out of government a slower pace, as unemployment will re- percent. With limited space for future support programs, which had fueled the stimulus packages, structural reforms strong post-COVID-19 recovery of 2021. main significant in some regions and for are needed to accelerate growth which Inflation remained elevated throughout some age groups. in turn will help to accelerate conver- 2023, mainly due to a large increase in food gence to EU incomes. and energy prices. The inflation rate FIGURE 1 Serbia / Indexes of the level of sectoral GDP FIGURE 2 Serbia / Actual and projected poverty rates and real private consumption per capita Index 1=2000 Poverty rate (%) Real private consumption per capita (constant LCU) 3.0 35 700000 Agriculture value add 30 600000 2.5 Service value add 25 500000 Industry value add 2.0 20 400000 15 300000 1.5 10 200000 1.0 5 100000 0 0 0.5 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 76 Apr 24 reached a peak in March 2023 (16.2 per- due mainly to a continued increase in sector is expected to remain resilient, with cent) and moderated to 7.6 percent by the export of IT services. Net FDI per- NPLs stable at around 3 percent. year-end. The NBS responded to high in- formed strongly reaching EUR 4.2 billion The poverty reduction pace is expected flation by continuously increasing the key (or 6.1 percent of GDP). Foreign currency to gradually decline in 2023 and beyond. policy rate between April 2022 and July reserves increased to a record high level Poverty in 2023 is estimated at 7.1 per- 2023. It is kept unchanged at 6.5 percent of EUR 24.9 billion by year-end. Overall cent. While Serbia’s economy is expected since July 2023. credit decreased by 0.1 percent (y/y) to continue to grow, contributing to in- Budgetary revenues have overperformed through December. However, loans to come growth for households, rising in- significantly in 2023, primarily thanks to private businesses and households were flation will limit purchasing power. Par- a higher-than-planned collection of contri- up by 2.4 percent and 1.2 percent re- ticularly, rising energy prices would butions for social insurance, VAT, and cor- spectively. Gross nonperforming loans de- dis¬prop¬ortionately affect the poor. The porate income tax. In 2023 total revenues clined to 3.1 percent in November 2023. pace of labor market recovery remains were higher by 11.9 percent in nominal critical for resumed poverty reduction. terms compared to 2022. Over the same pe- As the share of the poor shrinks, lifting riod, expenditures increased by 9.8 percent out of poverty those that remain becomes in nominal terms. As a result, the consol- Outlook more difficult – these are more likely to idated fiscal deficit declined by nearly 20 be families that are excluded from mar- percent in 2023 in nominal terms, reaching The Serbian economy is expected to grow kets (due to disability, education, or oth- an estimated 2.2 percent of GDP. As a re- at around 3.5 percent in 2024, driven pri- er factors) and cannot benefit from pos- sult, public debt continued to decline and marily by consumption. Over the medium itive economic trends. Thus, targeted so- stood at around 52.9 percent of GDP at the term, the economy is projected to grow cial assistance or other direct channels end of December. steadily at around 3-4 percent annually, will become essential in order to continue The current account deficit narrowed sig- supported by increases in consumption poverty reduction. nificantly in 2023 to reach 2.6 percent of and investment, and a continued strong The outlook also crucially depends on the GDP (down by 56 percent compared to performance of exports. Foreign direct in- domestic reform agenda and its implemen- 2022 in euro terms). This improvement, vestment is expected to continue to play tation. In particular, structural reforms in by and large, was driven by a major de- a key financing role. Inflation is expected education, SOEs, along with further im- crease in the trade deficit (which stood at to decline gradually and to return to the provements in governance would pay off EUR 6.6 billion in 2023 compared to EUR NBS target band by mid-2024. Fiscal deficit since those should incentivize private in- 9.4 billion in 2022) as imports slowed. will continue to decrease and stabilize at vestors to invest more and to raise the The services balance similarly improved, around 1.5 percent of GDP. The banking quality of foreign investments in Serbia. TABLE 2 Serbia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.7 2.5 2.5 3.5 3.8 4.0 Private consumption 7.9 4.0 0.8 3.7 3.6 2.9 Government consumption 4.3 0.4 0.1 2.8 1.6 4.0 Gross fixed capital investment 15.7 1.9 3.9 2.9 7.0 7.0 Exports, goods and services 20.5 16.6 2.4 4.0 6.5 6.1 Imports, goods and services 18.3 16.1 -1.1 4.7 6.3 6.0 Real GDP growth, at constant factor prices 7.7 2.2 2.6 3.5 3.8 4.0 Agriculture -5.5 -8.3 4.8 3.4 3.4 3.4 Industry 8.9 0.1 -0.8 4.5 4.5 4.5 Services 8.8 4.5 4.1 3.0 3.5 3.8 Inflation (consumer price index) 4.0 11.9 12.1 5.0 3.5 3.2 Current account balance (% of GDP) -4.3 -6.9 -2.6 -3.6 -3.9 -4.1 Net foreign direct investment inflow (% of GDP) 6.9 7.2 5.5 5.3 5.5 5.1 Fiscal balance (% of GDP) -4.1 -3.0 -2.2 -2.0 -1.5 -1.5 Revenues (% of GDP) 43.2 43.4 42.9 42.8 42.7 42.4 Debt (% of GDP) 57.1 55.6 52.6 51.7 49.3 46.0 Primary balance (% of GDP) -2.4 -1.5 0.1 0.2 0.2 0.1 a,b International poverty rate ($2.15 in 2017 PPP) 1.6 1.6 1.6 1.5 1.5 1.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.9 2.8 2.7 2.6 2.5 2.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.9 7.2 7.1 6.5 6.2 5.9 GHG emissions growth (mtCO2e) 1.9 1.5 0.2 1.6 1.7 1.9 Energy related GHG emissions (% of total) 74.1 74.8 74.8 75.1 75.4 75.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-EU-SILC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 77 Apr 24 broad-based expansion led by the agri- culture sector, followed by industry, con- TAJIKISTAN Key conditions and struction, and services. Poverty under the LMIC poverty line is estimated to have challenges declined from 12.4 percent in 2022 to 10.7 percent in 2023. According to the Listen- Table 1 2023 Although Tajikistan has grown at more ing to Tajikistan survey, about 42 per- Population, million 10.1 than 7 percent a year for the last decade, cent of households had a migrant mem- GDP, current US$ billion 12.1 it remains the poorest country in the ber and the share of households receiving GDP per capita, current US$ 1189.0 ECA region, with a GNI per capita of remittances rose marginally from 17 per- a 6.1 International poverty rate ($2.15) $1,210 (Atlas method) in 2022 and 12.4 cent in 2022 to 18 percent in 2023. The re- a 25.7 percent of households living below the duction in poverty was also supported by Lower middle-income poverty rate ($3.65) a 66.4 LMIC poverty line. growth in domestic real wages of more Upper middle-income poverty rate ($6.85) Gini index a 34.0 Tajikistan’s potential remains fettered by than 7 percent in 2023. School enrollment, primary (% gross) b 95.9 barriers to market competition, weak in- Tajikistan’s current account surplus re- b 71.6 stitutions, and limited human capital. Pro- mained robust at 5.7 percent of GDP. Life expectancy at birth, years ductivity is low, and few jobs are created While inward remittances fell after the Total GHG emissions (mtCO2e) 19.4 by the private sector. Tajikistan depends peak in 2022, this was offset by rising gold Source: WDI, Macro Poverty Outlook, and official data. on labor migration, primarily to Russia, exports of 9.5 percent of GDP (from 4.9 a/ Most recent value (2015), 2017 PPPs. b/ WDI for School enrollment (2017); Life expectancy and on exporting natural resources, partic- percent in 2022). FDI inflows remained (2021). ularly metals and minerals, which account muted at below 1 percent of GDP. Gross for two-thirds of its total exports. international reserves stood at US$3.6 bil- The government's short and medium- lion (7.7 months of import cover) at term priorities involve removing barriers end-2023, slightly below their level of Tajikistan's economy grew at a blistering to the development of a dynamic private US$3.8 billion at end-2022. sector, improving transparency and ac- Consumer price inflation remained con- pace of 8.3 percent in 2023, fueled by pri- countability of the public sector for better tained in 2023, at 3.7 percent on average. vate consumption and exports of precious service delivery, including in state- Low inflation was supported by limited metals. The outlook remains robust for owned enterprises (SOEs), and taking depreciation of the local currency, admin- 2024, supported by private consumption measures to make growth more inclusive istrative price controls, solid agricultural and increase resilience to climate shocks. output, and a drop in fuel prices. The cen- and public investment, while precious tral bank gradually loosened monetary metal exports are expected to subside. To policy reducing the policy rate from 13 maintain rapid growth and convergence percent to 10 percent in 2023, and to 9.5 to higher income levels, Tajikistan will Recent developments percent in February 2024. need to press ahead with ambitious struc- The 2023 budget deficit is estimated at 1.4 Tajikistan's economy grew by 8.3 percent percent of GDP, which is similar to 2022. tural reforms that support private sector- in 2023, supported by remittance-induced Due to robust economic activity and better led job creation and enhance the efficiency domestic demand and exports of pre- tax administration, tax receipts increased of public service delivery. cious metals. The economy experienced a from 18.5 percent in 2022 to 19.2 percent FIGURE 1 Tajikistan / Fiscal balance and public debt FIGURE 2 Tajikistan / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) -1.0 45 90 1200 80 1000 70 -1.5 40 60 800 50 600 -2.0 35 40 30 400 20 -2.5 30 200 10 Fiscal Balance (lhs) 0 0 Public and Publicly Guaranteed Debt (rhs) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -3.0 25 International poverty rate Lower middle-income pov. rate 2021 2022 2023e 2024f 2025f 2026f Upper middle-income pov. rate Real GDP pc Sources: TajStat, Ministry of Finance, and World Bank staff estimates and Source: World Bank. Notes: see Table 2. projections. MPO 78 Apr 24 of GDP in 2023. Budget expenditures in- program is expected to improve tax col- creased from 28.5 percent of GDP to 30.8 lection performance, including by phasing percent, led by spending on energy, educa- Outlook out inefficient tax exemptions. Spending tion, and communication. From July 2023, on Rogun Hydro Power Project and other the authorities improved targeted social Tajikistan's economy is expected to grow large infrastructure projects is expected to assistance to better identify vulnerable at 6.5 percent in 2024, supported by pri- be financed by improving revenues, fi- households and increased the amount of vate consumption as Russia’s demand for nancing from development partners, and payments for households with more chil- labor migrants remains strong, as well offsetting cuts to non-priority spending. dren. The budget deficit was financed pri- as by continued growth in domestic real The government plans to continue to marily through external financing. Tajik- wages and higher public spending on in- raise the share of budget spending on so- istan is at high risk of debt distress (large- frastructure. The surge in gold exports cial sectors, including enhancing targeted ly due to Eurobonds and IMF Rapid observed in 2023 is expected to decline social assistance to better safeguard vul- Credit Facility principal repayments in due to a high base effect. Poverty, at the nerable population groups. The moderate 2025-2027) but it is on a sustainable debt $3.65 line (in 2017 PPP), is projected to projected fiscal deficit is consistent with path in the medium term. decline from 10.7 percent in 2023 to 9.2 debt sustainability considerations. Although the banking sector has high cap- percent in 2024. Several factors pose risks to Tajikistan's italization levels, asset quality is relatively GDP growth potential is estimated at 4.5 to economic outlook. These include geopo- poor. At the end of 2023, the ratio of capital 5 percent in the medium term unless ambi- litical uncertainty, slower-than-expected to risk-weighted assets was 21.3 percent, tious structural reforms are implemented. global growth and tighter financial condi- much above the minimum requirement of Inflation is expected to remain within the tions, the high contingent liabilities of the 12 percent. The share of nonperforming target range of 4 to 8 percent. SOE sector, and the slow pace of struc- loans (NPLs) in total loans remains high The fiscal deficit is expected to be capped tural reforms. Additionally, Tajikistan is at 12.7 percent at end 2023, and increased at 2.5 percent of GDP over the medium highly vulnerable to climate change and slightly from 12.2 percent at end 2022. term. The updated medium-term revenue natural disasters. TABLE 2 Tajikistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 9.4 8.0 8.3 6.5 4.5 4.5 Private consumption 4.3 15.7 4.7 3.2 2.9 2.8 Government consumption 4.6 12.6 13.0 7.9 3.8 3.8 Gross fixed capital investment 12.0 11.9 22.5 10.0 3.8 3.8 Exports, goods and services 55.4 -24.0 49.4 -20.4 5.7 4.2 Imports, goods and services 20.0 4.0 26.8 -3.0 5.5 2.5 Real GDP growth, at constant factor prices 10.4 9.0 8.3 6.5 4.5 4.5 Agriculture -0.3 -4.5 9.0 5.0 3.0 3.0 Industry 13.2 9.1 11.3 8.0 5.0 5.0 Services 14.1 16.7 4.5 5.4 4.6 4.6 Inflation (consumer price index) 9.0 6.6 3.7 4.7 6.0 6.0 Current account balance (% of GDP) 8.2 15.3 5.7 3.5 3.0 2.4 Net foreign direct investment inflow (% of GDP) 0.4 1.5 0.8 1.5 1.5 1.5 Fiscal balance (% of GDP) -1.2 -1.4 -1.4 -2.3 -2.5 -2.5 Revenues (% of GDP) 26.7 27.2 29.5 28.7 28.0 28.0 Debt (% of GDP) 41.9 32.5 30.9 30.8 30.2 31.2 Primary balance (% of GDP) -0.4 -0.6 -0.7 -1.5 -1.7 -1.8 a,b International poverty rate ($2.15 in 2017 PPP) 2.8 2.3 2.1 1.8 1.7 1.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 14.2 12.4 10.7 9.2 8.6 8.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 50.6 46.8 43.8 41.3 39.7 38.0 GHG emissions growth (mtCO2e) 2.7 3.1 4.1 4.4 4.9 5.3 Energy related GHG emissions (% of total) 42.6 43.2 44.0 44.8 46.0 47.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2015-HSITAFIEN. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2015) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 79 Apr 24 in private consumption (12.8 percent in re- al terms) alongside a strong pickup in in- TÜRKIYE Key conditions and vestment (8.9 percent) and government consumption (5.2 percent). Exports con- challenges tracted 2.7 percent in 2023 while imports grew firmly at 11.7 percent, dragging on Table 1 2023 The new economic team that took over after growth. On a sectoral basis, services Population, million 85.8 the May 2023 elections has been implement- growth remained resilient at 4.8 percent GDP, current US$ billion 1024.5 ing an ambitious package of measures aimed and construction expanded 7.8 percent GDP per capita, current US$ 11938.8 at correcting previous macroeconomic im- with earthquake recovery. The Turkish la- a 0.4 International poverty rate ($2.15) balances. The central bank (CBRT) increased bor market continues to be strong; the sea- a 1.4 the policy rate by 4,150 bps since May 2023 to sonally adjusted unemployment rate was Lower middle-income poverty rate ($3.65) a 7.6 50 percent in March 2024 while also adjusting 9.1 percent in January. Upper middle-income poverty rate ($6.85) Gini index a 44.4 reserve requirements, rolling back the FX- The current account deficit fell to US$45.4 School enrollment, primary (% gross) b 102.6 protecteddepositscheme,lesseningFXinter- bn in 2023 (4.2 percent of GDP) from b 76.0 ventions, and providing targeted credit to ex- US$49.1 bn in 2022 with a sharp improve- Life expectancy at birth, years porters. Based on the new policy stance, in ment in the second half of the year. Few- Total GHG emissions (mtCO2e) 511.1 earlyMarchFitchmovedTürkiye’ssovereign er FX interventions, steady lira depre- Source: WDI, Macro Poverty Outlook, and official data. credit rating from B to B+ with a positive out- ciation, returning portfolio inflows, and a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). look. S&P and Moody’s have not changed the the significant decline in credit default creditratingbuttheoutlookispositive. swap (CDS; a measure of risk premium) Despite high GDP growth in recent years, on Turkish assets (from above 700 prior there are longstanding structural challenges to the May 2023 elections to 320 in end- that undermine potential growth, includ- March) have allowed CBRT net reserves ing: low productivity growth; low labor to continue recovering, from a negative Over the past nine months Türkiye has force participation and employment levels; US$5.7 billion in early June 2023 to a posi- been moving rapidly to normalize macro- and weakening foreign direct investment. In tive US$19.6bn as of March 15. economic policies. Economic growth was addition, boosting domestic revenues and Inflation decreased from 57.7 percent in maximizing the efficiency of public spend- January 2023 to 38.2 percent in June 2023, strong at 4.5 percent in 2023 but is pro- ing will be important to counter the recent but has since increased to 67.1 percent in jected to moderate to 3.0 percent in 2024 deterioration in fiscal balances. Ambitious February 2024 on the back of lira depre- before accelerating on a more solid footing structural reforms would help accelerate ciation, sharp minimum wage increases in outer years. Poverty continued to de- sustainable economic growth. (34 percent in July 2023 and 49.3 percent cline in 2020 and 2021, though the com- in January 2024), government tax adjust- ments, and strong demand. Interest rates bination of high inflation and macroeco- are realigning and, along with high in- nomic policy adjustment related measures Recent developments flation and lower capital levels, are con- may slow progress in the short term. taining banks’ loan growth despite the Türkiye’s GDP expanded 4.5 percent in relaxation in credit market interventions: 2023, mainly driven by sustained growth as of February 2024, nominal lira loan FIGURE 1 Türkiye / Real GDP growth and contributions to FIGURE 2 Türkiye / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 25 30000 15 25000 20 10 20000 5 15 15000 0 10 10000 -5 5 5000 -10 2021 2022 2023 2024 2025 2026 Private Consumption Government Spending 0 0 Investment Exports 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Imports Stocks International poverty rate Lower middle-income pov. rate Growth Upper middle-income pov. rate Real GDP pc Sources: Turkstat and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 80 Apr 24 growth (13-week, FX-adjusted annualized decile experienced the highest real in- The period ahead provides opportunities trend) for state and private banks was crease in labor income (26 percent), likely for tackling structural issues. It will be im- 13.2 percent and 38.7 percent, respective- driven by the minimum wage increase portant to accelerate pro-growth structural ly. Despite ongoing maturity mismatches, that in 2021 exceeded CPI inflation; while reforms to unleash private sector produc- the banking sector's net FX position has the top decile reaped the highest benefits tivity and investment in the medium-term. improved with capitalization remaining from real increases in business incomes Poverty is expected to continue declining strong. Notably, non-performing loans (96 percent), likely due to the surge in as- in the short run as increases in average (NPLs) have declined since 2022 and the set prices. Poverty reduction was largely nominal wages exceeded CPI changes in NPL ratio shows significant improvement due to increased labor earnings. 2022 and 2023. However, if the distribu- (1.6 percent in January 2024 versus 4.4 tion of growth remains the same as be- percent in 2020). While tight monetary tween 2020 and 2021, inequality is also policy may impact some economic seg- likely to increase, impeding potential for ments, particularly SMEs, the overall Outlook long-term poverty reduction. trend indicates a resilient banking sector. The outlook is contingent on continua- The overall fiscal balance deteriorated to Economic growth is projected to moderate tion of the current policy stance. Risks below -5 percent of GDP in 2023 (from to 3.0 percent in 2024 on the back of policy to the outlook are balanced. Downside -0.8 in 2022) due to rising expenditures tightening and slow global growth before risks include: low net reserves and high and earthquake-related investment needs, accelerating to 3.6 percent in 2025 and 4.3 external financing requirements, which and the primary balance was close to -3 percent in 2026 with a more sustainable imply low buffers against external percent of GDP (from +1.4 in 2022). How- growth composition. Inflation is expected shocks; heightened geopolitical tensions; ever, the fiscal deficit is relatively low ex- to decline gradually after peaking in May vulnerability of the fiscal position to cluding earthquake-related expenditures. 2024 given tight monetary policy, while high borrowing costs; and slower Public debt remains moderate at around the current account balance is projected to growth resulting in political pressures 30 percent of GDP in 2023. improve starting from 2024 with a higher to reverse policy normalization. On the Poverty continued to decline but inequali- contribution of net exports. Given the eco- upside, the increasing credibility of the ty widened between 2020 and 2021; the Gi- nomic slowdown and earthquake recov- new economic team may result in more ni coefficient increased to 46.0 in 2021 as ery needs, the general government deficit investment inflows, which would help the bottom and top income deciles reaped is expected to remain high in 2024 despite stabilize the currency and accelerate the the largest benefits of growth. The bottom fiscal consolidation efforts. economic adjustment. TABLE 2 Türkiye / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 11.4 5.5 4.5 3.0 3.6 4.3 Private consumption 15.4 18.9 12.8 2.3 3.1 4.2 Government consumption 3.0 4.2 5.2 2.5 2.1 1.7 Gross fixed capital investment 7.2 1.3 8.9 2.9 2.9 3.1 Exports, goods and services 25.1 9.9 -2.7 4.5 5.2 5.9 Imports, goods and services 1.7 8.6 11.7 3.7 4.2 5.6 Real GDP growth, at constant factor prices 12.7 6.2 4.5 3.0 3.6 4.3 Agriculture -3.0 1.3 -0.2 1.4 1.5 1.5 Industry 13.0 -0.6 3.7 4.6 4.8 5.0 Services 13.2 10.1 4.7 2.5 3.3 4.2 Inflation (consumer price index) 19.6 72.3 53.9 57.8 28.9 16.4 Current account balance (% of GDP) -0.9 -5.4 -4.2 -2.8 -2.4 -2.5 Net foreign direct investment inflow (% of GDP) 0.8 1.0 0.7 0.9 1.1 1.4 Fiscal balance (% of GDP) -2.6 -0.8 -5.4 -5.4 -3.7 -2.4 Revenues (% of GDP) 30.9 27.8 26.4 26.2 26.2 26.5 Debt (% of GDP) 41.5 30.3 29.7 29.9 30.5 31.2 Primary balance (% of GDP) 0.0 1.4 -2.5 -0.8 0.6 0.7 a,b International poverty rate ($2.15 in 2017 PPP) 0.4 0.4 0.4 0.4 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 1.4 1.3 1.2 1.2 1.1 1.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.6 7.0 6.6 6.4 6.1 5.7 GHG emissions growth (mtCO2e) 11.1 -5.2 1.8 2.3 3.0 3.5 Energy related GHG emissions (% of total) 78.6 76.5 75.8 75.2 74.6 74.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2021-SILC-C and 2022-SILC-C. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2020-2021) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 81 Apr 24 to finance critical expenditure, including for social assistance. UKRAINE Key conditions and Looking ahead, Ukraine has, with support from its international partners, designed challenges a medium-term structural reform agenda to enhance macro-fiscal sustainability and Table 1 2023 Even though Ukraine’s economy has re- support growth. Effectively executing this a 6.4 GDP, current LCU trillion sumed modest growth in 2023 it continues agenda through timely reform approval a 177.3 GDP, current US$ billion to operate as a war economy that spent and implementation, as well as prioritiza- a 4.8 GDP growth, annual % almost 50 percent of its 2023 budget on tion, will be critical to reduce aid depen- b 92.8 School enrollment, primary (% gross) defense. Private demand remains subdued dence and ensure that Ukraine benefits b 69.6 by a restrictive monetary policy, designed from the promise of EU membership. Life expectancy at birth, years Total GHG emissions (mtCO2e) 154.3 to rein in inflationary pressure resulting Restoring livelihoods through integration Source: WDI, Macro Poverty Outlook, and official data. from continued supply disruptions and of displaced populations and ex-combat- a/ GDP numbers are expected (2023). high demand from the public sector, ants into labor markets, ensuring contin- b/ Most recent WDI value (2021). whereas the public sector absorbs most ued social service delivery, and supporting scarce domestic resources and external aid households to recover from property dam- to finance its large deficit. ages are key priorities. As the war enters its third year, Ukraine’s economic management has reached an inflection point. On the one Ukraine’s economy has resumed modest hand, the country has been able to main- Recent developments growth, estimated at 4.8 percent in 2023. tain macroeconomic stability since Feb- Concurrently, macroeconomic risks ema- ruary 2022, controlling inflation, main- More reliable electricity, an exceptional nating from the on-going active hostilities taining a stable currency, financing crit- harvest and the steadier receipt of external and uncertainty about the timing and ical expenditure, and accumulating sig- assistance have allowed for the first GDP nificant foreign exchange reserves. It has expansion since February 2022, with year- amount of external assistance continue to also been able to achieve EU candidacy on-year growth of 19.5 and 9.3 percent in rise and could require a policy adjustment status and has continued structural re- Q2 and Q3 of 2023, respectively. Yearly if downside risks materialize. Household form efforts despite the challenging con- growth for 2023 is estimated at 4.8 percent, incomes increased in line with this eco- ditions. On the other hand, the receipt with potential to the upside. of external aid - US$42.5 billion in 2023 Inflation has declined from 26.6 percent nomic growth, but household sentiments – was instrumental to this achievement, at end-2022 to only 4.7 percent in Jan- remain gloomy, with most people report- and concerns about the timing and uary 2024. A restrictive monetary policy ing financially worse conditions com- amount of future aid disbursements are stance and conducive food supply con- pared to their pre-war situation. increasing. Ukraine’s 2024 budget plans tributed to this reduction. In October for the receipt of US$37.3 billion in exter- 2023, the NBU transitioned from a nal financing, the timely receipt of which pegged to a slightly more flexible ex- will be critical to enable the authorities change rate regime, which has resulted to maintain macroeconomic stability and in modest currency depreciation. Banks FIGURE 1 Ukraine / Quarterly GDP growth, year-over-year FIGURE 2 Ukraine / Trends on food inflation and food insecurity trends Percent Percent 30 25 19.5 20 20 9.3 10 6.2 6.3 2.9 4.4 15 0 -2.3 10 -10 -10.5 -14.6 -20 5 -30 -30.8 -30.6 0 -40 -36.6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4e 2021 2022 2023 Food Inflation (y/y) Food Insecurity (% of households) Source: Ukraine Statistics Office. Source: World Bank staff estimates. MPO 82 Apr 24 have remained profitable and stable, but after a period of inflation, lack of savings The current account is expected to widen risks are prevalent. and loss of property, with more than to 7.8 percent of GDP deficit in 2024 and After recording a surplus in 2022, 20 percent of households having experi- remain elevated under the baseline as- Ukraine’s current account turned into USD enced damages since the war started. sumption, as a reduction in grants out- 9.6 billion deficit in 2023. This was driven weighs a gradually decreasing trade by a widening trade deficit and the re- deficit from 2025 onwards. The fiscal placement of grant receipts by loans. Re- deficit (excluding grants) is projected at serves were aided by external assistance Outlook 20.4 percent of GDP in 2024 before gradu- and stood at USD 37.1 billion on March 1. ally declining to 6.6 percent by 2026, and Higher needs for defense expenditure ne- Ukraine’s economic outlook is conditional is projected to be financed by external as- cessitated a significant revision of the on the timing and quantity of external as- sistance, with an increasing contribution 2023 budget and an expansion of the fis- sistance receipts and the assumed dura- from domestic sources over time. Public cal deficit, which reached an estimated tion of Russia’s invasion. Under an in- and publicly guaranteed debt is projected 27 percent of GDP when excluding dicative scenario which assumes that ac- to stabilize around 98 percent of GDP in grants. Ukraine met its financing needs tive hostilities will continue throughout the medium term. through domestic bank borrowing and 2024, GDP is expected to expand modest- This scenario is subject to significant external assistance but has not resorted ly by 3.2 percent in 2024. Starting from downside risks due to the vulnerability to monetization in 2023. 2025, Ukraine’s economic growth would of Ukraine’s economic trajectory to ex- There are signs of household incomes re- accelerate to 6.5 percent under the base- ternal financing shortfalls and the pos- covering. Estimates from earnings data line assumption as export growth re- sible prolongation of the active hostili- suggest that nominal wages in the last sumes, and reconstruction investment ties beyond 2024. Should downside risks quarter of 2023 had more than doubled supports the demand side. Private con- materialize, a more stringent macroeco- year-on-year, outstripping inflation. Social sumption growth is projected to remain nomic adjustment could become neces- transfers also increased in real terms. modest due to contractionary monetary sary. That adjustment could affect so- Nevertheless, 70 percent of households policy needed to reign in post-war infla- cial spending and transfers to house- perceive being financially worse off com- tion. Inflation is expected to pick up in holds that most of the poor have come pared to two years ago, reflecting a com- 2024 as one-off factors subside but is pro- to depend on, which could push many of bination of high uncertainty, high prices jected to decrease from 2025. them deeper into poverty. TABLE 2 Ukraine / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.4 -28.8 4.8 3.2 6.5 5.1 Private consumption 6.9 -27.9 9.9 2.3 10.0 4.9 Government consumption 0.8 31.4 18.9 19.1 12.2 8.5 Gross fixed capital investment 9.1 -33.9 4.0 3.8 12.4 17.5 Exports, goods and services -8.6 -42.0 -0.2 26.1 35.7 22.8 Imports, goods and services 14.2 -17.4 18.4 18.3 25.6 15.9 Real GDP growth, at constant factor prices 3.5 -28.8 4.8 3.2 6.5 5.1 Agriculture 14.4 -25.2 6.0 -1.0 10.0 6.0 Industry 7.2 -42.8 3.0 2.6 4.5 4.5 Services 0.5 -24.7 5.0 4.1 6.3 5.0 Inflation (consumer price index) 10.0 26.6 5.1 9.5 7.9 7.3 Current account balance (% of GDP) -1.9 5.1 -5.4 -7.8 -8.6 -7.9 Net foreign direct investment inflow (% of GDP) 3.8 0.1 2.4 0.8 2.4 3.9 a Fiscal balance (% of GDP) -4.0 -24.8 -27.0 -20.4 -11.5 -6.6 Revenues (% of GDP) 36.5 40.6 36.9 37.4 38.4 39.5 Debt (% of GDP) 49.0 77.8 86.8 96.3 98.3 97.7 a Primary balance (% of GDP) -1.2 -21.6 -23.0 -14.9 -6.9 -2.4 GHG emissions growth (mtCO2e) 0.7 -28.2 -4.8 -7.3 -4.8 -3.1 Energy related GHG emissions (% of total) 72.4 67.0 68.3 67.8 67.1 66.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal Balance and Primary Balance are excluding grants in 2022-2026. MPO 83 Apr 24 UZBEKISTAN Key conditions and Recent developments challenges Real GDP grew by 6 percent in 2023, led by investment, private consump¬tion, and Table 1 2023 Uzbekistan has implemented sweeping exports. Faster invest¬ment growth was fa- Population, million 36.2 reforms in recent years that have lib- cilitated by credit growth to SOEs and pri- GDP, current US$ billion 90.9 eralized parts of the economy and im- vate sector. Real credit (loans to SOEs and GDP per capita, current US$ 2510.1 proved prospects for private sector de- private sector) grew by 11.6 percent be- a 2.3 International poverty rate ($2.15) velopment. In 2023, the authorities es- tween 2022 and 2023, up from 5.1 percent a 5.0 tablished an independent energy regula- between 2021 and 2022. Lower middle-income poverty rate ($3.65) a 17.3 tor, began energy tariff reform, restruc- Consumer price inflation fell to its lowest Upper middle-income poverty rate ($6.85) Gini index a 31.2 tured the state-owned enterprise (SOE) level in seven years, dropping to 8.8 per- School enrollment, primary (% gross) b 94.2 rail operator, privatized a large chemical cent yoy in December 2023, compared to b 70.9 plant and a bank, and unbundled the 12.3 percent in 2022. This was driven by Life expectancy at birth, years leading chemical SOE to promote com- sustained, tight monetary policy, as well as Total GHG emissions (mtCO2e) 198.1 petition. They also established the Na- a VAT tax rate cut and lower international Source: WDI, Macro Poverty Outlook, and official data. tional Agency for Social Protection, ap- food and energy prices. a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). proved strong new legislation to combat In 2023, the Uzbek som depreciated by 9 gender-based violence, and expanded percent against the US dollar (USD), in access to free legal aid. Uzbekistan also part due to a flow on effect of the depreci- The economy grew by 6 percent in 2023 took a green transition path by intro- ation of the Russian ruble (a close trading ducing more ambitious environmental currency) against the USD. amid broad based expansion and fiscal targets, a new pollution control system, The current account deficit deteriorated stimulus. The government is expected to and a national green taxonomy. as import growth accelerated and remit- consolidate fiscal spending in 2024 fol- With high population growth and a tances declined in 2023 (the latter was re- lowing an increase in the fiscal deficit in large amount of youth entering the lated to the ruble’s depreciation). Uzbek- workforce each year, economic growth istan’s gas exports dropped by half, and 2023. Robust real wage growth has con- will need to support strong job creation. amid rising domestic gas needs, Uzbek- tributed to poverty reduction in 2023. To do so, Uzbekistan needs to continue istan began importing gas from Russia in The medium-term outlook is positive as its reforms program to open up markets 2023 for the first time. ambitious and ongoing structural reform and boost competition, notably by re- The fiscal deficit expanded from 4.1 per- is expected to improve the business envi- ducing dominance of SOEs in the econ- cent in 2022 to 5.8 percent of GDP in 2023 omy, strengthening land rights, liberal- due to emergency spending on energy in- ronment in key sectors and stimulate pri- izing the telecommunications sector and frastructure and fuel during the cold win- vate sector-led investment and growth. raw materials trade, and reducing high ter, higher spending on salaries and so- Steady economic growth is expected to trade costs. Faster job creation and produc- cial benefits, energy subsidies, and sub- result in a reduction in poverty. tivity growth will also require increasing sidized lending to SOEs via state-owned labor force skills. banks. Foreign reserves remained ample FIGURE 1 Uzbekistan / Real GDP growth and contributions FIGURE 2 Uzbekistan / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant million LCU) 15 20 5.4 18 5.2 10 16 14 5.0 5 12 4.8 10 0 4.6 8 -5 6 4.4 4 4.2 -10 2 2021 2022 2023 2024 2025 2026 0 4.0 Private Consumption Government Spending 2022 2024 2026 Investment Net Exports International poverty rate Lower middle-income pov. rate Stocks Growth Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations based on official data. Source: World Bank. Notes: see Table 2. MPO 84 Apr 24 at $34.6 billion by December 2023, more mainly by the continued implementation finance the deficit. This economic outlook than 8 months of prospective imports. of structural reforms, notably SOEs’ re- is expected to reduce poverty moderately Robust real wage growth contributed to structuring and privatization, and high en- to 4.3 percent in 2024. reducing poverty from 5.0 percent in ergy sector investment. The fiscal deficit is expected to fall to 2022 to 4.5 percent in 2023, measured Inflation is expected to increase in 2024 4.2 percent of GDP in 2024 and towards at the lower-middle income poverty line due to relatively sharp increases in do- 3 percent of GDP by 2026 as large, un- (USD 3.65/day, 2017 PPP). The unem- mestic energy prices because of the en- targeted energy subsidies and ineffective ployment rate has dropped to 8.1 per- ergy tariff reforms (accompanied by so- incentives to SOEs are withdrawn, and cent in 2023, down from 8.9 percent in cial protection measures). This will be thanks to growing budget revenues amid 2022. Average real wages in 2023 in- partially offset by a continued tight privatization proceeds. The government is creased by 7.8 percent not only due monetary stance while the central bank expected to adhere to its debt limits (60 to growing demand but also because completes its transition to full inflation percent of GDP for total Public and Pub- of skills shortages in the labor market. targeting. Inflation is expected to decel- licly Guaranteed debt), with public debt As a result, wage growth was higher erate to 8 percent in the medium term, slightly increasing to 36.5 percent of GDP among the more skilled (and wealthier) higher than the CBU target of 5 percent. in 2024 and then gradually declining to workers than among the poor, resulting Import growth is expected to moderate 34.4 percent of GDP by 2026. in higher income inequality. in 2024 but remains buoyant as imports Risks to outlook are tilted to the down- support both economic modernization side. External risks include possible dete- and growing consumption. rioration of growth in key trading part- Remittances in 2024 are projected to de- ners, notably China and Russia, and fur- Outlook cline mainly due to an expected reduc- ther tightening of external financial condi- tion in the number of labor migrants tions. Domestic risks stem from the grow- GDP growth is projected at 5.3 percent in to Russia. With decreasing remittances ing contingent liabilities from SOEs, PPPs, 2024 given the expected fiscal consolida- and strong imports, the current account and state-owned banks. Upside risks in- tion and slower export growth prospects to deficit will widen slightly but remain clude higher global gold and copper prices Russia and China, Uzbekistan’s key trad- sustainable as Uzbekistan’s transforma- and stronger productivity growth due to ing partners. Growth will be supported tion process brings in foreign savings to ongoing structural reforms. TABLE 2 Uzbekistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.4 5.7 6.0 5.3 5.5 5.7 Private consumption 11.6 11.3 4.6 4.9 5.0 5.2 Government consumption 3.1 3.6 6.2 3.9 1.7 4.2 Gross fixed capital investment 2.9 0.2 7.6 7.8 7.3 6.2 Exports, goods and services 13.3 27.9 23.4 10.1 11.2 12.3 Imports, goods and services 19.9 9.1 24.9 15.1 14.1 13.6 Real GDP growth, at constant factor prices 7.4 5.7 6.0 5.3 5.5 5.7 Agriculture 4.0 3.6 4.1 3.7 3.9 3.8 Industry 7.9 5.5 6.3 5.6 6.5 7.1 Services 9.1 6.9 6.8 6.0 5.7 5.8 Inflation (consumer price index) 10.8 11.4 10.0 11.0 9.9 8.2 Current account balance (% of GDP) -7.0 -0.8 -4.7 -5.0 -4.5 -4.3 Net foreign direct investment inflow (% of GDP) 3.3 3.1 6.0 3.6 3.8 4.0 Fiscal balance (% of GDP) -6.0 -4.1 -5.8 -4.2 -3.6 -3.0 Revenues (% of GDP) 25.9 30.5 28.8 28.9 29.2 29.4 Debt (% of GDP) 36.6 34.0 36.1 36.5 35.3 34.4 Primary balance (% of GDP) -5.7 -3.7 -5.3 -3.6 -3.0 -2.4 a,b International poverty rate ($2.15 in 2017 PPP) .. 2.3 2.1 2.0 1.8 1.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 5.0 4.6 4.4 4.2 4.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 17.3 16.0 15.0 14.0 13.1 GHG emissions growth (mtCO2e) 3.9 1.6 2.0 1.6 1.9 2.0 Energy related GHG emissions (% of total) 60.8 60.7 60.7 60.4 60.1 59.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-HBS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2022) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 85 Apr 24 Latin America and the Caribbean Argentina Dominican Republic Nicaragua The Bahamas Ecuador Panama Barbados El Salvador Paraguay Belize Grenada Peru Bolivia Guatemala Saint Lucia Brazil Guyana Saint Vincent and the Grenadines Chile Haiti Suriname Colombia Honduras Uruguay Costa Rica Jamaica Dominica Mexico MPO 87 Apr 24 coupled with measures to strengthen the Central Bank's balance sheet and refine the ARGENTINA Key conditions and monetary policy framework. Bold reforms are needed to remove barriers to growth, challenges including by improving education out- comes and enhancing the business climate. Table 1 2023 Argentina has faced a decline in GDP per These reforms (along with a credible and Population, million 46.5 capita over recent decades, marked by sustainable macroeconomic policy frame- GDP, current US$ billion 624.6 a history of recurrent fiscal deficits and work) are critical for encouraging private GDP per capita, current US$ 13426.9 highly procyclical fiscal policies. These sector investment and job creation. a 0.6 International poverty rate ($2.15) factors have contributed to economic The labor market's apparent resilience in a 2.5 volatility and repeated crises. Macroeco- 2022-2023, with record low unemployment Lower middle-income poverty rate ($3.65) a 10.9 nomic distortions have eroded Argenti- rates of around 6 percent, belies an un- Upper middle-income poverty rate ($6.85) Gini index a 40.7 na's competitiveness and hindered export sustainable increase in public employment School enrollment, primary (% gross) b 110.2 diversification, thereby impeding the and a surge in vulnerable independent b 75.4 country's ability to fully capitalize on its workers. Informal employment continues Life expectancy at birth, years comparative advantages in agroindustry, to be widespread, accounting for nearly 40 Total GHG emissions (mtCO2e) 406.2 as well as in select manufacturing and percent of the labor force. Concurrently, Source: WDI, Macro Poverty Outlook, and official data. service sectors. As a major food producer, real wages have declined by an average of a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). the country has become increasingly sus- 25 percent between 2018 and 2023, result- ceptible to weather-related shocks. ing in income losses for all population seg- The country is now confronting the chal- ments, especially the middle class. Urban lenge of rectifying significant and endur- poverty rose from 10.9 percent in 2022 to ing macroeconomic imbalances while pre- an estimated 12.4 percent in 2023, based on The government faces the challenge of serving social stability. The central bank's the international poverty line of US $6.85 correcting significant macroeconomic monetary financing of persistent fiscal per day (2017 PPP). imbalances while ensuring the protec- deficits over the last decade has resulted tion of the most vulnerable. Priorities in soaring inflation, which reached triple digits in 2023. The implementation of include eliminating the fiscal deficit, multiple price controls has led to price Recent developments realigning prices, and strengthening the misalignments, causing resource misallo- Central Bank's balance sheet. Inflation cation and complicating efforts towards The economy is estimated to have con- surged in December but is now declin- economic stabilization. tracted by 1.6 percent in 2023, largely due ing. Despite the expansion of social pro- To address these macroeconomic imbal- to persistent macroeconomic imbalances, ances and rebuild economic confidence, a severe drought that led to a 26 percent grams, poverty rose to an estimated 12.4 comprehensive reforms are essential. The year-over-year decline in agricultural pro- percent in 2023. The economy is pro- immediate priority is a fiscal consolidation duction, and related export losses amount- jected to shrink by 2.8 percent in 2024, strategy that halts the monetary financing ing to approximately US$20 billion. The with poverty reaching 15.1 percent. of the fiscal deficit while safeguarding the current account deficit expanded to 3.5 poor. Such a strategy would need to be percent of GDP, exacerbating pressures on FIGURE 1 Argentina / Net international reserves and FIGURE 2 Argentina / Actual and projected poverty rates percent difference between official and informal exchange rate and real GDP per capita US$ billion Percent Poverty rate (%) Real GDP per capita (constant LCU) 50 200 18 20000 16 18000 40 160 14 16000 30 120 14000 12 12000 20 80 10 10000 8 8000 10 40 6 6000 4 4000 0 0 2 2000 -10 Net Reserves (lhs) -40 0 0 Informal-formal FX premium (rhs) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -20 -80 International poverty rate Lower middle-income pov. rate 2012 2014 2016 2018 2020 2022 2024 Upper middle-income pov. rate Real GDP pc Source: World Bank based on Ministry of Economy. Source: World Bank. Notes: see Table 2. Note: Net Reserves are gross reserves net of short-term foreign currency denominated liabilities. MPO 88 Apr 24 international reserves. The trade balance inflation peaked at 25.5 percent in Decem- likely to result in a 2.1 percent primary fis- turned into a deficit of US$6.9 billion, dri- ber, decreasing to 13.2 percent by Febru- cal surplus for the central government. ven by a 24 percent fall in exports, which ary. Adjustments are still needed for gas As the country tackles macroeconomic exceeded a 10 percent decrease in imports. and electricity prices. Social protection imbalances and rectifies price distortions, Net international reserves were estimated measures included a doubling (in nominal inflation is predicted to decline and eco- to be negative US$8.0 billion at the end terms) of the main social programs (uni- nomic growth to pick up. A stronger of the year. The drought-induced revenue versal family allowance and food support) fiscal stance, consistent trade surplus- shortfall, combined with increased spend- and extraordinary monthly lump-sum es—supported by expected rises in ener- ing and tax cuts prior to the presidential supplements to low-income pensioners. gy and mining exports—and foreign di- elections, widened the Federal Govern- Although social assistance is well-targeted, rect investment (FDI) inflows should con- ment's fiscal deficit to 4.2 percent of GDP. the real value of social benefits, including tribute to a reserve buildup and establish A new administration assumed office on pensions and social transfers, fell by 30 a basis for enduring growth. December 10 2023 and immediately began percent year-over-year by February 2024. However, the economic forecast is marred implementing a stabilization program. It by significant potential downside risks, in- announced an ambitious program aiming cluding societal and legislative opposition for a fiscal consolidation target of 5 per- to the reform agenda and the country’s centage points of GDP for 2024, along with Outlook vulnerability to external shocks, including measures to correct relative price misalign- climate-related events. Social vulnerabili- ments, fortify the Central Bank’s balance Real GDP is projected to shrink by 2.8 ties are emerging from the steep drop in sheet, and deregulate the economy. Key percent in 2024, largely due to the im- real incomes in the context of high infla- initiatives included a one-time devaluation pact of price realignment and reduced tion. The governing party's limited pres- of the official exchange rate by 55 percent, public spending. The brunt of the eco- ence in Congress poses legislative hurdles the introduction of a monthly crawling peg nomic adjustment is expected to be for economic reforms. On the global stage, rate of 2 percent, the removal of import borne by non-agricultural sectors, while an economic deceleration in key trade controls, and strategies to address the sig- agricultural output is anticipated to partners or a fall in commodity export nificant importer debt overhang. However, bounce back from the previous year's prices could undermine Argentina’s stabi- legislative and judicial challenges have ob- drought, aiding fiscal revenue and re- lization efforts. Persistent high inflation structed some deregulation efforts and as- serve accumulation. The current account could lead to a swift appreciation of the pects of the fiscal plan. balance is forecasted to reach a surplus real exchange rate, undermining competi- Inflation surged in December 2023, fueled of 0.9 percent of GDP, bolstered by a tiveness. Additionally, any further adjust- by the devaluation’s pass-through and the substantial trade surplus. The fiscal con- ments to the exchange rate might stoke in- lifting of key price controls, but it has been solidation initiative, along with the ef- flation expectations, jeopardizing the suc- on a gradual decline. Month-over-month fects of inflation on public finances, is cess of the stabilization program. TABLE 2 Argentina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.7 5.0 -1.6 -2.8 5.0 4.5 Private consumption 10.4 9.7 1.6 -6.7 3.5 3.0 Government consumption 6.3 1.9 4.0 -13.6 4.5 0.9 Gross fixed capital investment 33.8 11.1 2.1 -23.6 12.7 12.8 Exports, goods and services 8.5 5.8 -12.7 26.8 6.5 5.0 Imports, goods and services 20.4 17.9 5.5 -15.2 7.2 5.3 Real GDP growth, at constant factor prices 10.4 4.9 -1.6 -2.8 5.0 4.5 Agriculture 1.9 -4.5 -24.0 23.0 1.0 2.0 Industry 15.5 5.7 0.7 -5.1 5.0 4.5 Services 9.4 6.0 0.3 -4.3 5.5 4.8 Current account balance (% of GDP) 1.4 -0.7 -3.5 0.9 0.9 1.0 Net foreign direct investment inflow (% of GDP) 1.1 2.1 3.1 1.5 1.4 1.6 a Fiscal balance (% of GDP) -4.3 -3.7 -4.2 0.0 0.7 -0.4 Revenues (% of GDP) 32.2 32.2 29.7 31.0 31.0 30.6 a Debt (% of GDP) 85.7 89.9 161.2 85.5 78.3 68.3 a Primary balance (% of GDP) -2.5 -1.7 -1.8 2.2 2.9 3.2 b,c International poverty rate ($2.15 in 2017 PPP) 0.9 0.6 0.8 1.1 0.9 0.7 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.8 2.5 3.1 3.6 3.2 2.8 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 11.4 10.9 12.4 15.1 13.8 12.8 GHG emissions growth (mtCO2e) 4.2 1.5 -2.8 -1.6 3.1 3.4 Energy related GHG emissions (% of total) 39.6 39.7 38.3 37.0 37.5 37.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal data refer to the general government. b/ Calculations based on SEDLAC harmonization, using 2022-EPHC-S2. c/ Projections using microsimulation methodology. MPO 89 Apr 24 nearly triple the national average. The most recent poverty data which dates to THE BAHAMAS Key conditions and 2013, estimated that 12.8 percent of the population lived below the Bahamas’ na- challenges tional poverty line. The nation also con- tends with significant inequality, as evi- Table 1 2023 The Bahamas is a small island state in denced by a GINI coefficient of 41.1 in Population, million 0.4 the Caribbean. Tourism is its primary dri- 2013, which is considerably higher than GDP, current US$ billion 14.7 ver of economic growth, particularly from the average for high-income countries. De- GDP per capita, current US$ 35730.0 key markets, such as the United States, spite these socioeconomic challenges, The a 86.8 School enrollment, primary (% gross) Canada, and the United Kingdom. The fi- Bahamas was ranked 57th in the Human a 71.6 nancial services sector, which is heavily Development Index (HDI) in 2022, which Life expectancy at birth, years Total GHG emissions (mtCO2e) 2.9 reliant on foreign investment, also plays is on par with its Caribbean peers. Source: WDI, Macro Poverty Outlook, and official data. a significant role. Following the global fi- The pandemic has exacerbated some of a/ WDI for School enrollment (2012); Life expectancy nancial crisis in 2008 economic growth the medium-term growth challenges, and (2021). decelerated to a modest average of 0.8 public finances have suffered as a result. percent between 2010 and 2019. This The country still faces elevated public slowdown can be attributed to several debt. In response, the government is pur- factors, such as the country's small size, suing fiscal consolidation through tax re- lack of productive diversification, high forms, enhanced tax administrations, and import dependence, and vulnerability to improvements in public financial man- natural disasters. In 2020, the economy agement. The Bahamas was recently re- In 2023, the economy expanded by 4.3 experienced a sharp contraction of 23.5 moved from the Financial Action Task percent, largely driven by a strong re- percent due to the pandemic’s impact, Force's grey list, reflecting its commit- covery in tourism. Fiscal and current but a resilient recovery ensued, and by ment to addressing financial crime. Fur- account deficits narrowed significantly; 2022, economic activity had rebounded to ther efforts are being made to enhance pre-pandemic levels. Anti-Money Laundering regulations and the unemployment rate declined but re- Despite this recovery, economic growth is supervision, ensuring full compliance mains high among young people. The constrained by capacity limits in tourism, with international standards. In October Bahamas made significant progress in vulnerability to external shocks, skill 2020, The Bahamas adopted a digital cur- strengthening its AML/CFT framework. shortages, and limited fiscal space. The Ba- rency to facilitate financial inclusion. hamas’ labor market is still facing chal- However, high public debt, global un- lenges, including restoring labor force par- certainty, and vulnerability to natural ticipation to its former level and address- disasters pose challenges for growth ing the high unemployment rate among Recent developments and poverty reduction. young adults. As of May 2023, labor force participation was at a low 75.9 percent, still In 2023, the GDP of The Bahamas grew at below the pre-pandemic level of 81 per- a solid 4.3 percent, following a robust re- cent. Additionally, the unemployment rate covery of 14.4 percent in 2022. This eco- for individuals aged 25-35 was 25 percent, nomic resurgence was broad-based, with FIGURE 1 The Bahamas / Real GDP growth and contributions FIGURE 2 The Bahamas / Fiscal balance and public debt to real GDP growth Percent, percentage points Percent of GDP Percent of GDP 30 120 4 20 100 0 10 80 -4 0 60 -10 -8 40 -20 -12 20 -30 2020 2021 2022 2023 e 2024 f 2025 f 2026 f 0 -16 Private Consumption Government Consumption Investment Net trade 2020 2021 2022 2023 e 2024 f 2025 f 2026 f Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of The Bahamas, IMF and World Bank staff calculations. Sources: Government of The Bahamas, IMF and World Bank staff calculations. MPO 90 Apr 24 tourism showing a particularly robust per- The robust economic rebound, coupled also projected to improve the domestic formance. The vigorous recovery con- with the gradual withdrawal of pandemic- supply of skilled workers, contributing to tributed to a reduction in the unemploy- related financial support, led to improved poverty reduction. Inflation is expected to ment rate to 8.8 percent, the lowest since public finances. This improvement oc- fall to 3.1 percent by end-2024, and to 2008. However, the unemployment rate curred despite tax relief measures to allevi- about 2 percent over the medium term. among young people remains elevated. In- ate inflationary pressures and an increase The government aims to achieve a fiscal ternational travel, including flights and in public sector wages. The fiscal deficit surplus by 2026, relying on greater cost re- cruise ship arrivals, surged past pre-pan- shrank to 4.1 percent of GDP in fiscal year covery from public corporations and mea- demic figures, reflecting strong tourist de- 2022/23. The central government's debt de- sures to improve spending efficiency that mand and successful government initia- creased from over 100 percent of GDP dur- would allow for spending cuts. Tax re- tives to attract new cruise lines and air- ing the pandemic to 83.2 percent by the forms are expected to further increase pri- lines. On average, cruise visitors spent 59 end of 2023. However, external sovereign mary surplus in the longer term, and simi- percent more in nominal terms in 2022 spreads remained high. Significant gross larly, increased expenditure on climate re- compared to 2019, while stayover visitors financing needs were largely met through silience is expected to contribute to this spent 18 percent more. domestic issuance and central bank loans. surplus. Such investments will ultimately The current account deficit narrowed to 6.2 reduce spending associated with natural percent of GDP, and the banking sector disaster recovery and mitigate the adverse showed strength with declining non-per- effects of natural disasters on GDP and, forming loans. Foreign exchange reserves Outlook consequently, on revenues. The trade were estimated to cover 4.9 months of im- deficit is expected to narrow, and inter- ports of goods and services at the end of The medium-term economic outlook is fa- national reserves are projected to remain 2023. Inflation, which peaked in July 2022 vorable, with real GDP growth projected above 4 months of imports. However, the at 7.1 percent y-o-y, primarily due to rising at 2.3 percent in 2024. Growth is expected economic forecast is subject to several costs of energy and food, began to subside. to moderate to 1.5 – 2 percent range in downside risks, including a potential de- The inflationary increase was largely at- the medium term due to capacity limits celeration in the United States due to mon- tributed to global factors, but a downturn in the tourism sector. The government ex- etary tightening, global uncertainty, re- in global energy prices facilitated a quick- pects long-term growth to be stimulated duced tourism demand from key source er-than-anticipated reduction in inflation, by investments in expanding hotel capac- markets, global price shocks, and the es- with the rate dropping to 3.4 percent by ity, with several FDI-financed projects al- calating threat of climate-induced natural the end of 2023, offering some relief to ready in the pipeline. These investments, disasters. Addressing labor market chal- poor households that are particularly vul- along with investments in other sectors of lenges and bolstering climate resilience are nerable to inflation, as it can significantly the economy, are expected to lead to job crucial strategies to mitigate these poten- erode their purchasing power. creation. Enhanced education policies are tial adverse effects. TABLE 2 The Bahamas / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 17.0 14.4 4.3 2.3 1.8 1.6 Private consumption 23.3 7.7 4.2 2.1 1.9 1.6 Government consumption 12.5 19.0 4.1 2.0 1.7 1.5 Gross fixed capital investment 12.4 -9.7 3.3 3.2 3.1 2.0 Exports, goods and services 22.6 39.9 10.2 10.0 8.8 8.4 Imports, goods and services 10.3 1.7 10.0 10.5 10.1 9.0 Real GDP growth, at constant factor prices 8.1 9.3 4.3 2.3 1.8 1.6 Agriculture -32.4 29.7 11.6 5.1 4.3 4.0 Industry -14.8 10.2 4.0 2.9 2.7 2.7 Services 11.7 9.0 4.3 2.2 1.7 1.5 Inflation (consumer price index) 2.9 5.6 3.4 3.1 2.6 2.2 Current account balance (% of GDP) -21.1 -8.2 -6.2 -6.1 -5.8 -5.7 Net foreign direct investment inflow (% of GDP) 2.6 2.5 2.5 3.0 3.0 3.0 a Fiscal balance (% of GDP) -6.2 -4.1 -2.5 -2.1 -1.7 -1.2 Revenues (% of GDP) 22.6 22.1 21.8 22.0 22.0 22.0 a Debt (% of GDP) 95.3 88.6 83.2 81.9 80.8 79.5 a Primary balance (% of GDP) -1.4 0.3 1.8 2.2 2.5 2.7 GHG emissions growth (mtCO2e) -3.5 1.1 4.0 3.0 0.8 0.1 Energy related GHG emissions (% of total) 86.0 86.1 86.1 85.9 85.6 85.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 91 Apr 24 of the population was covered by at least one social protection benefit in 2021. BARBADOS Key conditions and However, social assistance to vulnerable groups through the National Assistance challenges Program covered only 5,800 beneficiaries in 2020. Social insurance, operated by the Table 1 2023 Barbados confronts several challenges, in- National Insurance Scheme (NIS), faces Population, million 0.3 cluding its small size, its high dependence longer-term challenges due to increasing GDP, current US$ billion 6.2 on tourism from a few key markets, import expenditure on old-age pensions as a re- GDP per capita, current US$ 22144.0 dependency, and vulnerability to external sult of an aging population. a 95.6 School enrollment, primary (% gross) shocks, including from climate change. It a 77.6 is highly affected by increases in import Life expectancy at birth, years Total GHG emissions (mtCO2e) 3.5 prices, especially from the US. The Central Source: WDI, Macro Poverty Outlook, and official data. Bank has limited tools to address rising Recent developments a/ WDI for School enrollment (2022); Life expectancy inflation. High public debt levels, exacer- (2021). bated by the recent economic downturn, In 2023, real GDP expanded by an estimat- reduced fiscal space. However, the Gov- ed 4.5 percent as tourist arrivals increased ernment continues to implement the BERT by 19 percent between January and Sep- 2022 plan, which seeks to reduce public tember, pushing GDP above its pre-pan- Barbados’ economy grew at 4.5 percent debt to about 60 percent of GDP by 2035/ demic level. The recovery in tourism also 36, incentivize a transition to green energy, led to significant overall growth in the ser- in 2023, exceeding pre-pandemic levels diversify the economy, and improve com- vices sector, particularly in areas such as as the number of tourists returned to petitiveness. It also includes a pledge to hotels, retail trade, and entertainment, and pre-2019 levels. The resurgence of the social cohesion, with investment in edu- in the agriculture sector which benefited economy is expected to alleviate poverty cation and health, provision of affordable from increased demand for local produce, and improve households’ living condi- housing, and enhanced social safety nets. also a result of the tourism upturn. Manu- Barbados was one of the first countries to facturing led the industrial sector to a 5.0 tions. The government continues to im- receive financial support from the IMF percent rebound in 2023. plement the Barbados Economic Recov- through the Resilience and Sustainability The primary fiscal balance reached 2.3 ery and Transformation (BERT) plan, Facility (RSF) through a program ap- percent of GDP in the first half of which seeks to increase the primary sur- proved in December 2022. FY2023/24, exceeding the government’s There have been no official poverty esti- target of 1.7 percent. The overall fiscal plus, enhance debt sustainability, and mates since 2017. In 2016, approximately balance recorded a deficit of 0.5 percent reduce external and natural disaster-re- a quarter of the population lived below of GDP, down from 2.3 percent of GDP lated vulnerabilities. A slowdown in Barbados’ basic needs threshold, and 3.4 in the first half of FY2022/23, as revenues tourism source markets, increases in percent of households could not afford continued to recover, and pandemic-re- global oil prices, and climate change even a minimum food basket. The pover- lated spending was phased out. The pub- ty rate was higher among females, fe- lic debt-to-GDP ratio is estimated at represent latent risks. male-headed households, and larger 111.8 percent at the end of 2023, down households. Approximately 55.3 percent from 122.3 percent at the end of 2022. FIGURE 1 Barbados / Real GDP growth and contributions to FIGURE 2 Barbados / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 15 160 6 10 140 4 120 5 2 100 0 80 0 -5 60 -2 -10 40 -4 -15 20 2020 2021 2022 2023 e 2024 f 2025 f 2026 f Agriculture Industry 0 -6 Services Net taxes on production 2020 2021 2022 2023 e 2024 f 2025 f 2026 f Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of Barbados, IMF and World Bank staff calculations. Sources: Government of Barbados, IMF and World Bank staff calculations. MPO 92 Apr 24 The government has taken several mea- to higher employment, with unemploy- 2025. The government plans to decrease sures to strengthen fiscal management, in- ment claims reverting to pre-pandemic transfers to state-owned entities and per- cluding the establishment of a Fiscal Coun- levels. Unemployment stood at 8.3 percent sist modernizing tax exemptions, bolster- cil to ensure transparency and accountabil- in July-September 2023, a substantial y-o-y ing revenue administration, and improv- ity in fiscal strategy implementation. decline from 12.4 percent in the same pe- ing public financial management. The The Central Bank of Barbados has kept riod a year earlier and compared to 10.1 current account deficit is forecasted to its benchmark rate at 2 percent. Inflation percent in the second quarter of 2019. The narrow to 6.2 percent of GDP by 2025, moderated, falling to 4.4 percent by the difference in the unemployment rate of driven by anticipated robust performance end of 2023 from a peak of 6.7 percent women and men is relatively small, at 8.6 in the tourism sector, reduced commodity in May 2022, driven by lower internation- and 8.1 percent respectively. prices, and aided by fiscal consolidation. al fuel prices and freight costs. Howev- At the same time, government initiatives er, some domestic factors, such as pro- to combat climate change and to improve longed drought conditions and higher de- business environment are expected to mand for restaurants and recreational ac- Outlook stimulate investment. Overall, the gov- tivities, have pushed up the prices of cer- ernment's commitment to fiscal consoli- tain food items and domestic services. Ef- The economy is projected to continue re- dation, climate resilience, and debt sus- forts to improve monetary and financial covering, with real GDP expected to ex- tainability, along with ongoing support sector policies have led to a well-capital- pand annually by around 3.7 percent in from international financial institutions, ized, liquid, and profitable banking sys- 2024 and 2.8 percent in 2025. Efforts to im- sets the stage for continued progress in tem, with credit to the non-financial pri- plement structural reforms, enhance fiscal the country's reform agenda. The outlook vate sector experiencing a modest growth institutions, and promote investments in remains subject to risks, including poten- of 1.7 percent. The international reserves renewable energy projects are expected to tial global economic and financial shocks, position continued to strengthen, with the support sustainable and inclusive growth. climate-related natural disasters, and an current account deficit narrowing to an Inflation is projected to reach 3.7 percent intensification of regional conflicts in oth- estimated 8.1 percent of GDP in 2023 and in 2024 and decline below 3 percent there- er parts of the world, which could impact foreign reserves reaching an estimated 6.1 after. Fiscal consolidation is expected to global commodity prices and raise infla- months of imports of goods. continue, with the fiscal deficit falling to tion. The level of public debt remains The labor market also showed improve- 0.4 percent of GDP and the primary sur- high and exacerbates the potential impact ment in 2023. The rebound in tourism led plus increasing to 4.5 percent of GDP by of these risks. TABLE 2 Barbados / 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 11.3 4.5 3.7 2.8 2.3 Real GDP growth, at constant factor prices -0.8 11.3 4.5 3.7 2.8 2.3 Agriculture -10.4 -6.4 3.0 3.0 3.0 3.0 Industry -6.3 5.0 3.6 2.9 2.8 2.4 Services 0.6 12.9 4.7 3.8 2.8 2.3 Inflation (consumer price index) 3.1 9.2 5.0 3.7 2.8 2.4 Current account balance (% of GDP) -10.5 -10.3 -8.1 -7.2 -6.2 -5.8 Fiscal balance (% of GDP) -4.5 -2.1 -1.9 -1.2 -0.4 -0.1 Revenues (% of GDP) 27.7 27.9 28.5 30.2 30.2 30.3 Debt (% of GDP) 129.1 122.3 111.8 104.6 98.7 93.5 Primary balance (% of GDP) -0.8 2.5 3.3 4.0 4.5 4.6 GHG emissions growth (mtCO2e) -3.6 -1.2 1.8 1.1 0.8 0.6 Energy related GHG emissions (% of total) 25.0 23.6 24.2 24.1 23.7 23.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 93 Apr 24 Data on monetary poverty indicate that in 2018, 9 percent of the population could not BELIZE Key conditions and afford a minimum food basket, and 52 per- cent were unable to afford a minimum challenges food and non-food basket. Income inequal- ity, as measured by the Gini coefficient, Table 1 2023 Belize, an upper middle-income country, stood high at 0.49. Based on labor force Population, million 0.4 is heavily dependent on tourism, its pri- survey data, the Statistical Institute of Be- GDP, current US$ billion 3.3 mary source of foreign exchange, along lize estimated that 35.7 percent of the pop- GDP per capita, current US$ 7988.0 with agriculture and remittances. The ulation was multi-dimensionally poor in a 99.9 School enrollment, primary (% gross) country’s economic performance is close- 2021. There are notable geographic and de- a 70.5 ly tied to the US, the main source of mographic differences in poverty rates. In Life expectancy at birth, years Total GHG emissions (mtCO2e) 7.0 tourists and remittances, the principal ex- 2021, the southern district of Toledo report- Source: WDI, Macro Poverty Outlook, and official data. port destination, and a key provider of ed the highest rate of multi-dimensional a/ WDI for School enrollment (2022); Life expectancy FDI. With its exchange rate pegged to the poverty at 60 percent and the rate for Belize’s (2021). dollar and its status as a net importer of Maya population reached 61 percent. oil and gas, Belize is strongly affected by fluctuations in energy prices. The country is also highly exposed to climate-related Belize’s economy is recovering from the shocks, such as flooding, wind damage, Recent developments and coastal erosion. COVID-19 pandemic with robust Belize is gradually emerging from a chal- In 2023, Belize’s economy experienced ro- growth, lower debt, a primary surplus, lenging period of economic instability and bust growth, with real GDP increasing by 4.5 and an improved current account. In large fiscal imbalances, which were inten- percent, driven in large part by tourism, con- 2023, GDP grew by 4.5 percent, inflation sified by the COVID-19 pandemic. It has struction, and various services. Favorable slowed, and unemployment remained low made notable progress in reducing its pub- weather conditions in 2023, coupled with in- lic debt through debt restructuring and a creases in livestock production, animal feed at 4 percent (albeit labor force participa- blue bond issuance, although debt servic- production, and domestic agricultural pro- tion is low too). The country still faces ing costs remain high. It has also made cessing, alongside high global sugar prices, persistent poverty and inequality, depen- progress in strengthening fiscal manage- contributed to the accelerated growth of the dence on tourism and energy imports, ment by building fiscal buffers that could agriculture sector. As a result, real GDP was help maintain a counter-cyclical fiscal 16 percent higher than pre-pandemic levels, and exposure to climate shocks. The gov- stance and enhance fiscal discipline. De- and the unemployment rate decreased sig- ernment has taken steps to strengthen fis- spite these advancements, the business en- nificantly from 10.4 percent before the pan- cal management, but reforms to improve vironment faces significant challenges, demic to 4 percent in 2023. However, labor the business environment are critical to such as restricted credit to the private sec- force participation, which had declined boost jobs, investment, and growth over tor, important infrastructure barriers, skills rapidly during the pandemic, remained de- shortages, and elevated levels of crime and pressed. It is particularly low for women the medium term. violence, all of which impede job creation, (44.5percent)comparedtomen(71.4percent growth, and efforts to alleviate poverty. formen)andforthosewhoarelesseducated. FIGURE 1 Belize / Real GDP growth and contributions to FIGURE 2 Belize / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 20 120 2 15 0 100 10 -2 80 5 -4 0 60 -6 -5 40 -8 -10 20 -10 -15 2020 2021 2022 2023 e 2024 f 2025 f 2026 f 0 -12 Private Consumption Government Consumption 2020 2021 2022 2023e 2024f 2025f 2026f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of Belize, IMF and World Bank staff calculations. Sources: Government of Belize, IMF and World Bank staff calculations. MPO 94 Apr 24 Average consumer price inflation slowed trade for the country resulting from the with an expected real GDP growth of from 6.3 percent in 2022 to 4.4 percent in dynamics of global commodity prices and 3.5 percent in 2024 and 2.5 percent 2023. The fiscal position has improved the recovery in tourism. from 2025 onwards. Inflation is expect- over recent years, with public debt de- The Central Bank of Belize focused its ed to further decline to 3.1 percent in creasing from 103 percent of GDP in 2020 monetary policy on supporting overall 2024 and 2 percent over the medium to 66.3 percent in 2023, due to high growth, economic stability and growth, including term. This positive outlook, coupled fiscal consolidation, and debt restructur- maintaining an adequate level of interna- with new policy initiatives to enhance ing. However, the primary fiscal surplus tional reserves to strengthen the currency the formalization of small and medi- slightly deteriorated in 2023, from 1.3 per- peg, which is essential for promoting con- um enterprises and improve social as- cent of GDP in 2022 to 0.8 percent of GDP. fidence in the local currency. Gross inter- sistance, could contribute to poverty Revenues and grants as a share of GDP national reserves amounted to 3.4 months reduction. The fiscal position is expect- saw a slight decrease from 24 percent of of imports at the end of 2023. ed to remain robust but public debt is GDP in 2022 to 23.2 percent in 2023. Non- Financial soundness indicators improved projected to decline more slowly going interest expenditures as a share of GDP de- in 2023, with domestic banks’ regulatory forward, remaining above 50 percent creased slightly from 22.7 percent in 2022 capital increasing, non-performing loans of GDP over the next decade. to 22.4 percent in 2023. The overall budget decreasing, and returns on assets rising. There are important external risks, in- deficit amounted to 1.5 percent of GDP. However, there are still concerns about cluding higher global commodity prices, Belize has made significant efforts to en- high non-performing loans, low capital vulnerability to climate-related disasters, hance resilience to climate change and nat- buffers, and tight liquidity in some banks higher-than-expected global interest ural disasters by investing in climate-re- compared to the pre-pandemic period, rates, and persistent vulnerabilities in the silient crops and infrastructure. The gov- which could limit investment and real banking sector. ernment is also working on implementing GDP growth in the future. Belize’s key policy priorities for 2024-2026 a Disaster Resilience Strategy that focuses include reducing public debt, increasing on improving structural, financial, and government revenues to finance priority post-disaster resilience. spending on infrastructure, targeted social The current account showed a notable im- Outlook programs, crime prevention, implement- provement in 2023, narrowing from 8.3 ing structural reforms to improve the busi- percent of GDP in the previous year to 3.6 Belize’s economy is projected to perform ness environment, and remaining vigilant percent, reflecting more favorable terms of reasonably well over the medium term, to financial stability risks. TABLE 2 Belize / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 17.9 8.7 4.5 3.5 2.5 2.5 Private consumption 16.9 8.0 4.9 3.5 2.5 2.5 Government consumption 16.7 6.6 5.3 3.7 2.6 2.6 Gross fixed capital investment 26.0 12.8 9.5 5.2 4.4 4.3 Exports, goods and services 36.4 11.5 8.1 7.6 7.0 6.7 Imports, goods and services 32.1 10.2 9.7 7.4 7.0 6.8 Real GDP growth, at constant factor prices 17.2 6.3 4.5 3.5 2.5 2.5 Agriculture 24.2 -0.8 8.6 6.0 4.5 4.3 Industry 15.1 -1.9 3.3 3.2 3.0 3.0 Services 16.6 9.8 4.1 3.2 2.0 2.0 Inflation (consumer price index) 3.2 6.3 4.4 3.1 2.3 2.0 Current account balance (% of GDP) -6.5 -8.3 -3.6 -1.9 -2.0 -2.0 Net foreign direct investment inflow (% of GDP) 5.1 4.7 4.2 2.5 2.4 2.3 a Fiscal balance (% of GDP) -1.4 -0.6 -1.5 -1.4 -1.3 -1.3 Revenues (% of GDP) 23.4 24.0 23.2 23.2 23.2 23.2 a Debt (% of GDP) 82.3 67.1 66.3 63.6 61.9 61.0 a Primary balance (% of GDP) 0.0 1.3 0.8 1.0 1.0 1.0 GHG emissions growth (mtCO2e) 0.0 0.0 -0.1 -0.1 -0.1 0.0 Energy related GHG emissions (% of total) 10.3 11.3 12.1 12.8 13.5 14.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 95 Apr 24 limits their ability to respond swiftly to economic shocks. BOLIVIA Key conditions and The ongoing demographic transition, in- creasing urbanization, and a more educat- challenges ed workforce are increasing the urgency of generating more and better jobs. Fos- Table 1 2023 The Government's state-led development tering foreign and private investment, as Population, million 12.4 strategy focused on import substitution, well as productivity growth among small GDP, current US$ billion 45.8 natural resource extraction, and public in- and medium-sized enterprises, is critical GDP per capita, current US$ 3699.8 vestment through state-owned enterprises to accelerate growth and job creation and a 2.0 International poverty rate ($2.15) has led to structurally high fiscal deficits, would benefit from reducing red tape, re- a 5.4 dwindling reserves, and a loss of access moving tax distortions, modernizing labor Lower middle-income poverty rate ($3.65) a 15.2 to international capital markets. Macro- regulations, improving transport and lo- Upper middle-income poverty rate ($6.85) Gini index a 40.9 economic imbalances have been com- gistics, easing agricultural export restric- School enrollment, primary (% gross) b 96.4 pounded by structural weaknesses, in- tions, and fostering environmentally and b 63.6 cluding a narrow export base, a decline in socially sustainable mining. Life expectancy at birth, years gas production, and a weak business en- Total GHG emissions (mtCO2e) 136.6 vironment that is depressing private-sec- Source: WDI, Macro Poverty Outlook, and official data. tor investment. As a consequence, growth a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2012); Life expectancy is slowing significantly, and the country Recent developments (2021). now has very limited buffers to respond to external and climate shocks. A credible The economy expanded by an estimated medium-term plan to reduce the fiscal 2.4 percent in 2023 as it continued to After expanding an estimated 2.4 percent deficit, improve the business environ- slow due to declining gas exports, dollar in 2023, the economy is expected to slow ment, and strengthen institutions is crit- and fuel shortages, political tensions, and ical to address macroeconomic imbal- a severe drought. Subsidies and a fixed further as macroeconomic imbalances in- ances, ignite new sources of growth, and exchange rate helped keep inflation low creasingly weigh on growth and prevent reinvigorate poverty reduction. at 2.1 percent in December 2023 (y-o- poverty reduction. Limited access to ex- Fiscal sustainability and performance y change). The 12-month rolling fiscal ternal financing, increased economic un- could be enhanced by transitioning from deficit increased from 7.1 percent of GDP universal fuel subsidies to more targeted in December 2022 to 7.6 percent in June certainty, and low levels of international support mechanisms, rationalizing public 2023 as declining gas exports, high sub- reserves will continue to constrain public investment, including in state-owned en- sidies, and rising interest payments more spending and private sector activity. Bo- terprises, making public procurement than offset the reduction in capital expen- livia would benefit from implementing a more efficient, and improving focus and diture. Public debt increased to an esti- medium-term strategy to address macro- progressivity of subsidies and social mated 84 percent of GDP in 2023, with spending. Current social assistance pro- the Government working on getting leg- economic imbalances, enhance fiscal poli- islative approval for external loans and grams are not effectively supporting the cy efficiency and progressivity, and foster poor and vulnerable, with modest benefits tapping into pension funds financing, private investment-led growth. not indexed to inflation, and their design crowding out the financial sector. FIGURE 1 Bolivia / Public debt and international reserves FIGURE 2 Bolivia / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 100 45 4500 Public debt 40 4000 80 35 3500 International reserves 30 3000 60 25 2500 20 2000 40 15 1500 10 1000 20 5 500 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 2024 2026 Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Bolivia and Ministry of Economy and Public Finance. Source: World Bank. Notes: see Table 2. MPO 96 Apr 24 Growth of employment and labor force par- a severe shortage of U.S. dollars and a sig- in 2024 and 2025 amid the economic ticipation rates decelerated throughout nificant difference between the official ex- slowdown and weak private investment. 2022 and came to a halt in 2023 due to the change rate and the parallel market rate. The purchasing power of poor and vul- slowdown in economic activity. Underem- In February 2024, the Government agreed nerable households is expected to erode ployment stood at 6.3 percent (2023 Q3), still with the private sector to ease the agricul- given mounting inflationary pressures above pre-pandemic levels (4.5 percent in tural export restrictions subject to a com- and the failure to adjust the value of ex- 2019 Q3). Labor informality remains high, mitment to supply the domestic market isting cash transfers to rising prices. Infla- with only 26.5 percent of workers covered and deposit the dollars in the financial sys- tion is expected to increase to 4.4 in 2024 by social security. Real household income tem. Still, it expressed a strong commit- as dollar shortages, political tensions, and is expected to stagnate in 2023 due to slug- ment to preserve the exchange rate peg. social unrest generate import constraints gish growth in real wages, alongside mod- and supply bottlenecks. erate real growth in remittances, and social The current account deficit is projected assistance cash transfers failing to keep to remain close to 2.5 percent due to low pace with inflation. In this context, poverty Outlook commodity prices and declining natural levels are anticipated to remain largely un- gas production. The impact of mobilizing changed at 17 percent in 2023 (measured at Growth is expected to decline to 1.4 in 2024 foreign and public investment in lithium the upper middle-income line of US$6.85/ as existing macroeconomic imbalances in- development and gas exploration is ex- day in 2017 PPP). creasingly limit private consumption and pected to be limited during the projec- The country's external situation weakened El Niño continues to impact agricultural tion period due to the long investment in 2023. The current account balance is es- output in the first half of 2024. Dollar horizons. Limited access to external fi- timated to have fallen to -2.3 percent of shortages are expected to continue as the nancing and falling international reserves GDP, driven by a shift from a trade surplus measures agreed with the private sector to will constrain public spending, including of US$1.8 billion in 2022 to a deficit of ease export restrictions are not part of a public investment. US$585 million in 2023 due to a decrease strategy to address the underlying unsus- Depleted macroeconomic policy buffers in gas exports and increased fuel imports. tainable fiscal balances. The fiscal deficit increasingly expose the economy to The country's international reserves de- will continue at high levels due to falling downside risks, including lower com- clined to 1.7 billion dollars at the end of the hydrocarbon revenues and high subsidies. modity prices and natural disasters. Po- year, a value close to the legal minimum Public debt, including with the Central litical tensions limit the room to address level of 22 tons of gold, due to declining Bank, will increase from 80 percent in 2022 imbalances and the capacity to maneuver gas export earnings, elevated government to 87 percent in 2026 (Figure 1). in a more adverse economic context that subsidies, repayments on foreign debt, and Poverty is expected to remain constant at could shift market sentiment and erode gold sales. These dynamics contributed to around 17 percent (US$6.85/day in 2017 PPP) confidence in the boliviano. TABLE 2 Bolivia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.1 3.5 2.4 1.4 1.5 1.5 Private consumption 5.3 4.2 2.3 2.2 2.1 2.0 Government consumption 5.4 4.0 1.9 -1.4 -0.8 -0.3 Gross fixed capital investment 11.9 6.5 5.7 -0.2 -0.7 -0.2 Exports, goods and services 15.4 15.6 -15.4 1.8 3.0 2.9 Imports, goods and services 15.7 7.6 0.6 1.2 1.5 1.6 Real GDP growth, at constant factor prices 6.4 3.5 2.5 1.4 1.6 1.6 Agriculture 1.8 3.7 3.0 3.4 4.4 4.4 Industry 9.6 1.0 1.0 0.8 0.8 0.8 Services 5.8 5.3 3.5 1.2 1.3 1.2 Inflation (consumer price index) 0.7 1.7 2.6 4.4 4.5 4.5 Current account balance (% of GDP) 2.2 -0.4 -2.3 -2.6 -2.5 -2.5 Net foreign direct investment inflow (% of GDP) 1.2 0.7 0.7 0.7 0.7 0.7 Fiscal balance (% of GDP) -9.3 -7.1 -7.2 -6.8 -6.4 -6.5 Revenues (% of GDP) 25.1 26.6 26.4 26.2 25.8 24.4 Debt (% of GDP) 81.6 80.1 83.6 85.5 86.2 86.5 Primary balance (% of GDP) -7.9 -5.5 -5.4 -4.7 -4.1 -4.3 a,b International poverty rate ($2.15 in 2017 PPP) 2.0 3.0 3.4 3.8 4.1 4.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.4 6.5 6.9 7.3 7.7 7.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 15.2 16.9 17.0 17.2 17.4 17.3 GHG emissions growth (mtCO2e) 2.7 0.5 0.7 0.6 0.8 0.9 Energy related GHG emissions (% of total) 15.5 16.0 16.6 17.2 17.9 18.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2021-EH. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 97 Apr 24 fiscal framework to anchor public finances and adopted a historical constitutional re- BRAZIL Key conditions and form of its indirect taxation system. The new framework, which combines an ex- challenges penditure rule with primary balance tar- gets, aims to improve predictability. How- Table 1 2023 Brazil’s economy rebounded quickly ever, adherence to this framework will ne- Population, million 204.1 from the COVID-19 pandemic, emerging cessitate significant efforts to increase rev- GDP, current US$ billion 2173.5 from a prolonged slump that began in enues. The tax reform centers on replacing GDP per capita, current US$ 10646.8 2015. However, productivity has re- several existing indirect taxes with a dual a 3.5 International poverty rate ($2.15) mained stagnant for more than two value-added tax over the next decade. The a 8.4 decades, specifically in manufacturing reform is expected to streamline the tax Lower middle-income poverty rate ($3.65) a 23.5 and services. Achieving faster and sus- system, reduce economic distortions, and Upper middle-income poverty rate ($6.85) Gini index a 52.0 tained long-term growth will require sig- boost business productivity. School enrollment, primary (% gross) b 103.5 nificant reforms to boost the competi- b 72.8 tiveness and productivity of the econo- Life expectancy at birth, years my, including a better business environ- Total GHG emissions (mtCO2e) 2151.6 ment, a reduction in financial and prod- Recent developments Source: WDI, Macro Poverty Outlook, and official data. uct market distortions, increased infra- a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). structure investment, deeper integration In 2023, real GDP grew by 2.9 percent, into global value chains, and improve- driven by a strong harvest, exports, and ments in education quality. Brazil’s de- robust private consumption. Inflation mographic structure is changing rapid- moderated to 4.6 percent, falling within ly as the working-age population shrinks the Central Bank’s target range (1.75 to In 2023, GDP growth reached 2.9 per- and the aging population grows, exerting 4.75 percent) and significantly below the cent thanks to a bumper harvest, reced- pressure on pensions and healthcare ex- peak of 12.1 percent in April 2022. Con- ing inflation pressures, and a robust la- penditures. The long-term effects of the sequently, the Central Bank began to ease bor market. This, along with Bolsa pandemic on human capital are evi- monetary policy in August, reducing the denced by Brazil’s 2021 Human Capital policy rate from 13.75 percent to 10.75 Família expansion, helped reduce pover- Index falling below 2009 levels. Although percent by March 2024. Real credit ty. In 2024, economic activity is expect- progress in reducing poverty has been in- growth slowed to 3.1 percent in 2023 ed to moderate and fiscal risks will in- consistent since the pandemic, the pover- from 8.3 percent in 2022, driven by re- crease as the zero primary deficit target ty rate (measured at $6.85/day per capita, duced credit to firms. The current ac- imposes an urgent need to increase rev- 2017 PPP) fell from 28.2 to 23.5 percent count deficit shrank to 1.3 percent of between 2012 and 2022. Inequality re- GDP, fully covered by net FDI inflows of enues and contain expenditures. In the mains high, with limited progress in non- 1.6 percent of GDP. absence of significant fiscal adjustment, monetary aspects of poverty. The primary deficit reached 2.3 percent of concerns over debt stabilization remain. Brazil has been grappling with high public GDP in 2023, from a surplus of 1.2 percent debt amidst tepid growth. In 2023, the gov- in 2022, due to declining tax revenues, a ernment introduced a new medium-term significant rise in social transfers, and an FIGURE 1 Brazil / Fiscal deficit and public debt FIGURE 2 Brazil / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 100 16 Public debt (lhs) 30 6800 Primary deficit 14 6600 90 Overall deficit 25 12 6400 10 20 80 6200 8 15 6000 70 6 5800 4 10 60 5600 2 5 5400 0 50 -2 0 5200 2012 2014 2016 2018 2020 2022 2024 2026 40 -4 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 Upper middle-income pov. rate Real GDP pc Source: Central Bank of Brazil. Source: World Bank. Notes: see Table 2. MPO 98 Apr 24 unusually large payment of judicial debts workers, is anticipated to slow. The real (0.9 percent of GDP). High debt service minimum wage is expected to increase costs also increased, reaching 6.6 percent Outlook by 3.1 percent in 2024. However, this of GDP (from 5.8 percent in 2022). With may be partly offset by a 12.5 percent av- this, gross debt grew to 74.4 percent of GDP growth is expected to moderate to erage increase in fuel prices (LPG, gaso- GDP in 2023 (from 71.7 percent in 2022). 1.7 percent in 2024 as the lagging effect of line, ethanol, and diesel) due to the expi- In 2023, the poverty rate continued to high-interest rates slows economic activity ration of tax breaks, affecting households’ decline, reaching 21.5 percent (US$ 6.85 and as agricultural output normalizes after purchasing power. per day, 2017 PPP), a reflection of im- 2023's bumper harvest. Inflation is expect- Key macroeconomic risks stem from the proved economic conditions and social ed to gradually converge to about 3.5 per- need for fiscal consolidation to meet pri- protection policies. Unemployment fell cent by 2025, allowing for the gradual eas- mary balance targets, stabilize public to 7.4 percent, the lowest since 2014. ing of monetary policy and contributing to debt, and anchor inflation expectations. Formality rates remained unchanged, faster growth in 2025. But growth is ex- This requires new revenue measures or while average real wages rose by 6.2 pected to remain at around 2 percent over expenditure controls that may encounter percent in the first three quarters of the medium term, given persistent struc- significant political resistance. Addition- 2023, notably in the services sector, tural constraints to productivity growth. ally, the continuation of El Nino could which employs the majority of the poor The current account deficit is expected to suppress agricultural output and increase workforce. The Bolsa Família Program remain moderate and fully financed by food and energy prices. Ample reserves, was responsible for two thirds of the FDI. With a focus on curbing expenditure low external debt, and a resilient financial annual poverty reduction due to the ex- growth and increasing tax revenues, the system offer important macroeconomic pansion of its coverage by 2 million primary deficit is projected to improve to buffers, but the political consensus families (reaching 21.3 million), while 0.4 percent of GDP in 2024 and to reach around fiscal adjustment measures will the average monthly transfer increased a surplus of 0.7 percent of GDP by 2026. continue to be critical for debt stabiliza- from R$395 to R$670. Additionally, the Public debt is anticipated to stabilize at tion. While further economic growth may real minimum wage was raised by 2.8 around 77.4 percent of GDP by 2026. marginally contribute to poverty reduc- percent, benefiting approximately 1 in Poverty reduction may be limited in 2024 tion in the coming years, insufficient in- 4 households in the bottom 40 percent as growth in agriculture and services, the vestments in human capital and social in- with at least one formal worker. latter employing 80.1 percent of poor frastructure could impede progress. TABLE 2 Brazil / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.8 3.0 2.9 1.7 2.2 2.0 Private consumption 3.0 4.1 3.1 1.5 2.2 2.0 Government consumption 4.2 2.1 1.7 1.2 1.7 1.7 Gross fixed capital investment 12.9 1.1 -3.0 1.7 1.5 1.3 Exports, goods and services 4.4 5.7 9.1 3.0 3.0 3.0 Imports, goods and services 13.8 1.0 -1.2 2.0 2.3 2.5 Real GDP growth, at constant factor prices 4.5 3.1 3.0 1.7 2.2 2.0 Agriculture 0.0 -1.1 15.1 0.0 2.0 2.0 Industry 5.0 1.5 1.6 1.5 1.7 1.7 Services 4.9 4.1 2.1 2.0 2.4 2.1 Inflation (consumer price index) 8.3 9.3 4.6 3.9 3.7 3.4 Current account balance (% of GDP) -2.8 -2.5 -1.3 -1.8 -2.1 -2.3 Net foreign direct investment inflow (% of GDP) 1.8 2.1 1.6 2.0 2.2 2.5 Fiscal balance (% of GDP) -4.2 -4.6 -8.8 -7.1 -5.1 -4.6 Revenues (% of GDP) 35.4 37.6 34.7 34.3 34.6 34.4 Debt (% of GDP) 77.3 71.7 74.4 77.2 77.3 77.4 Primary balance (% of GDP) 0.7 1.2 -2.3 -0.4 0.4 0.7 a,b International poverty rate ($2.15 in 2017 PPP) 5.8 3.5 1.6 1.6 1.6 1.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 11.3 8.4 6.4 6.4 6.3 6.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 28.4 23.5 21.5 21.3 21.2 21.0 GHG emissions growth (mtCO2e) 15.2 -8.3 -8.1 -4.8 -4.6 -4.7 Energy related GHG emissions (% of total) 17.0 17.6 19.7 20.1 20.8 21.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-PNADC-E1. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 99 Apr 24 revenues to fund social spending was rejected in Congress. A revised, scaled CHILE Key conditions and back tax reform with an enhanced focus on tax compliance is being debated in challenges Congress. A pension reform proposal to increase contributions and replacement Table 1 2023 Chile has a strong track record of sound rates is also in Congress. The proposed Population, million 19.6 macroeconomic policies and solid institu- reform also includes a solidarity share of GDP, current US$ billion 345.6 tions. However, large fiscal transfers and additional contributions. GDP per capita, current US$ 17605.4 pension fund withdrawals generated sig- a 0.4 International poverty rate ($2.15) nificant macroeconomic imbalances dur- a 0.9 ing the COVID-19 pandemic, including Lower middle-income poverty rate ($3.65) Upper middle-income poverty rate ($6.85) a 4.7 high fiscal and current account deficits and Recent developments Gini index a 43.0 double-digit annual inflation. After strong School enrollment, primary (% gross) b 99.4 fiscal and monetary tightening, macroeco- Real GDP rose by 0.2 percent in 2023, as b 78.9 nomic imbalances have largely been re- domestic demand adjusted after tighter Life expectancy at birth, years solved, but growth stagnated in 2023. macroeconomic policies during the post- Total GHG emissions (mtCO2e) 52.4 Despite being the world’s largest exporter of Covid period. Services have shown re- Source: WDI, Macro Poverty Outlook, and official data. copper and a major producer of lithium, a silience, but construction, commerce, and a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). key challenge for Chile is to move towards mining were subdued. The copper indus- higher and more inclusive growth. Growth try has performed weakly amid opera- averaged just 2 percent in the six years pre- tional disruptions and lower ore grades. ceding the pandemic. Targeted reforms to On the demand side, private consumption address specific bottlenecks are needed to has bottomed out and started to stabilize in boost productivity growth, which has been recent months, while exports and especial- Chile’s sound macroeconomic policies led declining for decades. This includes reduc- ly investment remained sluggish overall. to a recovery from Covid-induced imbal- ing regulatory barriers, fostering technolo- Labor market performance has yet to return ances, including high deficits and infla- gy adoption, promoting competition, en- to pre-pandemic levels. By December 2023, hancing managerial capabilities, and in- the employment rate stood at 56.6 percent, tion. Fiscal and monetary tightening sta- creasing female labor force participation still below the rate of 58.6 percent registered bilized the economy but stunted 2023 and job quality. Chile is also expected to during the same period in 2019. The unem- growth. Chile aims for faster, greener, leverage the global green transition, with ployment rate remained high at 8.5 percent. and more inclusive growth, and reforms both renewable energy and the plan to ex- Gender gaps in the labor market remain pro- targeting productivity, technology, com- pand lithium production through public- nounced, with women’s labor force partici- private partnerships potentially contribut- pation at 52.6 percent compared to men’s at petition, and human capital development ing to increased growth going forward. 71.4 percent. Similarly, women’s employ- are crucial for achieving this objective. To move towards a more inclusive ment rate was 48.0 percent, while men’s was growth, the government is pursuing an 65.5 percent. Also, women continue to be ambitious social agenda. An initial tax re- more likely to work in the informal sector form proposal aimed at increasing fiscal and earn lower salaries. FIGURE 1 Chile / Exchange rate and copper prices FIGURE 2 Chile / Actual and projected poverty rates and real GDP per capita CLP/USD USD/pound Poverty rate (%) Real GDP per capita (constant million LCU) 1,000 1.0 30 12.0 1.5 900 25 10.0 2.0 800 20 8.0 2.5 700 3.0 15 6.0 3.5 10 4.0 600 4.0 5 2.0 500 4.5 0 0.0 400 5.0 2009 2011 2013 2015 2017 2019 2021 2023 2025 Jan-06 Jul-08 Jan-11 Jul-13 Jan-16 Jul-18 Jan-21 Jul-23 International poverty rate Lower middle-income pov. rate Exchange rate Copper price (rhs, inverse scale) Upper middle-income pov. rate Real GDP pc Source: World Bank based on Central Bank of Chile. Source: World Bank. Notes: see Table 2. MPO 100 Apr 24 Inflation has continued its descent, closing ahead of other economies in the monetary Amid expected modest economic growth 2023 at 3.9 percent y-o-y after a determined policy easing cycle, with a rapidly narrow- and controlled inflation, poverty (US$6.85/ monetary tightening and receding supply ing interest rate differential with the U.S. day, 2017 PPP) is projected to reach 5.0 shocks. A policy easing cycle started in Ju- The real exchange rate is now about 5 per- percent in 2024 and will stay around this ly 2023, with accumulated rate cuts of 400 cent weaker than in 2019 since deprecia- value in the medium term. The Gini coeffi- basis points, bringing the reference rate to tion exceeded the inflation differential cient is projected to remain at 0.43. 7.25 percent in January 2024. with trade partners. In 2021, a wedge ap- The fiscal deficit is expected to narrow to Real public expenditures remained con- peared in the normally close alignment of 2.2 percent of GDP in 2024 as domestic tained in 2023, increasing by 1 percent movement between the peso and copper revenues rise due to rebounding GDP largely due to emergency measures to sup- prices. While their close correlation has re- growth, then to narrow gradually over port vulnerable households affected by El turned more recently, this appears to be the medium term amid a decline in the Niño phenomenon. However, revenues the case at a lower equilibrium rate for the expenditures-to-GDP ratio. These projec- fell by 13 percent due to the slowdown peso (Figure 1). tions do not include potential revenue in- in economic activity and declining mining creases from future tax reforms and as- revenues, leading to a fiscal deficit of 2.4 sume a consolidation path toward medi- percent of GDP. um-term structural deficit targets. The Poverty ($6.85/day per capita 2017 PPP) is Outlook public debt-to-GDP ratio is projected to estimated at 5.2 percent in 2023 and the Gi- be near 42 percent by 2026, still compar- ni inequality coefficient at 0.43. Economic activity is forecast to recover ing favorably with the 50.6 percent me- After reaching a decades-high 9 percent of gradually towards trend GDP growth of dian of “A” rated peers. The current ac- GDP in 2022, the current account deficit 2.0 percent in 2024. Consumption is ex- count deficit would decline toward 3 per- narrowed sharply to 3.6 percent by the end pected to be the main driver of the recov- cent over the medium term. of 2023, as a contraction in nominal im- ery, and exports would contribute posi- Downside risks to the outlook include ports of goods (-16 percent y-o-y in 2023) tively amid the start of new copper min- higher-for-longer interest rates in the U.S., amid the adjustment of domestic demand ing operations and the growing momen- geopolitical tensions, weaker-than-expect- significantly surpassed that of exports (-3.7 tum in lithium production. Investment is ed growth in China, and stronger-than-ex- percent). Foreign direct investment largely projected to remain weak, as suggested pected climate disasters like El Niño and financed the current account deficit. by registries and sentiment surveys. With La Niña. Domestic risks stem mainly from The peso depreciated by 18 percent from inflation on track to return to the 3 per- political gridlock, the inability to pass July 2023 to February 2024. Depreciation cent target this year, further monetary structural reforms in Congress, and poten- pressures are mostly driven by Chile being easing is expected. tial social discontent. TABLE 2 Chile / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 11.7 2.4 0.2 2.0 2.2 2.3 Private consumption 20.8 2.9 -5.2 1.9 2.1 2.2 Government consumption 13.8 4.1 1.6 2.4 2.2 2.2 Gross fixed capital investment 15.7 2.8 -1.1 0.2 2.4 2.4 Exports, goods and services -1.4 1.4 -0.3 2.8 2.6 2.9 Imports, goods and services 31.8 0.9 -12.0 1.2 2.7 2.7 Real GDP growth, at constant factor prices 10.6 2.6 0.2 2.0 2.2 2.3 Agriculture 4.4 0.1 -1.0 2.4 2.3 2.2 Industry 4.6 -0.9 -0.2 2.0 1.9 1.8 Services 14.0 4.4 0.5 2.0 2.3 2.5 Inflation (consumer price index) 4.5 11.6 7.6 3.3 3.0 3.0 Current account balance (% of GDP) -7.3 -9.0 -3.6 -3.6 -3.4 -3.1 Net foreign direct investment inflow (% of GDP) 0.6 2.7 3.4 3.0 3.0 3.0 Fiscal balance (% of GDP) -7.5 1.4 -2.4 -2.2 -2.0 -1.7 Revenues (% of GDP) 26.0 28.1 23.0 23.7 23.6 23.6 Debt (% of GDP) 36.3 38.0 39.8 41.3 41.6 41.8 Primary balance (% of GDP) -6.6 2.4 -1.3 -1.0 -0.7 -0.6 a,b International poverty rate ($2.15 in 2017 PPP) 0.1 0.4 0.4 0.4 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.3 0.9 1.0 0.9 0.9 0.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 3.5 4.7 5.2 5.0 4.9 4.8 GHG emissions growth (mtCO2e) 13.6 -7.5 0.4 2.6 2.4 2.6 Energy related GHG emissions (% of total) 163.3 167.9 166.7 164.1 161.6 159.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-CASEN. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 101 Apr 24 climate targets could help reduce vulner- abilities and promote a more diversified COLOMBIA Key conditions and economic structure in the long run. These multiple challenges would need to be challenges addressed in a fiscally responsible way, which remains a key precondition for Table 1 2023 Colombia’s solid macroeconomic institu- Colombia to advance its development goals. Population, million 52.1 tional setting, grounded on a rules-based GDP, current US$ billion 363.5 fiscal framework, a flexible exchange rate, GDP per capita, current US$ 6978.7 and a modern inflation-targeting regime, International poverty rate ($2.15) a 6.0 has been the cornerstone of its macroeco- Recent developments a 14.0 nomic stability. Yet, the pace of econom- Lower middle-income poverty rate ($3.65) a 34.8 ic growth has been slowing. Productivity Colombia’s overheated economy deceler- Upper middle-income poverty rate ($6.85) Gini index a 54.8 has not contributed significantly to GDP ated sharply in 2023. After growing a cu- School enrollment, primary (% gross) b 106.5 growth for decades, and despite join- mulative 18.9 percent in 2021-22, GDP ex- b 72.8 ing numerous trade agreements, Colom- panded 0.6 percent (y-o-y) in 2023. The Life expectancy at birth, years bia has not been able to diversify and needed un-winding of stimulus policies Total GHG emissions (mtCO2e) 261.3 expand its exports. Large infrastructure and heightened policy uncertainty affected Source: WDI, Macro Poverty Outlook, and official data. gaps, poor education outcomes, and insti- fixed investment, which fell 8.9 percent (y- a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). tutional shortcomings further hamper the o-y). Private consumption moderated but country’s potential. remained resilient. On the supply side, Colombia is a country of large social and construction, commerce, and manufactur- territorial inequalities. To reduce poverty ing had negative contributions to econom- and promote prosperity across the coun- ic growth, which translated in job losses GDP growth decelerated to 0.6 percent try, it's crucial to increase productivity and in these sectors. Unemployment remained in 2023 as the phase-out of stimulus reinvigorate regional convergence, im- constant at around 10 percent in 2023. measures added to policy uncertainty’s prove the social security system, create After a 2021-22 recovery, labor markets weight on investment. Macroeconomic more efficient and inclusive labor markets, showed limited improvements in 2023, and strengthen the intergovernmental fis- mainly in larger cities, but not reaching imbalances are narrowing, with declin- cal transfer system to enhance the acces- youth, women, and rural areas. Also, the ing inflation and fiscal and external sibility to and quality of public services emergency social program Ingreso Soli- deficits. Poverty reduction is expected to across the country. dario was no longer active in 2023. The moderate, in line with economic activity. Colombia is also particularly vulnerable to poverty rate is estimated to have re- Key risks include persistent inflation the effects of climate change. On the one mained stagnant in 2023 ($6.85/day). La- hand, climate shocks affect livelihoods and bor outcomes and poverty rates continue and economic disruptions due to El assets across the territory, undermining to show wide variations across the terri- Niño, outcomes of the policy reform welfare improvements. On the other, tory and socioeconomic groups. agenda, and fiscal policy slippage Colombia is exposed to the reduction in The deceleration of economic activity also amid tight fiscal space. fossil fuel demand as the world decar- helped narrow the current account deficit, bonizes. Reaching the country’s ambitious from 6.2 to 2.7 percent of GDP between FIGURE 1 Colombia / Indices of real GDP and its components FIGURE 2 Colombia / Actual and projected poverty rates and real GDP per capita Index 2019=100 Poverty rate (%) Real GDP per capita (constant million LCU) 140 60 25.0 130 120 50 20.0 110 40 100 15.0 90 30 80 10.0 20 70 60 5.0 10 50 2018Q1 2018Q4 2019Q3 2020Q2 2021Q1 2021Q4 2022Q3 2023Q2 0 0.0 GDP Consumption 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Gross fixed capital formation Exports International poverty rate Lower middle-income pov. rate Imports Upper middle-income pov. rate Real GDP pc Sources: DANE and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 102 Apr 24 2022 and 2023, as the good performance of also declined but remain high among its reduction in fuel subsidies and lower exports contrasted with a collapse of im- regional peers. capital expenditures. ports, affected by weak consumption and Amid moderate economic growth in 2024, the fall in investment. Primary payments limited progress is expected in poverty re- also fell, and remittance inflows reached duction. Moreover, while inflation de- an all-time high, mitigating pressures on Outlook clined, higher prices are still impacting real the external deficit. FDI inflows increased incomes and food security, and climate marked by oil and mining activities, while The economy is projected to expand 1.3 per- shocks may affect households, particularly portfolio investment posted net outflows. cent in 2024 and slightly above the 3 percent in regions like Caribe and Pacífico. Promot- Inflation declined from a peak of 13.3 per- potential growth rate in the following years ing more dynamic labor markets and adjust- cent (y-o-y) in March 2023 to 8.3 per- until the negative output gap closes. Private ing the social protection system, for exam- cent in January 2024, easing pressures consumption, solid export growth, and a ple, by expanding coverage and adaptive- on households’ rising costs of living. The steady rise in private investment are expect- ness to shocks, would help build resilience. Central Bank kept the monetary policy ed to support the pick-up, as inflation and Risks to the economic growth outlook in- rate constant through most of 2023 and interest rates recede, and policy uncertainty clude higher or more persistent inflation, reduced it cautiously by 25 bps in two abates. The current account deficit is pro- exacerbated by the effects of El Niño on consecutive Board meetings, to 12.75 per- jected to expand marginally in 2024, as food and utility prices, or by continued cent in January 2024. Inflation expecta- economic activity accelerates and imports currency volatility from tighter external fi- tions are falling but remain above the rebound, and to stabilize at 3 percent of nancial conditions or domestic develop- 2-4 percent inflation target range for 2024. GDP by 2026, with solid exports -especial- ments. Rising violence could undermine The Colombian peso reversed losses from ly in services- and moderate growth in im- stability and growth. Uncertainty around 2022, benefiting from high-interest rates, ports and primary payments. the reform agenda could also increase fis- global financial liquidity, and a reduction The fiscal deficit of the general govern- cal pressures and lead to delays in private- in policy uncertainty. ment is projected to increase to 3.5 percent sector investment. This is mitigated by the The fiscal deficit of the general govern- of GDP due to the unwinding of cyclical fact that the government has reiterated its ment fell sharply from 6.5 in 2022 to 2.5 factors that contributed to the large drop in commitment to the fiscal rule, complied percent of GDP in 2023, thanks to yields 2023 and higher expenditure at the central with since its inception in 2011, including from the 2022 tax reform, a reduction in level. The government committed to com- by the current administration. Finally, the fuel subsidies, low budget execution lev- plying with the structural fiscal rule. In the impact of climate change on GDP growth, els, and extraordinary returns to pension face of uncertain revenues, adjustments to external and fiscal sustainability, and the funds. The peso appreciation and fiscal meet targets could come through low exe- most vulnerable is a continuous source of deficit reduction brought the debt-to-GDP cution. The fiscal deficit is expected to nar- concern, as Colombia is very exposed to ratio down to 60.1 percent. EMBIG spreads row going forward, through the continued physical and transition risks. TABLE 2 Colombia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.8 7.3 0.6 1.3 3.2 3.1 Private consumption 14.7 10.7 1.1 0.6 2.7 2.5 Government consumption 9.8 0.8 0.9 0.6 0.8 0.8 Gross fixed capital investment 16.7 11.5 -8.9 1.0 5.5 5.2 Exports, goods and services 14.6 12.3 3.1 3.2 5.2 5.5 Imports, goods and services 26.7 23.6 -14.7 9.5 2.9 3.0 Real GDP growth, at constant factor prices 10.3 6.4 0.6 1.3 3.2 3.1 Agriculture 4.4 -0.8 1.8 3.1 3.5 3.4 Industry 8.1 6.9 -1.9 1.6 3.3 3.0 Services 11.9 7.0 1.5 1.0 3.2 3.1 Inflation (consumer price index) 3.5 10.2 11.7 6.4 3.8 2.8 Current account balance (% of GDP) -5.6 -6.2 -2.7 -3.1 -3.0 -3.0 Fiscal balance (% of GDP) -7.1 -6.5 -2.5 -3.5 -3.0 -3.0 Revenues (% of GDP) 26.6 27.6 31.8 30.1 29.5 28.9 Debt (% of GDP) 65.7 64.6 60.1 60.4 59.3 58.7 Primary balance (% of GDP) -3.7 -2.1 1.4 0.9 1.1 0.9 a,b International poverty rate ($2.15 in 2017 PPP) 7.3 6.0 6.7 6.7 6.7 6.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 16.4 14.0 14.8 14.7 14.7 14.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 38.8 34.8 35.1 35.1 35.1 35.0 GHG emissions growth (mtCO2e) -0.5 -0.9 -0.9 -0.6 -0.1 -0.1 Energy related GHG emissions (% of total) 24.5 23.0 22.8 22.7 22.5 22.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-GEIH. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 103 Apr 24 the adjustment. Public debt increased from 56 percent in 2019 to 68 percent of GDP COSTA RICA Key conditions and in 2021, affected by fiscal pressures asso- ciated with the pandemic. Increased rev- challenges enues, expenditure control measures, and strong growth enabled the country to post Table 1 2023 Costa Rica's income per capita has doubled the first primary surplus in a decade in Population, million 5.2 in the past two decades, thanks to an out- 2022. The public debt ratio is declining but GDP, current US$ billion 81.9 ward-oriented growth model, investments remains relatively high. GDP per capita, current US$ 15713.5 in human capital, and good governance. Addressing Costa Rica's twin challenges of a 0.9 International poverty rate ($2.15) The country upgraded and diversified its inclusivity and fiscal management is crucial. a 3.3 exports, making it less vulnerable to exter- Growth would need to become more inclu- Lower middle-income poverty rate ($3.65) a 14.1 nal shocks. It also strengthened its green sive across the labor force and territory, and Upper middle-income poverty rate ($6.85) Gini index a 47.2 trademark through sustainable natural re- fiscal policies should continue to support School enrollment, primary (% gross) b 108.9 sources management and reforestation. creditworthiness. Improving revenue mo- b 77.0 However, integration between the export bilization and spending efficiency, especial- Life expectancy at birth, years and domestic economies remains weak, ly in social and infrastructure sectors, is es- Total GHG emissions (mtCO2e) 7.4 leading to income and territorial dispari- sential to reduce poverty and inequality. Source: WDI, Macro Poverty Outlook, and official data. ties. Despite accessible healthcare and ed- a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). ucation, monetary poverty reduction has been limited (only 2.6p.p. between 2010 and 2019), and inequality has persisted, Recent developments Growth accelerated to 5.1 percent in 2023 with the Gini index remaining above 47 since 2010. Poverty rates are particularly After moderating to 4.6 percent in 2022, supported by strong domestic and exter- high among vulnerable groups such as growth surpassed expectations, reaching nal demand. Adequate monetary policy Afro-descendants, Indigenous popula- 5.1 percent in 2023, bolstered by robust do- and lower international prices helped dis- tions, and migrants. The global pandemic mestic and external demand. Inflationary sipate inflationary pressures, allowing for deepened these challenges, with the pover- pressures subsided in the first half of 2023. ty rate (measured by the US$6.85/day 2017 Inflation rapidly decreased from its peak of a less restrictive monetary stance since PPP) increasing from 13.7 percent in 2019 12 percent in August 2022 to within the tar- Q12023. This, combined with strong to 19.9 percent in 2020. As labor market geted range by March 2023, subsequently FDI, boosted private consumption and in- conditions improved and real household transitioning to deflation during the second vestment. Poverty (US$6.85 poverty line) per-capita labor income recovered, pover- half of the year. This shift allowed the Cen- declined to 12.7 percent, but inequality ty declined below pre-pandemic levels. tral Bank to progressively reduce the policy Additionally, fiscal challenges arose be- rate starting in March, which in turn stimu- remained high. Fiscal consolidation is en- tween 2008 and 2018 due to increased lated private consumption and investment. hancing market access and should contin- spending without a rise in revenues. A The current account deficit narrowed in ue promoting spending efficiency, while 2018 reform was implemented to stabi- 2023, driven by a larger trade surplus, and protecting the most vulnerable. lize the fiscal situation, but the pandem- was financed by robust investment in- ic and commodity price shocks delayed flows. Exports, particularly of medical FIGURE 1 Costa Rica / Economic activity growth (seasonally FIGURE 2 Costa Rica / Actual and projected poverty rates adjusted) and real GDP per capita Growth y/y (percent) Poverty rate (%) Real GDP per capita (constant million LCU) 36 25 10.0 IMAE - Economic Activity Index 30 IMAE - Definitive Regime 9.0 IMAE - Special Regime 20 8.0 24 7.0 18 15 6.0 5.0 12 10 4.0 6 3.0 5 2.0 0 1.0 -6 0 0.0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -12 International poverty rate Lower middle-income pov. rate Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22 Feb-23 Aug-23 Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Costa Rica and World Bank staff calculations. Source: World Bank. Notes: see Table 2. Note: Special Regime includes Free Trade Zone, Active Improvement and Refund of Rights regimes. Definitive Regime focus on domestic use or consumption. MPO 104 Apr 24 equipment, along with tourism and busi- Fiscal consolidation is expected to persist ness services, saw notable expansion, out- throughout the forecast period, under- stripping the recovery in imports. Costa Outlook pinned by a fiscal rule that constrains Rica maintained its position as one of the spending growth, contributing to a reduc- world's leading recipients of Greenfield Amid global uncertainty and a slowdown tion in the debt-to-GDP ratio to below 60 FDI relative to GDP. Foreign reserves re- in key trading partners, growth is project- percent by 2025. Recent strides in debt bounded to cover over five months of ed to moderate to 3.7 percent during the management are likely to reduce Costa Ri- goods and services imports, while the cur- forecast period. While external demand is ca's financing costs, while tax administra- rency appreciated by approximately 12 anticipated to pick up in 2026, domestic tion efforts should reinforce revenue mo- percent in 2023. demand is expected to temper as monetary bilization. Announced reforms, including The fiscal deficit widened to 3.3 percent policy normalizes and fiscal consolidation cuts in tax expenditures, adjustments to in- of GDP in 2023 from 2.5 percent in 2023, advances, aiding in closing the output gap. come tax, and a decrease in the fragmen- pressured by a record-high interest bill of The current account deficit is projected to tation of social programs, are essential to 4.8 percent of GDP and a smaller prima- widen marginally to 2.7 percent of GDP, bolster fiscal consolidation and establish ry surplus of 1.6 percent of GDP. The lat- reflecting a deceleration in external de- safeguards against shocks while protecting ter resulted from the phase out of large mand and stabilization of terms of trade. the impoverished. one-off revenues associated with an in- Nonetheless, the deficit is anticipated to be This economic outlook is subject to down- stitutional restructuring, which more than fully covered by healthy FDI inflows. side risks. Costa Rica's high susceptibility offset spending controls. The debt-to-GDP As inflation stabilizes and labor market to external shocks, such as global inflation- ratio continued to decline reaching 61.1 conditions continue to improve, particu- ary pressures, dampened global growth, percent. Solid fiscal performance prompt- larly within the services sector, the pover- and tightening financial conditions, could ed Fitch, S&P, and Moody’s to upgrade ty rate is projected to further decline to pose challenges. Climate vulnerabilities, Costa Rica's sovereign credit rating to BB/ 11.3 percent by 2026, marking the lowest exacerbated by phenomena like El Niño, BB-/B1. The country also successfully is- level in over a decade. Targeting and compound these uncertainties and could sued US$3 billion in Eurobonds in two efficiency enhancements in social assis- disproportionately impact the poor. Addi- tranches (March and November). Costa tance programs, especially for historically tionally, recent surges in migration and Rica's progress on climate issues facilitat- marginalized groups and those living be- perceived criminality could increase ex- ed the inclusion of its sovereign bonds in low the poverty line, could further reduce penditure demands, potentially impeding JP Morgan's sustainability index. poverty and vulnerability. the pace of fiscal consolidation. TABLE 2 Costa Rica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.9 4.6 5.1 3.9 3.7 3.7 Private consumption 8.3 3.4 5.4 3.8 3.4 3.4 Government consumption 1.7 2.4 0.1 0.4 0.7 0.8 Gross fixed capital investment 7.8 1.5 8.6 5.0 5.9 6.2 Exports, goods and services 15.9 13.2 10.5 8.1 7.6 7.6 Imports, goods and services 19.2 6.0 5.6 7.9 7.9 8.1 Real GDP growth, at constant factor prices 7.2 4.4 5.1 3.7 3.7 3.8 Agriculture 0.3 -2.3 3.5 2.1 2.1 2.0 Industry 13.5 2.1 8.3 2.6 2.7 2.9 Services 5.9 5.6 4.2 4.1 4.2 4.2 Inflation (consumer price index) 1.7 8.3 0.5 1.9 3.0 3.0 Current account balance (% of GDP) -3.2 -3.7 -1.0 -2.3 -2.4 -2.7 Net foreign direct investment inflow (% of GDP) 4.8 4.4 4.4 4.2 4.3 4.4 Fiscal balance (% of GDP) -5.0 -2.5 -3.3 -2.8 -2.2 -1.6 Revenues (% of GDP) 15.7 16.4 15.4 15.5 15.8 16.0 Debt (% of GDP) 67.6 63.0 61.1 60.1 59.0 57.8 Primary balance (% of GDP) -0.3 2.1 1.6 2.0 2.2 2.4 a,b International poverty rate ($2.15 in 2017 PPP) 1.2 0.9 0.9 0.8 0.8 0.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.7 3.3 3.0 2.9 2.9 2.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 14.5 14.1 12.7 12.0 11.9 11.3 GHG emissions growth (mtCO2e) 0.7 3.2 1.1 2.2 2.1 2.3 Energy related GHG emissions (% of total) 97.4 96.8 95.2 93.2 91.3 89.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-ENAHO. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 105 Apr 24 the poorest (e.g., subsidies on diesel and gasoline, increased VAT-free units in do- DOMINICA Key conditions and mestic electricity bills), led to high fiscal deficits and pushed public debt over 100 challenges percent of GDP. Recurrent expenditures are now returning to pre-pandemic levels al- Table 1 2023 Dominica is highly vulnerable to climate though further effort will be needed to meet Population, million 0.1 change, natural disasters, and other exter- Dominica’s primary balance target of 2 per- GDP, current US$ billion 0.7 nal shocks. The economy has recovered cent of GDP by FY26 as per their fiscal rule. GDP per capita, current US$ 9015.8 from the pandemic and continues to per- The government is implementing a highly a 92.5 School enrollment, primary (% gross) form well, largely supported by infrastruc- ambitious public investment pipeline, a 72.8 ture investments and a rebound in largely financed by CBI revenues, including Life expectancy at birth, years Total GHG emissions (mtCO2e) 0.2 tourism. Increases in global commodity a new international airport, geothermal en- Source: WDI, Macro Poverty Outlook, and official data. prices pushed inflation to historical highs ergy investments, and a significant housing a/ Most recent WDI value (2021). in 2022 and 2023. Although inflation is ex- program. While CBI revenues have re- pected to moderate in 2024, higher price mained buoyant, they can be volatile and re- levels of basic goods continue to impact liance on such revenues raises financing Dominica, a small island developing household welfare, particularly the poor. risk. Dominica’s vulnerability to hurri- The latest round of the CARICOM/WFP on- canes and climate change means that the state (SIDS), faces economic challenges line COVID-19 Food Security and Liveli- authorities will have to increasingly focus and climate vulnerability. Post-pandem- hoods Impact Survey in the Caribbean (May on building resilience based on fiscal ic recovery is strong, driven by tourism, 2023) indicates that about half of respon- buffers, climate resilient investment, and infrastructure, and agriculture, though dents faced livelihood disruptions in the expanding public and private insurance high inflation is affecting the poor dis- thirty days prior to the survey, largely due protection and social assistance within a to unaffordable livelihood inputs. While context of limited fiscal space. Geothermal proportionately. Food insecurity persists. there has been considerable improvement energy development and the new airport Public debt soared due to pandemic sup- given the strength in tourism and stronger bode well for future growth prospects and port and inflation mitigation efforts. In- growth, 29 percent of the respondents re- will help address Dominica’s small island vestments in geothermal energy and an ported a job loss or a reduction in labor state competitiveness challenges. income in the last six months, and this international airport will significantly is actually an improvement compared to boost future growth and stimulate pri- the earlier round. Although the survey vate sector development. Reliance on provides helpful insights, the data is not Recent developments volatile Citizen-by-Investment (CBI) representative and should be interpreted with caution. Growth continued its rebound in 2023 at revenues poses risks. Strengthening fis- The fiscal deficit widened significantly dur- 4.9 percent (5.6 percent in 2022), due to cal policy is needed to safeguard debt ing the pandemic, but it fell considerably in the relaxation of domestic COVID-19 con- sustainability amid external shocks, in- 2023. Pandemic-related support, increased tainment measures and improving tourist cluding those related to climate change. infrastructure spending, and fiscal mea- arrivals. Growth is estimated to remain sures to mitigate the impact of inflation on strong in 2024 as tourism returns to 2019 FIGURE 1 Dominica / Real GDP growth and fiscal balance FIGURE 2 Dominica / Public debt Percent, percent of GDP Percent of GDP 30 120 25 20 100 15 10 80 5 0 60 -5 40 -10 -15 Public Debt 20 -20 Public External Debt 2012 2014 2016 2018 2020 2022 2024 2026 Overall Fiscal Balance (percent of GDP) 0 Real GDP growth at constant factor prices 2012 2014 2016 2018 2020 2022 2024 2026 Sources: Government of Dominica and World Bank staff calculations. Sources: Government of Dominica and World Bank staff calculations. MPO 106 Apr 24 levels and as it is further supported by debt remains high at 101 percent of GDP at public investment projects will require public investment. Inflation was 5.5 per- the end-2023 after peaking at 109 percent careful management and implementation. cent in 2023 after peaking at 7.8 percent in in 2021. Approximately 90 percent of Do- Growth and lower inflation should con- 2022, driven largely by fuel prices, and to a minica’s external debt is owed to multilat- tribute to a reduction in poverty rates in lesser extent by food prices. Inflation is ex- eral and bilateral creditors on concession- the medium term. There is an urgent need pected to decline to 2.3 percent in 2024. al terms. Nonetheless, with a 22 percent for updated poverty data, as well as other Inflation continued to affect households’ debt service to revenue ratio in 2023, pub- key indicators including labor market sta- purchasing power and access to food over lic debt obligations run the risk of crowd- tistics, to monitor households’ wellbeing 2023, given Dominica’s dependence on im- ing out other spending priorities. A combi- and inform the design of public policy. ported food products. According to the nation of sound fiscal policy and sustained The fiscal deficit is expected to narrow as CARICOM/WFP survey, nearly all respon- growth is needed to put public debt levels exceptional spending measures continue dents reported an increase in prices of on a firm downward trajectory. to be wound down, current spending is food, gas, transport, and electricity in the The current account deficit (CAD) at 21.6 reduced and rationalized, and fiscal rules three months prior. Similarly, farmers and percent of GDP in 2023 reflects Domini- metrics are adhered to, including primary fishermen continue to report increased in- ca’s SIDS status and is financed primarily balances of 2.0 percent of GDP by 2026, put costs. Food insecurity appears to have by CBI revenues, grants, and FDI. Re- though further measures will be needed leveled out in the first half of 2023, al- serves are adequate at 5.0 months of im- to achieve this target. The CAD is forecast though it remains widespread. A consider- port coverage. Financial sector stability to narrow as tourism receipts increase, ably large number of respondents indicat- and related risks are limited as banks are though high food and fuel prices will ed that they reduced essential non-food well capitalized. Recapitalization of cred- maintain some pressure on the CAD. Fi- expenditures (e.g., education and health) it unions is progressing, though balance nancial sector risks will continue to require and spent savings to meet immediate sheets remain strained following recent monitoring given implicit contingent fiscal food needs, which could compromise shocks. Private sector credit remains con- liabilities arising from the large credit their well-being in the long term and strained as most recent bank lending has union and insurance sectors. These sectors, make them less prepared for future been to the public sector. while improving, have yet to fully recover shocks. Low-income households, women, from Hurricane Maria, and the impacts of and younger respondents appear to be the COVID-19 pandemic also continue to experiencing greater challenges across be felt on balance sheets. most metrics of well-being and are at risk Outlook Forecasts are subject to considerable of falling further behind. downside risk given uncertain food and The fiscal position has improved, register- Short- to medium-term GDP growth con- fuel prices, the economic impact of global ing an overall deficit of 4.2 percent in FY23 tinues to be driven by tourism, aided by geo-political developments, and continued following a 6.4 percent deficit in FY22. This a robust public investment program fi- reliance on volatile CBI revenues. Risks modest improvement was the result of re- nanced through CBI revenues. Geother- from natural disasters and the impact of duced current expenditure in a post-COVID mal developments and a new internation- climate change remain significant. Risks al- environment, reduced public investment, al airport should boost structural and po- so arise from the financial sector and fiscal and a robust growth environment. Public tential growth. Nonetheless, these large and public debt vulnerabilities. TABLE 2 Dominica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.9 5.6 4.9 4.6 4.2 3.0 Real GDP growth, at constant factor prices 6.8 6.8 4.9 4.6 4.2 3.0 Agriculture 23.4 -0.7 2.7 2.6 2.1 1.9 Industry 5.0 1.1 3.3 3.2 3.0 2.6 Services 4.5 9.4 5.6 5.2 4.7 3.3 Inflation (consumer price index) 1.5 7.8 5.5 2.3 2.0 2.0 Current account balance (% of GDP) -32.9 -26.7 -21.6 -18.0 -15.3 -12.6 a Fiscal balance (% of GDP) -10.0 -6.4 -4.2 -3.1 -3.2 -2.0 Revenues (% of GDP) 58.6 53.1 48.1 47.2 46.1 43.8 a Debt (% of GDP) 109.2 105.1 101.1 97.4 96.1 92.6 a Primary balance (% of GDP) -7.7 -3.6 -1.0 0.0 -0.5 0.6 GHG emissions growth (mtCO2e) -7.5 -1.9 -0.3 0.1 0.2 0.1 Energy related GHG emissions (% of total) 71.9 72.3 73.1 73.9 74.6 75.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 107 Apr 24 will require ambitious structural reforms, such as (i) improving education; (ii) mak- DOMINICAN Key conditions and ing markets more competitive; (iii) re- vamping the innovation strategy and challenges REPUBLIC adopting climate-friendly technologies; (iv) improving public spending and ser- The Dominican Republic (DR) has been vice delivery; and (v) rebuilding fiscal one of the fastest growing economies in buffers to deal better with external Table 1 2023 Latin America and the Caribbean, with an shocks, including through additional re- Population, million 10.8 average growth rate of 5.4 percent from source mobilization. These changes GDP, current US$ billion 120.9 2005 to 2022. Prudent monetary and fis- should go hand in hand with improve- GDP per capita, current US$ 11198.9 cal policies helped macroeconomic stabil- ments of labor market regulations and so- International poverty rate ($2.15) a 0.8 ity and social progress. During this time, cial protection systems. a 4.0 the number of people living in poverty Lower middle-income poverty rate ($3.65) a – earning less than US$6.85 per day - Upper middle-income poverty rate ($6.85) 21.5 dropped significantly from 57 to 22 per- Gini index a b 37.0 cent. Foreign direct investment (FDI) in- Recent developments School enrollment, primary (% gross) 100.2 flows were about 4 percent of GDP each b 72.6 Life expectancy at birth, years year. However, exports declined from 28 After a strong rebound in 2022, GDP Total GHG emissions (mtCO2e) 38.5 to 22 percent of GDP. growth decelerated to 2.4 percent in 2023. Source: WDI, Macro Poverty Outlook, and official data. Recent exogenous shocks, including the The construction sector experienced a sig- a/ Most recent value (2022), 2017 PPPs. pandemic, rising commodity prices, and nificant slowdown in the first half of the b/ WDI for School enrollment (2022); Life expectancy (2021). severe floods, strained the country’s fi- year, as borrowing costs and input prices nances. Public debt remains above pre- increased. However, the implementation pandemic levels, and new expenditure of monetary liquidity facilities, represent- needs have arisen, with the interest bill ing nearly 2 percent of GDP, in conjunc- The Dominican economy is poised for a consuming three percent of GDP in 2022. tion with a resurgence in public invest- rebound in 2024, with an expected As a result, public investment fell from ment mitigated the slowdown. This al- growth rate of 5.1 percent, fueled by the 3.9 to 2.6 percent of GDP between 2005 lowed the economy to witness an acceler- delayed impacts of monetary easing and and 2022. To create space for more public ation in the second half of the year, with increased public investment. Unemploy- investment, the country would need to a 4.7 percent year-on-year growth in De- improve domestic resource mobilization cember 2023. Service sectors, such as hos- ment has decreased, and labor incomes and spending efficiency. Rebuilding its pitality and health care, saw expansions have improved, reducing poverty to below fiscal buffers will also enable the country of 10.7 percent, and 10 percent, respec- pre-pandemic levels. To maintain its fast to respond better to unexpected events, tively. This performance helped offset the growth, the country would benefit from like natural disasters. To keep growing construction’s sector early sluggishness. and make sure poverty continues to de- The economy witnessed the generation of productivity-enhancing reforms and cli- cline, it is important to increase produc- around 148 thousand new jobs in 2023, mate change adaptation, while continu- tivity. According to the Country Econom- translating into a year-over-year growth ing to implement prudent fiscal policy. ic Memorandum published in 2023, this of 3.2 percent, significantly surpassing the FIGURE 1 Dominican Republic / Index of economic FIGURE 2 Dominican Republic / Actual and projected activity, IMAE poverty rates and real GDP per capita Annual percent growth Poverty rate (%) Real GDP per capita (constant LCU) 16 50 350000 y-o-y growth rate 14 45 12-month over preceding 12 months 300000 40 annualized growth rate 12 35 250000 10 30 200000 25 8 150000 20 6 15 100000 10 4 50000 5 2 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0 International poverty rate Lower middle-income pov. rate Dec-21 Apr-22 Aug-22 Dec-22 Apr-23 Aug-23 Dec-23 Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 108 Apr 24 pre-pandemic numbers. This employment The fiscal deficit expanded to 3.3 per- 2025-27, growth is forecasted to stabilize recovery was driven by a 5.6 percent (y-o- cent of GDP in 2023, up from 3.2 per- at around 5 percent, contributing to fur- y) increase in formal employment, partic- cent in 2022. Total revenue surged 12.2 ther reductions in poverty rates (US$6.85 ularly among women, who saw the cre- percent, bolstered by enhancements in per day, 2017 PPPs). ation of 65,142 new jobs. tax administration and extraordinary A gradual fiscal consolidation is expected The current account deficit (CAD) is pro- revenue from advanced corporate in- over the medium term, driven by the on- jected to have contracted to approximately come tax payments. Expenditures es- going Electricity Pact reforms, the phase- 3.6 percent of GDP in 2023, a reduction calated by 11.1 percent year-over-year, out of untargeted subsidies, and spending from the 5.6 percent recorded in 2022. The propelled by a substantial 21.0 percent efficiency measures (e.g., procurement, so- nation welcomed 10.3 million visitors, increase in public investment and a 19.9 cial programs consolidation). Consequent- with 78 percent being new arrivals. Rev- percent rise in interest payments. ly, the public debt-to-GDP ratio is expect- enue generated from these visits climbed ed to decrease progressively, maintaining to US$9.8 billion, marking a 16.9 percent a level below 57 percent post-2026. increase from 2022. Remittance grew by 3.1 The macroeconomic outlook faces exter- percent in 2023, signaling a stabilization Outlook nal and domestic risks. A deceleration at levels exceeding those prior to the pan- in the US economy that outpaces expec- demic. The CAD was fully financed by ro- In 2024, economic growth is anticipated tations could adversely affect tourist ar- bust FDI and long-term capital inflows. to accelerate to 5.1 percent, buoyed by the rivals and exports. Weather-related Inflation declined throughout the year, delayed effects of monetary policy easing events, such as El Niño, could also se- reaching 3.6 percent y-o-y in December and augmented public investment. Infla- verely affect agriculture and tourism and 2023, within the central band (4 percent+-1 tionary pressures are expected to contin- disproportionately affect the poor. Cli- percent). The Central Bank reduced its pol- ue easing, allowing the central bank to mate-induced GDP deviations from base- icy rate from 8.5 percent to 7.0 percent in cut interest rates further. Over the medi- line could reach up to 16.7 percent of November 2023. In 2023, the poverty rate um term, robust consumption and invest- GDP by 2050. The high exposure to ex- at US$6.85 per day (2017 PPP) fell to 19 ment are expected to underpin growth, ternal shocks and the country’s limited fi- percent, below the 2019 pre-pandemic lev- bolstered by the execution of structural nancial safeguards against such risks pose el of 20 percent. The principal factor con- reforms in key sectors such as energy, significant fiscal and financial risks. tributing to this reduction in poverty was water, and public-private partnerships, as Therefore, fortifying resilience is impera- the growth in labor incomes, supplement- well as initiatives aimed at improving ed- tive to sustain economic growth and en- ed by public transfers. ucation and attracting FDI. By the years sure it is more inclusive. TABLE 2 Dominican Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 12.3 4.9 2.4 5.1 5.0 5.0 Private consumption 6.6 5.1 2.9 5.0 5.1 5.2 Government consumption 0.1 3.9 2.8 2.7 2.5 2.2 Gross fixed capital investment 22.1 4.0 -2.1 7.0 5.6 5.0 Exports, goods and services 36.2 13.7 2.2 4.0 4.5 4.6 Imports, goods and services 25.7 14.4 -3.8 4.4 4.1 3.8 Real GDP growth, at constant factor prices 11.5 4.7 2.4 5.1 5.0 5.0 Agriculture 2.6 5.0 3.9 3.6 3.4 3.2 Industry 16.5 1.3 -0.1 4.5 4.0 4.0 Services 10.0 6.5 3.5 5.5 5.7 5.7 Inflation (consumer price index) 8.2 8.8 4.8 4.4 4.2 4.0 Current account balance (% of GDP) -2.8 -5.6 -3.8 -3.6 -3.4 -3.2 Net foreign direct investment inflow (% of GDP) 3.4 3.5 3.6 3.7 3.7 3.7 a Fiscal balance (% of GDP) -2.9 -3.2 -3.3 -3.1 -3.0 -2.9 Revenues (% of GDP) 15.6 15.3 15.8 15.4 15.2 15.1 b Debt (% of GDP) 62.6 58.6 59.1 58.4 57.8 57.2 a Primary balance (% of GDP) 0.2 -0.4 -0.1 0.5 0.7 0.8 c,d International poverty rate ($2.15 in 2017 PPP) 0.9 0.8 0.6 0.6 0.4 0.4 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 4.3 4.0 3.5 3.2 3.0 2.9 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 23.2 21.5 19.4 17.7 17.2 16.9 GHG emissions growth (mtCO2e) 9.9 -0.5 -0.9 1.5 1.3 1.2 Energy related GHG emissions (% of total) 62.6 61.4 60.1 59.7 59.4 59.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are shown for the non-financial public sector (i. e. excluding central bank quasi-fiscal balances). b/ Consolidated public sector debt. c/ Calculations based on SEDLAC harmonization, using 2022-ECNFT-Q03. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. d/ Projections using microsimulation methodology. MPO 109 Apr 24 cut current expenditures, particularly within State-Owned Enterprises (SOEs), ECUADOR Key conditions and among other initiatives. A referendum on policies encompassing security, part-time challenges employment, asset forfeiture, and other is- sues is scheduled for April. Table 1 2023 Ecuador is grappling with an unprece- Amid declining domestic oil output and a 18.0 Population, million dented security crisis. A surge in violence long-term global decarbonization trends, a 116.6 GDP, current US$ billion associated with drug trafficking activities private investment is needed to ignite new GDP per capita, current US$ 6476.6 led to the declaration of a state of internal growth sources in sectors with competitive b 3.2 International poverty rate ($2.15) armed conflict and the army to intervene advantages, such as mining and agricul- b 9.5 in January. At the same time, the country ture. Improving barriers to private sector Lower middle-income poverty rate ($3.65) b 29.9 faces an electricity generation deficit amid development by strengthening the insol- Upper middle-income poverty rate ($6.85) Gini index b 45.5 historically low investment aggravated by vency framework, reducing market inter- School enrollment, primary (% gross) c 97.5 climatic events, which led to electricity ra- vention, allowing for competition, further c 73.7 tioning in 2023, disrupting economic activ- expanding trade integration, and improv- Life expectancy at birth, years ity. Against this backdrop, snap elections ing labor regulation will be critical, partic- Total GHG emissions (mtCO2e) 100.2 yielded a fragmented National Assembly ularly in the context of dollarization. Source: WDI, Macro Poverty Outlook, and official data. and a minority government with an a/ Most recent value (2022). b/ Most recent value (2022), 2017 PPPs. 18-month term. The new government that c/ WDI for School enrollment (2022); Life expectancy took office in November faces significant (2021). liquidity constraints and a large financing Recent developments gap, which is set to increase in the com- ing years in the absence of structural fis- Real GDP grew by an estimated 2.8 per- Ecuador faces an unprecedented security cal reforms. Ecuador remains excluded cent in 2023, thanks to a good performance crisis and significant fiscal challenges due from international capital markets, with in the first half of the year, and despite a to escalating security costs, diminished oil the EMBI spread around 1300 basis marked slowdown in the second half. Oil points. Adding to the fiscal and growth disruptions, the El Niño effect, heightened revenues, surging costs of fuel and electrici- challenges, a referendum held in August political uncertainty, and insecurity affect- ty imports and high interest payments. 2023 will lead to a shutdown of oil extrac- ed private consumption and investment in Growth has slowed, also due to the effects of tion in the Yasuni National Park by the H2, slightly increasing poverty by the end El Niño climate phenomenon and electrici- end of August 2024, affecting one-tenth of of 2023. Annual inflation decreased from a ty shortages. To unlock sustainable growth, national oil production. peak of 4.2 percent in June 2022 to 1.4 per- The Noboa administration has taken im- cent in December 2023, one of the lowest in Ecuador needs to address fiscal imbalances, portant steps to address the challenging the region, amid weak domestic demand. improve its security situation, and remove fiscal situation. Besides implementing Labor market conditions deteriorated, barriers to private sector development to measures to address short-term liquidity with the unemployment rate reaching 3.4 unleash investment, formal job creation, constraints, the government passed a bill percent in December 2023 (3.2 percent as to increase the VAT rate. Moreover, plans of December 2022), still mainly impacting and export diversification. are underway to reduce fuel subsidies and women at a rate of 4.2 percent (compared FIGURE 1 Ecuador / Emerging Market Bond Index (EMBI) FIGURE 2 Ecuador / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 70 50 7000 45 60 6000 40 35 5000 50 30 4000 40 25 3000 20 30 15 2000 10 20 1000 5 10 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0 International poverty rate Lower middle-income pov. rate Jan-19 Jan-20 Dec-20 Dec-21 Jan-23 Jan-24 Upper middle-income pov. rate Real GDP pc Source: JP Morgan Chase. Source: World Bank. Notes: see Table 2. MPO 110 Apr 24 to 2.8 percent for men). Job quality also The current account surplus narrowed maintain poverty measured at $6.85PPP at deteriorated as underemployment in rural from 1.8 percent of GDP in 2022 to an the same level in 2024. areas reached 22.3 percent (compared to estimated 1.4 percent in 2023 amid de- While fiscal accounts will be pressured in 18.6 percent in 2022) and 20.6 percent in clining oil prices. With limited external 2024 by the economic slowdown, declining urban areas, explained by droughts, secu- financing and foreign investment, finan- oil revenues, and growing security expen- rity concerns, and energy rationing. De- cial account outflows surpassed the cur- ditures, recently approved measures are spite a labor market deterioration, low in- rent account surplus, and international expected to bolster revenues. Considering flation helped maintain poverty – mea- reserves almost halved from US$8.5 bil- these measures, the fiscal deficit is expect- sured at $6.85PPP, the upper-middle-in- lion in December 2022 (3.3 months of im- ed to narrow to 2 percent of GDP. The NF- come poverty line – constant at about 30 ports) to US$4.5 billion in December 2023 PS faces around $7bn in financing needs in percent. However, incomes for the poorest (2.3 months of imports). 2024, which are expected to grow further declined, especially in rural areas, result- in 2025 and 2026. ing in a slight increase in extreme poverty The current account surplus is projected to measured at $2.15PPP. narrow further to almost balance in 2024, The fiscal deficit is expected to have Outlook driven by lower oil production and exports, widened to 3.5 percent of GDP in 2023. In- while non-oil export growth continues to terest payments and a higher fuel and elec- Growth is projected to decline to 0.7 per- soften amid subdued investment prospects. tricity import bill increased spending last cent in 2024 due to the security crisis, polit- Declining current account surpluses, low year. Revenues declined amid lower eco- ical uncertainty, declining oil production, foreign investment, and rising external debt nomic growth and oil revenues. Given liq- and the impacts of El Niño and La Niña. service would continue to put downward uidity shortages, arrears to the private sec- Government arrears to the private sector pressure on international reserves. tor surpassed 2020 levels. To address liq- are also expected to affect negatively eco- In addition to its vulnerability to lower oil uidity constraints, the government turned nomic growth. A reduction in political un- prices and tighter-for-longer global finan- to short-term measures such as reprofiling certainty following the 2025 elections and cial conditions, Ecuador is exposed to nat- of Central Bank debt, as well as a tax an improvement in the security, energy, ural hazards, including stronger-than-ex- amnesty and advance income tax pay- and fiscal outlook after measures taken by pected El Niño and La Niña that directly ments starting in 2024. The Assembly also the new administration are expected to affect household incomes in rural areas. approved temporary additional contribu- help the economy start a gradual recovery Domestically, risks stem from an inability tions to banks’ and firms‘ profits and in- in 2025, although medium-term growth to solve the fiscal crisis, a disorderly end- creased capital outflow tax rates in Febru- would remain sluggish overall. Weak eco- ing of oil exploitation in the Yasuni, social ary. In addition, the VAT is set to increase nomic growth and structural labor market unrest, political instability, and a further from 12 to 15 percent as of April. conditions, especially for women, will worsening of the security crisis. TABLE 2 Ecuador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 9.8 6.2 2.8 0.7 1.7 2.0 Private consumption 11.3 7.4 1.3 1.1 2.3 2.4 Government consumption 0.0 1.8 1.9 0.2 1.5 1.7 Gross fixed capital investment 13.2 8.5 0.2 0.2 2.7 1.2 Exports, goods and services 9.4 7.3 2.3 -1.6 -0.9 2.9 Imports, goods and services 21.5 10.5 -4.0 -1.5 1.0 2.9 Real GDP growth, at constant factor prices 9.5 6.0 2.8 0.7 1.7 2.0 Agriculture 9.0 2.3 2.0 1.9 2.4 2.5 Industry 12.5 4.9 0.9 -4.9 -6.0 1.0 Services 8.2 7.1 3.8 3.0 4.8 2.4 Inflation (consumer price index) 0.1 3.5 2.2 1.9 1.8 1.8 Current account balance (% of GDP) 2.9 1.8 1.4 0.1 -0.1 0.0 Net foreign direct investment inflow (% of GDP) 0.6 0.7 0.4 0.3 0.3 0.3 Fiscal balance (% of GDP) -1.7 0.0 -3.5 -2.0 -1.7 -1.5 Revenues (% of GDP) 34.5 36.4 34.5 35.4 35.7 35.7 Debt (% of GDP) 61.5 56.9 57.8 58.3 59.2 59.0 Primary balance (% of GDP) -0.3 1.6 -1.5 0.1 0.4 0.6 a,b International poverty rate ($2.15 in 2017 PPP) 3.6 3.2 3.8 3.8 3.8 3.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 10.9 9.5 10.3 10.4 10.3 10.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 31.7 29.9 29.6 29.7 29.6 29.9 GHG emissions growth (mtCO2e) 2.2 1.8 1.7 0.7 1.1 1.6 Energy related GHG emissions (% of total) 34.9 35.6 36.3 36.3 36.7 37.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-ENEMDU. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 111 Apr 24 productivity growth, attract FDI, and generate jobs for the underprivileged. EL SALVADOR Key conditions and The latest PISA figures from the OECD reveal that improvements in education challenges system are needed. However, persistent fiscal imbalances, coupled with limited Table 1 2023 El Salvador has maintained an average access to external borrowing and a sub- Population, million 6.4 growth rate of 2 percent between 2000 and stantial current account deficit, present GDP, current US$ billion 35.5 2019. Its economic performance is closely significant hurdles that may undermine GDP per capita, current US$ 5580.8 linked to the US economy, particularly potential growth. a 3.4 International poverty rate ($2.15) through high remittance rates (26 percent a 8.6 relative to GDP) and trade flows. Poverty Lower middle-income poverty rate ($3.65) a 27.5 and vulnerability are high. Slightly more Upper middle-income poverty rate ($6.85) Gini index a 38.8 than one-fourth of the population live on Recent developments School enrollment, primary (% gross) b 88.7 less than US$6.85/day, while two-thirds live b 70.7 on less than US$14/day. Inequality, in con- El Salvador's growth is projected to reach Life expectancy at birth, years trast, is among the lowest in the region. 2.7 percent in 2023. Throughout the year, Total GHG emissions (mtCO2e) 12.7 However, El Salvador faces persistent struc- economic activity gained momentum, with Source: WDI, Macro Poverty Outlook, and official data. tural challenges, including low productivi- year-on-year growth accelerating from 0.5 a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2019); Life expectancy ty and human capital deficiencies originat- percent in the first quarter to 3.6 percent (2021). ing from issues such as malnutrition and in- by the third quarter. This upswing was fu- adequate schooling levels. Since 2022, sub- eled by public investment and consump- stantial progress has been made in reducing tion, primarily driven by remittances, gang-related violence, with some positive alongside a rebound in exports. The poor social and economic outcomes. segment of the population, especially the Despite being one of the largest recipients extremely poor, rely less on remittances El Salvador is projected to experience an of remittances globally, El Salvador runs than more affluent households. This limits average growth of 2.5 percent from 2024 a chronic current account deficit, stem- the potential impact of remittances on to 2026, influenced by a US slowdown af- ming from energy price sensitivity and poverty reduction. Following a peak of 7.2 fecting remittances and tourism. In 2024, underperforming exports. The ability to percent in 2022, inflation moderated to an finance this deficit through capital in- average of 4.1 percent in 2023. inflation is expected to fall to 2.1 percent, flows, is constrained, further straining re- The fiscal deficit widened to 4.2 percent though poverty and vulnerability rates serves. While the banking sector remains of GDP in 2023, up from 2.7 percent in will likely stay constant, highlighting the profitable with low levels of non-perform- 2022. Government revenues increased 6.8 need for more and better jobs. The current ing loans, reductions in reserve require- percent, driven by higher current taxes account deficit is expected to narrow, but ments to accommodate government short- stemming from improved economic per- term debt raise concerns. formance, alongside rising social security the fiscal position remains precarious due contributions (13.8 percent). However, Addressing these challenges will require to uncertain financing options. structural reforms, particularly in education government spending outweighed it, ex- and infrastructure, to stimulate long-term panding 10 percent, driven by both public FIGURE 1 El Salvador / Consumer price index inflation and FIGURE 2 El Salvador / Actual and projected poverty rates core inflation, 12 months moving average inflation and real GDP per capita Percentage Poverty rate (%) Real GDP per capita (constant LCU) 8 60 5000 Consumer price index 7 4500 Core index 50 4000 6 3500 40 5 3000 30 2500 4 2000 20 3 1500 1000 2 10 500 1 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0 International poverty rate Lower middle-income pov. rate Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 112 Apr 24 investment (69 percent) and consumption propane gas), hiring freezes, and the mod- (9 percent). Nonetheless, social spending eration of automatic wage adjustments. continues to be among the lowest in Latin Outlook Debt service will remain below 2022 lev- America. El Salvador’s public debt reached els due to restructuring short-term debt 76 percent of GDP in 2023. El Salvador is projected to grow on aver- into long-term instruments, lowering The 2023 pension reform has temporar- age at 2.5 percent between 2024-2026, ap- rollover risk. Moreover, revenues are ex- ily improved the fiscal accounts by re- proaching its potential growth. This decel- pected to remain strong helped by en- ducing interest payments until 2027. eration stems from a slowdown in US ac- hanced tax collection efforts. However, it may lead to future fiscal tivity, likely dampening remittances, and El Salvador's fiscal position remains delicate pressures due to increases in the min- tourism. Inflation is projected to continue for a dollarized economy, facing liquidity imum pension payout. Furthermore, its downward trajectory, reaching 2.1 per- challenges and limited financing options. while the reform has improved liquidity, cent in 2024. However, poverty and vul- Medium-termprospectscontinuetoberisky El Salvador still confronts major financ- nerability rates are anticipated to remain without a credible medium-term fiscal con- ing challenges, and financing options are almost constant until 2026, indicating that solidation plan. Furthermore, the interest limited to pensions, banks and official most of the population are not reaping the savings resulting from the pension reform creditors, as the government’s access to benefits of overall growth. This under- will turn into a cost after 2027. However, a international markets is closed. scores the necessity for targeted policies, sustained decrease in sovereign spreads and The current account deficit, which widened and the creation of higher-wage jobs. in the public debt to GDP ratio could facili- in 2022, is expected to close 2023 at 2.5 per- The current account deficit is expected to tate El Salvador's return to international cent, driven by declines in international narrow in 2024 on the back of improved markets relaxing liquidity constraints. fuel and food prices. Remittances contin- net exports, despite the projected slow- Downside risks to the outlook include a ue to play a pivotal role in El Salvador's down in remittances. This deficit is expect- slowdown in global economic activity, a external position, stabilizing at 26 percent ed to be partly financed by official lending shift in immigration policy in the US, and an of GDP. Tourism has benefited from im- and FDI. Nonetheless, the pressure on in- overreliance on domestic financing that provements in security, and arrivals have ternational reserves is likely to persist could crowd out the private sector. More- increased from 2.4 to 3.4 million between without additional capital inflows and/or over, a more severe El Niño could disrupt 2022 and 2023. Foreign Direct Investment short-term fiscal consolidation. supply chains and increase logistics expens- rose by 1.1 percentage points, reaching The primary fiscal deficit is forecasted to de- es, affecting the health of vulnerable house- 1.7 percent of the GDP in 2023, partially crease in 2024, primarily due to reduced holds. While security measures are expected financing the deficit. Reserves remain low public spending associated with the election to boost consumption and investment, their at 9 percent of GDP. cycle, the phase-out of subsidies (except for long-term sustainability remains uncertain. TABLE 2 El Salvador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 11.2 2.6 2.7 2.5 2.5 2.5 Private consumption 16.1 2.6 1.8 1.7 1.7 1.7 Government consumption 7.2 -1.4 4.4 1.3 1.2 1.1 Gross fixed capital investment 25.1 2.6 6.4 5.1 3.6 3.6 Exports, goods and services 29.4 10.2 3.5 1.6 2.4 2.5 Imports, goods and services 28.9 1.2 3.9 1.5 1.4 1.4 Real GDP growth, at constant factor prices 10.2 3.1 2.7 2.5 2.5 2.5 Agriculture 4.0 0.6 -1.9 -1.8 -1.1 -1.7 Industry 10.5 3.6 1.5 2.9 2.5 2.5 Services 10.7 3.2 3.5 2.7 2.8 2.8 Inflation (consumer price index) 3.5 7.2 4.1 2.1 1.9 1.7 Current account balance (% of GDP) -4.3 -6.6 -2.5 -2.3 -2.0 -2.0 Net foreign direct investment inflow (% of GDP) 1.0 -0.3 1.7 1.7 1.8 2.0 a Fiscal balance (% of GDP) -4.8 -2.7 -4.4 -2.7 -2.6 -2.9 Revenues (% of GDP) 23.8 24.2 24.3 24.3 24.3 24.3 b Debt (% of GDP) 82.7 78.0 75.7 74.3 73.0 72.2 a Primary balance (% of GDP) -0.4 1.9 -0.5 1.1 1.3 1.0 c,d International poverty rate ($2.15 in 2017 PPP) 3.6 3.4 3.4 3.3 3.2 3.2 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 8.7 8.6 8.7 8.6 8.5 8.5 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 28.4 27.5 27.6 27.2 27.0 27.0 GHG emissions growth (mtCO2e) 5.4 -0.5 -0.6 0.1 0.2 0.3 Energy related GHG emissions (% of total) 51.2 50.8 50.4 50.3 50.1 49.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2022-EHPM. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. d/ Projections using microsimulation methodology. MPO 113 Apr 24 A strong commitment to adhering to fiscal rules and additional structural reforms are GRENADA Key conditions and needed to sustain inclusive growth, reduce poverty and inequality, enhance the effec- challenges tiveness of social protection programs, and strengthen climate resilience. Targeted Table 1 2023 Grenada has outperformed its eastern policies to boost job creation and skill de- Population, million 0.1 Caribbean peers in economic perfor- velopment for women and youth are also GDP, current US$ billion 1.3 mance, achieving an average annual required. The Government has committed GDP per capita, current US$ 10503.8 growth of 3.3 percent between 2015 and to remaining on track with the new fiscal a 0.3 International poverty rate ($2.15) 2019, while keeping public debt relatively rules in 2024 and plans to further improve a 1.3 low and reducing poverty. Growth has accountability and fiscal transparency. Lower middle-income poverty rate ($3.65) a 13.8 been driven by construction and tourism, Upper middle-income poverty rate ($6.85) Gini index a 43.8 supported by structural reforms initiated School enrollment, primary (% gross) b 83.4 in 2015. The 2015 Fiscal Responsibility Life expectancy at birth, years b 74.9 Act was replaced by the 2023 Fiscal Re- Recent developments silience Act (FRA) with the aim to further Total GHG emissions (mtCO2e) 2.5 enhance Grenada’s fiscal policy frame- Economic activity improved in 2023, lead- Source: WDI, Macro Poverty Outlook, and official data. work by simplifying rules, broadening the ing to gains in poverty reduction. Growth a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). definition of public debt, and strengthen- is estimated to have reached 4.8 percent ing the role of the medium-term fiscal in 2023 as visitor arrivals, public and strategy. State-Owned Enterprises (SOEs) private construction activity, and the re- play a vital role in the country’s economic turn of students to St. George’s Universi- stability and growth, as they are involved ty (SGU) contributed significantly to the Grenada is expected to have returned to in various critical sectors. The Eastern economy. Inflation rose to 2.7 percent by its strong pre-COVID growth in 2023, Caribbean Currency Union’s fixed ex- end-2023, mostly driven by increases in thanks to tourism and construction. The change rate anchors low inflation and price food and fuel prices. The recent under- country has improved its fiscal position stability. Grenada’s financial sector re- performance in the agriculture sector was mains stable and liquid. largely due to unfavorable weather condi- and continues to reduce its public debt. However, vulnerabilities remain. Grena- tions and the high cost of fertilizers. The It has also continued with the imple- da's economy relies heavily on tourism, a unemployment rate dropped to 12.0 per- mentation of pro-growth reforms, clos- sector significantly affected by the glob- cent in 2023-Q2. However, it continues to ing infrastructure gaps, and building al business cycle and natural disasters. be higher among women (14.6 percent) climate resilience. Complying with es- Inequality, measured by the Gini coeffi- and the youth (36.2 percent). Poverty cient, has hovered around 0.44 since 2018, ($6.85 a day in 2017 PPP) is estimated to tablished fiscal rules will be critical for which is high by international standards. have declined to 13.9 percent in 2023, re- Grenada to sustain inclusive growth Gender disparities in access to economic maining slightly above pre-pandemic lev- and make continued progress in poverty opportunities persist, and youth unem- els (13.8 percent in 2018). and inequality reduction. ployment stands significantly above the The current account deficit is estimated to national average. have widened in 2023, as the increased FIGURE 1 Grenada / Key macroeconomic variables FIGURE 2 Grenada / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 9 78 20 25000 8 76 18 7 74 16 20000 72 14 6 70 12 15000 5 68 10 4 66 8 10000 3 64 6 2 62 4 5000 1 60 2 0 58 0 0 2021 2021 2022 e 2023 e 2024f 2025f 2018 2020 2022 2024 2026 Debt to GDP ratio (rhs) Primary balance International poverty rate Lower middle-income pov. rate GDP growth rate Upper middle-income pov. rate Real GDP pc Source: World Bank, Macroeconomics and Fiscal Management Global Practice. Source: World Bank. Notes: see Table 2. Notes: e= estimate; f = forecast. MPO 114 Apr 24 import bill exceeded the recovery in GDP in 2024 to 4.7 percent in 2026, reducing tourism-driven exports due to a larger capital spending funds. A new public sector volume of goods required for construc- Outlook pension scheme should become operational tion projects. Remittances are estimated in 2024 and may require Government contri- to have slowed from the pandemic peak. Real output growth is projected to moderate butions going forward. On the revenue side, However, it is unlikely to have impacted to 4.1 percent in 2024, with an average of 3.7 a strong recovery in tax revenue collection poverty, as the wealthiest households ac- percent over the medium term. This reflects and additional revenue enhancement mea- count for most of the remittances re- a slower pace of expansion in tourism and sures are expected to offset increased spend- ceived. Citizenship-by-Investment (CBI) construction, as public investments are ex- ing and maintain the primary balance above inflows were larger than expected in 2023 pected to scale back due to the binding new the new FRA target of 1.5 percent of GDP and supported both public and private fiscal rules. Nonetheless, private and public over the medium term. Public debt is pro- investment. Foreign Direct Investment investments are expected to continue to sup- jected to remain on a downward path, sup- (FDI) helped finance the external deficit port construction. The implementation of ported by output growth, fiscal surplus, and as did loans from multilateral and bi- structural reforms is also expected to posi- declining debt service payments, and reach lateral development partners. Estimated tively affect the output. Inflationary pres- 71.8 percent of GDP by 2026 as additional imputed reserves increased by 9 percent sures are expected to ease over the medium primary surplus is assumed to be directed from 2021 to 2022. term, from the 2022 peak. An overall infla- towards the National Transformation Fund. The fiscal surplus further improved in tion rate of 2.0 percent is forecast from 2024 Externally, the risks are mainly on the 2023, owing to increased CBI non-tax rev- onwards. Amid moderate economic downside and associated with the uncer- enues (EC$382.9 million) and buoyant eco- growth and controlled inflation, poverty tainty around rising geopolitical tensions, nomic activity. Total revenue rose to 36.8 ($6.85 a day in 2017 PPP) is projected to the global economic slowdown, and persis- percent of GDP in 2023. These improve- fall below pre-pandemic levels in 2024 and tent inflationary pressures. Domestically, ments more than compensated for the el- continue to decline in 2025 and 2026. both upside and downside risks exist. On evated capital expenditures. Public sector The authorities are advancing an ambitious the upside, a faster uptake in the tourism debt increased to 75.5 percent of GDP in fiscal reform agenda. On the expenditure sector and/or construction projects could 2023, up from 64.1 percent of GDP in 2022. side, they aim to raise wages moderately spur a new wave of growth. On the down- This increase reflects the recently intro- within the new FRA ceiling of 13 percent of side, the country’s vulnerabilities to natural duced FRA, which broadens the debt cov- GDP. CBI inflows, which spiked in 2023-24, disasters, health issues, and other shocks erage by including the debt of all SOEs. are projected to taper off from 7.9 percent of could negatively impact future growth. TABLE 2 Grenada / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.7 7.3 4.8 4.1 3.7 3.2 Real GDP growth, at constant factor prices 5.2 6.2 4.8 4.1 3.7 3.2 Agriculture 15.7 -16.8 -2.1 1.4 3.1 3.1 Industry 15.3 17.4 4.3 4.5 2.0 2.0 Services 2.0 5.5 5.5 4.2 4.2 3.5 Inflation (consumer price index) 1.9 2.9 2.7 2.0 2.0 2.0 Current account balance (% of GDP) -14.5 -11.0 -14.3 -16.9 -13.5 -12.6 Fiscal balance (% of GDP) 0.3 0.9 6.3 0.2 0.2 0.3 Revenues (% of GDP) 31.6 32.7 36.8 34.8 30.2 30.2 a Debt (% of GDP) 71.4 64.1 75.5 74.2 72.6 71.8 Primary balance (% of GDP) 2.1 2.5 7.7 1.8 1.5 1.5 b,c International poverty rate ($2.15 in 2017 PPP) 0.3 0.3 0.3 0.3 0.1 0.1 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.3 1.3 1.3 1.3 1.1 1.1 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 17.3 15.6 13.9 13.5 12.9 11.9 GHG emissions growth (mtCO2e) 1.6 2.1 1.6 1.5 1.4 1.4 Energy related GHG emissions (% of total) 13.3 13.4 13.6 13.6 13.6 13.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The debt coverage over the period 2023-2026 was expanded to include the non-guaranteed debt of all SOEs, aligned with the new FRA. b/ Calculations based on CONLAC harmonization, using 2018-SLCHB. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2018) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 115 Apr 24 by high informality, with over 70 per- cent of the employed population work- GUATEMALA Key conditions and ing informally, and this figure rises to nearly 75 percent among women, partic- challenges ularly in the agricultural sector. Addi- tionally, in 2022, 56.9 percent of house- Table 1 2023 Guatemala is recognized for its stable holds lacked access to at least one basic Population, million 17.6 macroeconomic environment. Over the service, such as clean water, sanitation, GDP, current US$ billion 100.5 past five years, the average GDP growth electricity, or waste collection. GDP per capita, current US$ 5710.0 was 3.6 percent, reserves stayed at com- Guatemala would benefit from reforms a 9.5 International poverty rate ($2.15) fortable levels and public debt remained at that enhance productivity and foster in- a 25.9 28 percent of GDP, despite the economic clusive growth. This requires improved Lower middle-income poverty rate ($3.65) a 55.4 disruptions caused by COVID-19 and the infrastructure, education, business envi- Upper middle-income poverty rate ($6.85) Gini index a 48.3 food and fuel crisis. ronment, and expanded social protection School enrollment, primary (% gross) b 103.9 Despite this stability, underlying chal- programs, which in turn entails more ef- b 69.2 lenges persist, such as stagnant produc- fective and increased spending. Histor- Life expectancy at birth, years tivity growth and insufficient human cap- ically, Guatemala has struggled to im- Total GHG emissions (mtCO2e) 40.9 ital development. The Human Capital In- plement revenue-increasing reforms. The Source: WDI, Macro Poverty Outlook, and official data. dex has shown little improvement, mov- new government, which assumed office a/ Most recent value (2014), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy ing from 0.44 in 2010 to 0.46 in 2020. in January, faces significant challenges in (2021). Human development outcomes are par- passing reforms through Congress, even ticularly low among Indigenous Peoples, for less contentious issues. Afro-descendants, and residents of re- mote areas. Economic growth has primar- Guatemala possesses the macroeconomic ily been driven by capital accumulation stability required to foster inclusive and labor force expansion, with the latter Recent developments expected to increase until 2044. However, growth yet struggles to implement re- labor force participation remains relative- In 2023, GDP growth decelerated from 4.1 forms to quicken growth and alleviate ly low at 60 percent in 2022, especially percent in the previous year to 3.5 percent, poverty and inequality. GDP growth among women. despite stronger growth in the US and in- Poverty and inequality have seen mini- creased remittances. The presidential elec- forecast ranges from 3 to 3.5 percent in mal change over the last decade. Over tions and the ensuing complex transition the medium term, with poverty and in- half of the population lives below the dampened business confidence, which has equality projected to stay among the poverty line ($6.85, 2017 PPP), one of remained below 50 since mid-2023. highest in the region. Significant risks the highest poverty rates in Central Inflation saw a substantial decline, drop- to this outlook include natural disas- America. Multidimensional poverty is ping from 9.7 percent in January to 4.2 predominantly rural, with 46 percent of percent by December 2023, aided by re- ters, political instability, and volatility duced food and energy prices and a the population living in these areas, ac- in commodity prices. counting for 73 percent of the impover- tighter monetary policy that maintained ished. The labor market is characterized the interest rate at 5 percent since March. FIGURE 1 Guatemala / Economic Activity Index (EAI) and FIGURE 2 Guatemala / Actual and projected poverty rates Index of Confidence of Economic Activity (ICEA) and real GDP per capita Percent (y-o-y) Confidence Index (>50 = positive) Poverty rate (%) Real GDP per capita (constant LCU) 10 140 70 40000 8 120 60 35000 6 30000 100 50 25000 4 40 80 20000 2 30 60 15000 0 20 10000 40 -2 10 5000 Economic Activity Index (lhs) 20 0 0 -4 Economic Activity Index: Industry (lhs) 2014 2016 2018 2020 2022 2024 2026 Index of Confidence of Economic Activity (rhs) -6 0 International poverty rate Lower middle-income pov. rate Jan '22 Jun '22 Nov '22 Apr '23 Sep '23 Upper middle-income pov. rate Real GDP pc Source: Banco de Guatemala. Source: World Bank. Notes: see Table 2. MPO 116 Apr 24 Despite rising real interest rates through- ceiling, while projected revenues for 2024 out the year, credit to the private sector are higher than those budgeted for 2023, grew by 15 percent in 2023. The banking Outlook which would yield a strong fiscal consol- sector has remained robust and prof- idation in 2024. The government has set itable, with a non-performing loan ratio Economic activity slowed in 2023 and is a higher tax revenue target and intends of 1.8 percent. expected to continue into 2024. The de- to request an increase in the expendi- The current account surplus is estimated layed effects of higher interest rates and ture ceiling by 13 million LCU. Given the to have grown to nearly 4 percent of low confidence will be felt, and El Niño president's lack of a congressional major- GDP, attributed to a reduced trade deficit, will reduce agricultural yields in 2024. ity, it is not clear that Congress will ap- improved terms of trade, and higher re- GDP growth is projected to moderate to 3 prove the increased expenditures in full. mittance inflows. Fiscal accounts showed percent in 2024 due to lower consumption In lack of better guidance, the forecast as- a modest improvement from 2022 to 2023, and government investment. A gradual in- sumes a nominal expenditure increase of with the budget deficit narrowing from crease is expected in 2025, as interest rates 4 million LCU in 2024 compared to 2023, 1.7 to 1.4 percent of GDP due to a mod- are reduced, El Niño's impact lessens, and which would yield a deficit of 0.5 percent erate revenue increase and stable expen- business confidence recovers. of GDP in 2024. ditures. Public debt remained low at 28.3 Inflation is predicted to rise in the first half of The main downside risks to the economic percent of GDP. 2024, driven by food prices affected by El outlook include natural disasters, rising Lower inflation, remittance growth, and Niño-induced droughts. External accounts commodity prices, and political deadlock. moderate growth have contributed to are expected to remain in surplus, though at Increases in commodity prices due to cli- poverty reduction, with estimates show- a reduced level, due to an increased trade mate events like La Niña or geopolitical ing a decrease to 55 percent (U$6.85 deficit and slower remittance growth. conflicts in the Middle East can lead to in- 2017 PPP poverty line) in 2023, from 56 Poverty rates (U$6.85 2017 PPP poverty line) flation spikes. Disruptions in global trade in 2022. However, the labor market's are projected to stay close to 54.1 percent in routes from such conflicts and droughts in limited dynamism and persistent high 2024, as the sluggish agricultural sector and the Panama Canal could increase freight informality, have kept poverty rates inflationary pressures persist, and poverty costs and reduce supply, triggering infla- above pre-pandemic levels (54 percent using the U$2.15 line (2017 PPP) is anticipat- tion. The growing political impasse among in 2019). Inequality is also estimated ed to remain near 9.6 percent. all branches of government could prevent to have remained higher than pre-pan- The fiscal outlook remains uncertain. The Guatemala from enacting reforms and im- demic levels (49 in 2023 vs. 48.5 in courts have suspended the approved 2024 plementing policies to tackle poverty and 2019), reflecting entrenched social and budget, and the government is currently low productivity, potentially undermining geographical disparities. operating under the 2023 expenditure its macroeconomic stability. TABLE 2 Guatemala / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 8.0 4.1 3.5 3.0 3.5 3.5 Private consumption 8.5 4.2 4.0 3.8 3.7 3.7 Government consumption 4.9 7.2 5.0 3.0 3.5 3.5 Gross fixed capital investment 19.8 3.5 6.0 4.8 4.1 4.1 Exports, goods and services 10.3 7.0 -1.0 2.7 3.5 3.5 Imports, goods and services 19.5 4.4 3.7 5.6 4.2 4.2 Real GDP growth, at constant factor prices 7.8 4.4 3.5 3.0 3.5 3.5 Agriculture 4.3 2.6 3.0 0.5 3.5 3.0 Industry 8.6 4.6 2.5 2.0 3.3 3.3 Services 8.1 4.6 4.0 3.7 3.6 3.6 Inflation (consumer price index) 4.3 6.9 6.3 4.8 3.7 3.5 Current account balance (% of GDP) 2.2 1.3 3.8 3.4 3.3 3.3 Net foreign direct investment inflow (% of GDP) 3.8 1.3 1.8 1.9 1.9 2.0 Fiscal balance (% of GDP) -1.2 -1.7 -1.4 -0.5 -0.5 -0.4 Revenues (% of GDP) 12.4 12.7 12.9 13.5 13.7 14.0 Debt (% of GDP) 30.8 29.2 28.3 27.4 26.4 25.6 Primary balance (% of GDP) 0.6 0.0 0.3 1.2 1.3 1.3 a,b International poverty rate ($2.15 in 2017 PPP) 10.8 10.4 9.9 9.6 9.0 8.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 28.1 27.4 26.2 25.5 24.0 23.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 57.0 56.0 55.1 54.1 52.6 52.4 GHG emissions growth (mtCO2e) 4.8 3.4 2.7 2.6 2.7 2.7 Energy related GHG emissions (% of total) 51.2 51.9 52.3 52.7 53.1 53.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2014-ENCOVI. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 117 Apr 24 NRF Act 2021. As of December 2023, the closing balance in the NRF was US$1.97 GUYANA Key conditions and billion. The country is also advancing initiatives to sell carbon credits from challenges forest conservation, which represent an additional source of fiscal revenues and Table 1 2023 Guyana is a small state with abundant nat- will be partly employed to sustainably Population, million 0.8 ural resources, including significant oil manage its forests. GDP, current US$ billion 16.8 and gas (O&G) reserves and extensive for- Rising budget resources present both op- GDP per capita, current US$ 20626.2 est cover. With a large part of its territorial portunities and risks for Guyana. They a 90.5 School enrollment, primary (% gross) waters still unexplored, Guyana’s gross oil have allowed the government to respond a 65.7 resources are conservatively estimated at to the global pandemic and inflation while Life expectancy at birth, years Total GHG emissions (mtCO2e) 30.3 over 11 billion barrels, making it one of the increasing spending to address infrastruc- Source: WDI, Macro Poverty Outlook, and official data. world’s highest levels per capita. The start ture gaps and human development needs. a/ WDI for School enrollment (2020); Life expectancy of oil production in 2019 led to an unprece- However, the extraordinary pace of scaling (2021). dented rate of economic growth, resulting up public spending heightens the risks of in the country being reclassified as high-in- spending inefficiencies, and oil revenues come as of July 2023. raise concerns of potential “Dutch Dis- Guyana's new-found resource wealth con- ease” effects. It is therefore critical to con- trasts with the overall needs of the popula- tain the pace of fiscal expansion and to ef- tion. Poverty and social exclusion, includ- fectively manage O&G revenues to sup- Guyana emerged as one of the world's ing limited access to basic services, have port growth in the non-oil economy. fastest-growing economies following the traditionally been particularly severe in Sound management of the O&G sector ne- development of its oil and gas (O&G) sec- Guyana’s hinterland and among Amerindi- cessitates strengthening governance and tor. In light of the substantial oil rev- ans. The lack of recent data on poverty and proactive public financial management enues, the government is implementing equity inhibits an assessment of progress practices while boosting transparency and in fighting poverty and fostering social in- accountability to avoid increased social po- an ambitious investment program to clusion since the start of oil production. larization. There has also been a recent es- structurally transform the non-oil econo- The development of the O&G sector has calation of tension between Guyana and my and address its development needs. allowed a notable scale-up of investments Venezuela over the border controversy be- Lack of recent data on poverty and equity in infrastructure to support growth in tween the two countries. other sectors. With over 70 percent of the limits the effectiveness and monitoring of working-age population residing in rur- public policies to reduce poverty in these al areas, agriculture, forestry, and fish- transformational times for Guyana. ing remain important for job creation and Recent developments Sound management of O&G resources poverty reduction. will be critical for inclusive growth. Guyana’s oil revenues are held at the Nat- Guyana’s economy continued its strong ural Resource Fund (NRF), a sovereign expansion in 2023, with real GDP growing wealth fund outside of the economy, with by 33.0 percent. The third oil field started clear withdrawal rules governed by the production in November 2023, allowing oil FIGURE 1 Guyana / Oil production, real oil, and real non-oil FIGURE 2 Guyana / Fiscal balances and Natural Resource GDP Fund (NRF) transfers under NRF Act 2021 and 2024 revisions Real GDP (G$B, 2012 prices) Oil production (thousand barrels per day) Percent of GDP Percent of non-oil GDP 8,000 1,000 10 0 NRF transfers (NRF Act 2021) 7,000 NRF transfers (NRF rev 2024) Fiscal balance (NRF Act 2021, rhs) 800 8 -5 6,000 Fiscal balance (NRF rev 2024, rhs) 5,000 600 6 -10 4,000 3,000 400 4 -15 2,000 200 1,000 2 -20 0 0 2021 2022 2023 e 2024 f 2025 f 2026 f 0 -25 Oil GDP Non-Oil GDP Oil Production (rhs) 2021 2022 2023 e 2024 f 2025 f 2026 f Sources: Government of Guyana and World Bank staff calculations. Sources: Government of Guyana and World Bank. Notes: e=estimate, f=forecast. Notes: e=estimate, f=forecast. NRF rev 2024 projections assume yearly withdrawal of maximum amounts allowed by the revised rules in the Fiscal Enactments Amendment Bill 2024. MPO 118 Apr 24 production to reach 143 million barrels in debt. Fiscal policy focused on increasing expected to be moderate in 2024 but will 2023, leading to a 45.9 percent growth in capital investment to support growth in remain elevated in the medium term due oil GDP. The non-oil economy grew by the non-oil economy, while providing to increased government consumption and 11.7 percent, driven mainly by expansion relief to citizens from the adverse im- higher input costs. Poverty reduction will in the construction and services sectors, pact of the pandemic and rising prices. depend on efforts to boost the purchasing supported by strong public investment. Relief efforts included direct and indi- power of poor and vulnerable households, Agricultural output grew by 7 percent, rect income support, with adjustments as well as on translating the performance with notable growth in the sugar-growing to the income tax threshold and a re- of the non-oil economy into jobs. sector due to improved yields. duction in the fuel excise tax. The pub- The fiscal deficit, not yet reflecting the NRF The urban consumer price index increased lic debt-to-GDP ratio increased to 28.5 revisions, is projected to average 20.9 per- by an average of 2.8 percent in 2023, re- percent of GDP in 2023 as a result of cent of non-oil GDP (or 8.1 percent of total flecting a sharp slowdown in inflation new external and domestic borrowing. GDP) as the increase in capital spending compared to the 6.4 percent recorded in The current account recorded a surplus outstrips NRF transfers. Public debt as a 2022. Inflation slowed across all categories, of 11.8 percent of GDP in 2023, notably percentage of GDP is expected to be on a but price increases in food were relatively smaller than in 2022 due to the impor- moderate downward trend as the econo- high, averaging 5.8 percent in 2023, com- tation of the third oil platform. my continues to expand. Increased exports pared to housing, transportation, and oth- of oil, gold, and bauxite will result in a cur- er categories. Higher food costs dispropor- rent account surplus of around 23.9 per- tionately affect the poor and vulnerable, cent of GDP over the medium term, also ir- who spend a larger portion of their budget Outlook regularly affected by the importation of oil on food, and can jeopardize food security. production platforms. The nominal exchange rate has remained Guyana's economy is expected to continue The extractive sector is the dominant stable since 2019 through periodic inter- its strong expansion over the medium source of growth and fiscal revenues for vention, and the real effective exchange term, with rising oil production driving Guyana. This increases the country’s sus- rate was also stable in 2023, after a slight the overall growth path. The three produc- ceptibility to oil-related shocks and re- appreciation in 2022. tion platforms currently in operation are quires proactive management. Prudent The fiscal deficit was 14.6 percent of non- expected to reach over 550,000 bpd as the NRF management and strengthening the oil GDP in 2023, despite significant trans- third and newest platform reaches full ca- medium-term fiscal framework are critical fers from the NRF. Transfers from the pacity. The fourth oil development project for preventing the economy from over- NRF approximated US$1 billion (6.0 per- is expected to start operation in 2025, fur- heating. Oil production has environmental cent of GDP) in 2023, up from US$608 ther increasing production capacity and consequences that must be carefully con- million in 2022 (4.1 percent of GDP), in GDP growth. Real non-oil GDP is project- sidered, and the sector may face additional accordance with the NRF Act 2021. In ed to expand by an average of 9.4 percent risks amid global decarbonization efforts. February 2024, the government passed annually, including through positive Addressing climate change risks remains the Fiscal Enactments Amendment Bill spillovers from the oil sector, supported by central to poverty reduction given that sea 2024 that authorizes a significant increase the Local Content Act, and the strong pub- level rise and flooding expose large seg- in the withdrawal limit from the NRF and lic investment program, boosting agricul- ments of the population to food insecurity higher ceilings on domestic and external tural output and construction. Inflation is and job losses. TABLE 2 Guyana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f a Real GDP growth, at market prices (total) 20.1 63.3 33.0 34.3 16.8 18.2 b Real GDP growth, at market prices (non-oil) 4.6 11.5 11.7 11.9 8.2 7.9 Agriculture -9.1 11.7 7.0 10.4 6.0 4.2 Industry 5.0 12.7 13.0 9.7 8.7 7.7 Services 12.1 9.3 10.5 6.9 6.8 6.5 Inflation (consumer price index) 4.8 6.4 2.8 3.8 5.0 5.5 c Current account balance (% of GDP) -24.8 25.9 11.8 35.3 15.6 20.9 d Fiscal balance (% of GDP) -10.1 -11.7 -14.6 -23.4 -21.0 -18.2 Debt (% of GDP) 38.9 24.8 28.5 27.8 23.8 20.8 d Primary balance (% of GDP) -9.4 -11.1 -13.7 -22.2 -19.8 -16.5 GHG emissions growth (mtCO2e) 4.9 15.9 12.4 13.4 8.3 8.5 Energy related GHG emissions (% of total) 24.7 33.5 39.7 45.8 48.9 51.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Total GDP at 2012 prices. b/ Non-oil GDP at 2012 prices. c/ BOP definition in current US$. d/ Share of non-oil GDP. MPO 119 Apr 24 the downward inflation trajectory, it is crucial to tackle the persistent fiscal chal- HAITI Key conditions and lenges arising from low tax revenue col- lection and to curtail monetary financing challenges of the budget. Table 1 2023 Haiti’s economy has been hindered by Population, million 11.7 deep structural challenges, including a GDP, current US$ billion 19.9 weak business environment and inade- Recent developments GDP per capita, current US$ 1694.1 quate public services, with limited job a 29.2 International poverty rate ($2.15) growth, a large share of unskilled workers, GDP continues to fall, due to heightened a 58.0 and few employment opportunities. The insecurity that affects all sectors. The agri- Lower middle-income poverty rate ($3.65) a 85.8 small industrial base related to textiles, ap- cultural sector, which employs over 40 per- Upper middle-income poverty rate ($6.85) Gini index a 41.1 parel, and light manufacturing, relies cent of the labor force, registered the Life expectancy at birth, years b 63.2 heavily on imports and suffers from weak largest decline (-5.6 percent), contributing Total GHG emissions (mtCO2e) 11.3 institutions. Growth has been hampered to increased poverty and food insecurity, by a persistent political crisis and escalat- as many poor households depend on agri- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2012), 2017 PPPs. ing gang violence, further eroding the al- culture for their livelihood. Enhancing b/ Most recent WDI value (2021). ready low human capital and institutional agricultural productivity is therefore a crit- capacity and Haiti has become highly un- ical policy focus to foster inclusive growth safe. Though gang violence manifests and improve equity. The textile sector, the mainly in Port au Prince, it has spread to largest formal private-sector employer, other parts of the country. lost about 26,000 jobs (nearly half of the The political crisis and increasing gang Haiti is vulnerable to natural hazard 56,000) in FY23, as two large textile/appar- violence continue to impact economic shocks, which are compounded by in- el operations closed and others had op- activity, with Haiti experiencing another adequate disaster risk management and erations disrupted. In the current context year of negative growth in FY23. Haiti response systems, leaving the country where economic opportunities are scarce has one of the highest levels of food inse- poorly equipped to handle the impacts and social safety nets limited, job losses of climate change. Issues such as wide- have driven many of these workers and curity in the world, tripling the number spread deforestation, watershed degrada- their families into poverty. The poverty of food-insecure people since 2016. Infla- tion, inadequate land use practices, limit- rate in FY23 was estimated at 63 percent tion remains high but is decelerating as ed infrastructure, unmaintained drainage ($3.65 per day). Other sectors, such as con- monetary policy tightens and global infrastructure, and inadequate waste struction, electricity, water, and transport management, make Haiti extremely sen- have also seen significant declines. The ser- price pressures ease. Despite significant sitive to natural hazards, which further vices sector contracted by 2.9 percent, with job losses in the textile sector, remit- exacerbates food insecurity and intensi- the hospitality industry most affected. On tances remain buoyant, supporting fies disease outbreaks. the demand side, both public and private household consumption levels. Inflation is declining, yet food prices re- investments have collapsed due to the high main elevated, disproportionately affect- level of insecurity and uncertainty, and ing the poorest households. To sustain government spending remains muted. FIGURE 1 Haiti / Real GDP growth and sectoral contributions FIGURE 2 Haiti / Actual and projected poverty rates and real to real GDP growth, supply side GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 3 100 70000 2 90 60000 80 1 70 50000 60 40000 0 50 -1 30000 40 30 20000 -2 20 10000 -3 10 0 0 -4 2012 2014 2016 2018 2020 2022 2024 2026 2018 2019 2020 2021 2022 2023e 2024f International poverty rate Lower middle-income pov. rate Agriculture Industry Services GDP Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 120 Apr 24 Consumption remains relatively buoyant, In the external sector, exports declined should help narrow the fiscal deficit to 1.4 supported by remittances, which remain more rapidly than imports, principally due percent of GDP in FY24. Fiscal consolida- strong. However, the disruption to imports to the downturn in the textile industry. Re- tion efforts are expected to continue over and transportation by gangs undermines mittances remained strong at 18.9 percent the medium term, and with revenue in- access to food and essential goods. of GDP, a slight decrease compared with creases, the fiscal deficit should fall to near Tax revenue collection improved in FY23, FY22. Overall, the current account deficit 1.0 percent of GDP. thanks to tighter customs control and in- widened to 3.4 percent of GDP. Despite a decrease in global price pres- creased oil tax revenue. However, the tax-to- sures, persistent high fuel and food GDP ratio remains low at 6.3 percent. Efforts prices, along with low agricultural pro- to reduce energy subsidies and limit capital ductivity will keep inflation high at 27 spending have improved the fiscal position, Outlook percent in FY24 and 20 percent in FY25. lowering financing needs. The fiscal deficit The ongoing erosion of household pur- narrowed to 2.3 percent of GDP in FY23 from Haiti will experience another year of neg- chasing power and the sustained econom- 3.2 percent in FY22. Consequently, central ative growth in FY24 (-1.8 percent) due to ic downturn are expected to exacerbate bank (BRH) monetary financing of the heightened insecurity, though the growth poverty and food insecurity. Challenges deficit declined but continued to exceed path remains highly uncertain and depen- in the export sector, lower imports, and statutory limits. Inflation decelerated dur- dent on security improvements and polit- high remittances, are projected to result in ing the second half of FY23 but remained ical developments. Public and private in- a modest current account deficit. high at 44.2 percent in FY23 due to contin- vestments are expected to continue to fall Haiti is facing a severe crisis and the ued monetization of the deficit, low agri- significantly in this insecure environment inability to achieve a resolution carries cultural productivity, and gang-related from already low levels. Private consump- large downside risks. Addressing the se- disruptions that hinder the transport of tion should remain stable, supported by curity situation and bringing inflation un- goods, affecting poor and vulnerable decelerating inflation and strong remit- der control by reducing monetary financ- households the most. As of June 2023, an tances. With negative real growth, per ing of the fiscal deficit are key for macro- estimated 49 percent of Haiti’s population capita GDP is projected to further decline economic stability, growth, and poverty was facing acute food insecurity. in FY24 (-3.0 percent), leading to an in- reduction. Reducing disaster risks by The exchange rate depreciated by 13.7 crease in poverty rates to over 64 percent strengthening the institutional framework percent in FY23, following a 16.4 percent ($3.65 per day). and response system is also essential for depreciation in FY22, though it has ap- The anticipated decline in energy subsi- inclusive growth as the risk of natural preciated marginally over recent months. dies, creating additional fiscal space, disasters is high. TABLE 2 Haiti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020/21 2021/22 2022/23e 2023/24f 2024/25f 2025/26f Real GDP growth, at constant market prices -1.8 -1.7 -1.9 -1.8 1.9 2.0 Private consumption 1.2 -0.7 0.1 0.0 0.7 0.6 Government consumption 9.7 17.6 3.3 27.5 15.0 15.1 Gross fixed capital investment -28.8 -9.9 -17.6 -53.0 16.5 12.3 Exports, goods and services 23.5 2.4 -9.6 -5.4 1.5 2.1 Imports, goods and services 2.3 4.9 -0.4 1.6 5.5 5.5 Real GDP growth, at constant factor prices -2.8 -1.8 -3.6 -1.9 1.9 2.1 Agriculture -4.1 -4.5 -5.6 -1.0 1.5 2.0 Industry -2.5 -0.4 -3.8 -2.2 2.0 1.5 Services -2.5 -1.6 -2.9 -2.1 2.0 2.4 Inflation (consumer price index) 15.9 27.6 44.2 27.1 20.0 11.5 Current account balance (% of GDP) 0.4 -2.4 -3.4 -3.6 -4.2 -3.7 Net foreign direct investment inflow (% of GDP) 0.2 0.2 0.1 0.2 0.2 0.2 Fiscal balance (% of GDP) -2.5 -3.2 -2.3 -1.4 -1.4 -1.0 Revenues (% of GDP) 6.9 6.6 8.0 8.0 7.8 7.8 Debt (% of GDP) 28.4 27.6 30.2 30.0 26.5 22.7 Primary balance (% of GDP) -2.2 -2.9 -2.0 -1.1 -1.1 -0.8 a,b International poverty rate ($2.15 in 2017 PPP) 31.3 32.3 34.2 35.3 34.9 34.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 60.1 61.6 62.8 64.4 64.1 63.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 87.5 88.0 88.6 89.1 89.0 88.8 GHG emissions growth (mtCO2e) 3.5 0.3 -0.6 0.6 1.4 1.5 Energy related GHG emissions (% of total) 37.6 37.1 36.1 35.7 35.7 35.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2012-ECVMAS. Actual data: 2012. Nowcast: 2013-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2012) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 121 Apr 24 poverty and risk often concentrated in the same geographic areas. HONDURAS Key conditions and challenges Table 1 2023 Recent developments Honduras grew on average 3.7 percent Population, million 10.6 per year in 2010-19, largely driven by Real GDP growth decelerated to an esti- GDP, current US$ billion 31.9 remittance-fueled households’ consump- mated 3.5 percent in 2023, down from 4.0 GDP per capita, current US$ 3013.4 tion. Growth was underpinned by pru- percent in 2022, influenced by a decrease a 12.7 International poverty rate ($2.15) dent macroeconomic policies, including in US textile demand which drove a a 26.4 adherence to the Fiscal Responsibility 7.2 percent contraction in manufacturing. Lower middle-income poverty rate ($3.65) a 49.5 Law (FRL), a stable exchange rate, ade- The economy was partially buoyed by Upper middle-income poverty rate ($6.85) Gini index a 48.2 quate foreign reserves, and a robust fi- steady remittances and sustained credit School enrollment, primary (% gross) b 83.8 nancial sector. However, the country's growth, which supported household con- b 70.1 productive capacity has not expanded. sumption and investment, helping offset Life expectancy at birth, years As a result, the creation of formal jobs the export decline. Total GHG emissions (mtCO2e) 29.0 has been weak, which alongside wide- Inflation eased to 6.7 percent by in 2023, af- Source: WDI, Macro Poverty Outlook, and official data. spread crime and violence fuels migra- ter peaking at 9.1 percent in 2022, reflect- a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2021). tion. Agriculture and light manufactur- ing lower international prices and re- ing, particularly the textile maquila, are sponding to central bank liquidity absorp- key sources of employment and exports, tion measures, comprising open market mainly to the US. operations and increases in reserve re- Honduras is one of the poorest and quirements and the overnight rate, which most unequal countries in Latin Amer- pushed up market interest rates. The re- Growth has been moderate and dependent ica and the Caribbean (LAC) and grap- placement of the interbank foreign ex- on remittances and external demand. It ples with increasing food insecurity, change (FX) market with a central bank decelerated to 3.5 percent in 2023 and is which rose from 40.9 percent in 2018 auction system in April 2023 led to some to 56.1 percent in 2021. Human de- FX scarcity and uncertainty regarding its expected to decrease slightly to 3.4 per- velopment indicators are concerning. future availability, although dollars re- cent in 2024 due to slower US growth. A child born in Honduras in 2020 is main available in the economy, bolstered Stable macroeconomic conditions have projected to achieve only 48 percent by strong remittances. not led to more or better jobs, which com- of the labor market productivity they Unemployment fell to 6.4 percent in June bined with natural disasters, food insecu- could attain if they received high-qual- 2023 -from 8.6 percent in 2021- but re- ity education and healthcare. Signifi- mained above pre-pandemic levels. La- rity, and crime, has led to persistent mi- cant gender disparities and informali- bor market gender disparities persist, gration. Poverty remains above pre-pan- ty levels in the labor market hamper with women’s unemployment nearly demic levels, despite lower inflation. poverty reduction efforts. Additional- doubling men’s, while female labor force ly, Honduras is extremely susceptible participation (40 percent in 2023) is about to the impacts of climate change, with half the male rate. In 2023, poverty FIGURE 1 Honduras / Real GDP by sector, index 2000=1 FIGURE 2 Honduras / Actual and projected poverty rates and real GDP per capita Index 1=2000 Poverty rate (%) Real GDP per capita (constant LCU) 3.0 70 30000 Agriculture Service 60 25000 2.5 Industry 50 20000 2.0 40 15000 30 1.5 10000 20 10 5000 1.0 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0.5 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations based on Honduras Central Bank data. Source: World Bank. Notes: see Table 2. MPO 122 Apr 24 (US$6.85 line) is estimated to have term. The fiscal deficit is projected to ex- reached 51.3 percent, declining from 2022 pand to 2.5 percent of GDP in 2024 as bud- but still above pre-pandemic levels, and Outlook get execution continues to improve and inequality (Gini index) is estimated to narrow gradually over the medium term have been 47.3. Growth is projected to slow to 3.4 percent towards the FRL’s 1 percent target, sup- Despite the drop in exports, driven by in 2024 and 3.3 percent in 2025, with a sub- ported by broadening of the tax base and lower volumes in textiles and lower dued US economy delaying the recovery enhanced efficiency of revenue collection international prices for coffee and of manufacturing exports and dampening and public spending. The CAD is projected palm oil, the trade deficit decreased remittances, leading to a deceleration of to remain stable in 2024 and mildly dete- by 9.2 percent y-o-y by Q3-2023 due households’ consumption growth. Lower riorate in 2025, gradually narrowing there- to reduced imports of industrial inputs food inflation, growing external demand after as export demand and remittances and lower energy prices. Remittances for agricultural products, and strong pub- strengthen. However, pressures on inter- grew strongly, by 5.8 percent y-o-y in lic investment will provide some counter- national reserves are likely to persist, as November 2023, helping to narrow the balance. Growth is expected to gradually net FDI and other medium and long-term current account deficit (CAD) from 6.6 increase thereafter, supported by improv- capital inflows are not expected to improve percent of GDP in 2022 to an esti- ing global conditions and dynamic public significantly in the short term. mated 4 percent in 2023, primarily fi- and private investment. Significant downside risks exist. Lack of im- nanced by multilateral debt and for- Poverty is expected to decline to 50.5 per- provement in FX management could trigger eign direct investment (FDI). By the cent in 2024 and 50.3 percent in 2025, further loss of reserves. Persistent weakness end of 2023, foreign reserves stood at thanks to a robust agricultural sector and in textile exports and short-term transition US$7,555.9 million, around 5 months low inflation, with inequality projected to costs of the Honduras-China Free Trade of non-maquila imports. reach 47.3 and 47.1 respectively (Gini in- Agreement could exacerbate the CAD, also The fiscal deficit is estimated to have dex). Poverty is forecasted to decrease fur- reducing international reserves. Inflation- widened to 1.3 percent of GDP in 2023, ther in 2026 (49.6 percent), approaching ary pressures could re-emerge from escalat- as the execution of public investments pre-pandemic levels, primarily due to re- ing geopolitical conflict. Slower-than-antic- improved in the second semester, par- covering exports and remittances. ipated fiscal consolidation and adverse cli- ticularly in energy, roads, and produc- Inflation is expected to fall within the cen- mate events could increase financing needs. tive projects. Public debt decreased to tral bank's target range (4±1 percent) in Capacity constraints and legislative grid- 45.1 percent of GDP by June 2023, down 2024, in line with declining international lock could impede social and structural re- from 46.2 percent in June 2022, due to prices, despite potential renewed energy forms, negatively affecting investment, net capital repayments. inflation, and stay subdued in the medium growth, and poverty reduction. TABLE 2 Honduras / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 12.5 4.0 3.5 3.4 3.3 3.4 Private consumption 15.4 6.1 3.8 3.8 3.7 3.9 Government consumption 8.5 0.8 1.4 1.2 1.1 1.2 Gross fixed capital investment 34.7 5.6 5.3 4.2 4.0 4.2 Exports, goods and services 22.5 6.9 3.9 4.0 4.0 4.2 Imports, goods and services 35.5 9.8 3.9 4.0 3.9 4.2 Real GDP growth, at constant factor prices 12.5 4.0 3.5 3.4 3.3 3.4 Agriculture 0.4 -0.7 3.6 3.9 4.0 4.1 Industry 20.1 5.3 4.2 4.0 4.0 4.2 Services 12.5 4.5 3.2 3.1 2.9 2.9 Inflation (consumer price index) 4.5 9.1 6.7 4.6 4.1 4.2 Current account balance (% of GDP) -5.4 -6.6 -4.0 -4.0 -4.1 -3.9 Net foreign direct investment inflow (% of GDP) 1.8 2.3 1.8 1.8 1.8 1.9 a Fiscal balance (% of GDP) -3.7 -0.2 -1.3 -2.5 -1.8 -1.0 Revenues (% of GDP) 30.0 29.6 30.1 30.0 30.1 30.4 a Debt (% of GDP) 51.6 52.3 52.9 53.2 52.4 51.5 a Primary balance (% of GDP) -2.8 0.4 -0.6 -1.8 -1.2 -0.4 b,c International poverty rate ($2.15 in 2017 PPP) 14.5 13.3 12.2 12.0 11.9 11.8 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 29.6 28.2 26.8 26.2 25.7 25.6 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 53.3 52.4 51.3 50.5 50.3 49.6 GHG emissions growth (mtCO2e) 4.3 -0.1 0.5 1.3 1.4 1.6 Energy related GHG emissions (% of total) 33.4 31.7 30.5 30.1 29.8 29.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal data refers to non-financial public sector. b/ Calculations based on SEDLAC harmonization, using 2019-EPHPM. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. c/ Projections using microsimulation methodology. MPO 123 Apr 24 capital, and future earning potential of students if not addressed adequately. JAMAICA Key conditions and Jamaica is also highly vulnerable to exter- nal shocks given its reliance on imports challenges and tourism. Tourism and agriculture, which account for more than half of jobs, Table 1 2023 Jamaica has been a highly indebted econ- are vulnerable to external shocks, espe- Population, million 2.8 omy for decades. Since 2013, the Govern- cially climate-related ones, which could GDP, current US$ billion 18.8 ment (GOJ) has successfully implemented undermine growth and poverty reduc- GDP per capita, current US$ 6666.6 fiscal consolidation measures, reducing the tion. The financial sector is stable, well- a 0.3 International poverty rate ($2.15) public debt-to-GDP ratio by more than 60 capitalized, and profitable but also sus- a 2.4 percentage points to 75.5 percent in 2023 ceptible to various shocks. To strengthen Lower middle-income poverty rate ($3.65) a 13.9 – the lowest level in 25 years. Prudent fiscal, financial, and social resilience to Upper middle-income poverty rate ($6.85) Gini index a 40.2 macroeconomic management, anchored climatic shocks, Jamaica has been grad- School enrollment, primary (% gross) b 90.7 on debt reduction targets and inflation-tar- ually integrating climate change adapta- b 70.5 geting monetary policy with ample foreign tion into its policy framework. Further Life expectancy at birth, years reserves, facilitated post-pandemic recov- improving anti-AML/CFT framework and Total GHG emissions (mtCO2e) 9.5 ery amid challenging external environ- enhancing financial supervision is neces- Source: WDI, Macro Poverty Outlook, and official data. ment of inflationary pressures and tighten- sary to strengthen financial stability and a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy ing global financial conditions. A strength- attract private investment. Broader pro- (2021). ened social protection system provided motion of digital financial services will temporary assistance to vulnerable house- enhance financial inclusion. holds and businesses during the pandemic Structural and institutional reforms to offset income losses, protect jobs, and strengthened macroeconomic manage- stimulate demand. Additional assistance ment over recent years. This allowed the was provided to vulnerable households to Recent developments mitigate the impact of rising prices. government to respond to the pandemic However, fiscal consolidation adversely The Jamaican economy surpassed its pre- and inflation shocks without significantly affects growth while relatively high debt- pandemic level, expanding in real terms impairing fiscal sustainability and pover- service costs crowd out other government by 2.9 percent y-o-y in the first three spending, including capital investment, quarters of 2023. Growth was driven by ty reduction objectives. Jamaica’s real which is critical to boost growth. Jamaica net exports from a record expansion in GDP surpassed its pre-crisis level in has been among the slowest growing tourism and mining, while agriculture de- 2023, and poverty is gradually declining economies in LAC given its concentration clined due to an extended drought. Rising towards pre-crisis levels. Progress in low- in low productivity services, limited tech- economic activity brought the unemploy- ering public debt and reducing poverty nology adoption and innovation, a weak ment rate to a record-low 4.2 percent in business environment, high connectivity October 2023. Poverty ($6.85 per day) de- may be slower than expected if global eco- clined from 13.9 in 2021 to an estimated costs, and pervasive crime. Learning dis- nomic conditions deteriorate and if con- ruptions during the pandemic risk fur- 12.3 percent in 2023. The quality of em- straints to growth remain unaddressed. ther corrosive effects on growth, human ployment remains a concern given high FIGURE 1 Jamaica / Public debt and net international FIGURE 2 Jamaica / Actual and projected poverty rates and reserves real GDP per capita Percent of GDP Million US$ Poverty rate (%) Real GDP per capita (constant LCU) 160 8000 16 350000 140 7000 14 340000 120 6000 12 330000 100 5000 10 320000 80 4000 8 310000 60 3000 6 300000 4 290000 40 2000 2 280000 20 1000 0 270000 0 0 2021 2023 2025 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Lower middle-income pov. rate Upper middle-income pov. rate Public Debt Net International Reserves (rhs) Real GDP pc Sources: Bank of Jamaica, Ministry of Finance and the Public Service, and World Source: World Bank. Notes: see Table 2. Bank staff calculations. MPO 124 Apr 24 informality (46.8 percent of non-agricul- compensation cycle. To further de-dollar- offset by reduced spending on imports in tural employment in 2020) and fewer ize the public debt and mitigate foreign the context of lower commodity prices. average hours worked relative to pre- exchange risk, the GOJ issued its first Higher wages and the second phase of pandemic levels. domestic-currency international bond for the PPV fare increase in 2024 are antici- Annual inflation accelerated to 7.4 percent J$46.6 billion (US$300 million) in Novem- pated to continue to generate inflationary in January 2024 (5.1 percent in October ber 2023. In the context of prudent fiscal pressures in the near term, diminishing 2023) – above the Bank of Jamaica (BOJ)’s management and macroeconomic stabili- the purchasing power of households. BOJ reference range (5 ±1 percent). This was in- ty, Jamaica’s credit worthiness improved. is likely to maintain tight monetary policy fluenced by (i) a sharp increase in food The external position remained strong, while ensuring adequate liquidity in the inflation amid droughts, (ii) increased supported by robust earnings from financial system, minimizing pressures on public passenger vehicle (PPV) fares, (iii) tourism and remittances. The current ac- the currency, and returning inflation to its increases in telephone and internet rates, count recorded an estimated surplus of 2.5 target range by mid-2025. Poverty is pro- and (iv) a minimum wage increase of 44 percent of GDP in the first half of 2023. jected to continue a gradual decline as re- percent (over the previous rate as of Ju- Reserves remain adequate, at US$4.7 bn in al incomes improve. ly 2023) coupled with tighter labor mar- January 2024 (about 5.8 months of imports The fiscal account is expected to reverse ket. Persistent high food price inflation and 25 percent of GDP). In this context, the to surplus over the medium term as a (8.8 percent in January 2024) continued exchange rate remained relatively stable. result of improvements in tax revenue to undermine food security (33 percent and prudent spending. Spending is ex- of Jamaicans were severely food insecure pected to decline slightly due to lower in May 2023). The BOJ has kept the key interest payments. Public debt is project- policy rate at 7.0 percent since end-2022, Outlook ed to remain on a downward trajectory, maintained foreign currency interventions declining to 65.9 percent of GDP by 2026. to support the Jamaican dollar and price Annual growth is expected to average Gross reserves are expected to remain at stability, and tightened Jamaican dollar only 1.7 percent y-o-y over the medi- healthy levels. liquidity conditions. um term as global demand weakens Significant downside risks to the economic The GOJ sustained efforts in fiscal con- and fiscal austerity limits capital in- outlook include a possible deeper-than-ex- solidation while prioritizing social protec- vestments. Mining, tourism, and pri- pected global economic slowdown. Fur- tion. The fiscal stance was supported by vate investment in hospitality capacity ther tightening of financial market condi- strong tax revenues. However, the fiscal and infrastructure are expected to dri- tions could raise the cost of borrowing, account is estimated to have registered a ve growth. External account balances curtail private investments, and derail deficit of 1.4 percent of GDP in 2023 from are expected to slightly deteriorate as longer-term growth, climate change adap- a surplus of 1.6 percent in 2022 due to tourism and remittances growth is ex- tation, and debt objectives. Worsening increased spending on wages and salaries pected to slow amid weaker economic crime and natural hazards could also im- amid the recently approved three-year conditions in the US and UK, partially pair growth and poverty reduction. TABLE 2 Jamaica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.6 5.2 2.6 2.0 1.6 1.6 Real GDP growth, at constant factor prices 4.6 5.2 2.6 2.0 1.6 1.6 Agriculture 8.3 9.0 -7.5 1.9 0.9 0.9 Industry 2.4 -0.4 5.9 2.5 1.4 1.4 Services 4.9 6.5 2.8 1.9 1.7 1.7 Inflation (consumer price index) 5.9 10.3 6.5 7.0 6.2 5.4 Current account balance (% of GDP) 1.0 -0.7 0.8 0.2 -0.8 -1.4 Net foreign direct investment inflow (% of GDP) 1.8 1.5 1.6 1.7 1.9 2.0 Fiscal balance (% of GDP) 0.0 1.6 -1.4 -0.4 -0.2 0.1 Revenues (% of GDP) 30.3 30.2 30.8 31.3 30.8 30.7 Debt (% of GDP) 100.5 83.5 75.5 70.8 68.9 65.9 Primary balance (% of GDP) 6.0 7.2 4.3 3.0 2.3 2.8 a International poverty rate ($2.15 in 2017 PPP) 0.3 0.3 0.3 0.3 0.3 0.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.4 2.0 1.7 1.6 1.5 1.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 13.9 12.7 12.3 11.8 11.3 11.1 GHG emissions growth (mtCO2e) 9.8 7.0 4.2 3.1 1.8 1.8 Energy related GHG emissions (% of total) 77.8 79.2 79.9 80.5 80.8 81.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on CONLAC harmonization, using 2021-JSLC. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 125 Apr 24 from 43.9 percent in 2020 to 36.3 percent in 2022, lifting 8.9 million Mexicans from MEXICO Key conditions and poverty, with 46.8 million still living in poverty. The decline is mainly due to the challenges fall in monetary poverty, which fell from 52.8 to 43.5 percent. Table 1 2023 Mexico is among the most open economies Mexico has a strong track record of macro- Population, million 128.5 globally, thanks to its macroeconomic sta- economic stability, supported by an inde- GDP, current US$ billion 1791.4 bility, strategic proximity to major con- pendent central bank and a sound finan- GDP per capita, current US$ 13945.6 sumer markets, a wide array of trade cial sector. The recent shift towards a more a 1.2 International poverty rate ($2.15) agreements (particularly USMCA), and a state-led growth model will likely pose a 21.8 diversified economy. Its integration into challenges for public finances: a high fiscal Upper middle-income poverty rate ($6.85) a 43.1 global value chains and a dynamic albeit deficit is anticipated for 2024, along with Gini index School enrollment, primary (% gross) b 103.4 informal labor market contribute to the re- mounting spending pressures from social Life expectancy at birth, years b 70.2 cent economic dynamism, surpassing re- programs, efforts to enhance access and Total GHG emissions (mtCO2e) 677.5 gional peers' growth. The anticipated quality of public services, essential infra- nearshoring trend offers additional oppor- structure investment needs, replenishment Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2022), 2017 PPPs. tunities, particularly in manufacturing and of trust funds, and substantial fiscal sup- b/ Most recent WDI value (2021). related services such as logistics, utilities, port to PEMEX. Addressing these pres- and finance. Mexico’s high integration sures will likely require revenue-boosting with the U.S. economy also makes it highly reforms to safeguard debt sustainability. reliant on the U.S. business cycle. Despite these strengths, Mexico faces sig- nificant challenges, including decreasing productivity, violence, and pervasive in- Recent developments Real GDP growth is expected to be formality. As indicated in the Productivity 2.3 percent in 2024 and gradually Report (2019), to unleash its full potential, Real GDP grew 3.2 percent in 2023, driven converge to its potential by 2026. Mexico must bolster infrastructure, im- by consumption and investment, with a prove the business environment, facilitate slight weakening observed in the fourth Poverty has declined significantly since access to finance, especially for small and quarter. On the supply side, growth was 2020, but structural reforms are need- medium enterprises, address insecurity driven by the construction, retail, whole- ed to boost productivity, competitive- and regulatory uncertainty, improve pub- sale, transport, and manufacturing sectors. ness, and inclusion. Persistent infla- lic services provision, and strengthen the The current account deficit was 0.3 per- competition framework. Addressing these cent of GDP in 2023, financed by net FDI, tion and slower-than-expected growth issues is imperative to bolster competitive- which reached 1.7 percent of GDP. Ex- in the US are key downside risks. ness, revitalize stagnant productivity, and ports grew by 0.3 percent in 2023, while foster more inclusive economic growth. imports remained fairly constant in re- The official multidimensional poverty al terms. The Mexican peso appreciated rate, which combines monetary poverty 8.1 percent (y-o-y) in February 2024, sup- with indicators of social deprivation, fell ported by the interest rate differential, FIGURE 1 Mexico / Headline inflation and contributions to FIGURE 2 Mexico / Actual and projected poverty rates and headline inflation real GDP per capita Percentage (y/y) Poverty rate (%) Real GDP per capita (constant LCU) 10 45 210000 40 205000 8 200000 35 195000 6 30 190000 25 185000 4 20 180000 2 15 175000 170000 10 0 165000 5 160000 -2 0 155000 Jan'22 May'22 Sep'22 Jan'23 May'23 Sep'23 Jan'24 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Core Tradables Core Services Non-Core Food International poverty rate Upper middle-income pov. rate Non-Core Energy Non-Core Utilities Inflation Real GDP pc Source: INEGI. Source: World Bank. Notes: See Table 2. MPO 126 Apr 24 manageable public debt, and a solid ex- higher fuel tax revenues after the cessa- in oil revenues, higher financial costs, ternal account. In 2023, remittances stood tion of gasoline subsidies, although low- increased social program spending, and at US$63.3bn (7.6 percent y-o-y), while er oil prices partly offset this. Expen- greater public investment in flagship pro- reserves reached US$212bn. ditures increased by 1.8 percent in real jects. As these projects are completed and Inflation has declined but remains above terms, with financial costs surging by 21.5 interest rates normalize, the fiscal deficit the central bank’s target range of 3 percent percent. Despite Moody's recent down- is projected to decrease to 2.8 percent of ± 1 percent since September 2022. In Feb- grade of PEMEX's credit rating, which GDP by 2026 gradually. ruary, annual headline (core) inflation remains non-investment grade for most Monetary poverty, measured by the up- reached 4.4 (4.6) percent. Consequently, agencies, Mexico's overall credit rating re- per-middle income global threshold the Central Bank of Mexico has kept the mains classified as investment grade. ($6.85/day per capita, 2017 PPP), is expect- policy rate at a historically high level, cur- ed to reach 20.2 percent in 2024 and 19.2 rently at 11 percent. percent in 2026 as the economy converges Labor poverty, defined as the share of the to its potential growth rate. population whose labor earnings fall be- Outlook Mexico's macroeconomic risks appear bal- low the food poverty line, decreased from anced, with a positive economic outlook bol- 40.3 percent in 2021Q4 to 37.0 percent in Mexico’s economic growth is projected to stered by declining inflation and growing 2023Q4, lower than the pre-pandemic level moderate to 2.3 percent in 2024 and 2.1 investment from nearshoring. Nonetheless, of 38.9 percent in 2019Q4. Real labor in- percent in 2025. The growth drivers will be prolonged high-interest rates could damp- come per capita, adjusted for the cost of services, manufacturing, and construction. en investment and add fiscal pressures. Ex- the official food basket, grew by 8.2 per- This dynamic is attributed to tight mone- ternal factors like slower U.S. economic cent between 2022Q4 and 2023Q4. This im- tary policy, the anticipated easing of the growth, renewed financial market volatil- provement in labor earnings, along with U.S. economy, and the slowdown of do- ity, or tighter monetary policy could di- a decline in the unemployment rate (from mestic demand due to years of growth minish exports and FDI. While upcoming 3.7 to 2.7 between 2021Q4 and 2023Q4) and above potential. As nearshoring-linked Mexican and U.S. elections may introduce informality rate (from 55.8 to 54.8 percent and public investment projects are final- policy uncertainty, a solid macroeconomic over the same period) and an increase in ized, Mexico is anticipated to return to its framework ensures stability. Additionally, the participation rate (from 59.7 to 60.5 potential growth rate of 2 percent over the El Niño could affect agricultural produc- percent), indicates ongoing labor market medium term. Inflation is expected to tion and commodity prices, potentially improvement which supports recent reach its target range during 2024H1. hindering poverty reduction. Improve- poverty reduction. The 2024 public budget anticipates an ments in business climate, strategic invest- In 2023, the overall fiscal deficit was 4.3 overall fiscal deficit of 5.4 percent of ments in human capital and infrastruc- percent of GDP. Public revenues rose by GDP, with a primary deficit of 1.2 per- ture, and policy stability are essential to 1 percent in real terms y-o-y, thanks to cent. This reflects an expected reduction attract further FDI. TABLE 2 Mexico / 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 3.9 3.2 2.3 2.1 2.0 Private consumption 8.1 5.2 4.3 2.1 2.0 2.0 Government consumption -0.5 1.2 0.7 0.9 -1.2 0.4 Gross fixed capital investment 9.7 7.7 18.6 6.9 5.8 4.6 Exports, goods and services 7.2 8.7 -6.8 2.4 3.8 4.3 Imports, goods and services 15.0 8.3 4.7 4.2 4.7 5.0 Real GDP growth, at constant factor prices 5.5 3.8 3.2 2.3 2.1 2.0 Agriculture 2.3 1.6 1.9 1.7 1.9 2.1 Industry 6.7 5.3 3.5 2.6 2.3 2.1 Services 5.0 3.1 3.1 2.2 2.0 1.9 Inflation (consumer price index) 5.7 7.9 5.5 4.1 3.5 3.5 Current account balance (% of GDP) -0.3 -1.2 -0.3 -0.4 -0.6 -0.8 Net foreign direct investment inflow (% of GDP) -2.6 -1.5 -1.7 -1.9 -2.1 -2.2 Fiscal balance (% of GDP) -3.8 -4.3 -4.3 -5.4 -3.0 -2.8 Revenues (% of GDP) 22.4 22.4 22.2 21.5 21.1 21.0 Debt (% of GDP) 49.2 47.8 46.8 48.8 49.4 49.7 Primary balance (% of GDP) -1.2 -1.5 -1.0 -1.6 0.2 0.1 a,b International poverty rate ($2.15 in 2017 PPP) .. 1.2 1.1 1.1 1.0 1.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 21.8 20.8 20.2 19.7 19.2 GHG emissions growth (mtCO2e) 2.4 0.7 0.6 0.5 0.4 0.4 Energy related GHG emissions (% of total) 63.6 63.1 62.6 62.2 61.8 61.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-ENIGHNS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2022) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 127 Apr 24 natural hazards, along with low levels of human capital, infrastructure gaps, and NICARAGUA Key conditions and the weak institutional and business en- vironment, have constrained its growth challenges and social dividends. Nevertheless, Nicaragua has opportunities for sustain- Table 1 2023 Nicaragua is a small, open economy, driven able growth, through investment in hu- Population, million 7.0 by light manufacturing, services, and agri- man capital and value addition in manu- GDP, current US$ billion 17.9 culture. The country has improved access to facturing and services sectors. GDP per capita, current US$ 2547.2 basic services and set the fundamentals for a 3.9 International poverty rate ($2.15) macroeconomic stability. It has demonstrat- a 14.4 ed sound macroeconomic management Lower middle-income poverty rate ($3.65) Upper middle-income poverty rate ($6.85) a 42.1 with prudent fiscal and monetary policies, Recent developments Gini index a 46.2 and continued reserve accumulation in re- School enrollment, primary (% gross) b 107.2 cent years. Nicaragua has benefited sub- In 2023, the economy demonstrated robust b 73.8 stantially from foreign direct investment performance, with growth estimated at 4.3 Life expectancy at birth, years (FDI) and large remittances. Between 2010 percent. This expansion was driven by sec- Total GHG emissions (mtCO2e) 39.4 and 2017, GDP growth averaged 5.1 percent tors such as electricity, mining, trade, con- Source: WDI, Macro Poverty Outlook, and official data. on the back of solid private domestic de- struction, finance, transport, and commu- a/ Most recent value (2014), 2017 PPPs. b/ Most recent WDI value (2021). mand and exports. Poverty rate, measured nications, exceeding expectations. Con- at US$3.65 per day, more than halved be- sumption and investment increased. The tween 2005 and 2014, from 29 to 14 percent, Monthly Index of Economic Activity and is estimated to have continued declin- (IMAE) reflected a year-over-year increase ing in subsequent years up to 2018. of 5.5 percent in December 2023. Con- However, poverty increased to 15 percent sumption and investment increased by GDP growth in Nicaragua is estimated at by 2020 after the shocks from the sociopolit- 13.3 and 10 percent in the third quarter of 4.3 percent in 2023, supported by a steep ical unrest in 2018, the pandemic, and two 2023 compared to the third quarter of 2022. increase in remittances and foreign direct hurricanes. GDP rebounded strongly in Fiscal policy was managed prudently, 2021, helped by large public investment, fi- with a slight increase in revenues and investment. Growth will be sustained nanced by government deposits, external fi- controlled public spending, resulting in a over the medium term, though at a slight- nancial assistance, and export demand. But 0.7 fiscal deficit and 0.7 primary surplus. ly slower rate in the context of prudent this came at the expense of a surge in public By the close of the year, 95.7 percent of fiscal policy and limited progress in the debt which rose from 47.1 percent of GDP in the Public Investment Program had been implementation of growth-enhancing 2017 to a peak of 65.5 percent in 2021. executed, and public debt stood at 59.9 Nicaragua is among the poorest countries percent of GDP, marginally lower than structural reforms. The country has high in the region. Despite significant increases the previous year. exposure to external shocks and poverty in trade openness in the past two decades, Tight monetary policy, a managed ex- remains a persistent challenge. exports primarily consist of low-complex- change rate, and declining global prices ity products with limited destinations. have helped reduce inflation to 5.6 per- High vulnerability to external shocks and cent year-over-year in December 2023 FIGURE 1 Nicaragua / Real GDP growth and contributions FIGURE 2 Nicaragua / 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) 25 60 35000 20 50 30000 15 10 25000 40 5 20000 0 30 15000 -5 20 -10 10000 -15 10 5000 -20 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 Gov. cons. Exports GFCF International poverty rate Lower middle-income pov. rate Inventories Private cons. Imports Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Nicaragua and World Bank. Source: World Bank. Notes: see Table 2. MPO 128 Apr 24 from 11.6 percent in December of the relative to December 2022, but it remains day (2017 PPP), are expected to hover previous year. The Central Bank of substantially lower. around 13 percent in 2024-25. Nicaragua (CBN) kept the Monetary Pol- The 2024 budget adheres to the medium- icy Rate (MPR) at 7 percent throughout term budget framework and is consistent the year, maintaining the rate set after an with fiscal prudence goals to decrease pub- increase in 2022. Outlook lic debt and strengthen fiscal sustainabil- The current account deficit turned into a ity. Fiscal consolidation in the medium surplus of 4 percent of GDP in 2023, as In 2024, GDP growth is expected to decel- term is expected to rely on public invest- lower import costs, particularly for petro- erate, stabilizing at around 3.5 percent in ment cuts, with negative effects on growth, leum and fertilizers, improved the terms the medium term. This anticipated slow- as significant adjustments in current of trade, and remittances reached a record down is attributed to a decline in invest- spending require more profound reforms. high of over 27 percent of GDP. Strong ment as projects funded by multilateral or- The macroeconomic outlook is subject to FDI flows further helped to bolster net ganizations are completed and private in- several downside risks, including natural international reserves, which reached ap- vestors remain cautious. A moderation in disasters, geopolitical uncertainties that proximately six months of goods and ser- remittances, exports, and FDI inflows is could increase oil and food prices, eco- vices imports in 2023. projected to reduce the external surplus nomic downturns in major trading part- The sustained growth, coupled with lower yet continue to support the accumulation ners, and a decrease in concessional bor- inflation and higher remittances, led to an of international reserves. rowing. The ongoing El Niño climate phe- increased employment rate of 66.9 percent In line with the expected decreasing trend nomenon has resulted in drought and ex- in the second half of 2023, close to pre- in international inflation, domestic infla- treme temperatures, reducing crop pro- pandemic levels. Poverty, measured at tion is anticipated to be within the 4.0–5.0 ductivity and increasing food insecurity, US$3.65 per day (2017 PPP), was projected percent range in the medium term. The impacting the Dry Corridor, which could to decrease to 12.5 percent in 2023 from easing of intense inflationary pressures offset the positive effects of remittances 13.1 percent in 2022. The employment rate should help maintain short-term stability and lower inflation for certain population for women, at 56.9 percent in December in the Monetary Policy Rate (MPR) and segments. Growth prospects may also be 2023, showed a more significant increase alleviate pressures on purchasing power. dampened by a reduced labor supply due compared to men's rate, at 78.2 percent, Poverty levels, measured at US$3.65 per to significant emigration. TABLE 2 Nicaragua / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.3 3.8 4.3 3.7 3.5 3.5 Private consumption 8.7 5.9 4.9 3.8 3.7 3.6 Government consumption 9.3 -6.0 0.2 0.2 0.3 0.3 Gross fixed capital investment 26.3 -3.2 6.0 3.1 3.1 3.0 Exports, goods and services 18.1 8.6 4.0 3.2 3.1 3.0 Imports, goods and services 21.1 5.0 2.0 2.6 2.5 2.4 Real GDP growth, at constant factor prices 10.3 3.8 4.3 3.7 3.5 3.5 Agriculture 6.6 1.7 2.0 1.8 1.7 1.7 Industry 18.8 2.7 2.9 2.7 2.8 2.9 Services 8.5 4.7 5.5 4.6 4.3 4.1 Inflation (consumer price index) 4.9 11.6 5.6 4.8 4.3 4.0 Current account balance (% of GDP) -3.1 -1.4 4.0 3.0 2.4 2.0 Net foreign direct investment inflow (% of GDP) 8.5 8.2 6.8 6.4 6.0 5.6 a Fiscal balance (% of GDP) -1.5 0.5 -0.7 -0.6 -0.5 -0.3 Revenues (% of GDP) 31.4 32.0 32.1 32.0 32.1 32.2 b Debt (% of GDP) 65.5 60.5 59.9 59.0 58.6 57.8 a Primary balance (% of GDP) -0.3 1.9 0.7 0.8 0.9 0.9 c,d International poverty rate ($2.15 in 2017 PPP) 6.4 5.8 5.1 5.7 5.3 5.0 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 14.2 13.1 12.5 13.0 12.6 12.1 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 38.6 36.1 34.8 35.3 34.4 33.9 GHG emissions growth (mtCO2e) 1.3 0.8 1.0 0.9 1.0 1.0 Energy related GHG emissions (% of total) 12.8 12.6 12.7 12.7 12.8 12.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2014-EMNV. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. d/ Projections using microsimulation methodology. MPO 129 Apr 24 ownership information which led Pana- ma to exit the International Financial Ac- PANAMA Key conditions and tion Task Force’s (FATF) list of juris- dictions in October 2023 and the EU’s challenges list for non-cooperative jurisdictions for tax purposes in March 2024. Comprehen- Table 1 2023 Panama is a crucial logistical and fi- sive reforms in Public Private Partner- Population, million 4.5 nancial hub in Central America, which ships (PPP) and procurement led to an GDP, current US$ billion 83.5 thrives on trade and services. The Pana- increase in PPP financing for important GDP per capita, current US$ 18690.9 ma Canal is critical for global trade and infrastructure projects. a 1.3 International poverty rate ($2.15) has an important impact on Panama’s a 4.4 economy. Yet, its growth has been pri- Lower middle-income poverty rate ($3.65) a 12.9 marily fueled by capital and labor accu- Upper middle-income poverty rate ($6.85) Gini index a 48.9 mulation. Sustained robust growth over Recent developments School enrollment, primary (% gross) b 101.5 the past thirty years supported strong job b 76.2 creation, leading to a sharp decrease in Due to street protests, the Supreme Life expectancy at birth, years poverty (from 48.2 percent in 1991 to 12.9 Court's declaration of the contract with Total GHG emissions (mtCO2e) 31.4 percent in 2023 at $6.85 a day per capi- Cobre Panama as unconstitutional, and a Source: WDI, Macro Poverty Outlook, and official data. ta, 2017 PPP). However, Panama remains slowdown in the Panama Canal driven a/ Most recent value (2023), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy one of the most unequal countries in the by prolonged drought, growth deceler- (2021). world, in part because of its very unequal ated significantly in the last quarter of labor market and limited redistributive 2023, resulting in a 6.5 percent year-on- capacity. As growth started to decline in year increase for the entire year. This per- the second half of the 2010s, unemploy- formance was supported by a surge in Panama is estimated to have grown ment and informality started to increase, activities across various sectors, includ- peaking during the pandemic. Relative ing construction, transport and storage, 6.5 percent in 2023 fueled by strong to 2019, the labor market has not fully wholesale and retail commerce, utility, construction, commerce, transport, recovered, and the government’s emer- business services, and hotels and restau- tourism, the Colon Free Trade Zone, gency transfer Nuevo Programa Panama rants, which collectively employ 45 per- and financial activities during the first Solidario (NPPS) has played an impor- cent of the workers. Inflation decreased tant role in poverty reduction. to 1.5 percent in 2023, led by a reduction three quarters. Improving labor market Panama is an attractive offshore center in transport and food prices (Figure 1). conditions helped reduce poverty in due to its strategic location and dollariza- Progress in poverty reduction was, how- 2023. However, the economy faced sig- tion. Authorities implemented important ever, uneven in 2023 (Figure 2). The un- nificant challenges in Q4, including reforms in recent years to promote gov- employment rate improved to 7.4 percent, slow Canal traffic, protests, and the ernance and transparency. These include and support from the NPPS contributed modification of the anti-money launder- to a decline in the poverty rate (US$6.85/ subsequent closure of Cobre Panama, day per capita 2017 PPP) from 14.0 per- ing and counter-terrorism financing which are likely to affect inclusive (AML/CFT) prevention regulation and cent in 2022 to 12.9 percent in 2023. How- growth during the forecasting period. significant improvements in beneficial ever, poverty increased in rural areas FIGURE 1 Panama / Total, food and transport inflation FIGURE 2 Panama / Actual and projected poverty rates and real GDP per capita Percent change, y/y Poverty rate (%) Real GDP per capita (constant LCU) 25 35 14000 Food prices 20 30 12000 Transportation prices 15 25 10000 CPI 10 20 8000 5 15 6000 0 10 4000 -5 5 2000 -10 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -15 International poverty rate Lower middle-income pov. rate Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Upper middle-income pov. rate Real GDP pc Source: Instituto Nacional de Estadística y Censo. Source: World Bank. Notes: see Table 2. MPO 130 Apr 24 from 29.3 to 32.3 percent during the same subsidies), and improvements in tax ad- period as the sluggish recovery of non- ministration. Public debt is forecast to agricultural labor markets in these areas Outlook peak at 59 percent in 2024 and gradually failed to offset the gradual withdrawal of decline to 57.7 percent by 2026 (Table 2). NPPS support. Growth is expected to sharply decline in The current account deficit is projected to Despite the challenging events of 2023, 2024 to 2.5 percent as copper production narrow gradually to 4.7 percent of GDP both the fiscal and primary deficit saw comes to a halt; however, the dynamism in by 2026. Merchandise exports are expect- marginal declines to 3.8 percent and 1.7 the services sector should help gradually ed to remain subdued while service ex- percent of GDP, respectively. This was lift growth over the medium term. Poverty ports continue to be robust, supported attributed to restrained government rates (US$6.85 a day per capita, 2017 PPP) by air transport, logistics, and tourism. spending and an increase in tax and non- are projected to increase by almost 0.5 per- FDI is estimated to recover gradually to tax revenue. Notably, revenue included centage points in 2024 due to the anticipat- 3.8 percent by 2026, continuing to finance US$576 million in royalties and taxes ed discontinuation of the NPPS and slow- most of the current account deficit, sup- from the copper mine, US$500 million er growth. However, GDP growth is ex- plemented by portfolio investment and from the sale of land to the Panama pected to accelerate from 2025 onwards as public sector financing. International re- Canal Authority, and an increase in the Panama maintains its appeal as an attrac- serves are expected to stay around 13 per- efficiency of tax collection due to digital tive investment destination. Consequent- cent of GDP during 2024-2026. tax platforms. The current account deficit ly, poverty is expected to start decreasing Despite the downward pressure on the is estimated to have increased to 4.9 per- modestly in 2025 as the economy recovers sovereign ratings of Panama following the cent, as a result of a decline in copper and the labor market regains its pre-pan- closure of Cobre Panama, the country still and service exports, an increase in the demic dynamism. Inflation is expected to has good access to capital markets as a dol- imports of the Colon Free Trade Zone, stabilize at 2 percent. larized economy with a stable macroeco- and outflows of primary and secondary The overall and primary deficits are ex- nomic environment and investment grade. income. FDI is expected to experience a pected to widen to 4.3 and 2.1 percent This outlook is subject to several risks. The modest decrease from 3.8 percent in 2022 in 2024, respectively, impacted by lower next administration will need to tackle im- to 3.5 percent in 2023, indicative of a revenues and higher expenditure, before portant structural fiscal challenges and potential decline in investor confidence gradually declining to 3.7 and 1.5 percent make progress in adapting to changing cli- following the decision of the Supreme of GDP by 2026. This fiscal consolidation mate, such as increased frequency and in- Court to declare Cobre Panama's contract process relies on further containing tensity of hurricanes and droughts that as unconstitutional. spending (including the phasing out of could affect water levels in the canal. TABLE 2 Panama / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 15.8 10.8 6.5 2.5 3.5 4.0 Private consumption 10.8 7.1 7.4 2.3 2.4 2.7 Government consumption 9.8 7.8 10.7 4.7 4.7 6.1 Gross fixed capital investment 45.1 7.3 8.3 4.6 4.0 3.7 Exports, goods and services 14.9 16.0 17.0 0.1 3.4 4.0 Imports, goods and services 17.0 23.7 20.3 2.1 2.3 2.3 Real GDP growth, at constant factor prices 15.7 10.7 6.5 2.5 3.5 4.0 Agriculture 4.7 5.2 2.0 1.5 1.4 1.3 Industry 30.2 12.3 10.8 -2.8 -1.2 0.7 Services 11.7 10.4 5.2 4.5 5.2 5.2 Inflation (consumer price index) 1.6 2.9 1.5 1.5 2.0 2.0 Current account balance (% of GDP) -1.4 -4.0 -4.9 -6.1 -5.7 -4.7 Net foreign direct investment inflow (% of GDP) 2.0 3.8 3.5 3.4 3.8 3.8 Fiscal balance (% of GDP) -6.4 -4.0 -3.8 -4.3 -3.8 -3.7 Revenues (% of GDP) 17.3 17.4 17.6 17.3 17.8 18.0 Debt (% of GDP) 60.1 57.9 57.5 59.0 58.4 57.7 Primary balance (% of GDP) -4.2 -2.3 -1.7 -2.1 -1.6 -1.5 a,b International poverty rate ($2.15 in 2017 PPP) 1.1 .. 1.3 1.4 1.4 1.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 4.3 .. 4.4 4.8 4.7 4.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 12.9 .. 12.9 13.3 13.2 13.1 GHG emissions growth (mtCO2e) -1.0 7.2 35.2 -0.1 0.9 2.4 Energy related GHG emissions (% of total) 43.8 46.7 60.0 59.4 59.1 60.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2023-EH. Actual data: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 131 Apr 24 A capable state that enforces the rule of law and property rights, and that delivers PARAGUAY Key conditions and good quality public services is crucial to drive these transformations. Paraguay has challenges initiated several reforms to improve public sector efficiency and recently inched closer Table 1 2023 Paraguay is a small, landlocked economy to investment grade. Advancing these re- a 6.8 Population, million and a major exporter of agriculture, live- forms is not only important for invest- GDP, current US$ billion 43.0 stock, and hydropower. As 80 percent of ment, but to ensure that growth translates GDP per capita, current US$ 6335.6 direct exports and at least 17 percent of into meaningful increases in labor in- b 1.3 International poverty rate ($2.15) output rely on these sectors, it is vulner- comes, especially for the poorest 40 per- b 5.6 able to fluctuations in commodity prices cent of the population. Lower middle-income poverty rate ($3.65) b 19.9 and weather conditions. Sound macroeco- Upper middle-income poverty rate ($6.85) Gini index b 45.1 nomic management has attenuated the im- School enrollment, primary (% gross) c 93.2 pact of external shocks, but these have con- Life expectancy at birth, years c 70.3 tributed to slower growth and poverty re- Recent developments duction over the past decade. An estimat- Total GHG emissions (mtCO2e) 98.3 ed 19 percent of Paraguayans lived below In the first nine months of 2023, favorable Source: WDI, Macro Poverty Outlook, and official data. the international poverty line for upper weather conditions boosted agriculture a/ Does not reflect preliminary 2022 Census results. b/ Most recent value (2022), 2017 PPPs. middle-income countries (US$6.85 per per- and hydropower production, leading to a c/ WDI for School enrollment (2022); Life expectancy son per day in 2017 PPP) in 2023, only 5 4.7 percent y-o-y increase in real GDP. Ex- (2021). percentage points lower than in 2013. In- ports more than compensated for the neg- equality remains high at 45 Gini points, re- ative effects of inventory destocking and flecting disparities in human capital. subdued investment, which was affected Paraguay’s economy is expected to grow by More durable and inclusive growth is by tighter monetary and fiscal policies. The 3.8 percent in 2024 assuming normal possible if Paraguay engenders three recovery began to slow in Q4 2023. The weather conditions, while poverty is pro- transformations. One, enhancing the qual- monthly index of economic activity ex- ity and level of public spending on in- panded by only 0.3 percent on a quarter- jected to decline to 18.6 percent. Strength- frastructure, human capital, and climate on-quarter basis, seasonally adjusted, and ening the business environment, boosting adaptation could accelerate structural annualized basis. productivity, and building resilience to transformation, create more formal jobs, The goods trade balance recorded a sur- shocks would help accelerate growth and and reduce Paraguay’s vulnerability to plus of US$1.6 billion (an estimated 1.4 poverty reduction through more formal climate change. Two, improving the regu- percent of GDP) in 2023 with exports latory environment for private investment increasing 24.7 percent y-o-y. Soybean job creation. Improvements in gover- and supporting the entry, growth, and ex- exports’ nominal value surged by 179 nance, including of natural resources, it of firms could help boost productivity, percent due to record volumes, despite and continued progress on human capital and ultimately formal employment and lower prices. The value of hydropower and infrastructure could attract more pri- wage growth. Three, Paraguay could har- exports decreased slightly by 6.5 percent ness its abundance of hydropower to de- year-on-year, reflecting reduced prices vate capital to Paraguay. carbonize its economy. in energy exports. Import growth was FIGURE 1 Paraguay / Fiscal expenditures as a share of GDP FIGURE 2 Paraguay / Actual and projected poverty rates and real GDP per capita Percent of GDP, average Poverty rate (%) Real GDP per capita (constant million LCU) 18 45 40.0 16 2.9 1.8 40 35.0 14 1.0 1.7 35 2.0 30.0 0.4 30 12 25.0 10 25 20.0 8 20 15.0 13.4 13.5 15 6 12.4 10 10.0 4 5 5.0 2 0 0.0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2013-2017 2018-2022 2023-2026 (forecast) International poverty rate Lower middle-income pov. rate Total primary expenditures Interest payments Capital spending Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy and Finance and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 132 Apr 24 modest at 3.1 percent as fuel and construc- sovereign bonds for the first time in have formal jobs, a lower share than tion imports fell, and as global fuel prices February 2024, along with US$500 mil- most countries in the region. stabilized. The Guaraní depreciated mar- lion in USD-denominated bonds. Growth is expected to moderate slightly ginally (-0.5 percent) against the US dollar Labor market conditions in rural areas to 3.6 percent in 2025-2026 as fiscal con- in nominal terms. The financial sector re- improved, but the national unemploy- solidation intensifies towards the legal mains sound and total reserves were at 9.9 ment rate remained at 6 percent as urban limit of 1.5 percent of GDP in 2026. Of- months of goods and services imports at unemployment increased slightly. Pover- ficial estimates suggest substantial cuts the end of February. ty is estimated to have declined from 20 in personnel and capital spending to Headline inflation fell to 2.9 percent y-o- percent in 2022 to 19 percent in 2023, but achieve this consolidation, which indi- y in February from 3.4 percent in Janu- 35 percent of the population remains vul- cates slower government consumption ary, well within the target range of 2-6 nerable to poverty. and investment growth. percent. Core inflation fell from 4.7 to 4.6 The current account is expected to shift percent but remained above the midpoint. into a small deficit over the forecast The Central Bank continued to cut rates horizon as import growth, particularly in January and February 2024 by a cumu- Outlook of machinery and capital goods, accel- lative 50 basis points, bringing the policy erates along with the implementation of rate to 6 percent. The economy is forecasted to grow by investment projects. The fiscal deficit for 2023 was 4.1 per- 3.8 percent in 2024, assuming no major The outlook is subject to several down- cent of GDP, 1.8 percentage points high- weather disruptions. Fixed investment side risks. Heightened global uncertain- er than the original target, primarily growth is anticipated to accelerate, dri- ty or unexpected inflation could lead in- due to the settlement of government ar- ven by progress on greenfield private terest rates to remain higher for longer rears of approximately US$600 million investments (estimated at around 10 than projected, dampening private in- (around 1.1 percent of GDP), higher- percent of GDP) in pulp, biofuels, and vestment. Weaker than expected growth than-expected interest payments and so- green hydrogen as financing conditions in trading partners could affect the de- cial transfers, as well as lower corporate improve. Private consumption growth is mand for Paraguay’s commodities. income tax receipts due to the 2022 likely to accelerate as average inflation Weather shocks could affect agriculture drought. Public debt rose to an estimat- remains within the target range. Dri- and construction activity, potentially im- ed 38.2 percent of GDP, mostly denomi- ven by growth, poverty is expected to pacting poverty rates. On the other nated in foreign currency. To reduce its decline to 18.6 percent in 2024. Faster hand, faster progress on private invest- FX exposure, Paraguay successfully is- progress is limited by the fact that only ment projects and structural reforms sued US$500 million in Guaraní-indexed around three out of every ten workers could accelerate growth. TABLE 2 Paraguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.0 0.2 4.6 3.8 3.6 3.6 Private consumption 6.1 2.3 2.5 3.3 3.3 3.3 Government consumption 2.6 -2.2 3.2 1.0 0.2 0.2 Gross fixed capital investment 18.2 -1.8 -5.1 2.4 4.4 5.8 Exports, goods and services 2.1 -1.1 26.6 4.0 4.0 4.0 Imports, goods and services 21.8 9.4 7.5 1.2 2.5 3.3 Real GDP growth, at constant factor prices 3.6 0.1 4.8 3.8 3.6 3.6 Agriculture -11.6 -8.6 19.8 5.0 5.0 5.0 Industry 5.0 0.7 2.0 2.5 2.5 2.5 Services 6.5 1.5 3.8 4.4 4.1 3.9 Inflation (consumer price index) 4.8 9.8 4.6 4.0 4.0 4.0 Current account balance (% of GDP) -0.9 -7.1 0.3 0.2 -0.1 -0.4 Net foreign direct investment inflow (% of GDP) 0.2 1.7 1.5 1.7 1.7 1.7 Fiscal balance (% of GDP) -3.6 -2.9 -4.1 -2.6 -1.9 -1.5 Revenues (% of GDP) 13.7 14.0 14.0 13.9 13.7 13.7 Debt (% of GDP) 34.1 35.9 38.2 38.8 37.6 36.8 Primary balance (% of GDP) -2.5 -1.7 -2.5 -0.8 -0.1 0.1 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 1.3 1.2 1.2 1.2 1.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 4.1 5.6 5.4 5.2 5.0 5.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 20.8 19.9 19.1 18.6 18.5 18.2 GHG emissions growth (mtCO2e) 0.7 -0.6 1.0 1.5 1.3 1.3 Energy related GHG emissions (% of total) 9.0 9.1 9.5 9.8 10.2 10.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-EPH. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 133 Apr 24 is crucial to achieve higher growth that combats poverty and inequality. PERU Key conditions and challenges Table 1 2023 Recent developments Peru has recently concluded a decade of Population, million 34.4 low growth (2014-2023), marked by limit- In 2023, real GDP shrank by 0.6 percent, GDP, current US$ billion 267.6 ed advancements in creating quality jobs impacted by adverse weather, social un- GDP per capita, current US$ 7789.3 and reducing poverty. This contrasts rest, and faltering business confidence. El a 2.7 International poverty rate ($2.15) sharply with the preceding decade Niño and road blockades disrupted pro- a 9.5 (2004-2013), which saw rapid growth and duction in several regions, particularly in Lower middle-income poverty rate ($3.65) a 32.2 consistent poverty reduction, fueled by agriculture, fishing, and related manufac- Upper middle-income poverty rate ($6.85) Gini index a 40.3 capital accumulation and productivity turing sectors. The mining sector, buoyed School enrollment, primary (% gross) b 107.7 gains underpinned by sound macroeco- by the Quellaveco mine, grew by 9.5 per- b 72.4 nomic policies and favorable terms of cent, while the service sector saw a modest Life expectancy at birth, years trade. The macroeconomic environment is 0.6 percent growth. Domestic demand fell Total GHG emissions (mtCO2e) 183.2 characterized by low public debt, ample primarily due to weaker private invest- Source: WDI, Macro Poverty Outlook, and official data. international reserves, and a credible cen- ment and consumption, stymied by low a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy tral bank and the financial system is well- business and consumer confidence, Chi- (2021). capitalized and resilient to liquidity na’s economic slowdown, tight financial shocks. However, the economy is suscepti- conditions, and high inflation. The reces- ble to commodity price fluctuations due to sion in 2023 adversely affected the labor its reliance on mineral exports. Additional- market, with employment dropping by 0.9 GDP growth is expected to be 2.7 percent ly, Peru’s vulnerability to climate change is percent, especially in small firms. Real high due to its exposure to natural hazards wages rose by 3.5 percent but did not reach in 2024, following a contraction in 2023 and dependence on glacial freshwater. pre-pandemic levels. The share of people due to adverse climatic events, social un- Structural constraints, such as subpar ser- living under the US$6.85 poverty line is rest, and weak business confidence. vices and infrastructure quality limit for- estimated to have slightly risen to 33.8 in Poverty is projected to decrease slightly to mal job creation, economic diversification, 2023, due to stagnant job quality and pro- and the pace of poverty and inequality re- ductivity. Inequality is believed to have in- 33.2 percent in 2024. Risks include the duction. By 2022, 32 percent of Peruvians creased with the Gini coefficient rising potential intensification of El Niño and lived on less than US$ 6.85 per capita per from 40.3 to 41.4. political uncertainty. Overcoming struc- day, largely due to low-paying jobs and The fiscal deficit widened to 2.8 percent of tural challenges related to low-productiv- insufficient social protection. Furthermore, GDP in 2023, exceeding the fiscal target by ity jobs and low-quality public services is food insecurity affected half of the popu- 0.4 percentage points. This marks the first lation, a twofold increase since the pan- time in 22 years that Peru has failed to ac- critical to boosting long-term growth and complish its fiscal rule. Government rev- demic. Enhancing the quality of public ser- poverty reduction. vices, governance, and the business envi- enues dropped by 2.3 percentage points of ronment while ensuring political stability GDP from 2022, due to reduced corporate FIGURE 1 Peru / Real GDP growth and contributions to real FIGURE 2 Peru / Actual and projected poverty rates and real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 60 20000 20 18000 15 50 16000 10 14000 40 5 12000 0 30 10000 -5 8000 20 -10 6000 4000 -15 10 2000 -20 2019 2020 2021 2022 2023 2024f 2025f 2026f 0 0 Private Consumption Government Consumption 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Gross Investment Exports Imports GDP Upper middle-income pov. rate Real GDP pc Sources: BCRP and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 134 Apr 24 income and value-added tax collections, would postpone the return to the one-per- reflecting lower mining prices and sub- cent target in 2026. Public debt is projected dued economic activity. Expenditures de- Outlook to remain stable at around 34 percent of creased by 1.1 percentage points of GDP, GDP. Annual inflation will remain within reflecting the phasing out of emergency GDP growth is projected at 2.7 percent the target range of 1-3 percent in 2024, sup- COVID-19 spending. Public debt (32.4 per- for 2024 as the negative shocks of 2023 ported by the easing of output shocks and cent of GDP) and sovereign spreads (at subside. Monetary easing should bolster moderate domestic demand growth. Infla- around 170 basis points) remained among private spending. Public spending is an- tion expectations would remain within the the lowest in the region. ticipated to aid recovery, especially with target range. The Central Bank is expected Inflation decreased through 2023, reaching improved execution of capital expendi- to reduce the interest rate further until it 3.0 percent by January 2024, within the ture at the subnational level in the sec- converges to its natural rate of 2 percent. Central Bank’s target band (1-3 percent). ond year of their mandate. Potential The current account deficit is anticipated to Core inflation, excluding food and energy growth is likely to stay at pre-pandemic widen slightly due to increased import val- prices, was at 2.9 percent. Inflation expec- levels due to ongoing institutional risks ues and higher expected profits from FDI as tations remained anchored at 2.6 percent, and China’s decelerating growth, Peru's domestic demand recovers. FDI inflows are supported by the Central Bank’s tighten- main trading partner. Over the medium expected to remain above 2 percent of GDP ing measures and falling global fuel prices. term, GDP is expected to grow at an an- as some medium-size projects (Zafranal, The Central Bank reduced its reference nual rate of 2.4 percent, primarily sup- Antamina reposition, Taromocho expan- policy rate, from 7.75 percent in August ported by exports from new mine pro- sion phase II) enter their execution phase. 2023 to 6.25 percent in January. jects (Quellaveco, Toromocho expansion). Domestic and external risks persist. Do- The current account closed 2023 with a The fiscal deficit is expected to narrow mestically, continued political uncertainty 0.6 percent surplus in 2023, attributed to to 2.4 percent in 2024 due to a revenue could undermine private investment and reduced import values and a smaller pri- recovery, which is supported by strong exports. A stronger-than-expected El Niño mary income deficit amid declining im- domestic demand, supportive mining could further impact agriculture and fish- port prices and a contraction in domestic prices and reforms of the tax admin- ing. A delayed decrease in inflation could demand. The local currency appreciated istration. The deficit will, however, re- postpone the easing of financial conditions by nearly 2.6 percent over the year, mir- main above the fiscal target due to and the revival of domestic demand. Ex- roring the global decline of the dollar. spending pressures from increased pub- ternal risks include lower-than-anticipated Net international reserves amounted to lic salaries and improved budget exe- growth in China, a more rapid global eco- 26.5 percent of GDP in 2023, up from 29.3 cution of subnational governments. Fis- nomic slowdown, falling commodity percent in 2022, due to higher FX sales cal consolidation will continue in the prices, rising interest rates, and escalating operations with the public sector. coming years, however, the slower path climate change threats. TABLE 2 Peru / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 13.4 2.7 -0.6 2.7 2.4 2.4 Private consumption 12.5 3.6 0.1 2.6 2.3 2.3 Government consumption 5.0 -0.2 3.2 2.0 2.0 2.0 Gross fixed capital investment 37.3 1.7 -12.5 11.3 2.8 2.8 Exports, goods and services 14.4 4.5 5.1 3.5 3.2 3.2 Imports, goods and services 25.6 4.0 -1.8 2.5 3.1 3.1 Real GDP growth, at constant factor prices 13.1 2.8 -0.4 2.7 2.4 2.4 Agriculture 5.3 3.1 -3.9 3.7 3.0 2.4 Industry 17.2 1.5 -1.3 2.7 2.1 2.1 Services 11.5 3.5 0.6 2.6 2.6 2.6 Inflation (consumer price index) 4.0 7.9 6.3 2.6 2.3 2.3 Current account balance (% of GDP) -2.2 -4.0 0.6 -1.3 -1.2 -1.2 Net foreign direct investment inflow (% of GDP) 2.5 4.6 1.0 2.6 2.5 2.5 Fiscal balance (% of GDP) -2.5 -1.7 -2.8 -2.4 -2.0 -1.5 Revenues (% of GDP) 21.1 21.8 19.8 20.2 20.4 20.5 Debt (% of GDP) 35.9 33.8 32.9 33.5 33.8 33.8 Primary balance (% of GDP) -1.0 -0.1 -1.1 -0.8 -0.4 -0.1 a,b International poverty rate ($2.15 in 2017 PPP) 2.8 2.7 4.2 3.6 3.1 2.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 10.0 9.5 11.4 10.6 10.0 9.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 33.4 32.2 33.8 33.2 32.5 31.8 GHG emissions growth (mtCO2e) 2.0 0.8 -0.9 -0.5 -0.4 -0.4 Energy related GHG emissions (% of total) 25.4 25.8 24.9 24.2 23.8 23.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-ENAHO. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 135 Apr 24 additional reforms should be explored to reduce distortions and design a more pro- SAINT LUCIA Key conditions and gressive tax framework. Given the contin- ued high public debt level and Saint Lu- challenges cia’s vulnerability to external shocks, the country would benefit from a credible and Table 1 2023 Saint Lucia is highly dependent on tourism growth-friendly fiscal consolidation and Population, million 0.2 and was severely affected by the pandem- the implementation of a fiscal rule, which GDP, current US$ billion 2.5 ic, followed by increases in import prices should be complemented by selected re- GDP per capita, current US$ 13980.1 for food and fuel. These price increases put forms to unlock private sector growth. a 0.1 International poverty rate ($2.15) pressure on living costs, especially for the The financial sector remained stable and a 0.6 most vulnerable. Frequent natural disas- liquidity in the banking sector was sizable. Lower middle-income poverty rate ($3.65) a 8.4 ters and the effects of climate change cause Nonetheless, the build-up of non-perform- Upper middle-income poverty rate ($6.85) Gini index a 43.7 significant socioeconomic losses. As a ing loans and gaps in compliance with An- School enrollment, primary (% gross) b 103.7 small open economy, economic growth ti-Money Laundering/Countering the Fi- b 71.1 had been volatile and relatively low even nancing of Terrorism impeded credit inter- Life expectancy at birth, years before the pandemic, averaging 1.3 percent mediation. The pegged exchange rate un- Total GHG emissions (mtCO2e) 1.1 between 2010 and 2019. This was attrib- der the Eastern Caribbean Currency Union Source: WDI, Macro Poverty Outlook, and official data. utable to several factors such as natural helped maintain low inflation before the a/ Most recent value (2015), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy disasters and the country’s reliance on pandemic and anchored price stability. (2021). tourism. Less than 1 in 10 Saint Lucians were poor in 2015 (latest available data, at $6.85 poverty line, 2017 Purchasing Pow- er Parity). Inequality was high, however, Recent developments Saint Lucia’s economy, heavily reliant on with a Gini index above 40. In line with slow growth, no meaningful reductions in Real output growth started to decelerate tourism and imports, was hit hard by the poverty are expected to have taken place in in 2023, as stayover tourism began to slow pandemic and price increases of imported the pre-pandemic period. However, pro- down in 2023 after a strong increase of 78.7 food and fuel. This resulted in soaring jections indicate that the pandemic-related percent in 2022. In 2023-Q3, stayover public debt and debt service, limiting the crisis and the subsequent surge in food tourism remained 12.4 and 20.6 percent be- and fuel prices increased poverty. low its 2022 and 2019 levels, respectively. available fiscal space to invest in develop- Pandemic-related spending, low revenues, The suspension of trade with the United ment projects. Price increases also slowed and sizeable public investment to support Kingdom, along with the unfavorable down the recovery of living standards growth led to a rapid rise in public debt weather conditions led to a decline in ba- coming out of the pandemic. Structural in 2020. Public debt is expected to stabilize nana and other agricultural exports in reforms supporting the private sector are over the medium term, but high debt ser- 2023. A labor market recovery - in con- vice limits the government’s space to fund junction with high growth - was reflected needed to rebuild fiscal buffers, create by the declining unemployment rate, from critical development projects in the near jobs, and enhance poverty reduction. term. The government has implemented 23.0 percent in 2021-Q2 to 17.5 percent in several revenue enhancing measures, but 2022-Q2, helping to bring down poverty. FIGURE 1 Saint Lucia / Key macroeconomic variables FIGURE 2 Saint Lucia / Actual and projected poverty rates and real GDP per capita Percent Percent Poverty rate (%) Real GDP per capita (constant LCU) 25 100 12 40000 20 90 35000 15 80 10 10 70 30000 8 5 60 25000 0 50 6 20000 -5 40 15000 -10 30 4 10000 -15 20 2 -20 10 5000 -25 0 0 0 2021 2022 2023 e 2024 e 2025f 2026f 2015 2017 2019 2021 2023 2025 PPG debt-to-GDP (rhs) Primary Balance (% of GDP) International poverty rate Lower middle-income pov. rate Real GDP Growth Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 136 Apr 24 The current account deficit continued to terms of GDP, despite retroactive pay- an average of 1.4 percent over the medi- narrow to 0.8 percent in terms of GDP in ments related to the past triennial wage um term. The government has announced 2023 as the recovery in tourism outpaced negotiation, costing EC$40 million in several new tax policies including the higher costs of food and fuel imports. Re- FY22/23. Public sector debt increased health and citizen security levy and the mittances in 2023 are estimated to have from 62.2 percent of GDP in 2019 to 95.8 increase in cigarette excise tax. These are fallen slightly from 2022 and peak 2021 percent of GDP in 2020 as output plum- expected to boost annual revenues levels but are still above their pre-pandem- meted, and the fiscal deficit ballooned. By (EC$40.4 million) and have, at most, ic level. Foreign direct investments were 2023, a solid recovery and improvements mildly regressive distributional effects in 1.1 percent of GDP in 2023, owing to in- in the fiscal deficit reduced public debt to the short term. Medium-term total ex- creased investment in tourism-related sec- 73.6 percent of GDP. penditure projections are 1.2 percent low- tors, fully funding the current account er than the 10-year pre-pandemic deficit. International reserves increased to (2010-2019) average, with notable contain- 3.9 months of imports in 2023. ments of spending on government pur- Inflation started to slow in 2023 (3.7 Outlook chases. Interest payments are projected to percent) in tandem with global pro- remain stable at around 3.3 percent of jections and the moderating economic Real output growth is projected to moder- GDP over the projection period, reflected recovery. This eased pressure on food ate to 2.9 percent in 2024 and to slow fur- in the overall deficit. Public debt is pro- security, which had worsened in 2022 ther over the medium term. Investments jected to marginally increase to 75.8 per- as a result of the successive pandemic in major construction projects, such as the cent of GDP in 2025, as the government and food price shocks experienced in airport renovation and construction of sev- issues debt to finance infrastructure pro- the past few years. The financial sector eral major hotels, are expected to peak in jects, stabilizing in the medium term. showed signs of growth in deposits, 2024. Agriculture is expected to grow slug- Risks are tilted to the downside and in- though risks remain elevated. gishly over the medium term, as supply- clude: (i) delayed implementation of fiscal In 2023, the overall and primary fiscal bal- side constraints persist. Poverty is expect- consolidation measures; (ii) more pro- ances deteriorated slightly compared to ed to continue its downward trend in the found economic deceleration in the main their 2022 levels. This was driven by lower medium term. Inflationary pressures are tourism source countries; (iii) rising tax revenues, resulting from slower-than- expected to ease over the medium term. geopolitical tensions; (iv) tightening finan- anticipated tourist arrivals and economic The primary fiscal surplus is projected cial conditions; (v) natural disasters; and activity. The public wage bill decreased in to be 1.2 percent of GDP in 2024, with (vi) climate change. TABLE 2 Saint Lucia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 12.2 18.1 3.2 2.9 2.4 1.8 Real GDP growth, at constant factor prices 8.8 17.2 3.2 2.9 2.4 1.8 Agriculture 9.1 4.5 -8.7 0.5 0.9 0.9 Industry 9.3 1.7 4.5 3.6 2.6 2.6 Services 8.7 20.5 3.3 2.8 2.4 1.7 Inflation (consumer price index) 4.1 6.9 3.7 2.0 2.0 2.0 Current account balance (% of GDP) -7.1 -2.3 -0.8 -0.4 -0.2 0.0 a Fiscal balance (% of GDP) -5.8 -1.2 -2.1 -2.1 -1.9 -1.9 a Revenues (% of GDP) 22.8 21.8 21.2 21.0 21.3 21.3 a,b Debt (% of GDP) 83.6 74.1 73.6 74.9 75.8 75.7 a Primary balance (% of GDP) -2.4 1.7 1.1 1.2 1.4 1.5 c,d International poverty rate ($2.15 in 2017 PPP) 0.1 0.0 0.0 0.0 0.0 0.0 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.9 0.4 0.4 0.4 0.4 0.4 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 8.6 7.8 7.5 7.3 7.2 6.8 GHG emissions growth (mtCO2e) 19.6 22.1 7.4 6.1 5.3 4.5 Energy related GHG emissions (% of total) 71.6 70.3 68.5 66.5 64.5 62.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). b/ Public debt includes payables and overdrafts/Eastern Caribbean Central Bank advances. c/ Calculations based on CONLAC harmonization, using 2015-SLCHBS. Poverty estimates and projections shown here are not comparable to those shown in previous MPOs due to methodological changes. For details, see March/April 2024 Update to the Poverty and Inequality Platform (PIP) at https://pip. worldbank. org/publication. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. d/ Projection using neutral distribution (2015) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 137 Apr 24 tourism recovering and agriculture re- bounding post-volcanic eruptions, growth ST. VINCENT AND Key conditions and reached 6.5 percent in 2023 (7.2 percent in 2022), and is expected to remain strong at challenges THEGRENADINES 5.0 percent in 2024. The overall fiscal deficit remained signifi- St. Vincent and the Grenadines (SVG) is a cant at 6.2 percent of GDP in 2023, follow- small island developing state (SIDS) partic- ing a deficit of 7.0 percent in 2022, largely Table 1 2023 ularly vulnerable to climate change, exter- in response to the fiscal demands imposed Population, million 0.1 nal economic shocks, and natural disasters. by the volcanic eruption and exceptional GDP, current US$ billion 1.1 Prior to the pandemic, SVG was upgrading COVID-19 related expenditures. Direct fis- GDP per capita, current US$ 10305.1 essential infrastructure to support stronger cal spending measures in response to the School enrollment, primary (% gross) a 112.8 growth and economic diversification, in- volcano totaled 5.5 percent of GDP over a 69.6 cluding a new international airport, mod- 2021 and 2022. Furthermore, the govern- Life expectancy at birth, years ernization of the seaport, and construction ment took measures to cushion the impact Total GHG emissions (mtCO2e) 0.3 of a new hospital. In parallel, the govern- of rising food and fuel prices, including the Source: WDI, Macro Poverty Outlook, and official data. ment implemented fiscal consolidation expansion of existing social programs, sub- a/ Most recent WDI value (2021). measures, which generated primary sur- sidies on electricity, the provision of so- pluses from 2016 through 2019. The cial safety net payments to food-vulner- COVID-19 pandemic severely impacted the able households, and agricultural incen- island, and in April 2021, a volcanic eruption tives. Total support across all of the above, Growth was strong in 2023, supported by displaced about 20 percent of the popula- on top of the volcano response, averaged a strong recovery in tourism, agricultural tion, compounding the impact of the US$20 million (2.5 percent of GDP) annu- production, and publicly financed large- COVID-19 shock. Both shocks disrupted the ally over the 2020-2023 period. This posed fiscal reform agenda leading to fiscal deficits challenges and several critical large in- scale infrastructure projects. The risk of and increases in public debt. The challenge vestment projects were delayed/slowed to debt distress remains high. Fiscal support will be to reduce fiscal deficits while direct- create the needed fiscal space, though measures in response to the pandemic, the ing limited fiscal resources toward high pri- these have now resumed. Port modern- volcanic eruption, and high food and fuel ority public investment projects. There is no ization (a 25 percent of GDP investment, up-to-date poverty data available but based of which 6.5 percent of GDP was dis- prices are being wound down, but the fis- on the latest data from 2008 and using the na- bursed in 2023) is in its peak spending cal responsibility framework remains sus- tional poverty line, 30.2 percent of the popu- phase. Public investment reached 9.8 per- pended. Poverty is expected to have re- lation is considered poor. cent of GDP in 2023 and is expected to mained above pre-pandemic levels. New be 11.3 percent in 2024. Fiscal rule targets investments should significantly boost have been suspended given the disrup- tions caused by the COVID-19 pandemic growth over the medium term as the gov- Recent developments and the volcanic eruption and are to be ernment rebuilds fiscal buffers given the reintroduced in 2025. island's exposure to external shocks. Tourism has rebounded and has essen- The current account deficit narrowed mar- tially returned to 2019 levels. With ginally largely as a result of higher tourism FIGURE 1 St. Vincent and the Grenadines / Overall and FIGURE 2 St. Vincent and the Grenadines / Public debt primary fiscal balances Percent of GDP Percent of GDP 4 100 90 2 80 0 70 60 -2 50 -4 40 -6 30 Overall Fiscal Balance 20 -8 Public Debt Primary Balance 10 Public External Debt -10 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Sources: Ministry of Finance and World Bank staff calculations. Sources: Ministry of Finance and World Bank staff calculations. MPO 138 Apr 24 arrivals, though imports for volcano recov- growth continues, a return to primary sur- ery efforts, port modernization, and food pluses is expected. Importantly, recently and fuel import costs, also rose. The CAD Outlook adopted pension reform measures will is financed largely by FDI, private inflows lengthen the sustainability of the pension (remittances), external borrowing on con- Growth is expected to continue strong at scheme to 2060. Previously, the pension cessional terms, and limited domestic fi- 5 percent in 2024 and 3.9 percent in 2025 scheme would have required fiscal support nancing. International reserves remain at as tourism continues to rebound. Poverty as early as 2026/27. Nonetheless, limiting the over 5 months of imports. is expected to follow a similar trajectory. deficit, given the uncertain global economic Public debt was 86.4 percent of GDP at Tourism growth over the medium term is environment, will require sound fiscal man- end-2023, of which external debt is 62.8 expected to be further facilitated by the agement, including continued revenue mo- percent. As a result, SVG remains at a high new airport and new hotel and resort fa- bilization measures. As the economy stabi- risk of debt distress. Debt is assessed as cilities. Inflation is expected to slow to 2.6 lizes and returns to a more traditional sustainable given the authorities’ fiscal percent in 2024 and return to more typical growth path, fiscal rule targets would need consolidation plans, which would ensure rates of around 2.0 percent thereafter. to be adjusted to reflect increased debt levels a drop in the public debt-to-GDP ratio The fiscal deficit will likely remain relatively and the Fiscal Responsibility Framework to under 60 percent of GDP by 2035, the high at 7.4 percent of GDP in 2024 due to would need to be fully operationalized. Pri- ECCU’s regional goal. Government gross public investment spending driven primari- mary fiscal surpluses beginning in 2026 financing needs are covered primarily by ly by the port modernization project and ho- should facilitate a reduction in public debt official external financing and by some tel construction. Public investment is ex- levels over the medium term. recourse to domestic financing through pected to peak at 11.3 percent of GDP in Forecasts are primarily subject to down- T-Bill and bond issuances. 2024, fall to 8.5 percent in 2025, and return to side risks given the uncertainty in global Annual inflation in 2023 was 4.3 percent, more typical levels of 4.5 to 5.0 percent in economic conditions, continuing global a decrease from 5.7 percent in 2022, and 2026. Recurrent spending on pandemic- and price pressures, heightened global geo-po- should continue to moderate in 2024. volcano-related activities have fallen and litical pressures, and the ever-present risk Rising food prices contributed the most the authorities have taken several steps to re- of natural disasters. The government’s to overall inflation over the past two build fiscal buffers, as the contingency fund commitment to adherence to the FRF years and food price levels remain el- was replenished following its usage after the should contribute to improving its finan- evated despite easing inflation. Food volcano. Prioritizing public investment by cial position, while replenishment of the prices are likely to pose a greater strain focusing on completing current port mod- contingencies fund and continued deposits on low-income households and increase ernization, hotels, and the new hospital pro- thereto should mitigate climate-related the likelihood of food insecurity. As of ject, while scaling back other projects, will and natural disaster risks. On the upside, May 2023, 30 percent of the population reduce public investment spending by up to continued strength in tourism and comple- was severely food insecure according to 7 percent of GDP by 2026. As revenues in- tion of the new port could boost growth the Food Insecurity Experience Scale. crease, tourism remains strong and as over the short to medium term. TABLE 2 St. Vincent and the Grenadines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f a Real GDP growth, at constant market prices 0.8 7.2 6.5 5.0 3.9 3.7 a Real GDP growth, at constant factor prices -1.7 8.0 6.7 5.0 3.9 3.7 Agriculture -29.4 -6.2 7.5 2.5 2.1 2.0 Industry 6.1 7.9 5.9 3.7 2.1 2.1 Services -0.1 9.1 6.8 5.5 4.4 4.2 Inflation (consumer price index) 1.6 5.7 4.3 2.6 2.0 2.0 Current account balance (% of GDP) -22.6 -18.9 -17.5 -16.8 -13.4 -9.9 b Fiscal balance (% of GDP) -6.4 -7.0 -6.2 -7.4 -3.1 -1.1 Revenues (% of GDP) 32.9 28.1 29.5 29.7 29.7 29.6 b Debt (% of GDP) 89.9 86.1 86.4 88.1 86.3 82.6 b Primary balance (% of GDP) -3.8 -4.6 -3.8 -4.8 -0.5 1.4 GHG emissions growth (mtCO2e) 5.5 2.0 2.8 2.5 2.4 2.4 Energy related GHG emissions (% of total) 74.8 75.2 75.8 76.3 76.8 77.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Budget balances and public debt are for the central government. MPO 139 Apr 24 Suriname is susceptible to natural disas- ters (floods and droughts) due to irreg- SURINAME Key conditions and ular precipitation; water management is a high priority, especially in the more challenges vulnerable interior. Recent discoveries of several offshore oil deposits should im- Table 1 2023 Suriname has made progress with imple- prove Suriname’s economic prospects Population, million 0.6 menting a comprehensive macroeconomic over the medium term. A Final Invest- GDP, current US$ billion 3.8 stabilization program to reverse imbal- ment Decision by one of the major oil com- GDP per capita, current US$ 6069.2 ances built up over years of economic mis- panies is expected by the end of 2024, with a 1.1 International poverty rate ($2.15) management and the COVID-19 pandem- production starting in 2028. Unlocking a 4.2 ic. In mid-2020, the government adopted sustainable and inclusive economic Lower middle-income poverty rate ($3.65) a 17.5 a program to address debt sustainability, growth will require resolving significant Upper middle-income poverty rate ($6.85) Gini index a 39.2 improve monetary and exchange rate poli- governance and institutional challenges, School enrollment, primary (% gross) b 98.0 cies, promote financial sector stability, and strengthening fiscal management, improv- b 70.3 strengthen economic governance, support- ing public services including education Life expectancy at birth, years ed by an IMF Extended Fund Facility provision, and adapting to climate change. Total GHG emissions (mtCO2e) 13.7 (EFF). The program temporarily went off- Source: WDI, Macro Poverty Outlook, and official data. track in mid-2022 due to spending over- a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). runs which triggered rapid currency de- preciation and accelerated already high in- Recent developments flation. However, the government subse- Successful debt restructuring and imple- quently reestablished policy discipline un- Output growth is estimated to have der revised EFF targets. moderated to 2.1 percent in 2023, from mentation of wide-reaching reforms un- Preliminary findings of a new poverty as- a 2.4 percent rebound in 2022. Services der a comprehensive macroeconomic sta- sessment indicate that in 2022, after years of and industry (manufacturing and con- bilization program has put Suriname on macroeconomic challenges, about 17.5 per- struction) led the expansion, supported a path to fiscal sustainability. Currency cent of the population lived below the World by recovery in agriculture. The monthly Bank’s upper middle-income poverty line of economic activity index increased by an stabilization and tight monetary policy US$6.85 (2017 PPP) per day. Inequality, as average of 0.3 percent (y-o-y) up to Au- are gradually reducing inflationary pres- measured by the Gini coefficient, was ap- gust 2023, driven by mining and some sures, improving the purchasing power proximately 38.9, not out of line with other of the more labor-intensive sectors like of households, particularly the most vul- countries in the region. About four in 10 transport and storage, construction, and nerable. Prospective offshore oil produc- Surinamese lived in multidimensional food and accommodation. poverty – a broader poverty measure high- The currency, which had depreciated tion is stimulating growth-enhancing lighting chronic illness, low levels of edu- sharply against the USD during the second investment. It will be critical to put a cation, limited ICT skills, and lack of access half of 2022, stabilized at around SRD 38/ good framework in place to manage the to medical insurance. Both monetary and USD in 2023Q4 as a result of tight mone- incoming oil wealth. multidimensional poverty are markedly tary policy. A decline in global commodi- higher in the country’s interior. ty prices helped boost the current account FIGURE 1 Suriname / Exchange rate and inflation FIGURE 2 Suriname / Actual and projected poverty rates and real GDP per capita SRD/USD Percent change, y/y Poverty rate (%) Real GDP per capita (constant LCU) 40 80 20 26500 70 18 26000 16 30 60 14 25500 50 12 25000 20 40 10 24500 8 30 6 24000 10 20 4 23500 10 2 0 23000 0 0 2022 2024 2026 Jan-21 Jun-21 Nov-21 Apr-22 Sep-22 Feb-23 Jul-23 Dec-23 International poverty rate Lower middle-income pov. rate Exchange rate CPI (rhs) Upper middle-income pov. rate Real GDP pc Source: Central Bank of Suriname. Source: World Bank. Notes: see Table 2. MPO 140 Apr 24 to an estimated 2.7 percent surplus in 2023, on social assistance increased to 2.8 per- monetary policy and as external inflation- edging up from 2.1 percent in 2022. Mining cent of GDP in 2023 (from 1.9 percent in ary pressures subside. exports underperformed but the EFF and 2022). To further improve social assistance The fiscal position is expected to continue other multilateral financing strengthened performance, the government seeks to ex- improving as the government completes reserves allowing gross international re- pand coverage, introduce digital pay- debt restructuring and ends fuel subsidies serves to increase to $1346 million in 2023, ments, and regularly update payment to parastatals. Gross financing needs will from $1194 million in 2022. Currency sta- amounts in line with inflation. decline until 2026, but external debt repay- bilization, along with easing global infla- Debt restructuring negotiations with most ment is expected to increase in the medium tionary pressures allowed domestic infla- official and private creditors have been to long term as grace periods on restruc- tion to moderate to 32.6 percent (y-o-y) by completed. Standard and Poor raised Suri- tured debt end. Continued implementa- December 2023. Nevertheless, higher infla- name’s credit rating to CCC+/C with a sta- tion of fiscal consolidation measures will tion in food and non-alcoholic beverages, ble outlook in December 2023 following create space to scale up social spending and transportation led to an erosion of the successful exchange with private bond- and support growth-enhancing infrastruc- purchasing power, especially among the holders. Adherence to prudent fiscal re- ture investments, including for climate poorest households. Financial sector indi- forms and policies under the EFF is critical adaptation. The 2024 budget foresees so- cators highlight chronic vulnerabilities in to entrench debt sustainability and im- cial assistance spending of 3.1 percent of the banking system related to capital ade- prove growth prospects. GDP which, combined with reduced price quacy and asset quality. pressure, could have important implica- Fiscal policy is focused on restoring debt tions for poverty reduction. sustainability while improving the quality Over the long term, earnings from off- of public spending and protecting vulnera- Outlook shore oil production will further increase ble persons through enhanced social assis- fiscal space for social programs and re- tance. The government achieved a prima- Real output growth in 2024 is projected to silient growth. However, increased re- ry surplus of 1.6 percent in 2023 following accelerate to 3.0 percent, driven by pub- liance on the oil sector raises Suriname’s a series of revenue and expenditure mea- lic investment spending in non-oil sectors. vulnerability to commodity price shocks, sures, including a phaseout of energy sub- Growth is expected to maintain momen- can lead to Dutch Disease, and has en- sidies, expanded VAT coverage of goods tum over the medium term despite fiscal vironmental consequences. Enhancing and services, and removal of unregistered consolidation, as private investment in in- macroeconomic institutions, governance, workers from public payrolls. These mea- frastructure for the oil and gas sector picks and human capital ahead of the oil wind- sures were coupled with increased cash up. Inflation is anticipated to significantly fall is critical to alleviating risks and cre- transfers to mitigate the impact of higher decelerate in 2024 and over the medium ating a foundation for efficient and equi- energy prices for the vulnerable. Spending term as the government maintains tight table management of oil revenues. TABLE 2 Suriname / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -2.4 2.4 2.1 3.0 3.0 3.0 Real GDP growth, at constant factor prices -2.4 2.4 2.0 3.0 3.0 3.1 Agriculture -7.5 -1.6 3.5 1.6 1.9 1.9 Industry -10.9 3.1 0.5 3.5 2.8 3.0 Services 2.2 2.7 2.5 3.0 3.2 3.2 Inflation (consumer price index) 59.1 52.4 51.6 23.3 18.3 11.9 Current account balance (% of GDP) 5.3 2.1 2.7 2.4 0.7 1.0 Net foreign direct investment inflow (% of GDP) -3.7 0.1 -1.7 -0.3 0.3 0.4 a Fiscal balance (% of GDP) -6.4 -3.0 -0.9 -0.6 0.0 0.4 Revenues (% of GDP) 26.4 26.8 25.7 24.9 25.2 25.1 a Debt (% of GDP) 115.9 116.1 90.1 92.5 87.2 82.4 a Primary balance (% of GDP) -0.5 1.0 1.6 2.9 3.5 3.5 a,b International poverty rate ($2.15 in 2017 PPP) .. 1.1 1.1 1.1 1.1 1.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 4.2 4.2 4.0 3.8 3.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 17.5 17.5 17.4 16.9 16.1 GHG emissions growth (mtCO2e) -0.1 0.8 0.6 1.1 1.2 1.3 Energy related GHG emissions (% of total) 19.1 19.6 19.9 20.5 21.2 21.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Budget balances and public debt are for the central government. b/ Calculations based on SEDLAC harmonization, using 2022-SSLC. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. MPO 141 Apr 24 With strong institutional capital, con- sensus-based policymaking, and a social URUGUAY Key conditions and compact focused on equity, Uruguay is equipped to address these challenges. challenges The government has made progress in reducing chronically high inflation, en- Table 1 2023 Like other Latin American countries, acted parametric pension reforms, and Population, million 3.6 Uruguay’s growth has slowed over the continues to adhere to the fiscal rule. GDP, current US$ billion 72.8 past decade. Real GDP grew by an aver- Reforms to enhance productivity, com- GDP per capita, current US$ 20425.9 age of 4.9 percent annually between 2003 petitiveness, and labor market flexibility a 0.2 International poverty rate ($2.15) and 2015, but decelerated to an average would boost growth and the inclusion a 0.8 of 1 percent from 2015-2022, slower than of lagging groups. Lower middle-income poverty rate ($3.65) a 6.4 OECD economies. The poverty rate is the Upper middle-income poverty rate ($6.85) Gini index a 40.6 lowest in the region (6.4 percent in 2022 School enrollment, primary (% gross) b 108.0 under the international line of $6.85 per Life expectancy at birth, years b 75.4 day, 2017 PPP), but it is twice as high Recent developments among children and youth, and dispar- Total GHG emissions (mtCO2e) 34.5 ities in its incidence across regions and Real GDP contracted by 0.4 percent y-o- Source: WDI, Macro Poverty Outlook, and official data. race persist. Income inequality has in- y in 2023 as the drought caused a larg- a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). creased from 39.7 in 2019 to 40.5 Gini er-than-expected downturn in agriculture points in 2022. production. Manufacturing and construc- The normalization of commodity prices, tion activity were also weak, affected by the COVID-19 pandemic, and adverse cli- the planned maintenance of an oil refin- matic shocks have contributed to the ery and the completion of a new pulp After experiencing a severe drought in growth slowdown. A severe drought mill, respectively. Activity began to re- 2023, Uruguay’s growth is expected to from October 2022 to August 2023 re- cover slowly in Q4 2023 as the drought rebound to 3.2 percent in 2024. Private sulted in losses of nearly US$2 billion subsided: the seasonally adjusted month- consumption should increase due to real or about 3 percent of GDP. However, ly GDP proxy rose by an average of 0.8 structural challenges also limit potential percent from the previous quarter. wage growth and stable inflation expecta- growth. Despite outperforming the region The current account deficit widened to tions. Positive labor market developments on the World Bank’s Human Capital In- US$3.6 billion (4-quarter rolling sum) in support poverty reduction, but further dex, Uruguay faces skills shortages due Q3 2023 or an estimated 5 percent of GDP expansion of the middle class would re- to high dropout and repetition rates, and from US$2.8 billion or 3.9 percent of GDP quire productivity growth. Risks to the uneven access to education. Integration at the end of 2022. The goods trade surplus into the global economy and competition shrank due to the drought-related 44 per- outlook include slower growth in global levels are lower than expected given cent fall in soy and beef exports, which trading partners, particularly China, and Uruguay’s per capita income level. The ag- could not be offset by a small increase in climate-related shocks. ing population and high exposure to cli- cellulose exports from the new mill. The mate-related shocks also pose challenges current account deficit was financed by to macro-fiscal and welfare dynamics. FDI, which doubled to US$4.1 billion in the FIGURE 1 Uruguay / Inflation and the inflation target range FIGURE 2 Uruguay / Actual and projected poverty rates and real GDP per capita Annual inflation (percent) Poverty rate (%) Real GDP per capita (constant LCU) 12 25 700000 11 600000 10 20 9 500000 8 15 400000 7 300000 6 10 Target 200000 5 Range 5 4 100000 3 0 0 2 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Annual Inflation Two-year ahead inflation expectation Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Uruguay and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 142 Apr 24 first three quarters of 2023 compared to the sustainability-linked bond maturing in and positive labor market outcomes, but same period in 2022. 2034, raising US$700 million at a coupon of only moderately as average inflation re- The Central Bank reduced policy rates 5.75 percent. Uruguay continues to enjoy mains at the upper end of the target range. by a cumulative 225 basis points in H2 the lowest sovereign spreads in the region. Private investment is also projected to re- 2023 as annual inflation remained within Labor incomes improved as average real cover as financing conditions improve. As the target range of 3-6 percent. The wages grew by 3.7 percent in 2023, with growth converges towards potential in Uruguayan peso depreciated 4.3 percent a larger increase in the public sector. The 2025-2026, poverty is expected to gradual- in nominal terms over the same period. national employment rate rose by 1 per- ly fall to 5.7 percent. In February 2024, headline inflation de- centage point to 58.1 percent. Sectors with The fiscal deficit is expected to decline celerated to 4.7 percent y-o-y from 5.1 the largest employment gains, such as con- gradually as the fiscal rule caps primary percent in January, while core inflation struction and manufacturing, have a sig- expenditures at potential economic remained at the midpoint of the target nificant composition of low-skilled work- growth. Revenues as a share of GDP are range. Policy rates stayed at 9 percent ers. These developments boosted per capi- expected to dip slightly as income tax cuts at end-February 2024. The financial sector ta household income especially in Monte- take effect, but a phasing out of drought- remains sound, with ample capital ade- video (4.1 percent, compared with 0.7 per- linked transfers and lower capital spend- quacy and low non-performing loan rates cent in the rest of the country). ing should support expenditure consolida- of 1.8 percent at end-January 2024. tion. Public sector debt is projected to de- The 2023 non-monetary public sector fiscal cline to around 60 percent of GDP. deficit reached 3.3 percent of estimated Weaker global demand, especially from GDP, 0.5 pp higher than in 2022. Lower Outlook China, could limit the magnitude of the re- non-personnel and capital spending par- covery. Global financial volatility is a risk tially offset the impact of slower direct tax The economy is forecasted to grow by 3.2 given high levels of dollarization, and revenue growth due to the drought, and percent in 2024. Assuming no extreme about half of public debt is denominated lower sales tax collections as more weather events, agricultural exports in foreign currency. Climate shocks could Uruguayans traveled to and shopped in should recover, while cellulose exports dampen exports and domestic incomes. Argentina. Gross public debt is estimated will increase, reflecting added capacity. Faster progress on reforms in education, to have increased to 63 percent of GDP. Private consumption is expected to tem- the labor market, and public sector effi- In November 2023, Uruguay reopened its porarily accelerate due to income tax cuts ciency could improve growth prospects. TABLE 2 Uruguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.6 4.7 0.4 3.2 2.6 2.6 Private consumption 3.2 5.7 3.6 3.8 3.3 3.3 Government consumption 5.2 2.5 -0.2 0.5 0.8 0.3 Gross fixed capital investment 19.3 11.8 -7.0 4.0 2.6 2.6 Exports, goods and services 13.5 9.8 0.7 4.7 4.0 4.0 Imports, goods and services 17.9 12.4 6.0 5.0 4.5 4.5 Real GDP growth, at constant factor prices 5.3 4.5 0.4 3.2 2.6 2.6 Agriculture 13.2 -9.6 5.3 2.5 2.5 2.5 Industry 5.6 3.5 -3.8 4.0 1.8 1.8 Services 4.5 6.2 1.1 3.1 2.9 2.8 Inflation (consumer price index) 7.7 9.1 5.9 5.8 5.7 5.6 Current account balance (% of GDP) -2.5 -4.0 -4.4 -3.2 -2.9 -2.7 Net foreign direct investment inflow (% of GDP) 2.5 4.2 4.8 2.0 2.0 2.0 a Fiscal balance (% of GDP) -3.1 -2.8 -3.3 -3.1 -2.9 -2.7 Revenues (% of GDP) 29.2 29.6 30.0 29.3 29.2 29.2 Debt (% of GDP) 62.4 62.0 63.0 62.3 61.7 60.0 a Primary balance (% of GDP) -0.9 -0.6 -1.0 -0.7 -0.7 -0.6 b,c International poverty rate ($2.15 in 2017 PPP) 0.1 0.2 0.2 0.2 0.2 0.2 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.8 0.8 0.9 0.9 0.9 0.9 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 6.7 6.4 6.0 5.8 5.7 5.7 GHG emissions growth (mtCO2e) 2.6 0.6 -2.4 1.0 1.2 1.1 Energy related GHG emissions (% of total) 20.3 21.1 21.2 21.6 22.0 22.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Non-Financial Public Sector. Excluding revenues associated with the "cincuentones". b/ Calculations based on SEDLAC harmonization, using 2022-ECH. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. c/ Projections using microsimulation methodology. MPO 143 Apr 24 Middle East and North Africa Algeria Kuwait Saudi Arabia Bahrain Lebanon Syrian Arab Republic Djibouti Libya Tunisia Egypt, Arab Republic Morocco United Arab Emirates Iran, Islamic Republic Oman Yemen, Republic Iraq, Republic Palestinian Territories Jordan Qatar MPO 145 Apr 24 likely to be constrained by high and rigid spending on wages and subsidies. ALGERIA Key conditions and challenges Table 1 2023 Recent developments The oil and natural gas sector accounted Population, million 45.6 for 18 percent of GDP, 93 percent of National accounts data have not been pub- GDP, current US$ billion 252.3 product exports, and 41 percent of bud- lished since Q4-2022 but available admin- GDP per capita, current US$ 5531.4 get revenues between 2016 and 2022, istrative data and World Bank use of big a 5.5 National poverty rate which means that Algeria remains ex- data indicate robust hydrocarbon and non- a 0.5 posed to hydrocarbon price volatility. hydrocarbon activity in 2023. Hydrocar- International poverty rate ($2.15) a 4.0 Double-digit fiscal and current account bon output and exports continued to in- Lower middle-income poverty rate ($3.65) Gini index a 27.6 deficits persisted during the pre- crease as growing natural gas production School enrollment, primary (% gross) b 108.3 COVID-19 years. As public debt increased compensated for falling oil production b 76.4 rapidly, large scale monetization and rapid amid OPEC quota cuts. Night-time lights Life expectancy at birth, years currency depreciation, coupled with im- data suggest that non-hydrocarbon growth Total GHG emissions (mtCO2e) 286.6 port reduction policies posed further chal- has remained robust in 2023 while satellite Source: WDI, Macro Poverty Outlook, and official data. lenges to economic stability. image analysis indicates subdued agricul- a/ Most recent value (2011). b/ WDI for School enrollment (2022); Life expectancy Economic output recovered to its pre- tural output amid drought episodes. The (2021). COVID-19 level in 2022 and rising gas de- strong increase in equipment and automo- mand from Europe combined with high bile imports suggest dynamic investment hydrocarbon prices boosted the current and consumption driven by higher public Algeria’s growth remained robust in 2023 account surplus and budget revenues to spending, large investment projects, and and, although lower hydrocarbon prices their highest level in a decade. Notwith- the selective relaxation of import controls. standing, unemployment and inflation With hydrocarbon prices moderating and narrowed the current account surplus from are still relatively elevated, and poverty imports increasing, external surpluses nar- its 2022 peak, the rebuilding of official re- remains high for Algeria’s level of devel- rowed sharply in 2023. At end-November serves continued. Lower hydrocarbon bud- opment, despite improvements in educa- 2023 the trade surplus stood at 5 percent get revenues put pressure on the fiscal tion, health, and living standards during of GDP, down from 11.5 percent of GDP the pre-pandemic years. in 2022. Nevertheless, official reserves in- deficit as the increase in public sector wages The government aims to accelerate private creased by US$8.0 billion during 2023 and continued amid high inflation. With high investment and jobs through the 2019 Hy- reached US$69.7 billion, or an estimated imports and rigid public spending expos- drocarbon Law, the 2022 Investment Law, 16.8 months of imports. ing Algeria to global oil market risk, di- banking sector reforms, large mining and The budget deficit is estimated to have versifying the economy, enabling private infrastructure projects, as well as greater widened from 2.5 percent in 2022, the regional integration. Successful implemen- lowest level in a decade, to 6.5 percent sector investment, and strengthening the in 2023, driven by falling hydrocarbon tation of these reforms is important in a macroeconomic policy framework remain context in which public investment, pre- revenues, a second year of public sector key development priorities. viously the engine of Algeria’s growth, is wage increases, and an expansion of FIGURE 1 Algeria / Annual GDP growth FIGURE 2 Algeria / Current account, exports, and imports Percent Billion USD 12 75 60 8 45 4 30 0 15 -4 0 Hydrocarbon GDP Non-hydrocarbon GDP -15 -8 GDP -30 -12 2019 2020 2021 2022 2023e 2024f 2025f 2026f 2019 2020 2021 2022 2023e 2024f 2025f 2026f Exports Imports Current account balance Sources: Algerian authorities and World Bank staff estimates. Sources: Algerian authorities and World Bank staff estimates. MPO 146 Apr 24 public employment. Partially offsetting accommodative with interest rates un- deficit would widen further in 2024 as these effects, tax revenues increased from changed at 3 percent since May 2020, hydrocarbon receipts decline and the the growing public wage bill and the which means that real policy rates are government implements the third effect of non-hydrocarbon dynamism on significantly negative. tranche of public sector wage increases. corporate income, consumption, and im- The government’s medium-term budget ports, while dividends from the national framework indicates slow fiscal consoli- oil company Sonatrach surged to reach dation in 2025 and 2026, including sub- 2.9 percent of GDP. The deficit is expect- Outlook dued public investment growth. Public ed to have been mostly financed by hy- debt would increase above 60 percent drocarbon savings accumulated in 2021 GDP growth is expected to moderate of GDP by 2026 as hydrocarbon savings and 2022. Consequently, public debt de- in 2024 amid declining oil production would only partially finance deficits. creased from 48.1 percent to 46.8 percent in line with OPEC quota cuts. Non-hy- The fluctuation of hydrocarbon prices of GDP in 2023 and remains nearly all drocarbon growth would stabilize driven amid geopolitical uncertainties remains domestically held at long-term maturities by strong public spending and its im- the most important risk to Algeria’s fiscal and low interest rates. pacts on household consumption, indus- and external balances pointing to the im- Inflation remained elevated at 9.3 percent trial output, and services. Lead crop portance of accelerating private sector in- over 2023 but began to moderate in Q4. growth indicators suggest that agricultur- vestment in non-hydrocarbon sectors to Fueled by fresh produce prices, inflation al production would remain subdued in support diversification and increase the hurts vulnerable Algerians the most as 2024. Growth would accelerate in 2025 as economy’s resilience. Structural reforms food accounts for over half of the spend- agricultural output recovers and crude oil to foster productivity growth would also ing for the bottom 40 percent of the pop- production tracks recovering OPEC quo- support lower consumer prices and high- ulation. The government responded via tas, and then slows slightly in 2026 with er job creation, key to reducing youth un- increases in public sector wages, unem- stabilizing hydrocarbon output. employment and raising Algeria’s stan- ployment transfers, and food subsidies, The current account would return to a dards of living. Lastly, two years of weak as well as by pursuing a stable currency. modest deficit, driven by declining glob- agricultural output underscore vulnerabil- Although broad money growth slowed al oil prices, quota cuts, and rebound- ity to climate change, with shocks having in H2-2023, monetary policy remained ing equipment-led imports. The budget become more frequent in recent years. TABLE 2 Algeria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.8 3.6 3.5 2.7 3.5 2.9 Private consumption 1.6 3.5 4.7 3.4 3.2 2.5 Government consumption 1.2 2.8 4.2 3.0 1.1 1.2 Gross fixed capital investment 0.4 2.6 8.3 6.3 5.8 5.3 Exports, goods and services 11.5 0.2 3.9 -2.6 2.6 0.9 Imports, goods and services -4.5 -0.2 16.1 5.8 4.3 3.6 Real GDP growth, at constant factor prices 4.3 3.8 3.5 2.7 3.5 2.9 Agriculture -1.1 5.0 -1.1 0.5 3.1 2.6 Industry 6.3 4.0 3.4 1.8 3.3 2.5 Services 3.9 3.5 4.3 3.6 3.6 3.1 Inflation (consumer price index) 7.2 9.3 9.3 7.5 6.4 6.1 Current account balance (% of GDP) -2.4 8.6 3.1 -0.3 -2.2 -3.3 Fiscal balance (% of GDP) -6.3 -2.5 -6.5 -9.2 -9.3 -8.5 Revenues (% of GDP) 26.2 29.6 30.2 27.8 26.6 25.6 Debt (% of GDP) 55.2 48.1 46.8 51.2 57.0 61.4 Primary balance (% of GDP) -5.7 -1.3 -5.2 -8.0 -8.0 -7.0 GHG emissions growth (mtCO2e) 2.8 2.4 2.1 1.7 2.4 2.1 Energy related GHG emissions (% of total) 52.6 53.7 54.6 55.3 56.2 57.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 147 Apr 24 structural reforms including those related to increase employment opportunities BAHRAIN Key conditions and among youth, would ensure a private sec- tor-led inclusive recovery. challenges Table 1 2023 The non-oil sector remains the driving force Population, million 1.5 of the economy thanks to ongoing diversifi- Recent developments GDP, current US$ billion 44.9 cation efforts. Fiscal consolidation is on GDP per capita, current US$ 30221.9 track, notably helped by contained spend- Bahrain’s economy has moderated in 2023, a 92.3 School enrollment, primary (% gross) ing and increased revenue—thanks notably amid limited hydrocarbon sector growth, a 78.8 to the doubling of the VAT rate to 10 percent and tight fiscal and monetary policies. Fol- Life expectancy at birth, years Total GHG emissions (mtCO2e) 57.7 in 2022—as the government remains com- lowing a strong performance in 2022, eco- Source: WDI, Macro Poverty Outlook, and official data. mitted to its Fiscal Balance Program (FBP). nomic growth has slowed down to an esti- a/ WDI for School enrollment (2022); Life expectancy The new four-year program 2023-26 prior- mated 2.6 percent in 2023. Preliminary of- (2021). itizes several objectives that aim to raise ficial data reveals that the economy grew living standards, including improving in- by 2 percent in the first nine months of frastructure and accelerating digital trans- 2023 (9M-2023 y/y), driven primarily by 3.1 formation. A new National Labor Market percent expansion in the non-oil sectors as Notwithstanding the advancement of the Plan (NLMP) has also been approved in Ju- a result of the ongoing diversification ef- ly 2023 to encourage Bahraini employment forts. Manufacturing, construction, and diversification agenda, hydrocarbon rev- in the private sector. In November 2023, government services led the growth in enues still account for more than 60 per- the kingdom unveiled the national energy non-oil activities, which outpaced the con- cent of total budget revenues which ex- strategy, aiming for a 30 percent reduction traction in the oil sector (falling by 3.4 per- poses the economy to the volatility of en- in emissions by 2035 and net-zero emis- cent) due to seasonal operational mainte- ergy prices. Bahrain continues to face sions by 2060, while ensuring reliable and nance. Inflation decelerated to 0.1 percent affordable access to the energy. in 2023, mainly owing to fading base ef- structural challenges, notably these relat- Downside risks to the outlook are mostly fects, lower global commodity prices, and ing to fiscal sustainability, as debt and linked to a drop in hydrocarbon prices lower transportation costs. gross financing needs remain elevated. and tightening global financial condi- Official fiscal data for 2023 have not been Despite progress, female labor force par- tions, which could put pressure on the released yet. However, the state budget for fiscal position and delay implementation 2023-2024 aims for public finances to re- ticipation is low and public sector re- of fiscal reforms. The depletion of under- main on a stable footing, as part of the gov- mains the largest employer. Larger than ground water resources could have se- ernment’s multi-year Fiscal Balance Pro- forecasted drop in oil prices, potential de- rious long-term growth implications. On gram. This includes the progress so far to en- lays in implementing fiscal reforms, and the upside, sustained high oil prices and hance non-hydrocarbon revenue mobiliza- climate change, pose significant risks to enacting additional fiscal reforms would tion and the continued spending restraint. reduce fiscal and external vulnerabilities Despite lower imports in the 9M-2023, Bahrain’s economic outlook. and put debt on a firm downward path the current account balance posted a while rebuilding fiscal buffers. Advancing deficit of US$3.1 billion (6.4 percent of FIGURE 1 Bahrain / Real annual GDP growth FIGURE 2 Bahrain / General government operations Percent change Percent of GDP 8 40 6 30 4 20 2 10 0 0 -2 -10 -4 -20 2021 2022 2023e 2024f 2025f 2026f 2021 2022 2023e 2024f 2025f 2026f Hydrocarbon GDP Non-hydrocarbon GDP Real GDP Revenues Expenditures Budget balance Sources: Bahrain authorities, World Bank, and IMF projections. Sources: Bahrain authorities and World Bank projections. MPO 148 Apr 24 GDP), reflecting lower oil exports (down implementation of structural reforms. Limited spending growth under the FBP by 22.8 percent y/y). However, official re- Growth is estimated to pick up to 3.5 and higher oil and non-oil revenues serve assets remained stable at around percent in 2024 in line with higher oil are expected to result in a lower fiscal US$4 billion in 2023—an increase of output, while the non-oil sector re- deficit of 3.2 percent in 2024, down from US$297 million compared to 2022. mains the main growth driver. The more than 5 percent in 2023. Achiev- According to the most recent Internation- hydrocarbon sector is expected to ex- ing fiscal balance would require higher al Labor Organization (ILO modeled) es- pand by 1.3 percent in 2024, far below oil prices. The budget deficit is expected timates, the labor force participation rate the non-hydrocarbon sectors’ projected to increase in 2025-26 reflecting project- and employment-to-population ratio are growth of almost 4 percent supported ed lower oil prices and higher interest projected at 71.8 percent (-0.1 ppt rela- by the recovery in tourism and the burden. The debt-to-GDP ratio is pro- tive to 2023) and 70.9 percent (+0.1 ppt service sectors, in addition to the con- jected to slightly decline in 2024 but re- relative to 2023) respectively in 2024. The tinuation of infrastructure projects. In mains elevated (above 100 percent) in unemployment rate is expected to hold the medium term, growth is expected the medium term—requiring deeper fis- steady at around 1.4 percent in 2024, to slow down—hovering slightly cal consolidation measures. with the rate among women at 4.1 per- above 3 percent—as fiscal consolida- The current account surplus is forecast cent and among men at 0.5 percent. tion accelerates while the non-oil econ- to expand to 7.3 percent of GDP in omy stays resilient. Inflation is esti- 2024, helped by higher oil export mated to remain low at 1.5 percent in prices but would narrow down during 2024 and to converge to less than 2 2025-26, in line with the projected oil Outlook percent in the medium term reflecting price outlook. The comfortable exter- the positive impact of tighter mone- nal position is expected to boost for- Bahrain’s economic outlook hangs on tary policy and in line with the currency eign reserves and strengthen resilience oil market prospects and the accelerated peg to U.S. dollar. against future external shocks. TABLE 2 Bahrain / 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 4.9 2.6 3.5 3.3 3.4 Private consumption 18.9 2.8 2.4 2.6 2.5 2.7 Government consumption 6.5 3.3 2.5 2.0 1.5 1.7 Gross fixed capital investment -4.2 2.3 3.6 4.1 4.4 4.7 Exports, goods and services 29.5 4.5 1.6 2.6 2.5 2.3 Imports, goods and services 15.2 3.5 2.7 3.0 3.1 3.0 Real GDP growth, at constant factor prices 2.4 3.3 2.6 3.5 3.3 3.4 Agriculture 7.2 4.4 3.8 3.4 3.3 3.3 Industry 0.5 1.2 0.7 2.3 3.9 3.5 Services 3.9 4.9 4.1 4.4 2.9 3.3 Inflation (consumer price index) -0.6 3.6 0.1 1.5 1.8 2.1 Current account balance (% of GDP) 6.6 15.4 6.7 7.3 6.6 5.3 Net foreign direct investment inflow (% of GDP) -4.4 0.0 -2.6 -2.6 -2.7 -2.7 Fiscal balance (% of GDP) -11.0 -6.2 -5.1 -3.2 -6.5 -7.3 Revenues (% of GDP) 20.8 23.1 24.0 24.4 20.0 18.7 Debt (% of GDP) 127.2 117.4 120.9 118.7 121.2 124.0 Primary balance (% of GDP) -6.3 -1.8 -0.6 1.4 -1.9 -2.2 GHG emissions growth (mtCO2e) -5.6 0.8 7.2 4.0 0.7 0.3 Energy related GHG emissions (% of total) 58.6 58.4 60.2 60.9 60.3 60.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 149 Apr 24 high at around 36 percent, down from 44 percent in 2017. Ongoing disruptions in DJIBOUTI Key conditions and the Red Sea produce mixed impacts. On the one hand, Djibouti's port activity has challenges surged because of the ship diversion, no- tably in transshipment services, to the Table 1 2023 Djibouti experienced rapid economic point that it is overwhelming its (new) port Population, million 1.1 growth, averaging over 4 percent annually capacity. On the other, escalating sea GDP, current US$ billion 4.1 over the period 2000-21, driven by signifi- freight costs and higher insurance premi- GDP per capita, current US$ 3606.4 cant investments in transport and port in- ums due to maritime risks are anticipated a 19.1 International poverty rate ($2.15) frastructure. However, this growth, fi- to increase consumer goods prices, exacer- a 43.8 nanced by increasingly expensive borrow- bating Djibouti's vulnerability to such fluc- Lower middle-income poverty rate ($3.65) a 21.1 ing, has heightened debt vulnerabilities, tuations. Additionally, the Red Sea ten- National poverty rate Gini index a 41.6 thereby limiting fiscal space for essential sions may have significant fiscal implica- School enrollment, primary (% gross) b 64.4 social spending. The pandemic, conflict in tions, potentially impacting customs rev- b 62.3 neighboring Ethiopia, and the Russian in- enue, and fuel pricing strategies. Life expectancy at birth, years vasion in Ukraine exacerbated economic Total GHG emissions (mtCO2e) 1.4 and fiscal strains through foreign trade, fi- Source: WDI, Macro Poverty Outlook, and official data. nancial, and commodity price channels, a/ Most recent value (2017), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy rendering debt unsustainable since Febru- Recent developments (2021). ary 2022. Also, Djibouti's ambition to better exploit its unique geographic position at In 2023, Djibouti experienced a robust eco- the entrance of the Red Sea and become nomic rebound, with GDP growth sur- In 2023, Djibouti's economy rebounded a major transport and logistics hub faces passing expectations at 6.7 percent. This impressively with a GDP growth of +6.7 challenges. Heavy dependence on imports resurgence was fueled by a significant in- exposes the economy to global price fluc- crease in port activity, particularly in con- percent, but Djibouti’s growth model faces tuations and transport disruptions. More- tainer traffic, which increased by 41 per- vulnerabilities, including heavy depen- over, Djibouti's subsidy for fuel pricing cent in 2023 compared to 2022, driven by dence on global maritime transport and ex- strains government finances without effec- renewed trade with Ethiopia following the posure to conflict-prone neighbors. tively reducing poverty, necessitating al- peace agreement reached in November ternative approaches. This is particularly 2022 between the federal government and Ethiopian demand for transport and logis- true as the fuel subsidy is primarily con- the Tigrayan People's Liberation Front. De- tics services and domestic infrastructure sumed by richer households. Still, poverty spite disruptions in the Red Sea, Djibouti's projects are expected to drive growth, with rates are projected to have declined from port activity continued to increase in Jan- GDP forecasted to gradually increase to their 19 percent baseline in 2017 to around uary 2024, driven by the strong boom in 5.1 percent in 2024-2025. Poverty at 14.7 14.7 percent in 2024. This is a slower reduc- transshipment activity as carriers have tion than previously anticipated, primari- rapidly expanded transshipment opera- percent in 2024 (international poverty tions in Djibouti, strategically positioned ly due to factors influenced by COVID-19 line) is expected to decline, yet risks per- and regional instability. Poverty at the in the south of the Red Sea, to circumvent sist amid the fragile regional context. lower middle-income poverty line remains the Red Sea corridor and Houthi-impacted FIGURE 1 Djibouti / Real GDP growth, fiscal, and current FIGURE 2 Djibouti / Actual and projected poverty rates and account balances real GDP per capita Percent change Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 35 8 90 700000 30 80 6 600000 25 70 4 500000 60 20 2 50 400000 15 40 300000 0 10 30 200000 5 -2 20 100000 0 -4 10 2019 2020 2021 2022e 2023f 2024f 2025f 0 0 Real GDP growth (rhs) 2012 2014 2016 2018 2020 2022 2024 2026 Current account balance (lhs) International poverty rate Lower middle-income pov. rate Government fiscal balance (rhs) Upper middle-income pov. rate Real GDP pc Sources: Government of Djibouti and World Bank staff projections. Sources: World Bank. Notes: see Table 2. MPO 150 Apr 24 areas. Domestically, construction and pub- discussions with Exim Bank India for debt over the past three decades. In the medi- lic works sectors thrived, with cement restructuring. On the external front, Dji- um term, Djibouti's economic prospects sales surging by 80 percent as projects pre- bouti's sector exhibited positive trends, appear promising, driven by foreign viously disrupted by the COVID-19 pan- recording a notable current account sur- trade and public works. GDP is fore- demic resumed. Inflation peaked at 11 per- plus due to increased trade and logistics casted to remain strong at 5.1 percent cent in July 2022 but decelerated to 3.8 per- demand from Ethiopia. Foreign exchange from 2024 to 2026, propelled by con- cent by December 2023, attributed to glob- reserves remained strong, providing suffi- tinued Ethiopian demand for transport al food price slowdowns and government cient coverage for prospective imports for and logistics services. Locally, the devel- measures. However, Djibouti continued to four months. Despite previous challenges, opment of the Damerjog Industrial Park face fiscal challenges marked by a decline the banking sector remained stable, reflect- Project and infrastructure programs un- in (already low) revenues due to new tax ing the resilience of Djibouti’s economy. der the National Development Plan exemptions introduced in the 2023 budget. (NDP) are expected to boost Gross Fixed Total public spending surged, driven by Capital Investment. Fiscal consolidation increased capital expenditure, widening measures, including reprioritizing central the budget deficit to 1.9 percent of GDP. Outlook government investment spending and External debt reached 69.4 percent of GDP improving fiscal management, aim to in 2023 from 66.5 percent of GDP in 2022, Djibouti's economic outlook is heavily in- gradually reduce the budget deficit, stabi- due to new loans and inclusion of last fluenced by regional uncertainties, includ- lizing at 1.4 percent of GDP by 2025-2026. year's debt arrears. Also, Djibouti's stock of ing exposure to conflict-prone neighbors Projected poverty rates are expected to external arrears increased significantly to and unexpected inflationary pressures, decline alongside GDP growth, with 6 percent of GDP by the end of Septem- which pose challenges to its trajectory. Re- poverty rates projected to reach 13.5 per- ber 2023. Djiboutian authorities reached a cent developments in Ethiopia, such as de- cent in 2026 (at the international poverty preliminary agreement for debt reprofiling faulting on euro bond payments and im- line) and 33.1 percent (at the lower mid- in late 2023 with its main creditor, EXIM- posing restrictions on imports, further add dle-income poverty line). However, there BANK CHINA, including a 4-year mora- to uncertainties. Additionally, Ethiopia's are risks, including the ongoing accumu- torium for rail and water supply projects, pursuit of direct access to the Red Sea lation of public debt and arrears, region- aiming to secure more favorable terms. evidenced by recent agreements with So- al tensions, and climatic shocks. The per- However, addressing outstanding arrears maliland and a recent MOU signing in sistence of these risks could jeopardize with other creditors remains crucial to mit- Lamu complicates further the regional Djibouti's ability to manage future chal- igate continued debt distress. Authorities landscape. Despite this, Djibouti main- lenges and fund essential public services, engaged with the Paris Club for arrears tains confidence in its strategic position particularly given its reliance on trade clearance plans and intend to also reopen and world-class port complex, fortified and transport activities with Ethiopia. TABLE 2 Djibouti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.5 3.7 6.7 5.1 5.1 5.2 Private consumption 9.6 -0.6 4.4 5.0 5.0 5.0 Government consumption -2.5 -14.3 8.1 2.9 2.2 2.2 Gross fixed capital investment 4.9 2.7 12.4 8.5 6.8 7.6 Exports, goods and services 29.5 -12.5 8.4 9.0 10.0 10.0 Imports, goods and services 18.2 -6.2 10.4 11.0 11.3 11.3 Real GDP growth, at constant factor prices 4.1 4.0 6.7 5.1 5.1 5.2 Agriculture 16.5 -0.5 5.9 5.5 5.5 5.5 Industry 11.4 7.2 10.0 10.0 10.0 10.0 Services 2.5 3.4 6.0 4.0 4.0 4.0 Inflation (consumer price index) 1.5 5.1 1.4 2.6 2.0 2.5 Current account balance (% of GDP) 31.2 17.9 15.6 13.0 12.3 11.2 Fiscal balance (% of GDP) -2.9 -1.4 -1.9 -1.3 -1.4 -1.4 Revenues (% of GDP) 20.0 18.9 18.9 18.9 18.9 18.8 Debt (% of GDP) 71.3 66.5 69.4 66.6 63.7 61.0 Primary balance (% of GDP) -2.7 -0.7 -1.1 -0.5 -0.5 -0.6 a,b International poverty rate ($2.15 in 2017 PPP) 16.9 16.5 15.5 14.7 14.1 13.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 39.9 39.1 36.9 35.8 34.6 33.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 75.2 74.2 72.5 70.8 69.5 68.0 GHG emissions growth (mtCO2e) 0.2 -0.4 0.0 0.2 0.3 0.3 Energy related GHG emissions (% of total) 23.8 23.3 22.9 22.4 21.9 21.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2017-EDAM. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2017) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 151 Apr 24 Furthermore, despite on-budget consolida- tion, government debt increased to 95.2 per- ARAB REPUBLIC Key conditions and cent of GDP at end-FY23, reflecting off-bud- get borrowing and the depreciation. Addi- challenges OF EGYPT tionally, contingent liabilities reached 28.7 percent of GDP at end-January 2023. Thus, In early March 2024, the CBE resumed its fiscal space remains constrained by high in- move towards a flexible exchange rate terest payments (7.6 percent of GDP in FY23) Table 1 2023 regime to address severe foreign exchange as well as low domestic resource mobiliza- Population, million 105.2 market distortions, after more than a year of tion (tax-to-GDP ratio of 12.4 percent). GDP, current US$ billion 395.9 delayed macroeconomic adjustments, Hence, public expenditures for human GDP per capita, current US$ 3764.5 build-up of foreign currency backlogs, as capital development and social protection Lower middle-income poverty rate ($3.65) a 17.6 well as a soaring parallel market rate. To an- remain well below the needs of the rapidly a 29.7 chor inflation expectations, the CBE hiked rising population of above 105 million. National poverty rate a key policy rates by 600 basis points (bps) in The national poverty rate is expected to Gini index 31.9 b March (bringing policy rates to 27.25 per- have increased substantially (last reported School enrollment, primary (% gross) 91.6 cent and 28.25 percent for the overnight at 29.7 percent in 2019), due to double-digit b 70.2 Life expectancy at birth, years deposit and lending transactions, respec- inflation since March 2022, with partial Total GHG emissions (mtCO2e) 320.8 tively; 1,900 bps above their levels prior to mitigation from the government's social Source: WDI, Macro Poverty Outlook, and official data. March 2022). In tandem, the government packages. Low labor force participation a/ Most recent value (2019), 2017 PPPs. announced mitigation packages, including and employment rates (at 43.1 percent and b/ WDI for School enrollment (2022); Life expectancy (2021). scaling-up cash transfers, hiking the mini- 40.1 percent, respectively, of the working- mum wage, among other measures. These age population in Q2-FY24) are also not adjustments are underpinned by the large- conducive to poverty reduction. Leveraging large-scale investments and scale UAE investments and the completion of the IMF Extended Fund Facility (EFF) financing, Egypt undertook monetary ad- reviews (originally slated for March and justments to address the foreign currency September 2023). Recent developments crisis sparked by macroeconomic imbal- The effective implementation of the recent ances and global shocks. Growth is fore- policy announcements to redefine the role Growth declined to 2.7 percent in Q1-FY24 of the state, contain public investments, from 4.4 percent in Q1-FY23, reflecting the cast to decline to 2.8 percent in FY24 and enable the private sector will be cru- contraction of non-oil manufacturing and due to eroded real incomes, before a pro- cial to address the long-standing external gas extractives; impacted by the foreign ex- jected rebound in FY25-FY26. On- (and and fiscal imbalances that have been ex- change crisis, import restrictions, capital off) budget consolidation (in line with acerbated by the multiple global shocks. controls, as well as domestic production external sustainability) and transforma- Non-oil exports and FDI have been under- problems. Shockwaves from the Middle performing with the gradual shift in the East conflict which caused a sharp drop tive investment climate reforms are crit- economy towards non-tradable and low in Suez Canal traffic and dampened the ical for private sector-driven, inclusive, value-added sectors, and away from high strong recovery of tourism are also con- and sustainable growth. productivity and export-oriented sectors. straining growth in recent months. FIGURE 1 Arab Republic of Egypt / Real GDP growth, FIGURE 2 Arab Republic of Egypt / Annual inflation rates employment and labor force participation rates Percent Percent of working-age population Percent 12 50 80 Headline CPI 10 70 40 Core CPI 8 60 Food & Beverage 6 30 50 4 20 40 2 30 10 0 20 -2 0 10 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 0 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 -10 GDP Growth (lhs) Employment rate (rhs) Labor force participation rate (rhs) Sources: World Bank estimates based on Central Agency for Public Mobilization Sources: Central Bank of Egypt (CBE) and CAPMAS. and Statistics (CAPMAS) and Ministry of Planning and Economic Development (MPED). MPO 152 Apr 24 Annual urban inflation accelerated to an improved private consumption with the (US$45 billion at end-February 2024) are average 33.8 percent in January—Decem- projected pickup in remittances and the expected to be boosted by the one-off ber 2023 (up from 13.8 percent in 2022), gradually abating inflation. US$24 billion in FDI inflows (the remain- even though 21.4 percent of the Con- Fiscal consolidation is expected to slow der of the UAE deal), state asset sales sumer Price Index basket is regulated. down in FY24. The tax-to-GDP ratio is ex- (US$2.3 billion during July-February Food items (63.9 percent inflation in 2023) pected to decline due to sluggish economic FY24), the IMF EFF and financing from remain the main driver of the headline activity, while interest payments rise with the World Bank and other development rate and account for over 44 percent of monetary tightening and a depreciated partners. Eliminating the parallel market bottom quintile expenditures. currency. The government debt-to-GDP ra- premium will encourage formal-channel Despite the successive monetary tighten- tio is thus expected to increase to 97.6 per- remittances, which had declined by ing, real interest rates remained negative cent at end-FY24, due to the valuation effect US$10 billion in FY23. Nevertheless, through March 2024. Government credit of the exchange rate depreciation, as well as clearing the arrears owed to international remains the main driver of credit growth, in- the higher deficit. Fiscal consolidation and oil companies and import backlogs (joint- dicating that excess demand from the public debt reduction (including from off-budget ly reportedly estimated at above US$14 sector has been another contributor to infla- borrowing) are expected to resume by FY25, billion at end-February), in addition to tion, on top of the cost-push factors. Mean- as tax reforms kick in (the payroll tax sys- medium- and long-term debt servicing while, private sector credit remains limited tems standardization, enhanced adminis- scheduled for payment in the second half (29.6 percent of total domestic credit). tration, and exemptions rationalization), of FY24 (US$15.9 billion) will remain a besides streamlining of energy subsidy. drain on reserves. While external accounts are expected to High inflation, especially for food, re- remain under pressure till end-FY24 due mains a source of concern for poverty re- Outlook to the pre-existing backlogs, the UAE in- duction. Going forward, continued imple- vestment deal, along with major external mentation of the ambitious reforms envis- Growth is forecast to decline to 2.8 percent financing will gradually alleviate the for- aged under Egypt’s State Ownership Pol- in FY24 from 3.8 percent in FY23, exacer- eign currency crisis. The banking sys- icy, while ensuring wider public sector bated by the repercussions of the Middle tem’s net foreign assets position (-US$29 fiscal consolidation is critical for creating East conflict notably on key foreign in- billion at end-January 2024) is expected to space for human development and social come-generating sectors (Suez Canal and immediately improve—at least by US$11 protection spending, and for external sus- tourism). Growth is expected to start re- billion: the UAE deposits at the CBE that tainability. Business environment reforms bounding in FY25-FY26 driven by growth have been converted to investments. Of- will be crucial to enable private sector in investment (albeit from a low base), and ficial reserves and foreign currency assets growth and job-creation. TABLE 2 Arab Republic of Egypt / 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 6.6 3.8 2.8 4.2 4.6 Private consumption 6.2 2.8 3.8 3.2 3.4 3.7 Government consumption 3.4 4.9 -2.8 3.0 2.0 2.5 Gross fixed capital investment -3.2 18.5 -24.1 -7.4 16.0 10.0 Exports, goods and services -13.9 57.4 31.4 12.9 13.5 14.0 Imports, goods and services 0.5 24.3 1.1 -0.5 15.5 13.0 Real GDP growth, at constant factor prices 2.0 6.2 3.6 2.7 4.2 4.5 Agriculture 3.8 4.0 4.1 3.3 3.3 3.3 Industry -1.2 6.9 -0.6 -1.1 3.4 4.7 Services 3.7 6.2 6.2 4.8 4.8 4.7 Inflation (consumer price index) 4.5 8.5 24.1 33.4 24.9 12.6 Current account balance (% of GDP) -4.3 -3.5 -1.2 -3.2 -3.3 -3.0 Net foreign direct investment inflow (% of GDP) 1.1 1.8 2.5 6.8 2.7 1.9 Fiscal balance (% of GDP) -7.1 -6.2 -6.0 -6.5 -6.4 -6.3 Revenues (% of GDP) 16.6 17.2 15.4 15.5 16.5 16.9 Tax revenues (% of GDP) 12.5 12.6 12.4 12.2 12.8 13.4 Debt (% of GDP) 87.9 88.3 95.2 97.6 91.3 88.0 External government debt (% of GDP) 19.0 19.5 25.1 31.7 27.2 23.3 Primary balance (% of GDP) 1.4 1.3 1.6 2.2 3.0 3.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.8 19.3 21.5 23.8 23.4 23.1 GHG emissions growth (mtCO2e) 4.0 1.8 1.0 0.7 1.1 1.3 Energy related GHG emissions (% of total) 64.9 65.0 65.4 65.9 67.8 69.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2010-HIECS, 2015-HIECS, and 2019-HIECS. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2010-2015) with pass-through = 0.02 based on GDP per capita in constant LCU. Poverty estimates for 2020, 2023, and 2024 are based on microsimulations of the impacts of Covid, high inflation, and government mitigating measures. MPO 153 Apr 24 opportunities and persistently high infla- tion have negatively impacted purchasing IRAN, ISLAMIC Key conditions and power and poverty outcomes. An estimat- ed 40 percent of households are vulner- challenges REPUBLIC able, in that they have a high probabili- ty of falling back into poverty if they ex- Economic growth has proven resilient perience a shock. The gradual aging of the over the past four years, despite ongoing population, significant emigration of high- Table 1 2023 economic sanctions and heightened ly skilled workers, and a declining birth Population, million 89.2 geopolitical uncertainty. While the econ- rate not only impact growth prospects but GDP, current US$ billion 401.9 omy has benefitted from improved oil also strain an already struggling pension GDP per capita, current US$ 4506.4 sector growth, the non-oil sector, notably system. Financial sector challenges, includ- Upper middle-income poverty rate ($6.85) a 21.9 services and manufacturing, has been the ing the undercapitalized banking sector a 34.8 main driver of growth. Tradable sector and liquidity shortages, also restrict Gini index b production has shifted towards meeting prospects of private sector-led growth. School enrollment, primary (% gross) 104.5 b domestic consumption, which has partly Life expectancy at birth, years 73.9 mitigated the impact of the financial and Total GHG emissions (mtCO2e) 921.8 trade embargos and the limited access to Source: WDI, Macro Poverty Outlook, and official data. foreign exchange reserves. Employment Recent developments a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy has also recently returned to pre-pan- (2021). demic levels. Fiscal policy, notably the GDP growth accelerated to 5.1 percent social protection system with its qua- year-on-year (Y-o-Y) in the first half of si-universal cash transfer, has partly 2023/24 (Iranian year ending March 20), buffered the impact of external shocks primarily driven by the oil sector and ser- on the most vulnerable households and vices. The oil sector value-added surged by helped sustain consumption-led growth. 17.1 percent (Y-o-Y), fueled by a tight glob- Iran’s economy is continuing its oil-driven The economy continues to face structural al oil market and greater success in mar- growth in 2023/24, helping employment challenges that impact sustainable devel- keting oil exports, including through price to return to pre-pandemic levels. Inflation opmental outcomes. Ongoing sanctions discounts. The non-oil sector also showed remained elevated despite tighter mone- limit technology transfer and investments robust growth of 3.8 percent (Y-o-Y), to boost productivity. Energy subsidies which drove employment to pre-pandemic tary policy, in part due to inflationary ex- and other administered prices are con- levels in Q3-23/24, as job creation increased pectations. Economic prospects are hin- tributing to supply-demand mismatches, by 2.9 percent and the unemployment rate dered by long-lasting structural chal- wasteful consumption, and allocative in- reached a record low of 7.6 percent. lenges that are exacerbated by economic efficiencies; this comes at a significant fis- Lower-than-expected government rev- cal burden and at a detriment to the envi- enues in the first seven months of 2023/ sanctions, heightened geopolitical ten- ronment. Climate change exacerbates the 24 (Apr-Oct 2023) led to a reprioritization sions, and the impact of climate change. energy and water shortages, negatively of expenditures. Only 72 percent of the impacting food security and jobs in the budgeted revenues were realized in the stagnating agriculture sector. Limited job period, as less than half of the planned FIGURE 1 Islamic Republic of Iran / Real GDP growth and FIGURE 2 Islamic Republic of Iran / Actual and projected supply-side contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant million LCU) 6 35 250.0 4 30 200.0 2 25 20 150.0 0 15 100.0 -2 10 -4 50.0 5 -6 0 0.0 2017/18 2019/20 2021/22 2023/24e 2025/26f 2009 2011 2013 2015 2017 2019 2021 2023 2025 Oil Agriculture Non-oil industries International poverty rate Lower middle-income pov. rate Services GDP growth Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Iran (CBI) and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 154 Apr 24 oil revenues materialized due to lower than the top 60 percent of households, re- prices, and heightened global competition Iranian oil export prices. This revenue ducing inequalities. This has also reduced in key markets. shortfall forced the government to cut ex- overall inequality, with the Gini index Poverty is projected to decrease, but at a penditures, especially capital investments, dropping from 35.8 to 34.8. A combination slower pace. Poverty at the US$6.85 line is and to finance the growing deficit from of increased wages, an increase in self-em- expected to drop by a further 3 percent- the National Development Fund. ployed earnings, and a top-up to the na- age points over the next three years, and Inflation edged down in 11M-23/24 but tional cash-transfer program contributed poverty at the US$3.65 percentage line will remained above 40 percent. The decline to the growth in consumption and the cor- decrease only slightly. Building on the last was attributed to reduced inflationary ex- responding reduction in poverty. two years of inclusive growth, while en- pectations, spurring hopes of progress in suring a robust safety net, will help ensure nuclear negotiations, and tighter mone- the trend of poverty reduction continues. tary policy. Headline and core CPI re- The economic outlook is influenced by mained elevated, at 41.6 percent and 41.4 Outlook various risks, including global oil market percent in this period, respectively, dri- dynamics, climate change, the intensifica- ven by high food prices and housing Real GDP growth is forecasted to mod- tion of economic sanctions, and prospects costs. To curb inflation, the central bank erate to an annual average of 2.8 percent of conflict in the Middle East. A decline started implementing measures, includ- from 2024/25 to 2026/27. The initial boost in oil prices resulting from reduced global ing constraining bank balance sheet in oil production and exports in 2023/ demand would adversely affect economic growth, increasing reserve requirements 24 is projected to moderate significantly prospects. Growing economic linkage for riskier banks, and raising deposit and with a similar spillover effect into the with China makes the economy suscep- interbank interest rates. non-oil sector. Weaker global demand, tible to fluctuations in China's economy. Between 2020/21 and 2022/23, poverty de- ongoing sanctions, energy shortages, liq- Increased extreme weather events threaten clined as the economy recovered. Over two uidity constraints, underinvestment, and agricultural production and employment, years, poverty as measured at the US$6.85 geopolitical tensions further contribute to posing risks to food security and liveli- poverty line declined by a cumulative 7.4 this outlook. While inflation is expected hoods. The intensification of economic percentage points to 21.9 percent in 2022/ to decelerate further, it is expected to re- sanctions, especially impacting trade with 23, meaning an estimated 6.5 million peo- main elevated. Despite government plans neighbors and existing trade partners, ple were lifted out of poverty. For the low- to consolidate the budget in 2024/25, fis- would significantly weigh on growth. An er-middle income poverty line of US$3.65, cal pressures are forecast to persist, re- expansion of the conflict in the Middle East poverty declined by 2.2 percentage points sulting in a fiscal deficit, compounded by would have significant ramifications for to 3.8 percent. Between 2020/21 and 2022/ off-budget expenditures. The current ac- Iran and the region. Conversely, the re- 23, the bottom 40 percent of households count surplus is projected to gradually moval or partial waiver of sanctions would experienced higher consumption growth decrease, influenced by lower commodity significantly boost growth. TABLE 2 Islamic Republic of Iran / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021/22 2022/23 2023/24e 2024/25f 2025/26f 2026/27f Real GDP growth, at constant market prices 4.7 3.8 5.0 3.2 2.7 2.4 Private consumption 3.9 8.7 3.2 2.4 2.1 1.8 Government consumption 8.3 -3.6 1.6 1.9 2.1 2.2 Gross fixed capital investment 0.0 6.7 5.8 4.5 4.2 3.1 Exports, goods and services 5.2 8.2 15.4 7.1 5.2 5.2 Imports, goods and services 24.1 7.5 1.6 1.8 2.1 2.1 Real GDP growth, at constant factor prices 4.4 4.0 5.0 3.2 2.7 2.4 Agriculture -2.6 1.1 1.0 0.9 0.8 0.8 Industry 3.2 7.4 8.8 4.9 3.7 3.7 Services 6.5 2.7 3.6 2.7 2.5 1.9 Inflation (consumer price index) 46.2 46.5 40.8 35.3 32.0 30.5 Current account balance (% of GDP) 3.1 3.4 2.9 2.7 2.3 2.2 Fiscal balance (% of GDP) -3.2 -1.9 -2.0 -2.2 -2.4 -2.5 Revenues (% of GDP) 11.0 11.7 11.8 11.8 11.8 11.9 Gross public debt (% of GDP) 42.4 30.1 30.7 32.3 34.1 35.9 Primary balance (% of GDP) -2.7 -1.5 -1.6 -1.8 -2.0 -2.1 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.5 0.4 0.4 0.4 0.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.0 3.8 3.3 3.1 2.9 2.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 24.8 21.9 20.0 19.0 18.2 17.6 GHG emissions growth (mtCO2e) 2.9 2.9 3.1 2.0 1.8 1.6 Energy related GHG emissions (% of total) 67.8 67.6 67.8 67.7 67.5 67.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2019-HEIS and 2022-HEIS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2019-2022) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 155 Apr 24 expenditures, notably rightsizing the wage bill, better targeting transfers, and a more REPUBLIC OF Key conditions and concerted effort on domestic revenue mo- bilization, could free up fiscal space for challenges IRAQ growth-enhancing investment in human and physical capital and improve the long- Iraq’s economy, among the world’s most term fiscal sustainability. Leveraging the oil-dependent, is contracting due to crude oil wealth toward sustainable growth and Table 1 2023 oil production cuts and lower global oil diversification, reducing the dominance of Population, million 45.5 prices. GDP contraction reflects the OPEC+ the public sector, and enhancing the busi- GDP, current US$ billion 285.8 production cuts and the halting of oil ex- ness environment will be essential for eco- GDP per capita, current US$ 6279.7 ports from the northern oil pipeline since nomic sustainability and private sector-led Lower middle-income poverty rate ($3.65) a 2.4 late March 2023, following the Internation- growth. Climate change adaptation and a 24.7 al Chamber of Commerce’s ruling on a mitigation measures can help tackle Iraq’s Upper middle-income poverty rate ($6.85) a case between Iraq and Türkiye. The econ- intertwined climate and developmental National poverty rate 22.5 a omy was kept afloat by the non-oil sector, challenges such as addressing food insecu- Gini index 29.5 in part helped by the large 2023 fiscal ex- rity and water shortages. b 103.7 School enrollment, primary (% gross) pansion. Lower oil revenues and signifi- b 70.4 Life expectancy at birth, years cant increase in government expenditures Total GHG emissions (mtCO2e) 231.6 have sharply narrowed the fiscal surplus. Source: WDI, Macro Poverty Outlook, and official data. Looser fiscal policy and over dependence Recent developments a/ Most recent value (2012), 2017 PPPs. on oil have raised vulnerabilities to ex- b/ WDI for School enrollment (2007); Life expectancy (2021). ternal shocks, especially considering the Iraq’s economy is contracting due to lower risks of spillover from the recent conflict oil production and despite a rebound in in the Middle East. The 71 percent surge the non-oil sector. Following the strong ex- (relative to 2022 outturn) in government pansion seen in 2022, GDP is estimated to Iraq’s economy contracted in 2023 due spending envisaged in the budget law have contracted by 2.5 percent in 2023. to OPEC+ production cuts that more for 2023 to 2025, driven by a surge in Growth was weighed down by OPEC+ than off-set a non-oil sector rebound. A the wage bill and funded by oil rev- production cuts, including Iraq’s volun- sharp fiscal expansion is fueling con- enues, leaves little room for discretionary tary cuts, and the halting of oil exports sumption but weighs on fiscal and ex- spending, and fragilizes the goal of sta- through the Iraq-Türkiye pipeline, which bilizing the economy and consumption led oil GDP to contract by 7.4 percent. The ternal balances, and undermines fiscal smoothing. Iraq’s dependence on oil al- 5.9 percent y/y bounce back in the non-oil sustainability in the medium term. so translates into low labor force partic- sector reported in the first nine months of Downside risks to the outlook include oil ipation, exposes households to volatility, 2023 (9M-23), was led by the agriculture market volatility, climate change risks, and limits the role of jobs in increasing sector and non-oil industries that benefit- household incomes. ted from CBI lending initiatives, albeit a and the impact of heightened geopolitical Current reform efforts have to be sustained temporary impact. tensions. The long-term development and deepened to put the economy on a Inflationary pressures have eased in part prospects remain uncertain. more sustainable path. Reprioritization of due to the impact of exchange rate FIGURE 1 Republic of Iraq / Fiscal account outlook FIGURE 2 Republic of Iraq / Consumer price inflation and the parallel market pressures Percent of GDP US$ per barrel Percent Percent 45 100 8 5 6 4 30 80 4 3 15 2 60 2 0 0 1 40 -2 -15 0 -4 20 -1 -30 -6 -45 0 -8 -2 2020 2021 2022 2023e 2024f 2025f 2026f Other expenditures (lhs) Wages and pension (lhs) Non-Oil revenues (lhs) Oil revenues (lhs) M/M inflation (rhs) Y/Y inflation (lhs) Fiscal balance (lhs) Oil price (rhs) IQD depreciation* (lhs) Sources: Ministry of Finance, Ministry of Oil, and World Bank staff calculations. Sources: Iraq’s Central Statistical Organization, Central Bank of Iraq, media, and World Bank staff calculations. Note: *Positive values represent dinar’s depreciation against the dollar in the parallel market. MPO 156 Apr 24 revaluation in February 2023 and tighter small surplus of 0.8 percent of GDP (cash to increase gross financing needs to an monetary policy. After an initial spike in basis), down from a 12.7 percent of GDP average of US$24.2 billion per year in inflation in January-February 2023, surplus in 2022. The current account sur- 2024 to 2026, while the public debt bur- sparked by the depreciation of the Iraqi di- plus almost halved in 9M-23 with low- den is projected to increase to over 60 nar in the parallel market, the revaluation er oil exports and is estimated to have percent of GDP in 2025. of the dinar against the dollar up by 11.5 narrowed to 2.1 percent of GDP in 2023 Downside risks to the outlook stem from percent in February 2023 and the moder- given a surge in imports in the last quar- oil market volatility, spillovers from con- ation of global commodity prices helped ter. The shift in the current account halt- flict, and climate change. The recent out- lower inflation. The Central Bank of Iraq ed the previous years’ rapid accumula- break of conflict in the Middle East has (CBI) raised the policy rate by 3.5 per- tions of official reserves, although these introduced significant downside risks but centage points to 7.5 percent, which fur- still remain sizeable, at US$102.7 billion also upside risks if global oil prices in- ther curbed inflation and moderate cap- or 12.6 months of imports at end-2023. crease. Iraq's heavy reliance on oil makes ital outflows. As a result, headline and it particularly susceptible to oil shocks core inflation eased to 4.3 and 4.0 percent stemming from the conflict, which could in 2023 y/y, respectively. CBI measures to lead to disruptions in the flow of oil ex- manage the volatility in the exchange mar- Outlook ports and price fluctuations. The conflict kets have helped reduce the gap between could significantly impact fiscal and exter- the official rate to 17 percent in February, The economic outlook hinges on global nal balances, and worsen household food which is still elevated due to continued FX oil market prospects and the implemen- security and welfare, necessitating coping demand in the parallel market. tation of the 3-year budget plans. GDP mechanisms such as dissaving and reduc- Lower oil revenues and the fiscal expan- growth is expected to recover to an av- ing investments in human capital. sion have narrowed the fiscal and cur- erage of 4.0 percent in 2024-2026 due Spillovers from a broader conflict are also rent account surplus. Government rev- to a projected rebound in the oil sec- likely to have adverse humanitarian im- enues, heavily dependent on oil, declined tor. Growth is forecast to peak in 2025 pacts in Iraq, including civilian casualties by 16.1 percent y/y in 2023 due to lower with the planned expiry of oil produc- and displacement. These developments oil prices and despite marginally higher tion cuts. Despite higher projected oil would reverse gains in poverty reduction export volumes. Total expenditures in- exports, the fiscal expansion is forecast made in recent years. Climate change im- creased by 21.8 percent y/y but remained to more than offset this rebound, lead- pact and severe weather events such as El significantly below the budget targets. As ing to double deficits starting in 2024. Niño, could intensify food security risks a result, the fiscal account recorded a The growing fiscal pressures are forecast and add to public grievances. TABLE 2 Republic of Iraq / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 0.1 7.6 -2.5 1.6 6.1 4.2 Private consumption 2.6 3.9 6.5 4.5 4.0 4.0 Government consumption 4.6 2.2 21.8 8.5 4.7 4.7 Gross fixed capital investment 33.6 11.7 11.8 20.4 9.4 8.5 Exports, goods and services -13.3 9.7 -7.4 -0.2 8.4 5.2 Imports, goods and services 7.7 4.2 22.0 13.7 7.0 7.0 Real GDP growth, at constant factor prices 1.6 7.6 -2.5 1.6 6.1 4.2 Agriculture -20.6 -33.3 3.0 2.5 2.2 2.2 Industry -0.7 13.3 -5.9 0.3 8.0 5.0 Services 9.8 1.3 4.2 4.0 2.8 2.8 Inflation (consumer price index) 6.0 5.0 4.3 3.8 3.4 3.2 a Current account balance (% of GDP) 12.0 19.1 2.1 -3.7 -4.0 -4.2 a Net foreign direct investment inflow (% of GDP) -1.3 -0.8 -0.8 -0.8 -0.8 -0.8 a Fiscal balance (% of GDP) 4.0 12.7 0.8 -5.1 -5.7 -5.8 Revenues (% of GDP) 36.2 38.9 36.1 34.3 33.8 33.6 a Debt (% of GDP) 58.8 40.9 45.5 54.2 64.8 72.1 a Primary balance (% of GDP) 4.5 13.5 1.3 -4.8 -5.3 -5.1 GHG emissions growth (mtCO2e) -13.8 -5.2 6.5 7.8 13.4 10.0 Energy related GHG emissions (% of total) 42.3 42.0 42.8 44.5 46.1 48.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Share of factor cost GDP. MPO 157 Apr 24 and its vulnerability to extreme weather conditions, including rising temperatures JORDAN Key conditions and and lower precipitation, exacerbates the risks to water scarcity and food security. challenges While no new official poverty rate has been released since 2018, it is likely that any Table 1 2023 Despite consecutive regional and global negative economic effects of the neighbor- Population, million 11.3 external shocks, Jordan has maintained ing conflict would adversely affect the GDP, current US$ billion 50.9 modest economic growth, averaging poorest and most vulnerable households. GDP per capita, current US$ 4491.1 around 2.2 percent annually over the past Declining tourism rates will particularly a 15.7 National poverty rate decade, supported by a prudent fiscal affect those relying on informal employ- b 87.6 and monetary policy mix. Jordan's pru- ment with little job security. The refugee School enrollment, primary (% gross) b 74.3 dent monetary policy has maintained population in Jordan is particularly vul- Life expectancy at birth, years Total GHG emissions (mtCO2e) 39.2 macroeconomic stability, while the coun- nerable. According to the Vulnerability try has also achieved progress in domes- Assessment Framework by the WB and Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017/8). tic revenue mobilization. However, key UNHCR, two-thirds of registered refugees b/ WDI for School enrollment (2014); Life expectancy structural constraints remain entrenched, live under the poverty line. (2021). notably those related to labor market and business environment. Jordan can break out of its low-growth equilibrium by rais- Jordan has demonstrated resilience ing productivity, pursuing investment, Recent developments amidst consecutive external shocks, pre- and export-led growth. serving macroeconomic stability albeit The latest conflict in the Middle East, The remarkable performance in the man- that erupted on October 7, 2023, initially ufacturing and agriculture sectors, cou- with growing vulnerabilities associated affected tourism, trade, and investment pled with the continued robust contribu- with climate change and regional con- sentiment across the region, but especial- tion of services, led to a slight increase in flicts. However, addressing structural ly so for neighboring countries like Jor- growth to 2.7 percent (y-o-y) in Q3-2023. challenges in the labor market and the dan. The risk of a prolonged and wider Revised national accounts in October 2023 business environment remains essential conflict could exacerbate existing chal- showed that manufacturing and agricul- lenges such as trade disruptions and ris- ture registered their highest average to achieve sustainable higher economic ing shipping costs, further squeezing fis- growth rates since 9M-2011 and 9M-2010, growth and employment. The country's cal space in Jordan. Additionally, the fi- respectively. The restaurants and hotels susceptibility to climate-related shocks nancial sustainability of the water and sector also witnessed its highest average further emphasizes the need to tackle wa- electricity sectors remains a concern. growth rate since 9M-2012. Despite the Navigating the current complex external initial setback in tourist arrivals due to ter, and energy concerns. A sustained fo- environment requires policy agility to the eruption of the conflict, the sector is cus on reform implementation would help preserve macroeconomic stability while showing some signs of recovery. Jordan break out of its low-growth, low also focusing on the implementation of Labor markets slightly improved after employment equilibrium. structural reforms. Jordan is one of the declining for three consecutive quarters. most water-scarce countries in the world, Labor force participation improved to FIGURE 1 Jordan / Tourist arrivals took a hit as the Conflict FIGURE 2 Jordan / Fiscal performance benefited from lower in the Middle East erupted before gradually picking up again subsidies in 2023 Growth rate percent, y/y Percent of GDP 60 35 Overnight 30 45 Same Day 25 30 20 15 15 10 0 5 -15 0 -5 -30 -10 2018 2019 2020 2021 2022 2023 -45 Jun'23 Jul'23 Aug'23 Sep'23 Oct'23 Nov'23 Dec'23 Jan'24 Feb'24 Total Expenditures Total Revenues Overall Balance Sources: Ministry of Tourism and Antiquities and World Bank staff calculations. Sources: Ministry of Finance and World Bank staff calculations. MPO 158 Apr 24 34.1 percent in Q4-2023, driven mainly 9M-2023. Portfolio investments increased Fiscal consolidation is projected to contin- by higher female participation which in 9M-2023, supported by the Eurobond is- ue, albeit at a tepid pace. Revenue-enhanc- recorded the highest level since Q1-2019 suance by MoF in April 2023 which more ing measures, along with the expected eas- at 15.1 percent in Q4-2023. Meanwhile, than offset the decline in net FDIs, relative ing of monetary policy are expected to unemployment declined slightly to 21.4 to the same period in 2022. At the end of support domestic revenues. Meanwhile, percent in Q4-2023, yet it remained 2023, CBJ’s gross reserves of foreign cur- the primary fiscal deficit is projected to above the pre-COVID average. Inflation rencies and gold stood at USD19.1 billion continue narrowing, turning into a surplus decelerated to 2.1 percent in 2023, mainly (7.6 months of next year's imports of in 2025 as primary expenditure remain reflecting lower commodity prices and GNFS), relative to USD18.2 (7.2 months of contained. However, the overall fiscal monetary tightening. imports of GNFS) in December 2022. deficit is projected to increase slightly in Fiscal consolidation continued in 2023, but 2024 due to higher interest payments, be- at a pace that leaves debt at an elevated fore beginning to narrow in subsequent level. The overall fiscal deficit narrowed years. Nevertheless, remaining fiscal pres- slightly, to 5.2 percent in 2023, down from Outlook sures from the water and electricity sectors 5.6 percent of GDP in 2022. Total revenues are expected to keep Central Government declined mainly due to lower grants and Growth is forecasted to register 2.6 percent debt levels elevated and growing in the slightly lower tax revenues, which more in 2023, reflecting slower growth in Q4 short- to medium-term, while the General than offset the increase in non-tax rev- 2023 attributed to the impact of the conflict Government debt is projected to decrease enue. Spending declined slightly due to in the Middle East. The ongoing conflict thanks to continued operating surpluses of the phasing out of fuel subsidies, which is expected to weigh on the performance the Social Security Investment Fund. offset the increase in interest payments. of sectors that have backward and forward The CAD is projected to continue narrow- Meanwhile, capital expenditure increased linkages with the tourism sector. More- ing supported mainly by the lower trade to 3.8 percent of GDP in 2023, staying over, the shift in consumer behavior is also deficit and higher tourism receipts in 2023, below the budgeted amount of 4.4 per- expected to weigh on domestic consump- relative to the previous year. Further con- cent of GDP. However, general govern- tion. Agriculture sector growth is expected tainment of imports and higher current ment debt level remains elevated, reach- to normalize in 2024 after experiencing a transfers are projected to support lower ing 89.4 percent of GDP in 2023. strong rebound in H1 2023 due to a favor- CAD in 2024. However, while the baseline The CAD halved to 4.2 percent of the es- able base-effect. Accordingly, a subsequent projections assume that the conflict in timated full year GDP in 9M-2023, relative deceleration of real GDP growth rate to the Middle East will end in the short to the same period in 2022. This was main- 2.5 percent is anticipated in 2024, followed term, the duration and extent of the con- ly driven by lower imports, supported by by a resurgence to 2.6 percent thereafter. flict may impact the pace of improvement the decline in international prices of key Relatively stable prices for imported com- through lower tourism receipts, changes imports (i.e., oil, wheat, and maize) and modities and muted core inflation are pro- in domestic consumption patterns, trade improved tourism receipts which collec- jected to keep inflation in check, despite flow disruptions, and increased shipping tively more than offset the slight decrease some transitory impact from higher ship- costs, which can affect value chains and in exports and current transfers in ping costs due to the Red Sea disruptions. production costs. TABLE 2 Jordan / 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 2.4 2.6 2.5 2.6 2.6 Real GDP growth, at constant factor prices 3.7 2.5 2.7 2.6 2.7 2.7 Agriculture 6.6 3.3 5.4 2.4 2.4 2.4 Industry 2.7 3.3 3.0 2.6 2.5 2.4 Services 4.0 2.0 2.4 2.6 2.8 2.8 Inflation (consumer price index) 1.3 4.2 2.1 2.0 2.1 2.1 Current account balance (% of GDP) -8.0 -7.7 -6.8 -6.4 -5.7 -4.8 Net foreign direct investment inflow (% of GDP) 1.3 2.6 2.5 2.6 2.8 3.0 a Fiscal balance (% of GDP) -6.2 -5.6 -5.2 -5.6 -5.4 -5.1 Revenues (% of GDP) 24.7 25.8 25.3 25.9 26.2 26.3 a Expenditures (% of GDP) 30.9 31.5 30.5 31.5 31.6 31.4 b Central government debt (% of GDP) 108.8 111.4 114.1 115.2 116.1 116.5 b General government debt (% of GDP) 87.5 88.8 89.4 88.9 88.2 87.1 a Primary balance (% of GDP) -1.9 -1.5 -0.4 -0.3 0.1 0.5 GHG emissions growth (mtCO2e) 3.2 3.3 4.2 2.4 2.6 2.6 Energy related GHG emissions (% of total) 62.1 61.3 61.3 61.2 61.0 60.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Including the Adjustment on receivables and payables (use of cash) as per IMF Country Report No. 23/49. b/ GG coverage refers to CG debt excl. the holdings of the Social Security Corporation (SSC) investment arm. Based on current pension entitlements, the SSC's financial surplus is projected to gradually decline and turn into a deficit, leading GG debt ratio to converge to CG debt ratio over the longer term. MPO 159 Apr 24 unsustainable fiscal policies and promote private sector expansion by enhancing liq- KUWAIT Key conditions and uidity management, implementing tax re- forms, and adjusting subsidies. Moreover, challenges expectations of sustained high oil prices in the medium term could support the fi- Table 1 2023 Kuwait's long-term economic outlook is nancing of the economic transition to- Population, million 4.3 significantly impacted by its heavy depen- wards sustainable, inclusive, and environ- GDP, current US$ billion 161.8 dence on oil, while structural reforms are mentally friendly growth. GDP per capita, current US$ 37528.6 being delayed. Key risks are oil market a 78.7 Life expectancy at birth, years volatility, global economic slowdown, es- Total GHG emissions (mtCO2e) 161.7 calation of geopolitical tensions and cli- Source: WDI, Macro Poverty Outlook, and official data. mate shocks, as well as domestic chal- Recent developments a/ WDI for Life expectancy (2021). lenges, including an oversized public sec- tor, frequent government changes and a In 2023, economic growth significantly lack of reforms momentum. On the upside, decelerated mainly due to OPEC+'s pro- a decrease in global inflation and an in- duction quota cuts, and a global slow- crease in global demand could lead to fa- down, resulting in an overall GDP decline vorable outcomes. Key challenges include of -0.1 percent. Annual oil output is esti- In 2023, Kuwait’s economy significantly substantial public sector employment, re- mated to have declined by 3.8 percent, af- decelerated following strong performance gional competitiveness lag, fostering a fected by a 9 percent year-on-year decline in 2022, with expectations of stabilization dynamic economy for youth, alignment in Q3 2023 only (for the second consecutive in the medium term. This downturn is behind a national vision, and enhancing quarter), due to oil production cuts under- economic productivity. Macroeconomic taken as part of Kuwait’s OPEC+ obliga- largely attributed to OPEC+ oil produc- stability is underpinned by the world's tions. Nonetheless, the economy benefitted tion cuts and weak global economic activ- largest sovereign wealth fund, the Kuwait from the expansion of the Al Zour oil re- ity. A negative fiscal balance has oc- Investment Authority (KIA) and its sig- finery. The non-oil sector, however, show- curred, driven by low energy prices and nificant foreign assets, yet such resources cased resilience, recording a 1.5 percent cannot fully buffer against short-term oil growth in Q2 2023, and expanded further fiscal expansion, and is expected to persist market volatility. Addressing these vul- by 2.8 percent in Q3 2023, leading to an es- into 2024. The economic forecast remains nerabilities requires comprehensive fiscal timated 3.3 percent in 2023. This was dri- uncertain, clouded by geopolitical ten- and structural reforms. Overcoming polit- ven by both domestic and international de- sions, slowdowns in major economies, oil ical deadlock and enhancing government mand, high oil prices, increased govern- price fluctuations, and political gridlock stability is critical to accelerate economic ment expenditure, and the restart of pro- diversification and related structural re- jects disrupted by the pandemic. on reforms, with the potential for political forms. The government's 2024-27 work Tight monetary policy, coupled with transformation from a change in govern- plan for Kuwait, outlined in February slow economic growth and substantial ment offering new prospects for reform. 2024, aims to reduce unsustainable public government subsidies for food and ener- spending, and decrease reliance on oil rev- gy, contributed to a containment of infla- enues. Additionally, it endeavors to curb tionary pressures to 3.6 percent in 2023, FIGURE 1 Kuwait / Annual real GDP growth FIGURE 2 Kuwait / Public finances Percent change Percent of GDP 15 70 Oil GDP 60 12 Non-Oil GDP 50 GDP 9 40 6 30 3 20 10 0 0 -3 -10 2021 2022 2023 2024 2025 2026 -6 2021 2022 2023 2024 2025 2026 Expenditure Revenue Fiscal Balance Sources: Kuwait CSB, IMF WEO, and World Bank staff estimates. Sources: World Bank and IMF WEO. Notes: Based on the fiscal year cycle (April to March 31). Fiscal balances exclude investment income and FGF transfers. MPO 160 Apr 24 with a further decline to 3.3 percent ob- many indicators have not yet rebounded to still relatively elevated interest rates may served in January 2024. their pre-pandemic levels. The labor force restrain domestic consumption, prevent- The fiscal account recorded a deficit of 6.8 participation rate is projected at 71.3 per- ing the economy from achieving its full po- percent of GDP (excluding investment in- cent in 2024 (ILO modelled estimates), be- tential. Moreover, ongoing political un- come and the Future Generation Fund low the projections for 2023 as well as the certainties may delay the implementation transfers), due to a 27 percent drop in rev- pre-pandemic rate. The employment-to- of new infrastructure projects and slow enue and a 55 percent surge in expendi- population ratio is projected at 69.9 per- the pace of reform initiatives. tures, primarily from increased salaries, cent in 2024, remaining about 1.6 percent- The fiscal deficit is projected to persist in grants, and subsidies spending in the first age points lower than in 2019. Unemploy- the medium term, influenced by the cur- three quarters of FY2023-24. ment rates are projected to remain rela- rent expansionary fiscal stance. In the ab- The banking sector remains stable despite tively steady in 2023 at 0.9 percent among sence of economic diversification, oil rev- a slowdown and continues to be well-cap- men and 5.7 percent among women, still enue remains the government's predomi- italized and liquid. Nonperforming loans higher than the 2019 rates by 0.2 and nant source of income. To ensure fiscal sta- are contained at a low level (1.7 percent in 0.6 percentage points, respectively. Un- bility and reduce procyclicality, it is key Q3-2023). In 2023, domestic credit growth employment rate projections are especial- to further reduce oil revenue dependen- decelerated to 1.7 percent from 7.7 percent ly high for young women (aged 15-24), at cy and advance the Vision 2035 goals, in 2022, with a slight uptick of 0.9 percent 28.7 percent for 2024. alongside strengthening public financial in Q4 driven by strong credit for securities management. Creating space for pri- purchases and financial institutions, de- vate sector activity, introducing VAT in spite a significant decline in business and alignment with other GCC countries), as household credit. Following global trends Outlook well as other fiscal adjustments could and the US Federal Reserve (given the broaden revenue sources and support predominant role of the US dollar in the Economic growth is expected to recover to the diversification agenda. Kuwaiti Dinar's pegged basket), the cen- 2.8 percent in 2024, supported by expan- External accounts are expected to maintain tral bank increased policy rates multiple sionary fiscal policies, higher oil produc- a strong trade surplus at 22.7 percent of times, from 1.5 percent in January 2022 tion, and increased output from Al Zour GDP in 2024, driven by oil exports. Bene- and stabilizing at 4.25 percent as of Jan- refinery. Oil output is expected to grow fits from the recovering tourism industry uary 2023, while maintaining reserves at by 3.6 percent, as OPEC+ announces exten- are expected to be offset by a deficit in comfortable levels of 4.6 months of im- sion by mid-2024 of additional voluntary services and increased payments to inter- port in first 3 quarters of 2023. The cur- cuts (135 tb/d for Kuwait), with global oil national contractors engaged in the Vi- rent account surplus declined to 29.3 per- prices remaining robust. An improvement sion 2035 strategic development plan and cent of GDP in 2023 (down from 32.1 per- in domestic credit is expected in 2024, dri- 2024-2027 work plan. This is expected to cent in 2022), owing to declining oil rev- ven by a sharp pick up in project awards, trigger a gradual narrowing of the cur- enues and a reduction in global demand. stable or declining interest rates, and the rent-account surplus to 20.7 percent of Kuwait's labor market continues to recover low base effect from 2023. The non-oil sec- GDP by 2026, down from an estimated from the impact of the pandemic, although tor is projected to grow by 2.1 percent, but 29.3 percent in 2023. TABLE 2 Kuwait / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.3 7.9 -0.1 2.8 3.1 2.7 Private consumption 3.2 4.8 2.0 2.5 2.6 2.5 Government consumption 1.1 2.0 2.3 2.4 2.5 2.5 Gross fixed capital investment 3.9 4.4 1.8 2.5 2.9 2.3 Exports, goods and services 2.2 12.0 -1.9 3.1 3.2 3.2 Imports, goods and services 5.7 5.3 1.6 2.5 2.3 2.8 Real GDP growth, at constant factor prices 1.4 7.9 -0.1 2.8 3.1 2.7 Agriculture 0.5 1.1 0.1 1.1 1.1 1.2 Industry 2.2 8.3 0.2 3.3 3.3 3.3 Services 0.4 7.3 -0.6 2.1 2.8 1.9 Inflation (consumer price index) 3.4 4.0 3.6 3.0 2.6 2.4 Current account balance (% of GDP) 23.9 32.1 29.3 22.7 21.9 20.7 a Fiscal balance (% of GDP) -7.2 2.2 -6.8 -6.3 -8.0 -8.0 GHG emissions growth (mtCO2e) 10.7 6.1 1.4 5.0 6.7 6.9 Energy related GHG emissions (% of total) 68.0 68.1 66.8 66.5 66.7 66.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Based on fiscal year cycle (April to March 31). Fiscal balances exclude investment income and FGF transfers. MPO 161 Apr 24 prices, which were further exacerbated by the war in Ukraine. Almost two-thirds of LEBANON Key conditions and households surveyed in early 2023 reported having to reduce their food purchases com- challenges pared to pre-crisis 2019, with many relying on less preferred or cheaper food options. Table 1 2023 Military confrontation between Lebanon Close to a third of households have had to Population, million 5.4 and Israel has been escalating and widen- cut back on meals or limited adult consump- GDP, current US$ billion 17.9 ing in South Lebanon since October 2023, tion to feed children, with Syrian refugee GDP per capita, current US$ 3350.3 resulting in hundreds of casualties and in- households being disproportionately af- a 27.4 National poverty rate juries, and mass displacement of close to fected. Recent surveys by Gallup and Arab a 31.8 90,000 individuals in Lebanon. Tens of Barometer further confirm the severity of Gini index b 75.0 thousands of households in South the situation, with a high percentage of Life expectancy at birth, years Total GHG emissions (mtCO2e) 23.3 Lebanon have lost their livelihoods, and households running out of food or lacking hundreds of houses have been destroyed money to buy more, and many children Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2011). amid massive destruction to local infra- going to bed hungry or skipping meals. b/ Most recent WDI value (2021). structure. Agricultural lands in the south have suffered substantial damage, burning and contamination. For a tourism depen- dent economy, the shock to tourism that Recent developments In Q4 2023, Lebanon was hit by yet started in Q4 of 2023 has knock-off effects for economic growth. After four years of sharp contraction, another large shock: the spillover effects The conflict is further weighing on equivalent to 33.7 percent of real GDP be- from the conflict in the Middle East Lebanon which remains mired in a crip- tween 2018-2022 and marking one of the centered in Gaza. The escalation in mili- pling socio-economic crisis, amidst politi- worst economic downturns in modern his- tary confrontation in southern Lebanon cal and institutional vacuum. A presiden- tory, the pace of Lebanon’s contraction in tial vacuum since October 2022, a caretaker economic activity decelerated to 0.2 per- has caused substantive infrastructural government with restricted executive cent in 2023. Prior to the conflict, a slight damage, and primarily affected the powers, an interim central bank governor, economic expansion of 0.2 percent was tourism and agriculture sectors, further limited legislative action by parliament, projected for 2023, in part driven by strong weighing down on Lebanon’s crisis-rid- and no political appetite to undertake ur- tourism receipts in the first 9 months of den economy, amidst prolonged political gent reforms necessary to get the country the year. The continued contraction in eco- out of the four-year-old unprecedented cri- nomic activity is primarily driven by the paralysis. With the ongoing conflict the sis, all contribute to a bleak outlook on sus- sharp shock to tourism spending under- economy is expected to have contracted by tainable economic recovery. mining consumption growth, compound- 0.2 percent in 2023. Subject to high un- Food insecurity is on the rise in Lebanon, ed by reduced business activity, and a dis- certainty, and assuming a cessation of with average annual and food inflation ruption to trade activity, all materializing rates soaring in recent years. The gradual in Q4 of 2023. clashes in H2-2024, real GDP growth is removal of foreign exchange subsidies on Increased revenue, resulting from the cor- projected at 0.5 percent for 2024. food has led to significant increases in food rection of exchange rate mis-valuations FIGURE 1 Lebanon / Exchange rate depreciation drives the FIGURE 2 Lebanon / Inflation in basic items has been a key surge in inflation driver of overall inflation, hurting the poor and the middle class Index (Aug 2019=100) Percent Contributions to overall inflation in 2023, percent 7,000 200 250 Headline inflation growth 6,000 Food & non-alcoholic beverages 160 Owner occupied 5,000 200 Transportation 4,000 120 Health Water, electricity, gas, & other fuels 3,000 80 150 Education 2,000 Communication 40 Clothing & footwear 1,000 100 Furnishings, household equipment 0 0 Other Aug'19 Apr'20 Dec'20 Aug'21 Apr'22 Dec'22 Aug'23 Alcoholic beverages & tobacco 50 World Bank average exchange rate (lhs) Actual rent Inflation rate (lhs) Currency in circulation (lhs) CPI-Exchange rate pass through (rhs) 0 Sources: Lebanese authorities and World Bank staff calculations. Sources: Lebanese authorities and World Bank staff calculations. MPO 162 Apr 24 for customs and taxes, coupled with ex- Lebanese pound has stabilized at an ex- been driven by a narrowing trade-in- penditure restraints in the absence of a change rate of 89,700 LBP/US$ since goods deficit. According to customs data, ratified budget and monetary financing, mid-2023, in tandem with the change in imports of goods have decreased by 9.4 resulted in a fiscal surplus of 0.5 percent BdL management. The stabilization of the percent (yoy) in 7M-2023. A 10 percent of of GDP in 2023. Revenues are estimated exchange rate is primarily owed to (i) the GDP surplus in trade-in-services, primar- to have increased from 6.1 percent of stoppage of the Sayrafa platform (the main ily driven by tourism receipts in the first GDP in 2022 to 15.3 percent of GDP in platform used for foreign exchange inter- three quarters of 2023, also contributed to 2023 thanks to revenue mobilization mea- ventions by the central bank) in July 2023, a lower CA deficit. sures in the 2022 budget which material- (ii) an increase in foreign exchange inflows ized in 2023 and the decision to collect from tourism and remittances for the most port and airport fees in US$ starting in of 2023, and a (iii) a decrease in currency 2023. The new BdL management’s halt of circulation which is easing exchange rate Outlook decades long monetary financing of the pressures. Central bank gross reserves (liq- budget in the second half of 2023, has al- uid reserves) have increased by US$883 As the country adjusts to a volatile secu- so supported the overall fiscal and pri- million in the last five months of 2023, pri- rity situation, and assuming a cessation mary surplus. Parliament ratified the 2024 marily driven by the halt of the Sayrafa of hostilities in 2024 H2, real GDP government budget in February 2024, platform and BdL purchases of US$ supply growth is projected at 0.5 percent in 2024. within the constitutional deadline for the from foreign currency inflows. Growth in private consumption support- first time in two decades. The 2024 gov- Inflation accelerated to 221.3 percent in ed by tourism, remittances and a stabi- ernment budget projects a zero fiscal bal- 2023, primarily on account of the steep de- lization in private sector activity will un- ance, with revenues and expenditures at preciation of the LBP in the first half of derpin a continued yet volatile bottom- 17.3 percent of GDP. The fiscal balance, 2023. The exchange rate stabilization in ing out of the economy and drive modest however, does not take into account past the second half of 2023 has, however, growth in 2024. Because tourism tends to arrears and foreign currency loans of the steadily decreased month-to-month infla- be volatile and subject to external and government. In essence, the budget 2024 tion to an average of 1.2 percent between internal shocks (the spillover of the cur- represents a missed opportunity to enact August and December 2023 (excluding rent conflict being a case in point), the much needed comprehensive change to October that witnessed a more than six- sector cannot substitute for more sustain- deficient budget processes and fiscal pol- fold increase in the education CPI compo- able and diverse drivers of growth. With- icy. The ratified budget remains a simple nent); this supports a positive outlook for out a crisis resolution plan, and a new summation of the cost of inputs for each decelerating inflation in 2024. sustainable growth model, further ero- of the ministries, and a compilation of The current account (CA) deficit is project- sion of the country’s physical, human, so- regressive tax revenues, as tax revenues ed to narrow to 11 percent of GDP in 2023, cial, and natural capital stock is likely. As constitute 79 percent of total revenues, of following a dramatic increase to 32.7 per- the components of the CPI basket are in- which 76 percent are indirect taxes. cent of GDP in 2022. The estimated con- creasingly dollarized, inflation is project- After losing more than 98 percent of its traction in the CA deficit, from US$6.9 bil- ed to decrease in 2024 to double digits at value since the onset of the crisis, the lion in 2022 to US$2 billion in 2023, has 83.9 percent. TABLE 2 Lebanon / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f Real GDP growth, at constant market prices -7.0 -0.6 -0.2 0.5 Private consumption 2.1 2.3 0.2 0.4 Government consumption -76.0 34.9 -18.4 1.5 Gross fixed capital investment -67.6 -88.6 -57.9 -18.1 Exports, goods and services 13.1 0.3 2.8 -0.9 Imports, goods and services -12.2 3.5 -0.3 -0.6 Real GDP growth, at constant factor prices -5.3 -0.6 -0.2 0.5 Agriculture -7.1 -0.8 0.5 0.5 Industry -6.9 -0.6 0.7 -0.2 Services -4.9 -0.6 -0.4 0.7 Inflation (consumer price index) 150.0 171.2 221.3 83.9 Current account balance (% of GDP) -12.5 -32.7 -11.0 -10.4 Net foreign direct investment inflow (% of GDP) 8.5 0.8 0.6 1.5 Fiscal balance (% of GDP) 0.9 -2.9 0.5 0.0 Revenues (% of GDP) 7.5 6.1 15.3 17.3 Debt (% of GDP) 172.5 179.7 201.2 180.4 Primary balance (% of GDP) 1.8 -2.5 1.6 0.4 GHG emissions growth (mtCO2e) -16.6 -6.1 3.2 -3.8 Energy related GHG emissions (% of total) 68.5 68.6 73.2 72.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 163 Apr 24 low labor force participation, income dis- parities, and poor public infrastructure LIBYA Key conditions and and services. Only half of the working- age population is active in the labor mar- challenges ket and mostly engaged in the public sector (44 percent). The unemployment Table 1 2023 The devastation of part of Libya’s east- rate is estimated at 15.3 percent (National Population, million 6.9 ern coastal region caused by storm Labor Force Survey 2022), with higher GDP, current US$ billion 50.5 Daniel and the floodings led to a mo- rates among women and youth (18.4 and GDP per capita, current US$ 7327.2 ment of national solidarity but did not 23.1 percent respectively). While no offi- a 106.9 School enrollment, primary (% gross) trigger more lasting political reconcilia- cial poverty estimates are available yet, a 71.9 tion and consensus. The effectiveness of the average monthly household consump- Life expectancy at birth, years Total GHG emissions (mtCO2e) 99.5 the authorities’ response quickly ran in- tion expenditure is 3094 libyan dinar or Source: WDI, Macro Poverty Outlook, and official data. to political divisions and two distinct re- about US$645 according to the recently a/ Most recent WDI value (2021). construction funds were announced by released Household Consumption Survey the parallel governments. (2023). Reported consumption inequality, More recently influential Libyan politi- measured by a Gini coefficient of 0.31, is cal leaders from both the eastern and slightly lower than income inequality at western parts of the country and some 0.33 (Household Consumption Survey geopolitical leaders are renewing efforts 2023). Access to basic services such as wa- to unlock the country’s political dead- ter has become more challenging, particu- Challenges in deploying a unified and lock through the formation of an interim larly in the aftermath of the floods in Der- effective State response to the devastat- government to organize elections. Diplo- na and groundwater upsurge in Zliten. ing floodings in the eastern part of the matic efforts from the United Nations and geopolitical leaders have also in- country in September 2023 have high- creased discussions with the internation- lighted Libya's fragilities. Competition ally recognized Government of National Recent developments over the control of the oil wealth and Unity which rejects the formation of a rent seeking continue to weaken the caretaker government. The Libyan GDP at factor prices grew The Libyan economy is dominated by the by 10.5 percent in 2023 mainly driven health of the economy and citizen trust. hydrocarbon sector and remains undiver- by the hydrocarbon sector. Oil produc- Libya’s key challenges remain to find a sified with a bloated public sector. The tion increased by 11 percent on an annu- peaceful resolution of the political divi- oil and gas sector represents 60 percent al basis to 1.18 million bpd thanks to the sions, improve the transparent and effec- of GDP, 94 percent of goods and services improved security conditions and lim- exports, and 97 percent of total govern- ited disruptions from the Derna flood- tive management of the oil wealth, and ment revenues in 2023. The private sector ings,the resumption of activities by rebuild and diversify the economy. is underdeveloped and employs less than several companies, higher financing 14 percent of the workforce. for investment and maintenance for Social conditions have deteriorated over the National Oil Company as well the past years due to high unemployment, as exemption from the Organization FIGURE 1 Libya / LYD/USD exchange rate in the official and FIGURE 2 Libya / Official inflation rate in the region of Tripoli parallel markets LYD/USD Percent change, y/y 10 8 Official Parallel 6 8 4 2 6 0 -2 4 -4 Inflation rate 2 -6 Food & Beverage -8 0 -10 Jan'17 Jan'18 Jan'19 Jan'20 Jan'21 Jan'22 Jan'23 Jan'24 Jan'19 Jul'19 Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Jul'22 Jan'23 Jul'23 Source: Central Bank of Libya. Sources: Central Bank of Libya and World Bank staff calculations. MPO 164 Apr 24 of the Petroleum Exporting Countries The GNU budget was overall balanced in is also expected assuming at least part (OPEC) output cuts. 2023 with a deficit of 0.1 percent of GDP. of a reconstruction program is imple- External surpluses have narrowed in 2023 Government revenues dropped by 6 mented under agreed political and insti- driven by lower global oil prices. During percent in nominal terms compared to tutional arrangements. the initial ten months of 2023, the trade 2022 while spending decreased by 1.7 Inflation is projected to stabilize at 2.4 surplus contracted by 56 percent in nom- percent despite a 26 percent increase of percent in 2024 and 2025 thanks to less inal terms compared to the same period the wage bill. In 2023, the GNU trans- volatile global commodity prices and in 2022 as export revenues dropped by 44 ferred an extra budgetary allocation of progress toward the full reunification of percent and imports fell by 27 percent. 11 percent of GDP to the NOC and the central bank. According to official figures, inflation General Electricity Company of Libya On the fiscal front, the Budget of the GNU eased from 4.6 to 2.3 percent between 2022 (GECOL). The public wage bill, subsi- is expected to be nearly balanced as im- and 2023. Inflation remains mainly driven dies, and social transfers represent re- proved government revenues are counter- by food prices which affects more poor spectively 51 and 16 percent of gov- balanced by more spending on wages and and vulnerable households. While the di- ernment spending. Notwithstanding oil subsidies and part of the needed recon- nar was overall stable in nominal terms in revenues and fuel subsidies are under- struction. The current account surplus is 2023, the gap between the official and par- represented since 2021 when the NOC projected to stabilize at around 26-28 per- allel market rates has widened since Octo- established a barter system oil for fuel. cent of GDP during the 2024-2026 period ber 2023. The gap reached 27 and 43 per- assuming oil production stabilizes. cent in December 2023 and February 2024 This outlook is subject to significant un- respectively, in comparison to 7 percent on certainty and downside risks. Recent social average during the first nine months of Outlook unrests in January 2024 in southern Libya 2023. The widening gap is driven by high- and threats to shut down oil fields across er demand for foreign exchange fueled by The Libyan economy is expected to the country by the Petroleum Facility weak fiscal discipline and high public grow between 4.8 and 5.8 percent over Guards (PFG) in February 2024, along with spending, trade and financial policies defi- 2024-2026 assuming overall political and clashes in Tripoli, highlight the fragility of ciencies translating into large informal and oil sector stability is maintained. On the situation. Prospects for political stabil- illicit trade. In March 2024, the Central the demand side, growth would be dri- ity and consensus remain uncertain but Bank of Libya (CBL) announced the intro- ven by government spending and in- would be a major upside for the Libyan duction of a tax on FX sales of 27 percent. vestment. A public investment rebound economy and citizens. TABLE 2 Libya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 153.5 1.3 -1.7 4.8 5.3 5.8 Private consumption 136.8 -4.2 -12.8 2.8 4.5 4.1 Government consumption 41.6 23.2 -2.2 3.9 5.4 7.2 Gross fixed capital investment 255.2 5.5 -19.6 8.4 1.6 -1.1 Exports, goods and services 126.1 -19.9 7.1 5.8 6.8 7.1 Imports, goods and services 46.6 -13.9 -16.5 5.4 5.7 5.2 Real GDP growth, at constant factor prices 114.5 2.4 10.5 4.8 5.3 5.8 Agriculture 6.0 10.0 6.8 4.0 6.0 4.0 Industry 223.0 -12.1 12.5 5.1 5.7 6.3 Services 28.8 32.4 7.8 4.4 4.7 5.1 Inflation (consumer price index) 2.8 4.6 2.3 2.5 2.4 2.9 Current account balance (% of GDP) 11.9 22.1 24.6 26.3 28.0 28.5 Fiscal balance (% of GDP) 9.2 2.1 -0.1 -0.1 -0.7 -2.2 Revenues (% of GDP) 49.0 49.6 51.7 51.6 52.9 52.2 Debt (% of GDP) 72.5 57.6 54.5 58.1 62.2 58.9 Primary balance (% of GDP) 9.2 2.1 -0.1 -0.1 -0.7 -2.2 GHG emissions growth (mtCO2e) 68.9 -10.1 -13.0 4.0 13.4 11.4 Energy related GHG emissions (% of total) 58.8 60.9 62.6 62.4 61.1 62.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 165 Apr 24 After five consecutive years of drought, water scarcity is posing a growing threat MOROCCO Key conditions and to the Moroccan economy and society. Rainfall has remained well below histor- challenges ical averages since 2019, reducing dams’ filling rates to little over 25 percent and Table 1 2023 Despite a challenging global environ- aggravating the overexploitation of un- Population, million 37.8 ment, Morocco is leveraging its presence derground water sources. The govern- GDP, current US$ billion 143.1 in international markets. Dynamic man- ment is responding to the looming water GDP per capita, current US$ 3782.4 ufacturing and services exports together crisis with the deployment of new infra- a 4.8 National poverty rate with workers’ remittances are contribut- structure, including desalination plants. It a 9.8 ing to a pronounced improvement in is also imposing water restrictions on ir- Lower middle-income poverty rate ($3.65) a 39.5 the current account balance. The suc- rigated agriculture and other activities, Gini index School enrollment, primary (% gross) b 114.2 cession of greenfield FDI projects an- which may need to be tightened if cli- Life expectancy at birth, years b 74.0 nounced in recent months suggests that matic conditions do not improve. Total GHG emissions (mtCO2e) 90.5 Morocco has become increasingly attrac- tive for foreign investors. Low sovereign Source: WDI, Macro Poverty Outlook, and official data. spreads and a stable currency are ad- a/ Most recent value (2014). b/ WDI for School enrollment (2022); Life expectancy ditional signs of the confidence instilled Recent developments (2021). by the Moroccan economy. Yet, the private sector still lacks the dy- The expansion of the agricultural sector namism that would be required to meet owing to a base effect and the strong per- Economic growth has accelerated thanks the landmark targets of the New De- formance of tourism-related services have to a partial recovery of agricultural out- velopment Model. Estimated potential pulled real GDP growth to 2.8 percent in growth is half of that which would be 2023. Although some export-oriented nich- put, solid manufacturing and services ex- needed to double per capita income lev- es are growing at double digits, industrial ports, and supportive macroeconomic els by 2035. Gross capital formation con- growth has been dampened by the con- policies. But the country faces adverse la- tinues to be led by the public sector, traction of phosphates - fertilizers and the bor market dynamics as the private sector while domestic private investment is construction sector. On the demand side, is still recovering from recent shocks and still recovering from recent shocks. The growth has been pulled by net exports performance of labor markets remains and (mostly public) investment. After a five-year long drought is destroying underwhelming, with a spike in un- contracting in 2022, private consumption rural jobs. Limited employment opportu- employment and a sustained increase increased moderately in 2023 supported nities and eroded real disposable incomes of inactivity that disproportionately af- by a decline in inflation from 10.1 percent due to the recent inflationary surge are fects women and the youth. Although in February 2023 to 2.3 percent in January the recent inflationary shock is subdu- 2024. In the context of weakening price likely to have negative impacts on welfare, ing, labor income losses, especially in pressures, the central bank has main- which will be partly mitigated by ongoing rural areas, could have a negative im- tained the monetary policy rate un- social protection reforms. pact on households’ purchasing power changed at 3 percent since March 2023, and welfare. back in positive territory in real terms. FIGURE 1 Morocco / Real GDP growth and contributions to FIGURE 2 Morocco / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 45 40000 8 40 35000 6 35 30000 4 30 25000 2 25 0 20000 20 -2 15000 15 -4 10000 10 -6 5 5000 -8 2018 2019 2020 2021 2022 2023e 2024f 0 0 Private consumption Government consumption 2013 2015 2017 2019 2021 2023 2025 Investment Net exports International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: HCP and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 166 Apr 24 The current account deficit declined from materialize. The solid progression of tax 3.5 to 0.4 percent of GDP due to a rebound and non-tax revenues will allow the gov- of tourism inflows, a 27.5 percent expan- Outlook ernment to maintain the budget deficit on sion of automobile and electronics exports, a downward trend despite a solid growth lower energy prices, and strong remit- Real GDP growth is projected to decline to of public spending pulled by social sector tances. Gross FDI inflows contracted by 2.4 percent in 2024 and to accelerate to 3.7 reforms and ongoing water investments. 17.8 percent, to 2.2 percent of GDP, but percent in 2025. The agricultural sector is This would allow public debt to slightly new greenfield investment projects contin- expected to contract by 2.8 percent, as un- decline over time (as a ratio of GDP). ue to be announced. usually dry and warm conditions are com- The balance of risks remains tilted to the The budget deficit declined from 5.4 to 4.3 promising key crops. On the contrary, the downside. A continuation of the drought percent of GDP in 2023. An emergency manufacturing sector is expected to accel- would depress agricultural output and plan for the water sector and ongoing so- erate to 2.3 percent, supported by the con- potentially affect other sectors. More cial sector reforms are exerting pressures tinued momentum of the automotive and geopolitical tensions could adversely af- on public spending, which increased by 5.8 electronic industry, an improved perfor- fect Morocco’s terms-of-trade and slow percent in 2023. But this was more than off- mance of phosphates and fertilizers, and a the disinflation process. The ongoing fis- set by the dynamism of tax and especial- more dynamic construction sector pulled cal consolidation increasingly relies on ly non-tax revenues originating from asset by new programs of direct financial sup- asset monetization operations that create monetization operations. port to home-buyers and the post-earth- a stream of future payment obligations Despite rising economic growth, the labor quake reconstruction effort. The services from the State. force participation rate decreased to 43.6 sector is expected to slow moderately (to In 2023, poverty fell to its pre-covid levels percent in 2023 (-0.7 p.p), with a gender 3.7 percent), as tourism begins to revert and will continue to slowly decrease in gap of 50 p.p. Unemployment increased to long-term growth patterns. On the de- 2024, despite the announced negative per- to 13 percent. Although most of the job mand side, private consumption is project- formance of the agricultural sector. At the losses are in rural, non-remunerated ac- ed to gradually firm-up, supported by national level, the new direct cash transfer tivities, unemployment is concentrated milder inflationary pressures. program, better targeted and more gener- among the educated urban youth. Losses The current account deficit is projected to ous than the previous ones, will at least in labor income may explain the drop in widen to 2 percent of GDP as domestic partly compensate welfare losses from household confidence, at its lowest level demand recovers and cereal imports in- price rises and rising inactivity. However, since 2008. Households lament a worsen- crease. It will continue to be financed for the growth process to be more inclusive ing of living conditions due to high food by long-term official debt and FDI in- and resilient, a more intense job creation prices and the deterioration of public ser- flows, which are expected to increase as is more than ever needed, especially for vices, education in particular. the recently announced projects begin to women and youth. TABLE 2 Morocco / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 8.0 1.3 2.8 2.4 3.7 3.3 Private consumption 6.9 -0.7 0.5 1.3 2.1 2.3 Government consumption 7.2 3.3 3.6 4.6 4.1 3.6 Gross fixed capital investment 7.6 -2.2 6.3 4.4 4.6 4.9 Exports, goods and services 7.9 20.4 10.8 7.6 8.3 8.1 Imports, goods and services 10.4 9.0 6.4 8.8 6.3 7.0 Real GDP growth, at constant factor prices 7.8 1.0 3.1 2.4 3.7 3.3 Agriculture 19.0 -12.7 6.7 -2.8 8.1 0.7 Industry 7.1 -1.7 -0.4 2.3 2.5 3.1 Services 5.8 5.4 4.0 3.7 3.3 4.2 Inflation (consumer price index) 1.4 6.6 6.1 2.2 2.4 2.1 Current account balance (% of GDP) -2.3 -3.5 -0.4 -2.0 -2.4 -2.1 Net foreign direct investment inflow (% of GDP) 1.1 1.2 0.1 1.0 1.1 1.2 Fiscal balance (% of GDP) -6.0 -5.4 -4.3 -4.1 -3.5 -3.0 Revenues (% of GDP) 25.3 28.7 28.6 28.3 27.4 26.8 Debt (% of GDP) 69.5 71.6 70.6 70.2 69.5 68.4 Primary balance (% of GDP) -3.7 -3.2 -2.2 -1.6 -1.0 -0.5 a,b International poverty rate ($2.15 in 2017 PPP) 0.6 0.6 0.6 0.5 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.0 4.9 4.7 4.5 4.2 3.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 28.7 28.5 27.6 27.0 25.4 24.2 GHG emissions growth (mtCO2e) 5.4 -0.7 0.5 1.0 2.7 2.7 Energy related GHG emissions (% of total) 74.7 74.7 74.6 74.8 75.4 75.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2013-ENCDM. Actual data: 2013. Nowcast: 2014-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2013) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 167 Apr 24 major role in the economy. Key risks to the outlook arise from oil prices volatility, OMAN Key conditions and which could pose significant challenges to the fiscal and external accounts and dis- challenges rupt the government’s reform program. This is in addition to geopolitical risks as- Table 1 2023 Economic activity slowed down in 2023 on sociated with a potential escalation of the Population, million 4.6 the back of OPEC+ output cuts, but a grad- conflict in the Middle East. On the upside, GDP, current US$ billion 108.2 ual recovery is underway, driven by non- higher oil production and prices, coupled GDP per capita, current US$ 23295.3 hydrocarbon sectors notably in agricul- with additional fiscal and diversification a 90.1 School enrollment, primary (% gross) ture, construction, and services. Higher en- measures, could spur growth and a 72.5 ergy prices, and prudent fiscal manage- strengthen fiscal and external positions. Life expectancy at birth, years Total GHG emissions (mtCO2e) 125.6 ment under the Medium-Term Fiscal Plan Steadfast implementation of the new social Source: WDI, Macro Poverty Outlook, and official data. (MTFP) and Vision 2040, have together protection and labor laws would promote a/ WDI for School enrollment (2022); Life expectancy boosted the fiscal and external positions. private sector-led growth and boost female (2021). The hydrocarbon windfalls were also labor force participation. wisely utilized to reduce government debt in 2023 by almost half of its peak of almost Oman’s economy continues to perform 68 percent of GDP in 2020. well, supported by favorable oil prices and The government continues to advance Recent developments governance and efficiency reforms. In Jan- a commitment to the economic diversifica- uary 2024, it has revealed plans to boost Real GDP growth is estimated to have de- tion program, in line with the country’s the economy through the launch of the celerated to 1.4 percent in 2023, down from Vision 2040. Concerted efforts are under- Oman Future Fund by Oman Investment 4.3 percent in the previous year, reflecting way to catalyze private investment, in- Authority (of OMR2 billion/US$5.2 bil- the oil output cuts to adjust to the OPEC+ cluding through Oman Investment Au- lion), with an ambition to attract foreign quotas. In the first nine months of 2023 investment and boost investments in lo- (9M-2023), real growth reached 2 percent, thority (OIA). The government’s commit- cal small and medium-sized enterprises with the non-hydrocarbon sectors growing ment to keep the fiscal position under (SMEs). Furthermore, Oman is prioritiz- by 2.7 percent and compensating for the control and use the oil revenues to lower ing investments in renewable energy and slowdown in the hydrocarbon sector (0.5 public debt signals a commitment to fiscal green hydrogen projects, in support of percent). Average headline inflation eased the country’s energy transition goals and from 2.8 percent in 2022 to 0.9 percent in discipline and has prompted a credit rat- to meet its target of deriving 20 percent 2023, contained by subsidies on basic food ing upgrade. Economic growth is expect- of the total energy generation from re- items and domestic petroleum prices. ed to improve slightly in 2024, but newable sources by 2030. Fiscal revenues declined by 17 percent in downside risks to the outlook include oil Notwithstanding the existence of sizable the first ten months of 2023 (10M-2023), market volatility, climate change risks, buffers, government revenue, export pro- due to the decline in hydrocarbon rev- ceeds, and the debt trajectory remain close- enues. In parallel, public spending de- and potential indirect spillovers from the ly tied to oil market developments, as the clined by 16 percent during the same ongoing conflict in the Middle East. hydrocarbon sector continues to play a period, reflecting a drop in public debt FIGURE 1 Oman / Real annual GDP growth FIGURE 2 Oman / General government operations Percent change Percent of GDP 10 45 Hydrocarbon GDP 40 8 35 Non-Hydrocarbon GDP Real GDP 30 6 25 20 4 15 10 2 5 0 0 -5 2021 2022 2023e 2024f 2025f 2026f -2 2021 2022 2023e 2024f 2025f 2026f Revenues Expenditures Budget balance Sources: Oman authorities, World Bank staff projections, and IMF projections. Sources: Oman authorities and World Bank staff projections. MPO 168 Apr 24 service costs as well as the removal of gas unemployment rate is projected at 1.5 Growth is expected to further accelerate purchase and transport expenses from the percent. According to the most recent over the medium term supported by glob- state’s general budget, which were trans- monthly statistical bulletin, the rate of job al demand recovery, increased investment ferred to the Integrated Gas Company. Ac- seekers among women aged 25-29 was 20 in non-hydrocarbon sectors and renewable cordingly, Oman’s overall fiscal surplus percent in December 2023 (6.7 percentage energy. Inflation is forecast to converge to declined to 2 percent of GDP during points lower relative to December 2022), 2 percent over the medium term, helped by 10M-2023, down from over 2.7 percent of while the rate of job seekers among men the stabilizing effect of the currency peg to GDP during the same period of 2022. The aged 25-29 in that same period was 2.4 the U.S. dollar. lower hydrocarbon revenues are estimated percent (0.3 percentage points higher rel- Despite relatively moderate hydrocarbon to limit the scope for larger declines in the ative to December 2022). prices during the forecast period, contin- debt-to-GDP ratio. With the repayment of ued fiscal discipline will keep Oman’s government debt, credit rating agencies overall fiscal balance in comfortable sur- Fitch and S&P upgraded Oman’s rating to plus, exceeding 4 percent of GDP in “BB+” from “BB”. Outlook 2024-26. Accordingly, public debt is ex- The trade balance surplus narrowed to pected to continue its downward trajectory US$20 billion (18.7 percent of GDP) by Oman’s economic outlook remains favor- over the medium term. end-2023, compared to over US$27 billion able, with real growth expected to reach Similarly, the current account is projected (31 percent of GDP) in 2022, as hydrocar- 1.5 percent in 2024, driven by increased to remain in surplus over the medium bon receipts contracted by almost 17 per- gas production and diversification efforts. term, as hydrocarbon and nonhydrocar- cent. Gross foreign assets remain sizable at These include efforts to further improve bon revenues rise. This will help Oman re- US$17.5 billion by end-2023. the business environment, support the role build its foreign reserves and improve the Based on the latest ILO modelled esti- of SMEs in the economy, and accelerate in- country’s resilience against oil market fluc- mates, the labor force participation rate vestments in renewable energy and green tuations and external shocks. Oil market and employment-to-population ratio are hydrogen. The newly issued tourism law volatility, tighter-than-needed global fi- projected to reach 68.7 percent and 67.7 is expected to attract FDIs to promote re- nancial conditions, climate change risks, percent respectively in 2024, slightly gional development in the country and im- and the impact of heightened geopolitical above the level projected in 2023. The prove the sector’s competitiveness. tensions are key risks to the outlook. TABLE 2 Oman / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.1 4.3 1.4 1.5 2.8 3.2 Private consumption 6.8 4.2 1.8 2.2 2.8 2.6 Government consumption 0.9 3.1 1.1 1.8 1.7 2.4 Gross fixed capital investment -1.5 3.8 3.0 3.5 3.1 3.0 Exports, goods and services 14.2 13.0 1.2 1.9 3.5 3.4 Imports, goods and services 2.7 7.6 4.3 4.7 3.3 2.5 Real GDP growth, at constant factor prices 3.1 4.4 1.4 1.5 2.8 3.2 Agriculture 9.0 -9.7 2.7 1.3 1.5 1.4 Industry 1.1 5.1 0.2 1.8 2.1 2.3 Services 5.4 4.4 2.9 1.1 3.7 4.3 Inflation (consumer price index) 1.5 2.8 0.9 1.6 2.0 2.0 Current account balance (% of GDP) -5.4 5.0 2.8 2.9 2.6 2.4 Net foreign direct investment inflow (% of GDP) 8.6 4.0 5.6 3.4 3.6 3.8 Fiscal balance (% of GDP) -3.1 10.1 5.6 3.8 4.3 4.5 Revenues (% of GDP) 33.0 39.7 31.5 30.7 30.1 29.5 Debt (% of GDP) 61.3 39.9 37.6 35.4 33.1 31.9 Primary balance (% of GDP) 0.0 12.5 8.2 6.4 6.8 6.9 GHG emissions growth (mtCO2e) 4.1 6.6 4.9 3.5 4.4 0.0 Energy related GHG emissions (% of total) 71.5 72.6 73.3 73.7 74.5 74.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 169 Apr 24 PALESTINIAN Key conditions and Recent developments challenges TERRITORIES Since the onset of the conflict on October 7, activity in Gaza has come to a near-com- From 2017 to 2022, the Palestinian econo- plete stop: GDP declined by 86 percent in my barely grew, with an average annual the fourth quarter (Q4) of 2023. Simulta- Table 1 2023 real GDP growth of 0.6 percent. Economic neously, additional movement and access Population, million 5.1 potential has been principally curtailed by restrictions imposed by Israel within the GDP, current US$ billion 17.5 the restrictions stemming from the Israeli West Bank heavily dampened demand re- GDP per capita, current US$ 3401.8 occupation which, according to Israel, are sulting in an estimated 22 percent contrac- Upper middle-income poverty rate ($6.85) a 20.5 in place for security reasons. A combina- tion of the West Bank’s GDP in Q4 2023. a 33.7 tion of depressed aid inflows, COVID-19, The pre-conflict projection by the World Gini index b low private capital attraction, incomplete Bank, forecasting a 3.2 percent real GDP School enrollment, primary (% gross) 91.8 b reform efforts by the Palestinian Authority growth for the Palestinian economy in Life expectancy at birth, years 73.5 (PA), and the internal divide between the 2023, turned into a 6.4 percent contraction. Source: WDI, Macro Poverty Outlook, and official data. West Bank and Gaza, also contributed to The destruction in the economy’s produc- a/ Most recent value (2016), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy economic stagnation. Before the onset of tive capacity has been severe and will have (2021). the ongoing conflict, the Palestinian econ- a lasting impact. In Gaza, as of January 26, omy was already slowing, especially in 2024, an estimated 82 percent of private Gaza reflecting an Israeli decision restrict- sector establishments have either been par- Since October 2023, the Palestinian ing Gazan fish sales in the West Bank, since tially damaged or destroyed. Further, 62 August 2022. In a context of weak growth percent of residential buildings in Gaza economy has experienced one of the outcomes, high unemployment, dwindling have incurred some form of damage. Infra- largest shocks recorded in recent eco- foreign aid, and no access to traditional structure is heavily impacted, with over 62 nomic history. In Gaza, the loss of life, economic policy instruments, the fiscal sit- percent of all roads damaged or destroyed. the speed and extent of fixed assets dam- uation in the Palestinian territories has Overall CPI in Gaza increased by 33 per- age, and the reduction in production steadily deteriorated over the years. cent in Q4 2023 compared to the previous Income per capita trends have been highly quarter, largely owing to supply disrup- flows are unparalleled. The knock-on ef- heterogeneous, across the territories. In tions stemming from the conflict. Food fects in the West Bank include massive 2022, the GDP per capita in Gaza was prices, specifically, increased by 39 per- job losses and a spiraling fiscal crisis for US$1,253 - approximately a quarter of the cent, quarter-on-quarter (q/q) driven by re- the Palestinian Authority, leading to West Bank's at US$4,491. Poverty has fol- duced access to food, heightened trans- lowed a similar trend as according to the lat- portation costs, and lower volumes of aid. further cuts and delays in public salary est national household survey from 2016/17, In contrast, the CPI in the West Bank in- payments. The outlook is tied to the almost half of the Gaza population lived creased marginally by 0.9 percent, q/q, conflict’s evolution and level of future below the upper-middle income poverty over the same period. restrictions imposed by Israel. line ($6.85 2017 PPP a day), compared to On the fiscal front, additional deductions less than 10 percent in the West Bank. by Israel from the revenues it collects FIGURE 1 Palestinian territories / Real GDP growth and FIGURE 2 Palestinian territories / Actual and projected contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 30 40 4000 20 35 3500 30 3000 10 25 2500 0 20 2000 15 1500 -10 10 1000 -20 5 500 0 0 Private consumption Government consumption 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 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: Palestinian Central Bureau of Statistics and World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 170 Apr 24 on behalf of the PA (clearance revenues) estimates indicate that approximately 74 Gaza, at least for the medium term. Work- increased from an average of NIS200m percent of employees in Gaza have been ers’ mobility within the West Bank and to NIS500-600m per month since October out of work since the start of the con- to the Israeli market will largely shape 2023. According to Israel, the additional flict. Around 170,000 workers from the growth outcomes in the West Bank. The deductions are equivalent to the amount West Bank, working in Israel and the Palestinian economy is expected to con- that the PA spends in Gaza, including settlements prior to October 7, have ei- tract further in 2024, by 6.5 percent. As- salaries to PA civil servants hired before ther lost their jobs or are no longer able suming an end to the hostilities, and re- 2007. Given the transition to a cash-based to access them. Furthermore, owing to construction efforts starting in 2025, economy as a result of the conflict, Israel the new Israeli-imposed restrictions on growth should rebound to 5.5 percent in says it is concerned the money could movement within the West Bank, ap- 2025 while GDP levels are not anticipated fall into the wrong hands. The PA dis- proximately 67,000 workers who com- to recover to the pre-conflict baseline any putes this risk and asserts that payments mute from different governorates can no time soon. Consequently, the poverty rate to Gaza have been occurring consistently longer reach their workplaces. is expected to remain high, exceeding 30 since before 2007, with no alteration in The sharp contraction of GDP per capita percent, in the outlook. the type of recipients or the mechanism. will result in a rapid increase in the On the fiscal front, an increase in clearance Due to the deductions, clearance revenue poverty rate. The national poverty rate at revenue transfers to the levels seen before transfers shrank by over 50 percent and, the international line of $6.85 a day is es- the conflict is assumed as well as a gradual as a response, the PA decided to decline timated to have stood at around 25.5 per- uptick in domestically managed taxes, re- several of the monthly transfers of the cent in 2022. The conflict pushed this up flecting rebounding economic activity. sharply reduced amount. Notably, clear- to almost 30 percent in 2023, with the ex- This will drive total revenues up, improv- ance revenues, prior to deductions, have pectation that this will increase further to ing the fiscal deficit over the medium term. shrunk drastically due to the contraction around 33.8 percent in 2024 – the high- However, these assumptions are subject to of economic activity and Palestinian est it has been in at least 20 years. This very high levels of uncertainty. trade. This, paired with decreased domes- corresponds to around 1.8 million people Downside risks remain elevated. The tic tax collection has made the 2023 fiscal living in poverty. severity of the economic contraction will deficit balloon fivefold vis-a-vis the pre- directly hinge on the evolution of the con- conflict baseline, reaching US$516 million, flict and the resolution of the clearance or 3.0 percent of GDP. revenues dispute. Absent a cessation of Even before the start of the conflict, un- Outlook the hostilities and a substantial increase employment in Gaza stood at 45.1 per- in external aid, the risks of potentially cent (September 2023), with youth un- The lagging effect of the fixed assets losses disorderly fiscal consolidation measures employment at 59.5 percent. Preliminary will keep economic activity subdued in cannot be excluded. TABLE 2 Palestinian territories / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.0 3.9 -6.4 -6.5 5.5 4.2 Private consumption 7.5 20.5 -6.4 -7.3 9.4 9.0 Government consumption 10.3 -10.5 -11.3 0.3 2.7 2.5 Gross fixed capital investment 13.7 11.8 -3.4 -4.0 6.2 4.7 Exports, goods and services 17.3 6.2 2.9 3.0 10.7 8.4 Imports, goods and services 14.8 25.7 -2.6 -2.0 12.0 11.8 Real GDP growth, at constant factor prices 6.2 1.3 -6.4 -6.5 5.5 4.2 Agriculture -0.7 -5.7 -11.3 -5.2 3.3 2.7 Industry 4.5 3.4 -7.5 -6.0 9.0 8.6 Services 7.5 1.5 -5.6 -6.8 4.7 3.0 Inflation (consumer price index) 1.2 3.7 5.9 4.6 3.0 2.5 Current account balance (% of GDP) -9.8 -15.0 -14.7 -19.2 -16.3 -16.1 Net foreign direct investment inflow (% of GDP) 1.6 1.3 1.1 0.7 0.9 1.3 Fiscal balance (% of GDP) -5.8 -1.4 -3.0 -2.9 -2.7 -1.7 Revenues (% of GDP) 25.0 27.3 25.5 27.9 27.7 28.2 Debt (% of GDP) 56.0 53.2 58.2 64.9 64.2 63.3 Primary balance (% of GDP) -5.1 -0.7 -2.2 -2.2 -2.0 -1.1 a,b International poverty rate ($2.15 in 2017 PPP) 0.8 0.8 1.1 1.4 1.3 1.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 4.5 4.5 5.9 7.1 6.5 6.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 26.1 25.5 29.7 33.8 32.0 31.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2016-PECS. Actual data: 2016. Nowcast: 2017-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2016) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 171 Apr 24 showcasing Qatar's commitment to long- term economic growth and diversification. QATAR Key conditions and However, challenges remain. Gas produc- tion and prices continue to be key de- challenges terminants of fiscal and external accounts balances. More recently, these risks have Table 1 2023 In January 2024, Qatar launched the Third been compounded by the potential im- Population, million 3.0 National Development Strategy (NDS3) pact of the conflict in the Middle East on GDP, current US$ billion 227.5 2024-2030, the final stage toward achiev- energy price volatility, as well as its im- GDP per capita, current US$ 76699.8 ing Vision 2030. This strategy aims to ac- pact on incoming tourism and investment a 102.1 School enrollment, primary (% gross) celerate economic diversification, expand in the region. Recent Houthi attacks on a 79.3 North Field LNG production, and posi- the Red Sea shipping routes risk also af- Life expectancy at birth, years Total GHG emissions (mtCO2e) 130.7 tion Qatar as a top destination for in- fecting the European demand for Qatari Source: WDI, Macro Poverty Outlook, and official data. vestors. Qatar's diversification efforts gas in the near term, while Qatar's grow- a/ WDI for School enrollment (2020); Life expectancy have been ongoing for many years, culmi- ing dependence on China as a key trad- (2021). nating in the recent success of receiving ing partner—China was Qatar’s largest more than four million visitors in 2023, LNG buyer in 2022, accounting for 21.7 surpassing the annual visitor numbers of percent of Qatar’s exports—raises con- the previous five years. This positive mo- cerns about the country's vulnerability to Notwithstanding its large hydrocarbon mentum continues in 2024, with a record potential economic downturns in China. high of 702,800 visitors in January. The resources and associated liquefied natural positive trend in tourism has stimulated gas (LNG) revenues, Qatar is pursuing a other sectors, with strong backward link- long-term strategy focused on economic ages evident in the 15 percent growth of Recent developments diversification. Growth in tourism, new the hospitality sector in H12023, making infrastructure projects, and the launch of it the fastest-growing sector. Additionally, Following a significant 4.2 percent growth the transportation and entertainment sec- in 2022, driven primarily by hosting the the Third National Development Strategy tors experienced 9 percent and 6 percent FIFA World Cup, the economy has exhib- (NDS3) are expected to support the econ- growth respectively. Post-World Cup, the ited modest growth in year 2023, reach- omy. Nevertheless, the hydrocarbon sec- fiscal space generated from oil and gas ing 1.6 percent year-on-year (y-o-y) in tor continues to play a major role, as ex- revenues is being channeled towards in- H12023, driven mainly by hydrocarbon vestments in human capital, research and sector growth (3.2 percent) and, to a ternal and fiscal surpluses remain contin- development, and the private sector to much lesser extent, non-hydrocarbon sec- gent on LNG exports and will—in the further diversify the economy. The Qatar tors growth (0.6 percent). The latter was medium term—be aided by the North Investment Authority (QIA), ranked as the supported by new infrastructure projects Field LNG expansion. Key risks include tenth largest Sovereign Wealth Fund and a vibrant tourism sector post-World further escalation of geopolitical tensions (SWF) globally, plans to invest over US$1 Cup. The PMI – which reflects private billion in international and regional ven- sector activity – remained expansionary and fluctuating energy prices. ture capital funds in 2024, with a focus on except for December but suggests an the technology and healthcare sectors, overall modest growth in 2023. In the FIGURE 1 Qatar / Annual real GDP growth FIGURE 2 Qatar / Fiscal balance Percent, percentage points Percent of GDP 8 40 6 30 4 20 2 0 10 -2 0 Oil GDP growth Non-oil growth -4 Real GDP growth -10 -6 2020 2021 2022 2023 2024 2025 2026 2020 2021 2022 2023 2024 2025 2026 Fiscal balance Revenue Expenditure Source: World Bank. Source: World Bank. MPO 172 Apr 24 hydrocarbon sector, commitment towards continued tourist influx. International re- through the hosting of several major Asian and European countries are main- serves and foreign currency liquidity re- global events in 2024. The hydrocarbon tained through the signing by QatarEner- main strong, reaching QAR 246 billion sector is expected to decelerate to a 1.6 gy of new 10-year supply agreements, (USD 67.6 billion) in January 2024. percent growth in 2024, affected by ca- thereby providing a solid, long-term base The latest ILO estimates indicate that key pacity constraints. Yet, a major boost is for the expansion of gas exports despite labor market indicators are expected to re- anticipated for the period Q42025 to 2027, the risks of reduced European appetite for main stable through 2024. The labor force with the North Field expansion project Qatari gas in the near term triggered by re- participation rate (15+) is projected to re- coming online. Consumer price growth cent Houthi attacks on Red Sea shipping main at 88.9 percent in 2024 (equal to the is projected to decelerate to 2.1 percent, routes. Inflation remained subdued, reach- revised estimates for 2023), and the em- contained by the tight monetary policy. ing 3.1 percent in 2023 down from its 2022 ployment-to-population ratio is estimated Despite further moderation in global en- peak of 5 percent, helped by lower com- to remain at 88.8 percent for the year. The ergy prices, the fiscal and current account modity prices and a strong Qatari riyal, re- unemployment rate is projected to remain balances are projected to remain in sur- flecting the peg to the US dollar. The Qatar stable at 0.1 percent in 2024, with higher plus for the coming years. The fiscal sur- Central Bank (QCB) kept interest rates un- rates among women and among young plus is however anticipated to narrow to changed at 6 percent since July 2023, align- people. Women aged 15-24 were estimated 4.9 percent of GDP in 2024, as income ing with the US Federal Reserve. to experience the highest unemployment from oil and gas accounts for around Sizeable fiscal surpluses continued to be rate, around 1.7 percent in 2024. 80 percent of government revenue. The achieved (7.7 percent of GDP in H12023), much-delayed introduction of value- supported by the relatively elevated hy- added tax (VAT), assuming to take place drocarbon prices and a fall in public in 2025, will offset some of the declines spending after the World Cup. The cur- Outlook in hydrocarbon revenue and support rent account balance narrowed from strengthen the fiscal surplus, notwith- US$11.7 billion in Q1 to US$9.4 billion Real GDP growth is projected to standing a potential one-off impact on in Q3, primarily due to a smaller mer- strengthen marginally in 2024 but remain economic activity. chandise trade surplus and lower energy modest at 2.1 percent. Non-oil growth The current account surplus is also expect- prices, as natural gas prices fell from will continue to be robust at 2.4 percent, ed to narrow in the short-medium term, US$20/mmbtu in January 2023 to US$11/ driven by a growing tourism sector. but remains strong at 13.3 percent in 2024, mmbtu in September 2023. However, the Qatar's state-of-the-art infrastructure will supported by energy and services surplus remains ample, supported by allow the country to reap the benefits (tourism) exports. TABLE 2 Qatar / 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 4.2 1.8 2.1 3.2 4.7 Private consumption 3.4 5.2 2.7 3.5 3.5 3.4 Government consumption 2.8 4.1 1.2 1.5 2.4 2.3 Gross fixed capital investment 2.3 3.1 2.1 2.2 2.3 2.3 Exports, goods and services 2.4 4.7 2.4 2.7 4.2 6.5 Imports, goods and services 4.7 6.5 4.5 4.7 3.9 4.0 Real GDP growth, at constant factor prices 1.6 4.2 1.8 2.1 3.2 4.7 Agriculture 0.5 7.7 2.4 2.1 2.9 2.9 Industry 0.7 5.2 2.2 2.5 3.1 6.0 Services 3.5 2.0 0.9 1.4 3.4 1.8 Inflation (consumer price index) 2.3 5.0 3.1 2.1 1.9 1.9 Current account balance (% of GDP) 14.7 26.6 16.1 13.3 12.3 13.2 Net foreign direct investment inflow (% of GDP) -0.7 -1.0 -0.5 -0.8 -0.6 -0.6 Fiscal balance (% of GDP) 0.2 10.4 6.1 4.9 4.1 5.4 Revenues (% of GDP) 29.6 34.6 32.0 31.5 29.5 33.0 Debt (% of GDP) 58.4 42.4 41.4 39.2 38.5 36.2 Primary balance (% of GDP) 1.9 11.6 7.2 6.2 5.2 6.4 GHG emissions growth (mtCO2e) 3.9 4.3 0.9 2.2 3.3 4.3 Energy related GHG emissions (% of total) 71.9 73.0 73.1 73.6 74.3 75.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 173 Apr 24 and global economic activity. Delays or digressions in implementing structural re- SAUDI ARABIA Key conditions and forms in support of the diversification goals highlighted in the Vision 2030, per- challenges haps due to other global shocks or an un- comfortable fiscal position, would reduce Table 1 2023 Saudi Arabia has made significant oil pro- prospects for stronger long-term growth Population, million 32.8 duction cuts for over a year, as part of the and employment. GDP, current US$ billion 1069.0 OPEC+ alliance decisions. The most recent GDP per capita, current US$ 32593.0 voluntary cut of 1 mbpd was initiated in a 93.3 School enrollment, primary (% gross) July 2023 and extended to expire in Q2 Life expectancy at birth, years a 76.9 2024. However, these cuts did not prevent Recent developments Total GHG emissions (mtCO2e) 776.7 a decline in oil prices, as the average per Source: WDI, Macro Poverty Outlook, and official data. barrel price fell from US$100 to US$83 in Economic activity contracted in real terms a/ WDI for School enrollment (2008); Life expectancy 2022 and 2023, respectively; affected by by 3.7 percent (y/y) in Q4-2023 (prelimi- (2021). weak global demand. Assessing oil price nary data), which represents a sharp de- developments in a scenario where produc- cline in annual growth for the second con- tion cuts had not been implemented is secutive quarter. This translates to an an- challenging, yet the overall effect on the nual contraction of 0.9 percent in 2023, the fiscal and external positions is negative. worst performance in 20 years (apart from Moreover, with these cuts, Saudi Arabia the pandemic and global financial crises Subsequent OPEC+ decisions of cutting is losing market share to other oil ex- years). The decisions by OPEC+ to cut oil oil production is adversely affecting porters (e.g., the US, or Angola after it left production, initiated in Q1-2023 and fur- Saudi Arabia’s overall GDP, fiscal, and OPEC over quota disputes) and concerns ther deepened by Saudi Arabia’s volun- external balance positions. Meanwhile, remain over peak oil demand, which risks tary cut of 1 mbpd since H2-2023, have had the performance of non-oil private sector leaving oil reserves stranded. With this a detrimental impact on oil GDP, which background, limiting supply to stabilize contracted by 9.2 percent (y/y). The strong is robust and continue to reap benefits prices is becoming even more challenging performance of non-oil private activities, from reform implementation. Inflation for Saudi Arabia, which is further exacer- which grew by 4.6 percent (y/y) during remains contained supported by gener- bated by the Kingdom’s need to finance 2023, was not sufficient to fully compen- ous subsidies, tight monetary policy, its ambitious reform agenda. sate for the decline in oil activities. High- Other downside risks and uncertainties to frequency data reaffirm a strong start of and cheaper imports. An escalation in the outlook include downward revisions non-oil activities in 2024, with the Jan- regional and global armed conflicts, of China’s growth prospects, which will uary and February PMI recording 55.4 volatility in oil prices, and tighter-than- have an adverse impact on Saudi Ara- and 57.2, respectively; driven primarily needed global financial conditions are bia’s main export market. Further esca- by stronger domestic demand despite key risks to the outlook. lation of the conflict in the Middle East tight monetary conditions. and Russia’s invasion of Ukraine, in addi- Lower oil revenues, due to lower prices tion to tighter-than-needed global finan- and production levels, coupled with ex- cial conditions, all risk affecting regional pansionary fiscal policy (expenditures are FIGURE 1 Saudi Arabia / Annual real GDP growth FIGURE 2 Saudi Arabia / Central government operations Percent change Percent of GDP 20 40 15 30 10 20 5 10 0 0 -5 -10 -10 Budget Balance Revenues Expenditures 2020 2021 2022 2023e 2024f 2025f 2026f Oil GDP Non-Oil Private GDP -20 Government Activities Real GDP 2020 2021 2022 2023e 2024f 2025f 2026f Sources: GASTAT Saudi Arabia and World Bank staff estimates. Source: World Bank. MPO 174 Apr 24 up by 11 percent y/y) shifted the fiscal sur- Saudi women slightly rose in Q3-2023, halt the increase in oil production capacity plus of 2.6 percent of GDP in 2022 into a possibly driven by labor supply growth to 13 mbpd by 2027 (now at 12 mbpd), deficit of 2.1 percent of GDP in 2023. Fi- that outpaced labor demand. However, it oil output is expected to increase gradually nancing needs have been covered by the is- remains far below the level a year ago. The to exceed 10 mbpd by end 2024—from suance of a US$10 billion sovereign bond overall labor force participation rate, how- around 9 mbpd in January. With the recent while state oil firm Aramco introduced a ever, declined to 51.6 percent in Q3-2023, announcement by the Ministry of Energy performance-linked dividend, on top of its down from 52.4 percent in Q1-2023. The to extend voluntary oil production cuts annual base dividend, to shore up bud- number of Saudis working in the private until end Q2-2024, oil GDP is expected to getary funds. In January 2024, Saudi Ara- sector in Q3-2023 is estimated at 2.6 million contract in 2024 by 0.8 percent. These bia made its largest international debt is- while the non-Saudi nationals increased to trends are expected to be reversed in 2025, suance since 2017 (US$12 billion) to par- 8.1 million. The employment-to-popula- with oil output anticipated to ramp up ag- tially cover the anticipated financing gap. tion ratio decreased slightly between Q1 gressively resulting in 5.9 percent overall Balance of payments data shows the cur- and Q3-2023, with the declines primarily GDP growth. Inflation is expected to hover rent account surplus narrowing to US$36.9 driven by changes among Saudi males and around 2.2 percent in the medium term, billion during the first 9 months of 2023 among non-Saudi women. The employ- contained by generous subsidies on fuel (down from US$131 billion in the previous ment-to-population ratio among Saudis and food and cheaper imports. year) driven primarily by a 25.8 percent declined from 48 percent to 47.2 percent The fiscal deficit is expected to widen to fall in oil receipts. As a result, the estimat- over the same period. 2.4 percent of GDP in 2024, reflecting con- ed current account surplus narrowed from tinued expansionary fiscal policy and the 13.7 to 4 percent of GDP in 2022 and 2023, drop in oil receipts. Aramco’s distribution respectively. The Saudi Central Bank’s of performance-linked dividends, which (SAMA) foreign reserves reached US$436.9 Outlook started in Q3-2023, should improve the billion in December 2023, the lowest in 14 fiscal position in the medium term—sup- years, suggesting that oil revenues are be- Following the contraction witnessed in ported by recovery in oil production lev- ing channeled to PIF to finance its larger 2023, real GDP is expected to grow by 2.5 els. As budgetary financing needs grow, investment role in the local economy. percent in 2024, driven primarily by robust the debt-to-GDP ratio is expected to rise Overall, labor market outcomes are pos- non-oil private activities (forecast to grow to 27.7 percent in 2024, before moderating itive, as Saudis, both men and women, by 4.8 percent). Loose fiscal policy, lower to 25.8 percent in the medium term. find jobs particularly in manufacturing, interest rates, strong private consumption, The current account surplus should widen construction, and in the public sector. and investment, will continue to support in the medium term (averaging 7.1 percent The overall unemployment rate remained non-oil activities in the medium term. of GDP) supported by the recovery of oil at 5.1 percent, while unemployment for Meanwhile, and despite Aramco’s plan to production and non-oil exports. TABLE 2 Saudi Arabia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.3 8.7 -0.9 2.5 5.9 3.2 Private consumption 9.5 4.9 4.5 3.3 3.0 3.1 Government consumption 0.8 9.3 4.9 2.0 5.8 2.7 Gross fixed capital investment 10.7 21.7 3.3 3.0 2.0 3.8 Exports, goods and services 1.0 19.7 -7.9 -1.0 11.0 3.7 Imports, goods and services 8.3 12.4 8.1 4.3 5.0 4.0 Real GDP growth, at constant factor prices 3.9 9.2 -1.3 2.5 5.9 3.2 Agriculture 2.5 4.1 5.5 2.0 2.0 2.0 Industry 1.1 13.2 -4.8 -0.5 6.4 1.6 Services 7.6 4.7 2.9 6.1 5.6 5.0 Inflation (consumer price index) 3.1 2.5 2.3 2.1 2.3 2.2 Current account balance (% of GDP) 4.8 13.7 4.0 4.2 6.6 7.7 Net foreign direct investment inflow (% of GDP) -0.2 0.1 -1.2 -1.1 -1.1 -1.1 Fiscal balance (% of GDP) -2.1 2.6 -2.1 -2.4 -0.6 0.2 Revenues (% of GDP) 27.8 30.5 30.2 32.0 33.9 34.1 Debt (% of GDP) 26.9 23.8 26.2 27.7 26.1 25.5 Primary balance (% of GDP) -1.2 3.3 -1.1 -1.4 0.5 1.3 GHG emissions growth (mtCO2e) 1.8 3.5 2.8 3.1 3.5 1.9 Energy related GHG emissions (% of total) 68.3 68.5 68.3 68.1 68.0 67.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 175 Apr 24 decrease in the welfare of Syrian house- holds stems from the direct effects of SYRIAN ARAB Key conditions and the long-lasting conflict and recent nat- ural disasters, combined with increased challenges REPUBLIC inflation following regional shocks and monetization of fiscal deficits. In 2022, ex- Syria’s civil war is the deadliest conflict treme poverty, as measured by the share of the past three decades. Between 2011 of the population living below the interna- Table 1 2023 and 2022, the Uppsala Conflict Data Pro- tional poverty line of US$2.15 (2017 PPP) Population, million 23.2 gram (UCDP) recorded more than 407,000 per capita per day, affected almost 25 per- GDP, current US$ billion 12.0 battle-related deaths in Syria. As political cent of the Syrian population, starkly con- GDP per capita, current US$ 515.9 settlements to end the conflict remain elu- trasting with the virtually non-existent ex- International poverty rate ($2.15) a 24.8 sive and extremist groups, notably the so- treme poverty before the conflict. When a 67.0 called Islamic State, continue waging in- considering the US$3.65 (2017 PPP) inter- Lower middle-income poverty rate ($3.65) b surgencies, the Syrian civil war has be- national poverty line of low- and middle- School enrollment, primary (% gross) 74.4 b come one of the most protracted conflicts income countries, poverty affected 67 per- Life expectancy at birth, years 72.1 in recent history. To date, the conflict in cent of the population in 2022, equivalent Total GHG emissions (mtCO2e) 51.4 Syria ranks second in duration, with on- to approximately 14.5 million Syrians. Source: WDI, Macro Poverty Outlook, and official data. ly the Afghan civil wars of 1989-2001 and a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy 2006-2021 lasting longer since 1990. (2021). A decade of conflict has had devastating economic and social consequences on Recent developments Syria. Syria has further been subjected Syria’s protracted economic contraction to several external shocks, which the The Middle East conflict has spilled over war has made the country ill-equipped Syria’s borders. According to data com- persists due to a combination of shocks to deal with. These include economic piled by the Armed Conflict Location & related to conflict both within Syria and turmoil in neighboring Lebanon and Event Data Project (ACLED), Syria record- across the region. Indeed, the Middle Turkey, the knock-on effects on commod- ed 146 conflict events and 136 fatalities East conflict has spilled over into Syria ity prices due to the war in Ukraine, linked to Israeli attacks from October 2023 as airstrikes damaged critical infrastruc- earthquakes in Syria and Turkey in Feb- to January 2024. Repeated Israel airstrikes ruary 2023, and lately, attacks and trade on Syria’s main airports led to a 42 percent ture. With the economy in continued re- disruptions related to the ongoing Mid- decline in overall flights in the fourth quar- treat and increased cost of living due to dle East conflict. Gross Domestic Product ter of 2023 compared to the previous quar- currency depreciation and trade disrup- (GDP) contracted by 54 percent between ter. Military groups affiliated with the tions, ordinary Syrians continue to bear 2010 and 2021. The decline in Gross Na- Iran-backed “axis of resistance” carried tional Income per capita prompted the out at least 83 attacks on US bases in north- the brunt of the conflict, with about World Bank to reclassify Syria as a low- east Syria from October 2023 to January one-quarter of Syrians now estimated to income country in 2018. 2024 and targeted locations in the occu- live in extreme poverty. Poverty rates in Syria have increased sig- pied Golan Heights, prompting a fierce nificantly in the last two decades. This US military response in January 2024. FIGURE 1 Syrian Arab Republic / Inflation and exchange FIGURE 2 Syrian Arab Republic / Actual and projected rates poverty rates and real GDP per capita Percent, y/y growth Poverty rate (%) Real GDP per capita (constant LCU) 350 100 80000 CPI inflation 90 300 70000 CPI inflation: food 80 WFP minimum food basket price 60000 250 SYP to US$ market exchange rate 70 60 50000 200 50 40000 150 40 30000 100 30 20000 20 50 10 10000 0 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -50 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 Real GDP pc Sources: Central Bureau of Statistics of Syria, WFP Market Price Watch Bulletin, Source: World Bank. Notes: see Table 2. and World Bank estimates. MPO 176 Apr 24 Macroeconomic conditions in Syria have in 2023, a 5 percent decrease from the consumption will remain subdued with further deteriorated. Economic activity, previous year. Compounded by soaring a continued erosion of purchasing power as proxied by nighttime light emissions prices and diminished access to essential amid rising prices. Private investment is (see our Syria Economic Monitor for de- goods, this has deepened welfare chal- expected to remain weak, as the security tails), declined in 2023 by 1.2 percent lenges for Syrian households. According situation is expected to remain volatile year-on-year (yoy), particularly along to the REACH Humanitarian Situation and economic and policy uncertainties to Syria’s western borders, possibly due to Overview in Syria (HSOS) surveys, access persist. Government spending, especially weakened trade activity. Nighttime gas to health services, sewage systems, and capital expenditures, will continue to be flaring data points to a decrease in oil food markets has continued to deteriorate constrained by low revenues and lack of production in 2023 of 3.5 percent yoy, in highly affected areas in northern Syria access to financing. likely due to earthquake- and conflict-re- after the earthquake. Heightened financial Risks to the growth outlook are signif- lated infrastructure damage. vulnerability increasingly prompts house- icant and tilted to the downside. In- Currency depreciation and consumer holds to borrow money, purchase goods creased intensity of conflict and height- price inflation are persistently high. In on credit, and rely on child labor as a ened geopolitical tensions stemming 2023, the market price of the Syrian coping strategy. from the recent Middle East conflict risk pound depreciated by 141 percent deepening a growth contraction. Escalat- against the US dollar. With heavy re- ing airstrikes and bombings may lead liance on imports, currency depreciation to additional infrastructure damage, po- quickly leads to higher consumer prices Outlook tentially further disrupting supply chains in Syria. Consequently, consumer price and increasing logistics costs. A broader inflation is estimated to have risen by Subject to extraordinarily high uncertain- regional conflict could elevate commodi- 93 percent in 2023. ty, real GDP is projected to contract by 1.5 ty prices, negatively affecting Syria as a After rebounding in the wake of the Feb- percent in 2024, assuming that the regional net food and fuel importer. A potential ruary 2023 earthquake, aid flows to Syria conflict will remain largely contained this redirection of aid and international as- have declined and access to humanitarian year. Inflation is anticipated to remain sistance in response to the conflict in assistance has become more challenging. high in the short term due to the pass- Gaza could exacerbate Syria’s humani- According to the UN Financial Tracking through effects of currency depreciation, tarian crisis, potentially worsening mal- Service (FTS), total funding for humanitar- along with persistent shortages and re- nutrition, further increasing poverty, and ian assistance amounted to US$2.8 billion duced rationing of food and fuel. Private the likelihood of disease outbreaks. TABLE 2 Syrian Arab Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f a Real GDP growth, at constant market prices 1.3 -0.1 -1.2 -1.5 Inflation (consumer price index) 118.8 74.0 92.6 99.7 Fiscal balance (% of GDP) -9.6 -8.4 -8.2 -8.0 b,c International poverty rate ($2.15 in 2017 PPP) 23.6 24.8 39.0 46.8 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 65.0 67.0 79.7 84.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Projections based on nighttime light data. b/ Calculations based on 2022-HNAP and 2007, 2009 CBS. Actual data: 2022. Nowcast: 2021, 2023. Forecasts: 2024. c/ Projection and nowcast using neutral distribution (2022) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU deflated by CPI. Poverty rates in 2009 and 2022 use different sources that are not directly comparable. MPO 177 Apr 24 lay the foundation for a more sustain- able economic growth. TUNISIA Key conditions and challenges Table 1 2023 Recent developments Tunisia faces increasingly difficult eco- Population, million 12.5 nomic conditions. Since 2011 weak re- Economic recovery has been modest in GDP, current US$ billion 51.2 form implementation has left the econ- real terms since the sharp contraction in GDP per capita, current US$ 4107.7 omy inefficiently closed to investment 2020 due to COVID-19 (-8.6 percent). Af- a 16.6 National poverty rate and trade and ill-equipped to exploit ter a moderate rebound in 2021 (4.6 per- a 2.2 opportunities in the global economy. cent), the rate of growth decelerated to Lower middle-income poverty rate ($3.65) a 16.2 As growth and private job creation 2.6 percent in 2022 and to only 0.4 percent Upper middle-income poverty rate ($6.85) Gini index a 32.8 stagnated, the State stepped in as an in 2023. The latest economic slowdown School enrollment, primary (% gross) b 105.0 employer of last resort and price sta- reflects the severe drought in 2023 (with b 73.8 bilizer through subsidies. This has agriculture declining by 11 percent in real Life expectancy at birth, years caused a deterioration of the fiscal terms), the uncertain financing condi- Total GHG emissions (mtCO2e) 38.8 and the current account deficits under tions, and some fiscal consolidation. Source: WDI, Macro Poverty Outlook, and official data. the weight of a large public sector Shortages of some basic products have a/ Most recent value (2021). b/ Most recent WDI value (2021). wage bill, higher consumer subsidies persisted amidst import compression and and underperforming state-owned en- declining agricultural production. terprises. The COVID-19 pandemic, The merchandise trade deficit narrowed to Tunisia’s economic outlook remains highly Russia’s invasion on Ukraine and the 10.9 percent of GDP in 2023 down from ongoing drought have exacerbated 17.5 percent in 2022 amidst more benign uncertain. Tunisia’s already timid post- these longstanding weaknesses. global prices and robust manufacturing Covid economic recovery came almost to a Tunisia’s growth prospects continue to exports. As a result, the current account halt in 2023 amid a severe drought and hinge on decisive structural reforms to deficit (CAD) fell from 8.7 to 2.6 percent of difficult financing conditions. Authorities address economic distortions and fiscal GDP over the same period, also helped by pressures. These include: (i) eliminating robust tourism receipts. have established a Central Bank financing business entry permits and unnecessary While the decline in commodity prices and facility to finance the government debt licenses, (ii) gradually phasing out con- the energy and food subsidy bill provides service in 2024 and have used it to repay trols to capital outflows for non-offshore some respite, the pressure on public fi- a maturing Eurobond. Inflation and un- businesses and individuals; (iii) reduc- nances remains elevated as public expen- employment remain significant chal- ing consumer subsidies while compen- diture reforms continue to falter amid sating vulnerable households; (iv) im- weak growth. This contributes to the lenges for the authorities. Accelerating proving the performance of state-owned challenges in financing the public debt, the recovery and stabilizing the economy enterprises; (v) making the tax system which between 2019 and 2023 increased will require the speedy implementation of fairer. Progress in these reforms is from 67.8 to 80.1 percent of GDP (with- fiscal, SOE and structural reforms. critical to stabilize the macroeconomic out including government guarantees situation, accelerate the recovery and and SOE debts). FIGURE 1 Tunisia / Real GDP: Actual, forecast and pre- FIGURE 2 Tunisia / Actual and projected poverty rates and COVID-19 trend real GDP per capita Millions of real TND (2015 prices) Poverty rate (%) Real GDP per capita (constant LCU) 110 000 35 8200 30 8000 105 000 Pre Covid19 trend 25 7800 100 000 20 7600 SM24 95 000 15 7400 10 7200 90 000 5 7000 85 000 0 6800 2010 2012 2014 2016 2018 2020 2022 2024 2026 80 000 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 2024 2026 Upper middle-income pov. rate Real GDP pc Sources: World Bank estimates and National Institute of Statistics. Source: World Bank. Notes: see Table 2. MPO 178 Apr 24 With limited access to international fi- The CAD is projected to remain stable at nancing, the authorities have established 2.4 percent of GDP in 2024 with continued a Central Bank financing facility up to Outlook growth in travel exports and stable terms TND 7 billion in 2024 (4 percent of GDP of trade. With FDI projected to be relative- and a quarter of 2024 financing needs) to After the significant slowdown in 2023, ly stable and minimal portfolio invest- finance the government debt service. The the economy is expected to experience a ments, foreign lending would still have to facility – which was used to repay a Euro moderate rebound. Assuming a modera- shoulder the financing of the CAD. 850 million Eurobond maturing in Febru- tion of the ongoing drought and slight- The 2024-26 growth forecast is subject to ary 2024 - could undermine the stability ly more benign financing conditions, significant downside risks. Growth projec- of the Dinar, the Central Bank indepen- growth is forecast to reach 2.4 percent tions would be even lower should Tunisia dence, and fiscal discipline. in 2024 and 2.3 percent in 2025-26. not implement decisive fiscal and pro- Inflation continued to moderate since the With this growth rate, real GDP in 2024 competition reforms and/or should avail- peaks of February 2023, declining from would finally reach its pre-Covid 19 lev- able financing not be sufficient to cover 10.4 percent to 7.5 percent in February el, a full four years after the pandem- Tunisia’s external needs. If these condi- 2024. The decline appears to be driven by ic. This modest structural growth is due tions occur, it may be challenging to secure lower global prices and weak domestic de- to challenging conditions linked to wa- sufficient foreign currency in the economy, mand. However, inflation remains above ter scarcity, the uncertainty around debt which could lead to pressures on exchange both the 2021-2022 average (7 percent) and financing, and the weak momentum on rates and prices, exerting a negative im- food inflation is higher (10.2 percent), structural reforms. pact on economic activity and employ- which presents a particular challenge for Tunisia’s public finance and external ac- ment. In addition, should the drought con- lower-income households. count will remain precarious in the ab- ditions persist, the projections could be re- With weak economic growth, the un- sence of sufficient external financing. The vised downwards given the negative im- employment rate increased to 16.4 per- budget deficit is expected to decline pact on agriculture and the trade balance. cent in Q4 2023 from 15.2 percent a somewhat to 6.1 percent of GDP in 2024 Poverty using the Lower Middle Income year before. This is one of the highest (compared to 6.7 percent of GDP in Poverty Line (US$3.65/person/day line in rates in the region and it is associated 2023). That is mainly driven by a decline 2017 PPP term) is projected to remain with a year-on-year decrease in labor of subsidies and wage bills in real terms stable at 2.3 percent in 2022-23 and so force participation. The average rate in and a moderate increase in tax revenues. until 2026. The share of poor and vulner- 2023 (45.8) was 1.5 percentage points Gross financing needs are expected to able at the upper-middle income country below the average pre-Covid, suggest- rise further at 16.1 percent of GDP in poverty line (US$6.85/person/day in 2017 ing continued growth in the number 2024 (from 13.8 percent in 2023) due to PPP) is projected to constantly decline to of discouraged workers. significant external debt service. 14.5 percent by 2026. TABLE 2 Tunisia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.6 2.6 0.4 2.4 2.4 2.2 Private consumption 2.4 2.2 1.4 2.7 2.9 3.4 Government consumption 1.5 -1.2 1.9 -0.5 -1.0 -1.8 Gross fixed capital investment 3.2 1.7 -10.7 5.6 8.5 3.2 Exports, goods and services 11.9 17.3 9.8 2.1 4.0 4.1 Imports, goods and services 10.9 11.5 6.6 2.7 5.2 4.6 Real GDP growth, at constant factor prices 4.8 2.5 0.0 2.4 2.3 2.3 Agriculture -2.3 1.0 -11.0 5.9 5.0 5.0 Industry 9.8 0.9 -1.5 -0.3 -0.3 0.9 Services 4.1 3.4 2.4 2.9 2.9 2.4 Inflation (consumer price index) 5.7 8.3 9.3 7.0 6.0 5.0 Current account balance (% of GDP) -5.9 -8.7 -2.7 -2.4 -2.3 -2.4 Net foreign direct investment inflow (% of GDP) -1.1 -1.4 -1.3 -1.3 -1.2 -1.2 Fiscal balance (% of GDP) -7.6 -6.7 -6.4 -5.6 -4.6 -3.2 Revenues (% of GDP) 25.7 28.5 28.5 28.0 26.1 26.3 Debt (% of GDP) 79.9 79.9 80.0 79.7 79.1 81.5 Primary balance (% of GDP) -4.7 -3.4 -3.1 -2.2 -1.1 0.2 a,b International poverty rate ($2.15 in 2017 PPP) 0.3 0.2 0.2 0.2 0.2 0.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.0 2.0 2.0 1.9 1.8 1.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 16.2 15.7 15.7 15.3 14.8 14.4 GHG emissions growth (mtCO2e) 4.7 -0.3 0.3 1.7 2.3 2.3 Energy related GHG emissions (% of total) 70.4 70.0 70.1 70.4 70.9 71.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-NSHBCSL. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2021) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 179 Apr 24 to weaker economic global activities and a decline in oil production to comply UNITED ARAB Key conditions and with OPEC+ decisions. As a result, the oil sector has witnessed a contraction challenges EMIRATES of an estimated 2.7 percent. The non-oil sector, however, remains robust and re- Hydrocarbon activity remains the prima- silient as growth accelerates to 5.4 per- ry source of government revenue, but ef- cent, driven by the financial and insur- Table 1 2023 forts are underway to accelerate the di- ance services, construction, real estate, Population, million 9.5 versification of the economy and of gov- and wholesale and retail trade sectors. GDP, current US$ billion 477.1 ernment revenues. These include the in- Relatedly, the Purchasing Managers' In- GDP per capita, current US$ 50128.3 troduction of Corporate Income Tax (CIT) dex (PMI) rose to 57.5 in February 2024, School enrollment, primary (% gross) a 115.8 in mid-2023, coupled with a phased with- indicating a stimulation in non-oil private a 78.7 drawal from the business fee structure. sector growth, driven by increases in out- Life expectancy at birth, years The outlook for the non-oil sector is ro- put, new orders, and employment. Total GHG emissions (mtCO2e) 292.3 bust, with an anticipated increase in oil Inflation pressures eased in 2023 due to Source: WDI, Macro Poverty Outlook, and official data. sector activity expected to maintain lower food prices, offsetting higher hous- a/ WDI for School enrollment (2020); Life expectancy (2021). strong external and fiscal positions. ing costs, with public wage growth re- Key risks to growth include OPEC+ deci- maining moderate throughout the year. sions on quotas, as well as the continua- Following the US Federal Reserve's tion/expansion of the conflict in the Middle stance, the Central Bank of UAE held East and its potential impact on oil prices key policy rates steady at 5.4 percent volatility and on the movement of goods since July 2023. The banking system re- The UAE maintains its status as a key and people (tourism). In particular, the mains well capitalized and liquid, with regional hub for trade, finance, and disruption of trade routes in the Red Sea the non-performing loans ratio dropping tourism, bolstered by substantial pro- have triggered an increase in shipping to 5.3 percent in Q42023 (down from costs and rerouting, including for Asia-Eu- 6.5 percent in Q42022) and private sector gresses in economic diversification and a rope trade. This could negatively impact credit continuing to grow. reduced dependence on hydrocarbon in- the transport and logistics sectors, posing The fiscal surplus more than halved in come. Economic growth is estimated to potential downside risks to economic 2023, declining to 5.6 percent (down from have significantly decelerated in 2023, growth in 2024. 10.8 percent in the previous year), reflect- primarily due to OPEC+ production re- ing the impact of cuts in oil production on oil proceeds. The decrease in government ductions, but is expected to pick up in revenue was due to diminished tax and 2024. Major risks to the outlook include Recent developments non-tax receipts, although this was part- an escalation of geopolitical conflicts, ly offset by increased social security con- large fluctuations in oil prices, and con- The UAE economy experienced a signif- tributions. Meanwhile, expenditures grew icant slowdown to 3.1 percent in GDP across all subcategories, except for spend- tinued global financing tightening. growth in 2023, down from 7.9 percent ing on goods, services grants, and capital in 2022. The deceleration was attributed spending, which has seen a minor decline. FIGURE 1 United Arab Emirates / Annual real GDP growth FIGURE 2 United Arab Emirates / Public finances Percent change Percent of GDP 15 40 10 30 5 20 0 10 -5 0 2021 2022 2023 2024 2025 2026 2021 2022 2023 2024 2025 2026 Oil GDP Non-Oil GDP GDP Balance Revenues Expenditures Sources: UAE authorities, IMF WEO, and World Bank staff estimates. Sources: UAE authorities, IMF WEO, and World Bank staff estimates. MPO 180 Apr 24 This strategic allocation supports key ini- with projected rates of 18.6 percent and to remain contained at around 2.1 per- tiatives such as the UAE Energy Strategy 5.5 percent respectively for 2023. cent during 2025-26. Yet, the positive im- 2050, the UAE Tourism Strategy 2031, the pact from falling commodity prices and UAE Digital Government Strategy 2025, lower import costs (from expanded trade and the Dubai Autonomous Transporta- agreements) may be offset by spikes in tion Strategy, underlining a focus on sus- Outlook food prices. tainable and digital growth. The fiscal surplus is expected to be sus- The current account surplus reached an es- Real GDP growth is projected to accelerate tained by strong oil revenues, together timated 9.1 percent of GDP, driven by oil re- to 3.9 percent in 2024, fueled by OPEC+'s with a robust growth of the non-oil econ- ceipts and rising non-oil exports. Free trade announced significant oil production hike omy, and is projected to further decline to agreements with key Asian and African in the second half of 2024 and a recovery 5.1 percent of GDP in 2024. The introduc- markets are anticipated to continue to fur- in global economic activity. Oil output tion of a 9 percent federal corporate tax in ther facilitate and boost non-oil exports growth is projected to reach 5.8 percent June 2023 is expected to expand the share and sustain the external balance surplus. in 2024, as OPEC+ announces extension of of non-oil revenues and broaden the tax The limited availability of UAE household additional voluntary cuts (163 tb/d), to the base. The ongoing implementation of fis- and labor market data prevents a detailed Q22024, with an expectation that global oil cal revenue reforms, along with the main- measurement and understanding of prices will remain strong. Non-oil output tenance of prudent and well-coordinated poverty, inequality, and livelihoods. Ac- will remain robust and continue to support fiscal policies tailored to individual emi- cording to the most recent available ILO economic growth in 2024, expanding at 3.2 rates, will enhance fiscal buffers and bol- estimates, the labor force participation rate percent, driven by strong performance in ster overall fiscal sustainability. was expected to reach 82.7 percent in 2023, the tourism, real estate, construction, A strong performance in the external sec- slightly above its 2019 level. Employment transportation, and manufacturing sectors. tor, bolstered by diversification initiatives, rebounded in 2022 to pre-pandemic levels However, growth prospects are tempered is anticipated to maintain a current ac- and was expected to continue to increase by substantial risks, notably, from poten- count surplus, projected at 8.4 percent of in 2023. The unemployment rate was pro- tial additional decisions by OPEC+ to de- GDP in 2024. Export performance is ex- jected to be 2.7 percent for 2023, a de- lay increases in production, and other pected to continue to be affected by volatil- crease from the height of the pandemic members decisions on production, in addi- ity in the oil sector and the reestablishment but remaining below the 2019 rates. Un- tion to the adverse impact of the conflict in of secure trade corridors. Nonetheless, di- employment rates remain substantially the Middle East on UAE’s economy. versifying into non-oil sectors and focus- higher among young adults ages 15-24 In 2024, inflation is expected to moderate ing on emerging markets in South Asia than among adults ages 25 and over. The to 2.3 percent - helped by earlier interest and East Africa are projected to improve gap is especially wide among women, rate hikes and reflecting base effects - and export proceeds. TABLE 2 United Arab Emirates / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.4 7.9 3.1 3.9 4.1 4.0 Private consumption 5.0 9.0 5.2 4.1 4.0 4.0 Government consumption 1.4 3.5 3.0 2.7 2.6 2.4 Gross fixed capital investment 9.6 6.0 5.7 3.6 3.5 3.3 Exports, goods and services 6.8 8.4 3.5 4.8 4.6 4.5 Imports, goods and services 8.8 7.4 5.3 4.8 4.1 4.1 Real GDP growth, at constant factor prices 4.4 7.9 3.1 3.9 4.1 4.0 Agriculture 3.8 3.4 3.5 3.5 3.0 3.0 Industry 1.3 8.8 1.2 3.8 4.5 4.2 Services 7.4 7.1 4.9 4.0 3.8 3.8 Inflation (consumer price index) -0.1 4.8 3.2 2.3 2.1 2.1 Current account balance (% of GDP) 11.5 11.7 9.1 8.4 8.3 8.3 a Fiscal balance (% of GDP) 3.5 10.8 5.6 5.1 4.8 4.7 Revenues (% of GDP) 30.2 33.6 31.7 30.9 30.0 29.9 Debt (% of GDP) 35.1 31.4 29.2 27.1 25.3 23.6 Primary balance (% of GDP) 3.7 11.1 5.8 5.3 5.0 4.9 GHG emissions growth (mtCO2e) 11.4 7.0 -1.9 1.5 1.4 1.6 Energy related GHG emissions (% of total) 75.1 76.4 75.8 75.6 75.3 75.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Consolidated fiscal balance. MPO 181 Apr 24 impacted national growth in 2023 and ex- acerbated IRG’s fiscal and monetary chal- REPUBLIC OF Key conditions and lenges. Since October 2023, the escalation of the conflict in the Middle East and in challenges YEMEN the Red Sea, intensified by direct Houthi involvement, further compromises the al- Yemen's humanitarian crisis is deeply ready precarious economic and social con- rooted in its conflict and complex, highly ditions of the Yemeni people. Table 1 2023 fragmented political and economic land- Furthermore, Yemen continues to face Population, million 34.4 scape. Between 2015 and 2023, the coun- deep structural challenges. The key oil GDP, current US$ billion 18.4 try has experienced a staggering 54 per- sector has suffered from years of lack GDP per capita, current US$ 533.4 cent contraction in real GDP per capita, of investments, maintenance, and inabili- School enrollment, primary (% gross) a 83.9 resulting in most Yemenis living in pover- ty to retain or attract foreign investment. a 63.8 ty and 17 million facing food insecurity, The non-oil sector is severely constrained Life expectancy at birth, years as evidenced by the 2022 Integrated Food by physical barriers to domestic trade Total GHG emissions (mtCO2e) 22.2 Security Phase Classification (IPC). More- and logistics, interruptions in essential Source: WDI, Macro Poverty Outlook, and official data. over, the conflict has intensified the coun- service delivery, acute input shortages, a/ WDI for School enrollment (2016); Life expectancy (2021). try's fragmentation into two distinct eco- pervasive double taxation, and uncoordi- nomic zones, each governed by its unique nated policies. Additionally, Yemenis re- set of institutions (including two central main vulnerable to volatility in remit- Amid the blockade of the IRG’s oil ex- banks with their respective currencies) tances and aid flows, a key lifeline, as and policies, resulting in increasing dis- well as climate change impacts on agri- ports by the Houthis and conflict in the parities. The Northern areas, under culture and water resources. Middle East, Yemen navigates between Houthi control, are home to some 70 per- Living conditions are dire for most Yemeni glimpses of hope and a grim reality. The cent of the population while the Southern people due to inadequate food security, national economic rebound in 2022 was areas, governed by the Internationally limited dietary diversity, and access to Recognized Government (IRG), hold the health and education, as well as basic ser- short-lived, with 2023 witnessing a country’s oil and gas resources. vices. While some households, especially sharp 24 percent decline in GDP per The economy has further deteriorated the better-off, can sell assets or tap into capita. Consequently, widespread pover- since the expiration of the truce in late remaining savings to navigate shortages, ty and food insecurity are estimated to 2022. During 2022, the economy showed due to widespread poverty and food inse- have intensified. The outlook remains signs of improvement, supported by a curity, many households have exhausted UN-brokered truce that brought a glim- these typical coping mechanisms. Conse- uncertain, due to stalled peace negotia- mer of hope, albeit without the parties quently, they turn to last-resort strategies, tions and regional conflict. While the reaching a permanent political settlement. including child labor or engaging in high- IRG faces mounting external financing The truce expired in October 2022, and risk work, with enduring destructive ef- needs, hopes for the future hinge on although an informal truce remained in fects on safety, physical and mental health, place, the situation worsened due to a and family and social fabric. Children are conflict resolution, timely support from Houthi-imposed blockade on IRG’s oil ex- most vulnerable and disproportionately partners, and government’s reforms. ports. This ongoing blockade dramatically affected by these challenges, suffering FIGURE 1 Republic of Yemen / Real GDP per capita FIGURE 2 Republic of Yemen / Exchange rate trend: Sana’a and Aden Base 100 in 2014 YER per US$1 100 1800 Aden 1600 90 Sana'a 1400 80 1200 70 1000 60 800 50 600 40 400 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Sources: World Bank and IMF staff calculations. Sources: Telegram Exchange Market Group and World Bank staff calculations. MPO 182 Apr 24 from some of the highest levels of stunting (YER). In 2023, the country's current ac- and remittances. These developments are and being underweight. count deficit widened to 19 percent of expected to significantly impact the eco- GDP, mainly due to the halt in IRG’s nomic situation in Yemen, with another oil exports. This resulted in pressures on projected contraction of 1.0 percent in real liquid international foreign exchange re- GDP in 2024 and further fiscal and mone- Recent developments serves, as reported by CBY-Aden, and a tary pressures on the IRG. Any disruptions notable depreciation of the YER in the to humanitarian aid, essential imports, re- The Houthi blockade on IRG’s oil exports Aden market to YER 1,620 per US dollar mittances, and sources of livelihood will and heightened tensions significantly im- by the end of January 2024 (from 1,114 exacerbate Yemen's economic and social pacted Yemen’s economy in 2023. Overall, in 2022), reflecting levels last observed conditions, particularly in a society national GDP is estimated to have con- at the end of 2021. However, despite the plagued by widespread poverty, depriva- tracted by 2.0 percent in real terms in currency depreciation in the Aden market, tion, and food shortages. The risks regard- 2023, following a rebound of 1.5 percent with the deeply depressed national econ- ing food insecurity are alarming, exacer- in 2022 but the dollar GDP per capita de- omy, consumer prices in Yemen declined bated by the suspension of aid and food cline was much deeper, as noted above. on average by 1.5 percent during 2023, also distribution by the World Food Program The Houthi blockade on IRG’s oil exports due to a drop in global commodity prices. (WFP) in Houthi-controlled areas. The resulted in a notable decrease in oil pro- conflict has already inflicted profound and duction, from an estimated 51.4 thousand far-reaching economic, social, and human- barrels a day in 2022 to 17.0 thousand in itarian consequences on Yemen. 2023. Additionally, heightened uncertain- Outlook Although risks continue to lean towards ties, hostile actions, and protests further the downside, Yemen holds a significant stifled activity in the non-oil sector. The macroeconomic outlook for Yemen is opportunity for peace dividends if the The fiscal situation of the IRG has deterio- clouded by the regional conflict and es- conflict is resolved. The country stands at rated. According to the Ministry of Finance calating tensions in the Red Sea. As a re- a pivotal moment in its development tra- in Aden, IRG’s fiscal revenues declined by sult, the resumption of IRG's oil exports jectory. While heightened domestic and over 30 percent in 2023, primarily oil and in 2024 is now unlikely due to the slow- regional tensions pose significant risks to customs revenues. The pledged budgetary down in peace negotiations amid the con- its economic, social, and humanitarian sit- support from Saudi Arabia, totaling flict, resulting in a downward revision of uation, the attainment of a lasting truce US$1.2 billion, with an initial disburse- growth projections. Also, maritime traffic or peace agreement holds the promise of ment of US$250 million in August 2023 along the Red Sea route has decreased by rapid economic recovery. With strong ex- (followed by a second disbursement in 30 percent since mid-December, disrupt- ternal financial assistance and reconstruc- early 2024), helped alleviate some of the ing broader trade flows. While Yemen's tion efforts supported by Yemen's devel- financial pressures, particularly in fund- imports and prices have so far shown rela- opment partners, along with post-conflict ing public sector wages. However, despite tive stability, with continued conflict, there reform, the country could achieve acceler- measures such as reducing subsidies and are increasing risks of supply shortages ated growth within a short timeframe. In expenditures on goods and services, the and rising import costs due to reduced and such a favorable scenario, growth would IRG’s fiscal deficit is estimated to have more costly imports, increased shipping be expected to be driven by a swift re- widened from 2.7 percent in 2022 to expenses, including due to rising war pre- bound in domestic transportation, trade, around 4.0 percent of GDP in 2023. miums and insurance costs. Furthermore, financial inflows, and reconstruction. Additionally, the complete halt in IRG’s the sanctions imposed on the Houthis by Such efforts are essential for overcoming oil exports has intensified external pres- the US administration in February 2024 the current crisis and laying the founda- sures and led to the further depreciation could have extensive repercussions across tions for a unified and prosperous future of the Yemeni Rial in the Aden market various sectors, including the banking, aid, for all Yemenis. TABLE 2 Republic of Yemen / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -1.0 1.5 -2.0 -1.0 1.5 a Inflation (consumer price index) 31.5 29.5 -1.5 14.2 17.3 Current account balance (% of GDP) -13.8 -17.8 -19.3 -24.5 -22.9 Net foreign direct investment inflow (% of GDP) 3.2 0.9 -0.4 0.4 0.2 Fiscal balance (% of GDP) -0.9 -2.7 -3.9 -3.4 -3.5 Revenues (% of GDP) 7.3 9.5 6.9 7.0 7.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. a/ Inflation rates refer to end-of-period figures. MPO 183 Apr 24 South Asia Afghanistan Maldives Bangladesh Nepal Bhutan Pakistan India Sri Lanka MPO 185 Apr 24 costs. In the medium term, the anticipated reduction in off-budget transfers (OBT) AFGHANISTAN Key conditions and will negatively affect social sector service delivery for a vulnerable population. ITA challenges is prioritizing non-productive security sec- tor spending, and its insufficient policy re- Afghanistan’s economy remains weak, re- sponse to the OBT cut will exacerbate the flecting the lack of endogenous sources of service delivery vacuum. The private sec- growth compensating for the decline in in- tor remains burdened by the central bank's The economic crisis continues, causing ternational aid after the Taliban takeover. commitment to an overvalued currency decreased activity and persistent pover- The deflationary process that started in and a fragile banking sector. April 2023 continued into January 2024, ty. A combination of better supply and sustained by the appreciation of the local depressed demand results in ongoing currency and the negative income shock deflation. Off-budget transfers were re- brought about by the enforcement of the Recent developments duced in 2023, shrinking the economy opium ban. This ongoing deflation reflects and raising concerns about pro-poor a troubling inability of both private and The real GDP shrank by a cumulative 26 public sectors to stimulate sufficient de- percent during the last two fiscal years, expenditure sustainability. The Interim mand. While falling prices may offer tem- with economic activity remaining stagnant Taliban Administration’s (ITA) rev- porary financial relief to the most vulnera- during the ongoing fiscal year 2023-24. enue collection remains slightly below ble households by reducing the cost of liv- While supply conditions have eased, ag- target. The Afghani (AFN) depreciated ing, it can also harm the broader macro- gregate demand remains low, resulting in economy. Prolonged deflation can lead to a sharp decline in the general price level. against USD during Jan-Feb 2024 af- a damaging cycle where consumers delay The headline inflation turned negative in ter strengthening throughout 2023. purchases, businesses reduce investment, April 2023, and in January 2024, it reached Poverty affects half of the population, and economic growth stalls, ultimately im- -10.2 percent YoY, primarily driven by neg- with persistent high unemployment peding more sustainable poverty allevia- ative inflation in the food group (-15.1 per- tion and employment opportunities. The cent) and the non-food segment (-4.8 per- and underemployment amid contract- economic hardship has increased labor cent). Core inflation, excluding food and ing job and business opportunities. force participation, leading to a rise in un- energy prices, also fell to -6.5 percent YoY. employment as jobs are not available. A significant appreciation of AFN against About half of the country's population is the USD during 2023 contributed to the living in poverty, and around 15 million falling price of imported commodities. people are facing food insecurity. The opium cultivation ban may be causing Foreign aid is entirely off-budget, given additional deflationary pressure due to a the ITA's position on human rights, gen- decrease in farmers' incomes, estimated to der, and inclusion. While most off-budget be around $1.3 billion (about 8 percent of spending is aimed at helping the poor, the GDP) by the United Nations Office on global experience highlights sustainability Drugs and Crime, and a reduction in do- challenges and increased service delivery mestic food prices as approximately FIGURE 1 Afghanistan / Real GDP growth and contributions FIGURE 2 Afghanistan / The country is facing deflation to real GDP growth Percent, percentage points Percent 60 20 40 15 10 20 5 0 0 -20 -5 -40 Headline Inflation -10 -60 Core Inflation 2018 2019 2020 2021 2022 -15 Agriculture Industry Services Real GDP Aug-21 Dec-21 Apr-22 Aug-22 Dec-22 Apr-23 Aug-23 Dec-23 Source: National Statistics and Information Authority. Source: National Statistics and Inflation Authority. MPO 186 Apr 24 200,000 hectares of land is estimated to be but marking a 5.6 percent increase from will cause a shortage of educated and converted from illicit to licit crops. More- the same period of the previous fiscal year. skilled females in the country and may in- over, since opium cultivation is more la- The shortfall is mainly due to border taxes, duce a further reduction in OBT. The econ- bor-intensive than other crops, the ban which saw a mere one percent rise despite omy is projected to remain stagnant, with is likely to put additional upward pres- a 22 percent surge in imports. The AFN no growth in the baseline. In 2025, GDP is sure on unemployment. While declining appreciation, reduced tariffs on some food projected to barely reach 2022's level with prices might have contributed to improv- items, and lower Business Receipt Tax on 2-3 percent annual growth after contract- ing the welfare of most vulnerable house- manufacturing inputs have contributed to ing 2-3 percent in 2023, resulting in a de- holds, the overall weakness of the econ- this modest increase. Conversely, Inland crease in real per capita income. The base- omy and the lack of employment oppor- revenues increased 11.8 percent YoY, dri- line assumes a 15 percent decline in OBT tunities are likely holding back more sus- ven by the Small Taxpayer Office and in 2023 and 10 percent in the subsequent tainable poverty reduction. provincial collection. The growth was years, with domestic revenues only partial- The country's total exports in CY2023 mainly due to improved compliance and ly offsetting OBT decline amid contracting reached $1.9 billion, almost the same as in collection of arrears. For the FY2023-24 economic activity. Inflation will bounce CY2022. While coal exports fell by 46 per- budget, around AFN 295 billion is ear- back and will, on average, remain between cent, increased exports of food and textiles marked for expenses, representing a 43 6-10 percent in 2024 and 2025 because of partially compensated for this. In CY2023, percent YoY increase, mainly due to the the base effect and correction in the ex- Afghanistan’s imports surged 23 percent planned new hiring and increased devel- change rate. Inflation and low growth will YoY to $7.8 billion, resulting in a trade opment projects. Non-productive security result in high poverty, while decreased deficit of $5.9 billion, 34 percent higher spending is prioritized over social sectors, pro-poor spending due to reduced off- than the previous year. Analysis suggests significantly impacting health, agriculture, budget transfers may cause a decline in that approximately a quarter of these im- and social protection. However, attain- service delivery for health and education ports were intended for the Pakistani mar- ment seems unlikely due to limited own- and heighten vulnerability to falling into ket and financed by Pakistani importers as source collection. poverty. Unemployment and underem- authorities implemented direct controls to The Afghan financial sector cannot support ployment are expected to persist amid lim- lower imports. This explains a significant the private sector through financial interme- ited job and business prospects. increase in imports in specific categories diation. Banks face limitations in interna- There are significant downside risks to despite an overall decrease in real GDP tional payments. Due to the mandatory the baseline scenario. A higher-than-pro- and deflation. These imports subsequently transition to Islamic Finance and legal un- jected decline in off-budget transfers will enter Pakistan. Accounting for these, es- certainties around loan recoveries, banks have substantial implications for pro-poor timates suggest that imports for are not lending, and deposit withdrawal spending, having ripple effects on busi- Afghanistan are approximately $5.5 billion limits remain in place. Banks are reliant on nesses and economic activities and there- instead of $7.8 billion, resulting in a de fac- commission-based business rather than by worsening the economic downturn. to trade deficit of ~$3.5 billion. The UN core banking activities. The private sector is Insufficient investment in the country’s cash shipments of ~$1.8 billion and esti- thus deprived of meaningful access to fi- human capital will have long-term con- mated remittances at ~$2 billion more than nance and standard banking services. In ad- sequences on the country's growth covered the de facto trade deficit of ~ $3.5 dition, the capacity of the Central Bank to prospects and capacity to reduce poverty billion. The local forex market was in sur- monitor emerging risks, particularly sustainably. Faster-than-expected depreci- plus, resulting in a 27 percent AFN ap- around AML/CFT, remains unclear. ation of the Afghani will limit imports, preciation in 2023. Recently, during Jan- taking a toll on economic growth, while Feb 2024, there has been some correction, a subsequent surge in inflation will in- with the AFN depreciating by 5.4 percent tensify economic hardships. In addition, against the USD. Outlook the lack of a country-wide strategy and Revenue collection for the eleven months necessary financial support to invest in of FY2023-24 (from March 22, 2023, to Feb- The current ban enforced by the ITA climate adaptation will add additional ruary 21, 2024) totaled AFN 189 billion, on female education is endangering the downward risks to economic activity and narrowly missing the target by 2 percent economy's future. Continuing the ban poverty reduction. MPO 187 Apr 24 loss of trade preferences. Export diversifi- cation away from garments and negotia- BANGLADESH Key conditions and tion of trade agreements are key medium- term objectives. Revenue mobilization, tar- challenges iff modernization, and elimination of non- tariff barriers would promote diversifica- Table 1 2023 Macroeconomic stability and strong ex- tion and boost growth. Addressing finan- Population, million 173.0 ports underpinned 6.6 percent average real cial sector vulnerabilities and streamlining GDP, current US$ billion 437.4 GDP growth over the decade preceding regulations would support foreign invest- GDP per capita, current US$ 2529.1 the COVID-19 pandemic. A stimulus pro- ment inflows. Improving governance, a 5.0 International poverty rate ($2.15) gram and accommodative monetary policy building human capital, and mitigating cli- a 30.0 sustained modest growth during the pan- mate risks are key long-term challenges. Lower middle-income poverty rate ($3.65) a 74.1 demic. From 2016 to 2022, poverty inci- Upper middle-income poverty rate ($6.85) Gini index a 33.4 dence declined by 2.1 percentage points School enrollment, primary (% gross) b 117.7 (US$ 3.65 poverty line) and 0.7 percentage Life expectancy at birth, years b 72.4 points for extreme poverty (US$ 2.15) an- Recent developments nually. Thirty percent of the population Total GHG emissions (mtCO2e) 256.2 (51.3 million people) currently lives in Estimated real GDP growth slowed in the Source: WDI, Macro Poverty Outlook, and official data. poverty (US$ 3.65). Multidimensional first half of FY24 as private consumption a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy poverty declined from 45.3 to 30.6 percent and investment growth stagnated. On the (2021). over the same period, lifting 20 million supply side, industrial growth moderated people out of deprivation of basic services. as energy shortages and import restric- Inequality based on the Gini coefficient re- tions offset steady external demand for mained unchanged at 33.4. RMG. The services sector slowed as do- Real GDP growth is expected to slow Economic conditions deteriorated in FY23 mestic purchasing power declined, while as inflation accelerated and the balance of agricultural growth remained modest. from 5.8 percent in FY23 to 5.6 percent payments (BoP) deficit widened, driven by This has impacted labor income, especially in FY24, as inflation weighs on consump- a financial account deficit. FX rationing re- for vulnerable populations working in ser- tion and import restrictions and financial stricted imports, leading to electricity vices and agriculture. sector vulnerabilities constrain private blackouts. Rising financial sector vulnera- Inflation remained elevated in the first bilities have dampened growth prospects. half of FY24, declining marginally to 9.7 investment. Poverty is projected to rise Unemployment was low in 2022 (3.6 per- percent in February 2024, driven by rising marginally in FY24, with stagnant in- cent), and the female labor force participa- food and electricity prices. Weak private equality. External buffers need to be re- tion rate (42.7 percent) was almost half that consumption growth and high inflation built to ensure macroeconomic stability. of males. However, job quality deteriorat- have halted poverty reduction. Higher Export diversification, financial sector re- ed between 2016 and 2022 as employees food prices particularly impacted poor earning more than US$ 3.65/day fell from households, which allocate over half of forms, and revenue mobilization are key their budget towards food expenditures. 77.9 to 50.2 percent. policy priorities ahead of Least Developed Bangladesh’s expected graduation from UN Bangladesh Bank (BB) raised the policy Country (LDC) graduation in 2026. LDC status in 2026 will gradually result in a rate by a cumulative 325 basis points FIGURE 1 Bangladesh / Real GDP growth and contributions FIGURE 2 Bangladesh / 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) 15 100 250000 90 10 80 200000 70 5 60 150000 50 0 40 100000 30 -5 20 50000 -10 10 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2010 2012 2014 2016 2018 2020 2022 2024 2026 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: Bangladesh Bureau of Statistics and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 188 Apr 24 since May 2022. However, policy trans- and limited public sector wage growth. rise, underpinned by a higher outflow of mission has been impaired by a cap on The public debt to GDP ratio increased to workers and greater exchange rate flexi- lending rates. The nonperforming loan ra- 35.0 percent but remained sustainable, bility. The financial account is expected to tio increased to 9.2 percent in FY23, al- with a low risk of debt distress. return to surplus with the resumption of though this ratio understates vulnerabili- trade credit flows and a higher volume of ties due to lax regulatory definitions and external financing. Additional exchange reporting standards. rate flexibility would accelerate the stabi- The current account moved into a US$ 3.1 Outlook lization of FX reserves. billion surplus in the first seven months of The fiscal deficit is projected to stay below FY24 as exports grew by 0.2 percent and Growth is expected to decelerate to 5.6 per- 5.0 percent of GDP over the medium term. imports contracted by 16.3 percent. Official cent in FY24 from 5.8 percent in FY23 be- Nominal revenues will rise with increasing remittance growth remained muted at 3.6 fore returning gradually to its long-term trade, improving domestic activity, and percent. The financial account deficit trend above 6.0 percent. Elevated inflation ongoing efforts to strengthen the tax ad- surged to US$ 7.4 billion, led by a decline will weigh on consumption, while private ministration. Over the longer term, rising in short-term lending. The BoP deficit nar- investment will remain constrained by FX public expenditure requirements to meet rowed to US$ 4.7 billion over the first sev- rationing. As consumption growth slows infrastructure needs, mitigate climate vul- en months of FY24, compared to US$ 7.4 and the population increases, almost half nerabilities, and accelerate human capital billion over the same period of FY23. Offi- a million Bangladeshis are projected to fall investment will require the mobilization of cial exchange rates depreciated modestly, into extreme poverty (at US$ 2.15) between additional revenues, as trade-based taxes remaining insufficient to clear the FX mar- FY23 and FY24, while moderate poverty decline with tariff modernization. ket. BB intervened heavily in the market to (at US$ 3.65) increases from 29.3 to 29.4 Downside risks to the growth outlook maintain exchange rate caps. Gross FX re- percent, rising by around 0.84 million. In- have increased, with a weak global out- serves declined to US$ 20.0 billion at end- equality is forecasted to remain stagnant. look. The pace of monetary and exchange January 2024, a $4.8 billion decline in FY24, External sector pressure will ease gradual- rate reforms may be insufficient, depleting providing 3.4 months of import coverage. ly, with resilient export growth. The CAD FX reserves. Tighter liquidity could exac- The fiscal deficit narrowed modestly to 4.4 is expected to narrow further in FY24 as erbate banking vulnerabilities. Fiscal risks percent of GDP in FY23, down from 4.6 import restrictions persist before widening include revenue underperformance, real- percent in FY22, as weak revenue growth over the medium term as policies normal- ization of financial sector contingent liabil- was offset by deferred capital investment ize. Remittance inflows are expected to ities, and monetization of the deficit. TABLE 2 Bangladesh / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020/21 2021/22 2022/23e 2023/24f 2024/25f 2025/26f a Real GDP growth, at constant market prices 6.9 7.1 5.8 5.6 5.7 5.9 Private consumption 8.0 7.5 2.0 1.4 4.9 5.3 Government consumption 6.9 6.2 8.5 10.6 9.9 7.4 Gross fixed capital investment 8.1 11.7 2.2 5.6 8.8 8.6 Exports, goods and services 9.2 29.4 8.0 0.1 7.2 6.4 Imports, goods and services 15.3 31.2 -9.8 -12.2 12.5 10.2 a Real GDP growth, at constant factor prices 7.0 7.2 6.2 5.7 5.7 5.9 Agriculture 3.2 3.1 3.4 3.1 3.1 3.2 Industry 10.3 9.9 8.4 6.6 7.2 6.8 Services 5.7 6.3 5.4 5.6 5.1 5.8 Inflation (consumer price index) 5.6 6.1 9.0 9.6 8.5 6.5 Current account balance (% of GDP) -1.1 -4.0 -0.6 0.9 0.7 -0.2 Net foreign direct investment inflow (% of GDP) 0.3 0.4 0.4 0.3 0.4 0.4 Fiscal balance (% of GDP) -3.7 -4.6 -4.4 -4.6 -4.7 -4.8 Revenues (% of GDP) 9.4 8.5 8.2 8.6 9.0 9.3 Debt (% of GDP) 32.4 33.7 35.0 35.0 35.3 36.3 Primary balance (% of GDP) -1.7 -2.6 -2.5 -2.1 -2.2 -2.3 b,c International poverty rate ($2.15 in 2017 PPP) .. 5.0 4.9 5.1 4.5 3.7 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 30.0 29.3 29.4 27.2 24.3 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 74.1 73.5 73.8 71.6 68.7 GHG emissions growth (mtCO2e) 5.9 5.1 2.6 1.8 2.0 2.6 Energy related GHG emissions (% of total) 41.3 43.0 43.6 43.7 43.9 44.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ FY23 estimates based on BBS provisional estimates. b/ Calculations based on SAR-POV harmonization, using 2022-HIES. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. c/ Projections using microsimulation methodology. MPO 189 Apr 24 The economy has recovered from the shocks resulting from the pandemic and BHUTAN Key conditions and Russia’s invasion of Ukraine. The fiscal deficit declined as pandemic-related relief challenges measures were phased out and capital ex- penditures decreased. However, a major Table 1 2023 Annual real GDP growth has averaged national investment in cryptocurrency Population, million 0.8 7.5 percent since the 1980s, driven mining resulted in a decline in internation- GDP, current US$ billion 2.9 by the hydropower sector and in ser- al reserves and a widening of the current GDP per capita, current US$ 3707.1 vices, including tourism. Rapid eco- account deficit (CAD) to 34.3 percent of a 0.0 International poverty rate ($2.15) nomic growth has contributed to GDP in FY22/23. The government an- a 0.5 poverty reduction over the last two nounced plans to establish a Special Eco- Lower middle-income poverty rate ($3.65) a 8.4 decades. Extreme poverty based on nomic Zone known as the Gelephu megac- Upper middle-income poverty rate ($6.85) Gini index a 28.5 $2.15/day was eliminated by 2022. Less ity project, aiming to mobilize significant School enrollment, primary (% gross) b 103.8 than one percent of people live on less foreign investments. b 71.8 than $3.65/day international poverty The downside risks to the economic Life expectancy at birth, years line and 8.5 percent of people live outlook persist. Delays in hydropower Total GHG emissions (mtCO2e) -5.2 with less than $6.85/day. Poverty re- projects could affect fiscal and external Source: WDI, Macro Poverty Outlook, and official data. duced significantly in the last five balances. Delayed fiscal consolidation a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). years, partly driven by growth in real and the materialization of financial sec- per capita consumption, social trans- tor contingent liabilities could further fers and increases in remittances. De- erode fiscal buffers. Rising and volatile clines were particularly salient in rural commodity prices due to geopolitical areas. Access to food, education, wa- tensions could exert further pressure on Output grew by 4.5 percent in FY22/23 ter, and sanitation also improved in the external balance. Continued emigra- and growth rate is projected to increase in the last five years. Inequality, mea- tion of skilled labor could also weigh on the medium term, due to recovery in in- sured by the Gini index, decreased the economy. dustry and services sectors. Fiscal deficit from 37 in 2017 to 28 in 2022. Howev- er, vulnerability to shocks and spatial is anticipated to increase in FY23/24 be- inequalities remain a challenge, with a fore moderating in the medium term. poverty rate as high as 41 percent in Recent developments Current account deficit is expected to im- Zhemgang district and as low as 1.5 prove with increased hydropower exports, percent in Thimphu district, while Gi- Real GDP is estimated to have grown tourism, and reduced crypto equipment ni is as high as 0.32 in Zhemgang and by 4.5 percent in FY22/23, supported by as low as 0.24 in Punakha and Thim- the reopening of borders for tourism. imports. In 2022, about 9 percent of the phu. Sluggish job creation with high The industry sector grew by 5.6 percent, population lived below $6.85/day but a youth unemployment rate (15.9 per- driven by construction, mining, and substantial share of Bhutanese is vulnera- cent in 2023) has prompted an increase manufacturing activities. The services ble to falling into poverty. in emigration and contributed to a loss sector grew by 4.9 percent, supported of skilled workforce. by transport- and trade-related services. FIGURE 1 Bhutan / Real GDP growth and contributions to FIGURE 2 Bhutan / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 70 300000 20 60 250000 15 50 10 200000 5 40 150000 0 30 -5 100000 20 -10 50000 10 -15 2001 2006 2011 2016 2021 2026 0 0 Private cons. Gov. cons. GFCF 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Inventories Exports Imports International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Sources: National Account Statistics and National Statistics Bureau (NSB). Source: World Bank. Notes: see Table 2. MPO 190 Apr 24 Growth in agriculture has been mod- declined with the fall in crypto-related IT The fiscal deficit is projected to increase erate, primarily due to reduced crop equipment imports. Hydropower exports in FY23/24. Current expenditure is ex- production. Demand side growth was declined due to increased domestic con- pected to increase due to a major salary driven by non-hydro goods and ser- sumption, reflecting the higher electric- hike for public sector employees and cap- vices exports and private investment, ity needs for crypto-mining operations. ital expenditures are likely to remain ro- with potential positive effects on em- Gross international reserves stood at bust, but close monitoring of the expen- ployment and wages. US$533 million as of November 2023. diture will keep the fiscal deficit at 5 The headline inflation rose marginally since percent of GDP. The fiscal deficit is ex- March 2023 to reach 5.0 percent in December pected to decline beyond FY24/25, driven 2023. The pickup was driven by the increase by higher revenue from the Puna II hy- in food prices locally and rising prices in In- Outlook dropower plant and lower capital expen- dia. This is expected to have negative effects diture due to declining grants. Public on household consumption, particularly in The economy is projected to grow by 4.9 debt is expected to remain elevated at poor urban households. percent in FY23/24, supported by higher 110.9 percent of GDP in FY23/24. The fiscal deficit declined to 4.1 percent growth in tourism. Net trade is expected The CAD improved in the first quarter of of GDP in FY22/23, primarily due to re- to improve due to rising services exports FY23/24 and is expected to improve further duced capital spending. Although corpo- and a fall in crypto-related IT equipment to 15.7 percent of GDP in FY23/24 driven rate income taxes, driven by hydro rev- imports. Medium-term growth is expect- by a lower trade deficit. Export growth is enues, remained subdued, non-hydro rev- ed to be supported by the services sec- expected to be driven by hydro exports enues increased, reflecting the gradual re- tors and the commissioning of the Puna and services exports fuelled by increased covery of the industrial and services sec- II hydropower plant. The growth is ex- tourist arrivals. Conversely, the import of tors. Capital expenditure remained low in pected to improve household income and goods is expected to decrease, primarily FY22/23 due to frontloading of the 12th create new jobs. due to the decline in imports of crypto IT Five-Year Plan in FY20/21. The incidence of poverty is estimated to equipment, which constituted approxi- The current account deficit (CAD) decrease slightly to 7.8 percent in 2023 mately 6 percent of GDP in 2022. Inter- widened significantly to 34.3 percent of based on $6.85/day. However, a large national reserves are expected to decline GDP in FY22/23. Tourist inflow support- share of the population will remain vul- by US$63 million since FY22/23 to US$516 ed export services growth, and imports nerable to falling into poverty. million in FY23/24 (3.8 months of import). TABLE 2 Bhutan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020/21 2021/22 2022/23e 2023/24f 2024/25f 2025/26f a Real GDP growth, at constant market prices -3.3 4.8 4.6 4.9 5.7 6.0 Private consumption 0.3 1.5 2.9 2.0 2.2 2.3 Government consumption 5.4 1.9 -1.2 0.5 0.9 1.4 Gross fixed capital investment -3.4 25.4 13.3 -0.5 0.4 3.2 Exports, goods and services -10.4 -3.6 3.7 7.7 9.3 9.7 Imports, goods and services -0.5 13.2 8.9 -4.0 -3.9 -1.0 Real GDP growth, at constant factor prices -2.3 4.9 4.6 4.9 5.7 6.0 Agriculture 2.7 0.1 0.3 1.7 1.6 1.7 Industry -5.9 4.8 5.6 5.0 9.1 9.6 Services -1.2 6.3 5.0 5.6 4.7 4.7 Inflation (consumer price index) 8.2 5.3 4.6 4.9 4.1 4.0 Current account balance (% of GDP) -11.1 -28.1 -34.3 -15.7 -9.7 -9.6 Fiscal balance (% of GDP) -5.8 -7.0 -4.1 -5.0 -3.5 -2.2 Revenues (% of GDP) 30.9 25.1 25.2 24.6 25.1 24.1 Debt (% of GDP) 123.3 118.8 116.5 110.9 103.4 112.0 Primary balance (% of GDP) -4.8 -5.6 -2.4 -3.8 -2.0 -0.3 b,c International poverty rate ($2.15 in 2017 PPP) .. 0.0 .. .. .. .. b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 0.5 0.4 0.3 0.3 0.2 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 8.4 7.8 7.0 6.3 5.3 GHG emissions growth (mtCO2e) 0.1 -1.2 -1.5 -1.4 -1.4 -1.4 Energy related GHG emissions (% of total) -14.6 -15.3 -16.4 -17.3 -18.3 -19.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The GDP estimates in the AM23 MPO reflect the base year 2000. The National Statistics Bureau has recently updated the base year from 2000 to 2017. The SM24 MPO will reflect the rebased NIA estimates for 2017 to 2022. b/ Calculations based on SAR-POV harmonization, using 2022-BLSS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2022) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 191 Apr 24 work increased, albeit raising concerns about the quality and sustainability of INDIA Key conditions and these improvements. Risks to the growth and poverty reduc- challenges tion outlook are balanced. Global growth has remained subdued; there are signs of Table 1 2023 Between 2000 and 2019, India’s economy recovery, although geopolitical tensions Population, million 1428.6 grew by 6.6 percent annually on average; could cause supply chain disruptions. In- GDP, current US$ billion 3610.5 per capita GDP doubled, and the extreme dian manufacturing firms have benefited GDP per capita, current US$ 2527.2 poverty rate decreased from 40 percent from lower input costs as global com- a 108.1 School enrollment, primary (% gross) in 2004 to 13.2 percent in 2019. Non- modity prices eased. While not immune a 67.2 monetary poverty (deprivation in health, to international developments, India’s Life expectancy at birth, years Total GHG emissions (mtCO2e) 3620.1 education, and living standards) fell by economy is resilient with its vast domes- Source: WDI, Macro Poverty Outlook, and official data. 70 percent from 2005-06 to 16.4 percent tic market, diversified structure, and sub- a/ WDI for School enrollment (2022); Life expectancy in 2019-21. These developments were un- stantial foreign exchange reserves provid- (2021). derpinned by India’s deeper integration ing external buffers. Achieving higher into the global economy, improvements growth would require enhancing the ef- in the business environment, basic ser- ficiency of public investment in human vices expansion, and prudent macroeco- capital, addressing constraints to the par- Buoyant construction, manufacturing, nomic management. However, inequality ticipation of women in the labor market, persisted, with a consumption-based Gini further deepening the transition to green and services drove strong growth in In- index of 33 percent, and around 44 per- energy, expanding infrastructure, and dia in FY23/24 and will continue to an- cent of the population lived below the easing trade, investment, job creation, and chor growth at high levels over the lower middle-income poverty line in doing business more generally through medium term despite the muted global FY21/22. Regional disparities in non-mon- the next generation regulatory reforms. outlook. In recent years, high growth etary poverty and access to basic services remain largely unchanged. and recovery in the labor market have The economy contracted by 5.8 percent in been accompanied by declining rates of FY20/21, due to COVID-19 related mobil- Recent developments extreme and moderate poverty, and im- ity restrictions, before rebounding by 9.7 provements in non-monetary poverty. percent in FY21/22 to above its pre-pan- Growth is projected to reach 7.5 percent demic level. Over the same period extreme in FY23/24. Buoyant services and indus- Critical structural reforms for sustained poverty spiked temporarily to 15.5 percent try activity, especially in construction development include promoting trade before dropping to 13 percent. Labor mar- and manufacturing, offset a slowdown in and private investments, improving the ket outcomes improved notably in FY22/ agriculture due to uneven monsoons. In- business climate, supporting the catch- 23, with the urban unemployment rate de- vestment is projected to grow by 10.8 up growth of lagging states, and creat- creasing to 7.2 percent in FY22/23 from 9.8 percent, fueled by significant public in- percent in FY21/22. The labor force par- frastructure spending and increased pri- ing conditions for more and better jobs, ticipation rate improved, particularly for vate investment. Private consumption is particularly for the youth and women. women, as self-employment and unpaid forecast to moderate as weak agriculture FIGURE 1 India / Real GDP growth and contributions to real FIGURE 2 India / Actual poverty rates and real GDP per capita GDP growth at factor cost Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 12 80 120000 Forecast 70 100000 8 60 80000 50 4 40 60000 30 0 40000 20 20000 Services 10 -4 Industry 0 0 Agriculture Real GDP growth, at constant factor prices 2009 2011 2013 2015 2017 2019 2021 -8 International poverty rate Lower middle-income pov. rate FY16/17 FY18/19 FY20/21 FY22/23 FY24/25 FY26/27 Real GDP pc Sources: National Statistics Office (NSO) and World Bank. Source: World Bank. Notes: see Table 2. Note: FY14/15 refers to the fiscal year 2014-15 (April 2014-March 2015) and so on. MPO 192 Apr 24 performance depressed rural incomes and deficit, the debt-to-GDP ratio is expected will be supported by the recovery of agri- post-pandemic pent-up demand waned. to rise from 82.5 in FY22/23 to 84.3 per- culture and declining inflation. Under the Inflation is expected to fall to 5.5 percent cent in FY23/24 as nominal growth was baseline scenario, headline inflation is in FY23/24. Core inflation fell below 4 per- significantly lower in FY23/24 at 9.2 per- projected to decline to 4 percent over cent, while food inflation remained around cent from 14.2 percent in FY22/23. the medium term. These developments 8 percent as of February 2024. The RBI's The current account deficit is expected to are expected to be accompanied by fur- Monetary Policy Committee maintained narrow to 1.1 percent of GDP in FY23/24, ther reductions in extreme and moderate the policy rate unchanged at 6.5 percent from 2.0 percent in the previous year. poverty. New official data on household and its "withdrawal of accommodation" Strong services exports and declining in- expenditures from 2022/23 and 2023/24 stance. The sustainability of poverty re- ternational fuel prices drove the improve- household surveys will allow to reassess duction and consumption spending by ment. Net Foreign Direct Investment is es- poverty and inequality rates. poorer households are constrained by timated to remain subdued at 0.8 percent The overall fiscal deficit is projected to nar- weak agriculture, stagnant real wages for of GDP as repatriation surged, but foreign row, helping to gradually reduce public casual labor, food price volatility, and bet- portfolio inflows rebounded in FY23/24. debt. Revenues are projected to remain ro- ter utilization of social schemes like PM Thus, international reserves rose to US$622 bust, thanks to improving tax administra- Awas Yojna and PM Ayushman Bharat can billion as of February 2024, amounting to tion and healthy corporate profits. Current help sustain the achievement. around 10 months of import cover. spending should continue to increase in The fiscal deficit is expected to narrow to absolute terms but decline as a share of 8.6 percent of GDP in FY23/24 from 9.1 GDP, with capital spending remaining percent in FY22/23. At the central level, high (at over 5 percent of GDP). The debt- gross tax revenues increased by 12.5 per- Outlook to-GDP ratio is projected to decline gradu- cent in FY23/24, surpassing the 10.5 per- ally to around 81 percent by FY26/27. cent budget target, thanks to continued Growth is expected to decelerate to 6.6 The current account deficit is expected to efforts to broaden the base and improve percent in FY24/25, before picking up in remain at around 1.5 percent of GDP over tax services. Non-tax revenues were subsequent years. Growth will be damp- the forecast period supported by declining buoyed by higher-than-expected divi- ened in FY24/25 by the subdued external commodity prices, vibrant services ex- dends from the RBI and other financial environment, the unwinding of the post- ports, and continued progress in high and institutions. Current expenditure grew by COVID-19 rebound, and the general medium-technology goods exports. The 2.5 percent y-o-y, allowing a sizeable ex- slowdown of activity, particularly capex, deficit should be adequately financed by pansion of public investment by 28 per- during the election period. The medium- foreign (direct and portfolio) investment cent. The aggregate fiscal deficit of states term outlook is positive as past public in- flows, with foreign exchange reserves pro- increased to 2.8 percent from 2.7 percent vestment will crowd-in corporate invest- viding ample cover against any adverse in FY22/23. Despite a lower overall ment, and private consumption growth external development. TABLE 2 India / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021/22 2022/23 2023/24e 2024/25f 2025/26f 2026/27f Real GDP growth, at constant market prices 9.7 7.0 7.5 6.6 6.7 6.8 Private consumption 11.7 6.8 3.8 5.1 6.3 6.8 Government consumption 0.0 9.0 3.1 5.8 5.9 6.1 Gross fixed capital investment 17.5 6.6 10.8 9.7 7.6 7.4 Exports, goods and services 29.6 13.4 3.1 4.5 7.2 8.2 Imports, goods and services 22.1 10.6 10.4 4.9 7.1 8.5 Real GDP growth, at constant factor prices 9.4 6.7 6.8 6.6 6.7 6.8 Agriculture 4.6 4.7 0.7 2.1 3.7 4.0 Industry 12.2 2.1 8.8 7.6 7.1 7.1 Services 9.2 10.0 7.4 7.3 7.3 7.3 Inflation (consumer price index) 5.5 6.7 5.5 4.7 4.1 4.0 Current account balance (% of GDP) -1.2 -2.0 -1.1 -1.4 -1.5 -1.5 Net foreign direct investment inflow (% of GDP) 1.2 0.8 0.8 1.2 1.4 1.5 Fiscal balance (% of GDP) -9.5 -9.1 -8.6 -8.0 -7.5 -7.4 Revenues (% of GDP) 20.6 19.2 19.6 20.2 20.4 20.4 Debt (% of GDP) 84.8 82.5 84.2 83.1 81.8 80.6 Primary balance (% of GDP) -4.2 -3.9 -3.4 -2.8 -2.4 -2.3 a International poverty rate ($2.15 in 2017 PPP) 12.9 .. .. .. .. .. a Lower middle-income poverty rate ($3.65 in 2017 PPP) 44.1 .. .. .. .. .. GHG emissions growth (mtCO2e) 6.2 5.0 2.5 4.2 3.1 3.2 Energy related GHG emissions (% of total) 69.1 70.3 70.9 71.9 72.7 73.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Estimates based on World Bank Poverty and Inequality Platform. Ministry of Statistics and Programme Implementation (MOSPI) has recently released a Factsheet on the 2022/23 Household Consumption Expenditure Survey. The survey is part 1 of a two-year consecutive survey effort (2022-23 and 2023-24) that should fill a long gap in official poverty statistics in India. The official poverty numbers for 2022-23 will be available when the microdata is released. MPO 193 Apr 24 guarantees. The rising cost of external bor- rowing has also forced the government to MALDIVES Key conditions and turn towards domestic financing sources, increasing the exposure of the monetary challenges and financial sector to the sovereign. As a positive step, the government recently Table 1 2023 Tourism, which directly accounts for a announced its commitment to a fiscal re- Population, million 0.5 quarter of the economy, has continued to form agenda that aims to address econom- GDP, current US$ billion 6.6 expand driven by arrivals from Russia, In- ic vulnerabilities. Details of this agenda GDP per capita, current US$ 12624.9 dia, and China, as well as new markets still need to be released but will likely in- a 3.9 Upper middle-income poverty rate ($6.85) such as the USA. However, a decline in clude reforms to subsidies, SOEs, the pub- a 29.3 the average duration of stay and lower per lic health insurance (Aasandha) scheme, Gini index b 97.8 capita tourist spending has led to slower and capital spending. Revenues saved School enrollment, primary (% gross) Life expectancy at birth, years b 79.9 economic growth in 2023. could be partially recycled to mitigate Total GHG emissions (mtCO2e) 2.7 Following substantial increases in public poverty and inequality increases. Without spending in recent years, economic imbal- a meaningful fiscal adjustment, public and Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2019), 2017 PPPs. ances and vulnerabilities have reached publicly guaranteed (PPG) debt is forecast b/ WDI for School enrollment (2020); Life expectancy critical levels in the Maldives. Persistent to remain high. (2021). large current account and fiscal deficits have depleted external buffers. With a heavy reliance on imports, the nation faces significant external and fiscal pressures Recent developments Economic growth is slowing, despite ris- due to substantial level of construction-re- ing tourist arrivals. Large external im- lated imports, and limited official reserves. Tourist arrivals climbed by 12 percent (y- Pressure on public finances is exacerbated o-y) and reached 1.88 million in 2023, an balances, combined with external financ- by government support for underperform- all-time high. However, this did not trans- ing gaps have led to declining foreign ing State-Owned Enterprises (SOEs), blan- late into higher GDP growth due to de- exchange reserves and substantial liq- ket provision of subsidies, continued high creased spending per tourist linked to a uidity pressures. These add to solvency levels of capital spending, and a generous growing preference for guest houses over public health scheme. Hard-to-sustain sub- high-end resorts. Real GDP grew by only concerns that reflect a high public debt sidies and in-kind transfers play a vital 2.5 percent (y-o-y) on a 4-quarter rolling stock, large fiscal deficits, and expendi- role in boosting household incomes, par- basis in 2023Q3, as the tourism and trade ture arrears. Sustaining macroeconomic ticularly among the economically disad- sectors contracted by, respectively, 0.4 and stability and growth will require a ma- vantaged and those living in the atolls, 0.9 percent (y-o-y) in the quarter. Overall, jor fiscal adjustment and implementa- raising concerns about the welfare impact the Maldivian economy is estimated to of fiscal vulnerabilities. have grown by 4.0 percent in 2023. tion of a multi-year reform plan. Pro- While infrastructure projects have boost- Compared to its historical average of 0.5 tecting the poor and vulnerable from in- ed long-term growth prospects, they percent, domestic inflation remained ele- come and welfare losses will be crucial. have largely been financed from external vated at 2.9 percent (y-o-y) in 2023, giv- non-concessional sources and sovereign en high global commodity prices and FIGURE 1 Maldives / Real GDP growth and contributions to FIGURE 2 Maldives / Actual and projected poverty rates real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 50 60 250000 Fisheries Construction Wholesale and retail trade 50 40 200000 Tourism Transp. and comm. Real Estate 40 30 Public administration 150000 Others 30 20 GDP 100000 20 10 50000 10 0 0 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 -10 International poverty rate Lower middle-income pov. rate 2021-Q3 2022-Q1 2022-Q3 2023-Q1 2023-Q3 Upper middle-income pov. rate Real GDP pc Sources: Maldives Bureau of Statistics and World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 194 Apr 24 a fiscally prudent increase in the goods the planned removal of blanket subsidies. and services tax (GST) rate. Price increas- In the absence of mitigation, this could dri- es were particularly acute in the food, ed- Outlook ve poverty to increase by 2.5 percentage ucation, and restaurant and accommoda- points. Higher prices could impact the la- tion services sectors. The poverty impact Supported by tourism, the economy is pro- bor market and increase existing inequali- of food inflation alone could be 0.4 per- jected to grow by 4.7 percent on average ties in employment opportunities. centage points, and higher in atolls (0.6 over the medium term – significantly low- The current account deficit is expected percentage points). er than the pre-pandemic average of 7.4 to remain elevated given commodity Travel export receipts contracted by 6.8 percent. This outlook is predicated on a price pressures and continued capital percent (y-o-y) in 2023, while merchandise significant expected fiscal adjustment – in- imports to complete ongoing and imports remained elevated at US$3.5 bil- cluding the negative impact on real house- planned infrastructure projects. Rising lion, driven by high commodity and capi- hold incomes from the planned subsidy re- external financing needs – including tal goods imports. As a result, the current forms and a reduction in government con- debt servicing – are expected to sustain account deficit widened considerably to an sumption and investments – and more pressure on official reserves. estimated 23.4 percent of GDP. High im- moderate tourist spending. Slower project- Major downside risks exist. Any shock to port costs and external debt repayments ed growth also translates into slowing the tourism sector could threaten the al- also put significant pressure on gross re- poverty reduction in 2024. ready modest levels of projected econom- serves, which fell to US$551.1 million (1.9 The fiscal deficit is expected to remain el- ic growth and lead to larger welfare loss- months of imports) in January 2024, from evated in 2024, as the approved Budget es. Limited domestic and external financ- US$790.0 million a year earlier. includes ambitious spending plans with ing may further exacerbate liquidity and Failure to implement planned subsidy re- an unidentified financing gap of over solvency risks, especially considering the forms and rapidly rising recurrent and US$700 million. As a result, PPG debt is approaching spike in external debt servic- capital spending led to a sharp rise in projected to remain around 120 percent of ing payments. A further widening of the overall expenditure and an increase in GDP over the medium term. A fiscal re- current account deficit could exacerbate the fiscal deficit to an estimated 13.2 per- form package was announced, but a larg- external vulnerabilities. Sustaining macro- cent of GDP in 2023. This was despite er fiscal adjustment is required – particu- economic stability will require a major raising GST rates, which resulted in over- larly through higher cuts in non-essential fiscal adjustment and the implementation all revenues growing by 17 percent (y-o- capital and untargeted recurrent spend- of a multi-year reform plan which needs y). A supplementary budget (6.1 percent ing – to lower public debt and substan- to be accompanied by targeted transfer of GDP) was approved to cover rapidly tially address fiscal and external vulnera- mechanism to offset welfare losses among rising expenditure. bilities. Inflation is projected to rise due to vulnerable groups. TABLE 2 Maldives / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 37.7 13.9 4.0 4.7 5.2 4.1 Real GDP growth, at constant factor prices 33.8 15.0 4.0 4.7 5.2 4.1 Agriculture -0.7 3.1 3.2 3.0 2.8 2.7 Industry -4.6 25.2 8.5 2.0 4.7 1.8 Services 43.4 14.7 3.5 5.1 5.4 4.5 Inflation (consumer price index) 0.5 2.3 2.9 7.5 6.5 5.0 Current account balance (% of GDP) -8.7 -16.7 -23.4 -19.4 -18.0 -14.3 Net foreign direct investment inflow (% of GDP) 12.2 11.9 12.1 11.7 12.3 11.5 Fiscal balance (% of GDP) -14.2 -12.0 -13.2 -12.2 -11.0 -9.5 Revenues (% of GDP) 26.4 30.0 33.0 31.8 31.5 31.9 Debt (% of GDP) 117.1 114.5 122.9 122.1 119.7 118.4 Primary balance (% of GDP) -11.6 -8.3 -9.6 -8.3 -7.2 -6.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 6.7 4.5 3.9 3.7 2.9 2.8 GHG emissions growth (mtCO2e) 11.1 13.8 8.9 6.6 6.0 5.9 Energy related GHG emissions (% of total) 74.7 77.0 78.1 78.8 79.4 79.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SAR-POV harmonization, using 2019-HIES. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 195 Apr 24 The incidence of poverty varies across the seven provinces of Nepal, reflecting spa- NEPAL Key conditions and tial disparities across the country. Limited job opportunities are another challenges characteristic of Nepal’s economy. Con- sequently, emigration remains a pre- Table 1 2023 Nepal’s economy experienced an average ferred option for Nepalis across the in- Population, million 30.9 growth rate of 4.5 percent over the past come distribution, with poorer house- GDP, current US$ billion 41.2 decade, punctuated by four significant ex- holds benefiting increasingly more from GDP per capita, current US$ 1332.2 ternal shocks in 2015 (earthquake), 2016 remittances over the past decade. On a 8.2 International poverty rate ($2.15) (India blockade), 2017 (landslide), and average, migrant workers earned three a 40.0 2020 (COVID-19). Remittances, account- times more than domestic workers. Self- Lower middle-income poverty rate ($3.65) a 80.4 ing for approximately one-quarter of the employment or unpaid work comprised Upper middle-income poverty rate ($6.85) Gini index a 32.8 country's GDP for a decade, have driven a third of all employment in FY23, School enrollment, primary (% gross) b 118.8 private consumption. The new household while over half of those with secondary b 68.4 survey data shows a 66 percent increase education and a quarter with tertiary Life expectancy at birth, years in average real per capita consumption education were unemployed. Total GHG emissions (mtCO2e) 49.2 between FY11 and FY23, alongside a sig- Source: WDI, Macro Poverty Outlook, and official data. nificant decline in the poverty rate by 21.6 a/ Most recent value (2010), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy percentage points to 3.6 percent over the (2021). same period (based on the 2011 national Recent developments poverty line). Remittances were a major factor in poverty reduction, contributing After a 1.9 percent growth in FY23, high- GDP growth is projected to increase from an estimated 32 percent. frequency indicators show improvement 1.9 percent in FY23 to 3.3 percent in Despite these positive developments and in growth in the first half of FY24 achieving lower-middle-income country (H1FY24) compared to H1FY23. Indus- FY24, driven by revived tourism and im- status in FY20, Nepal’s per capita income trial growth benefited from higher hy- proved electricity generation. Decreased level still lags its peer countries. Persis- dropower generation, while services saw expenditure is anticipated to trim the fis- tent challenges such as low productivity gains from a 46.8 percent (year-on-year) cal deficit, while a current account sur- and fiscal pressures from the transition to increase in tourism arrivals. Agriculture fiscal federalism impede progress. Slug- grew due to increased paddy production. plus is expected due to reduced merchan- gish private sector growth, geographic However, weak domestic demand per- dise imports and increased remittances. and environmental challenges, weak in- sists despite a 1 percentage point policy Monetary easing could also support ternational competitiveness, and gover- interest rate cut in December 2023. medium-term growth. Despite significant nance issues pose further obstacles. Al- Average inflation cooled to 6.5 percent in reduction in poverty over the past decade, though both the inequality and prosperi- H1FY24 from 8 percent in H1FY23, driven ty gap have decreased, about 20.3 percent by an easing in prices of transportation concerns persist over vulnerability to re- and housing and utilities. However, infla- of the population still live below the new lapse and short-term risks such as high national poverty line, which is 70 percent tion expectations appear persistent, and inflation and other shocks. higher than the 2011 poverty threshold. poor households may face rising prices FIGURE 1 Nepal / Real GDP levels: Actual vs. pre-covid trend FIGURE 2 Nepal / Current account deficit Index of real GDP, FY19=100 Percent of GDP 160 15 Pre-covid 5 year GDP trend 10 140 Actual GDP 5 120 0 100 -5 -10 80 -15 60 -20 H1FY19 H1FY20 H1FY21 H1FY22 H1FY23 H1FY24 40 Workers' remittances Balance of goods and services FY12 FY14 FY16 FY18 FY20 FY22 FY24 FY26 Current account balance Sources: World Bank staff calculations and Nepal National Statistics Office. Sources: World Bank staff calculations and Nepal Rastra Bank. MPO 196 Apr 24 due to increased shipping costs from Red FY25-FY26, supported by monetary policy is also forecast to decline driven by lower Sea supply disruptions. easing. The services sector is expected to capital spending, as well as reduced fiscal The current account balance turned from remain the primary driver of real GDP transfers to subnational governments and a deficit in FY23 to a surplus in H1FY24, growth and job creation over the medium administrative spending. The overall fiscal the first time since H1FY16. This was sup- term. However, most service sector jobs re- deficit is projected to narrow to 3.1 percent ported by (a) strong remittance inflows, main low productivity and informal. In- of GDP in FY24. Buoyed by strong GDP which grew by 22.6 percent year-on-year, dustrial growth, particularly in the elec- and merchandise imports growth, rev- and (b) declining imports of food, bever- tricity sub-sector, is projected to strength- enues are expected to expand over the ages, and industrial supplies, which nar- en due to significant additions in hydro- medium term. Public investment is also ex- rowed the trade deficit. Additionally, ex- electric capacity, which could boost pro- pected to rise post-FY24, supported by the ports increased due to higher earnings ductivity. The economy could also benefit implementation of the National Project from tourism. Consequently, official for- in the medium term from increased private Bank. The fiscal deficit is projected to fur- eign exchange reserves grew and reached investment if reforms are implemented to ther narrow in FY25 and FY26. This would 12.1 months of import cover by the end improve the business environment. stabilize the debt below 41 percent of GDP of H1FY24. Consumer price inflation is expected to by the end of FY26. The fiscal deficit widened to 6.2 percent of remain elevated in FY24 compared to the The forecast is subject to both domestic GDP in FY23, driven by lower revenues FY17-23 average, increasing short-term and external risks. Externally, geopolit- owing to import restrictions. However, the poverty and vulnerability risks, before ical uncertainty may lead to a rebound deficit declined in H1FY24, reflecting im- gradually declining, reflecting modera- in international commodity prices, af- provement in income tax collections fol- tion in global commodity prices and lower fecting all sectors. A slowdown in part- lowing provisions in the FY24 budget re- inflation expectations. ner countries could reduce remittance quiring banks and financial institutions to The current account balance is projected inflows and tourism, hindering growth pay income tax on profits received through to turn into a surplus in FY24, the first and poverty reduction progress. In addi- mergers or acquisitions and issuance of since FY16, due to robust remittances tion, the social protection programs are Further Public Offerings at a premium growth and lower merchandise imports. largely untargeted, have limited reach rate, and a decrease in expenditure, partly The surplus will narrow in subsequent among the poor, and lack shock respon- due to lower capital budget execution and years as import growth outpaces that of siveness. This poses fiscal risks and hin- austerity measures. exports. While electricity exports are set ders social program effectiveness. These to continue, the recent surge in remit- pressures, along with a weak domestic tances, from record migration in FY23, is labor market, could further impact the projected to subside. poor and vulnerable population. Fur- Outlook Tax revenues are expected to decline fur- thermore, persistent inflation expecta- ther in FY24, despite some tax reforms, tions and lower domestic demand will Growth is projected to recover from 1.9 per- due to lower merchandise imports and weigh on the economy and the people. cent in FY23 to 3.3 percent in FY24, and fur- revenue loss from increases in electric ve- Natural disasters pose additional risks ther accelerate to an average of 5 percent in hicle imports at lower tax rates. Spending to sustaining welfare gains. TABLE 2 Nepal / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.8 5.6 1.9 3.3 4.6 5.3 Private consumption 8.0 6.8 4.1 3.5 3.7 3.7 Government consumption -1.7 9.6 -35.2 -16.5 9.2 9.3 Gross fixed capital investment 9.8 3.8 -10.9 -4.4 15.4 12.1 Exports, goods and services -21.3 34.1 5.5 5.4 12.5 14.7 Imports, goods and services 18.8 15.1 -17.2 -4.5 13.1 9.7 Real GDP growth, at constant factor prices 4.5 5.3 2.2 3.3 4.6 5.3 Agriculture 2.8 2.2 2.7 2.2 2.4 2.5 Industry 6.9 10.8 0.6 2.9 5.7 8.6 Services 4.7 5.3 2.3 4.0 5.4 5.8 Inflation (consumer price index) 3.6 6.3 7.7 6.7 6.0 5.5 Current account balance (% of GDP) -7.7 -12.6 -1.3 3.9 1.6 1.0 Net foreign direct investment inflow (% of GDP) 0.4 0.4 0.1 0.2 0.4 0.6 Fiscal balance (% of GDP) -4.0 -3.7 -6.2 -3.1 -2.8 -2.7 Revenues (% of GDP) 23.3 23.1 19.2 18.7 19.6 20.1 Debt (% of GDP) 39.9 40.8 42.7 42.5 41.7 40.8 Primary balance (% of GDP) -3.2 -2.7 -4.8 -1.7 -1.6 -1.7 GHG emissions growth (mtCO2e) 3.2 -0.5 -1.1 1.6 2.4 2.9 Energy related GHG emissions (% of total) 34.1 32.8 31.1 31.1 31.8 32.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 197 Apr 24 PAKISTAN Key conditions and Recent developments challenges After contracting for two consecutive quarters, real GDP at factor cost rose by Table 1 2023 Pakistan’s economy contracted by 0.2 2.1 percent y-o-y over July to September Population, million 240.5 percent in FY23 on surging world 2023 on strong agricultural growth and GDP, current US$ billion 338.4 commodity prices, global monetary some improvement in confidence. Agri- GDP per capita, current US$ 1407.0 tightening, catastrophic flooding, and cultural output expanded by 5.1 percent a 4.9 International poverty rate ($2.15) inadequate macroeconomic manage- in Q1 FY24, the highest quarterly growth a 39.8 ment (Figure 1). These headwinds on record, as conducive weather condi- Lower middle-income poverty rate ($3.65) a 84.5 led to pressures on domestic prices, tions led to strong yields. On easing im- Upper middle-income poverty rate ($6.85) Gini index a 29.6 external and fiscal accounts, the cur- port controls, the industry sector grew School enrollment, primary (% gross) b 84.4 rency, and foreign reserves. Import by 2.5 percent in Q1 FY24, the strongest b 66.1 and capital controls were conse- growth in five quarters, while service sec- Life expectancy at birth, years quently imposed, disrupting domes- tor output rose by 0.8 percent. However, Total GHG emissions (mtCO2e) 499.5 tic supply chains, fueling inflationary daily wages for unskilled labor, in which Source: WDI, Macro Poverty Outlook, and official data. pressures, and smothering economic most of the poor are engaged, grew by a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). activity. In response to deteriorating just 5 percent in H1 FY24, much lower real wages and declining job quality, than inflation. Because of falling real poverty rose by 4.5 percentage points wages, growth did not translate into in FY23, with approximately 10 mil- poverty reduction. lion people just above the poverty Pakistan’s current account deficit (CAD) Despite some recovery, Pakistan’s econo- line at risk of poverty in the face of narrowed to US$0.8 billion in H1 FY24 my remains under stress with low for- shocks (Figure 2). from US$3.6 billion in H1 FY23, on im- eign reserves and high inflation. Policy New multilateral external financing port controls, reduced domestic demand, uncertainty remains elevated and eco- this year improved the foreign re- and lower global commodity prices. serve position and permitted the Meanwhile, official remittances fell by 6.8 nomic activity is subdued, reflecting easing of import controls. The econ- percent y-o-y in H1 FY24 due to exchange tight fiscal and monetary policy and im- omy has shown broad-based but rate rigidities earlier in the year. Fresh ex- port controls. Growth is projected to re- still nascent signs of a recovery. ternal inflows led to a balance of pay- main below potential with heightened Despite this, risks remain high, ments (BOP) surplus of US$3.0 billion. social vulnerability and limited poverty with the outlook predicated on the Consequently, international reserves in- IMF-SBA program remaining on creased to US$9.4 billion at the end of De- reduction in the medium term. Financial track, continued fiscal restraint, and cember 2023, equivalent to 1.7 months of sector risks, policy uncertainty, and additional external financing. Finan- imports. With the BOP surplus and regu- stronger external headwinds pose signif- cial sector risks, policy uncertainty, latory reforms in the forex market, the ru- icant risks to the outlook. and stronger external headwinds pee appreciated modestly against the U.S. pose significant risks. dollar over H1 FY24. FIGURE 1 Pakistan / Real GDP growth and sectoral FIGURE 2 Pakistan / Actual and projected poverty rates and contributions to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 3 100 200000 90 180000 2 80 160000 1 70 140000 60 120000 0 50 100000 40 80000 -1 30 60000 -2 20 40000 Agriculture 10 20000 Industry -3 0 0 Services GDP 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -4 International poverty rate Lower middle-income pov. rate Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY23 Q1 FY24 Upper middle-income pov. rate Real GDP pc Sources: Pakistan Bureau of Statistics and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 198 Apr 24 Headline consumer price inflation rose to The estimated consolidation of the Public energy prices, with little respite for poor a multi-decade high of an average of 28.8 Sector Development Program in real terms and vulnerable households with depleted percent y-o-y in H1 FY24, up from 25.0 likely reduced public spending on con- savings and lower real incomes. With high percent in H1 FY23, reflecting higher do- struction, which employs many poor and base effects and lower projected global mestic energy prices and supply chain vulnerable. In addition, federal public pen- commodity prices, inflation is expected to disruptions, which in turn raised overall sions grew while Benazir Income Support moderate over the medium term. With production costs. Food inflation remained Programme (BISP) spending declined in continued import controls, the CAD is ex- high, particularly impacting poor and H1 FY24, contributing to rising inequality. pected to remain low at 0.7 percent of GDP vulnerable households who spend half in FY24 and to further narrow to 0.6 per- of their budgets on food, leading to in- cent of GDP in FY25 and FY26. flation inequality and increased food in- The fiscal deficit is projected to widen to security, especially in Sindh, Khyber Outlook 8.0 percent of GDP due to higher interest Pakhtunkhwa, and Balochistan. Trans- payments but gradually decline as fiscal portation costs rose faster in rural areas, Economic activity is expected to remain consolidation takes hold and interest pay- increasing the cost of accessing markets, subdued, with real GDP growth estimated ments fall over time. Fiscal consolidation schools, and health centers for the rural at 1.8 percent in FY24, reflecting continued will likely lead to continued high energy poor, potentially leading to children being tight macroeconomic policy, import con- inflation and restricted public spending on taken out of school and delayed medical trols, high inflation, and continued policy development and social sectors, which treatments as households cope with the uncertainty. Output growth is expected to may worsen monetary, welfare, and hu- rising cost of living. The policy rate was increase to around 2.5 percent over man development outcomes. While target- held at 22.0 percent, implying negative real FY25-26, remaining below potential. ed transfers are critical in protecting the interest rates throughout H1 FY24. Poverty reduction is projected to stall in poorest, the 20 percent increase in BISP With fiscal consolidation efforts, the pri- the medium term, owing to weak growth, cash transfers in H2 FY24 may not be mary fiscal surplus doubled to PKR1.8 tril- limited increase in real labor incomes, and enough. The macroeconomic outlook is lion in H1 FY24. Supported by higher di- persistently high food and energy infla- predicated on the successful completion of rect taxes and the petroleum development tion. Poverty is expected to remain close to the IMF-SBA program, continued fiscal re- levy hikes, total revenue rose more than 40 percent until FY26. straint, and external financing, but limited non-interest expenditure. The overall fiscal Inflation is projected to remain elevated at progress with major structural reforms deficit stood at PKR2.4 trillion for H1 FY24. 26.0 percent in FY24 due to higher domestic and continued policy uncertainty. TABLE 2 Pakistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020/21 2021/22 2022/23 2023/24e 2024/25f 2025/26f Real GDP growth, at constant market prices 6.5 4.8 0.0 1.8 2.3 2.7 Private consumption 9.4 7.1 2.4 1.7 2.2 2.5 Government consumption 1.8 -1.3 -4.9 0.9 1.4 2.0 Gross fixed capital investment 3.7 3.3 -16.3 -0.5 1.2 2.0 Exports, goods and services 6.5 5.9 2.4 2.1 3.2 3.7 Imports, goods and services 14.5 11.0 -0.3 0.3 1.2 1.6 Real GDP growth, at constant factor prices 5.8 6.2 -0.2 1.8 2.3 2.7 Agriculture 3.5 4.3 2.3 3.0 2.2 2.7 Industry 8.2 6.9 -3.8 1.8 2.2 2.4 Services 5.9 6.7 0.1 1.2 2.4 2.9 Inflation (consumer price index) 8.9 12.1 29.2 26.0 15.0 11.5 Current account balance (% of GDP) -0.8 -4.7 -0.7 -0.7 -0.6 -0.6 Net foreign direct investment inflow (% of GDP) 0.5 0.5 0.2 0.3 0.3 0.4 Fiscal balance, including grants (% of GDP) -6.0 -7.8 -7.7 -8.0 -7.4 -6.5 Revenues (% of GDP) 12.4 12.1 11.5 12.2 12.3 12.4 Debt (% of GDP) 77.6 80.7 81.4 73.1 72.3 72.5 Primary balance, including grants (% of GDP) -1.1 -3.1 -0.9 -0.1 -0.2 -0.2 a,b International poverty rate ($2.15 in 2017 PPP) 5.0 4.2 6.8 7.0 7.0 6.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 39.5 35.5 39.9 40.1 40.0 39.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 84.1 81.9 82.9 83.0 82.9 82.7 GHG emissions growth (mtCO2e) 5.2 5.2 1.5 3.4 3.5 3.7 Energy related GHG emissions (% of total) 43.7 44.5 43.5 43.6 43.7 43.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SAR-POV harmonization, using 2018-HIES. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Poverty projections based on microsimulations using 2018-HIES and aggregate macroeconomic indicators (see Caruso et al 2017). MPO 199 Apr 24 second review of the Extended Fund Fa- cility program. Key reforms focusing on SRI LANKA Key conditions and debt, fiscal management, trade, invest- ment, and State-Owned Enterprises challenges (SOEs) continue to advance. Table 1 2023 In 2022, Sri Lanka plunged into a severe Population, million 22.2 economic crisis, as longstanding structur- GDP, current US$ billion 84.4 al weaknesses were exacerbated by ex- Recent developments GDP per capita, current US$ 3792.8 ogenous shocks and policy mistakes. Af- a 1.0 International poverty rate ($2.15) ter losing access to international financial The economy contracted by 2.3 percent in a 11.3 markets in 2020, official reserves dropped 2023, despite growth in 3Q and 4Q (1.6 Lower middle-income poverty rate ($3.65) a 49.3 precipitously, and the forex liquidity con- and 4.5 percent, y-o-y, respectively) fol- Upper middle-income poverty rate ($6.85) Gini index a 37.7 straint led to severe shortages of essential lowing six quarters of contraction. This School enrollment, primary (% gross) b 96.9 goods. The country announced an exter- was driven by shrinking construction and b 76.4 nal debt service suspension in April 2022, mining, financial and IT services, and Life expectancy at birth, years pending debt restructuring. The economy textile manufacturing, amid weak de- Total GHG emissions (mtCO2e) 38.2 contracted by 9.5 percent in total during mand, tight private credit, and shortages Source: WDI, Macro Poverty Outlook, and official data. 2022 and 2023, and public and publicly of inputs, and was partly offset by a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2021). guaranteed debt ballooned to 119.2 per- growth in transport, accommodation, cent of Gross Domestic Product (GDP) in food, and beverage services, resulting 2022 amid high inflation (46.4 percent, an- from a rebound in tourism. nual average in 2022) and a sharp cur- Inflation remained benign, after declining rency depreciation (81.2 percent, y-o-y, to single-digit levels in July 2023, sup- The economy has shown initial signs of 2022). Food insecurity and malnutrition ported by currency appreciation and im- stabilization with improved fiscal and ex- increased, poverty doubled, and inequal- proved supply. However, with the recent ternal balances, supported by a recovery ity widened. Approximately 60 percent spike in food prices and pass-through of in remittances and tourism and the con- of households experienced a decline in fuel and utility prices, headline inflation income due to reduced work hours or as measured by the Colombo Consumer tinued debt service suspension. However, job losses. The implementation of recent Price Index increased to 5.9 percent in this will be insufficient to reverse crisis- structural reforms, including cost-reflec- February 2024 (y-o-y). Labor force partici- induced welfare losses as poverty levels tive utility pricing and new revenue mea- pation declined (from 49.8 to 48.8 percent remain elevated. The narrow path to sures, helped macroeconomic stability but between 2022 and 3Q 2023), especially in restoring growth and prosperity will strained household budgets. Domestic urban areas. Households have adopted debt restructuring was completed in Sep- risky coping strategies to deal with low- hinge on a successful debt restructuring tember 2023, while negotiations with ex- er incomes and price pressures, including and continued reform implementation de- ternal creditors are progressing. In March using savings, taking on more debt, and spite the upcoming elections. 2024, a Staff Level Agreement was limiting their diets. Food insecurity rose reached between the authorities and In- during H2 2023, with 24 percent of house- ternational Monetary Fund staff on the holds being food insecure. FIGURE 1 Sri Lanka / Real GDP growth and contributions to FIGURE 2 Sri Lanka / Actual and projected poverty rates real GDP growth (production side) and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 6 80 700000 4 2 70 600000 0 60 -2 500000 -4 50 400000 -6 40 -8 300000 -10 30 -12 200000 20 -14 1Q 2022 2Q 2022 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 10 100000 Accommodation Construction 0 0 Net taxes Other services Transport & warehousing Other industries 2009 2011 2013 2015 2017 2019 2021 2023 2025 Textiles Agriculture International poverty rate Lower middle-income pov. rate Overall growth Upper middle-income pov. rate Real GDP pc Sources: Department of Census and Statistics and World Bank staff calculations. Source: World Bank. Notes: see Table 2. Notes: Accommodation includes food and beverage service activities and textiles include wearing apparel and leather-related products. MPO 200 Apr 24 After almost two years of monetary tight- to a high overall fiscal deficit in 2023. In- and gradual recovery in tourism and re- ening, the central bank cut policy rates by terest payments absorbed approximately mittances. Although the primary deficit is 650 basis points between June and Novem- three-fourths of revenue collected. expected to decline further, the overall fis- ber 2023. Combined with improvements in cal balance will remain high in 2024 due liquidity, this resulted in a sharp decline in to the large interest bill. Debt restructuring the government’s cost of domestic borrow- and continued fiscal consolidation are pro- ing. While y-o-y growth rates remain neg- Outlook jected to reduce the overall fiscal balance in ative, private sector credit has been recov- the medium term. ering monthly since June 2023. Growth prospects depend on progress While recent macroeconomic performance In 2023, the current account recorded with debt restructuring and the continued has been better than expected, downside a surplus for the first time since 1977, implementation of structural reforms. The risks remain high, given a narrow path as remittances and tourism rebounded primarily revenue-based fiscal adjustment to recovery and limited buffers. These sharply, and imports remained subdued. is, however, likely to further reduce dis- risks include a protracted or insufficiently The continued external debt service sus- posable incomes, weaken demand, and deep debt restructuring, reform fatigue pension, inflows from development weigh down growth in the short term. The or reversal following the elections, and a partners, large purchases of foreign ex- modest recovery will be insufficient to re- weaker recovery linked to scarring effects change, and postponed repayments on verse welfare losses experienced during from the crisis. With declining household existing credit lines have helped build the crisis, and poverty is estimated to re- expenditure on health and education, usable official reserves to about 2 main above 22 percent until 2026. concerns over the impact on future hu- months of imports (US$3.1 billion by Inflation is likely to rise moderately in the man capital remain high. Financial sector end-February 2024, compared to US$500 near-term, due to new revenue measures risks need to be carefully monitored as el- million in December 2022). The Rupee and the waning of favorable base effects, evated non-performing loans and signif- appreciated by 10.8 percent against the and remain benign in the medium term icant exposure to the sovereign contin- US Dollar in 2023. as demand continues to be subdued. Fur- ue to hinder financial sector stability and Despite the primary balance registering a ther increases could reverse the marginal impede credit intermediation. On the up- surplus (due to a significant increase in poverty reduction (1.1 percentage points) side, a strong and sustained implemen- revenue and the repayment of an on-lent expected in 2024. tation of the structural reform program, amount by an SOE), a sharp rise in interest The current account is projected to remain could boost confidence and attract fresh payments is estimated to have contributed in surplus, with subdued import growth capital inflows. TABLE 2 Sri Lanka / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f a Real GDP growth, at constant market prices 4.2 -7.3 -2.3 2.2 2.5 3.0 Private consumption 2.6 -9.0 -3.2 2.4 2.6 3.1 Government consumption -2.8 1.4 -2.7 -0.3 0.2 1.3 Gross fixed capital investment 6.3 -22.8 -9.1 3.3 3.1 3.9 Exports, goods and services 10.1 10.2 1.8 2.6 2.7 3.1 Imports, goods and services 4.1 -19.9 -2.7 2.3 1.6 2.3 a Real GDP growth, at constant factor prices 3.9 -7.0 -2.6 2.2 2.5 3.0 Agriculture 1.0 -4.2 2.6 1.5 1.5 1.5 Industry 5.7 -16.0 -9.2 2.6 2.7 2.9 Services 3.4 -2.6 -0.2 2.1 2.5 3.3 Inflation (consumer price index) 6.0 46.4 17.4 7.8 6.4 5.6 Current account balance (% of GDP) -3.7 -2.0 1.6 0.7 -0.2 -0.4 Net foreign direct investment inflow (% of GDP) 0.7 1.2 0.7 0.8 0.8 0.9 b,c International poverty rate ($2.15 in 2017 PPP) 1.5 4.1 5.2 4.7 4.1 3.8 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 13.1 22.7 25.9 24.8 23.2 22.2 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 51.2 64.4 66.6 65.8 65.6 64.4 GHG emissions growth (mtCO2e) 9.1 -3.0 -2.1 3.5 3.3 3.7 Energy related GHG emissions (% of total) 62.9 62.3 61.6 62.7 64.0 65.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Components of GDP by expenditure for 2020-2022 are estimates, as the data published on March 15, 2024, by authorities only included GDP by production. b/ Calculations based on SAR-POV harmonization, using 2019-HIES. Actual data: 2019. Microsimulation that models sectoral GDP growth rates, inflation, remittances, employ- ment, and cash transfers 2020-2022. Nowcast and forecast (2023-2026) use nominal GDP growth rates by sector and CPI inflation for food and non-food items. c/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 201 Apr 24 Sub-Saharan Africa Angola Côte d'Ivoire Liberia Senegal Benin Equatorial Guinea Madagascar Seychelles Botswana Eritrea Malawi Sierra Leone Burkina Faso Eswatini Mali Somalia Burundi Ethiopia Mauritania South Africa Cabo Verde Gabon Mauritius South Sudan Cameroon Gambia, The Mozambique Sudan Central African Republic Ghana Namibia Tanzania Chad Guinea Niger Togo Comoros Guinea-Bissau Nigeria Uganda Congo, Dem. Republic Kenya Rwanda Zambia Congo, Republic Lesotho São Tomé and Príncipe Zimbabwe MPO 203 Apr 24 Angola’s poverty rates stand above what would be expected for a country with its ANGOLA Key conditions and GDP level: as of 2018, a third lived on less than $2.15 per day. Building human capital challenges is a key priority for reducing poverty and boosting growth. Limited access to health Table 1 2023 Angola’s economy remains overly de- and education reduces the productivity of Population, million 36.1 pendent on the oil sector, which ac- an Angolan child to a third of his or her po- GDP, current US$ billion 92.2 counts for a quarter of GDP, 60 per- tential. Important progress is being made GDP per capita, current US$ 2549.9 cent of tax revenues, and 95 percent in building a social safety net, including a 31.1 International poverty rate ($2.15) of exports. Oil production is in struc- the flagship cash transfer program Kwen- a 52.9 tural decline due to oil depletion and da that has registered 1.5 million rural Lower middle-income poverty rate ($3.65) a 78.0 lack of investment, falling from 2 mil- households and initiated payments to 1.03 Upper middle-income poverty rate ($6.85) Gini index a 51.3 lion to 1.1 million barrels per day be- million beneficiaries. Yet, urban house- School enrollment, primary (% gross) b 88.6 tween 2010 and 2023. The reliance on holds remain uncovered and vulnerable to b 61.6 oil has led to high vulnerability to ex- food price shocks. Life expectancy at birth, years ternal shocks, undermining macroeco- Total GHG emissions (mtCO2e) 110.5 nomic stability, and stunted the non- Source: WDI, Macro Poverty Outlook, and official data. oil economy through strong real ex- a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). change rate appreciation, limiting eco- Recent developments nomic diversification and job creation. Among those employed, 80 percent are The 2023 real GDP growth has been re- informal, and half are either self-em- vised downward from 1.3 to 0.8 percent ployed with no employees or unpaid since the previous MPO. Oil production workers of family enterprises. Women in 2023 (1.11 million b/d) fell short of In 2023, lower oil production and an ex- face higher unemployment and are the government’s expectations (1.18 mil- change rate shock led to economic stagna- more likely to be informal (89 percent lion b/d) due to a longer-than-expect- tion. The May-June currency slide con- compared to 72 percent for men). ed maintenance shutdown at a major oil Progress has been made in enhancing field. The non-oil sector slowed down tinues to fuel inflationary pressures. Low- macro-fiscal stability through exchange due to a cost-push shock to key inputs er tax revenues, larger interest payments rate liberalization, central bank autono- from a one-off adjustment in gasoline and higher fuel subsidies led the govern- my, and fiscal consolidation. However, prices and a sharp currency depreciation. ment to cut other expenses. The non-oil while these efforts should be accelerated, The economic stagnation reduced gov- sector would drive growth since 2024, greater economic diversification is need- ernment revenues, especially those from ed to boost economic growth and reduce the non-oil sector. but risks to the outlook remain high due poverty, particularly in the context of the The value of oil exports fell by 27 percent to over-reliance on oil. Poverty is project- global energy transition. Between 2015 in 2023 due to lower oil prices and pro- ed to grow marginally to 36.1 percent. and 2022, real GDP per capita fell by 28 duction. This, together with large debt percent, reinforcing the need for a more service payments, reduced the supply of diversified and inclusive growth strategy. foreign currency, which triggered a FIGURE 1 Angola / Real GDP growth and contributions to FIGURE 2 Angola / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 6 90 70000 4 80 60000 70 2 50000 60 0 40000 50 -2 40 30000 -4 30 20000 20 -6 10000 10 -8 0 0 2020 2021 2022 2023e 2024f 2025f 2026f 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Agriculture Oil industry Non-oil industry International poverty rate Lower middle-income pov. rate Services GDP Upper middle-income pov. rate Real GDP pc Sources: Angola National Institute of Statistics and World Bank. Source: World Bank. Notes: see Table 2. MPO 204 Apr 24 40 percent depreciation in May-June 2023 Food inflation, combined with a weak- and widened the gap between the official ening labor market and a decline in per and the parallel exchange rates. The slide Outlook capita growth, suggests that poverty may in the kwanza resulted in higher-than-ex- increase to 36.1 percent in 2024, which pected interest payments and fossil fuel Growth is expected to rebound to 2.8 per- corresponds to almost 13.5 million An- subsidies, to which the government re- cent in 2024 and then remain at similar golans living on less than $2.15/day. sponded with cuts in other expenses. The rates. Non-oil sectors would drive this re- The economic outlook faces several depreciation has also fueled inflationary covery, as oil production is projected to downside risks, primarily driven by low- pressures as year-on-year inflation soared fall by 2.5 percent in 2024 and then stag- er-than-expected oil prices and produc- from 11.5 percent in February 2023 to 24 nate due to oil depletion and lack of in- tion. Lower oil revenues could lead to percent in February 2024. The increase in vestment. Hence, on the demand side, ex- additional public spending cuts, impact- gasoline prices in June 2023 further fueled ports are expected to stall, while both final ing economic growth, and greater infla- inflation. The National Bank of Angola consumption and gross fixed capital for- tionary pressures resulting from a weak- raised its policy rate by 100 basis points mation drive growth. Achieving higher er currency. Further monetary tightening to 18 percent in November and then to growth rates will depend on the efforts to to combat inflation would also delay the 19 percent in March. diversify the economy. economic recovery. Increasing efforts to The economy is not generating enough jobs Year-on-year inflation is projected to diversify the economy has become es- to keep up with Angola’s growing working reach around 28 percent by mid-2024 and sential to reduce the impact of oil price age population. Between Q4 2022 and Q4 then decline to around 12 percent by volatility on public finances, economic 2023, over 550,000 new workers joined the end-2026. Monetary policy tightening, to- performance, and poverty reduction. In labor force, but only 10,000 jobs were added. gether with a conservative fiscal stance, the near term, it will also be important to Urban and youth unemployment surged to is expected to contain inflationary pres- address food insecurity, tackle high un- 42 and 58 percent in Q4 2023, respectively, sures. In addition, the stock of interna- employment, especially among the urban up from 39 and 53 percent a year earlier. tional reserves (7 months of imports), and poor, and protect against human capi- While the share of jobs in the primary sec- the imminent monetary loosening in the tal deterioration by ensuring that all An- tor grew by 1.1 percentage points, jobs in US would reduce downward pressures golan children have access to adequate commerce fell by 2.5 percent. on the kwanza and, thus, on inflation. nutrition, medical care, and education. TABLE 2 Angola / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.2 3.0 0.8 2.8 2.7 2.4 Private consumption 4.0 5.4 2.3 4.6 4.0 3.0 Government consumption -2.9 3.6 -15.3 5.1 2.7 2.4 Gross fixed capital investment 7.4 8.1 4.6 1.4 2.7 2.8 Exports, goods and services -8.6 3.3 -2.8 -2.5 0.0 0.0 Imports, goods and services -3.8 26.1 -7.3 -3.3 2.2 1.3 Real GDP growth, at constant factor prices -0.1 3.1 0.8 2.6 2.6 2.3 Agriculture 17.2 3.9 0.6 6.3 4.8 4.8 Industry -8.3 1.8 -1.3 0.1 1.0 1.2 Services 6.2 4.2 2.8 4.2 3.6 2.7 Inflation (consumer price index) 25.8 21.4 13.6 24.7 15.4 11.4 Current account balance (% of GDP) 11.8 10.4 4.2 3.4 1.1 -0.2 Net foreign direct investment inflow (% of GDP) 4.6 5.9 2.3 2.1 1.3 1.0 Fiscal balance (% of GDP) 4.0 1.0 -1.7 -2.8 -2.4 -3.2 Revenues (% of GDP) 24.7 25.6 20.0 18.7 17.5 16.8 Debt (% of GDP) 87.9 69.5 87.2 74.5 69.2 67.0 Primary balance (% of GDP) 9.5 5.4 3.5 3.0 2.9 2.4 a,b International poverty rate ($2.15 in 2017 PPP) 35.2 35.2 36.0 36.1 35.2 34.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 57.6 57.7 58.3 58.4 57.6 56.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 81.2 81.3 81.7 81.8 81.2 80.7 GHG emissions growth (mtCO2e) -1.9 -0.8 -0.4 -0.2 0.0 0.0 Energy related GHG emissions (% of total) 12.6 12.2 12.0 11.8 11.8 11.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2018-IDREA. Projection using neutral distribution (2018) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. b/ Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. MPO 205 Apr 24 in 2015-22) led to rising debt levels, from 30.9 percent of GDP in 2015 to 54.2 percent BENIN Key conditions and in 2022. Accordingly, boosting revenues is critical to sustainably finance increasing challenges development needs. As fiscal space is lim- ited, private sector mobilization is central Table 1 2023 Despite achieving high GDP growth rates for infrastructure investment. Population, million 13.7 averaging 4.8 percent over 2010-2019, pre- GDP, current US$ billion 19.6 COVID GDP per capita grew at a modest GDP per capita, current US$ 1429.4 rate of 1.8 percent. Although experiencing International poverty rate ($2.15) a 12.7 a post-2020 growth recovery of 3.8 percent Recent developments a 43.4 over 2021-22, this delivered few private Lower middle-income poverty rate ($3.65) a 81.4 wage jobs and limited poverty reduction. Growth slowed to 5.8 percent in 2023 (3.0 Upper middle-income poverty rate ($6.85) Gini index a 34.4 Vulnerable employment (including con- percent per capita terms), from 6.3 percent School enrollment, primary (% gross) b 113.0 tributing family workers and own-account in 2022, due to climate shocks undermin- b 59.8 workers) declined by only 0.3 ppt over ing the agriculture sector (notably cotton), Life expectancy at birth, years 2010-2021, from 88.7 percent of total em- and uncertainties in neighboring countries Total GHG emissions (mtCO2e) 26.4 ployment to 88.4 percent, in contrast to 8.1 disrupting transit trade. The service sector Source: WDI, Macro Poverty Outlook, and official data. ppt and 3.8 ppt for structural and aspira- was impacted by the Niger border closure a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy tional peers. This vulnerability reflects the and diminished demand from Nigeria. The (2021). structure of Benin’s economy, with a large expansion of the Glo-Djigbé Industrial Zone share of agriculture and prevalent infor- (GDIZ) and construction supported robust mality. The closure of the Niger border fol- growth of the secondary sector. Growth in lowing the July 2023 coup and the inse- agriculture combined with relatively low The 2023 Niger border closure, policy curity risks in the north of Benin dispro- inflation reduced the international poverty portionately impacted poor and vulnera- rate ($2.15 a day, 2017 PPP) from 12.3 per- changes in Nigeria and climate shocks ble households, slowing poverty reduc- cent in 2022 to 11.7 percent in 2023. moderated growth to 5.8 percent. The in- tion, and increasing fragility. Extreme cli- Headline inflation doubled to 2.8 percent ternational poverty measure fell to 11.7 mate events such as floods led to the dec- in 2023 with the end of the gasoline sub- percent. A revenue based fiscal consolida- laration of a state of emergency in 32 mu- sidy in Nigeria, resulting in a 60 percent nicipalities, displacing 182,803 people and increase in the price of smuggled gaso- tion decreased the fiscal deficit to 4.5 per- reversing poverty reduction. line, used by 80 percent of the popu- cent of GDP, although public debt in- The private sector is constrained by lim- lation. To counter inflation across WAE- creased slightly to 55 percent. Growth ited access to credit and lack of infra- MU countries, the Central Bank of West will settle at 6 percent potential from structure, impeding productivity growth African States (BCEAO) raised policy in- 2024, but risks are rising, including from and job creation. Government action plans terest rates by a cumulative 150 basis have reduced the infrastructure gap, points since mid-2022 to 3.5 percent for transit trade and insecurity. liquidity calls and 5.5 percent for the mar- though large investment projects and pressing expenditure needs combined ginal lending facility. However, inflation with low tax revenue (10.5 percent of GDP in the region (3.7 percent in 2023) was FIGURE 1 Benin / Key macroeconomic balances FIGURE 2 Benin / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 60 0 100 900000 90 800000 50 -1 80 700000 -2 70 40 600000 -3 60 500000 30 50 -4 400000 40 20 300000 -5 30 20 200000 10 -6 10 100000 0 -7 0 0 2018 2019 2020 2021 2022 2023e 2024f 2025f 2026f 2011 2013 2015 2017 2019 2021 2023 2025 Debt Fiscal balance (rhs) International poverty rate Lower middle-income pov. rate Current account balance (rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 206 Apr 24 still above the 1-3 percent target range control regionally and in the context of and foreign exchange reserves have been rising uncertainties over the withdrawal on a downward trend, estimated at 3.5 Outlook of Niger, Mali, and Burkina Faso from months of imports at end-2023, down ECOWAS and potential spillovers to from 4.3 months at end-2022. Growth is projected to stabilize at 6.0 WAEMU. These uncertainties are likely to The fiscal deficit declined to 4.5 percent of percent between 2024 and 2026 (average increase investors’ risk perceptions lead- GDP driven by a 0.6 ppt increase in tax 3.2 percent per capita terms), driven by ing to tighter financing conditions and revenue and spending rationalization of investment and the GDIZ expansion. As putting additional strain on already low 1.2 ppt of GDP. Despite the increase in the inflation is expected to moderate to an foreign exchange reserves. public wage bill and security spending, the average of 2 percent, consumption con- Through the 2023 Medium-term Revenue fiscal consolidation is on track with an in- tributions to growth are set to increase. Strategy, the government has committed crease in tax revenues and decline in cap- Reforms to boost agriculture productivity to mobilize additional revenue of 0.5 per- ital expenditures. Although public debt should increase output, while growth in cent of GDP annually to support its fiscal slightly increased to 55.0 percent of GDP the secondary sector will be supported consolidation drive and reach the WAEMU (from 54.2 percent in 2022), the debt ac- by ongoing and new infrastructure in- fiscal deficit target of 3 percent of GDP. cumulation slowed down to 1.4 percent in vestment under the PAG2 (Government Lower debt accumulation will likely sus- 2023 in comparison to 9.6 percent in Action Program). The service sector tain public debt on a downward path to 2020-22. The current account deficit (CAD) would benefit from the dynamism of reach 52.1 percent by 2026. The CAD will declined to 5.8 percent of GDP in 2023, dri- tourism, and the resumption of transit gradually decline to 4.8 percent by 2026, ven by service exports (tourism), robust trade with neighboring States. Poverty due to higher exports from the GDIZ, fi- export performance of industrial crops rates are expected to trend downward, nanced by debt such as the US$ 750 million (cashew, soybeans, and palm oil), and re- with the headcount rate ($2.15 a day, Eurobond issued in 2024. Despite past re- duced imports, offsetting a sharp decline 2017 PPP) declining from 11.7 percent in silience, downside risks remain. Head- in cotton exports (62.8 percent of goods ex- 2023 to 10.0 percent by 2025, supported winds may include prolonged transit trade ports in 2021-22). The financing of the by robust economic growth. disruptions and climate-related shocks. CAD was supported by debt, and FDI in- The BCEAO may need to continue tight- Worsening security risks are also a major flow to the Special Economic Zone. ening in 2024 to bring inflation under threat to development gains. TABLE 2 Benin / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.2 6.3 5.8 6.0 6.0 6.0 Private consumption 4.8 5.0 3.2 3.8 3.9 3.8 Government consumption 8.5 3.5 11.4 5.0 6.4 5.8 Gross fixed capital investment 17.8 12.9 5.6 8.6 7.6 8.1 Exports, goods and services 12.6 19.1 2.9 8.0 7.9 8.3 Imports, goods and services 16.8 18.5 0.1 5.1 5.0 5.5 Real GDP growth, at constant factor prices 6.6 6.0 5.8 6.0 6.0 6.0 Agriculture 5.2 4.8 4.7 5.2 5.4 5.5 Industry 9.1 7.9 7.5 7.8 7.3 7.0 Services 6.6 6.0 5.7 5.8 5.9 5.9 Inflation (consumer price index) 1.7 1.4 2.8 2.0 2.0 2.0 Current account balance (% of GDP) -4.2 -6.2 -5.8 -5.4 -4.9 -4.8 Net foreign direct investment inflow (% of GDP) 1.7 1.9 1.6 1.6 1.6 1.7 Fiscal balance (% of GDP) -5.7 -5.5 -4.5 -3.8 -3.0 -3.0 Revenues (% of GDP) 14.1 14.3 14.9 15.2 15.7 16.0 Debt (% of GDP) 50.3 54.2 55.0 54.1 52.9 52.1 Primary balance (% of GDP) -3.5 -3.9 -2.8 -2.1 -1.4 -1.5 a,b International poverty rate ($2.15 in 2017 PPP) 12.7 12.3 11.7 10.8 10.0 9.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 43.4 42.5 41.0 38.5 37.0 35.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 81.4 80.5 79.5 77.7 76.4 75.2 GHG emissions growth (mtCO2e) -0.4 0.2 -1.9 0.2 1.0 1.6 Energy related GHG emissions (% of total) 30.6 29.7 27.1 25.9 25.3 25.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 207 Apr 24 Reforms to promote competition, reduce the costs of doing business, remove policy BOTSWANA Key conditions and barriers to trade and services, and promote trade facilitation would strengthen eco- challenges nomic diversification, boost growth and exports, and encourage job creation. Im- Table 1 2023 Until the 2009 global financial crisis, abun- proving the effectiveness and efficiency of Population, million 2.7 dant diamond resources, political stability, public services, including public invest- GDP, current US$ billion 22.1 effective institutions, and prudent macro- ment efficiency and strengthening educa- GDP per capita, current US$ 8249.6 economic policies delivered robust tion outcomes to meet the demand for a 15.4 International poverty rate ($2.15) growth. They allowed the government to skills in the private sector, could further a 38.0 deliver improved public services, includ- enhance growth. Incentivizing innovative Lower middle-income poverty rate ($3.65) a 63.5 ing health, education, and infrastructure. new businesses to emerge and grow, at- Upper middle-income poverty rate ($6.85) Gini index a 53.3 Social assistance programs also served to tracting Foreign Direct Investment, creat- School enrollment, primary (% gross) b 93.7 reduce extreme poverty. ing linkages with local firms, encouraging b 61.1 Yet, since the early 2010s, structural con- market contestability would improve the Life expectancy at birth, years straints contributed to slowing down eco- business environment. Total GHG emissions (mtCO2e) 53.3 nomic expansion as the economy remains Source: WDI, Macro Poverty Outlook, and official data. dominated by the diamond sector, which is a/ Most recent value (2015), 2017 PPPs. b/ Most recent WDI value (2021). increasingly vulnerable to boom-and-bust cycles on international markets. Poor learn- Recent developments ing outcomes, skills mismatches, and infra- In 2023, economic growth slowed to 3.3 structure deficiencies in transportation, Economic activity moderated to an esti- communication, energy, and water services mated 3.3 percent in 2023 following the percent, driven by reduced global demand have negatively impacted productivity and 5.8 percent rebound in the aftermath of for diamonds. In FY24-26, economic ac- competitiveness. Regulatory barriers and the COVID-19 pandemic spurred by the tivity is projected to stabilize at 3.5-4.0 red tape have increased the cost of doing decline in global demand for rough di- percent, buoyed by an expansionary fiscal business, stifled entrepreneurship, and de- amonds, falling prices, and intensifying terred investment. The large state presence, competition from synthetic diamonds. policy and growth in the non-mining pri- especially state-owned enterprises, has Headline inflation declined in 2023, av- vate sector. Diamond value chain risks crowded out private investment. eraging 5.2 percent compared with 12.2 underscore the urgency of implementing The current growth model, based on low-la- percent in 2022, supported by tight mon- structural reforms to boost growth and bor-intensive sectors yields fewer jobs. The etary policy conditions and a reduction jobs, including through human capital unemployment rate remains high, at 25.9 in fuel prices. In December 2023, the cen- percent in 2023Q3, mainly affecting the tral bank cut the policy rate by 25 basis development, enhancing market con- youth. Poverty, projected at 14.3 percent in points to 2.4 percent to address the per- testability, reducing regulatory and 2022 using the US$2.15 per day international sistent and sizable output gap. trade barriers, allowing for reductions poverty line, remains high for Botswana’s The financial sector remains profitable and in poverty and inequality. income level, while inequality (Gini index of stable. However, the ongoing repatriation 53.3) is among the world’s highest. of pension fund assets poses liquidity risks FIGURE 1 Botswana / Fiscal consolidation will rest on FIGURE 2 Botswana / Actual and projected poverty rates spending cuts and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 45 2 70 90000 40 80000 0 60 35 70000 -2 50 30 60000 25 -4 40 50000 20 -6 30 40000 15 30000 -8 20 10 20000 -10 10 5 10000 0 0 0 -12 2009 2011 2013 2015 2017 2019 2021 2023 2025 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Revenues and Grants Expenditures Balance Upper middle-income pov. rate Real GDP pc Sources: Statistics Botswana and World Bank. Source: World Bank. Notes: see Table 2. MPO 208 Apr 24 in local financial markets due to limited in- Inflation is projected to remain within the vestment opportunities. central bank’s target range of 3-6 percent, After two years of a balanced budget, the fis- Outlook in line with declining import prices of en- cal balance deteriorated in 2023, despite ergy and food. The current account bal- higher Southern African Customs Union The economy is projected to expand by ance is projected to improve, driven by a (SACU) revenues. Higher recurrent spend- 3.5-4.0 percent annually over 2024-26 as recovery in global demand for diamonds. ing alongside capital investments under- the global economy strengthens and de- The expansion of the private sector is ex- score the need for improved expenditure ef- mand for copper and diamonds increas- pected to remain too subdued to increase ficiency. Increased subsidies necessitate re- es. Projected investments in power gen- the demand for employment. Lower in- evaluating their criteria, enhancing moni- eration from coal bed methane, battery- flation is expected to support household toring and evaluation, and exploring alter- grade manganese, and solar photovoltaic purchasing power. Still, limited job op- native policy instruments beyond price con- projects will support GDP growth. portunities will constrain significant re- trols to improve spending quality. Imple- An expansionary fiscal policy and ac- ductions in poverty and inequality, mentation deficiencies constrain the expan- commodative monetary policy in 2024 which is projected to remain high, at 14 sionary fiscal stance and require lower are expected to support the economy percent in 2024 based on the US$2.15 in- spending growth and a strong recovery in but effects of the first are mitigated by ternational poverty line. mineral revenues. leakages owing to a high import con- Downside risks to the outlook include how The current account turned into a surplus of tent. The fiscal deficit is projected to de- the G7’s decision regarding diamond 2.5 percent of GDP by 2023Q3 due to in- teriorate to 3.4 percent of GDP in FY24, traceability may impact the diamond trade creased SACU receipts and mineral export driven by large increases in capital and and the local value chain; inward-looking proceeds. Foreign exchange reserves in- recurrent spending and to steadily im- trade policies; delays in implementing the creased, averaging US$4.7 billion in October prove over the medium term, reach- Transitional National Development Plan 2023, equivalent to nine months of imports, ing a surplus by 2026. Projections hinge and the severity of the ongoing drought, supported by increased SACU receipts and on SACU revenue trends and the gov- which can impact output negatively and higher capital inflows. ernment’s initiatives to boost domestic the current account via higher imports, as Amid high domestic prices and weak job revenue mobilization, which include the well as renew inflationary pressures and creation, poverty is estimated to have re- introduction of electronic invoicing for create fiscal pressures as the government mained broadly unchanged. value-added tax. provides support to affected households. TABLE 2 Botswana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 11.8 5.8 3.3 3.5 4.3 4.0 Private consumption 2.4 4.5 2.4 2.8 2.8 2.2 Government consumption 4.0 3.0 2.5 4.3 -0.3 -0.9 Gross fixed capital investment -0.3 0.0 -0.7 3.6 3.3 1.8 Exports, goods and services 31.7 -5.6 4.6 7.0 9.9 10.2 Imports, goods and services 2.3 -11.8 -10.4 7.6 5.4 5.2 Real GDP growth, at constant factor prices 11.9 5.8 3.3 3.5 4.3 4.0 Agriculture -1.0 2.4 2.6 2.0 2.4 2.2 Industry 19.3 7.6 4.0 4.4 4.6 4.7 Services 8.1 4.8 2.9 3.0 4.2 3.6 Inflation (consumer price index) 6.7 12.2 5.2 4.9 4.7 4.5 Current account balance (% of GDP) -0.5 2.9 2.0 1.1 1.3 1.5 Net foreign direct investment inflow (% of GDP) 0.6 0.2 0.7 0.7 0.6 0.6 a Fiscal balance (% of GDP) 0.0 0.0 -2.4 -3.4 -1.6 1.2 Revenues (% of GDP) 31.9 28.5 30.0 31.7 29.2 28.8 b Debt (% of GDP) 22.4 20.6 22.0 25.0 22.5 20.1 a Primary balance (% of GDP) 0.5 0.6 -1.6 -2.5 -1.0 1.8 c,d International poverty rate ($2.15 in 2017 PPP) 14.8 14.3 14.2 14.0 13.7 13.4 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 37.5 37.0 36.8 36.6 36.4 36.1 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 62.6 61.8 61.6 61.2 60.8 60.3 GHG emissions growth (mtCO2e) 0.8 -0.7 -0.4 1.2 1.5 1.5 Energy related GHG emissions (% of total) 11.3 11.3 11.1 16.3 18.0 19.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). b/ Refers to Public and Publicly Guaranteed debt. c/ Calculations based on 2009-CWIS and 2015-BMTHS. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. d/ Projection for $2.15 poverty uses annualized elasticity (2009-2015) with pass-through = 0.87 based on GDP per capita in constant LCU. Higher poverty lines use regional elasticity. MPO 209 Apr 24 per capita), up from 1.8 percent in 2022. The services sector, accounting for 48 per- BURKINA FASO Key conditions and cent of GDP, remained the main growth driver, fueled by an expansion of the pub- challenges lic sector. Agricultural sector growth was hindered by security challenges, which re- Table 1 2023 Insecurity and political instability remain stricted access to rural areas. Secondary Population, million 23.3 the most critical growth constraints. The sector growth was kept positive only by GDP, current US$ billion 22.9 two coups in 2022 triggered a sharp re- manufacturing and construction, while GDP per capita, current US$ 984.0 duction in external development financing gold production dropped further due to a 25.3 International poverty rate ($2.15) while negatively affecting private invest- insecurity despite high international gold a 60.7 ment. Insecurity has disrupted industrial prices. On the demand side, private con- Lower middle-income poverty rate ($3.65) a 88.1 mining (gold), which accounted for 77 per- sumption was the main growth driver, bol- Upper middle-income poverty rate ($6.85) Gini index a 37.4 cent of exports, 16 percent of GDP, and 22 stered by low inflation. In contrast, invest- School enrollment, primary (% gross) b 82.4 percent of government revenues in 2023. ment is expected to stagnate given high b 59.3 Displacement of local populations weakens public investment in 2022 and uncertain- Life expectancy at birth, years agricultural output, which employs over 90 ties in the mining sector. Favorable terms Total GHG emissions (mtCO2e) 67.6 percent of the poor and is already highly vul- of trade with an increase in gold prices Source: WDI, Macro Poverty Outlook, and official data. nerable to climate shocks, aggravating food coupled with a decrease in energy prices a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy insecurity. In 2023 there has been a doubling helped narrow the current account deficit (2021). of recorded security-related deaths to 8,494. to 4.9 percent of GDP in 2023. In September 2023, Burkina Faso, Mali, and After surging to a record high of 14.1 percent Niger formed the “Alliance of Sahel States” in 2022, inflation fell to 0.7 percent in 2023 (AES) – a security and military pact with po- with declines in local product prices, partic- GDP growth is estimated at 3.2 percent litical and economic aims. On January 28, ularly for cereals, flour, and fresh vegeta- 2024, in a joint communiqué, the three coun- bles. As a result, the extreme poverty rate, (0.5 percent per capita) in 2023, sup- tries announced their ‘immediate’ with- which was rising through 2022, has de- ported by services, while mining was drawal from ECOWAS. According to the re- creased by 0.6 percentage points to 25.9 per- hampered by insecurity. Average infla- vised ECOWAS Treaty, a notification period cent in 2023. However, the humanitarian sit- tion subsided to 0.7 percent, facilitating of one year is required to leave ECOWAS. uation remains very critical, with around 2 These developments have increased politi- million internally displaced persons, and a small decrease in the extreme poverty cal and policy uncertainty, including the an estimated 2.3 million facing severe food rate to 25.9 percent. The growth out- timetable for elections in Burkina Faso. insecurity as of December 2023. look is expected to remain constrained To counter inflation across WAEMU coun- by insecurity and subject to downside tries, the Central Bank of West African risks, including political instability, in- States (BCEAO) raised policy interest creasing financing costs, impacts of the Recent developments rates by a cumulative 150 basis points since mid-2022 to 3.5 percent for liquidity announced ECOWAS withdrawal, and In 2023, the economy is estimated to calls and 5.5 percent for the marginal climate-related shocks. have grown by 3.2 percent (0.6 percent lending facility. However, inflation in the FIGURE 1 Burkina Faso / Real GDP growth and contributions FIGURE 2 Burkina Faso / Actual and projected poverty to real GDP growth rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 100 500000 90 450000 10 80 400000 70 350000 5 60 300000 50 250000 0 40 200000 -5 30 150000 20 100000 -10 10 50000 2021 2022 2023 2024 2025 2026 0 0 Gov. cons. Exports GFCF 2009 2011 2013 2015 2017 2019 2021 2023 2025 Private cons. Imports Statistical disc. International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 210 Apr 24 region (3.7 percent in 2023) was still 3-year T-bonds. The risk of external inflation has come down dramatically and above the 1-3 percent target range and debt distress remains moderate. is expected to remain below 3 percent over foreign exchange reserves have been on a the medium term, accelerating poverty re- downward trend, estimated at 3.5 months ductions will require higher growth per of imports at end-2023, down from capita, particularly in agriculture, which 4.3 months at end-2022. Outlook employs 71 percent of the poor. The country started fiscal consolidation The outlook remains subject to significant in 2023 with the deficit falling to 6.4 The outlook hinges on the security situa- downside risks, including a deterioration percent of GDP – 1.2 percent lower tion. If the situation does not deteriorate in the security situation, political instabili- than 2022 (excluding a one-time inclu- further, growth could slowly pick up and ty, climatic shocks, terms of trade shocks, sion of all accumulated securitized debt average 4 percent (1.5 percent per capita) and the withdrawal from ECOWAS. An in 2022). The consolidation was expen- over 2024-26, driven by recovering mining unnegotiated ECOWAS withdrawal with diture-driven, through a scaling back of and agricultural production and service disruptions to transport, transit, and free capital investment and subsidies (helped sector growth. This includes the expected movement of goods, services, capital, and by lower international oil prices), while impacts of an orderly ECOWAS withdraw- labor could exacerbate negative impacts military and humanitarian spending re- al: lower trade with non-WAEMU ECOW- due to spillovers onto WAEMU trade. The mained high. As bilateral donor grants AS states, higher investors’ risk premia, BCEAO may need to continue monetary declined, efforts were made to sustain and increased regional financing costs. tightening in 2024 to bring inflation under domestic revenue mobilization. With a If the government continues its fiscal con- control and in the context of increased still elevated fiscal deficit, public debt solidation path, the fiscal deficit is expect- risks from the withdrawal of Niger, Mali, is estimated to have crossed the 60 ed to gradually decline towards the WAE- and Burkina Faso from ECOWAS. A fur- percent of GDP mark in 2023. The MU ceiling of 3 percent of GDP. Public ther increase in the cost of financing on the share of expensive regional financing debt as a share of GDP is forecast to rise regional market for Burkina Faso could re- is increasing; in February 2024, Burk- at least until 2025, driven by high interest quire further cuts in public expenditure, ina Faso’s average yields on the re- rates on domestic debt. and especially investment, at the same gional bond market were 8 percent Poverty is expected to remain relatively time as defense and security expenditures for 6-month T-bills and 9.6 percent for unchanged over the medium term. While pressures mount. TABLE 2 Burkina Faso / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.9 1.8 3.2 3.7 3.8 4.2 Private consumption 3.4 4.3 3.1 3.4 3.5 3.6 Government consumption 6.6 5.2 4.5 5.4 3.9 3.8 Gross fixed capital investment 34.8 6.4 0.7 4.0 4.4 5.4 Exports, goods and services 6.5 -2.8 -2.1 3.0 3.1 3.4 Imports, goods and services 15.5 8.2 -1.9 3.8 3.2 3.3 Real GDP growth, at constant factor prices 6.9 1.8 3.2 3.7 3.8 4.2 Agriculture -4.1 5.7 2.3 4.5 4.3 4.3 Industry 11.0 -8.2 0.3 2.8 3.4 3.9 Services 10.3 6.0 5.2 3.7 3.8 4.3 Inflation (consumer price index) 3.9 14.1 0.7 2.8 2.5 2.2 Current account balance (% of GDP) 0.4 -6.2 -4.9 -4.2 -4.1 -3.7 Net foreign direct investment inflow (% of GDP) 0.5 0.3 0.3 0.4 0.5 0.4 Fiscal balance (% of GDP) -7.5 -10.6 -6.4 -5.6 -4.7 -4.4 Revenues (% of GDP) 20.2 21.6 21.3 21.3 21.2 21.2 Debt (% of GDP) 55.4 58.1 61.4 63.3 65.4 63.2 Primary balance (% of GDP) -6.0 -8.5 -4.3 -3.0 -1.9 -1.5 a,b International poverty rate ($2.15 in 2017 PPP) 25.3 26.5 25.9 25.4 25.0 24.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 60.7 62.4 61.4 61.1 60.5 59.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 88.1 88.7 88.3 88.1 87.8 87.3 GHG emissions growth (mtCO2e) 6.0 4.6 5.0 5.1 5.1 4.8 Energy related GHG emissions (% of total) 11.1 11.4 11.8 12.3 12.7 13.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 211 Apr 24 in infrastructure and human capital. The provision of basic public services needs to BURUNDI Key conditions and keep pace with rapid population growth. Secondary school enrollment is a mere 48 challenges percent, and 30 percent of adolescent girls are not in school. Chronic malnutrition is Table 1 2023 Burundi’s economic landscape is marred by widespread, with stunting affecting 55.8 Population, million 13.2 a fragility trap, with entrenched poverty. percent of children under five, a figure GDP, current US$ billion 3.5 Political instability, weak institutions, rapid likely to have worsened by recent food GDP per capita, current US$ 267.3 population increase, and environmental inflation. As of 2023, poverty afflicts 62 a 62.1 International poverty rate ($2.15) degradation are persistent vulnerabilities. percent of the population (at US$ 2.15 a 86.2 Economic challenges include low produc- per capita/day in 2017PPP). Lower middle-income poverty rate ($3.65) a 37.5 tivity, high dependence on foreign aid, inad- Continued re-engagement with the in- Gini index School enrollment, primary (% gross) b 103.9 equate infrastructure, and limited diversifi- ternational community and the govern- Life expectancy at birth, years b 61.7 cation. Agriculture contributes 40 percent to ment’s commitment to reforms, through Total GHG emissions (mtCO2e) 9.3 GDP and engages over 90 percent of the the completion of the exchange rate uni- workforce. Industrialization is minimal, fication reforms, modernization of the Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2017 PPPs. and exports are confined largely to coffee monetary policy framework, fiscal con- b/ WDI for School enrollment (2022); Life expectancy and tea. Despite possessing significant re- solidation, governance reforms, and (2021). serves of minerals critical for the energy growth-enabling structural reforms, transition, the mining sector is stunted, sti- would help change the country’s growth fled by uncompetitive business environ- trajectory while boosting social spending ment, thus making an insignificant contri- and productive investments. In 2023, economic growth rebounded to bution of less than 1 percent to GDP. The ex- port-to-import coverage hovers between 2.7 percent from 1.8 percent in 2022, 15-20 percent, signaling structural external spurred by robust agricultural produc- imbalances. Environmental issues, includ- Recent developments tion. However, inflation spiked, then ing land degradation and deforestation, moderated late in the year. Poverty rate threaten to keep agricultural production Economic growth picked up in 2023 would remain stable in 2024, due to the low. High population growth strains re- against a backdrop of high inflation and sources and infrastructure, exacerbating widening fiscal and current account combination of insufficient growth, pro- conflicts amongst local communities while deficits. Growth accelerated to 2.7 per- jected to improve to 3.8 percent, and impeding sustainable development. cent, up from 1.8 percent in 2022, buoyed rapid population expansion. Risks in- Since the 2015 political crisis, macroeco- by favorable rains and robust public in- clude regional turmoil, closure of the nomic imbalances have persisted, ranging vestment. Industry and services felt the from high fiscal and current account pinch of high inflation, fuel shortages, Burundi-Rwanda border, delayed ex- deficits, and inflated currency value to lim- and flaring premium on the forex parallel change rate unification, and limited ited external financing and fiscal domi- market. On the demand side, growth was external financing. nance of monetary policy, compounded by underpinned by government and private soaring public debt and scant investment sector spending. FIGURE 1 Burundi / Fiscal and current account deficit FIGURE 2 Burundi / Actual and projected poverty rates and real private consumption per capita Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 18 100 155000 16 90 150000 14 80 70 145000 12 60 140000 10 50 8 135000 40 6 30 130000 4 20 125000 2 10 0 0 120000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Fiscal deficit Current account deficit Real priv. cons. pc Sources: Official statistics and World Bank staff estimation. Source: World Bank. Notes: see Table 2. MPO 212 Apr 24 Aided by expenditure cutbacks, the fiscal poverty rates in the short term and erode before easing to 12.9 percent of GDP in deficit fell to 7.7 percent of GDP, down human capital long-term, as families cut 2026, due to mining exports resumption from 10.7 percent the previous year. The meals, liquidate assets, or resort to child and positive impacts of foreign exchange deficit was predominantly financed labor. International poverty rate ($2.15 in reforms. Burundi’s growth path is not through domestic shorter-maturity higher- 2017 PPP) is estimated to remain elevat- matching high demographic growth, and interest loans from banks and Central ed at 62 percent in 2023. population is set to double by 2050, Bank advances, reflecting a reliance on do- further exacerbating existing pressures mestic debt instruments. Subsequently, on limited land resources and services. public debt climbed to 72.4 percent of GDP Against the current trajectory, poverty is from 68.4 percent in 2022. The current ac- Outlook projected to remain unchanged at 61.9 count deficit (CAD) remained high at 13.9 percent in 2024. Substantial structural percent of GDP in 2023, pressured by soar- Growth is forecasted to rise to 3.8 percent reforms are essential to expand the pri- ing oil prices and sluggish exports amid in 2024, and to accelerate to 4.6 percent on vate nonfarm sector, boost agricultur- delayed mining contract negotiations. Re- average in 2025-26, supported by robust al output, and secure a well-educated, mittances fell, reducing net current trans- agricultural season, mining upticks, and healthy population. fers, but capital account balances benefited government spending. Favorable rainfall A favorable review of IMF’s program from increased project grants. Trade cred- will sustain agricultural growth, while ser- along with reducing the misalignment its are the mainstay of financing the cur- vices and industry should rebound due to between the official and parallel exchange rent account deficit. eased forex restrictions and increased rates could improve external accounts, By December 2023, Burundi’s internation- power generation. High private consump- with structural reforms likely enhancing al reserves could cover just 0.8 months tion and public investment will likely con- exports, foreign investment, and rev- of imports, a significant drop from 1.8 tinue, spurred by economic recovery. enues. Conversely, agricultural setbacks months the previous year. The foreign The fiscal deficit is expected to narrow to from adverse weather and a protracted exchange market saw a parallel premium 4.7 percent of GDP in 2024 and 3.2 per- closure of the border with Rwanda could soaring to 75.0 percent in March 2023, cent by 2026, underpinned by the digiti- cloud growth prospects. Failure to con- up from 62.0 percent a year prior. Infla- zation of tax administration and a recal- solidate fiscal accounts or boost revenue tion peaked to an average of 27.1 percent ibration of non-essential spending, sup- collection could heighten fiscal risks and in 2023 due to escalating food and fu- ported by the IMF ECF program. Pub- external vulnerabilities. A disruption to el costs—but softened in the final quarter lic debt is projected to recede by 6 per- the IMF program might reduce access as food prices declined. Inflation’s bite is centage points from its 2022 level, set- to crucially needed concessional financ- sharpest for the poor, who allocate more tling at 58.8 percent of GDP in 2026. The ing and aid, and spur a further deterio- budget to food. This trend may swell CAD will remain high over 2024–2025 ration of external accounts. TABLE 2 Burundi / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.1 1.8 2.7 3.8 4.4 4.8 Private consumption 3.0 2.4 2.7 3.0 3.2 3.4 Government consumption 2.9 5.9 5.4 5.1 5.2 5.0 Gross fixed capital investment 3.9 4.0 8.1 10.5 12.3 13.2 Exports, goods and services 3.4 5.8 7.8 13.8 14.2 15.2 Imports, goods and services 3.2 7.0 7.0 7.1 7.3 7.5 Real GDP growth, at constant factor prices 3.1 1.8 2.7 3.8 4.3 4.8 Agriculture 3.4 -0.8 2.8 3.8 4.0 4.2 Industry 3.0 3.2 2.7 3.8 4.9 5.3 Services 2.9 3.1 2.6 3.8 4.3 4.9 Inflation (consumer price index) 8.3 18.8 27.1 22.8 20.4 16.2 Current account balance (% of GDP) -11.9 -15.9 -13.9 -15.3 -15.2 -12.9 Net foreign direct investment inflow (% of GDP) 0.3 0.3 0.0 -0.1 -0.1 -0.1 Fiscal balance (% of GDP) -4.6 -10.7 -7.7 -4.7 -4.2 -3.4 Revenues (% of GDP) 23.8 22.8 22.3 23.0 23.4 23.6 Debt (% of GDP) 66.6 68.4 72.4 69.9 64.8 58.8 Primary balance (% of GDP) -1.6 -8.2 -4.8 -2.1 -1.4 -1.0 a,b International poverty rate ($2.15 in 2017 PPP) 61.9 62.1 62.0 61.9 61.7 61.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 86.1 86.2 86.2 86.1 85.9 85.7 GHG emissions growth (mtCO2e) 3.9 4.0 3.9 3.9 3.7 3.7 Energy related GHG emissions (% of total) 8.7 8.6 8.6 8.7 8.9 9.2 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 2020-EICVMB. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on private consumption per capita in constant LCU. MPO 213 Apr 24 of service exports after the post-covid tourism rebound. On the supply side, ac- CABO VERDE Key conditions and commodation, transport, and commerce drove growth, while on the demand side, challenges growth was led by exports and private consumption. Growth was accompanied Table 1 2023 Cabo Verde is a small, and vibrant island by a 0.9 percentage points reduction in Population, million 0.5 nation with an open economy. Its econom- poverty (using the US$3.65 per person GDP, current US$ billion 2.5 ic growth has been driven by tourism, remit- and per-day-2017 PPP). GDP per capita, current US$ 4968.9 tances, and foreign direct investment en- Headline inflation decelerated to 3.7 per- a 4.6 International poverty rate ($2.15) abled by structural reforms and social and cent (y/y) in 2023 from the high of 7.9 per- a 19.3 political stability. The development model cent in 2022, driven by the easing of inter- Lower middle-income poverty rate ($3.65) a 50.9 has shown signs of fatigue since the 2008 national food prices and falling oil prices. Upper middle-income poverty rate ($6.85) Gini index a 42.4 global financial crisis: growth fell from a ro- Food inflation, which represents 25 per- School enrollment, primary (% gross) b 97.0 bust average 7.5 percent in the 2000s to 2.8 cent of the CPI basket, slowed to 8.9 per- b 74.1 percent in the last decade (excluding 2020) cent while energy inflation decreased by Life expectancy at birth, years and is highly volatile. The impact of the pan- 3.2 percent on average. Core inflation Total GHG emissions (mtCO2e) 0.7 demic accentuated debt risks and under- reached an annual average of 2.3 percent. Source: WDI, Macro Poverty Outlook, and official data. scored key vulnerabilities, including the Poverty ($3.65 per day PPP 2017) is ex- a/ Most recent value (2015), 2017 PPPs. b/ WDI for School enrollment (2019); Life expectancy dominance of the tourism sector, absence of pected to reach 15.1 percent in 2023, down (2021). buffers to shocks, and poor performing from 16.0 percent in 2022, but above its State-Owned Enterprises (SOE). 2019 pre-pandemic level of 14.1 percent. Achieving higher and sustained growth re- Economic growth was fundamental for quires reforms to reduce the economy’s vul- poverty reduction in 2023, coupled with Growth is expected to have slowed to nerabilities to external economic and cli- a decrease in inflation compared to 2022. mate-related shocks; increase private sector Growth of the services sector led to cre- 4.8 percent in 2023 despite exports, productivity to benefit from the thriving ation of new jobs, especially in tourism, mainly tourism, returning to pre-pan- tourism sector; and reduce internal trans- but the household real income benefits demic levels. Inflation stood at 3.7 per- port costs and market fragmentation. A were dampened by inflation pressures, cent, aided by declining fuel and food gradual transition to blue (ocean related) especially in food items. and green (environment related) activities Increased revenues and under execution prices. Growth-friendly fiscal consolida- are policy priorities for the medium term. of the capital budget narrowed the fiscal tion should allow stable growth of 4.7 deficit to 0.5 percent of GDP in 2023 from percent over the medium term, though the 4.3 percent in 2022. Revenue increased by outlook remains subject to downside risks about 20 percent over the same period dri- from commodity price spikes, weaker ex- Recent developments ven by corporate income tax and VAT col- lection, as well as revenues linked to the ternal demand, limited progress on key Economic growth is estimated to have airport private concession. Total expendi- SOE reforms, and climate shocks. slowed to 4.8 percent in 2023 (4.2 percent in ture increased by 2.6 percent. Public debt per capita terms), reflecting the stabilization declined from 127.1 percent in 2022 to FIGURE 1 Cabo Verde / Real GDP growth and inflation FIGURE 2 Cabo Verde / Actual and projected poverty rates and real GDP per capita Percentage Percentage Poverty rate (%) Real GDP per capita (constant LCU) 40 40 70 600000 30 30 60 500000 20 20 10 50 10 400000 0 40 0 -10 300000 -10 30 -20 200000 -30 -20 20 -40 -30 10 100000 2019Q1 2019Q4 2020Q3 2021Q2 2022Q1 2022Q4 2023Q3 Real GDP growth (lhs) 0 0 Food and beverages inflation (rhs) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Headline inflation (rhs) International poverty rate Lower middle-income pov. rate Energy inflation (rhs) Upper middle-income pov. rate Real GDP pc Source: Government of Cabo Verde. Source: World Bank. Notes: see Table 2. MPO 214 Apr 24 115.3 percent in 2023, driven by GDP Inflation is expected to decline further to mobilize domestic revenue and contain growth. External debt is mainly conces- 2.7 percent in 2024, as global inflation current expenditure will reduce the fiscal sional, at 105 percent of GDP, while do- the international price shock continues to deficit to just above 1 percent of GDP mestic debt has surged to over 30 of GDP subside, and converge to around 2 per- by 2026. The public debt-to-GDP ratio is post-COVID-19, driving the high risk of cent over the medium term, supported by expected to improve to 102.1 percent by overall debt distress. the strong nominal anchor provided by 2026 but continued management of fis- The current account deficit (CAD) the peg to the Euro. cal risks related to SOE arising from loan widened from 3.4 percent of GDP in 2022 Poverty (using US$3.65 per day-2017 guarantees remains critical. to 5.3 percent in 2023, due to the slowdown PPP) is projected to decline to 14.9 per- Stronger import growth vis-à-vis exports, in exports of goods and services, mainly cent in 2024 driven by the services and with the continued dynamism of economic tourism, and remittances compared to industry sectors, and a moderation of in- activity, will increase the CAD to 6.2 per- 2022. The CAD was financed primarily by flation. Projections for 2025 suggest a fur- cent of GDP in 2024. CAD is projected to FDI and concessional loans, while interna- ther decline in poverty to 14.2 percent, decline to 5.7 percent of GDP in 2026 sup- tional reserves remained at a comfortable aligning with the pre-pandemic level, ported by stronger growth in tourism and 5.8 months of import coverage. with this downward trend continuing into remittances, which, together with higher 2026 to reach 13.4 percent. FDI inflows, will help maintain interna- Overall fiscal balance is projected to widen tional reserves at about 6 months of to -3.0 percent of GDP in 2024, reflecting prospective imports. Outlook the increase in total expenditure with staff The outlook is subject to substantial down- salary updates, increases in social benefits side risks stemming from new commodity Real GDP growth is projected to remain and acquisition of goods and services, and price spikes due to geopolitical shocks, relatively stable in 2024, at 4.7 percent (4.2 sound execution of public investments. weaker external demand in tourism mar- percent in per capita terms). Over the Tax revenue collection will remain strong, kets, and limited progress with the SOE re- medium term, growth will be supported with a review of tax benefits and the con- form agenda, which could undermine the by the implementation of structural re- tinued implementation of measures to im- fiscal consolidation and weaken growth. forms aimed at improving public sector prove tax administration efficiency and Climate-related shocks will remain a con- efficiency and the business environment. broaden the tax base. Continued efforts to cern, given the country's high vulnerability. TABLE 2 Cabo Verde / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.6 17.1 4.8 4.7 4.7 4.6 Private consumption 1.4 25.9 6.5 8.8 8.6 8.1 Government consumption 5.3 -4.6 0.5 20.4 0.9 2.7 Gross fixed capital investment 23.4 -54.2 -2.4 -19.1 -6.5 1.8 Exports, goods and services 2.1 97.5 4.4 8.6 9.2 9.5 Imports, goods and services 7.7 12.7 3.4 12.5 9.5 11.4 Real GDP growth, at constant factor prices 5.6 17.1 4.8 4.7 4.7 4.6 Agriculture 3.1 -14.3 -2.0 -2.3 2.6 2.7 Industry 13.2 7.5 7.7 5.2 5.5 5.4 Services 4.4 21.9 4.7 5.1 4.7 4.6 Inflation (consumer price index) 1.9 7.9 3.7 2.7 2.1 1.9 Current account balance (% of GDP) -12.2 -3.4 -5.3 -6.2 -6.5 -5.7 Net foreign direct investment inflow (% of GDP) 4.6 4.7 4.0 3.9 3.7 3.6 Fiscal balance (% of GDP) -7.7 -4.3 -0.5 -3.0 -2.2 -1.1 Revenues (% of GDP) 23.9 22.4 24.6 28.3 27.4 26.3 Debt (% of GDP) 152.0 127.1 115.3 112.0 107.7 102.1 Primary balance (% of GDP) -5.5 -2.0 1.8 -0.7 0.0 1.1 a,b International poverty rate ($2.15 in 2017 PPP) 4.7 3.7 3.5 3.5 3.5 3.1 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.7 16.0 15.1 14.9 14.2 13.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 51.8 45.7 42.4 41.9 40.1 38.5 GHG emissions growth (mtCO2e) -3.5 -1.2 5.3 6.4 6.7 6.6 Energy related GHG emissions (% of total) 84.5 85.0 85.2 85.6 86.0 86.5 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 2015-IDRF. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 215 Apr 24 Household survey data collected in 2021/ 22 suggest 23.0 percent of the population CAMEROON Key conditions and lives below the extreme international poverty line of $2.15 PPP per person per challenges day. The extreme poverty rate has re- mained unchanged since 2001, decreasing Table 1 2023 Cameroon is the largest economy in the by only 0.9 percentage points between Population, million 28.8 CEMAC region, accounting for 45 per- 2014 and 2021. The population living in ex- GDP, current US$ billion 47.4 cent of the region's GDP and 63 percent treme poverty has swelled by over 2 mil- GDP per capita, current US$ 1646.1 of regional foreign exchange reserves in lion since 2001 and now exceeds 6 million. a 23.0 International poverty rate ($2.15) 2023. It is also the region’s most diver- Inequality remains high, with a consump- a 46.7 sified economy. However, the oil sec- tion Gini coefficient of 42.2, indicating Lower middle-income poverty rate ($3.65) a 76.0 tor still accounts for 2.2 percent of GDP large disparities in living standards be- Upper middle-income poverty rate ($6.85) Gini index a 42.2 and 18.4 percent of fiscal revenues, keep- tween regions and urban and rural areas. School enrollment, primary (% gross) b 110.7 ing the country vulnerable to oil price Furthermore, fragility is proliferating, with b 60.3 shocks. Cameroon’s debt pressures have six out of Cameroon’s ten regions now af- Life expectancy at birth, years intensified, calling for cautious fiscal poli- fected by conflict, including spillovers from Total GHG emissions (mtCO2e) 134.6 cies and improved debt management. conflicts in neighboring countries. Climate Source: WDI, Macro Poverty Outlook, and official data. The current development model appears change also threatens Cameroon’s poverty- a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy incapable of delivering Cameroon’s ambi- reduction prospects given its reliance on (2021). tion of becoming an upper middle-income natural resources, with around 4 in 10 work- country by 2035, as institutions of gover- ers being primarily engaged in agriculture. nance have deteriorated, human capital re- Cameroon's economy grew by 4.0 percent mains weak, the business environment is in 2023, up from 3.6 percent in 2022. unfavorable, and climate change repre- However, poverty reduction remains sents a growing threat. The employment Recent developments landscape reflects concerning trends, par- slow, with 23.0 percent living below the ticularly for the youth, with half of the Cameroon’s economic recovery continued international poverty line of $2.15 PPP working-age population either unem- in 2023, with real GDP growing by 4.0 per- per person per day. Sustained fiscal con- ployed or otherwise disengaged from the cent, up from 3.6 percent in 2022 driven by workforce. The informal sector, constitut- improvements across various sectors. Ser- solidation kept the deficit at 0.8 percent of ing over 85 percent of total employment, vices and manufacturing sectors expanded GDP in 2023. Looking ahead, while the is experiencing a shift from agriculture to respectively by 4.5 percent and 5.5 percent, medium-term outlook is favorable, risks urban informal activities, calling for urban thanks to better energy supply and market include commodity price volatility and development. Productivity, notably in conditions. Private investments supported persistent security crisis in certain re- agriculture, lags similar countries due to the construction sector’s growth despite high input costs, limited financing, and un- lower public spending. Agriculture sector gions. Low per capita growth coupled grew by 3.5 percent, driven by high cocoa derutilization of innovative technologies. with high food and energy prices may Cameroon has failed to reduce extreme and cotton prices and the recovery of the worsen poverty. poverty over the past two decades. Cameroon Development Corporation. FIGURE 1 Cameroon / Real GDP growth and contributions FIGURE 2 Cameroon / Actual and projected poverty rates to real GDP growth and real GDP per capita Poverty rate (%) Real GDP per capita (constant LCU) 90 800000 80 700000 70 600000 60 500000 50 400000 40 300000 30 20 200000 10 100000 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 216 Apr 24 Inflation increased to 7.4 percent as of the mitigate impacts, though the latter’s effect The fiscal deficit is projected to remain be- end 2023 from 6.3 percent in 2022 mainly on poverty reduction may be limited due low 1 percent of GDP, supported by mea- due to higher domestic fuel prices, despite to the prevalence of informal employment. sures aimed at enhancing revenue and the tight monetary policies and global in- gradually reducing current expenditures, flation easing. Despite service and income particularly fuel subsidies. These actions balance improvements, the current ac- are expected to counterbalance the antici- count balance deteriorated slightly, reach- Outlook pated rise in capital expenditure necessary ing 3.6 percent of GDP from 3.5 percent for accelerating investment projects. Public due to a widened trade deficit caused by The medium-term economic outlook for debt is projected to decline, reaching 35.5 declining oil and gas exports. Cameroon is positive on balance but sub- percent of GDP by 2026, driven by im- Fiscal consolidation efforts in 2023 result- ject to downside risks. Real GDP growth is proved debt management. ed in a reduced fiscal deficit of 0.8 per- projected at 4.3 percent in 2024 and 4.5 per- However, low per capita growth may ex- cent of GDP, down from 1.1 percent in cent in 2025 and 2026, driven by dynamism acerbate poverty, with the poverty rate at 2022, supported by lower fuel subsidies, in agro-industry, forestry, and services. the international poverty line of $2.15 PPP reduced capital spending, and improved The anticipated LNG production boom is per person per day projected to reach 25.0 tax collection. Public debt decreased to expected to offset declining oil field pro- percent by 2026, leaving around 8 million 41.9 percent of GDP in 2023 from 45.3 duction in 2025. Improved energy supply Cameroonians in poverty. Moreover, food percent in 2022. Nonetheless, Cameroon from projects like the Nachtigal hydroelec- prices are projected to rise faster relative remained at a high risk of debt distress, tric dam and Memve’ele power plant to other goods. Redirecting budgetary sav- despite sustainable debt levels. transmission lines will benefit manufactur- ings from fuel subsidy reductions into pro- The regional central bank (BEAC) main- ing and construction, backed by robust ductive spending, including investments tained in 2023 a tight monetary policy to public investment. in social programs and human capital, contain inflation and support the exchange The current account deficit is expected to could support the poor and vulnerable in rate. While Cameroon's banking system re- gradually narrow over the medium term, the short run, but sustained poverty re- mained strong, vulnerabilities remained, benefiting from sustained high commodity duction will require accelerating economic with the non-performing loan ratio reach- prices, the LNG boom in 2025, and gov- growth that creates more jobs. ing 15.3 percent in 2023 and a significant ernment export efforts. Over the medium The outlook is subject to risks such as exposure to sovereign bonds. term, inflation is expected to drop from 7.0 commodity price volatility, ongoing se- The gradual reduction in fuel subsidies will percent in 2024 to 4.9 percent by 2026, sup- curity crises in certain regions, uncertain provide additional fiscal space for pro-poor ported by moderating import price infla- budget support from external donors, spending but may lead to short-term infla- tion, improved industrial production from exchange rate fluctuations impacting tionary pressures. Tax incentives for agri- better energy supply, and the BEAC's tight debt and fuel subsidies, and increased culture and minimum wage increases will monetary policy. climate-related disasters. TABLE 2 Cameroon / 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 3.6 4.0 4.3 4.5 4.6 Private consumption 3.5 3.6 3.7 3.7 3.8 4.0 Government consumption 3.4 5.1 3.1 2.4 2.2 1.7 Gross fixed capital investment 7.9 3.2 5.1 8.4 9.0 9.1 Exports, goods and services 3.2 10.1 10.1 10.0 9.9 9.9 Imports, goods and services 9.0 7.3 7.8 9.7 9.9 10.0 Real GDP growth, at constant factor prices 3.3 3.6 4.0 4.3 4.5 4.6 Agriculture 4.1 4.3 4.7 5.0 5.6 5.6 Industry 4.1 4.2 4.5 4.8 5.4 5.4 Services 2.7 3.1 3.5 3.9 3.8 3.9 Inflation (consumer price index) 2.5 6.3 7.4 7.0 5.7 4.9 Current account balance (% of GDP) -3.8 -3.5 -3.6 -3.3 -3.4 -3.0 Fiscal balance (% of GDP) -2.9 -1.1 -0.8 -0.7 -0.8 -0.7 Revenues (% of GDP) 14.2 15.9 16.0 16.1 16.1 16.3 Debt (% of GDP) 47.3 45.3 41.9 40.1 38.8 35.5 Primary balance (% of GDP) -1.9 -0.3 0.2 0.2 0.0 0.0 a,b International poverty rate ($2.15 in 2017 PPP) 23.0 22.9 23.9 24.8 25.2 25.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 46.7 46.3 47.7 48.3 48.4 48.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 76.0 75.6 76.5 77.0 77.0 76.7 GHG emissions growth (mtCO2e) 1.8 1.4 1.5 1.5 1.8 1.7 Energy related GHG emissions (% of total) 7.3 7.4 7.6 7.8 8.1 8.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-ECAM-V. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 217 Apr 24 CENTRAL Key conditions and Recent developments challenges AFRICAN REP. Economic growth was estimated at 0.9 per- cent in 2023, a slight increase from 0.5 per- Since 2020, CAR’s macro-fiscal vulnera- cent in 2022, as a result of limited fuel sup- bilities have been exacerbated by a se- ply and mixed agricultural performance. Table 1 2023 ries of exogenous shocks (renewed in- Limited fuel supply has contributed to Population, million 5.7 security and violence, COVID-19 pan- higher transportation prices and disrupted GDP, current US$ billion 2.6 demic and Russian invasion of Ukraine). trade and local production. Production of GDP per capita, current US$ 460.3 These shocks have strained public fi- diamonds, one of the country’s most im- International poverty rate ($2.15) a 65.7 nances, added inflationary pressures, portant commodity exports, fell by 6.7 per- a 85.8 jeopardized food security, and slowed cent in FY2022/23 due to the decline of in- Lower middle-income poverty rate ($3.65) a poverty reduction efforts. Also, climate ternational demand for natural diamond Upper middle-income poverty rate ($6.85) 96.2 a shocks, including drought and floods, due to synthetic diamond surge. However, Gini index 43.0 continue to pose threats to an already a shift of artisanal miners from the diamond b 110.7 School enrollment, primary (% gross) alarming humanitarian situation, partic- to the gold sector and a relative rise in the b 53.9 Life expectancy at birth, years ularly in remote areas. As of December price of gold helped to boost the production Total GHG emissions (mtCO2e) 55.9 31, 2023, the total number of internally of gold. Official timber and sawn wood pro- Source: WDI, Macro Poverty Outlook, and official data. displaced persons (IDPs) was estimated duction would have increased in 2023, dri- a/ Most recent value (2021), 2017 PPPs. at 511,803 individuals, while approxi- venbyimprovementsinsecurityconditions, b/ WDI for School enrollment (2017); Life expectancy (2021). mately 754,421 people were registered as secured contracts with key bilateral part- refugees in neighboring countries. ners, and a slight rebound in international The private sector continues to be prices for logs and sawn wood. Persistent hampered by unattractive business power shortages continued to hold back the Economic growth is estimated to have conditions and high borrowing costs. industrial sector while the services sector reached 0.9 percent in 2023, compared to Employment opportunities remain ex- suffered from higher transportation prices. 0.5 percent in 2022. CAR's structural vul- tremely limited while the workforce is Despite rising transportation costs, inflation nerabilities, compounded by external growing. Continued efforts by country fell from 5.6 percent in 2022 to 3.0 percent in shocks, continue to strain public finances authorities to promote more inclusive 2023,itslowestlevelsince2021. and resilient growth will be critical. Tight budget constraints due to lack of and adversely affect growth, food security, This includes improving the business growthandelevatedtransportationpricesre- and poverty reduction efforts, necessitating environment and state-owned enter- duced households’ purchasing power, wors- bold macro-fiscal reforms. As of 2023, two- prise (SOE) governance to attract pri- ened food insecurity, and slowed poverty re- thirds of the population lived in extreme vate investment, improving revenue duction efforts. Poverty remains elevated, mobilization to restore fiscal sustain- with an estimated 65.9 percent of the pop- poverty, with projections suggesting a one ability, and rationalizing untargeted ulation living in extreme poverty in 2023 percentage point increase in the next two subsidies to create space for higher (i.e., below the international poverty line years due to negative per capita growth. social spending. of US$2.15 per person per day, 2017 PPP). FIGURE 1 Central African Republic / Real GDP growth FIGURE 2 Central African Republic / Actual and projected and contributions to real GDP growth poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 5 100 300000 4 90 3 250000 80 2 70 200000 1 60 0 50 150000 -1 40 100000 -2 30 -3 20 50000 10 -4 2021 2022 2023 2024 2025 2026 0 0 Private consumption Government consumption 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Gross fixed investment Net exports International poverty rate Lower middle-income pov. rate GDP (market price) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 218 Apr 24 The extreme poverty rate is set to increase by In 2023, domestic debt is estimated to The overall fiscal balance is projected to one percentage point over the next two reach 21 percent of GDP. Yields on 3-year gradually improve from 2024 to 2026, pro- years, due to negative per capita growth. issuances have hovered around 11 percent, vided that DRM efforts continue, particular- The Bank of Central African States (BEAC) among the highest in CEMAC. ly in improving the collection of taxes, espe- maintained its tight monetary policy The current account deficit improved to 9 cially VAT, and miscellaneous revenues stance during 2023 to contain inflationary percent of GDP in 2023, mainly due to a 14.4 through a treasury single account (TSA) sys- pressures and support the external viabil- percent improvement in the terms of trade. tem. Under these circumstances, domestic ity of the exchange rate arrangement. The However, a lack of competitiveness, cou- revenue could reach pre-war levels for the BEAC policy rate was maintained at five pled with commodity price shocks and a first time in 2026. The country is expected to percent following a cumulative increase by weak linkages with global value chains, con- remain at high risk of external debt distress 175 basis points between November 2021 tinued to weigh on the external position. and overall debt distress, although public and March 2023. Weekly liquidity injec- debtisprojectedtoremainsustainable. tions were discontinued in early 2023 and The current account balance is projected to BEAC stepped up its liquidity absorption improve but remain in significant deficit. operations. CAR’s indicators of financial Outlook Thebalanceofpaymentsisprojectedtoshow soundness remain broadly adequate, al- a financing gap of roughly 1 percent of GDP though the non-performing loan ratio de- The medium-term outlook shows gradual peryearinthemediumtermwhichwouldbe teriorated and stood at 16.4 percent in improvement in economic performance coveredbybridgefinancingfromtheregion- 2023, compared to 15.5 percent in 2022. but is vulnerable to headwinds. Real GDP al market, possible disbursements of budget While the overall fiscal balance continued growth is projected to recover gradually, support from donors, and disbursements to improve in 2023, it remained structural- reaching 1.3 percent in 2024 before aver- undertheIMF’songoingECFprogram. ly in deficit. Fuel shortages during the last aging 1.8 percent in 2025-26, partly due to Risks to the outlook remain tilted to the quarter of 2023 reduced petroleum tax col- the base effect and contingent on the sec- downside and include: (i) a reversal of se- lection and dampened recent tax recovery ond disbursement of budget support from curity gains that could jeopardize econom- efforts. Domestic revenue mobilization the African Development Bank (AfDB) and ic growth and the pathway out of fragility; (DRM) efforts, including the implementa- the implementation of policy adjustments (ii) persistent pressure on food and trans- tion of the new tax on electronic communi- to pave the way for improved fuel supply. portation prices that could slow down cations, combined with moderation of cur- Inflation is expected to be above the re- poverty reduction efforts; (iii) failure to im- rent spending and expanded external gional ceiling in 2024 and remain elevated plement bold and agreed policy reforms grant financing enabled a reduction in the in the medium term. Poverty is expected to under the ECF program, which could de- overall fiscal balances in 2023. Public debt remain high due to declining per capita in- lay expected disbursements, dampen increased to 55.7 percent of GDP in 2023 in come, relatively high food prices, and the donor appetite for budget support and the form of issuance of net domestic bonds. weak economic recovery. lead to a possible accumulation of arrears. TABLE 2 Central African Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.0 0.5 0.9 1.3 1.7 1.9 Private consumption 1.3 0.0 1.2 3.3 2.5 2.7 Government consumption -3.8 -8.2 3.5 -4.5 -4.4 -1.9 Gross fixed capital investment -15.9 -4.5 -1.5 0.2 9.8 3.2 Exports, goods and services -5.3 2.6 9.0 5.2 9.0 5.4 Imports, goods and services -11.5 -5.5 5.5 7.3 9.9 5.5 Real GDP growth, at constant factor prices 1.5 1.0 0.9 1.3 1.7 1.9 Agriculture 2.7 2.2 2.3 2.5 2.9 3.1 Industry -1.7 -3.9 -0.5 1.3 1.8 2.1 Services 2.2 2.4 0.5 0.3 0.6 0.9 Inflation (consumer price index) 4.3 5.6 3.0 4.7 4.6 3.8 Current account balance (% of GDP) -11.1 -12.7 -9.0 -7.7 -6.7 -5.4 Fiscal balance (% of GDP) -6.0 -5.3 -3.5 -3.1 -1.8 0.1 Revenues (% of GDP) 13.7 12.3 14.4 13.9 16.1 18.2 Debt (% of GDP) 48.6 54.2 55.7 55.6 54.5 50.7 Primary balance (% of GDP) -5.7 -4.9 -2.9 -2.2 -0.9 0.9 a,b International poverty rate ($2.15 in 2017 PPP) 65.7 65.3 65.9 66.2 66.8 67.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 85.8 85.6 86.2 86.1 86.7 87.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 96.2 96.1 96.4 96.4 96.5 96.7 GHG emissions growth (mtCO2e) 0.6 0.1 0.0 -0.1 0.0 0.0 Energy related GHG emissions (% of total) 0.4 0.4 0.4 0.4 0.4 0.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 219 Apr 24 economy is poised for its strongest, albeit still modest, performance since 2014, with CHAD Key conditions and an estimated GDP growth of 4.1 percent (1 percent per capita) in 2023. This challenges growth is underpinned by oil production, which is expected to rise by 4.4 percent. Table 1 2023 Chad’s economic growth has been volatile and Non-oil GDP is estimated to grow 4.1 Population, million 18.3 weak, reflecting the lack of economic diversifi- percent (up from 2 percent the previous GDP, current US$ billion 13.2 cation and dependence on the oil sector, which year) driven by public investment. After GDP per capita, current US$ 722.4 accountsfor85percentofexportsand56percent recovering from the 2022 floods, the agri- a 30.8 International poverty rate ($2.15) of fiscal revenues. Chad is also among the cultural sector is estimated to contribute a 62.8 world’s most vulnerable countries to climate 1.6 percentage points (ppts) to growth, Lower middle-income poverty rate ($3.65) a 88.8 change.Insufficientrainsandfrequentflooding followed by the services (1.4 ppts) and Upper middle-income poverty rate ($6.85) Gini index a 37.4 have often had adverse impacts on the agricul- industry (1 ppt) sectors. Investment, pri- School enrollment, primary (% gross) b 90.4 tural sector, the main sector of employment, marily government-driven, is the main b 52.5 which, together with conflict and displace- growth driver on the demand side, con- Life expectancy at birth, years ment, has led to chronic food insecurity. tributing 7 ppts to growth. In contrast, Total GHG emissions (mtCO2e) 121.1 Security remains precarious with threats private investment is expected to have Source: WDI, Macro Poverty Outlook, and official data. by Boko Haram in the Lake Chad region, fallen due to increased interest rates and a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy the armed FACT rebellion in the north, and crowding out effects. The boom in public (2021). escalating inter-community tensions. Ac- investment (+195.9 percent) led to a sharp cording to UNHCR, Chad was hosting increase in domestic demand (+9.5 per- nearly one million forcibly displaced per- cent). This in turn increased imports, sons at the end of 2022, including 593,000 along with other imports for humanitar- Chad’s economy has proven resilient de- refugees and nearly 400,000 IDPs. Since ian-related operations in support of the April 15, 2023, the war in Sudan has caused Sudanese refugees, and by significantly spite the war in neighboring Sudan. GDP a mass influx of Sudanese refugees and Cha- more than exports (imports +16 percent growth in 2023 is estimated at 4.1 per- dian returnees to eastern Chad. The number vs. exports +2.9 percent), resulting in a cent (1 percent per capita), supported by of new arrivals was estimated at around current account deficit of 2.4 percent of higher oil production and public invest- 496,834 at end-December 2023. In addition GDP in 2023. to the humanitarian challenges, the war in Inflation eased to 4.1 percent in 2023, ow- ment. Improved agricultural production Sudan has induced higher expenditures ing to the base effect of high inflation in eased inflation to 4.1 percent. While the (mostly military) and shortages of goods. 2022 and the deceleration in food inflation poverty rate has declined, 5.5 million peo- (4.8 percent) because of improved agricul- ple still live in extreme poverty. Down- tural production. Food insecurity remains side risks include uncertainty from the a significant problem despite these im- political transition, regional instability, Recent developments provements, with around 2.1 million peo- ple, or 11.5 percent of the population, fac- insecurity, and climate shocks. Despite the ongoing humanitarian crisis ing severe food insecurity as of December triggered by the war in Sudan, Chad’s 2023. The extreme poverty rate is expected FIGURE 1 Chad / GDP growth, current account, and fiscal FIGURE 2 Chad / Actual and projected poverty rates and balance real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 100 450000 5 90 400000 4 3 80 350000 2 70 300000 1 60 0 250000 50 -1 200000 -2 40 -3 150000 30 -4 100000 20 -5 10 50000 -6 -7 0 0 2021 2022 2023 2024 2025 2026 2011 2013 2015 2017 2019 2021 2023 2025 Fiscal balance Current account balance International poverty rate Lower middle-income pov. rate Real GDP growth Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 220 Apr 24 to decrease by 1 ppts to 29.9 percent in reduction. Extreme poverty is projected 2023; however, about 30 percent of the to increase by 0.5 ppt in 2024, equivalent population (5.5 million people) continue Outlook to an additional 263,671 people falling in- living in extreme poverty. to extreme poverty. The Bank of Central African States (BEAC) In 2024, growth is projected to decelerate Reflecting lower oil prices and still elevat- maintained its tight monetary policy to 2.7 percent (0.4 percent per capita) due ed levels of government expenditures, the stance during 2023 to contain inflationary to an expected decline in oil production fiscal balance is projected to turn into a pressures and support the external viabil- and expectations of lower public invest- 1.4 percent of GDP deficit in 2024, remain- ity of the exchange rate arrangement. The ment, compared to 2023 levels. During ing in deficit through to 2026. Public debt BEAC policy rate was maintained at five 2025-2026, growth is projected to average to GDP is projected to decline to 41.6 per- percent following a cumulative increase by 3.1 percent (0.1 percent per capita), as new cent in 2025 and stabilize in the medium 175 basis points between November 2021 oil fields are brought onstream. Non-oil term. The current account deficit is expect- and March 2023. GDP growth is projected at around 3.5 per- ed to further deteriorate to 3 percent of Chad maintained a fiscal surplus of 1.3 cent over 2024-2026. Government mea- GDP in 2024, and average 3.1 percent over percent of GDP in 2023, equivalent to a sures addressing food insecurity should 2025-2026, driven by moderating oil prices. non-oil fiscal deficit of 15.8 percent, and ease food inflation, with inflation projected The outlook is subject to multiple down- falling from a 5 percent of GDP fiscal sur- to fall to 3.9 percent in 2024 as a result, be- side risks, including lower oil prices, polit- plus in 2022. Despite high growth in tax fore averaging 3.3 percent over 2025-2026. ical instability during the upcoming elec- revenues, supported by tax administration With few linkages to poor and vulnerable tions, heightened insecurity, and climate digitalization measures, and a peak in oil populations, oil-sector driven growth is shocks. A prolonged Sudan war could revenue, the fiscal surplus declined, re- not expected to lead to poverty reduction worsen the humanitarian crisis, strain pub- flecting the sharp rise in public investment. without significant structural reforms. lic finances, and increase inflationary pres- Total public debt is estimated to decline to Moreover, continued security restrictions, sures. Moreover, an escalation of tensions 44.8 percent of GDP in 2023, compared to low social protection coverage, and the between Chad and Sudan could lead to 47.4 percent in 2022. ongoing Sudan crisis will restrict poverty considerable security concerns. TABLE 2 Chad / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -1.2 2.8 4.1 2.7 3.3 2.9 Private consumption 1.6 2.7 1.9 3.6 3.2 2.3 Government consumption 3.7 -1.5 1.1 0.4 3.0 3.1 Gross fixed capital investment -4.3 -6.1 62.8 -17.2 -2.1 -0.4 Exports, goods and services -0.4 5.0 2.9 3.8 4.1 4.2 Imports, goods and services 5.1 2.0 16.0 -3.1 2.0 2.1 Real GDP growth, at constant factor prices -1.2 2.8 4.1 2.8 3.3 2.9 Agriculture 6.2 2.0 5.0 3.1 3.4 3.3 Industry -4.6 4.1 3.3 1.1 2.0 1.7 Services -4.3 2.3 4.1 3.9 4.4 3.5 Inflation (consumer price index) 1.0 5.8 4.1 3.9 3.6 3.0 Current account balance (% of GDP) -6.0 2.9 -2.4 -3.0 -3.3 -2.8 Fiscal balance (% of GDP) -2.2 5.0 1.3 -1.4 -1.2 -2.1 Revenues (% of GDP) 16.3 23.5 27.1 22.3 22.6 21.8 Debt (% of GDP) 52.1 47.4 44.8 42.3 41.6 41.9 Primary balance (% of GDP) -0.6 6.5 3.0 -0.5 -0.3 -1.2 a,b International poverty rate ($2.15 in 2017 PPP) .. 30.8 29.9 30.4 30.8 30.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 62.8 61.6 62.4 62.9 63.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 88.8 87.8 88.4 88.7 88.7 GHG emissions growth (mtCO2e) 2.0 2.1 2.0 2.1 2.0 1.9 Energy related GHG emissions (% of total) 1.2 1.2 1.2 1.2 1.2 1.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2022-EHCVM. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 221 Apr 24 market institutions and persistent forms of wage discrimination against women. COMOROS Key conditions and A low employment intensity of growth and weak economic growth contribute to challenges the high poverty level, which is a source of fragility for the Comoros. Furthermore, re- Table 1 2023 Economic growth slowed to 1.9 percent cent shocks have highlighted the Comoros’ Population, million 0.9 over 2019-23, below already anemic long- vulnerabilities and the need to implement GDP, current US$ billion 1.3 term growth, which averaged 2.7 percent reforms that increase productivity and pri- GDP per capita, current US$ 1520.5 over the previous two decades. This re- vate investment to promote growth. These a 18.6 International poverty rate ($2.15) cent poor growth performance is mainly include reforms to improve the business a 39.5 due to multiple natural and external environment and increase financial inter- Lower middle-income poverty rate ($3.65) a 68.6 shocks, including Cyclone Kenneth in mediation. Higher public investment, in- Upper middle-income poverty rate ($6.85) Gini index a 45.3 2019, the COVID-19 pandemic, and the cluding in infrastructure, is also needed School enrollment, primary (% gross) b 106.2 2022 global commodity price shock. As a to attract larger private investments, in- b 63.4 result, poverty remains high at 38.2 per- cluding foreign direct investment. Life expectancy at birth, years cent in 2023 (using the lower middle-in- Total GHG emissions (mtCO2e) 0.7 come poverty rate threshold). The Co- Source: WDI, Macro Poverty Outlook, and official data. moros’ growth is driven by private con- a/ Most recent value (2014), 2017 PPPs. b/ Most recent WDI value (2021). sumption fueled by remittances as they Recent developments support “grands marriages.” Low and declining productivity, limited invest- The economy expanded by an estimated 3 ment and fiscal space, and underperform- percent in 2023 as domestic activities were ing state-owned enterprises (SOEs) also supported by the resumption of “grands The Comoros’ economy continues to re- weigh on growth. Even though public marriages” and the associated increase in cover following the resumption of private debt is assessed as sustainable, the Co- diaspora community arrivals, primarily consumption and investments in tourism moros is at high risk of public debt dis- from France. Public servant salary hikes and transport infrastructure. Growth is tress, largely reflecting the issuance of in January 2023 aimed at preserving pur- non-concessional loans. chasing power, a high level of remittances, expected to average 3.9 percent over Due to red tape, the dominance of state- and higher public investment supported 2024-26, compared to 2.8 percent in owned enterprises, and limited market domestic demand. On the supply side, the 2022-23. The poverty rate has remained competition and challenges in accessing construction sector benefited from in- high at 38.2 percent (using the lower finance, private sector development is creased public spending, while the prima- middle-income poverty threshold). Policy weak, constraining job creation. Low lev- ry sector benefited from higher agricultur- els of human and physical capital and al prices and favorable climate conditions. priorities include fiscal consolidation and misallocation of resources have hin- As inflationary pressures from imported reforms to improve financial intermedia- dered growth in the tourism and fish- food and energy products moderated, in- tion, and enhance the business climate eries sectors, which hold high potential flation declined from 12.4 percent in 2022 and access to basic services. for job creation. Labor force participa- to 9.2 percent in 2023. An increase of 50 ba- tion is also constrained by weak labor sis points in the key monetary policy rate FIGURE 1 Comoros / Public debt, fiscal and current account FIGURE 2 Comoros / Actual and projected poverty rates balances and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 45 0 80 570000 40 560000 -1 70 35 550000 -2 60 30 540000 50 530000 25 -3 40 520000 20 -4 30 510000 15 -5 500000 10 20 490000 -6 5 10 480000 0 -7 0 470000 2019 2020 2021e 2022f 2023f 2024f 2025 2026 2014 2016 2018 2020 2022 2024 2026 Debt (lhs) Fiscal balance (rhs) International poverty rate Lower middle-income pov. rate Current account balance (rhs) Upper middle-income pov. rate Real GDP pc Sources: National authorities and World Bank estimates and forecasts. Source: World Bank. Notes: see Table 2. MPO 222 Apr 24 in July 2023 and lower credit growth in which weighed on economic activities and Lower imported inflation would con- response to liquidity management opera- slowed progress on the implementation of tribute to lower headline inflation of tions also helped decrease inflation. public projects and policy. 2.2 percent in 2024. Lower global com- Stronger domestic demand translated into modity prices and improvements in high import demand and contributed to the monetary policy framework would the widening of the current account to 5.8 also help reduce inflation. The current percent of GDP in 2023 (from 0.5 percent in Outlook account deficit is expected to average 2022). However, international reserves re- 5.5 percent of GDP over 2024-26, as mained at adequate levels as the Comoros The economic recovery from the COVID- major public investments contribute to received exceptional financing from inter- related slowdown is expected to contin- the widening of the trade deficit to an national financial institutions. ue, with growth reaching 3.3 percent in average of 20 percent of GDP. Pub- The fiscal deficit continued to widen in 2024 and 4.2 percent over 2025-26, driven lic debt is projected to reach 38.2 per- 2023 to an estimated 4.4 percent of GDP, primarily by private consumption and cent of GDP by 2026. Fiscal consolida- despite improved domestic revenue mobi- public investment. The construction of tion, enhanced SOE performance mon- lization. The deterioration of the fiscal po- the El Maarouf hospital and the Galawa itoring, and increased expenditure ef- sition by 0.4 percentage points of GDP in hotel, as well as the construction or ficiency are expected to reduce the fiscal 2023 was mainly driven by a large increase restoration of roads and ports, should deficit to 2.2 percent of GDP by 2026. in public spending of 3.5 percentage points support the economic recovery. In the The outlook faces significant down- of GDP, particularly higher public capital medium term, productivity growth is ex- side risks related to the impact of the expenditures. Public debt stock reached pected to benefit from the 2023 energy 2024 elections on the pace of execu- 38.2 percent of GDP at end-2023, compared law, which promotes the production of tion of investment projects and de- with 34.0 percent of GDP at end-2022. electricity from renewable sources. The lays in the implementation of key fis- Compliance with quantitative fiscal targets creation of a credit registry and a partial cal and governance reforms during under the four-year International Mone- credit guarantee scheme, as well as the the first half of the year. Concomi- tary Fund Extended Credit Facility pro- operationalization of the leasing law in tantly, contingent liabilities threaten gram approved in June 2023 is expected to 2024-25, are also expected to support the debt sustainability. Other downside help improve fiscal outturns and contain recovery in 2025-26. The poverty rate is risks include the cholera outbreak the increase in public debt. expected to decrease slowly to 36.2 per- in February 2024, prolonged global The January 2024 presidential election was cent in 2026 as the economy continues to geopolitical tensions, and the occurrence followed by post-electoral demonstrations, expand more rapidly. of natural disasters. TABLE 2 Comoros / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.1 2.6 3.0 3.3 4.0 4.3 Private consumption 1.0 0.2 1.9 3.2 3.6 3.6 Government consumption 5.0 5.4 11.6 0.7 4.5 5.4 Gross fixed capital investment 9.6 2.0 8.0 4.8 6.8 2.9 Exports, goods and services 48.2 22.6 -4.2 5.1 6.5 6.5 Imports, goods and services 7.7 4.2 3.0 3.7 5.6 3.2 Real GDP growth, at constant factor prices 2.0 2.4 3.0 3.3 4.0 4.2 Agriculture 3.4 3.3 4.7 4.3 4.6 5.0 Industry -0.2 0.4 2.3 1.0 1.5 3.0 Services 1.8 2.4 2.4 3.2 4.2 4.1 Inflation (consumer price index) 0.0 12.4 9.2 2.2 2.3 2.2 Current account balance (% of GDP) -0.5 -0.7 -5.8 -5.8 -5.4 -5.6 Fiscal balance (% of GDP) -2.8 -3.9 -4.4 -3.2 -2.5 -2.2 Revenues (% of GDP) 17.0 14.2 17.4 17.2 15.7 15.7 Debt (% of GDP) 29.8 33.7 38.2 39.9 39.1 38.7 Primary balance (% of GDP) -2.5 -3.7 -4.0 -2.9 -2.2 -1.9 a,b International poverty rate ($2.15 in 2017 PPP) 18.2 18.1 18.1 17.9 17.4 16.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 39.0 38.5 38.2 38.1 37.0 36.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 68.2 67.9 67.2 66.7 65.7 64.8 GHG emissions growth (mtCO2e) 2.1 2.1 2.1 2.2 2.3 2.1 Energy related GHG emissions (% of total) 48.7 48.8 49.0 49.1 49.3 49.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2015-EESIC. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2014) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 223 Apr 24 Sub-Saharan Africa after Nigeria in terms of the number of extreme poor despite DEMOCRATIC Key conditions and some improvements in the past decades. The December 2023 elections have led to challenges REP. OF CONGO a second 5-year term for incumbent Pres- ident Tshisekedi, but a majority is yet The Democratic Republic of the Congo to be negotiated in Parliament to form (DRC), home to the second largest rain- a government. Reaching political consen- Table 1 2023 forest in the world and vast metal de- sus and increasing the presence and cred- Population, million 102.3 posits, has yet to leverage its natural ibility of the state, including through im- GDP, current US$ billion 64.4 wealth to spur economic development. proved governance, are key to maintain- GDP per capita, current US$ 629.5 DRC’s exports are highly concentrated ing stability and peace, and advancing International poverty rate ($2.15) a 78.9 with copper and cobalt accounting for structural reforms that will attract invest- a 92.1 80 percent of the total (40 percent of ments and create jobs. The imperative for Lower middle-income poverty rate ($3.65) a which headed to China). With its agri- the state to enhance service delivery to Upper middle-income poverty rate ($6.85) 97.7 a cultural potential untapped, DRC is a citizens, alongside preserving macroeco- Gini index 44.7 net food importer, increasing vulnerabil- nomic stability, underscores the impor- b 122.4 School enrollment, primary (% gross) ities to external shocks. Political insta- tance of boosting domestic revenue mo- b 59.2 Life expectancy at birth, years bility, weak institutional capacity, poor bilization to expand fiscal space. Total GHG emissions (mtCO2e) 691.7 governance, and frequent bouts of vio- Source: WDI, Macro Poverty Outlook, and official data. lence have all contributed to undermin- a/ Most recent value (2020), 2017 PPPs. ing DRC’s foundations of a robust and b/ Most recent WDI value (2021). diversified economy. These issues have Recent developments not only deterred the creation of eco- nomic opportunities but also contributed The DRC economy expanded by 7.8 Following a strong recovery at 8.9 per- to escalating poverty levels, particularly percent in 2023 (2022: 8.9 percent), cent in 2022, the DRC’s economy is esti- with a rapidly growing population. Per- supported by a strong mining sector, mated to have slowed down in 2023 but sistent structural constraints result in an which grew by 15.4 percent, contribut- underdeveloped private sector and a large ing around 70 percent to overall remained resilient. The terms-of-trade de- informal economy. Climate-related shocks, growth in 2023. DRC copper and terioration and higher imports would including floods and droughts, and the as- cobalt production increased by 18.7 maintain high current account and fiscal sociated infrastructure damage add to and 21.2 percent, respectively, in 2023 deficits and put pressure on the domestic these challenges. (2022: 33.2 and 24.0 percent, respec- currency with strong pass-through to in- Poverty remains widespread, with the tively), reflecting ongoing expansions bulk of the poor living in extreme poverty. of production at relevant mines. Non- flation. Prospects for growth and poverty Significant geographical disparities in mining GDP grew by 3.6 percent in reduction are favorable, but subject to poverty exist, with extreme poverty con- 2023, led by the construction and ser- downside risks related to commodity price centrated in the central and northwestern vices sectors. Agriculture production shocks and geopolitical conflicts. areas and the largest number of poor in slowed to 2.2 percent in 2023 (from Eastern provinces. DRC remains second in 2.4 percent in 2022). On the demand FIGURE 1 Democratic Republic of Congo / Real GDP FIGURE 2 Democratic Republic of Congo / Actual and growth and contributions to real GDP growth projected poverty rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 100 180000 90 160000 8 80 140000 6 70 120000 60 4 100000 50 2 80000 40 60000 0 30 20 40000 -2 10 20000 0 0 -4 2012 2014 2016 2018 2020 2022 2024 2026 2020 2021 2022 2023e 2024f 2025f 2026f International poverty rate Lower middle-income pov. rate Non-Mining Mining sector SSA growth GDP Upper middle-income pov. rate Real GDP pc Sources: Democratic Republic of Congo statistical authorities and World Bank. Source: World Bank. Notes: see Table 2. MPO 224 Apr 24 side, growth was led by private investment stability while the inflation rate (end-of- and exports, while inflationary pressures period) is expected to decline towards its caused private consumption to contract, Outlook 7 percent medium-term target. potentially impacting poverty reduction. Extreme poverty is projected to further Extreme poverty is estimated at 74.6 per- GDP growth is expected to moderate to decrease reaching 72.4 percent by 2025 cent in 2023, a 1.4 percentage points de- 6.0 percent in 2024 and to stabilize around given favorable economic prospects, de- crease compared to 2022. 5.8 percent over 2025-26. The mining sector spite the lasting negative effects of the The current account deficit (CAD) fur- will continue to drive growth. Moreover, pandemic, high population growth, and ther deteriorated to 6.3 percent of GDP non-mining sectors (mainly services and war in Ukraine. in 2023, from 4.9 percent in 2022, owing manufacturing) will gradually support DRC’s economy remains subject to down- to higher imports. Nevertheless, FDI growth in the medium term with a growth side risks given its vulnerability to com- and external financing contributed to rate of 5.5 percent by 2026. On the demand modity price swings and growth perfor- build up foreign reserves, reaching 8.9 side, government consumption and invest- mance of major trading partners which weeks of imports in 2023 (2022: 7.7 ment and, to a lesser extent, private con- might be disturbed by geopolitical con- weeks). However, the exchange rate de- sumption shall support growth in the flicts. The continued economic conse- preciated by 21.6 percent in 2023 and medium term. quences of the war in Ukraine, through ris- inflation accelerated to 19.9 percent on The fiscal deficit is projected at 2.0 per- ing global commodity prices, could exert average in 2023 (up from 9.2 percent in cent of GDP in 2024, driven by security- stronger pressure on the fiscal deficit, infla- 2022) despite the central bank’s inter- related spending, before narrowing to 0.2 tion, and households’ consumption, thus, vention in FX market and its contrac- percent in 2026. Gross fixed capital in- exacerbating poverty and inequality. tionary monetary policy during the sec- vestment is expected to drop in 2024 as In addition, with the agriculture sector ond half of the year (raising the policy lower domestic revenue and higher ex- employing over 60 percent of the work- rate from 11 to 25 percent). penditures -attributed to outgoing and in- ing force, the vulnerability to climate The security and elections spendings coming administrations- leave a narrow change-related risks (floods, droughts) is caused the fiscal deficit to widen to scope for relevant budget allocation. De- substantial. Finally, an escalating war in 1.7 percent of GDP in 2023 (from 0.3 spite rising imports of capital goods, the the East and continued political volatil- percent in 2022), amid softening do- current account deficit will narrow to 3.5 ity could undermine the ability to ad- mestic revenues, due to lower cobalt percent of GDP in 2024-26 thanks to im- vance with ambitious structural reforms prices and declining windfall taxes. proved terms of trade associated with fa- efforts. To mitigate these risks, DRC’s The fiscal deficit was partly funded vorable commodity prices. Furthermore, immediate challenge is to strengthen se- by treasury bills/bonds and external FDI inflows will contribute to building up curity and maintain political and macro- concessional borrowing. reserves and maintaining exchange rate economic stability. TABLE 2 Democratic Republic of Congo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.2 8.9 7.8 6.0 5.9 5.7 Private consumption 1.6 10.1 -1.6 8.6 5.5 6.5 Government consumption 11.8 25.1 -9.2 4.0 8.9 4.6 Gross fixed capital investment 7.7 5.7 17.8 0.3 4.6 4.0 Exports, goods and services 11.7 25.0 24.9 8.9 3.7 2.5 Imports, goods and services 5.4 18.0 13.1 5.3 3.4 3.0 Real GDP growth, at constant factor prices 6.2 8.9 7.8 6.0 5.9 5.6 Agriculture 2.4 2.4 2.2 2.5 2.5 2.5 Industry 7.8 16.1 13.0 7.2 6.4 5.3 Services 5.8 2.7 2.9 5.6 6.4 7.3 Inflation (consumer price index) 9.0 9.3 19.9 17.2 14.5 10.5 Current account balance (% of GDP) -0.4 -4.9 -6.3 -4.3 -3.3 -2.9 Fiscal balance (% of GDP) -1.7 -0.3 -1.7 -2.0 -0.7 -0.2 Revenues (% of GDP) 12.1 16.9 14.2 13.4 13.9 14.6 Debt (% of GDP) 24.0 24.0 23.7 22.8 21.5 19.8 Primary balance (% of GDP) -1.4 0.0 -1.4 -1.7 -0.4 0.1 a,b International poverty rate ($2.15 in 2017 PPP) 77.9 76.0 74.6 73.4 72.4 71.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 91.6 90.6 89.8 89.5 89.1 88.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 97.6 97.2 97.1 96.9 96.8 96.7 GHG emissions growth (mtCO2e) 0.3 0.1 0.1 0.1 0.2 0.2 Energy related GHG emissions (% of total) 1.4 1.4 1.4 1.4 1.4 1.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2020-EGI-ODD. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2020) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 225 Apr 24 The enduring reliance on oil revenues has left the economy vulnerable to oil price REPUBLIC OF Key conditions and volatility and weakened long-term growth prospects. Attaining sustainable develop- challenges CONGO ment in Congo urgently requires efforts to diversify national assets, focusing on Between 2015 and 2023 the Republic of stronger institutions, development of hu- Congo’s (ROC) real GDP annual growth man and physical capital, and a more bal- Table 1 2023 averaged -1.9 percent, while its GDP per anced exploitation of natural capital. Population, million 6.1 capita contracted by a cumulative 32.3 per- GDP, current US$ billion 15.3 cent. The 2014-16 collapse in oil prices GDP per capita, current US$ 2506.0 plunged the economy into a prolonged re- International poverty rate ($2.15) a 35.4 cession as a result of a massive cut in pub- Recent developments a 59.1 lic spending and the accumulation of do- Lower middle-income poverty rate ($3.65) a mestic arrears to private sector firms, Driven by the non-oil sector, economic ac- Upper middle-income poverty rate ($6.85) 83.5 a which impacted private investment. The tivity in Congo is estimated to have in- Gini index 48.9 COVID-19 crisis further exacerbated the creased by 1.9 percent in 2023, compared b 87.7 School enrollment, primary (% gross) economic recession. GDP per capita has to an estimated 1.5 percent in 2022. Non-oil b 63.5 Life expectancy at birth, years now regressed to levels of the early 1970s, growth, estimated at 2.8 percent in 2023, Total GHG emissions (mtCO2e) 34.2 just a decade after gaining independence. was broad-based, spurred by agriculture, Source: WDI, Macro Poverty Outlook, and official data. The decline in per capita income levels manufacturing (including beverages, sug- a/ Most recent value (2011), 2017 PPPs. since 2015 have resulted in extreme pover- ar, and cement), and services (including b/ WDI for School enrollment (2018); Life expectancy (2021). ty incidence (less than US$2.15 PPP per restaurants and hotels, transport, and post day) increasing from 33.5 percent in 2015 and electronic communications). The oil to 46.6 percent in 2022. sector, on the other hand, underperformed The country’s high levels of non-conces- with production declining for the fourth Theeconomyisgraduallyrecovering,but sional borrowing in a context of reliance consecutive year in 2023 by 0.5 percent, growthremainedmodestatanestimated1.9 on volatile oil revenue and weak gover- due to technical challenges and maturing percentin2023,drivenbynon-oilactivi- nance, led its debt to be classified as “in oil fields. Despite a drop in oil revenues ties.Theongoingfuelsubsidiesreformis distress” and unsustainable in 2017, with due to lower oil prices and oil production, helpingtomaintainfiscalsurplusesbuthas its debt-to-GDP ratio increasing from 42.3 the budget posted a surplus in 2023. Fiscal percent in 2014 to 103.5 percent in 2020. discipline and strong reforms such as the alsocontributedtoatemporaryincreasein Higher oil prices, improved debt man- 30 percent increase in gasoline retail prices inflation,whichisprojectedtoreturntothe agement, and debt restructuring agree- since January 2023 and a new requirement 3.0percenttargetby2025.Growth ments helped restore debt sustainability on dividends payment from state-owned prospects,albeitimproved,remainvulnera- in the second half of 2021, but Congo re- enterprises helped sustain the budget sur- mains in debt distress due to the ongo- plus estimated at 3.6 percent in 2023. Low- bletounsteadyoilproduction,volatileoil ing restructuring and audit of domestic er export receipts and increased imports prices,delayedstructuralreformimple- arrears as well as the recurrent accumu- reduced the current account surplus to an mentation,andadverseweatherconditions. lation of temporary external arrears. estimated 2.1 percent of GDP in 2023. FIGURE 1 Republic of Congo / Real GDP growth FIGURE 2 Republic of Congo / Actual and projected poverty rates and real GDP per capita Percent change Poverty rate (%) Real GDP per capita (constant LCU) 6 100 1200000 4 90 1000000 2 80 70 0 800000 60 -2 50 600000 -4 40 -6 400000 30 -8 20 200000 -10 10 0 0 -12 2011 2013 2015 2017 2019 2021 2023 2025 2019 2020 2021e 2022e 2023e 2024f 2025f 2026f International poverty rate Lower middle-income pov. rate Oil GDP Non-Oil GDP Real GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. Note: Oil GDP growth rate in 2026 is projected at -0.1. MPO 226 Apr 24 The banking sector remains solvent, but average of 45.5 percent in 2025-26, consis- vulnerability to non-performing loans tent with projected growth in GDP per (NPLs) remains high. Bank deposits and Outlook capita. The fiscal balance is expected to re- credit to the private sector were up as main positive, fueled by high oil prices, in- of end-August 2023 (y-o-y), and while The Congolese economy is expected to creased oil production, the commercializa- the NPL to gross loan ratio has im- continue its gradual recovery. GDP is ex- tion of natural gas, the reduction in direct proved to 17 percent at end-August2023 pected to grow at 3.5 percent in 2024 and oil subsidies to energy SOEs, and fiscal dis- (compared to 19 percent a year ago), it to average 3.4 percent in 2025-26. Oil sec- cipline. Although debt vulnerabilities re- remains elevated. The Bank of Central tor growth (expected to average 2.7 per- main elevated (with a high level of non- African States (BEAC) maintained its cent in 2024-26) will be driven primari- concessional debt stock and domestic ar- tight monetary policy stance during ly by increased investments by oil com- rears), the debt-to-GDP ratio is projected 2023 to contain inflationary pressures panies, including in asset maintenance, to decline to 81 percent by 2026 thanks to and support the external viability of the and by new oil fields. Non-oil sector improved debt management and fiscal dis- exchange rate arrangement. The BEAC growth (expected to average 3.9 percent cipline. The current account surplus is policy rate was maintained at five per- in 2024-26) will be spurred by growth projected to decline, and to turn into a cent following a cumulative increase by in agriculture, non-oil industry and ser- deficit by 2026, due to lower oil export 175 basis points between November vices, supported by the continued clear- receipts and increased imports to support 2021 and March 2023. ance of government arrears, gradual in- investment, including for growing non- Real GDP per capita growth remained crease in social spending and public in- oil economic activities. negative in 2023 and the poverty inci- vestment, and the implementation of re- The economic recovery remains fragile as dence consequently increased slightly to forms in governance and the business risks are tilted to the downside. Risks in- an estimated 46.8 percent. The fuel price environment. Growth will be further sup- clude volatile global oil prices and un- adjustment and increased domestic de- ported by the development of the gas sec- steady oil production, persistent high mand pushed up inflation to 4.3 per- tor, with commercial production and ex- food inflation or refined oil shortages in cent in 2023. Food inflation decelerated in portation of liquefied natural gas expected Congo as part of spillover from conflicts 2023 but remains elevated at 4.3 percent, to start in 2024. Inflation is expected to ease elsewhere, weaker-than-expected global which is likely to continue to affect the to 3.8 percent in 2024 and to return to demand, further tightening of global or poorer segments of the population more BEAC’s 3.0 percent target by 2025. regional financial conditions, adverse as they typically spend a higher share of The poverty rate is expected to marginally weather conditions and delayed structural their household budget on food. decrease to 46.4 percent in 2024 and to an reforms implementation. TABLE 2 Republic of Congo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021e 2022e 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.0 1.5 1.9 3.5 3.7 3.2 Private consumption 11.5 5.0 4.9 4.9 5.0 5.1 Government consumption 2.1 -5.0 0.6 1.8 1.6 1.6 Gross fixed capital investment 14.0 10.0 8.6 8.6 5.6 5.4 Exports, goods and services -1.0 -0.7 1.0 4.2 4.5 1.9 Imports, goods and services 25.0 5.9 8.9 8.5 7.0 5.0 Real GDP growth, at constant factor prices 1.0 1.5 1.9 3.5 3.7 3.2 Agriculture 1.9 3.0 2.8 3.2 3.4 3.7 Industry -3.3 -0.6 0.7 4.5 4.8 3.2 Services 2.0 3.1 2.9 3.1 3.2 3.4 Inflation (consumer price index) 2.0 3.0 4.3 3.8 3.0 3.0 Current account balance (% of GDP) 8.9 18.7 2.1 1.5 0.4 -0.7 Net foreign direct investment inflow (% of GDP) 0.3 0.5 4.1 4.5 4.7 4.8 Fiscal balance (% of GDP) 1.2 7.9 3.6 3.9 3.2 3.1 Revenues (% of GDP) 21.1 28.6 24.3 25.5 25.2 24.8 Debt (% of GDP) 92.1 86.6 96.0 91.3 85.9 81.0 Primary balance (% of GDP) 3.1 10.2 6.4 6.6 5.8 5.7 a,b International poverty rate ($2.15 in 2017 PPP) 46.4 46.6 46.8 46.4 45.6 45.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 70.6 70.9 71.0 70.7 70.2 70.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 90.6 90.7 90.8 90.6 90.4 90.3 GHG emissions growth (mtCO2e) 3.2 3.2 3.3 3.4 3.4 3.3 Energy related GHG emissions (% of total) 14.0 14.7 14.8 15.1 15.4 15.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2011-ECOM. Actual data: 2011. Nowcast: 2012-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2011) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 227 Apr 24 CÔTE D'IVOIRE Key conditions and Recent developments challenges Growth momentum slowed as geopolitical tensions persisted, and financial conditions Table 1 2023 The Ivorian economy demonstrated re- tightened. Real GDP growth is estimated at Population, million 28.9 markable resilience against overlapping 6.4 percent in 2023 (3.8 percent per capita) GDP, current US$ billion 81.3 global and regional crises, posting 7-percent down from 6.9 percent in 2022, driven by GDP per capita, current US$ 2815.2 average growth (5.5 percent in per capita) strong public and private investment, fu- a 9.7 International poverty rate ($2.15) over 2021-2022, albeit short of pre-pandemic eled by the African Cup of Nations prepara- a 38.4 performance. Nonetheless, increasing un- tion. Conversely, private consumption soft- Lower middle-income poverty rate ($3.65) a 76.4 certaintyhasunderscoredtheneedforstruc- ened, reflecting higher domestic fuel and Upper middle-income poverty rate ($6.85) Gini index a 35.3 tural reforms and increasing fiscal space to electricity tariffs (about +10 percent in Janu- School enrollment, primary (% gross) b 94.6 movetowardstheobjectiveofdoublingGDP ary 2024) as the government has rolled back b 58.6 per capita between 2020 and 2030. Creating crisis-related subsidies. Industry, including Life expectancy at birth, years better-paid jobs and promoting more inclu- construction, and services, supported sup- Total GHG emissions (mtCO2e) 55.0 sive growth would require improving hu- ply-side growth, albeit at a slower pace, con- Source: WDI, Macro Poverty Outlook, and official data. man capital, leveraging private investment, tributing 1.1 and 4.1 percentage points to a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy and reducing allocative inefficiencies. 2023 growth, respectively. Export-oriented (2021). Short-term headwinds are high. Russia’s agriculture underperformed due to poor invasion of Ukraine has fueled commodity weather, with output falling for cocoa price volatility and macro-fiscal imbal- (-10.4 percent), coffee and cottonseed Amid global and regional turbulence and ances. Heightened market uncertainties, (around - 60 percent). tight financial conditions, economic tight monetary policy, and depreciated ex- Inflation averaged 4.4 percent in 2023, down change rates have increased external and from 5.2 percent in 2022, as increasing ener- growth has moderated slightly to 6.4 per- domestic debt costs, requiring active debt gy and transport inflation partially offset cent in 2023, while inflation remains ele- management and continued focus on do- slower food inflation. Core inflation was 3.2 vated at 4.4 percent, driving a small in- mestic revenue mobilization. Global and percent, still above the central bank's 2 per- crease in extreme poverty. Macroeconom- regional insecurity may aggravate eco- cent target and 1-3 percent band, reflecting nomic and fiscal pressures, with the recent- persistent effects of global supply chain dis- ic imbalances have eased owing to fiscal ly announced withdrawal of three Sahel ruptions and exchange rate depreciation. To consolidation and improved terms of countries from ECOWAS potentially affect- counter inflation across WAEMU countries, trade. Revenue-based fiscal consolidation ing trade, market confidence, investment the Central Bank of West African States continues as terms of trade improve, flows, and borrowing costs. Increasing im- (BCEAO) raised policy interest rates by a cu- strengthening debt sustainability. Medi- pact from climate change could cloud the mulative 150 basis points since mid-2022 to outlook. Upside risks rest on the rollout of 3.5 percent for liquidity calls and 5.5 percent um-term structural and climate transi- the national development plan, which re- for the marginal lending facility. However, tion reforms should help sustain growth quires adequate financing through greater inflation in the region (3.7 percent in 2023) around potential. public and private investment. was still above the 1-3 percent target range FIGURE 1 Côte d'Ivoire / Real GDP growth and contributions FIGURE 2 Côte d'Ivoire / Actual and projected poverty to real GDP growth rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant million LCU) 20 100 1.8 90 1.6 15 80 1.4 10 70 1.2 60 5 1.0 50 0.8 0 40 0.6 30 -5 0.4 20 -10 10 0.2 2015 2017 2019 2021 2023 2025 0 0.0 Gov. cons. Exports GFCF 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 228 Apr 24 and foreign exchange reserves have been on debt at around 60 percent of GDP. Sub- within the WAEMU’s 1-3 percent target a downward trend, estimated at 3.5 months stantial gains in terms of trade almost band by 2025. of imports at end-2023, down from closed the large trade deficit in 2023 which, Continued progress on domestic revenue 4.3 months at end-2022. combined with a lower fiscal deficit, nar- mobilization would sustain the realign- Extreme poverty (less than $2.15 a day per rowed the CAD to a forecast 5.8 percent of ment to the 3 percent regional fiscal deficit capita at PPP 2017) is likely to reach 10.1 GDP from 7.5 percent in 2022. target by 2025, stabilizing debt at around percent in 2023, a 0.4 percentage points in- 58 percent of GDP, and creating headroom crease from 2021. Expanding industry and for sustained priority social and infrastruc- services, which employ 13.3 and 40.9 per- ture spending above pre-pandemic levels. cent of the workforce, respectively, would Outlook The recent $2.6b Eurobond issuance put downward pressure on poverty rates. should help tame short-term liquidity vul- However, agriculture (employing 45.8 per- Prudent macroeconomic policies, struc- nerabilities and shore up external reserves. cent of the workforce, 76.6 percent of rural tural and climate-related reforms should Improving terms of trade and private sec- workers, and 70.2 percent of the poor) is sustain robust growth in the short and tor-led export diversification should boost likely to slow in 2023 and along with high- the medium term, albeit below pre-pan- the trade balance and, alongside the im- er food prices, would offset the impacts of demic levels, amid persistent adverse proved fiscal stance, narrow the CAD. growth in industry and services. global and regional geopolitical trends. Downside risks include heightened glob- Frontloaded tax measures and phase-out of Growth should rebound to 6.6 percent in al and regional tensions, notably an es- crisis-related energy and food subsidies 2024 (4.0 percent per capita), boosted by calation of the Middle East crisis and lowered the fiscal deficit to an estimated 5.2 the hosting in Q1 of the African Cup of uncertainties over the withdrawal of the percent of GDP in 2023 from 6.5 percent in Nations and the start-up of the first op- Sahel economies from ECOWAS, which 2022. Revenues increased by 1.3 ppt of GDP erating phases of new oil and gas fields, could dampen market sentiment, stunt y/y in the first eleven months of 2023 com- and average 6.5 percent in 2025-26. Sus- inflation reduction, tighten financing con- pared to 2022, primarily on higher tax rev- tained investment in network infrastruc- ditions, exacerbate debt vulnerabilities, enues. Expenditure was contained as faster ture, particularly in the digital and trans- and squeeze the already low foreign ex- capital expenditures and interest payments port sectors, and higher oil extraction change reserves. Extreme poverty should were balanced by cuts in recurring expendi- should boost business confidence and in- stabilize at 10.2 percent in 2024, reflecting tures. Two-thirds of the fiscal deficit was crease productivity. Value chain develop- strong growth, but held back by persis- covered by short-term issuances on the re- ment could increase agricultural produc- tent post-pandemic inflation. Poverty re- gional market and one-third by external tivity and bolster manufacturing, sustain- duction will resume in 2025, sustained by loans and budget support, keeping public ing growth potential. Inflation should fall growth and abated inflation. TABLE 2 Côte d'Ivoire / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.1 6.9 6.4 6.6 6.5 6.5 Private consumption 5.3 5.1 2.6 3.8 4.3 4.3 Government consumption 6.2 10.6 9.0 7.4 7.1 7.1 Gross fixed capital investment 14.9 14.6 14.9 14.6 10.5 9.9 Exports, goods and services 16.9 4.9 8.9 6.0 6.5 7.0 Imports, goods and services 15.9 1.3 10.5 9.5 7.0 6.7 Real GDP growth, at constant factor prices 6.1 7.3 6.2 6.6 6.5 6.5 Agriculture 7.3 4.7 4.0 4.3 4.4 4.8 Industry 4.9 8.1 5.8 6.2 6.5 6.6 Services 6.2 7.9 7.2 7.5 7.2 7.0 Inflation (consumer price index) 4.2 5.2 4.4 3.6 3.0 2.0 Current account balance (% of GDP) -4.5 -7.5 -5.8 -4.0 -3.4 -3.3 Net foreign direct investment inflow (% of GDP) 1.5 1.3 1.6 2.2 1.9 1.7 Fiscal balance (% of GDP) -4.8 -6.6 -5.2 -4.0 -3.0 -3.0 Revenues (% of GDP) 15.7 14.9 16.2 16.8 17.2 17.5 Debt (% of GDP) 51.4 56.5 58.0 58.2 58.0 56.9 Primary balance (% of GDP) -2.9 -4.4 -2.8 -1.7 -0.6 -0.7 a,b International poverty rate ($2.15 in 2017 PPP) 9.7 9.8 10.1 10.2 10.0 9.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 38.4 38.3 38.1 37.6 36.7 35.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 76.4 76.1 76.0 75.1 74.1 72.8 GHG emissions growth (mtCO2e) 2.7 1.5 0.6 0.6 0.8 1.7 Energy related GHG emissions (% of total) 25.0 25.3 25.0 24.5 24.2 24.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 229 Apr 24 income group. Around 40 percent of households experience at least one day EQUATORIAL Key conditions and without electricity per month. Scarce poverty data remain a challenge to an ef- challenges GUINEA fective protection of vulnerable groups. The II National Household Survey report, As a result of declining oil reserves and scheduled to be released in June 2024, will lower investment, Equatorial Guinea’s oil- fill knowledge gaps in poverty and in- Table 1 2023 dependent economy has contracted for equality, enabling more evidence-based Population, million 1.7 more than a decade. Between 2013 and social protection policies. GDP, current US$ billion 12.1 2023, the country registered an average GDP per capita, current US$ 7051.5 negative 4.2 percent growth per year. a 51.2 Gross national income (GNI) per capita School enrollment, primary (% gross) Life expectancy at birth, years a 60.6 has been declining and was at US$ 5,240 in Recent developments 2022, 58 percent lower than its peak level Total GHG emissions (mtCO2e) 16.6 in 2008. Structural reforms are needed to After two years of recovery, the Equatogu- Source: WDI, Macro Poverty Outlook, and official data. prevent the economic decline, by diver- inean economy fell back into recession a/ WDI for School enrollment (2019); Life expectancy (2021). sifying the growth drivers and building with an estimated real GDP growth rate fiscal stability through domestic revenue of -5.8 percent in 2023 (from 3.8 percent mobilization efforts and more efficient in 2022), driven by the decline in the hy- public spending. drocarbon sector (-19.3 percent growth in Reforms have been adopted in recent years 2023H1 compared to 2022H2). Lower in- to improve governance and the business vestment contributed to the contraction on Equatorial Guinea’s economy contracted environment, including with the passage the demand side. The current account by an estimated 5.8 percent in 2023, of an Anti-Corruption law in late 2021, the deficit widened to 1.6 percent of GDP mainly due to declining oil reserves. The completion of the audits of the largest (from 1.0 percent of GDP in 2022) on ac- state-owned oil and gas companies, and count of declining export earnings. fiscal and external balances deteriorated the signature of a decree establishing a Lower oil production and prices led to a 74 amid declining oil export earnings. The treasury single account. Yet, weaknesses percent decline in oil revenues in 2023Q3 (y- economy is projected to remain in reces- persist in the governance of extractive rev- o-y). The overall fiscal surplus is estimated sion over the medium term. A more-pro- enues and the business environment, pre- to have dropped to 7.3 percent of GDP in nounced-than-expected decline in oil pro- venting the country from attracting invest- 2023 from 13.0 percent in 2022, while the ments and creating jobs to achieve sus- non-oil fiscal balance in 2023 to 26.4 percent duction and prices, sustained tightening tained and diversified growth. of GDP, compared to 21.3 percent in 2022. of global financial conditions, global trade Actions are also needed to better protect The debt-to-GDP ratio declined in 2023. disruptions, and a decline in demand and include the poor. Despite Equatorial Over the period 2019-23, CFAF 572.2 billion from main export partners represent Guinea’s upper middle-income status, liv- (or 9.5 percent of GDP) out of the CFAF ing standards remain low. Life expectancy 1,382.5 billion outstanding arrears was paid downside risks to the outlook. at birth is estimated at 60.7 years, com- to construction companies: as of August pared to 75 years for countries in the same 2023, outstanding domestic arrears with FIGURE 1 Equatorial Guinea / Public finances FIGURE 2 Equatorial Guinea / Non-income poverty indicators Percent of GDP Percent 35 250 EqG relative to regional average 30 EqG relative to MIC average 200 25 150 20 15 100 10 50 5 0 0 Mortality rate, under-5 Maternal mortality Mortality rate -5 (per 1,000 live births) ratio (modeled attributed to unsafe estimate, per 100,000 water, unsafe -10 live births) sanitation and lack of 2016 2018 2020 2022 2024f 2026f hygiene (per 100,000 Fiscal balance Revenues Expenditures population) Sources: National authorities and World Bank. Source: World Bank. MPO 230 Apr 24 construction companies was 7.9 percent of stability. Global trade disruptions affect- GDP. High levels of non-performing loans – ing food prices amid a protracted war 32 percent of total loans in 2023Q4 – are a Outlook on Ukraine would increase food insecuri- source of banking system vulnerability. ty especially for the most vulnerable, as The Bank of Central African States Equatorial Guinea is expected to remain the country relies heavily on food import. (BEAC) continued to tighten its monetary in recession in 2024 (with growth of –4.3 A further tightening of global financial policy in 2022 and 2023 to contain in- percent) on the back of declining hydro- conditions and lower demand from Chi- flationary pressures and support the ex- carbon production and domestic demand. na and India, Equatorial Guinea’s main change rate arrangement. The BEAC pol- Without significant diversification efforts export partners, could also undermine icy rate was maintained at five percent and progress in structural reforms, declin- growth. The decline in hydrocarbon re- following a cumulative increase by 175 ing hydrocarbon production and lower serves indicates the need for Equatorial basis points between November 2021 and commodity prices are expected to keep im- Guinea to move to a new growth model March 2023. Moreover, the BEAC ended pacting the economy with a negative aver- by creating the conditions for successful its weekly liquidity injections in March age growth of 3.5 percent in 2025-2026. De- private sector activities in non-oil sectors 2023 after steadily scaling them back creasing exports would lead to current ac- to reinvigorate growth. Ultimately, im- since June 2021. Inflation is estimated to count deficits over the medium term. Al- plementing the economic diversification have decreased from 4.9 percent in 2022 beit at a slower pace, imports would also vision will require efforts to advance to 2.4 percent in 2023, including thanks to decrease, on account of declining public the governance agenda, facilitate trade, containment measures by the BEAC, the spending due to limited fiscal space. The improve the business environment and agreement to import food products from fiscal balance is projected to turn to deficits public financial management. Strengthen- Serbia, and the reduction of some import in 2025-2026, with public expenditure cuts ing the social protection system would tariffs. According to the national institute unable to compensate for the larger decline help protect the most vulnerable and of statistics, the prices of food products in hydrocarbon revenues. reduce inequities, especially as social increased by 7.1 percent between March Risks to the outlook are tilted to the spending in Equatorial Guinea was es- 2020 and September 2023, which repre- downside. A stronger decline in hydro- timated at 1.6 percent of GDP in 2022, sents an average loss of the purchasing carbon production or prices would re- three times lower than the West and power of households of 4.5 percent. duce the fiscal space and risks external Central Africa average. TABLE 2 Equatorial Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 0.3 3.8 -5.8 -4.3 -3.3 -3.6 Private consumption -0.8 9.6 -5.7 -4.8 2.8 2.0 Government consumption 5.2 -5.3 7.3 20.9 0.3 -6.2 Gross fixed capital investment 37.4 -2.0 -38.0 -25.2 -11.4 -9.0 Exports, goods and services 0.3 12.7 -3.7 -5.9 -8.2 -5.5 Imports, goods and services 8.5 19.0 -1.4 3.8 -3.3 -2.8 Real GDP growth, at constant factor prices 0.4 3.5 -5.8 -4.3 -3.3 -3.6 Agriculture 8.0 7.5 -9.1 -6.5 1.5 1.6 Industry -5.9 3.1 -39.1 -23.1 -19.6 -14.8 Services 10.8 3.8 43.1 7.5 3.9 0.1 Inflation (consumer price index) -0.1 4.9 2.4 4.0 2.5 2.2 Current account balance (% of GDP) -2.1 -1.0 -1.6 -3.6 -4.2 -4.1 Net foreign direct investment inflow (% of GDP) 5.2 5.6 4.5 3.4 2.5 1.9 Fiscal balance (% of GDP) 2.6 13.0 7.3 1.2 -2.4 -3.7 Revenues (% of GDP) 15.6 30.1 27.6 20.5 16.3 14.1 Debt (% of GDP) 43.4 39.3 36.6 32.6 32.3 34.8 Primary balance (% of GDP) 3.7 14.2 8.7 2.4 -1.3 -2.6 GHG emissions growth (mtCO2e) 22.0 12.3 -9.6 -5.6 -3.7 -2.3 Energy related GHG emissions (% of total) 39.0 44.2 41.7 40.4 39.8 39.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 231 Apr 24 The emergency conditions that prevailed in Eritrea over the past decade have led ERITREA Key conditions and to severe data production capacity con- straints. National accounts data are limited challenges to unofficial GDP estimates produced by the Ministry of Finance that the govern- Table 1 2023 Eritrea emerged from a decade of interna- ment does not endorse. Inflation estimates Population, million 3.7 tional isolation with the lifting of UN sanc- cover only the capital city, Asmara, and GDP, current US$ billion 2.7 tions in November 2018. During that pe- the full balance of payment accounts is not GDP per capita, current US$ 712.3 riod, the government relied on domestic produced. The last population census in a 72.0 School enrollment, primary (% gross) sources of growth. As a result, the econo- Eritrea took place more than 25 years a 66.5 my is dominated by large state-owned en- ago, and the last official poverty rate for Life expectancy at birth, years Total GHG emissions (mtCO2e) 7.0 terprises that crowded out the private sec- the country dates from 1996/97, when it Source: WDI, Macro Poverty Outlook, and official data. tor. Zinc, copper, and gold account for was calculated that 70 percent of urban a/ WDI for School enrollment (2019); Life expectancy over 90 percent of exports, so metal price households lived in poverty. Limited (2021). fluctuations are a key source of vulnera- growth and the multiple economic shocks bility. Monetary policy under a fixed ex- since then, affecting both urban and rural change rate regime (pegged to the US dol- households, suggest that this figure may lar) seems ineffective and has been under- now be higher. taken through administrative measures. Its effectiveness is further weakened by fiscal Economic growth is projected at 2.8 per- dominance and an underdeveloped finan- cent in 2024, supported by the Colluli cial sector. The absence of a competition Recent developments potash project construction. Lower global law framework discourages foreign capital food prices are expected to help reduce in- inflows. Competition is severely con- Real GDP growth is estimated to have flation to 5.1 percent in 2024. Downside strained by state-owned enterprises domi- remained relatively stable at 2.6 percent nance and government restrictions. Severe in 2023, underpinned mainly by the con- risks to the outlook include production import restrictions limit the demand for struction of the Colluli potash project. delays at the Colluli mine, global com- foreign currency in the context of low for- Meanwhile, inflation moderated to just modity price volatility, geopolitical and eign exchange reserves. The country is vul- over 6 percent, largely due to easing regional tensions, and climate vulnerabil- nerable to climate change, with frequent global food and energy prices, providing weather shocks posing a heavy burden on some respite for households. Although ities. Poverty is assessed to be widespread, the economy and rural livelihoods. global zinc prices fell by 24 percent in although national accounts and poverty The COVID-19 crisis hit Eritrea when 2023, relatively high gold and copper statistics have not been produced for more it paused its engagement with interna- prices contributed to higher export rev- than a decade. tional development partners and faced enues. Together with lower fuel and food challenges in accessing external funding. imports, this helped maintain the current Informal cross-border trade seemed less af- account surplus above 14 percent of fected as the conflict in northern Ethiopia GDP. Notwithstanding such large surplus- ended, giving cross-border trade a boost. es, international reserves are estimated at FIGURE 1 Eritrea / Evolution of total public debt FIGURE 2 Eritrea / Primary and overall fiscal balances Percent of GDP Percent of GDP 300 0 250 -1 -2 200 -3 150 -4 100 -5 50 -6 -7 0 2020 2021 2022 2023 2024f 2025f 2026f 2020 2021 2022 2023 2024f 2025f 2026f Domestic debt External debt Total public debt Overall fiscal balance Primary fiscal balance Sources: Ministry of Finance, Planning, and Economic Development, and World Sources: Ministry of Finance, Planning, and Economic Development, and World Bank estimates. Bank estimates. MPO 232 Apr 24 around three months of imports. Strong significantly in the coming years. Signifi- mining export revenues have also sup- cant improvements in the agricultural sec- ported government revenues. Public Outlook tor and increased productive employment debt was estimated at around 219 per- in urban areas are critical to addressing the cent of GDP at end-2023, of which near- GDP growth is projected to increase to 2.8 pervasive deprivation in the country. ly 80 percent is owed to domestic banks. percent in 2024, as domestic demand is Significant downside risks include weaker- The country is in debt distress, and as boosted in the short term by progress in than-expected global or Chinese demand of January 2023, Eritrea was at a pre-de- the construction of the Colluli mine. for Eritrean commodity exports and relat- cision point in the Highly Indebted Poor Growth is projected to reach 3.3 percent ed volatility in metals and minerals prices, Countries (HIPC) list. in 2026 once the mine begins production. production delays at the Colluli mine, Eritrea has begun to re-engage with de- In line with easing global food prices, in- spillovers from the conflict in Sudan, and velopment partners and revitalize some flation is expected to decrease further to heightened tensions in the Middle East. bilateral relations. In 2023, the African about 5 percent in 2024. The current ac- Moreover, severe climate vulnerabilities Development Bank Board approved count surplus is expected to widen to over could worsen in the coming years, posing US$49.9 million to build a 30-megawatt 14 percent of GDP in 2024, helped by ro- a high risk to food security in Eritrea. solar photovoltaic power plant in bust mining sector performance amid tight Against this backdrop, Eritrea’s re-engage- Dekemhare, and the project is scheduled import controls. Gradual fiscal consolida- ment with the international community to be completed in 2027. The Chinese tion and sustained strong mining sector re- could help to significantly reduce external company Sichuan Road and Bridge ceipts should support a narrowing of the arrears and provide much-needed financ- Group has acquired a 50 percent stake in fiscal deficit to 4 percent of GDP in 2024, ing to build essential infrastructure over the Colluli project, and the mine is sched- with fiscal consolidation continuing over the medium term, help abate the risks as- uled to start operating in 2026. In addi- the medium term. The economic recovery sociated with climate change, and jump- tion, Eritrea has rejoined the East African should support a reduction in the public start the private and financial sectors. De- trade bloc, the Intergovernmental Author- debt-to-GDP ratio, from 211 percent of velopment of the private and financial ity on Development, nearly 17 years after GDP in 2024 to 189 percent of GDP in 2026. sectors could enhance job creation and withdrawing from the body. The poverty rate is not expected to decline promote inclusive growth. TABLE 2 Eritrea / 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 2.5 2.6 2.8 3.0 3.3 Private consumption 3.0 3.6 4.0 4.3 4.1 4.1 Government consumption 14.0 5.7 3.7 4.1 4.1 4.1 Gross fixed capital investment 39.1 13.1 22.7 3.6 12.5 14.9 Exports, goods and services 31.0 9.2 5.1 3.7 4.1 4.1 Imports, goods and services 21.6 11.0 5.3 4.1 4.3 4.3 Real GDP growth, at constant factor prices 2.9 2.5 2.6 2.8 3.0 3.3 Agriculture 4.5 1.6 3.5 3.6 3.2 3.2 Industry 1.4 3.2 2.9 3.3 3.3 3.1 Services 5.3 1.3 1.5 1.2 2.2 3.8 Inflation (consumer price index) 6.6 7.4 6.4 5.1 5.2 5.2 Current account balance (% of GDP) 14.0 13.0 14.1 14.2 14.2 15.8 Net foreign direct investment inflow (% of GDP) 1.4 1.3 1.2 1.2 1.0 1.0 Fiscal balance (% of GDP) -5.8 -5.6 -4.8 -4.0 -3.8 -3.4 Revenues (% of GDP) 26.7 27.0 27.6 27.9 27.7 26.9 Debt (% of GDP) 241.7 239.8 219.4 210.6 193.9 188.5 Primary balance (% of GDP) -4.2 -4.2 -3.7 -2.9 -2.8 -2.4 GHG emissions growth (mtCO2e) 1.6 1.6 1.4 1.6 1.5 1.5 Energy related GHG emissions (% of total) 11.7 11.7 11.5 11.7 11.9 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. MPO 233 Apr 24 owned enterprises (SOEs) reforms and, improve domestic revenue mobilization. ESWATINI Key conditions and Poverty and inequality remain high. Over 50 percent of the population live below the challenges US$3.65/day (2017 PPP) lower middle-in- come country poverty line. High and per- Table 1 2023 Over the past 20 years, Eswatini’s GDP per sistent inequality (54.6 percent in 2016) is Population, million 1.2 capita growth only averaged 1.8 percent. also a risk to social stability. GDP, current US$ billion 4.6 The proportion of the population living be- GDP per capita, current US$ 3822.9 low the US$3.65/day (2017 PPP) poverty line a 36.1 International poverty rate ($2.15) fell from 76.4 percent to 58.1 percent be- Lower middle-income poverty rate ($3.65) a 58.0 tween 2000 and 2016, but at 52 percent in Recent developments a 78.1 2024 poverty remains high. The country’s Upper middle-income poverty rate ($6.85) Gini index a 54.6 low growth rate can partly be explained by Real GDP rebounded to an estimated 4.8 School enrollment, primary (% gross) b 120.9 deteriorating public finances, characterized percent in 2023 (from 0.5 percent in 2022), b 57.1 by rising public debt, the accumulation of driven by an increase in services and ex- Life expectancy at birth, years domestic expenditure arrears, and public ports. The doubling of SACU receipts al- Total GHG emissions (mtCO2e) 3.1 spending inefficiencies. Concurrently, lowed the government to reduce the over- Source: WDI, Macro Poverty Outlook, and official data. structural weaknesses have hindered the all fiscal deficit, while increasing spending a/ Most recent value (2016), 2017 PPPs. b/ Most recent WDI value (2021). development of the private sector. These in- that boosted government-linked services. clude a weak investment climate due to Meanwhile, agriculture contracted by 2.5 cumbersome regulations, distortions percent, mainly due to weather-related Real GDP is projected to grow by 4.1 per- caused by inefficient state-owned enterpris- challenges that affected production. es, and a limited access to regional and inter- Annual average inflation increased from cent in 2024, driven by continued in- national markets. Adopting a comprehen- 4.8 percent in 2022 to 5.0 percent in 2023 crease in public spending financed by sive strategy that accumulates more physi- despite easing global inflationary pres- higher Southern African Customs Union cal and human capital, while ensuring more sures. The increase was partly the result of (SACU) revenues. Despite easing global efficient and inclusive use of these re- higher prices for transport and food. These sources, will be critical for Eswatini to meet pressures continued in early 2024, with in- inflationary pressures, annual average in- its development goals. The government is flation increasing from 4.3 percent in De- flation increased in 2023 but is projected working on a new growth strategy. cember 2023 to 4.5 percent in January 2024 to slightly decline to 4.9 percent in 2024. Volatile SACU revenues have shaped the (yoy). However, inflation remained within The budget deficit is projected to continue macro-fiscal dynamics. The increase in rigid the 3-6 percent band, with the central bank declining in 2024, though fiscal policy re- spending lines, such as wages and interest maintaining the repo rate at 7.5 percent payments in the face of volatile SACU rev- since July 2023. mains highly procyclical. The poverty rate enue, contributed to rising fiscal deficits, The fiscal deficit declined from 5 per- is projected to decrease slightly to 52 per- public debt, and arrears. To make fiscal pol- cent of GDP in 2022 to 2.1 percent in cent in 2024 using the poverty line for lower icy more predictable and countercyclical, 2023, but expenditure arrears increased and middle-income countries. there is an urgent need to consolidate expen- again. Revenue was boosted by the more diture including implementing the state than doubling of SACU receipts in 2023. FIGURE 1 Eswatini / SACU revenues and macroeconomic FIGURE 2 Eswatini / Actual and projected poverty rates and variables real GDP per capita Percent of GDP Months of imports, percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 14 4 100 50000 12 90 45000 10 80 40000 8 3 70 35000 6 60 30000 4 2 50 25000 2 0 40 20000 -2 30 15000 1 -4 20 10000 -6 10 5000 -8 0 0 0 2018 2019 2020 2021 2022 2023e 2024f 2009 2011 2013 2015 2017 2019 2021 2023 2025 Current account (lhs) SACU revenue (lhs) International poverty rate Lower middle-income pov. rate Fiscal deficit (lhs) International reserves (rhs) Upper middle-income pov. rate Real GDP pc Sources: Eswatini Ministry of Finance and World Bank projections. Source: World Bank. Notes: see Table 2. MPO 234 Apr 24 Expenditure also increased as a result of a increase should contribute to a reduction higher public sector wage bill, interest pay- in the fiscal deficit and the payment of ments, and election-related expenditures. Outlook accumulated expenditure arrears. How- While the level of public debt declined be- ever, the magnitude of the adjustment tween 2022 and 2023, arrears increased The medium-term economic outlook will also depend on public expenditures, again, due weak commitment controls, looks moderately favorable, with GDP especially the public sector wage bill and reaching an estimated 2.0 percent of GDP in growth stabilizing at about 3 percent SOEs reforms. The government should February 2024. The government established over 2024-26. Growth is expected to be capitalize on the positive revenue shock a SACU Revenue Stabilisation Fund in 2023, driven by higher investments, including by fully operationalize the SACU Rev- but it has not been fully capitalized, as ex- from the government (due to higher enue Stabilisation Fund while continu- penditure pressures continued in 2023. SACU revenue), and sustained improve- ing with fiscal consolidation- both ex- The current account returned to a surplus ments in industry and services. By con- penditure reducing and domestic rev- in 2023, reflecting higher SACU revenue trast, the agricultural sector could be neg- enue mobilization measures. Debt is and an increasing trade surplus, fueled by atively affected by climate change, which projected to stabilize in the medium higher exports of key commodities as such could hurt the poor most. Risks are tilted term, as the fiscal deficit declines. The soft drink concentrates, sugar and sugar to the downside given uncertainty in a current account is expected to remain in products. The level of international re- major trading partner (South Africa), es- surplus in 2024, on the back of higher serves remained constant at 2.6 months of pecially on energy supply, and interna- SACU receipts and increased export de- imports in 2023. tional geopolitical tensions. Domestically, mand of key products. While the increase in economic activity has the country remains exposed to social Poverty, based on the lower-middle-in- contributed to higher income, higher trans- and political uncertainty. Inflation is pro- come country poverty line, is projected to port and food prices disproportionately af- jected to slow slightly to 4.9 percent in decline from 52 percent in 2024 to 51.3 fect the poor, who spend a larger share of 2024, following global trends, but elevat- percent in 2025. While the projected eco- their resources on these items. High infla- ed crude oil prices, a weaker exchange nomic recovery should have a positive tion has limited the progress in poverty re- rate, and higher food prices could mar impact on households, such improvement duction, with estimated poverty rates only this outlook. will be constrained by the lower agri- showing a slight decline from 54 percent in On the fiscal side, SACU revenues are cultural production and structural chal- 2022 to 52.8 percent in 2023, using the lower- projected to increase again in 2024, by lenges facing the poor including low job middle-income country poverty line. 11.5 percent relative to FY2023/24. This creation and low access to services. TABLE 2 Eswatini / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.7 0.5 4.8 4.1 3.3 2.7 Private consumption 5.7 -5.3 4.1 3.2 2.6 2.6 Government consumption -10.6 -0.3 9.7 2.2 0.8 0.8 Gross fixed capital investment 11.4 -10.8 1.0 9.6 7.0 3.5 Exports, goods and services 8.8 -0.4 8.0 2.6 2.4 2.4 Imports, goods and services 14.0 3.4 7.0 2.7 2.0 2.0 Real GDP growth, at constant factor prices 10.7 0.2 4.8 4.1 3.3 2.7 Agriculture 4.6 5.1 -2.5 -1.2 1.9 2.5 Industry 17.9 -0.3 1.5 4.0 3.0 2.0 Services 7.1 -0.1 8.2 4.9 3.7 3.2 Inflation (consumer price index) 3.7 4.8 5.0 4.9 5.2 5.3 Current account balance (% of GDP) 2.6 -2.4 4.0 2.3 0.6 -1.5 Net foreign direct investment inflow (% of GDP) 1.2 0.7 0.8 0.8 0.7 0.7 Fiscal balance (% of GDP) -4.6 -5.0 -2.1 -2.0 -2.7 -1.3 Revenues (% of GDP) 25.1 23.9 29.4 27.7 26.3 24.5 Debt (% of GDP) 37.9 41.8 38.9 35.4 33.5 31.2 Primary balance (% of GDP) -2.7 -2.7 -0.2 -0.3 -1.2 0.1 a,b International poverty rate ($2.15 in 2017 PPP) 30.9 31.0 29.6 28.5 27.5 26.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 53.7 54.0 52.8 52.1 51.4 50.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 76.1 76.2 75.1 74.7 74.2 73.7 GHG emissions growth (mtCO2e) 5.8 0.4 0.7 2.8 4.0 4.1 Energy related GHG emissions (% of total) 48.2 47.9 47.5 48.0 49.1 50.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2016-HIES. Actual data: 2016. Nowcast: 2017-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2016) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 235 Apr 24 sector-specific institutional and market failures and enhance productivity. ETHIOPIA Key conditions and The combination of climatic shocks, dis- ease outbreaks, armed conflict, and eco- challenges nomic shocks have made difficult to con- tinue reducing poverty at the pace ob- Table 1 2023 Ethiopia’s state-led and public-invest- served before 2019. Poverty rates are esti- Population, million 126.5 ment-intensive development model sup- mated to have stagnated at around the lev- GDP, current US$ billion 171.3 ported growth rates of nearly 10 percent el observed in 2016. Food insecurity has al- GDP per capita, current US$ 1353.5 between 2004 and 2018, among the world’s so worsened, due to global food and en- a 27.0 International poverty rate ($2.15) highest, and drove significant gains in ergy price shocks and the disruptions to a 65.0 poverty reduction. Despite these achieve- grain supply due to the war in Ukraine. Lower middle-income poverty rate ($3.65) a 90.9 ments, the country’s development model Upper middle-income poverty rate ($6.85) Gini index a 35.0 yielded negligible improvements in struc- School enrollment, primary (% gross) b 85.5 tural transformation and productivity Life expectancy at birth, years b 65.0 growth while contributing to macroeco- Recent developments nomic imbalances: debt vulnerabilities, fis- Total GHG emissions (mtCO2e) 216.4 cal constraints, depleted liquidity buffers, Growth picked up to 7.2 percent in Source: WDI, Macro Poverty Outlook, and official data. and foreign-exchange shortages. The 2019 FY23 (ending June 2023) from 6.4 per- a/ Most recent value (2015), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy Home-Grown Economic Reform Agenda cent in FY22 as good harvests supported (2021). sought to prioritize reforms that would ad- agricultural sector growth despite pro- dress macroeconomic distortions, unlock tracted drought in pastoral areas. Ser- greater private sector participation and vice sector dynamism also contributed Growth surged from 6.4 percent in FY22 market orientation. However, implemen- to growth, while the manufacturing and to 7.2 percent in FY23, supported by tation was slowed amid multiple construction sectors were negatively af- shocks—including the COVID-19 pan- fected by worsening foreign exchange good harvests and steady service sector demic, major conflict in the north, and shortages, restrictions on non-essential im- growth. However, growth remains lower soaring global food and energy ports, and the suspension of preferential than before COVID-19, and compounded prices—that exacerbated macroeconomic US market access. shocks since 2019 made it more difficult vulnerabilities. This has slowed growth to The current account deficit narrowed to 2.8 about 6 percent since FY20. percent of GDP in FY23 from 4 percent of to translate economic growth into poverty In recent months, the government has GDP in FY22, due to strong service exports reduction. Reflecting slow reform imple- announced a revival of the 2019 HGER and lower imports related to foreign ex- mentation, growth is expected to drop to to target macro-financial measures to sta- change shortages. It was largely financed 7 percent in FY24 and over the medium bilize the macroeconomy and reduce through foreign direct investment and the term. Urgent reforms implementation is macroeconomic vulnerabilities; introduce drawdown of foreign exchange reserves. A structural reforms to alleviate business two-year debt suspension agreement with critical to restore macroeconomic stability the G20 Official Creditors’ Committee in constraints to create an enabling environ- and create enabling environment for ment for private sector investment; and November 2023 helped ease external fi- structural transformation. implement sectoral policies to address nancing pressures, but its continuity is FIGURE 1 Ethiopia / Gross foreign exchange reserves FIGURE 2 Ethiopia / Actual and projected poverty rates and real private consumption per capita Million US$ Months of imports Poverty rate (%) Real private consumption per capita (constant LCU) 4,500 3.0 100 14000 4,000 90 2.5 12000 3,500 80 70 10000 3,000 2.0 60 8000 2,500 1.5 50 2,000 40 6000 1,500 1.0 30 4000 1,000 20 0.5 2000 500 10 0 0 0 0.0 2010 2012 2014 2016 2018 2020 2022 2024 2026 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 International poverty rate Lower middle-income pov. rate In million US$ (lhs) In months of imports (rhs) Upper middle-income pov. rate Real priv. cons. pc Source: National Bank of Ethiopia. Source: World Bank. Notes: see Table 2. MPO 236 Apr 24 contingent on reaching agreement with the food, fuel, and fertilizer prices– have also of critical macroeconomic and structural International Monetary Fund on an eco- contributed to inflation. reforms under discussion would help ad- nomic reform program. Against this backdrop, poverty is expected dress macroeconomic distortions and im- Fiscal space narrowed further amid declin- to have remained stagnant, which com- prove the quality of growth. ing revenues and donor flows. Ethiopia’s bined with high population growth has led A shift in Ethiopia’s economic model to- tax revenues (with a tax-to-GDP ratio of to a ceaseless increase in the already large wards a private sector led and more mar- 6.8 percent in FY23) are insufficient to fund number of poor people in the country—by ket oriented one is urgently needed to ad- essential spending and growth-enhancing 2023, 31.5 million people lived below the dress mounting macroeconomic vulnera- investments and anchor fiscal sustainabili- $2.15/day poverty line. bilities, restart a stalled structural transfor- ty. To contain fiscal deficits, public spend- mation and create jobs. Addressing the sig- ing has been steadily cut, falling to 10.8 nificant distortions in the foreign exchange percent of GDP in FY23 (less than half the market is critical to restore productivity- levels in the early 2000s). With limited fi- Outlook led growth, improve resource allocation, nancing options, the deficit narrowed and alleviate external payment risks. Debt from 4.2 percent of GDP in FY22 to 2.5 Growth is projected to drop to about 7 per- treatment and the resumption of official percent of GDP in FY23, and was fi- cent over the medium term amid slow external flows will also be crucial to ease nanced mainly through domestic borrow- progress in reform implementation. Al- external financing pressures. However, ing, including from the central bank. The though still a high level of growth, the con- any intensification in conflicts would com- public debt-to-GDP ratio continued to de- tinuance of policy distortions, including a plicate reform implementation and affect crease in FY23 as external disbursements significantly overvalued exchange rate, con- foreign exchange inflows. remained constrained. strains Ethiopia from translating this Substantial poverty reduction in the medi- Inflation remains high, reaching 28.7 growth into tangible improvements in pro- um term would require strong performance percent in December 2023, with large ductivity and job opportunities for people. in the agricultural sector, which employs contributions from non-food inflation Although fiscal and current account deficits over 70 percent of the labor force, as well as due to the phasing out of fuel subsidies, narrow over the medium term, Ethiopia will dynamism in other sectors. Additional monetary financing of the deficit, and remain severely constrained by a shortage of shocks could push millions more into widening premiums in parallel currency domestic and external financing. Inflation is poverty and increase further spatial in- markets (that reached over 100 percent projected to decline gradually, as mone- equalities and mitigating this risk requires, in recent months). Overlapping crises tary financing declines in line with nar- among other things, an acceleration of re- –persistent droughts and a surge in global rowing fiscal deficits. The implementation forms to rebuild fiscal and social buffers. TABLE 2 Ethiopia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020/21 2021/22 2022/23e 2023/24f 2024/25f 2025/26f Real GDP growth, at constant market prices 6.3 6.4 7.2 7.0 7.0 7.0 Private consumption 3.0 4.5 6.1 6.1 6.1 6.1 Government consumption 12.2 1.5 -16.0 0.6 4.8 5.0 Gross fixed capital investment 7.6 11.0 11.2 10.7 6.3 6.4 Exports, goods and services 5.5 11.7 -0.8 6.5 6.1 6.1 Imports, goods and services 2.0 10.8 -4.1 11.2 1.2 1.2 Real GDP growth, at constant factor prices 6.3 6.4 7.2 7.0 7.0 7.0 Agriculture 5.5 6.0 6.3 6.0 6.0 5.9 Industry 7.3 4.8 6.9 7.0 7.0 7.1 Services 6.3 7.9 8.0 7.9 7.7 7.7 Inflation (consumer price index) 20.2 33.7 32.6 28.5 23.2 17.6 Current account balance (% of GDP) -2.7 -4.0 -2.8 -2.4 -1.7 -1.3 Fiscal balance (% of GDP) -2.8 -4.2 -2.5 -2.0 -1.8 -1.8 Revenues (% of GDP) 11.2 8.3 8.2 7.5 7.0 6.8 Debt (% of GDP) 56.6 54.4 42.7 36.1 31.8 29.8 Primary balance (% of GDP) -2.2 -3.6 -1.9 -1.5 -1.4 -1.5 a,b International poverty rate ($2.15 in 2017 PPP) 25.6 25.4 24.9 24.4 24.0 23.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 62.7 62.2 61.4 60.6 59.8 59.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 89.7 89.5 89.1 88.6 88.2 87.8 GHG emissions growth (mtCO2e) 3.5 2.3 2.5 2.6 2.5 2.7 Energy related GHG emissions (% of total) 14.5 14.0 13.5 13.0 12.4 11.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. Growth projections reflect limited available information, and are subject to revision as better data becomes available. a/ Calculations based on 2010-HICES and 2015-HICES. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. b/ Projection using annualized elasticity (2010-2015) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 237 Apr 24 support to the most vulnerable would also be crucial for higher and inclusive GABON Key conditions and growth. A new development plan with these goals is being prepared. It brings challenges forward an ambitious program targeting key areas such as roads, energy, health, Table 1 2023 Despite Gabon’s rich natural endowments, and education. However, investments Population, million 2.4 over recent decades low and erratic will need to be prioritized to ensure GDP, current US$ billion 20.5 growth and insufficient diversification re- its feasibility and fiscal sustainability. A GDP per capita, current US$ 8414.1 sulted in high unemployment and persis- more detailed focus on jobs is key for in- a 2.5 International poverty rate ($2.15) tent poverty. Popular discontent around clusive growth and lower wage bill pres- a 8.1 governance weaknesses and electoral sures. A successful implementation will Lower middle-income poverty rate ($3.65) a 31.2 fraud allegations fueled support for the also rely on strong coordination and im- Upper middle-income poverty rate ($6.85) Gini index a 38.0 August 2023 coup d’état. A transitional proved public investment management. School enrollment, primary (% gross) b 100.6 government was rapidly set up with a two- b 65.8 year plan for return to elected government. Life expectancy at birth, years After six months of sanctions, Gabon was Total GHG emissions (mtCO2e) 22.5 reintegrated in the Economic Community Recent developments Source: WDI, Macro Poverty Outlook, and official data. of Central African State on March 9, 2024. a/ Most recent value (2017), 2017 PPPs. b/ Most recent WDI value (2021). Public expectations for the transition are Gabon’s economy grew by an estimated high, putting pressure on social spending 2.3 percent in 2023, down from 3.0 percent and delivery of quick results. The authori- in 2022. The lower growth was caused by ties increased civil service hirings, extend- weaker wood and manganese production, ed fuel subsidies to the electricity utility amid high fuel costs and railway disrup- Gabon’s economy grew by 2.3 percent in (SEEG), and reinstated scholarships for tions caused by landslides. Oil production 2023 on the back of sustained oil produc- secondary education. These decisions have grew by 3.7 percent, fueled by new oil- tion, down from 3.0 percent in 2022. Fol- a fiscal cost in a context of constrained fi- fields, low OPEC+ restrictions and global lowing a coup d’état in August 2023, nancing capacity. While domestic revenue demand. Demand-side growth was driven mobilization efforts are underway, re- by public investments, oil and agricultural an orderly return to an elected govern- liance on volatile oil revenues and tight fi- exports, and oil investments. ment over the planned two-year transi- nancing conditions pose risks to the bud- Gabon’s investments in optimizing oil- tion period will be key to avoid risks of get. Calibrating spending pressures fields and expanding mines and wood sanctions and adverse impacts on in- against realistic revenue mobilization production led to large trade surpluses, vestment and growth. Substantial re- goals will be key for fiscal sustainability. offsetting its strong reliance on food im- The transition could provide an opportu- ports. In 2023, although oil, palm oil, and forms are needed to boost growth, re- nity for renewed reform momentum and rubber export volumes increased, lower duce poverty, restore fiscal stability, and improved institutional controls of public oil prices, appreciated USD and lower strengthen governance. resources, as well as governance of public wood and mining production decreased finances. Promoting access to credit, en- exports. Imports remained stable, and trepreneurship, and strengthening social the current account surplus remained FIGURE 1 Gabon / Growth of real GDP, Real oil GDP and FIGURE 2 Gabon / Actual and projected poverty rates and real non-oil GDP real GDP per capita Percent change Poverty rate (%) Real GDP per capita (constant million LCU) 14 40 2.6 12 2.6 35 10 2.5 8 30 2.5 6 25 2.5 4 2 20 2.5 0 2.5 15 -2 2.4 -4 10 2.4 -6 5 2.4 -8 -10 0 2.4 2017 2018 2019 2020 2021 2022 2023e 2024f 2025f 2026f 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Oil GDP Non-Oil GDP Real GDP Upper middle-income pov. rate Real GDP pc Sources: Official government data and World Bank calculations. Source: World Bank. Notes: see Table 2. MPO 238 Apr 24 high but decreased to estimated 28.7 per- households remain affected. Combined would exacerbate spending pressures, cent of GDP in 2023. with static per capita growth, this in- resulting in fiscal deficits (averaging 4.9 The fiscal deficit increased slightly in creased poverty to 35.2 percent in 2023. percent of GDP in 2024-26, with non-oil 2023 to an estimated 1.0 percent of GDP. primary deficits of 12.0 percent of non- Government revenues benefited from oil GDP). Primary balances would turn higher non-oil receipts and tax expendi- negative, increasing debt. Without sig- ture cuts. Public spending increased due Outlook nificant fiscal adjustment, these pres- to elections, public works, and the set- sures could make the fiscal and debt tlement of domestic arrears in late 2023. Gabon’s recovery should continue, with situation unsustainable. Lower oil prices and the removal of fu- higher risks due to recent political de- Inflation would remain below the 3.0 per- el subsidies for industrial consumers mit- velopments. An average 2.7 percent cent regional convergence criteria. How- igated the fiscal cost of fuel subsidies. growth is projected in 2024-2026, mainly ever, the poverty rate should increase to While efforts are ongoing to avoid the coming from non-oil sectors, including 36.9 percent by 2026. Most jobs are in ser- accumulation of arrears, external arrears new iron and manganese deposits, tim- vices, which is expected to have insuffi- at end-2023 were estimated at CFAF 123 ber production, and new oil palm, cient growth. Also, growth is largely dri- billion (1.0 percent of GDP). Public debt biodiesel, and gas industries. Maturing ven by capital-intensive extractive indus- stood at 70.5 percent of GDP (57.4 per- oilfields would gradually reduce oil out- tries, which do not create sufficient jobs cent of domestic and external debt, plus put from 2025, but exploration projects and equitable income distribution. arrears and T-bills). could reverse this scenario. Downside risks include commodity price The Bank of Central African States main- Higher imports in real terms are expected, shocks, competition from Russian oil in tained a tight monetary policy, with policy driven by infrastructure projects and pri- Asian markets, tighter financing condi- rate kept at 5.0 percent after a 175-basis vate investments. With oil exports declin- tions, and impacts of intensifying war in point increase between late 2021 and ing from 2025, the authorities are promot- Ukraine or conflict in the Middle East. March 2023. Yet, credit to the private sector ing investments to boost exports of other Uncontrolled spending from higher social increased by 14.2 percent in September commodities, notably manganese, iron, pressures or SOE acquisitions could lead 2023 (y-o-y), driven by oil and public and timber. Current account surpluses to spiraling deficits and debt. While EC- works. Inflation decreased from 5.2 per- would remain high, supported by high CAS’ sanctions were lifted, a delayed cent (y-o-y) in January 2023 to 2.7 per- commodity exports. transition could trigger sanctions, hitting cent in October, but food inflation was Diminishing oil production and prices access to regional markets. The political at 4.7 percent. While exemptions and would impact fiscal revenues. Also, agenda could limit reforms needed for price controls on essential food items higher wage bills, large infrastructure better governance, higher, job-based were expanded to alleviate living costs, projects, and social support measures growth, and poverty reduction. TABLE 2 Gabon / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.5 3.0 2.3 3.0 2.3 2.8 Private consumption -1.4 -0.3 3.2 5.6 2.3 4.7 Government consumption 3.2 3.8 -1.5 -4.9 1.8 -4.8 Gross fixed capital investment 9.2 8.3 -0.5 2.4 3.8 2.4 Exports, goods and services -2.0 6.9 1.4 5.5 5.3 4.2 Imports, goods and services 3.5 8.3 -0.9 4.1 5.7 3.2 Real GDP growth, at constant factor prices 2.9 3.3 2.3 3.0 2.3 2.8 Agriculture 11.2 9.4 2.1 3.6 5.5 6.6 Industry 3.2 3.2 3.5 2.2 0.0 4.2 Services 1.4 2.4 1.5 3.3 3.1 1.1 Inflation (consumer price index) 1.1 4.3 3.7 2.4 2.3 2.2 Current account balance (% of GDP) 30.1 35.2 28.7 29.2 28.8 28.4 Net foreign direct investment inflow (% of GDP) 2.1 4.6 5.5 5.4 5.0 5.4 Fiscal balance (% of GDP) -1.8 -0.8 -1.0 -3.8 -5.9 -5.0 Revenues (% of GDP) 14.7 20.4 22.9 20.0 18.8 18.1 Debt (% of GDP) 65.8 55.3 70.5 73.7 79.1 81.8 Primary balance (% of GDP) 0.9 1.7 1.9 -0.7 -2.8 -1.7 a,b International poverty rate ($2.15 in 2017 PPP) 2.3 2.4 2.9 3.1 3.2 3.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 8.2 8.5 10.0 10.1 10.7 10.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 32.1 32.3 35.2 35.1 36.1 36.9 GHG emissions growth (mtCO2e) 4.5 2.5 -0.7 -0.2 0.1 0.8 Energy related GHG emissions (% of total) 15.9 16.0 14.9 13.8 12.8 12.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2017-EGEP. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 239 Apr 24 services, putting persistent pressure on the balance of payments and forex mar- THE GAMBIA Key conditions and ket and exacerbating the vulnerability to global shocks in commodity markets. challenges Fiscal risks remain substantial given State-Owned Enterprises (SOEs) contin- Table 1 2023 The Gambia is consolidating its democra- gent liabilities and the high dependence Population, million 2.8 tic transition and implementing reforms on external grant financing due to low GDP, current US$ billion 2.3 to transform the economy. However, tax collection. High domestic debt also GDP per capita, current US$ 845.8 structural factors continue to hamper crowds out private credit. a 17.2 International poverty rate ($2.15) growth, including low productivity Against this backdrop, the Government is a 47.0 growth, lack of structural change, con- implementing the National Development Lower middle-income poverty rate ($3.65) a 80.6 strained fiscal space for infrastructure in- Plan (NDP) 2023-2027 to consolidate de- Upper middle-income poverty rate ($6.85) Gini index a 38.8 vestments, a constraining business envi- mocratic governance, accelerate growth, School enrollment, primary (% gross) b 92.3 ronment for private sector development, and build resilience to shocks. Implement- b 62.1 limited economic diversification, and hu- ing this agenda poses significant financing Life expectancy at birth, years man capital challenges. This has resulted needs, with US$0.7 billion of available Total GHG emissions (mtCO2e) 3.3 in limited job creation and economic op- funding as of December 2023 out of total Source: WDI, Macro Poverty Outlook, and official data. portunities, limited access to essential cost estimated at US$3.5 billion. a/ Most recent value (2020), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy public services, and high poverty. (2021). Real GDP growth averaged 3.1 percent in 1990–2022—less than 0.5 percent in per capita terms. The labor market faces a Recent developments low labor force participation rate (43.6 Economic growth accelerated to 5.3 per- percent), significant underutilization (41.5 Economic growth accelerated to 5.3 per- percent), predominance of informal (62.8 cent in 2023 (2.7 percent per capita), main- cent in 2023 as favorable rainfall led to a percent) and unwaged employment (72 ly driven by agriculture and industry. good harvest while investment supported percent), and more significant gender Agriculture benefited from favorable rain- growth in the industry sector. Inflation gaps. Poverty rates are higher, with an fall and increased fertilizer subsidies. De- averaged 16.9 percent, eroding the pur- estimated 17.2 percent of the population spite increased tourism activity, services living in poverty in 2020, using the in- decelerated as many subsectors contracted chasing power of households and increas- ternational poverty line of $2.15 (in 2017 (information and communication, enter- ing poverty. The fiscal deficit halved to PPPs). Social disparities prevail in access tainment, etc.). Private investment, sup- 2.6 percent of GDP, driven by strong tax to essential services, and most of the ported by remittances and public invest- collection and higher grants. High infla- country still needs better connections to ment, drove growth on the demand side. tion, debt vulnerabilities, foreign ex- roads, schools, and health facilities. Inflation averaged 16.9 percent in 2023 – These weaknesses are coupled with the highest level in decades – caused by change pressures, and regional and global imported food inflation, utility tariffs in- downside risks such as reemerging for- geopolitical tensions cloud the outlook. eign exchange pressures, high depen- creases, and currency depreciation, drag- dence on imports of essential goods and ging down private consumption. FIGURE 1 The Gambia / Real GDP growth and sectoral FIGURE 2 The Gambia / Actual and projected poverty rates contributions to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 8 100 30000 90 6 25000 80 4 70 20000 60 2 50 15000 40 0 10000 30 -2 20 5000 10 -4 0 0 2019 2020 2021 2022 2023 2024 2025 2026 2010 2012 2014 2016 2018 2020 2022 2024 2026 Agriculture Industry Services International poverty rate Lower middle-income pov. rate Net taxes Real GDP growth Upper middle-income pov. rate Real GDP pc Sources: The Gambian authorities and World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 240 Apr 24 Rising food prices are expected to have declined to 4.2 months of imports in 2023 well-being. However, sustained increases increased poverty to 16.9 percent in 2023, from 5.1 months in 2022, alongside a de- in food prices will continue to undermine from 16.4 percent in 2022 - an increase of preciation of the nominal exchange rate such gains in 2024, given poor households over 25,000 people, using the internation- of 4.6 percent. spend 65 percent on food. Consequently, al poverty line of $2.15 (in 2017 PPPs). the international extreme poverty rate is The increase in poverty is mainly due expected to increase to 17.2 percent in 2024 to food price inflation which rose to 22 before declining in 2025 and 2026. percent in 2023, eroding the purchasing Outlook The CAD is expected to remain contained, power of households. averaging 3.8 percent in 2024-26, reflecting The fiscal deficit halved to 2.6 percent of Growth is projected to average 5.6 percent robust remittances, a decrease in invest- GDP in 2023, driven by increased tax rev- in 2024-26 (3.1 percent per capita), driven ment-related imports, and strong export enues and grants. Public expenditure re- by increased activity in all sectors. Agricul- growth. The monetary policy is set to re- mained high owing to increased spending ture and services are expected to sustain main tight as inflation persists. The fiscal on road infrastructure. With lower net do- growth, assuming favorable rainfall and deficit is projected to narrow to 1.5 percent mestic borrowing, public debt declined to continued recovery in tourism. Robust re- of GDP over 2024-26, supported by the 75.8 percent of GDP in 2023. Nevertheless, mittances, which represented 32.1 percent completion of major infrastructure projects the Gambia remains at high risk of debt of GDP in 2023, will support the recovery and domestic revenue mobilization efforts, distress. The current account deficit (CAD) in private sector demand, which, together including the digitization of tax adminis- is estimated at 4.5 percent of GDP in 2023, al- with infrastructure programs, are expect- tration and customs, the implementation most comparable to the 4.2 percent in 2022, ed to drive growth. Inflationary pressures of digital excise stamps for excisable prod- on the back of a recovery in tourism and in- are predicted to persist in 2024 and grad- ucts, the introduction of fuel marking, and creased imports related to ongoing infra- ually ease, with CPI inflation reaching reforms to broaden the tax base. Public structure projects. The monetary stance was 6.5 percent in 2026, close to the Central debt is projected to decrease to 68.9 per- further tightened, with the policy rate in- Bank’s 5 percent target, reflecting the cent of GDP in 2024, supported by the fis- creasing to 17 percent in August 2023 from restrictive monetary policy and easing cal path. Nevertheless, The Gambia is ex- 10 percent in April 2022. However, the effect global supply conditions. pected to remain at high risk of debt dis- of monetary tightening seems limited, as Agriculture growth, recovery of the tress, and the end of the debt-service defer- inflation is essentially imported. Due to tourism sector, and robust remittances are rals in 2024 could weigh on debt sustain- import pressures, international reserves expected to positively affect household ability and economic growth. TABLE 2 The Gambia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.3 4.9 5.3 5.5 5.8 5.4 Private consumption 7.2 3.4 3.3 3.7 4.1 4.1 Government consumption -7.9 2.3 2.4 2.5 2.6 2.7 Gross fixed capital investment -8.7 15.1 13.7 14.1 11.8 9.1 Exports, goods and services -27.2 8.5 18.9 18.0 20.1 22.0 Imports, goods and services -15.2 16.2 11.0 12.0 11.0 10.0 Real GDP growth, at constant factor prices 5.3 4.9 5.3 5.5 5.8 5.4 Agriculture 13.7 3.6 7.2 6.6 6.2 5.1 Industry 2.9 3.1 6.5 6.4 6.1 6.1 Services 2.8 6.0 4.1 4.8 5.6 5.4 Inflation (consumer price index) 7.4 11.5 16.9 15.9 10.5 6.5 Current account balance (% of GDP) -4.3 -4.2 -4.5 -5.1 -3.2 -2.3 Fiscal balance (% of GDP) -4.8 -5.0 -2.6 -2.1 -1.3 -1.0 Revenues (% of GDP) 16.8 17.7 20.6 21.8 20.4 20.2 Debt (% of GDP) 83.9 83.4 75.8 68.9 64.6 59.5 Primary balance (% of GDP) -1.8 -2.9 -0.4 1.0 1.4 1.5 a,b International poverty rate ($2.15 in 2017 PPP) 16.1 16.4 16.9 17.2 16.5 15.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 45.4 45.9 47.0 47.6 46.7 45.8 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 80.3 81.5 82.3 83.2 82.9 81.8 GHG emissions growth (mtCO2e) 4.2 3.4 2.9 2.5 2.5 2.5 Energy related GHG emissions (% of total) 20.7 21.0 21.4 21.7 22.0 22.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2020-IHS. Actual data: 2020. Nowcast: 2021-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 241 Apr 24 integration with global value chains will also be important in this regard. These will GHANA Key conditions and need to be complemented with measures to expand well-targeted social protection challenges programs to mitigate the impact of the cri- sis and fiscal consolidation on the poor and Table 1 2023 Ghana is in debt distress and public debt most vulnerable. Population, million 34.1 is unsustainable. In response, the Govern- GDP, current US$ billion 76.2 ment has embarked on a comprehensive GDP per capita, current US$ 2234.2 debt restructuring, a significant fiscal con- International poverty rate ($2.15) a 25.2 solidation program, and the implementa- Recent developments a 48.8 tion of reforms to foster economic stability Lower middle-income poverty rate ($3.65) a 78.5 and resilience. The authorities’ stabiliza- In 2023, economic growth slowed down to Upper middle-income poverty rate ($6.85) Gini index a 43.5 tion efforts are being supported by an an estimated 2.9 percent, albeit surpassing School enrollment, primary (% gross) b 97.9 Extended Credit Facility (ECF) program initial projections for the year. This growth b 63.8 of the International Monetary Fund (IMF) was primarily driven by robust expansions Life expectancy at birth, years for approximately US$3 billion. The pro- in the agriculture and services sectors Total GHG emissions (mtCO2e) 18.3 gram aims to attain a moderate risk of while industrial production fell by 1.2 per- Source: WDI, Macro Poverty Outlook, and official data. debt distress over the medium term and cent due to contractions oil, electricity, and a/ Most recent value (2016), 2017 PPPs. b/ Most recent WDI value (2021). replenish the foreign exchange reserves construction sub-sectors; and subdued of the Bank of Ghana (BoG) to cover growth in gold and manufacturing. three months' worth of imports by the Fiscal consolidation is broadly on track conclusion of the program. with estimated deficit of 4.7 percent of The crisis has taken a toll on the pace of eco- GDP, significantly lower than the 11 per- Ghana’s economic conditions improved in nomic growth – which decelerated to an es- cent deficit in 2022. At 15.7 percent of GDP 2023 but challenges remain, notably ele- timated 2.9 percent in 2023 and is projected in 2023, revenues and grants reached the vated inflation, subdued growth, and sub- to remain weak in 2024. Returning growth to same level as 2022 despite lower oil rev- stantial pressure on public finances and its potential rate of 5 percent will require enues. The government implemented mea- macroeconomic stability. Over the longer sures to contain wage bill increase, re- debt sustainability. These lingering chal- term, structural reforms aimed at promot- duced Capex and spending on goods and lenges will continue to subdue growth in ing private sector development and increas- services leading to a reduction in expen- 2024 at 2.9 percent but, in the medium ing FDI attractiveness are necessary to raise ditures from 26.6 percent of GDP in 2022 term, growth will rebound to its long- the country’s growth potential. Critical re- to an estimated 20.4 percent in 2023. De- term potential as prevailing conditions forms include strengthening the insolvency creased in interest payments also helped regime, access to finance, the energy sector, contain expenditures. The key financial stabilize. Accordingly, lower growth pro- and the legal and regulatory environment soundness indicators demonstrate overall jections coupled with recent bouts of high faced by foreign direct investors. Accelerat- stability but credit to the private sector has inflation mean that poverty in 2024 will ing digitalization and harnessing the oppor- contracted reflecting increased risk aver- be at its highest level in over a decade. tunities offered by the Africa Continental sion among banks, as non-performing Free Trade Agreement (ACFTA) through loans ratio increased above 20 percent. FIGURE 1 Ghana / Real GDP growth and contributions to FIGURE 2 Ghana / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 90 7000 20 80 6000 15 70 10 5000 60 5 50 4000 0 40 3000 -5 -10 30 2000 -15 20 1000 -20 10 2021 2022 2023 2024 2025 2026 0 0 Gov. cons. Exports GFCF 2012 2014 2016 2018 2020 2022 2024 2026 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: Statistical service and World Bank. Source: World Bank. Notes: see Table 2. MPO 242 Apr 24 Inflation has declined significantly but re- The immediate implications of the macro- restructuring. By 2026, the authorities ex- mains well above the Bank of Ghana economic crises and debt distress in the pect to generate a primary surplus of 1.4 (BoG) target range of 8±2 percent. Year- country are the worsening in poverty and percent of GDP, a fiscal adjustment almost on-year inflation fell from 53.4 percent in living standards of the population. The 4 percentage points of GDP between 2023 January 2023 to 23.2 percent in Decem- “international poverty” rate is estimated to 2026. ber 2023, reflecting more stable exchange at 30.3 percent in 2023, a worsening of Ghana’s outlook is subject to significant rates and the effects of monetary poli- 3.5 percentage points since 2022. downside risks as baseline projections de- cy tightening in 2022-23. Over the first pend on the completion of the authorities’ months of 2024, the deceleration of infla- comprehensive debt restructuring and suc- tion has stalled due to pass-through of cessful reform implementation, including the depreciation on prices of imported Outlook meeting projected revenue mobilization goods, on non-food inflation while food targets. Further, there is significant risks to inflation marginally fell. Growth is expected to remain weak in 2024 financial sector stability, due to the DDE In 2023, the (pre-external debt restruc- at 2.9 percent as the ongoing fiscal con- while exchange rate, credit, and liquidity turing) current account balance improved solidation, high inflation rates, elevated in- risks further add to the vulnerabilities. to an estimated deficit of 1.7 percent of terest rates, and lingering macroeconomic Possible policy slippages due to the ap- GDP, from the 2022 deficit of 2.3 percent, uncertainties are all projected to dampen proaching end-2024 general elections rep- as a decline in oil exports was more-than- private consumption and investment, lim- resent additional domestic vulnerabilities. offset by import compression, strong re- iting non-extractive sector growth. How- Overall, the combination of economic chal- mittances, and lower income repatriation ever, growth will gradually rebound to its lenges, fiscal consolidation measures, and by mining and oil companies. The capital long-term potential of approximately 5 downside risks suggests a challenging en- account continues to be in deficit due to percent by 2026 as prevailing conditions vironment for poverty reduction efforts in weak FDI inflows and continued net out- stabilize. The external sector is forecast to Ghana. Adjustments to the country’s main flows of portfolio investments. Thus, BOP significantly improve over the medium cash transfer program, Livelihoods Em- remained in high deficit, at 3.2 percent term due to enhanced net capital inflows powerment Against Poverty, are expected of GDP. Gross international reserves was and continued trade surpluses. to help the poorest of the poor yet more is equivalent to 1.1 months of imports at the In 2024, fiscal consolidation is expected to needed. Poverty is expected to change lit- end of 2023, an increase from 0.7 months of be on track due to continued revenue and tle between 2024 and 2025 and is expected imports in December 2022. expenditure reforms; and the external debt to come down slowly by 2026. TABLE 2 Ghana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.1 3.8 2.9 2.9 4.4 4.9 Private consumption 0.8 4.8 4.6 4.9 5.0 5.7 Government consumption 82.1 -31.7 -8.0 1.9 -0.6 -2.2 Gross fixed capital investment 4.5 28.6 3.9 -2.7 9.3 9.9 Exports, goods and services 69.1 9.6 5.8 10.3 6.4 7.2 Imports, goods and services 113.8 13.8 6.3 8.3 9.2 10.1 Real GDP growth, at constant factor prices 5.4 3.7 2.9 2.9 4.4 4.9 Agriculture 8.5 4.2 4.5 3.2 5.4 3.9 Industry -0.5 0.6 -1.2 3.8 4.1 5.8 Services 9.4 6.2 5.5 2.0 4.1 4.8 Inflation (consumer price index) 10.0 31.5 40.3 23.2 11.5 8.0 Current account balance (% of GDP) -3.7 -2.3 -1.7 -1.9 -2.2 -2.4 Net foreign direct investment inflow (% of GDP) 2.0 2.0 1.5 2.7 3.3 3.4 a Fiscal balance (% of GDP) -11.4 -11.0 -4.7 -5.0 -4.0 -3.5 Revenues (% of GDP) 15.3 15.6 15.7 16.7 17.3 18.2 a,b Debt (% of GDP) 76.7 88.7 86.1 83.6 80.9 77.9 a Primary balance (% of GDP) -4.1 -3.6 -0.5 0.6 1.6 1.4 c,d International poverty rate ($2.15 in 2017 PPP) 24.8 26.8 30.3 32.9 33.2 32.2 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 47.0 50.2 55.3 58.7 59.4 57.5 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 76.7 78.9 82.8 84.6 84.8 83.9 GHG emissions growth (mtCO2e) 6.0 11.8 7.3 4.8 5.9 7.1 Energy related GHG emissions (% of total) 129.8 121.2 117.0 114.3 110.9 106.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and debt forecasts do not factor in the impact of the ongoing Debt Restructuring (DR) as the process is yet to conclude. b/ Starting from 2022, public debt numbers include, in addition to central government debt, explicitly guaranteed (and certain implicitly guaranteed) SOE debt, cocobills issued by Cocobod, and reconciled domestic arrears to suppliers. c/ Calculations based on 2016-GLSS-VII. Actual data: 2016. Nowcast: 2017-2023. Forecasts are from 2024 to 2026. d/ Projections using microsimulation methodology. MPO 243 Apr 24 access and e-government transactions have helped bolster economic activity and stream- GUINEA Key conditions and lined tax collection; yet further digitaliza- tion and structural reforms are needed to challenges spur diversification and inclusive growth. Table 1 2023 Growth was robust over 2019-23, averag- Population, million 14.2 ing 5.4 percent (2.9 percent per capita GDP, current US$ billion 23.0 terms) driven by the mining sector and Recent developments GDP per capita, current US$ 1617.5 agriculture productivity growth, support- a 13.8 International poverty rate ($2.15) ing low fiscal deficits to GDP (averaging Growth accelerated to 7.1 percent in 2023 a 46.6 1.7 percent). However, weak mining link- (4.6 percent per capita terms) bolstered by Lower middle-income poverty rate ($3.65) a 86.8 ages to non-mining sectors, headwinds strong mining sector performance. Bauxite Upper middle-income poverty rate ($6.85) Gini index a 29.6 from Dutch-disease (DD) dynamics, and production surged by 22 percent, and gold School enrollment, primary (% gross) b 98.0 recent external shocks from the COVID-19 exports by 10 percent attributable to both b 58.9 pandemic and Russia’s invasion of artisanal operators and new formal sector Life expectancy at birth, years Ukraine limited job creation and poverty companies. On the demand side, an invest- Total GHG emissions (mtCO2e) 45.9 reduction. The $2.15 international poverty ment surge (private and public) fueled Source: WDI, Macro Poverty Outlook, and official data. rate was 10.6 percent on average over the growth. The fiscal deficit widened to a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). same period, only marginally affected by 1.6 percent of GDP in 2023 from 0.9 per- the mining-driven growth. The Simandou cent in 2022, due to a 1.3 percentage point mining operation, expected to almost of GDP increase in capital expenditure. triple Guinea’s GDP in the medium term, Inflation decelerated but remained high, holds potential to transform Guinea’s at 9.3 percent in 2023, down from 11.6 economy and create jobs if reforms are im- percent in 2022, aided by stable transport Mining investment will boost growth to plemented that counter DD. costs and prudent fiscal and monetary 7.1 percent in 2023, poverty will decline However, the ongoing mining boom, and policy (reserve money increased only by slightly, and the fiscal deficit widen to 1.6 associated real appreciation of the local 3 percent and broad money by 1.5 per- currency, adversely affects competitive- cent). However, food price inflation is percent as capital spending rises. Growth ness of non-mining sectors and hampers estimated to have increased from 13.9 in 2024 will slow primarily due to a dip efforts to diversify the economy to create percent in 2022 to 16.2 percent in 2023. in mining and slight impacts of the De- more and better jobs. Structural chal- Consequently, the US$2.15 international cember 2023 fuel depot explosion. Ex- lenges include low human capital levels, poverty rate is expected to remain at 10.5 treme poverty is projected to fall in 2024 large infrastructure gaps, an underdevel- percent in 2023, same as in 2022. With oped financial sector, weak institutional inflation easing, and to encourage credit as food prices ease. Risks include delays to capacity, and large gender gaps in ed- to the private sector, the central bank re- the political transition and reforms. ucation, earnings, agriculture productivi- duced its key rate by 50 basis points to ty, and political representation. Weak fis- 11 percent, and the reserve requirement cal revenue mobilization constrains pub- ratio from 15 percent to 13 percent in lic investment. Recent increases in digital September 2023. FIGURE 1 Guinea / Debt, fiscal deficit, and inflation FIGURE 2 Guinea / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent Poverty rate (%) Real GDP per capita (constant million LCU) 45 14 100 7.0 40 90 12 6.0 35 80 10 70 5.0 30 8 60 4.0 25 50 20 6 3.0 40 15 30 4 2.0 10 20 2 1.0 5 10 0 0 0 0.0 2021 2022 2023 2024 e 2025 f 2026 f 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Debt (lhs) Fiscal defit (rhs) Inflation (CPI, rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 244 Apr 24 The current account balance (CAB) the $2.15 international poverty rate is price mechanism as of July 2022. Electricity widened to -12.9 percent in 2023, due to projected to decline to 9.3 percent in subsidies are to decrease by 38 percent, per a significant decrease of trade surplus, 2024 and 8.1 percent in 2025 due to the 2024 budget law, as utility company linked to FDI-related imports and a fall in easing food price inflation. Given the reforms bear fruit, particularly the contin- exports price. Mining-related FDI, the limited poverty gains from mining-dri- ued rollout of prepaid meters and intensi- main source of external financing, in- ven growth, redistribution mechanisms fied billing recovery efforts. Debt-to-GDP creased to 15 percent of GDP in 2023, while to vulnerable populations and produc- would decrease slightly to 35.3 percent in the real effective exchange rate is likely to tivity gains in non-mining sectors will 2024 and to average 32.0 percent in continue to appreciate. be required for inclusive growth. 2025-2026, due to reduced domestic debt. Inflation would decelerate to 8.8 percent The CAB is forecast to remain high at in 2024 and 8.1 percent on average in -12.7 percent of GDP in 2024 as the FDI- 2025-26, due to easing supply constraints induced trade deficit persists yet would Outlook and improving road-network conditions, improve slightly during 2025-26 to an av- facilitating food distribution, as well as to erage -10.1 percent. Mining-related FDI, Mining will continue to drive growth prudent monetary policy including mini- the main source of external financing, is while the non-mining sectors, impacted mal fiscal financing. expected to rise to 17 percent of GDP by the fuel depot explosion in mid- The fiscal deficit (including grants) would in 2024, while the real effective exchange December 2023, recover. Growth will widen to 2.7 percent of GDP due to in- rate would likely continue to appreciate. slow to around 4.9 percent in 2024 creased capital expenditures but decrease Risks are tilted to the downside as polit- (2.4 percent per capita) and accelerate to 2.1 percent in 2025-2026 consistent with ical transition uncertainties leading up to to 6.3 percent on average in 2025–2026 prudent fiscal policies. Tax revenues are the 2025 elections could slow implemen- (excluding Simandou mine exports an- to increase slightly in 2024 to 12.7 percent tation of reforms, potentially reducing ticipated by end-2026), though below of GDP, buoyed by tax administration re- private investment. On the upside, min- the potential of 9.3 percent. Despite de- forms and additional mining revenues ing related FDI inflows could increase, celeration in agriculture and services, from implementing the bauxite-reference- reflecting planned new projects. TABLE 2 Guinea / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.0 3.7 7.1 4.9 6.2 6.5 Private consumption 0.6 7.6 4.8 3.3 4.7 4.7 Government consumption 16.8 -22.4 3.4 24.8 4.6 5.6 Gross fixed capital investment 8.3 6.2 39.8 48.4 41.8 3.9 Exports, goods and services 0.8 5.8 11.3 6.8 6.0 5.9 Imports, goods and services -6.2 6.7 18.2 25.3 20.3 3.3 Real GDP growth, at constant factor prices 5.1 4.6 7.1 4.9 6.2 6.5 Agriculture 8.3 5.4 5.1 3.0 4.4 5.1 Industry 3.1 2.0 10.8 6.7 7.8 8.9 Services 5.2 6.5 5.1 4.4 5.7 5.0 Inflation (consumer price index) 12.6 11.6 9.3 8.8 8.7 7.5 Current account balance (% of GDP) 0.6 -0.3 -12.9 -12.7 -12.3 -7.8 Net foreign direct investment inflow (% of GDP) 11.1 12.1 15.0 17.4 16.9 9.6 Fiscal balance (% of GDP) -1.9 -0.9 -1.6 -2.7 -2.1 -2.1 Revenues (% of GDP) 15.2 13.2 13.8 13.9 14.2 15.3 Debt (% of GDP) 41.5 36.7 35.5 35.3 33.7 30.3 Primary balance (% of GDP) -0.8 0.0 -0.4 -1.6 -1.2 -1.3 a,b International poverty rate ($2.15 in 2017 PPP) 11.1 10.5 10.5 9.3 8.1 7.8 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 44.5 44.5 44.7 41.2 38.5 38.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 86.7 87.3 87.6 85.0 82.6 83.8 GHG emissions growth (mtCO2e) 3.2 3.1 3.1 3.2 3.1 3.1 Energy related GHG emissions (% of total) 10.8 10.7 10.7 10.6 10.5 10.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 245 Apr 24 distress and limiting capacity to absorb shocks. Non-performing loans continue to GUINEA-BISSAU Key conditions and make the banking sector another possible source of contingent liabilities. challenges Table 1 2023 Exports of raw cashew nuts, approxi- Population, million 2.2 mately 90 percent of merchandise ex- Recent developments GDP, current US$ billion 2.0 ports, determine economic performance. GDP per capita, current US$ 918.1 Cashew production is dispersed among Economic activity grew by 4.2 percent in a 26.0 International poverty rate ($2.15) smallholder farmers, whose income sup- 2023 (2.1 percent in per capita terms), un- a 60.2 ports overall economic activity. Poverty changed from 2022. On the supply side, Lower middle-income poverty rate ($3.65) a 89.1 remains widespread – particularly in rur- growth was driven by agriculture and gov- Upper middle-income poverty rate ($6.85) Gini index a 33.4 al areas. Human development indicators ernment infrastructure investment stimu- School enrollment, primary (% gross) b 113.3 are among the lowest in the world, and lating the construction sector. On the de- b 59.7 low access to basic services contribute mand side, inflationary pressures caused Life expectancy at birth, years to exclusion and marginalization. Polit- private consumption to fall. Total GHG emissions (mtCO2e) 4.4 ical instability is chronic in Guinea-Bis- Inflation remained high at 8 percent (y/ Source: WDI, Macro Poverty Outlook, and official data. sau, the world’s most coup prone coun- y) in 2023, from 7.9 percent in 2022, dri- a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2010); Life expectancy try, and recent regional and international ven by food and energy inflation. This (2021). geopolitical uncertainty only threaten to followed an average of 1 percent between stoke domestic tensions further. 2015 and 2020. Access to credit is limited and the enabling A cashew campaign marred by problems, environment for private sector-led growth including shipping container shortages, Weak cashew export performance and is weak due to poor infrastructure, low lev- smuggling, disruptions from legislative els of human capital, and limited public elections, and low international demand, high inflation kept growth at 4.2 percent services. Recently, there have been invest- put exports at just 168,000tn in 2023 de- in 2023, undermining poverty reduction. ments to improve infrastructure, though spite production of 260,000tn. This, along Budget slippages and lower revenues de- mostly donor financed as fiscal space is with high import costs, kept the current railed fiscal consolidation efforts while in- limited by low domestic revenue mobiliza- account deficit (CAD) high at 9.4 percent. tion and the relatively high wage bill. Fiscal consolidation efforts were derailed frastructure investment, rice subsidies, Transparency and governance of state- as higher-than-planned discretionary and energy arrears increased debt. owned enterprises is limited, especially the spending and lower customs receipts Growth should improve as energy and national utility company, EAGB, which ac- widened the fiscal deficit to 7.6 percent in transport infrastructure come online, but crues substantial public debt in the energy 2023, from 6.1 percent in 2022. Legislative its sustainability depends on institutional sector through government guaranteed elections, energy sector arrears accumula- letters of credit that only partially cover tion, rice subsidies costing 0.2 percent of reforms. The outlook is subject to down- GDP, and urban road infrastructure in- mounting arrears. Identifying contingent side risks from political instability, shocks fiscal liabilities is difficult, increasing fiscal vestments kept debt above the conver- to the cashew sector, and climatic shocks. risks and amplifying the high risk of debt gence criterion at 77.8 percent of GDP. FIGURE 1 Guinea-Bissau / Evolution of main FIGURE 2 Guinea-Bissau / Actual and projected poverty macroeconomic indicators rates and real GDP per capita Percent, percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 8 100 600000 6 90 4 500000 80 2 70 400000 0 60 -2 50 300000 -4 40 200000 -6 30 -8 20 100000 -10 10 -12 0 0 2016 2017 2018 2019 2020 2021 2022 2023e2024f 2025f 2026f 2010 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate GDP growth Fiscal balance Current account balance Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance and World Bank. Source: World Bank. Notes: see Table 2. MPO 246 Apr 24 To counter inflation across WAEMU coun- stimulating the real sector. Easing of infla- subject to considerable uncertainty given tries, the Central Bank of West African tionary pressures and a strong cashew sea- the country’s ongoing political volatility. States (BCEAO) raised policy interest rates son will encourage private consumption. The BCEAO may need to continue mon- by a cumulative 150 basis points since Favorable weather conditions and divi- etary tightening in 2024 to bring inflation mid-2022 to 3.5 percent for liquidity calls dends from government investments into under control and in the context of rising and 5.5 percent for the marginal lending agricultural inputs over the last few years uncertainties over the withdrawal of facility. However, inflation in the region should support strong cashew production. Niger, Mali, and Burkina Faso from (3.7 percent in 2023) was still above the Exports should markedly improve as nine ECOWAS and potential spillovers to WAE- 1-3 percent target range and foreign ex- overland border routes are authorized for MU. These uncertainties are likely to in- change reserves have been on a down- exports, curtailing smuggling. Historical- crease investors’ risk perceptions leading ward trend, estimated at 3.5 months of ly, only cashew exports via the port of Bis- to tighter financing conditions and putting imports at end-2023, down from sau were authorized. This opening could additional strain on already low foreign 4.3 months at end-2022. contribute to higher demand from possible exchange reserves. The combination of agricultural growth processing activity in neighboring coun- A rebound in the agriculture sector will and high food prices is expected to have tries. Additionally, Chinese firms should partly drive the poverty rate to decline to left poverty unchanged between 2022 and enter the market for processing in Asia, 25.4 percent in 2024. Further progress is 2023 at about 26 percent, with population competing with India and Vietnam. Con- expected to be supported by lower food growth implying over 10,000 additional sequently, the CAD is projected to narrow prices reducing poverty to 24.1 percent in poor people. to 5.7 percent of GDP, mostly financed by 2025, lifting over 15,000 out of poverty, and concessional loans and grants. Higher rev- reaching 22.6 percent by 2026. Household enue collection and greater spending dis- purchasing power will improve with high- cipline could lower the fiscal deficit to 4.8 er cashew prices and lower food prices, Outlook percent of GDP in 2024, or 5.6 percent in- benefiting the poorest who spend a higher cluding planned arrears clearance, with share of their income on food. Economic activity is likely to expand by 4.7 public debt falling to 75.6 percent of GDP. The outlook is subject to substantial down- percent in 2024 (2.2 percent per capita) fol- The pace of the fiscal adjustment is highly side risks stemming from political instabil- lowing a strong cashew campaign. Agri- dependent on greater revenue mobiliza- ity, climate and agricultural shocks, uncer- culture will drive growth with cheaper en- tion, strengthened expenditure controls, tainty of EAGB operations, and financial ergy from regional energy project OMVG and increased grant financing, and thus sector non-performing loans. TABLE 2 Guinea-Bissau / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.4 4.2 4.2 4.7 4.8 4.9 Private consumption 16.0 3.0 -1.2 5.1 4.4 4.2 Government consumption 16.0 7.0 5.5 -8.5 -5.6 3.9 Gross fixed capital investment -5.0 15.7 23.0 5.6 7.6 2.6 Exports, goods and services 15.0 -6.5 -3.1 12.2 9.6 7.6 Imports, goods and services 4.0 2.5 0.8 3.0 4.0 3.0 Real GDP growth, at constant factor prices 6.3 4.7 4.2 4.7 4.8 4.9 Agriculture 5.4 6.1 7.5 5.1 5.1 5.1 Industry 5.6 4.8 4.0 4.4 4.5 4.6 Services 7.3 3.7 1.8 4.4 4.7 4.8 Inflation (consumer price index) 3.3 7.9 8.0 4.5 2.0 2.0 Current account balance (% of GDP) -0.8 -9.6 -9.4 -5.7 -4.7 -4.4 Fiscal balance (% of GDP) -5.9 -6.1 -7.6 -4.8 -4.0 -4.0 Revenues (% of GDP) 19.1 15.2 13.9 16.0 15.3 15.2 Debt (% of GDP) 78.8 80.4 77.8 75.6 72.8 70.4 Primary balance (% of GDP) -4.3 -4.7 -5.0 -2.2 -1.6 -1.6 a,b International poverty rate ($2.15 in 2017 PPP) 26.0 26.0 25.9 25.4 24.1 22.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 60.2 59.9 60.4 60.2 58.8 57.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 89.1 89.2 89.5 89.6 89.0 88.3 GHG emissions growth (mtCO2e) 1.4 1.4 1.4 1.5 1.5 1.6 Energy related GHG emissions (% of total) 8.0 8.2 8.3 8.6 8.8 9.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 247 Apr 24 to global capital markets through the is- suance of a Eurobond in February 2024 KENYA Key conditions and helped to improve market confidence and foreign currency reserves. But there is challenges scope to do more. Despite strengthened tax administrative measures, tax collec- Table 1 2023 Kenya’s GDP growth accelerated in 2023 tion is characterized by low compliance Population, million 55.1 after two consecutive years of droughts. levels, while expenditure inefficiencies GDP, current US$ billion 107.5 Notwithstanding the cyclical rebound, and fiscal slippages are common. FDI is GDP per capita, current US$ 1950.1 long-term development challenges remain. still restricted by complex entry and li- a 36.1 International poverty rate ($2.15) Years of public-sector led growth and debt censing procedures which limit interna- a 70.1 accumulation brought macroeconomic im- tional integration, and the economy is Lower middle-income poverty rate ($3.65) a 91.3 balances and did not create enough quality losing competitiveness in major exporting Upper middle-income poverty rate ($6.85) Gini index a 38.7 jobs that can sustain higher wages and ac- markets. Recent measures to strengthen School enrollment, primary (% gross) b 97.2 celerate poverty reduction. Compounded market regulations and reduce the foot- b 61.4 with high trade costs, these imbalances print of the State in the economy are pos- Life expectancy at birth, years have generated a sluggish tradable sector itive, although there is space to enable a Total GHG emissions (mtCO2e) 82.5 in the economy. During 2023, uncertainty greater expansion of the private sector to Source: WDI, Macro Poverty Outlook, and official data. over future external financing were added raise productivity and create better jobs. a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy to regular low exports and FDI, creating (2021). pressures on the foreign currency market. Climate shocks are increasing in frequen- cy and intensity, threatening the liveli- Recent developments Kenya’s growth rebounded after two con- hoods of many Kenyans, especially in secutive years of droughts, as the poverty dry and arid regions. Kenya’s real GDP expanded by 5.4 percent Kenya’s economic growth has not been in 2023. The agricultural sector experi- rate continued its declining trend. The sufficiently inclusive, with the connection enced a stronger than expected rebound Government of Kenya is taking bold mea- between growth and poverty reduction after two years of drought. The onset of sures to strengthen its macroeconomic poli- weakening. The poor have fewer house- the rains led to improved crop yields and cy framework. Fiscal consolidation remains hold members working and are more like- livestock health, which supported poverty ly to be engaged in subsistence agriculture rates to resume their downward trajectory. a top priority, which in combination with a and low-productivity services sub-sectors The $2.15 international poverty rate is pro- tighter monetary policy and improved glob- for employment. Strategies to enhance in- jected to have declined from 35.8 percent al credit outlook made the country regain clusive growth should focus on promoting in 2022 to 35,1 percent in 2023. access to international financial markets. productive employment and strengthen- Moreover, industry and services contin- The outlook remains positive in the medium ing resilience to adverse weather shocks. ued to show resilience despite surging The government has taken steps to re- production costs, increased cost of credit, term, although the failure to achieve fiscal and a depreciating shilling. The depre- inforce its macroeconomic policy frame- consolidation targets could exacerbate work. A tighter monetary policy contin- ciated currency depressed imported oil Kenya’s debt vulnerabilities. ued fiscal consolidation, and the return products, machinery, and transport FIGURE 1 Kenya / Annualized quarterly real GDP growth FIGURE 2 Kenya / Actual and projected poverty rates and and contributions to annualized real quarterly GDP growth real private consumption per capita Percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 12 100 160000 90 140000 10 80 120000 8 70 60 100000 6 50 80000 4 40 60000 2 30 40000 20 0 20000 10 -2 0 0 2021Q1 2021Q3 2022Q1 2022Q3 2023Q1 2023Q3 2015 2017 2019 2021 2023 2025 Agriculture Industry Services International poverty rate Lower middle-income pov. rate Taxes GDP growth Upper middle-income pov. rate Real priv. cons. pc Sources: World Bank and Kenya National Bureau of Statistics. Source: World Bank. Notes: see Table 2. MPO 248 Apr 24 equipment but did not result in higher Ongoing fiscal consolidation is expected to exports. As imports fell faster than ex- reduce the fiscal deficit, which is projected to ports and remittance flows held up, the Outlook decline to -4.1 percent of GDP in 2024, target- current account deficit narrowed to 3.9 ingaprimarysurplusof1.2percent. percent of GDP in 2023. FX reserves Kenya’s outlook remains positive in the Real per capita incomes are expected to stood at US$ 7.1 billion or 3.7 months of medium term, with real GDP projected grow, and the poverty incidence is expected import by January 2024, improving from to grow by 5.2 percent on average in to resume its pre-pandemic downward December 2023 but still below the Cen- 2024-2026. Persistent structural challenges trend,decliningbynearlyapercentagepoint tral Bank of Kenya’s (CBK) statutory min- notwithstanding, a stronger macroeco- each year toward pre-pandemic levels. The imum of 4.0 months of import cover. nomic framework and the regaining of US$2.15 poverty rate is expected to fall from Inflation fell to 6.9 percent by January access to international financial markets 35.1percentin2023to34.4percentin2024. 2024, within the CBK’s target range of will spur investor confidence and private The outlook is subject to elevated uncer- 5±2.5 percent, as falling commodity prices investment, supporting capital inflows, tainty. The failure to achieve fiscal consol- and tight monetary policy offset exchange- and freeing more credit to the private idation targets could exacerbate Kenya’s rate passthrough. During 2023, the CBK in- sector through reduced domestic gov- debt vulnerabilities, especially due to still creased its policy rate by a total of 375 basis ernment borrowing. As reforms materi- high-debt service repayments. Climate points, including a 200-basis-point hike in alize, exports are projected to increase hazards could resume inflationary pres- December, with another increase of 50bps, as Kenya implements trade agreements sures and food insecurity, affecting to 13 percent, in February 2024. signed under the EU-EPA, AfCFTA, and growth. Lower than anticipated growth of Fiscal consolidation continues as the gov- potential other trade agreements. FDI, international partners could undercut on- ernment is expanding the tax base and ratio- tourism, and remittance inflows will sup- going recovery in tourism, exports, and re- nalizing non-priority spending. However, port external financing; the current ac- mittances. Elevated commodity prices revenue collection is lagging. Tax policy and count deficit is expected to remain within would further tighten financial condition, tax administration measures were submit- 3.9 and 4.1 percent of GDP. A more sta- weaken external balances, and impact in- ted to parliament by mid-December 2023 to ble currency, moderating global and lo- flation. The upside risks are linked to faster ensure meeting end-of-year targets. As a cal inflation pressures, and, eventually, than expected normalization in global fi- share of GDP, public debt rose to 73.2 per- a more accommodative monetary policy nancing conditions and lower internation- cent in 2023 from 70.6 percent in 2022. will accelerate credit growth. al fuel and food prices. TABLE 2 Kenya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 7.6 4.8 5.4 5.0 5.3 5.3 Private consumption 6.2 3.1 5.0 4.9 5.3 5.4 Government consumption 6.0 7.4 5.7 1.6 0.8 1.1 Gross fixed capital investment 10.8 -1.1 0.1 5.3 7.8 7.8 Exports, goods and services 15.3 10.7 -6.8 8.7 9.6 9.9 Imports, goods and services 22.2 4.5 -7.8 3.0 5.5 6.4 Real GDP growth, at constant factor prices 7.1 4.5 5.4 5.0 5.3 5.3 Agriculture -0.4 -1.6 6.1 4.1 4.4 4.5 Industry 7.5 3.9 2.2 4.0 4.1 4.3 Services 9.6 6.7 6.2 5.6 5.9 5.9 Inflation (consumer price index) 6.1 7.6 7.7 7.0 5.0 5.0 Current account balance (% of GDP) -5.2 -5.1 -3.9 -3.9 -4.0 -4.1 Net foreign direct investment inflow (% of GDP) 0.0 0.3 0.4 0.6 0.7 0.8 Fiscal balance (% of GDP) -7.3 -5.9 -5.2 -4.1 -3.3 -3.2 Revenues (% of GDP) 16.8 17.1 17.8 19.1 19.3 19.4 Debt (% of GDP) 68.1 70.6 73.2 71.8 69.0 66.6 Primary balance (% of GDP) -2.5 -0.8 0.0 1.2 1.7 1.7 a,b International poverty rate ($2.15 in 2017 PPP) 36.1 35.8 35.1 34.4 33.6 32.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 70.1 69.8 69.2 68.5 67.8 67.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 91.3 90.9 90.1 89.2 88.2 87.2 GHG emissions growth (mtCO2e) 3.5 4.6 5.0 5.9 6.5 6.4 Energy related GHG emissions (% of total) 26.5 26.6 26.4 26.1 25.8 26.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2013-, 2018-, and 2021-KCHS. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projection using point to point elasticity at regional level with pass-through = 1 based on private consumption per capita in constant LCU. MPO 249 Apr 24 and diversify the economy. The future of the textile sector hinges on the renewal LESOTHO Key conditions and of the United States’ African Growth and Opportunities Act (AGOA) beyond 2025 challenges and measures to relaunch the compet- itiveness of the sector. South Africa’s Table 1 2023 Growth rate has averaged only 1.2 percent weak economy affects growth prospects Population, million 2.3 since 2010, indicating that the consump- through trade and lower remittances. GDP, current US$ billion 2.3 tion-driven growth model anchored on a Limited private sector activity and GDP per capita, current US$ 972.0 large public sector has not been sustain- skills mismatches contribute to high a 32.4 International poverty rate ($2.15) able. Weaknesses in fiscal policy and man- unemployment, estimated at 22.5 per- a 54.6 agement has undermined public spending cent in 2019 (reaching 38.3 percent Lower middle-income poverty rate ($3.65) a 81.0 inefficiencies. The large public sector has when discouraged job seekers are in- Upper middle-income poverty rate ($6.85) Gini index a 44.9 also crowded out the private sector, cur- cluded), and high poverty rates. Over School enrollment, primary (% gross) b 110.0 tailing business investment and the de- one-third of the population was esti- b 53.1 velopment of new private sector activi- mated to live on less than US$2.15 per Life expectancy at birth, years ties. Domestic entrepreneurs face difficul- day (2017 PPP) in 2022. Lesotho is in Total GHG emissions (mtCO2e) 4.3 ties in accessing credit. Gaps in the regu- the top quintile of countries with the Source: WDI, Macro Poverty Outlook, and official data. latory competition and investment frame- most unequal income distribution. a/ Most recent value (2017), 2017 PPPs. b/ Most recent WDI value (2021). works, including for foreign direct invest- ment, raise uncertainty and costs of do- ing business. Large infrastructure gaps, Growth increased to 2 percent in 2023 including in information and communi- Recent developments cations technology, dampen private in- and will remain at around this rate over vestment and the country’s integration in The economy expanded by an estimated 2024-26. The outlook is subject to down- global value chains. 2 percent in 2023, mainly driven by the side risks from delays in the Lesotho Fiscal imbalances have been persistent public sector, especially the LHWP-II Highlands Water Project (LHWP), and overtime, as spending was not compensat- megaproject and its spillover effects on ed by higher revenue, leading to higher transportation, logistics, and financial ser- the implementation of reforms to control public debt. Volatile Southern African vices. The project experienced some de- public spending, raise efficiency, as well Customs Union (SACU) receipts, poor lays in early 2024 owing to strikes, but as public investment effectiveness. Fur- cash management, and deficiencies in pub- activity has since resumed. On the down- ther delays in implementing reforms to lic procurement processes have led to the side, weaknesses in public investment bolster private sector development and accumulation of arrears, which threaten management and efforts to control macroeconomic stability. spending are delaying the implementa- human capital will also stall growth. Weak- Weak regional and global demand are un- tion of capital projects. On the supply er global and regional growth, rising geopo- dermining exports, which remain heavily side, the industrial sector grew by about litical tensions, and climate shocks could concentrated to apparel and textile, and 5 percent, while the expansion of the adversely affect the growth trajectory. natural resources. Policy measures are agricultural sector, while still positive, needed to unlock private investment decelerated significantly. FIGURE 1 Lesotho / Fiscal dynamics FIGURE 2 Lesotho / Actual and projected poverty rates and real GDP per capita Percentage of GDP Percentage of GDP Poverty rate (%) Real GDP per capita (constant LCU) 70 8 90 10500 60 6 80 10000 70 50 4 60 9500 40 2 50 9000 40 30 0 30 8500 20 -2 20 8000 10 -4 10 0 7500 0 -6 2017 2019 2021 2023 2025 2021 2022 2023e 2024f 2025f 2026f International poverty rate Lower middle-income pov. rate Revenues Expenditures Fiscal balance (rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 250 Apr 24 Headline inflation decreased from its SACU transfers are projected to remain el- peak of 9.8 percent in July 2022 to 7.2 evated, risking undermining macroeco- percent in December 2023, owing primar- Outlook nomic stability. Although the projected ily to the moderation in fuel and food deficits will be driven by public invest- prices, but pressures are emerging again. Growth is projected to remain subdued, at ment, and there are substantial gaps in the central bank revised upwards the around 2-2.5 percent over the next three productive, social, and resilient infrastruc- net international reserves target floor to years. This rate will be insufficient to re- ture, public investment prioritization and US$750 million in January 2024 and in- turn the economy to its pre-pandemic level management have been weak, raising con- creased the policy rate to 7.75 percent in by 2026 and significantly reduce poverty cerns about the country’s absorptive ca- July 2023, which stands below the South and inequality rates. The implementation pacity and resource misallocation. Using African policy rate. of the LHWP-II project should continue to the SACU windfall to implement reforms The fiscal balance improved dramatically, drive growth, but private activities are ex- that stimulate private sector investment from a deficit of 4.3 percent of GDP in pected to expand modestly as longstand- and bring down recurrent spending would 2022 to a surplus of 5.5 percent of GDP ing structural constraints remain unad- strengthen growth. in 2023, owing to the more than dou- dressed. Consequently, the US$2.15 per Domestic and external risks are tilted bling of SACU revenue. The government day poverty rate is projected to fall only to the downside. Weaker global and re- has spent more than half of SACU wind- slightly from 37.0 percent in 2022 to gional growth, and the intensification of fall in FY 2023/24, to increase public in- 36.1 percent in 2025. geopolitical conflicts, would impact neg- vestment and recurrent spending by 2 Inflation is expected to gradually moder- atively on diamond exports and remit- percentage points of GDP each. Recur- ate to 5.0 percent in line with declining tances. This and failure to renew AGOA rent spending increases were driven by energy and food prices, but to remain rel- would widen the current account deficit, transfers to other public sector bodies, so- atively high owing to the rand depreci- while further delays in the LHWP-II cial benefits, and subsidies. The public ation. The current account deficit is pro- would lower growth. On the positive sector wage bill growth kept constant jected to widen due to higher imports as- side, devising a plan to clear arrears as a share of GDP, even though it in- sociated with the LHWP-II, and weaker and delivering on it would strengthen creased above inflation. Limited progress demand for exports, driven by uncertain- the macroeconomic policy framework has been made on arrears’ clearance, ties surrounding the renewal of AGOA, and public spending. Climate shocks which have emerged owing to recurrent and a deceleration in the US economy. could weaken the outlook and endanger fiscal deficits in the past, and weaknesses After the large fiscal surplus registered in gains in poverty alleviation, underscor- in public financial management and in 2023, the government’s accounts are ex- ing the need to strengthen climate risk public procurement. pected to return to deficits, even though management and resilience. TABLE 2 Lesotho / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.9 1.1 2.0 2.2 2.5 2.3 Private consumption -6.7 9.1 3.6 3.5 3.2 3.2 Government consumption -5.3 2.4 2.2 17.9 11.5 12.3 Gross fixed capital investment 6.5 10.8 54.7 9.3 26.7 18.3 Exports, goods and services 5.1 36.7 2.2 2.2 2.2 2.0 Imports, goods and services -0.4 22.5 10.3 10.8 11.3 10.5 Real GDP growth, at constant factor prices 1.9 1.1 2.0 2.2 2.5 2.3 Agriculture -16.0 12.5 2.4 2.4 2.4 2.4 Industry 4.7 5.0 5.0 5.3 5.0 5.0 Services 2.3 -0.8 1.0 1.1 1.6 1.3 Inflation (consumer price index) 6.0 8.3 6.4 5.3 5.0 5.0 Current account balance (% of GDP) -4.1 -6.2 -5.5 -6.2 -6.6 -6.4 Net foreign direct investment inflow (% of GDP) 1.2 1.2 1.4 1.9 1.4 1.2 Fiscal balance (% of GDP) -4.3 -4.3 5.5 -2.5 -0.8 -1.5 Revenues (% of GDP) 50.2 49.1 57.6 58.9 59.1 59.6 Debt (% of GDP) 60.4 60.6 57.5 54.9 51.2 47.7 Primary balance (% of GDP) -3.3 -3.4 6.4 -1.6 0.0 -0.8 a,b International poverty rate ($2.15 in 2017 PPP) 37.0 37.0 36.8 36.6 36.1 35.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 59.7 59.7 59.4 59.0 58.6 58.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 84.8 84.8 84.5 84.3 83.8 83.6 GHG emissions growth (mtCO2e) 1.3 2.3 2.6 2.8 2.9 2.1 Energy related GHG emissions (% of total) 57.9 58.1 58.2 58.4 58.6 58.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2017-CMSHBS. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2017) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 251 Apr 24 Growth in the primary sector was sluggish –1.4 percent, as the outputs of key agricul- LIBERIA Key conditions and tural products such as rubber and crude palm oil declined by 2.0 percent and 10.7 challenges percent, year-on-year (y/y), respectively. The secondary sector expanded by 13.9 Table 1 2023 Since 2021, Liberia has seen steady eco- percent, led by mining. Gold production Population, million 5.4 nomic progress, but not at a rate fast increased by 16.4 percent (y/y) in response GDP, current US$ billion 4.3 enough to accelerate the country's efforts to higher international demand, while iron GDP per capita, current US$ 799.5 to reduce poverty. The medium-term out- ore output grew by 1.0 percent (y/y). In a 27.6 International poverty rate ($2.15) look for the country is promising; how- manufacturing, cement production ex- a 60.6 ever, to accelerate growth, macroeconomic panded by 5.6 percent, driven by increased Lower middle-income poverty rate ($3.65) a 88.9 stability and fiscal sustainability must be construction activity. The services sector Upper middle-income poverty rate ($6.85) Gini index a 35.3 upheld in the near term, and infrastructure expanded by 3.8 percent. School enrollment, primary (% gross) b 72.9 and private investment enhanced in the Headline inflation rose to 10.1 percent in b 60.7 medium term. Macroeconomic stability 2023, from 7.6 percent in 2022, driven by Life expectancy at birth, years must be complemented by institutional increases in transport and food prices, and Total GHG emissions (mtCO2e) 17.2 reforms, enhancements in the business a weaker Liberian dollar. As of December Source: WDI, Macro Poverty Outlook, and official data. environment, and significant upgrades to 2023, the Liberian dollar to US dollar ex- a/ Most recent value (2016), 2017 PPPs. b/ Most recent WDI value (2021). basic services and infrastructure to un- change rate had increased by 22.0 percent lock the country's growth potential. In (y/y) but was broadly stable during the last addition, investing in human capital and half of the year, trading at L$186.6 per US Liberia’s economy expanded by an esti- building climate resilience are essential dollar. Nonfood inflation averaged 10.3 for long-term growth and breaking the percent in 2023, down slightly from 10.6 mated 4.7 percent in 2023. Inflationary cycle of entrenched poverty. Liberia has percent in 2022, while food inflation av- pressures increased due to rising food and limited access to health care, education, eraged 12.3 percent, from a disinflation of transportation costs. Medium-term and basic utilities by regional and global 1.6 percent during the same period. Food growth prospects are promising but re- standards, and despite being among the prices will remain a major driver of infla- nations with the lowest greenhouse gas tion and will continue to have a dispro- quire maintaining macroeconomic stabili- emissions, the country faces significant portionate impact on the poor, who are net ty, prudent fiscal consolidation, and im- challenges in adapting to consequences of consumers of food and are at risk of food plementation of ongoing structural re- climate change. insecurity and falling into deeper poverty. forms in key enabling sectors. However, The rice sector remains vulnerable to exter- risks to the outlook are tilted to the down- nalities, as trends in rice supply, demand, and prices shape food insecurity and side as inflationary pressures, fiscal slip- Recent developments poverty in Liberia. Although rice accounts pages, and fluctuations in commodity for more than 20 percent of total food con- prices could undermine macroeconomic Liberia’s economy expanded by an esti- sumption, its price remains volatile in the stability and growth. mated 4.7 percent in 2023, driven mainly market. This has recently compelled the by mining, specifically gold production. government to intervene, halting all price FIGURE 1 Liberia / Real GDP growth and contributions to FIGURE 2 Liberia / Actual and projected poverty rates and real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 7 100 1000 90 900 6 80 800 5 70 700 60 600 4 50 500 3 40 400 30 300 2 20 200 1 10 100 0 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2021 2022 2023e 2024f 2025f 2026f International poverty rate Lower middle-income pov. rate Agriculture Industry Services Real GDP growth Upper middle-income pov. rate Real priv. cons. pc Sources: Liberian authorities and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 252 Apr 24 increases and looking at ways to offer al- The current account deficit is estimated to down to 5.4 percent by 2026. The fiscal ternative varieties of rice. The extreme in- have risen to 24.4 percent of GDP in 2023, deficit is projected to moderate to an av- ternational poverty rate (US$2.15 per per- up from 17.7 percent in 2022. The increase erage of 3.3 percent of GDP in the medi- son per day) is estimated to have declined in current account deficit was driven by um term as the government strengthens by 1.1 percentages points to 31.3 percent in trade dynamics. The trade deficit wors- domestic resource mobilization and ex- 2023, from 32.4 percent in 2022. ened to 18.4 percent of GDP, from 11.8 per- penditure controls. The current-account In 2023, the Central Bank of Liberia (CBL) cent in 2022, as growth in imports driven deficit is expected to remain elevated raised the policy rate twice in May and by minerals, machinery, and petroleum in the medium term due to a surge July by 500 basis points cumulatively to outpaced the growth in exports. The cur- in aggregate demand driven by foreign 20.0 percent to rein in inflation. The CBL rent-account deficit was financed by net direct investment (FDI) related imports. also removed the ceiling on the offered IMF credit, loans, and drawdowns of gross The deficit will be financed by FDI in amount of CBL bills to help accommo- official reserves. By December 2023, the mining, private financing flows, and dis- date the growing oversubscription, ab- gross external reserves fell to US$496 mil- bursements of project grants and loans. sorb the excess liquidity in the banking lion (about 2.3 months of imports), from Real income per capita is expected to grow system, and strengthen its monetary pol- US$644 million (3.0 months of imports) in and poverty incidence is expected to de- icy operations. The financial sector re- December 2022. cline by 3.6 percentage points, from 29.6 mained adequately capitalized with min- percent in 2024 to 26.0 percent in 2026 as imum capital adequacy ratio at 21.2 per- the government addresses supply side cent, well above the floor of 10 percent. constraints, stimulates growth and job Non-performing loans as share of total Outlook creation, and takes measures to combat loans also declined to from 16.4 percent food insecurity and climate vulnerabili- to 11.2 percent, slightly above the tolera- Liberia’s medium-term growth prospects ties by mitigating rising food prices and ble levels of 10 percent. are positive on balance. The economy is ex- tightening macroeconomic policy to re- Liberia’s fiscal deficit remained high, at pected to expand by 5.4 percent in 2024 duce inflationary pressures. around 5.5 percent of GDP due to declines and average of 5.9 percent in 2024–26. However, the outlook is not without sig- in revenue and grants and increase in con- Medium-term growth prospects require nificant risks. Inflationary pressures result- sumption spending. The fiscal deficit was maintaining macroeconomic stability, pru- ing from elevated import prices (especially mainly financed by concessional resources dent fiscal consolidation, and implementa- food and fuel), combined with potential - (i.e., budget support loans and IMF Spe- tion of ongoing structural reforms in key decrease in export prices (such as rubber, cial Drawing Rights). In March 2024, the enabling sectors. iron ore, and gold), and fiscal slippages new Government submitted a revised 2024 Tightening monetary policy will ease in- could undermine macroeconomic stability budget to the legislature for approval. flationary pressures and bring inflation and hamper the recovery in growth. TABLE 2 Liberia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 5.0 4.8 4.7 5.3 6.2 6.3 Private consumption 4.7 3.3 3.5 3.7 3.8 3.9 Government consumption 0.2 -5.7 0.0 -6.0 -2.3 6.2 Gross fixed capital investment -7.9 9.4 12.9 11.8 12.6 9.0 Exports, goods and services 14.7 7.7 8.5 13.1 13.6 13.6 Imports, goods and services 1.8 3.1 7.0 7.3 7.5 7.5 Real GDP growth, at constant factor prices 4.8 4.8 4.7 5.3 6.2 6.3 Agriculture 3.3 5.9 1.4 5.0 5.7 5.9 Industry 13.3 6.7 13.9 6.3 7.5 7.0 Services 3.0 2.8 3.8 5.1 6.0 6.3 Inflation (consumer price index) 7.8 7.6 10.1 7.7 5.6 5.4 Current account balance (% of GDP) -17.8 -17.7 -24.4 -21.7 -21.9 -21.6 Fiscal balance (% of GDP) -2.4 -5.6 -5.5 -3.2 -3.7 -3.1 Revenues (% of GDP) 27.2 21.5 20.8 22.9 22.4 20.7 Debt (% of GDP) 53.2 53.4 54.5 55.4 55.6 53.7 Primary balance (% of GDP) -1.6 -4.6 -4.5 -2.3 -2.9 -2.3 a,b International poverty rate ($2.15 in 2017 PPP) 33.4 32.4 31.3 29.6 27.8 26.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 69.0 68.1 67.5 66.3 64.3 62.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 93.1 92.8 92.5 91.9 91.4 90.6 GHG emissions growth (mtCO2e) 3.2 3.2 3.1 3.1 3.2 3.2 Energy related GHG emissions (% of total) 6.4 6.3 6.2 6.1 5.9 5.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2016-HIES. Actual data: 2016. Nowcast: 2017-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 253 Apr 24 licensing, and the investment law could improve investors’ confidence, paving the MADAGASCAR Key conditions and way for higher investment and produc- tivity gains. Deepening these reforms and challenges ensuring adequate governance and finan- cial sustainability of state-owned enter- Table 1 2023 Persistently low economic growth and prises should be prioritized. Population, million 30.3 rapid population growth have resulted in GDP, current US$ billion 16.5 declining income per capita and a high GDP per capita, current US$ 545.5 poverty rate. Madagascar’s 2023 real GDP International poverty rate ($2.15) a 80.7 per capita represents only about 56 percent Recent developments a 92.4 of its level in 1960. The international pover- Lower middle-income poverty rate ($3.65) a 98.2 ty rate (US$2.15 per person per day at 2017 Economic growth remained unchanged at Upper middle-income poverty rate ($6.85) Gini index a 42.6 PPP) has stagnated at around 80 percent 3.8 percent in 2023, driven by tourism, School enrollment, primary (% gross) b 138.2 over the past decade, positioning the coun- with arrivals nearly doubling from 2022 b 64.5 try among the most impoverished global- and high demand for telecommunications Life expectancy at birth, years ly. Weak governance, distortionary policies, and the food industry. Hence, domestic ex- Total GHG emissions (mtCO2e) 41.8 and low investment in physical and human penditure has driven growth, while the Source: WDI, Macro Poverty Outlook, and official data. capital have led to low productivity growth contribution to growth from net exports a/ Most recent value (2012), 2017 PPPs. b/ Most recent WDI value (2021). and slow structural transformation. Most of has been marginal. Although mineral ex- the workforce remains engaged in low-pro- port volumes (nickel, cobalt) have been ductivity activities, and 80 percent of the moderately strong and gold export has re- Economic growth is estimated to have population still relies on agriculture as their sumed after suspension in 2020, lower de- primary source of income. mand and prices for key Malagasy exports remained unchanged at 3.8 percent in Furthermore, Madagascar’s vulnerability such as textiles, vanilla, and spices have 2023 due to sluggish export perfor- to climate and natural shocks, including dampened overall export performance. mance linked to the global economic cyclones and droughts, contributes to Inflation has been declining since Q2 2023 slowdown and unfavorable export price higher growth volatility and weighs on po- due to high base effects related to the fuel tential growth. On average, four cyclones price hike in July 2022 and a tighter mon- management. It is projected to pick up hit Madagascar each year, damaging infra- etary policy stance. The central bank in- to 4.6 percent over 2024-26, driven by structure and agricultural fields, while the creased its deposit and marginal lending the recovery of international trade and south is increasingly exposed to drought. facility rates twice since early 2023 for a cu- tourism and increased investments in To reduce poverty, Madagascar needs ro- mulative increase of 90 basis points. Con- the telecommunications and mining sec- bust and sustained growth, along with currently, headline inflation decreased improved resilience to shocks. Sustained from a peak of 12.4 percent (yoy) in March tors. The elevated poverty rate is pro- reforms are vital to ensure dependable 2023 to 7.5 percent in December 2023. Core jected to abate slightly. Risks remain and affordable access to infrastructure, inflation, which excludes food and energy substantial, including fiscal pressures develop human capital, and enhance gov- price hikes, declined from 7.9 percent in stemming from state-owned enterprises. ernance. Recent reforms introduced in the December 2022 to 6.3 percent in December mining code, telecommunications sector 2023. Despite an estimated rise of 8 percent FIGURE 1 Madagascar / Real GDP growth and contributions FIGURE 2 Madagascar / Actual and projected poverty rates to real GDP growth and real GDP per capita Poverty rate (%) Real GDP per capita (constant LCU) 100 840000 90 820000 80 800000 70 780000 60 760000 50 740000 40 720000 30 20 700000 10 680000 0 660000 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 Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 254 Apr 24 in domestic rice production in 2023, rice This depreciation was influenced by high The current account deficit is projected prices remained high due to market dis- inflation and heightened investor risk to remain stable at around 4.7 percent tortions. Lower international energy prices aversion, partly due to uncertainties relat- of GDP over 2024-26, mainly reflecting have not impacted local prices owing to ed to the presidential elections. a narrowing goods and services trade the government’s price controls. deficit, in line with rising exports from The fiscal deficit is estimated to have de- mining and tourism and decreasing crude clined from 6.4 percent of GDP in 2022 to oil prices. The current account deficit is 4.9 percent in 2023. The tax-to-GDP ratio is Outlook expected to be financed mainly by foreign estimated to have increased from 9.5 per- direct investments and external financing cent in 2022 to 12.6 percent in 2023, mainly Growth is expected to accelerate to an av- for the public sector. due to the one-off impact related to the re- erage of 4.6 percent over 2024-26, driven The fiscal deficit is projected to narrow to covery of petroleum tax arrears accumu- by favorable base effects, enhanced trade an average of 3.1 percent of GDP over lated in 2022 (equivalent to 1.8 percent of and tourism opportunities, and a new 2024-26, driven by increased revenue col- GDP). Nonetheless, the tax-to-GDP ratio impetus for private investment follow- lection, notably from the mineral sector, as remains below the 12.9 percent budget tar- ing impactful structural reforms in piv- mining projects ramp up production after get. Government expenditure increased otal sectors such as mining, digital tech- the enactment of the new mining code. The from 17.2 percent of GDP in 2022 to 19.6 nology, and the investment climate. The public debt-to-GDP ratio is expected to re- percent in 2023 and included a large trans- potential extension of the United States’ main high but sustainable, averaging 57 fer to the public water and electricity utili- African Growth and Opportunity Act percent of GDP over 2024-26. ty, JIRAMA. The budget deficit was mainly could positively impact economic activi- Risks to the outlook include recurring natur- financed by concessional external financ- ties, particularly investment in the textile al hazards, ongoing international conflicts, ing. External and overall public debt dis- industry. Nevertheless, the poverty rate is and a global economic slowdown. Domestic tress risks remain moderate. projected to stay at about 79.7 percent in downside risks include the financial stress The current account deficit narrowed from 2024, as job creation is expected to remain of state-owned enterprises, particularly JI- 5.4 percent of GDP in 2022 to an estimated limited compared to population growth. RAMA and Madagascar Airlines, and delay 4.5 percent in 2023, with goods imports de- Hence, about 24.8 million people are pro- in implementing key structural reforms. clining faster than exports. Despite this im- jected to remain poor, a number larg- The enactment of a new mining code and the provement, the ariary depreciated by 8.2 er than the total population of Burundi resumption of major investment projects percent on average against the US dollar and South Soudan altogether, where the represent upside risks that could signifi- and 11 percent against the euro in 2023. poverty rates also are very high. cantly boost economic growth. TABLE 2 Madagascar / 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 3.8 3.8 4.5 4.6 4.7 Private consumption 3.0 2.5 2.6 2.9 3.0 3.1 Government consumption 0.2 -8.0 2.3 3.0 3.6 4.0 Gross fixed capital investment 12.7 -19.1 6.2 7.1 7.5 8.0 Exports, goods and services 55.0 27.5 2.4 12.6 15.8 16.3 Imports, goods and services 12.7 19.8 1.7 10.7 14.1 15.1 Real GDP growth, at constant factor prices 6.5 3.7 3.8 4.5 4.6 4.7 Agriculture -1.6 0.9 2.2 2.3 2.3 2.3 Industry 19.7 10.9 7.6 10.2 10.3 10.4 Services 7.3 3.1 3.4 3.7 3.8 3.9 Inflation (consumer price index) 5.8 8.2 9.9 7.8 7.3 6.9 Current account balance (% of GDP) -5.0 -5.4 -4.5 -4.8 -4.7 -4.7 Net foreign direct investment inflow (% of GDP) 1.7 2.1 1.6 2.3 2.4 2.5 Fiscal balance (% of GDP) -2.8 -6.4 -4.9 -3.8 -3.2 -2.4 Revenues (% of GDP) 11.1 10.8 14.7 13.3 13.5 14.1 Debt (% of GDP) 52.3 56.9 57.6 57.1 56.4 57.4 Primary balance (% of GDP) -2.2 -5.8 -4.0 -2.9 -2.2 -1.6 a,b International poverty rate ($2.15 in 2017 PPP) 81.0 80.6 80.2 79.7 79.1 78.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 92.6 92.4 92.2 91.9 91.7 91.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 98.2 98.1 98.1 98.0 97.9 97.8 GHG emissions growth (mtCO2e) 1.2 1.3 1.3 2.4 2.8 2.9 Energy related GHG emissions (% of total) 11.9 12.3 12.1 12.3 12.5 12.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2012-ENSOMD. Actual data: 2012. Nowcast: 2013-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2012) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 255 Apr 24 expenditure. With limited availability of external financing and high levels of do- MALAWI Key conditions and mestic borrowing, public debt continues to rise, resulting in debt servicing require- challenges ments in excess of 35 percent of revenues. The prevalence of poverty remains high, Table 1 2023 Vulnerabilities in the Malawian economy with rates exceeding 70 percent - one of Population, million 20.9 continue to be exacerbated by weather- the highest in the world. The continued GDP, current US$ billion 14.1 and climate-related shocks paired with high rate of poverty is exacerbated by a GDP per capita, current US$ 672.9 scarcity of foreign exchange that con- sluggish economic recovery and persistent a 70.1 International poverty rate ($2.15) strains the importation of raw materials. food shortages following a series of weath- a 89.1 Recurring floods and prolonged dry spells er shocks, high susceptibility to fluctua- Lower middle-income poverty rate ($3.65) a 97.3 compounded by limited availability of tions in food prices, and ongoing rapid Upper middle-income poverty rate ($6.85) Gini index a 38.5 agricultural inputs and weak domestic population growth. School enrollment, primary (% gross) b 126.4 and regional market integration keep b 62.9 agricultural output below its potential. Life expectancy at birth, years Persistent liquidity challenges and distor- Total GHG emissions (mtCO2e) 21.2 tions in foreign exchange markets contin- Recent developments Source: WDI, Macro Poverty Outlook, and official data. ue to constrain the importation of raw a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy materials for the production process, fur- The impact of Tropical Cyclone Freddy and (2021). ther undermining growth. the limited availability of agriculture inputs A lack of trade dynamism and low levels of weighed on agricultural production in 2023. investment persist. Lower agricultural out- While low liquidity and persistent unavail- Economic growth rose slightly to 1.5 per- put and slow implementation of policies to ability of foreign exchange constrained im- cent in 2023 from 0.9 percent in 2022. support crop diversification and economic portation of raw materials for production, transformation constrain exports, as does the early resumption of electricity produc- This was supported by the resumption of the widespread presence of non-tariff barri- tion at Kapichira supported improved eco- electricity production at the Kapichira hy- ers, strict capital controls, and high trade nomic activity in industry and services, dro-electric plant, but the unavailability costs. These in turn affect the accumulation contributing to an estimated economic of production inputs and the impact of of foreign exchange reserves. With contin- growth rate of 1.5 percent in 2023. ued high import demands, the current ac- Weak export recovery amidst high imports Tropical Cyclone Freddy constrained the count deficit remains elevated, placing ad- and low foreign investment has resulted in a recovery. Growth is estimated at 2.0 per- ditional pressure on reserves. current account deficit of 16.1 percent of cent in 2024. This has been impacted by a Fiscal imbalances have been a central chal- GDP.Grossofficialreservesremainedbelow prolonged dry spell and the continued lenge to reducing inflation, following years 1 month of import cover throughout 2023. scarcity of foreign exchange. High infla- of an expansionary fiscal policy. Slow im- To help restore foreign exchange reserves in plementation of public financial manage- late 2023, the Reserve Bank of Malawi (RBM) tion and food shortages will impact announced the 44 percent adjustment of ment reforms, paired with growing statu- household welfare, increasing the poverty tory expenditure requirements continue kwacha-US dollar exchange rate, together rate to 72 percent in 2024. to exert upward pressure on government with several measures to increase the FIGURE 1 Malawi / Fiscal balance and public debt as FIGURE 2 Malawi / Actual and projected poverty rates and percent of GDP real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 14 90 120 390000 12 70 380000 10 100 8 50 370000 6 30 80 4 360000 2 10 60 350000 0 -10 -2 340000 -30 40 -4 330000 -6 -50 20 -8 320000 -70 -10 0 310000 -12 -90 2010 2012 2014 2016 2018 2020 2022 2024 2026 2010 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Fiscal Balance (lhs) Public Debt (rhs) Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance, Economic Planning and Development, and World Bank. Source: World Bank. Notes: see Table 2. MPO 256 Apr 24 kwacha flexibility. The exchange rate premi- with food shortages, this has exacerbated Revenue is projected at 21.5 percent of um significantly narrowed at the end of food insecurity and pushed many into GDP in FY2024/25. This outcome as- 2023, from 60 to around 10 percent. poverty in 2023. The proportion of people sumes the achievement of ambitious tax Inflation remains high. Despite the RBM’s living on less than $2.15 per day increased revenue targets as well as increased dis- efforts to tackle mounting inflation by to 71.7 percent in 2023. bursements of grants which are expected tightening monetary policy, persistently to reach 5.4 percent of GDP, the highest high food prices owing to shortages on the in the last decade. Expenditure is ex- domestic market, coupled with the de- pected to slightly moderate to 28.4 per- layed depreciation of the Malawi kwacha, Outlook cent of GDP, thus translating to a pro- resulted in substantial inflationary pres- jected fiscal deficit of 6.6 percent of GDP sures. With money supply growth increas- Malawi’s economy is projected to grow by in FY2024/25. Failure to attain ambitious ing, driven mainly by the revaluation ben- 2.0 percent in 2024 – a contraction in per revenue targets and overspending would efits on foreign currency denominated de- capita terms given 2.6 percent population widen the deficit further, which will add posits, inflation has remained at around growth. Limited availability of agricultural to an already high and unsustainable 33.5 percent since February 2024. inputs and the impact of prolonged dry public debt burden. Supported by exchange rate gains on trade spells during the growing season will re- Imports are expected to continue rising, taxes, disbursements of grants, and remit- sult in reduced agricultural output. Con- driven in particular by the need for in- tance of dividends, revenue collection in- tinued liquidity challenges in foreign ex- creased food imports to address domestic creased to 17.2 percent of GDP in fiscal change markets are expected to continue shortages. While exports are also projected year (FY) 2023/24. However, higher-than- affecting the importation of raw materials to recover, the impact of prolonged dry planned expenditures, reaching 29.0 per- and productions inputs, constraining eco- spells on agricultural production may con- cent of GDP in FY 2023/24, will partially nomic activity in industry and services. strain export growth. The current account offset improved revenue performance, Headline inflation is expected to remain deficit is projected to remain high at 20 pushing the fiscal deficit to 11.7 percent high and average 27.4 percent in 2024. The percent of GDP. of GDP. This has predominantly been fi- disinflationary impact of tightening mon- With heightened food insecurity, both nanced by the incurrence of domestic liabil- etary policy will be offset by lower agri- from high food prices and shortages owing ities, mostly from the banking sector, in turn cultural output and resultant pressures on to anticipated lower agriculture output, crowding out credit to the private sector. food prices. The adjustment of energy and poverty is expected to worsen in 2024. The The continuous rise in prices, especially other utility prices necessitated by the ad- proportion of people living below the for food and transportation, has adversely justment of the kwacha and planned for poverty line of $2.15 a day will increase affected household consumption. Coupled 2024 will add to inflationary pressures. slightly to 72 percent in 2024. TABLE 2 Malawi / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.8 0.9 1.5 2.0 3.9 4.1 Private consumption 2.6 0.6 3.8 4.0 4.8 5.1 Government consumption -1.1 -5.8 14.8 6.9 -2.3 6.9 Gross fixed capital investment 6.5 12.4 -15.0 -2.5 6.3 -9.4 Exports, goods and services 2.5 3.1 3.5 8.8 6.7 6.0 Imports, goods and services 2.5 3.9 3.9 9.6 6.3 3.9 Real GDP growth, at constant factor prices 2.8 0.9 1.5 2.0 3.9 4.1 Agriculture 5.2 -1.0 0.6 -1.2 3.7 3.0 Industry 1.9 0.9 1.6 2.2 3.3 3.1 Services 2.0 1.8 1.9 3.2 4.2 4.8 Inflation (consumer price index) 9.3 20.9 28.7 27.4 20.8 16.7 Current account balance (% of GDP) -15.2 -17.3 -16.1 -20.0 -19.6 -17.9 Net foreign direct investment inflow (% of GDP) 0.8 1.6 1.5 2.1 2.3 2.5 Fiscal balance (% of GDP) -6.9 -8.9 -10.3 -11.8 -7.3 -7.3 Revenues (% of GDP) 14.7 15.0 15.3 17.2 21.1 17.7 Debt (% of GDP) 60.6 76.7 81.4 80.7 79.8 76.4 Primary balance (% of GDP) -3.1 -3.6 -3.9 -7.1 -1.1 -2.3 a,b International poverty rate ($2.15 in 2017 PPP) 70.6 71.3 71.7 72.0 71.4 70.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 89.4 89.5 89.7 89.8 89.6 89.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 97.4 97.5 97.5 97.5 97.5 97.4 GHG emissions growth (mtCO2e) 1.5 1.4 1.4 1.4 1.3 1.4 Energy related GHG emissions (% of total) 7.6 7.6 7.7 7.7 7.7 7.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2019-IHS-V. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2019) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 257 Apr 24 MALI Key conditions and Recent developments challenges GDP growth stabilized at 3.5 percent in 2023, less than initial projections, due to Table 1 2023 Mali’s economy has experienced little lower food agricultural production, which Population, million 23.3 structural change over the last three was impacted by insecurity and unfavor- GDP, current US$ billion 21.8 decades. Agriculture and low-produc- able weather conditions. The second major GDP per capita, current US$ 936.3 tivity services dominate the economy; contributor was the electricity crisis start- a 20.8 International poverty rate ($2.15) manufacturing remains limited and con- ing in August 2023 with shortages due to a a 56.1 centrated in agro-industries and cotton large accumulation of arrears to suppliers Lower middle-income poverty rate ($3.65) a 85.9 ginning. Exports are dominated by gold disrupting manufacturing. Industrial out- Upper middle-income poverty rate ($6.85) Gini index a 35.7 and cotton and vulnerable to commod- put was also dampened by the effects of School enrollment, primary (% gross) b 72.6 ity-price and climatic shocks. GDP the 2022 unsuccessful cotton season on b 58.9 growth per capita stagnated during the ginning industries. The service sector re- Life expectancy at birth, years last decade limiting poverty reduction, mained resilient, supported by telecom- Total GHG emissions (mtCO2e) 48.0 while human development indicators munications and public services. On the Source: WDI, Macro Poverty Outlook, and official data. show mixed results. demand side, growth was supported by a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). Insecurity, a weakened social contract, public and private consumption, in con- and the absence of the State in remote trast to public investment and net exports, areas, and limited investment are key which underperformed. The terms of trade bottlenecks for inclusive growth. Polit- improved in 2023 as commodity prices of ical instability following the two coup energy and food imports eased. This was GDP growth stabilized at 3.5 percent d’états in 2020 and 2021 has also be- offset by lower exports as cotton exports (0.6 percent per capita) in 2023, below come a significant growth constraint. declined 13.5 percent on the back of lower expectations, due to lower agricultural In September 2023, Burkina Faso, Mali, production in 2022, and the recovery of im- output and an electricity crisis, result- and Niger formed the Alliance of Sa- port demand after the lifting of the 2022 hel States (AES), a security and mili- ECOWAS sanctions. As a result, the cur- ing in limited poverty reduction with tary pact with political and economic rent account deficit remained high at an extreme poverty rate of 20.2 percent aims. On January 28, 2024, in a joint 6.8 percent of GDP. in 2023. Growth is projected to weaken communiqué, the three countries an- After surging to a record high of 9.7 per- slightly in 2024. The outlook is subject nounced their ‘immediate’ withdrawal cent in 2022, inflation declined to 2.1 per- to downside risks from rising insecuri- from ECOWAS. According to the re- cent in 2023, due to strong 2022 agricul- vised ECOWAS Treaty, a notification tural production and the easing of interna- ty, increasing financing costs, impacts period of one year is required to tional commodity prices. As a result, the of the announced ECOWAS withdrawal, leave ECOWAS. These developments extreme poverty rate has decreased by 0.8 and climate-related shocks. have increased political and policy percentage point to 20.2 percent in 2023. uncertainty, including the timetable However, the humanitarian situation re- for elections in Mali. mains serious, with over 350,000 internally FIGURE 1 Mali / Real GDP growth, current account and FIGURE 2 Mali / Actual and projected poverty rates and real fiscal balances GDP per capita Percent, percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 100 270000 4 90 260000 80 2 70 250000 0 60 50 240000 -2 40 -4 230000 30 20 -6 220000 10 -8 0 210000 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2009 2011 2013 2015 2017 2019 2021 2023 2025 Fiscal balance Current account balance International poverty rate Lower middle-income pov. rate Real GDP growth Upper middle-income pov. rate Real GDP pc Sources: Malian government and World Bank. Source: World Bank. Notes: see Table 2. MPO 258 Apr 24 displaced persons due to insecurity, in continued to increase and crowd out pub- gradually decline over 2025-26 with the addition to an estimated 715,000 peo- lic investment (4.2 percent of GDP). The coming onstream of lithium production. ple facing severe food insecurity as of fiscal deficit was financed predominantly Due to the weak growth in GDP per capita, December 2023. by the increasingly expensive regional particularly in agriculture and service sec- To counter inflation across WAEMU coun- bond market, where Mali’s average yields tors, the extreme poverty rate is expected tries, the Central Bank of West African States on 12-month treasuries reached 9.4 percent to decline only slightly - by 0.9 ppt over (BCEAO) raised policy interest rates by a cu- in February 2024. 2023-2026 - and will result in nearly 76,500 mulative 150 basis points since mid-2022 to additional extreme poor per year. 3.5 percent for liquidity calls and 5.5 percent The outlook remains subject to significant for the marginal lending facility. However, downside risks, including rising insecurity inflation in the region (3.7 percent in 2023) Outlook from the exit of the 13,000 MINUSMA was still above the 1-3 percent target range peacekeeping force in 2023 and the end and foreign exchange reserves have been on Growth is projected to weaken slightly to of the Algiers peace accord, a persistent a downward trend, estimated at 3.5 months 3.1 percent in 2024 and average 4 percent electricity crisis, climatic shocks, and the of imports at end-2023, down from over 2025-26 – below the long-term poten- withdrawal from ECOWAS. An unnego- 4.3 months at end-2022. tial rate for the economy of 5 percent – re- tiated ECOWAS withdrawal with disrup- The fiscal deficit stabilized at 4.8 percent flecting the combined effects of the electric- tions to transport, transit and free move- of GDP in 2023, while public debt slightly ity crisis and the expected impacts of an ment of goods, services, capital, and labor increased to 52.1 percent of GDP. Though orderly ECOWAS withdrawal: lower trade could exacerbate negative impacts due to the risk of debt distress remains moderate, with non-WAEMU ECOWAS states, higher spillovers onto WAEMU trade. The there are increasing fiscal risks from the investors’ risk premia, and increased re- BCEAO may need to continue monetary electricity sector with contingent liabilities gional financing costs. tightening in 2024 to bring inflation under (arrears) of 4.6 percent of GDP. Tax rev- The fiscal deficit is expected to decline to 4.1 control and in the context of increased enues recovered in 2023, supported by dig- percent of GDP in 2024, before gradually risks from the withdrawal of Niger, Mali, italization reforms, and higher indirect col- converging towards the WAEMU ceiling of and Burkina Faso from ECOWAS. A fur- lections, boosted by the recovery of trade 3 percent by 2026, as the government consol- ther increase in the cost of financing could flows. Public wages (8.8 percent of GDP) idates in the face of high financing costs. The lead to Mali further cutting investment ex- and security spending (6.4 percent of GDP) current account deficit is expected to penditure to reduce its borrowing needs. TABLE 2 Mali / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.1 3.5 3.5 3.1 3.5 4.5 Private consumption 3.0 4.0 3.9 3.8 3.9 4.1 Government consumption 5.8 7.6 16.7 -0.2 0.8 -1.0 Gross fixed capital investment 4.8 1.0 -3.6 4.7 4.5 9.2 Exports, goods and services -1.0 18.1 -3.9 2.8 4.3 5.1 Imports, goods and services 14.1 0.7 2.3 3.9 4.3 4.3 Real GDP growth, at constant factor prices 3.0 4.3 3.4 3.1 3.5 4.5 Agriculture 1.4 2.4 2.3 3.6 4.5 4.5 Industry 1.0 3.7 2.0 3.0 3.5 3.5 Services 5.1 5.8 4.9 2.8 2.8 4.9 Inflation (consumer price index) 4.0 9.7 2.1 2.5 2.3 2.0 Current account balance (% of GDP) -7.7 -7.0 -6.8 -6.0 -5.8 -4.8 Net foreign direct investment inflow (% of GDP) 3.0 2.6 2.4 3.0 2.9 2.7 Fiscal balance (% of GDP) -4.9 -4.8 -4.8 -4.1 -3.2 -2.9 Revenues (% of GDP) 22.0 19.8 20.8 20.8 21.9 20.5 Debt (% of GDP) 50.4 51.8 52.1 52.6 52.8 53.4 Primary balance (% of GDP) -3.5 -3.4 -3.1 -2.2 -1.4 -1.2 a,b International poverty rate ($2.15 in 2017 PPP) 20.8 21.0 20.2 20.1 19.9 19.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 56.1 56.4 54.7 54.6 54.2 53.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 85.9 86.1 84.3 84.1 84.1 83.8 GHG emissions growth (mtCO2e) 4.0 3.3 2.7 3.6 4.0 4.2 Energy related GHG emissions (% of total) 8.5 9.0 8.6 8.4 8.3 8.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 259 Apr 24 MAURITANIA Key conditions and Recent developments challenges Economic growth is estimated at 3.4 per- cent in 2023 (0.7 percent in per capita Table 1 2023 Owing to its wealth of natural re- terms) down from 6.4 percent in 2022 (3.7 Population, million 4.9 sources, consisting of iron ore, gold, percent in per capita terms) reflecting a GDP, current US$ billion 10.6 crude oil, and copper, per capita significant contraction in fish production GDP per capita, current US$ 2170.6 GDP tripled over the last two on the supply side and lower public invest- a 5.4 International poverty rate ($2.15) decades to stand at USD 2,170.6 plac- ment and fish exports on the demand side. a 25.8 ing Mauritania among the World’s Inflation decreased driven by lower food Lower middle-income poverty rate ($3.65) a 68.0 Lower Middle-Income Countries. and oil prices, reaching 1.6 percent (y/y) in Upper middle-income poverty rate ($6.85) Gini index a 32.0 Nevertheless, the economy confronts December 2023, compared with 11 percent School enrollment, primary (% gross) b 86.7 structural challenges as underscored (y/y) in December 2022. b 64.4 by the slow post-pandemic recovery. The US$3.65-a-day poverty rate is expect- Life expectancy at birth, years The heavy dependence on extrac- ed to slightly increase from 27.7 percent in Total GHG emissions (mtCO2e) 14.9 tives, low capacity to implement 2022 to 27.9 percent in 2023 due to a de- Source: WDI, Macro Poverty Outlook, and official data. public investment projects, a chal- cline in per capita agriculture growth (-2.7 a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy lenging business environment, and percentage points (pp)) counterbalanced (2021). high vulnerability to climate shocks by a decline in inflation (-4.6 pp). The num- weigh on Mauritania’s growth and ber of poor is also expected to increase development prospects. The poorest by 44,000 people. are exposed to high risk of food inse- The fiscal balance recorded a deficit of 2.5 Real GDP growth slowed in 2023 to 3.4 curity due to climate shocks on local percent of GDP in 2023, compared with 3.7 food production which contributes 20 percent of GDP in 2022. This improvement percent from 6.4 percent in 2022. Mone- percent of food consumption. was driven by a fall in capital expenditure tary policy tightening and lower interna- Overcoming these challenges will re- to 6.7 percent of GDP in 2023 from 11.3 tional food and energy prices eased infla- quire greater reliance on the private percent of GDP in 2022, offsetting the de- tion and improved the current account sector to stimulate productivity cline in commodity revenues and higher growth, increase job creation, and wages and compensation resulting from balance. The fiscal deficit narrowed due to raise the income of the poor. Main- the public sector salary increase in January under-executed capital spending. The taining strong macroeconomic funda- 2023. The debt-to-GDP ratio rose by 1.3 pp poverty rate (US$3.65-a-day) is expected mentals will be key to creating and to 48.6 percent of GDP in 2023, due to low- to slightly increase from 27.7 percent in preserving the fiscal space needed for er nominal growth and the depreciation 2022 to 27.9 percent in 2023. The medi- growth and climate-friendly invest- of the exchange rate at the end of 2023. ments. Strengthening the resilience to The December 2023 WB/IMF Debt Sus- um-term outlook remains favorable albeit climate shocks remains a priority that tainability Analysis suggests that external subject to downside risks. will involve policies and investment in debt remains sustainable, and the risk of adaptation and mitigation. debt distress moderate. FIGURE 1 Mauritania / Evolution of main macroeconomic FIGURE 2 Mauritania / Actual and projected poverty rates indicators and real GDP per capita Percent Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 8 0 80 90000 -2 80000 6 70 -4 70000 60 4 -6 60000 50 -8 50000 2 40 -10 40000 0 -12 30 30000 -14 20 20000 -2 -16 10 10000 -4 -18 0 0 2021 2022 2023e 2024p 2025p 2026p 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate GDP growth (lhs) Primary fiscal balance (lhs) Current account balance (rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 260 Apr 24 The current account deficit (CAD) im- around 5.4 percent in 2025-2026. The donors, are expected to remain the main proved to 10 percent of GDP in 2023, re- launch of gas production in the second half sources of external financing. flecting an improved trade balance due to of 2025 will boost growth while providing The fiscal deficit should decrease to 2 per- lower imports of capital goods, oil and sufficient fiscal margin to finance develop- cent of GDP in 2024, supported by lower food in turn driven by a 17 percent and ment projects and support social protec- current transfers, and higher tax revenues. 9 percent decrease in international prices tion reforms. Higher private investments, In 2026, the fiscal balance is projected to of oil and food, respectively. The Mauri- an improved net external position, and turn into a surplus of 0.1 percent of GDP tanian Central Bank's foreign exchange re- sustained private demand will also sup- with gas revenue bringing about 0.5 per- serves rose from 4.5 months of goods im- port growth. Average inflation will fall fur- cent of GDP of yearly additional fiscal rev- ports in 2022, to 6 months in 2023. ther and reach 2.5 percent in 2024, as exter- enue. Debt should gradually decline to The central bank of Mauritania pursued nal pressures ease, and stabilize around 2 46.3 percent of GDP in 2026. a restrictive monetary policy to contain percent in 2025 and 2026. Risks to the outlook remain elevated. A inflation in 2023. After raising the key The US$3.65-a-day poverty rate is expect- slowdown in Foreign Direct Investment interest rate to 8 percent in December ed to remain largely unchanged at 28.3 inflows due to a delay in the second and 2022, it increased the reserve require- percent in 2024-2025 and to decline to 25.9 third phases of the gas extraction pro- ment ratio from 6 to 8 percent in July percent in 2026 largely due to low growth ject and the tightening of global financing 2023. It also conducted open market op- in agriculture and declining food inflation. conditions would weigh on medium-term erations to dry up excess liquidity and Low inflation and strong agriculture per- growth, fiscal and external prospects. limit its impact on prices. formance in 2026 are expected to lead to a Mauritania is exposed to various climatic decline in the number of poor by 125,000 shocks such as drought and floods, which people from 2025 to 2026. adversely affect human capital, household The CAD should improve, reaching 8.5 incomes, and agricultural production. Re- Outlook percent of GDP in 2024 and average 5.5 gional insecurity in the Sahel remains a percent of GDP in 2025-2026, driven by gas risk. Presidential elections scheduled for The medium-term outlook is positive with exports, lower imports in the extractive in- June 2024 could exacerbate spending growth projected at 3.8 percent in 2024 (1.1 dustry, and lower import prices. FDI pressures, leading to a deterioration in percent in per capita terms) and to hover linked to the extractive industry, and the fiscal situation. TABLE 2 Mauritania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 0.7 6.4 3.4 3.8 4.5 6.3 Private consumption 3.4 2.7 2.5 2.6 2.7 2.8 Government consumption 26.8 22.3 8.3 7.3 6.0 4.7 Gross fixed capital investment 12.1 -7.3 -4.6 5.9 3.1 3.3 Exports, goods and services -12.9 39.9 3.0 3.6 6.7 10.1 Imports, goods and services -3.3 15.8 -0.5 4.0 3.9 3.6 Real GDP growth, at constant factor prices 0.0 8.0 3.4 3.8 4.5 6.3 Agriculture -2.9 12.7 1.2 2.8 2.0 5.5 Industry -11.5 12.0 6.1 6.3 7.7 8.9 Services 11.0 3.1 2.6 2.5 3.3 4.6 Inflation (consumer price index) 3.6 9.6 5.0 2.5 2.0 2.0 Current account balance (% of GDP) -8.5 -16.6 -10.0 -8.5 -6.7 -4.3 Net foreign direct investment inflow (% of GDP) 11.5 14.3 7.4 5.0 2.7 2.5 Fiscal balance (% of GDP) 2.3 -3.7 -2.5 -2.0 -1.4 0.1 Revenues (% of GDP) 23.0 24.1 22.1 22.6 23.0 23.5 Debt (% of GDP) 52.4 47.3 48.6 47.7 47.5 46.3 Primary balance (% of GDP) 3.1 -2.9 -1.5 -1.0 -0.5 1.0 a,b International poverty rate ($2.15 in 2017 PPP) 6.3 5.9 5.7 5.8 5.8 5.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 27.3 27.7 27.9 28.4 28.3 25.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 69.0 70.1 70.5 71.1 71.1 69.0 GHG emissions growth (mtCO2e) 2.8 2.9 3.2 3.2 3.4 0.0 Energy related GHG emissions (% of total) 31.3 31.6 32.2 32.8 33.7 33.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2019-EPCV. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 261 Apr 24 poverty is projected to have increased by over 5 percentage points (reaching 16 per- MAURITIUS Key conditions and cent) and to have retreated to around nine percent by 2024. challenges Increasing productivity requires prioritiz- ing skills availability and development, Table 1 2023 Mauritius has experienced a remarkable improving labor market institutions, and Population, million 1.3 growth trajectory. The economy transi- fostering women’s participation. Safe- GDP, current US$ billion 14.8 tioned from a low-income monocrop pro- guarding the integrity and trust of the GDP per capita, current US$ 11665.2 ducer of sugar cane to an upper-middle- country’s financial services is crucial for a 1.8 Lower middle-income poverty rate ($3.65) income investment and tourism hub. Per continuing to attract foreign investments. a 13.5 capita GDP surged from US$260 in 1968 to Additional efforts are needed to further Upper middle-income poverty rate ($6.85) a 36.8 US$9,063 in 2021. After it briefly reached bolster macroeconomic resilience, includ- Gini index School enrollment, primary (% gross) b 102.9 high-income status in 2020, the severe 14.5 ing rebuilding fiscal buffers, increasing Life expectancy at birth, years b 73.7 percent contraction in real GDP caused by revenue, improving efficiency in social Total GHG emissions (mtCO2e) 7.6 the COVID-19 pandemic pushed the coun- spending, and improving quality in ed- try back into the upper-middle-income cat- ucation and innovation. Policies to Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2017), 2017 PPPs. egory. Yet, Mauritius has demonstrated strengthen resilience against natural haz- b/ Most recent WDI value (2021). resilience, recovering strongly after the ards and climate change are fundamental pandemic and weathering external to supporting sustained growth. shocks well, and is on track to return to high-income status. However, addressing structural challenges Mauritius sustained strong growth of and macroeconomic vulnerabilities is Recent developments nearly 6 percent in 2023, supported by needed for Mauritius to achieve and sus- tourism and aggregated demand, particu- tain high-income status. Labor and skills Real GDP grew by an estimated 6.8 per- larly household consumption and invest- shortages have contributed to declines in cent in 2023, supported by a strong re- ment. Medium-term growth is expected manufacturing export competitiveness bound in tourism, construction activi- and constrained private sector growth and ties, and financial services. Gross fixed to be supported by public infrastructure, diversification. Reliance on imported fossil capital formation increased by 23 per- social spending, and residential invest- fuels, as well as high exposure to climate cent in 2023Q3 (yoy), supported by so- ments. The poverty rate is projected to shocks, are key sources of vulnerability. cial housing and infrastructure pro- decline from ten percent in 2023 to sev- An aging population and social spending grams. Meanwhile, consumption spend- commitments limit fiscal space to support ing grew modestly by 2.2 percent due en percent by 2026. However, the out- growth and implement countercyclical to a lower government wage bill. look faces substantial downside risks, policies. Poverty (upper-middle-income The labor market has recovered signifi- including fiscal pressures related to country threshold of US$6.85 a day, 2017 cantly, with the unemployment rate de- elections, weather shocks, and a weaker PPP) fell from 19 percent to 11 percent be- clining to 6.3 percent in Q3, below the tween 2012 and 2019. However, given the pre-pandemic level. To meet the high de- global economic outlook. dramatic contraction of GDP in 2020, mand for labor and skilled professionals, FIGURE 1 Mauritius / Real GDP growth and sectoral FIGURE 2 Mauritius / Actual and projected poverty rates contributions to real GDP growth and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 12 25 500000 450000 8 20 400000 4 350000 15 300000 0 250000 10 200000 -4 Agriculture 150000 Industry 5 100000 -8 Services 50000 Gross value added at basic prices -12 0 0 2012 2014 2016 2018 2020 2022 2024 2026 -16 Lower middle-income pov. rate Upper middle-income pov. rate 2019 2020 2021 2022 2023e 2024f 2025f 2026f Real GDP pc Source: World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 262 Apr 24 the government has relaxed rules for VAT revenues. As a result, the gross oper- the 11 percent recorded between 2020 and hiring foreign workers. ating deficit in H1 widened to 3.6 percent 2022. High foreign exchange demand for Lower commodity prices, higher agricul- of GDP from 3.2 percent during the same imports could put additional pressure on ture and fisheries exports, a higher net sur- period in 2022. Financing needs were cov- international reserves, which are projected plus in the service, and net income flow ered by domestic and external borrowing to decline to eight months of import cov- from abroad improved the external posi- as the new BOM Act prohibits direct trans- erage over the medium term as the BOM tion. Along with the net direct investment fers to the budget. Public debt decreased is expected to continue to intervene in the flow, these developments helped maintain from 91 percent of GDP in 2020-21 to an foreign exchange market. adequate levels of gross official interna- estimated 80 percent in 2023, driven by Higher universal pension spending and tional reserves, with an import coverage of strong GDP growth and the transfer of Air spending to mitigate the impact of Cyclone 11 months as of December 2023. Mauritius debt to the MIC. Belal and the dengue outbreak are expect- Headline inflation fell from 11.8 percent ed to contribute to a widening in the pri- in January 2023 to 5.2 percent in January mary deficit to 3.3 percent of GDP in FY23/ 2024, primarily because of lower imported 24 (from 2 percent in FY22/23) and further prices. The import price index declined by Outlook to 3.6 percent in FY24/25. Tax revenue col- 5.5 percent in 2023Q3 compared with the lection is expected to increase moderately same period in 2022 and the Bank of Mau- Real GDP growth is expected to moderate over the medium term along with moder- ritius (BOM) intervened in the FX market to 4.7 percent in 2024, reflecting the end of ating GDP growth. Public debt is expected to contain the rupee’s depreciation. How- the post-pandemic recovery and leveling to remain at about 80 percent of GDP over ever, the monetary policy stance is gener- off in international travels. Public invest- the medium term, but a gradual fiscal con- ally accommodative and underpinned by a ments in infrastructure, residential con- solidation, including a pension reform, is policy rate that has been unchanged since structions, and tourism are expected to dri- needed to stabilize it. December 2022 and added by domestic in- ve growth this year. Average inflation is Risks to the outlook are mostly to the vestments of the Mauritius Investment projected between 4.7 and 5.2 percent in downside. Higher global freight costs Corporation (MIC), a sovereign wealth the medium term, driven by stable com- and weather shocks from an intense cy- fund of the BOM. modity prices and a cooling economy. clone season pose a risk for inflation. The Current government expenditures in- Poverty is projected to fall to about seven softening of global economic growth also creased by 12.6 percent in the first half percent in 2026. represents a downside risk for merchan- of FY23/24 (H1), driven by higher in- Lower commodity prices, steady tourist dise exports and tourist arrivals. On the terest payments, subsidies, and social arrivals, and earnings repatriation are like- upside, higher social spending and sus- spending. Revenue increased by 11 per- ly to keep the current account deficit below tained direct investment flows may further cent, driven by corporate income tax and 6 percent of GDP until 2025, lower than support growth. TABLE 2 Mauritius / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f a Real GDP growth, at constant market prices 3.4 8.9 6.8 4.7 4.0 3.3 Private consumption 3.0 3.3 2.0 2.6 2.5 1.7 Government consumption -2.2 6.4 -1.1 1.2 -0.4 1.8 Gross fixed capital investment 14.0 7.8 9.9 14.4 10.3 8.1 Exports, goods and services 11.5 40.2 1.7 1.6 1.6 1.5 Imports, goods and services 7.3 10.2 7.6 1.2 0.7 0.7 Real GDP growth, at constant factor prices 4.1 9.4 6.8 4.7 4.0 3.4 Agriculture 7.3 5.5 0.8 1.5 1.5 1.5 Industry 10.9 6.8 2.6 2.1 2.1 2.1 Services 2.3 10.3 8.2 5.4 4.5 3.7 Inflation (consumer price index) 4.0 10.8 7.1 5.2 4.7 4.2 Current account balance (% of GDP) -11.9 -8.6 -4.8 -3.8 -4.4 -4.9 Net foreign direct investment inflow (% of GDP) 21.1 -8.2 -3.2 -4.6 -2.2 -2.9 b Fiscal balance (% of GDP) -10.6 -5.1 -5.8 -6.5 -5.4 -5.2 Revenues (% of GDP) 23.3 25.0 22.8 24.5 24.8 25.1 b Debt (% of GDP) 91.9 85.9 80.9 80.6 81.6 81.5 b Primary balance (% of GDP) -6.9 -2.5 -2.9 -3.2 -1.9 -1.8 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 2.1 1.7 1.3 1.1 0.9 0.7 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 15.3 12.7 10.5 9.2 8.1 7.4 GHG emissions growth (mtCO2e) 7.4 6.9 3.3 2.5 2.3 2.3 Energy related GHG emissions (% of total) 60.7 62.2 62.3 62.2 62.1 62.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Historical demand-side data is being revised due to a consistency problem. b/ Fiscal balances are reported in fiscal years (July 1st - June30th). c/ Calculations based on 2017-HBS. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. d/ Projection using neutral distribution (2017) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 263 Apr 24 and facilitating greater private sector partic- ipation in labor-intensive sectors such as MOZAMBIQUE Key conditions and agriculture and services are crucial. Consid- ering the fiscal constraints, it is critical challenges to enhance spending efficiency and debt management practices to improve fiscal Table 1 2023 Mozambique faces substantial develop- discipline and establish credibility within Population, million 33.9 ment challenges, including limited structur- financial markets. The benefits from fu- GDP, current US$ billion 21.4 al transformation and widespread poverty, ture LNG revenues can be maximized GDP per capita, current US$ 632.5 which affected roughly 74.4 percent of the through a robust fiscal framework, in- a 74.5 International poverty rate ($2.15) population in 2019 [when measured by the cluding the sound use of the recently es- a 88.6 US$2.15 per day poverty line (2017 PPP)]. tablished Sovereign Wealth Fund, to en- Lower middle-income poverty rate ($3.65) a 96.1 Most of the labor force is employed in low- sure effective resource management and Upper middle-income poverty rate ($6.85) Gini index a 50.5 productivity agriculture and services sec- promote long-term economic resilience. School enrollment, primary (% gross) b 121.2 tors. The main drivers of growth are capital- b 59.3 intensive megaprojects, with limited Life expectancy at birth, years spillovers to the rest of the economy. Total GHG emissions (mtCO2e) 106.1 Fiscal space is significantly constrained. Recent developments Source: WDI, Macro Poverty Outlook, and official data. With over 90 percent of tax revenues in a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2021). 2021-22 absorbed by the wage bill and The economy grew by 5 percent in 2023, debt-service costs, the country allocates primarily driven by the start of LNG pro- only limited resources to public invest- duction at the Coral South offshore facility. Economic recovery gained momentum in ment and social spending. Additional con- Strong growth in agriculture and services, straints to financing Mozambique’s large particularly transport, also contributed to 2023, with real GDP growth reaching 5 development needs include lack of access the expansion of the economy, offsetting percent, largely driven by liquefied natur- to international financial markets, high the impact of lower manufacturing and al gas (LNG) production. The country is risk of sovereign debt distress, a shallow construction activity. Inflation, which had grappling with substantial fiscal pres- domestic financial market, and lending reached a five-year high of 9.8 percent in rates that are among the highest in Sub- 2022, moderated to 7.1 percent in 2023. sures arising from the high public sector Saharan Africa. These challenges are com- This moderation supported a 3-percent- wage bill and increasing debt service cost. pounded by fragility and conflict and high age-point drop in poverty to 73.4 percent Growth is projected to remain at 5 per- vulnerability to climate shocks. in 2023. Despite the 100-basis-point cut in cent over the medium term, while poverty Mozambique has the opportunity to imple- the monetary policy rate to 16.3 percent in is projected to decline from 73.4 percent ment reforms to broaden its economic base January 2024, the overall monetary policy and job creation sources, with a focus on sus- stance remains tight, with high statutory in 2023 to 70.9 percent in 2026. Down- tainable growth. The private sector’s growth reserves (39 percent). side risks include volatility in global mar- could be fostered by improving access to Fiscal pressures remain elevated, as mea- kets, natural disasters, and the conflict in capital, and adequate infrastructure, and by sures to reduce the wage bill only had a northern Mozambique. addressing regulatory challenges. Strength- limited impact in 2023. The primary deficit ening fiscal management and governance improved from 2 percent of GDP in 2022 to FIGURE 1 Mozambique / Real GDP growth and sectoral FIGURE 2 Mozambique / Actual and projected poverty contributions to real GDP growth rates and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 12 100 30000 10 90 8 25000 80 6 70 20000 4 60 2 50 15000 0 40 10000 -2 30 -4 20 5000 -6 10 2014 2016 2018 2020 2022 2024f 2026f 0 0 Agriculture Extractives Manufacturing 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Private services Public Services Tax International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Source: World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 264 Apr 24 an estimated 0.2 percent in 2023. Total ex- covering four months of imports if measures to reduce the wage bill. These in- penditures in 2023Q3 surged by 14 percent megaprojects imports are excluded. clude limiting hiring in non-priority sec- due to pressures from the wage bill, inter- tors, reducing the 13th-month salary est payments, and election-related spend- bonus, and auditing the public sector ing. Total revenue growth was low at 6 workforce. Public debt is projected to sta- percent in the first three quarters of 2023 Outlook bilize at about 92 percent of GDP in the because of lower value-added tax (VAT) medium term, but Mozambique is expect- collection after the VAT rate was cut to GDP growth is projected to average 5 per- ed to remain at high risk of debt distress in 16 percent from 17 percent previously. cent over 2024-26, supported by increasing the short term. Public debt declined from 95 percent of offshore LNG production, the resumption The current account deficit is projected GDP in 2022 to an estimated 91 per- of the Total-led LNG project, and dy- to widen sharply, averaging 44.1 percent cent in 2023, even though domestic debt namism in agriculture and services. The of GDP over 2024-26, mainly driven by stood at 27 percent of GDP in 2023, up stabilization of global commodity prices LNG-related imports. Financing is pro- from 22 percent in 2020, indicating ris- could help contain inflation, enabling fur- jected to come from trade credits and for- ing financing needs amid limited access ther easing of monetary policy. Growth is eign direct investment. Gross reserves are to international capital markets. expected to support a decline in the nation- expected to remain at adequate levels of The current account deficit narrowed from al poverty rate, from 73.4 percent in 2023 about US$3.5 billion, which is equivalent US$5.8 billion in the first three quarters of to 70.9 percent by 2026. However, the ab- to nearly four months of imports when 2022 to US$1.1 billion over the same period solute number of Mozambicans living in excluding megaprojects. in 2023 due to a combination of lower im- poverty is projected to increase by 1 mil- The outlook is subject to substantial ports for megaprojects, lower fuel prices, lion people during the same period, given downside risks from extreme climate and an increase in LNG exports. The the fast population growth. events, waning commitment to fiscal re- deficit was primarily financed through The fiscal balance is projected to decline forms in the run-up to elections, and un- trade credits and foreign direct invest- from 3.4 percent of GDP in 2023 to an av- certainty around the security situation in ments in the extractive sector, which to- erage of 1.6 percent over 2024-26, partly the north. On the fiscal side, the high taled US$1.5 billion by September 2023. As driven by higher revenues linked to LNG public sector wage bill and increasing a result, gross international reserves in- revenue. Expenditure is projected to de- debt service will continue to limit the fiscal creased from US$2.8 billion in December crease from 31.3 percent of GDP in 2023 space, increasing the risks of refinancing 2022 to US$3.2 billion in November 2023, to 26.5 percent in 2026 due to consolidation and debt rollover. TABLE 2 Mozambique / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 2.3 4.2 5.0 5.0 5.0 4.4 Private consumption 17.3 3.0 3.1 9.8 7.5 6.1 Government consumption -7.8 17.2 -25.4 -3.5 -8.1 -8.1 Gross fixed capital investment 32.5 -6.4 10.1 4.9 8.4 8.6 Exports, goods and services 23.8 10.2 19.5 3.0 2.0 2.0 Imports, goods and services 37.2 1.9 3.3 6.0 5.0 5.0 Real GDP growth, at constant factor prices 2.2 4.2 5.0 5.0 5.0 4.4 Agriculture 3.7 4.4 6.0 4.0 4.0 4.0 Industry 1.6 3.8 7.6 8.2 8.1 8.1 Services 1.6 4.3 3.4 4.2 4.2 3.0 Inflation (consumer price index) 6.4 10.3 7.1 5.7 5.6 5.3 Current account balance (% of GDP) -22.3 -32.9 -16.0 -38.4 -42.0 -44.1 Net foreign direct investment inflow (% of GDP) 31.6 10.3 4.4 13.6 14.5 12.7 a Fiscal balance (% of GDP) -4.6 -4.9 -3.4 -2.3 -1.6 -0.8 Revenues (% of GDP) 27.4 27.4 27.9 26.4 25.8 25.7 Debt (% of GDP) 105.0 95.2 91.9 94.4 92.0 81.6 a Primary balance (% of GDP) -1.9 -2.0 -0.2 0.6 1.1 1.5 b,c International poverty rate ($2.15 in 2017 PPP) 76.1 75.6 73.3 72.5 71.6 70.9 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 89.3 89.1 88.1 87.7 87.3 87.0 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 96.5 96.4 95.9 95.7 95.6 95.4 GHG emissions growth (mtCO2e) 0.8 0.7 0.7 0.9 1.0 0.9 Energy related GHG emissions (% of total) 8.1 8.4 8.5 9.0 9.5 9.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Figure includes once-off capital gains revenues in 2017, estimated at 2.7 percent of GDP. b/ Calculations based on 2019-IOF. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2019) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 265 Apr 24 growth model based on extractives and a large state presence in the economy, which NAMIBIA Key conditions and limits competition, export diversification, and creates inefficiencies. challenges While the public sector continues to face fiscal constraints, given high public debt Table 1 2023 Since 1990, Namibia has made significant levels, there are opportunities to improve a 2.6 Population, million progress on economic and social indi- spending efficiency. Recent developments GDP, current US$ billion 12.4 cators. Over the two decades to 2015, in the mineral and energy sector provide GDP per capita, current US$ 4740.3 GDP growth averaged 4.5 percent, sup- Namibia with opportunities to develop b 15.6 International poverty rate ($2.15) ported by sound macroeconomic policies new drivers of growth and employment b 33.3 and the commodity super cycle, which through economic diversification and val- Lower middle-income poverty rate ($3.65) b 57.3 spurred mining investment. The country ue chain development. The realization of Upper middle-income poverty rate ($6.85) Gini index b 59.1 attained middle-income status in 2009, these opportunities hinges on structur- School enrollment, primary (% gross) c 133.0 and the poverty rate declined. Natural re- al reforms that reduce the costs of do- c 59.3 source revenues allowed for an increase ing business and promote international Life expectancy at birth, years in public spending, including on social trade and investment. Total GHG emissions (mtCO2e) 25.0 programs to support households, and on Source: WDI, Macro Poverty Outlook, and official data. increased access to public services, in- a/ Latest official estimates. Preliminary results from the 2023 census suggest a population of 3.0 million vs the 2.6 cluding education and health. Despite million used here. b/ Most recent value (2015), 2017 PPPs. this progress, many social indicators con- Recent developments c/ WDI for School enrollment (2022); Life expectancy tinue to lag peers, and there are signif- (2021). icant spatial and gender disparities. Al- Namibia’s recent economic performance though demand for services has marked- was stronger than expected. The econo- ly increased, job creation outside the ex- my grew by 4.2 percent in 2023, driven Namibia’s economy grew by 4.2 percent tractive sectors has been insufficient. by the mining sector, including invest- Consequently, unemployment has re- ments in oil exploration. The expansion in 2023. GDP growth is expected to re- mained stubbornly high, exacerbated by was also generated by sustained growth main above 3 percent over the medium skills shortages. Most of the working in private consumption. The economy term, subject to high uncertainty around population is engaged in low-skilled has recovered its pre-pandemic level, but the possible implementation of large-scale work in the informal sector. The country many key sectors, including job-rich con- energy projects. Fiscal policy over the remains among the most unequal in the struction and financial services, continue world (Gini index at 59.1 in 2015). to lag. Due to stronger GDP growth in medium term is expected to be centered The immediate years leading up to the both 2022 and 2023, poverty is estimated around maintaining primary budget sur- COVID-19 pandemic in 2020 were marked to have improved but remains high at 17.8 pluses to support the stabilization of the by a recession, driven by the end of the percent based on the US$2.15 per day in- public debt ratio. Poverty (at the $2.15 commodity cycle, the completion of major ternational poverty line (IPL; 2017 PPP). investment projects, a severe drought, and Investments in the extractive industries line) is expected to improve but remain fiscal consolidation. This underscored the has shaped not only Namibia’s recent high at 17.2 percent in 2024. need for a structural shift from the current growth trajectory but also the balance of FIGURE 1 Namibia / Mining activity and real GDP growth FIGURE 2 Namibia / Actual and projected poverty rates and real GDP per capita Real index (2018Q1 = 100) Poverty rate (%) Real GDP per capita (constant LCU) 140 80 70000 70 60000 125 60 50000 110 50 40000 95 40 30000 30 80 20000 20 65 10 10000 0 0 50 2009 2011 2013 2015 2017 2019 2021 2023 2025 2018Q1 2018Q4 2019Q3 2020Q2 2021Q1 2021Q4 2022Q3 2023Q2 International poverty rate Lower middle-income pov. rate Real GDP Mining Non-mining Upper middle-income pov. rate Real GDP pc Sources: National Statistics Agency and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 266 Apr 24 payments. Despite strong export growth, in the medium term. However, fiscal con- the current account deficit remained large solidation is expected to be slower than in 2023 as services imports rose sharply. Outlook budgeted for in the medium term, im- The wide current account deficit was suf- pacted by increased expenditure commit- ficiently financed by rising foreign direct Namibia’s economic growth is projected to ments and lower SACU revenues from investment inflows. To facilitate the devel- moderate to about 3-3.8 percent per year 2025. The large public sector wage bill opment of a large-scale green hydrogen in- over 2024-26. This projection is subject to is expected to continue to constrain fiscal dustry, the government is developing a high uncertainty as the economy could be space. Given high debt levels and high- roadmap for the sector that aims to allow impacted by the speed of implementation interest payment costs, fiscal policy the domestic economy to benefit from the of several large-scale projects in the energy should remain prudent to ensure a sus- development of related value chains. and mining sectors. If these projects move tained decline in the debt-to-GDP ratio The overall fiscal deficit balance im- into the construction phase during this pe- over the medium term. The budget plan proved from 5.2 percent to 3.7 percent riod, the growth rate of the economy could to retire two-thirds of the US$750 million of GDP between 2022 and 2023 due to substantially accelerate through a combi- Eurobond maturity in October 2025, us- the GDP recovery and the significant nation of foreign direct investment inflows ing accumulated savings from the sinking rebound in SACU revenues, which in- and spillovers to the local economy. fund, should support a faster reduction creased by 72 percent. These additional Growth in the non-mineral economy is ex- in the debt-to-GDP ratio. revenues were largely absorbed into pected to gain traction, especially in sec- Namibia’s economic outlook is favorable, higher expenditure commitments, in- tors that have been severely set back by but there are significant downside risks on cluding higher interest payments, the pandemic, including tourism. House- the horizon. Dependent on the attainment drought relief, and one-off costs related hold consumption growth is expected to of final investment decisions, Namibia’s to the population census. strengthen, benefiting from improved in- economy could experience a sizable invest- Monetary policy remained restrictive, come growth and lower inflation, which is ment boost in the mining and energy sec- broadly in line with the stance of the projected to reduce to 5.0 percent in 2024. tors over the coming years, which would South African Reserve Bank. Credit The poverty rate under the IPL is projected redefine its growth trajectory. However, growth remains subdued, and the cur- to decrease to 17.2 percent in 2024. the recovery faces major downside risks rent stance helped to curb headline infla- After the stimulus, driven by the increase from global geopolitical tensions, which tion, which decreased to 5.3 percent in in SACU revenue in FY2023/24, budget could undermine global economic activity, December 2023. expenditure growth is expected to slow and climate shocks. TABLE 2 Namibia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.6 5.3 4.2 3.4 3.6 3.8 Private consumption 14.6 9.5 4.7 4.8 5.2 5.3 Government consumption 1.3 0.6 1.0 1.3 0.7 0.6 Gross fixed capital investment 18.0 10.0 69.3 8.3 9.6 9.6 Exports, goods and services -2.1 22.9 14.1 4.1 4.4 4.7 Imports, goods and services 20.2 23.0 22.7 6.1 6.8 6.8 Real GDP growth, at constant factor prices 1.5 4.6 4.0 3.4 3.6 3.8 Agriculture 1.6 1.7 -3.4 0.5 2.0 2.0 Industry 0.5 11.3 9.2 6.6 6.7 6.9 Services 1.9 2.2 2.7 2.2 2.2 2.3 Inflation (consumer price index) 3.6 6.1 5.9 5.0 4.7 4.6 Current account balance (% of GDP) -11.2 -12.9 -11.1 -10.4 -10.2 -9.9 Net foreign direct investment inflow (% of GDP) 6.7 8.4 17.9 9.4 9.4 9.4 Fiscal balance (% of GDP) -8.5 -5.2 -3.7 -3.9 -4.6 -4.3 Revenues (% of GDP) 29.9 30.9 33.2 32.4 29.1 28.4 a Debt (% of GDP) 73.1 72.8 70.2 67.9 66.7 64.9 Primary balance (% of GDP) -4.2 -0.7 1.4 1.0 0.1 0.4 b,c International poverty rate ($2.15 in 2017 PPP) 19.7 18.3 17.3 17.0 16.5 16.1 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 38.0 36.6 35.6 35.1 34.7 33.9 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 62.3 60.8 59.7 59.2 58.6 58.0 GHG emissions growth (mtCO2e) 0.5 2.1 1.1 2.4 3.2 3.4 Energy related GHG emissions (% of total) 14.9 15.1 15.8 15.9 16.2 16.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Refers to Public and Publicly Guaranteed debt. b/ Calculations based on 2015-NHIES. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2015) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 267 Apr 24 NIGER Key conditions and Recent developments challenges Prior to the crisis, GDP growth had been projected at 6.9 percent in 2023 and to rise Table 1 2023 Niger’s economy is agriculture dependent to 12 percent in 2024, on the back of large- Population, million 27.2 and highly vulnerable to climate shocks, scale oil exports through the pipeline start- GDP, current US$ billion 16.6 leading to volatile growth. With limited im- ing by end 2023. However, the sanctions GDP per capita, current US$ 611.3 provements in productivity and high popu- and border closures delayed this start. a 50.6 International poverty rate ($2.15) lation growth, over half the population lives Government spending fell due to the a 83.1 in extreme poverty, aggravated by gender freezing of government assets, the loss Lower middle-income poverty rate ($3.65) a 96.3 disparities, with some of the weakest human of access to the WAEMU regional bond Upper middle-income poverty rate ($6.85) Gini index a 32.9 capital development indicators globally. market, and a significant reduction in ex- School enrollment, primary (% gross) b 64.8 With the completion of the Niger-Benin ternal financing. Private investment also b 61.6 pipeline, oil production is expected to rise fell sharply due to the uncertainty and Life expectancy at birth, years from 20,000 to 110,000 barrels per day by a liquidity crisis in the banking sector, Total GHG emissions (mtCO2e) 52.5 2025, increasing the importance of the oil brought on by the financial sanctions. Source: WDI, Macro Poverty Outlook, and official data. sector in exports, revenues, and GDP. Formal trade volumes fell - exports by a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). Since 2011, Niger had been a source of po- 8.1 percent and imports by 12 percent. litical stability in the Sahel, benefiting from On the supply side, manufacturing, con- a significant increase in international de- struction, and trade-related services were velopment assistance and investment in re- heavily impacted and total agricultural cent years. This changed with the military production fell due to inadequate rainfall, The political crisis: the coup d’état, fol- coup on July 26, 2023, which led to heavy pests, and insecurity. That GDP growth lowed by sanctions and a severe reduction ECOWAS and WAEMU commercial and fi- remained positive demonstrates re- in financing, together with weak agricul- nancial sanctions and border closures last- silience, for example, the continuation of ture production, is estimated to have low- ing nearly 7 months, and a pause in de- public-sector salary payments and the velopment assistance. In September 2023, ramping up of local electricity production ered GDP growth in 2023 to 1.2 percent Burkina Faso, Mali, and Niger formed the in response to the cut-off of electricity (2.5 percent per capita) and increased the "Alliance of Sahel States” (AES) - a security imports from Nigeria. extreme poverty rate to 52 percent. With and military pact with political and econom- The annual average inflation remained sta- sanctions lifted, growth could rebound to ic aims. On January 28, 2024, in a joint com- ble at 3.7 percent in 2023, after being sub- 6.9 percent, boosted by large-scale oil ex- muniqué, the three countries announced dued in H1-2023 (average 1.2 percent), their ‘immediate’ withdrawal from ECOW- then rising sharply in H2-2023 (average 6.3 ports. Significant downside risks are the AS. According to the revised ECOWAS percent) due to food inflation caused by announced ECOWAS withdrawal, fi- Treaty, a notification period of one year is re- import disruptions. nancing conditions and climatic shocks. quired to leave ECOWAS. These develop- The 2023 budget was revised, cutting ments have further increased political and capital expenditures, and reducing the policy uncertainty. deficit to 3.9 percent of GDP (compared FIGURE 1 Niger / Real GDP growth and contributions to real FIGURE 2 Niger / Actual and projected poverty rates and GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 20 100 350000 15 90 300000 80 10 70 250000 5 60 200000 0 50 40 150000 -5 30 100000 -10 20 50000 -15 10 2021 2022 2023 2024 2025 2026 0 0 Gov. cons. Exports GFCF 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Source: World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 268 Apr 24 to 6.8 percent in 2022). Due to the financial The extreme poverty rate is projected to sanctions, Niger missed several debt re- slightly decrease by 0.8 ppt to 51.2 percent payments to government bond holders Outlook by 2026 assuming solid growth in service and international financial institutions. Ac- and agriculture sectors and policies that cording to UEMOA-Titres, CFAF 314 bil- With sanctions lifted in February 2024, uses oil revenues for the population. The lion (USD$512 million or 3.1 percent of growth could rebound to 6.9 percent (2.9 number of absolute poor is projected to GDP) is owed to bondholders as of Feb- percent per capita) in 2024 and average 4.5 reach nearly 15.6 million people by 2026. ruary 19, 2024. Moody’s has downgraded percent over 2025-26, boosted by large-scale The outlook remains subject to significant Niger's credit rating from B3 to Caa3. Pub- oil exports, while the non-oil industry and downside risks, including a deterioration lic debt is expected to reach 54.5 percent of service sectors face a challenging recovery. in the security situation, terms of trade GDP, including arrears. Growth prospects are weakened by the ex- shocks, climatic shocks, difficult financing The decline in overall and agriculture GDP pected impacts of an orderly ECOWAS conditions, and the withdrawal from per capita and rise in food prices is ex- withdrawal: lower non-WAEMU ECOWAS ECOWAS. An unnegotiated ECOWAS pected to increase the poverty rate by 2 trade, namely with Nigeria, higher in- withdrawal with disruptions to transport, percentage points to 52.0 percent in 2023. vestors’ risk premia, and increased regional transit and free movement of goods, ser- 2.3 million (8.9 percent of the population) financing costs. The fiscal sector will remain vices, capital, and labor could exacerbate were estimated to be food insecure in constrained by financing, as its resumption negative impacts due to spillovers onto Q4-2023, 13 percent higher than Q4 2022, depends on the clearance of arrears and re- WAEMU trade. The BCEAO may need to due to food inflation and pockets of food establishing engagements. Inflation is ex- continue monetary tightening in 2024 to deficits. There are also estimated around pected to stay above 3 percent 2024-26 as the bring inflation under control and in the 300,000 internally displaced persons due resumption of large-scale imports from the context of increased risks from the with- to insecurity and an equal number of region is counterbalanced by higher im- drawal of Niger, Mali, and Burkina Faso refugees from Nigeria, Mali, and Burkina port costs from exiting the ECOWAS free from ECOWAS. A further increase in the Faso. The crisis and border closures have trade area. With the onset of oil exports, cost of financing on the regional market led to severe disruptions in the delivery of the current account deficit is projected to could lead to Niger cutting investment ex- humanitarian aid. narrow to 8.4 percent of GDP. penditure to reduce its borrowing needs. TABLE 2 Niger / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.4 11.5 1.2 6.9 4.8 4.3 Private consumption -0.2 7.0 3.5 3.8 4.4 4.1 Government consumption 9.8 -1.2 -11.1 2.2 4.1 3.3 Gross fixed capital investment 7.7 21.1 -10.9 3.1 4.0 3.7 Exports, goods and services 6.7 14.4 -8.1 82.5 9.8 8.7 Imports, goods and services 6.9 6.5 -12.0 22.5 5.5 5.5 Real GDP growth, at constant factor prices 1.0 11.6 1.2 6.9 4.7 4.3 Agriculture -5.1 27.0 -1.2 6.5 5.5 5.5 Industry 4.1 -0.9 3.9 14.9 5.6 3.4 Services 5.4 4.9 2.5 2.8 3.3 3.4 Inflation (consumer price index) 2.9 3.9 3.7 3.5 3.7 3.5 Current account balance (% of GDP) -7.8 -9.8 -9.4 -8.4 -6.3 -4.5 Net foreign direct investment inflow (% of GDP) 2.1 3.9 3.2 1.7 2.0 -2.1 Fiscal balance (% of GDP) -3.4 -6.8 -3.9 -2.4 -2.6 -2.7 Revenues (% of GDP) 18.2 14.9 10.0 11.0 11.8 12.0 Debt (% of GDP) 51.3 51.7 54.5 52.6 50.9 49.3 Primary balance (% of GDP) -2.2 -5.6 -2.9 -1.8 -2.1 -2.3 a,b International poverty rate ($2.15 in 2017 PPP) 50.6 49.9 52.0 50.9 51.1 51.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 83.1 82.6 83.1 82.7 82.8 82.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 96.3 96.0 96.0 95.7 95.7 95.8 GHG emissions growth (mtCO2e) 4.7 4.8 3.9 4.7 4.8 4.6 Energy related GHG emissions (% of total) 7.1 7.5 7.3 7.7 8.0 8.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 269 Apr 24 policy and refocus the Central Bank of Nigeria (CBN) on its core mandate of NIGERIA Key conditions and maintaining price stability. challenges Table 1 2023 Nigeria’s economic growth has been insuffi- Recent developments Population, million 223.8 cient to raise living standards, weighed GDP, current US$ billion 362.8 down by weak macroeconomic fundamen- Real GDP growth slowed from 3.3 percent GDP per capita, current US$ 1621.1 tals and several structural constraints. Over- in 2022 to 2.9 percent in 2023. Agricultural a 30.9 International poverty rate ($2.15) reliance on the oil sector for fiscal revenues, output decreased due to higher input a 63.5 exports, and FX inflows led macro stability costs, sustained impact of floods, and inse- Lower middle-income poverty rate ($3.65) a 90.8 to erode with the sector’s deteriorating per- curity. Services continued to hold up non- Upper middle-income poverty rate ($6.85) Gini index a 35.1 formance in recent years. Low rev- oil sector growth, especially in finance and School enrollment, primary (% gross) b 86.7 enues—including due to a costly petrol sub- information and communication. The oil b 52.7 sidy, low tax rates, and weak tax administra- sector contracted for the fourth consecu- Life expectancy at birth, years tion—have limited state capacity and public tive year, albeit at a lower rate. Total GHG emissions (mtCO2e) 401.0 service delivery. Inflation has remained Nigeria’s chronically high inflation Source: WDI, Macro Poverty Outlook, and official data. high and escalating on the back of a relative- reached an all-time high of 29.9 percent a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). ly loose monetary policy and exchange rate year-on-year in January 2024, driven by depreciation. Structural factors holding rising food and energy prices, loose mon- back the country’s growth potential include etary policy, and naira depreciation. Nigeria has initiated bold reforms to re- lack of adequate energy and transport infra- Nominal earnings have not kept up with structure, high domestic trade costs and for- inflation, pushing another 10 million store macroeconomic stability, but further eign trade protectionism, widespread inse- Nigerians into poverty in 2023. CBN has efforts are needed. The Government has curity, weak institutions, and low levels of started tightening monetary policy by moved forward on normalization of mone- human capital development. raising the monetary policy rate (MPR) tary policy, revenue-driven fiscal consoli- The new administration has initiated bold by 400 basis points to 22.75 percent in reforms to reestablish the macroeconomic February 2024 and by unclogging some dation, and liberalization of the foreign conditions for stability and growth. The of its transmission channels. CBN has exchange (FX) market. Translating oil petrol fiscal subsidy was eliminated, more restarted open market operations (OMOs) proceeds into fiscal revenues and FX in- than trebling petrol prices. FX reforms at yields closer to the MPR, halted new flows, and taming inflation are still major have been undertaken, leading to the uni- development finance schemes, committed challenges. Nominal earnings have not fication of FX markets and to a market-re- to stop monetization of fiscal deficits, re- flective exchange rate. To alleviate the in- moved the Standing Deposit Facility cap, kept up with inflation, pushing 10 million flationary effects of these reforms on the raised the cash reserve ratio to 45 per- additional Nigerians into poverty in 2023. most vulnerable, the government has been cent, and improved communication. Risks to the outlook include weaker reform implementing temporary cash transfers to Fiscal pressures remained high despite the momentum and popular discontent. reach 15 million households. Efforts are removal of fuel subsidy in the budget and also being made to tighten monetary naira devaluation. General government FIGURE 1 Nigeria / Oil price, exports, government FIGURE 2 Nigeria / Real GDP growth and sectoral revenues, and real GDP growth contributions to real GDP growth Percent, percent of GDP US$/bbl Percent 20 110 5 90 4 15 70 3 10 50 2 5 30 1 10 0 0 -10 -1 -5 -30 2015 2017 2019 2021 2023e 2025f -2 GDP growth (lhs) GDP growth (lhs) 2021 2022 2023e 2024f 2025f 2026f Revenues (lhs) Revenues (lhs) Agriculture Oil Industry Exports (lhs) Exports (lhs) Non-oil Industry Services Oil price (rhs) Oil price (rhs) GDP (factor prices) Sources: Nigerian National Bureau of Statistics, WDI, and World Bank. Sources: Nigerian National Bureau of Statistics and World Bank. MPO 270 Apr 24 fiscal deficit in 2023 is estimated at 5.3 Nigeria to reap the reforms’ benefits. The fiscal deficit is expected to drop percent of GDP, 0.4 percentage points The economy is projected to grow by to 4.3 percent of GDP on average be- (pp) higher than in 2022. While oil rev- 3.5 percent on average between 2024 tween 2024-2026, and debt servicing enues improved on the back of the naira and 2026, 0.9 pp higher than the pop- to fall from 97 percent of revenues unification, gains from the removal of sub- ulation growth. The dissipation of the in 2024 to 61 percent of revenue in sidy did not materialize as expected due reforms’ initial shock and the stabi- 2026. Exchange rate depreciation will to low remittances from the Nigerian Na- lization of macroeconomic conditions also reduce imports, including gaso- tional Petroleum Corporation (NNPC) to will instill a sustained but still slow line, leading to a CAB of 1.2 percent the federation and the emergence of an im- growth in the non-oil economy, while of GDP on average between 2024-2026. plicit FX petrol subsidy. Non-oil revenues the oil sector is expected to stabilize Foreign investments will follow increased by 0.7 percentage points to 5.6 with some recovery in production and macroeconomic stabilization. percent of GDP in 2023, but expenditures slightly lower prices. Higher growth Risks to Nigeria’s outlook are substan- picked up too, especially on capital goods rates will require structural reforms. tial, especially if reforms lose momen- and interest payments. The current ac- Inflation will remain elevated at 24.8 tum or are reversed. Relatively weak count balance (CAB) is estimated to have percent on average in 2024 but is ex- monetary policy tightening would be recorded a surplus of 0.7 percent of GDP pected to progressively moderate to insufficient to rein in inflation and at- in 2023, driven by lower interest payments 15.1 percent by 2026 on the back of tract foreign capital inflows, raising and imports. Gross reserves dropped by 11 monetary policy tightening and ex- the risks of an inflation-exchange rate percent to US$ 33bn in 2023 and net errors change rate stabilization. As a re- depreciation spiral. Failure to address and omissions remained high. sult, poverty rates are expected to in- imbalances in petrol pricing and to crease in 2024 and 2025 before stabi- raise non-oil revenues would jeopar- lizing in 2026. dize the reforms’ revenue gains, Exchange rate liberalization is expect- which, in turn, would lead to con- Outlook ed to contribute to both fiscal and ex- tinued high fiscal deficit and risks of ternal balances. Fiscal pressure is ex- its monetization. Rising insecurity, ad- The continuation of an ambitious re- pected to moderate over the outlook verse climate shocks, and popular form program centered around macro- due to higher dollar-denominated rev- discontent with inflation would dent economic stabilization is essential for enues and improved non-oil revenues. economic recovery. TABLE 2 Nigeria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.6 3.3 2.9 3.3 3.5 3.7 Real GDP growth, at constant factor prices 3.4 3.1 2.7 3.2 3.4 3.6 Agriculture 2.1 1.9 1.1 1.7 1.9 2.2 Industry -0.5 -4.6 0.7 1.8 1.6 1.7 Services 5.6 6.7 4.2 4.4 4.7 4.9 Inflation (consumer price index) 17.0 18.8 24.7 24.8 18.5 15.1 Current account balance (% of GDP) -0.7 0.2 0.7 2.2 0.9 0.5 Net foreign direct investment inflow (% of GDP) -0.3 0.0 -0.1 -0.4 -0.5 -0.5 Fiscal balance (% of GDP) -6.6 -4.9 -5.4 -4.6 -3.7 -3.8 Revenues (% of GDP) 6.7 6.7 7.8 8.7 9.6 9.6 Debt (% of GDP) 39.0 40.0 48.9 50.9 46.6 45.1 Primary balance (% of GDP) -3.9 -1.5 -1.9 -1.0 -0.1 -0.1 a,b International poverty rate ($2.15 in 2017 PPP) 34.6 35.3 38.9 40.7 42.3 42.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 66.2 67.1 69.8 70.9 71.7 71.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 90.6 91.3 91.9 91.9 91.8 91.2 GHG emissions growth (mtCO2e) 2.3 3.0 3.1 3.4 3.2 3.5 Energy related GHG emissions (% of total) 35.1 35.4 35.6 36.1 36.5 37.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2018-LSS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 271 Apr 24 enhancing competition, building firms’ ca- pabilities, increasing access to finance, fos- RWANDA Key conditions and tering development and diffusion of infor- mation and communication technologies, challenges and innovation. Table 1 2023 In the decade up to 2019, Rwanda’s GDP Population, million 14.1 per capita increased steadily at a rate of GDP, current US$ billion 13.7 4.5 percent per year, surpassed only by Recent developments GDP per capita, current US$ 974.4 Ethiopia among SSA economies. Rwanda a 52.0 International poverty rate ($2.15) has also achieved substantial gains in Rwanda’s economy achieved significant a 78.0 poverty reduction, educational attainment, growth in 2023, estimated at 8.2 percent, Lower middle-income poverty rate ($3.65) a 92.2 health services delivery, and access to ba- despite lower global prices for its main ex- Upper middle-income poverty rate ($6.85) Gini index a 43.7 sic services. However, the economy faces ports and flooding that disrupted crop School enrollment, primary (% gross) b 134.9 severe constraints. The heavy emphasis on production. This performance was sup- b 66.1 public investment has neither generated ported by stronger services sector and ro- Life expectancy at birth, years sufficient jobs nor resulted in rapid gains bust domestic demand, fueled by sizable Total GHG emissions (mtCO2e) 8.4 in productivity. The Human Capital Index investment projects. The information and Source: WDI, Macro Poverty Outlook, and official data. places Rwanda at 160th out of 174 coun- communications industry made the largest a/ Most recent value (2016), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy tries. High public debt levels, vulnerability contribution to GDP growth, benefiting (2021). to climate change, and the accelerating from increased internet and mobile sub- degradation of natural assets will hinder scriptions, followed by manufacturing, the achievement of Rwanda’s targets of be- transport services, and construction. coming an upper middle-income country The National Bank of Rwanda’s tighter by 2035 and a high-income country by monetary stance, along with improve- 2050. The highest food inflation in 15 years ments in domestic food production and Rwanda’s strong economic momentum (63 percent in March 2023) triggered by in- lower commodity prices, have contained continued in 2023, with 8.2 percent sufficient rainfall, highlighted the impor- inflationary pressures. NBR hiked the pol- growth in 2023—led by services, manu- tance of increasing the persistently low icy rate by an additional 50 basis points in facturing, and construction. Inflationary productivity in agriculture to increase in- August 2023 to 7.5 percent (Figure 1). In- comes of rural households and to improve flation fell gradually to 4.9 percent in Feb- pressures have eased due to improvements food security and availability. Overcoming ruary 2024 from the peak of 22.7 percent in domestic food production, lower com- these challenges will require greater re- in November 2022. After experiencing 18 modity prices, and the tight monetary liance on private sector investment to en- months of the highest monthly food infla- policy stance by the central bank. Real hance productivity growth, raise incomes, tion in the last 15 years starting in May GDP growth is projected at 7.6 percent and provide the necessary financing need- 2022, much lower food inflation at 6.3 per- ed to address infrastructure shortfalls. cent in February 2024 eased the pressure on average in 2024–2025. on household budgets, especially for poor Critical areas, which would need to progress faster and drive rapid private sec- households. To counteract the effect of a tor investment growth in Rwanda, include sharp depreciation of the franc against the FIGURE 1 Rwanda / Headline and core inflation and central FIGURE 2 Rwanda / Actual and projected poverty rates and bank rate real private consumption per capita Percent Poverty rate (%) Real private consumption per capita (constant LCU) 25 100 700000 90 600000 20 80 70 500000 15 60 400000 50 40 300000 10 30 200000 5 20 100000 10 0 0 0 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 2010 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Inflation (CPI) Core inflation Central bank rate Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 272 Apr 24 U.S. dollar—about 18. percent in 2023—on agriculture is expected to rebound due to state-owned enterprises while safeguard- inflation, the NBR has doubled its dollar favorable weather. Growth will also be ing fiscal space for human capital spend- sales to commercial banks to US$10 million supported by continued growth in global ing. The government also intends to im- per week from US$5 million. tourism demand, construction, and manu- prove revenue administration and cut tax The FY24 budget envisages a temporary fis- facturing activities supported by the Man- rates while broadening the tax base cal expansion to cushion the effects of recent ufacture and Build to Recover Program. through measures in the Medium-Term floods. Total reconstruction spending is esti- Driven by growth in private consumption Revenue Strategy. Under this baseline, mated at around 3 percent of GDP over the of 4.5 percent a year in 2024-2026, poverty public debt would peak at 78 percent of next five years, of which two-thirds will be is projected to decline from 48.4 percent in GDP in 2024 before gradually improving disbursed in FY24–FY25. The resulting cre- 2024 to 47 percent in 2026. The current ac- over the medium term. ation of jobs in construction is expected to count deficit is projected to remain wider The outlook is subject to substantial down- benefit lower-income households. Despite in 2024 due to increased imports required side risks. Even though Rwanda has lim- this, the government remains committed to for the post-flood reconstruction and the ited direct trade and financial links to the fiscal prudence through improved domestic large airport construction project. Sus- Middle East, an intensification of the con- revenue mobilization, spending rational- tained strong FDI inflows and concessional flict in the region could lead to further dis- ization, and increased transparency and ef- financing will cover external financing ruptions to the global trade and economy, ficiency. Relying largely on concessional needs. Inflation is expected to gradually thus affecting Rwanda mainly through a loans to finance the deficit, Rwandan’s pub- return within NBR’s target of 5±3 percent. reduced global demand for its main export lic debt is sustainable despite increases in The government is committed to prudent products. Limited access to concessional the stock, which is estimated at 71.6 percent fiscal management. In the FY24–FY26 bud- resources and lower external demand fu- of GDP in 2023. get framework, the government projects eled by monetary tightening in advanced spending cuts largely through streamlin- economies pose further downside risks. ing and gradually reducing subsidies par- The main risk on the domestic front ticularly those related to energy and fuel. is linked to the increasing frequency of Outlook It is critical to reduce energy subsidies in weather and climate shocks, which could a way that keeps electricity affordable for disrupt agricultural output again nega- Rwanda’s GDP is projected to grow at low-income households. The authorities tively affecting incomes and food secu- 7.6 percent on average in 2024–26. After are also planning to strengthen the over- rity for rural households, and reigniting weak performance in the last two years, sight, governance, and risk management of inflationary pressures on food. TABLE 2 Rwanda / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 10.9 8.2 8.2 7.6 7.8 7.5 Private consumption 6.0 12.1 8.0 4.5 6.8 6.8 Government consumption 13.7 10.6 3.1 14.6 10.1 8.1 Gross fixed capital investment 9.6 -12.6 4.5 15.0 10.7 7.2 Exports, goods and services 2.4 29.4 25.8 13.1 11.2 11.2 Imports, goods and services 2.7 17.9 14.4 12.6 10.9 8.9 Real GDP growth, at constant factor prices 10.6 7.8 8.6 7.6 7.8 7.5 Agriculture 6.4 1.6 1.7 6.6 5.5 5.4 Industry 13.3 5.0 10.2 9.5 9.3 9.0 Services 11.9 12.2 11.2 7.3 8.3 7.9 Inflation (consumer price index) 1.1 12.1 15.4 6.8 5.0 5.0 Current account balance (% of GDP) -11.1 -9.7 -11.9 -11.3 -10.1 -10.2 Net foreign direct investment inflow (% of GDP) 2.1 2.4 3.3 3.9 4.4 4.5 Fiscal balance (% of GDP) -9.8 -9.2 -8.5 -6.8 -5.6 -5.9 Revenues (% of GDP) 24.8 23.5 22.9 23.1 23.3 23.2 Debt (% of GDP) 74.4 69.9 73.0 78.0 77.6 75.2 Primary balance (% of GDP) -8.0 -7.3 -6.3 -4.9 -4.0 -4.6 a,b International poverty rate ($2.15 in 2017 PPP) 51.1 49.6 48.7 48.4 47.7 47.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 77.5 76.5 76.0 75.8 75.3 74.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 92.0 91.7 91.6 91.5 91.4 91.2 GHG emissions growth (mtCO2e) 6.4 2.5 1.4 2.4 2.9 3.2 Energy related GHG emissions (% of total) 31.1 30.7 29.8 30.0 30.2 30.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2010-EICV-III and 2016-EICV-V. Actual data: 2016. Nowcast: 2017-2023. Forecasts are from 2024 to 2026. b/ Projection using average elasticity (2010-2016) with pass-through = 0.25 based on private consumption per capita in constant LCU. MPO 273 Apr 24 mobilization, and high expenditure rigid- ity limited spending on human capital. SÃO TOMÉ AND Key conditions and Thus, with limited access to basic services and social protection, the poorest bear the challenges PRÍNCIPE brunt of economic and climate shocks, fac- ing increased difficulty in meeting their São Tomé and Príncipe (STP) is a remote daily needs given the rising living costs. and small island nation with untapped Nonetheless, the new government has Table 1 2023 natural wealth. STP is home to pristine committed to implementing the needed Population, million 0.2 rainforests, a rich and unique biodiver- structural reforms to restore macroeco- GDP, current US$ billion 0.6 sity, and a humid tropical climate with nomic stability and promote growth, GDP per capita, current US$ 2651.6 abundant rainfall. Given its vast natural particularly energy reforms. Fiscal re- International poverty rate ($2.15) a 15.7 wealth, agriculture, fisheries, and tourism forms have been initiated, including the a 45.0 have significant potential to accelerate introduction of the value-added tax Lower middle-income poverty rate ($3.65) a growth in STP. However, STP's economic (VAT). The reform agenda is expected to Upper middle-income poverty rate ($6.85) 79.7 a and social development has been con- be backed by a forthcoming IMF pro- Gini index 40.7 strained by its small productive base, gram, which should also help mobilize b 109.6 School enrollment, primary (% gross) weak private sector, institutional fragility, further concessional financing. b 67.6 Life expectancy at birth, years and high vulnerability to climate shocks, Total GHG emissions (mtCO2e) 0.4 coupled with underdeveloped infrastruc- Source: WDI, Macro Poverty Outlook, and official data. ture, such as an unreliable power sector a/ Most recent value (2017), 2017 PPPs. b/ Most recent WDI value (2021). and limited connectivity. Recent developments In the past, growth in STP was supported by large inflows of external concessional Real GDP is estimated to have contracted financing and grants, which have fueled by 0.5 percent in 2023 due to the aggravat- Crisis in the electricity sector and uncer- a public investment-led growth model. ed energy crisis and fuel shortage that halt- tainty in external concessional financing However, this growth model has become ed economic activity for two weeks, and pushed the economy into recession. GDP is unsustainable due to the structural de- delays in external financing disburse- cline and volatility of grants. As a result, ments, partly explained by the longer- estimated to have contracted by 0.5 percent. growth has slowed in recent years, fur- than-expected discussions on the upcom- Poverty rate is estimated at 15.8 percent. ther undermined by recurrent energy ing IMF program. However, the recession GDP growth is projected to recover in the crises, climate shocks, and surging com- was mitigated by a strong recovery in medium term, supported by tourism, agri- modity prices due to escalating global tourism: tourist arrivals peaked at 35,817 culture, infrastructure, and renewed exter- geopolitical tensions. in 2023, above pre-pandemic levels. Consequently, slow growth has hindered The current account deficit is estimated to nal financing. Risks result from delays in progress in poverty reduction by restrict- have remained around 15.4 percent of concluding IMF program discussions, ing job opportunities and exacerbating GDP in 2023, due to a due to higher im- slow energy reforms, weather-related the vulnerability of the poorest. More- ports bill and wider trade deficit. shocks, and global geopolitical tensions. over, excessive reliance on external con- Inflationary pressures eased despite the cessional financing, low domestic revenue introduction of VAT, as the Central Bank FIGURE 1 São Tomé and Príncipe / Real GDP growth and FIGURE 2 São Tomé and Príncipe / Actual and projected contributions to real GDP growth poverty rates and real GDP per capita Percent (y/y) Poverty rate (%) Real GDP per capita (constant LCU) 8 100 19000 6 90 18500 4 80 18000 2 70 17500 0 -2 60 17000 -4 50 16500 -6 40 16000 -8 30 15500 -10 20 15000 -12 10 14500 -14 0 14000 2019 2020 2021 2022 2023f 2024f 2025f 2026f 2010 2012 2014 2016 2018 2020 2022 2024 2026 Agriculture Industry International poverty rate Lower middle-income pov. rate Services Real GDP growth rate Upper middle-income pov. rate Real GDP pc Sources: São Tomé and Príncipe authorities' data, IMF and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 274 Apr 24 of STP (BCSTP) tightened liquidity con- (in 2017 PPP terms) is estimated to have A tight monetary policy stance and lower ditions and issued certificates of deposit slightly increased to 15.8 percent in 2023, global commodity prices are expected to in May 2023, coupled with higher interest from 15.6 percent in the previous year. reduce inflation to 12.1 percent in 2024. rates on T-bills, and subdued domestic The resumption of externally financing demand. Inflation declined from 25.2 per- disbursements, an expected IMF-support- cent in 2022 to 21.2 percent in 2023, and ed fiscal consolidation, and the full impact the monetary base (M0) contracted by Outlook of VAT implementation would improve 11.6 percent. However, delays in external STP’s fiscal position in 2024. These mea- financing disbursements and high fuel- Real GDP growth is expected to recover sures are projected to contribute to an im- related import demand depleted net in- to 2.5 percent in 2024 and then 3.6 per- provement in the domestic primary bal- ternational reserves, threatening the cur- cent in 2026. Growth over the medi- ance deficit from -2.7 percent in 2023 to 1.4 rency’s peg to the euro. The BCSTP re- um term is supported by a stronger percent of GDP in 2024 and 1.6 percent of sponded by entering into a non-conces- agricultural sector, including palm oil GDP in 2026. sional foreign exchange swap agreement and cocoa exports, continued tourism Risks to the outlook come from delays for about US$30 million with Afrexim- rebound, foreign investments, including in the new IMF program discussion, and bank to boost reserves, of which US$12 for increased electricity capacity and re- relatedly delayed external financing dis- million was disbursed. Although further newable energy projects, and resump- bursements, slow implementation of en- disbursement of grants supported net in- tion of externally funded infrastructure ergy reforms, and weather-related events. ternational reserves, the latter remain be- projects, such as the rehabilitation of the Adverse developments in global com- low one month of imports. The fiscal bal- Marginal Road. modity prices due to geopolitical ten- ance remained in deficit, estimated at -3.6 The current account deficit is projected sions are also a risk factor. In addition, percent of GDP in 2023 primarily due to to improve from 15.4 percent in 2023 the outlook for poverty alleviation in STP reduced grant disbursements, despite the to 12.6 percent in 2024 and 10.8 percent remains uncertain and the share of peo- introduction of the VAT in June 2023 to in 2026 as the trade deficit narrows ple living in extreme poverty is project- support revenue mobilization. with the drop in the cost of commodi- ed to stagnate in the short term, with a As a result of these adverse macro-fiscal ties (fuel and food), tourism contin- slight decline in the medium-term. While conditions, the livelihoods of the poorest ues to recover, and fiscal consolidation economic recovery is projected in 2024, deteriorated. The share of people that weighs on the twin deficit of fiscal and the benefits may not reach the most vul- were living on less than US$2.15 per day external balances. nerable without concerted efforts. TABLE 2 São Tomé and Príncipe / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 1.9 0.1 -0.5 2.5 3.1 3.6 Real GDP growth, at constant factor prices 3.1 2.5 -0.5 2.5 3.1 3.6 Agriculture -0.3 -13.6 -12.4 2.0 2.8 2.8 Industry -6.4 6.4 -13.5 1.5 2.0 2.0 Services 5.6 3.1 3.1 2.7 3.3 3.9 Inflation (consumer price index) 9.5 25.2 21.2 12.1 7.4 7.0 Current account balance (% of GDP) -19.2 -14.6 -14.1 -10.9 -9.6 -8.5 Net foreign direct investment inflow (% of GDP) 3.5 23.3 3.5 5.0 5.7 7.0 Fiscal balance (% of GDP) -3.9 -4.5 -3.3 -0.1 0.2 0.6 Revenues (% of GDP) 19.8 25.4 23.5 21.6 21.6 21.3 Debt (% of GDP) 77.8 68.5 57.5 52.7 47.7 41.3 Primary balance (% of GDP) -3.7 -4.0 -2.4 1.3 1.0 1.2 a,b International poverty rate ($2.15 in 2017 PPP) 15.4 15.6 15.8 15.7 15.6 15.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 44.6 44.8 45.1 45.0 44.9 44.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 79.0 79.3 79.8 79.7 79.5 79.2 GHG emissions growth (mtCO2e) 1.2 0.6 0.4 0.9 1.4 1.7 Energy related GHG emissions (% of total) 35.7 35.6 35.8 36.3 36.9 37.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Projection using point to point elasticity at regional level with pass-through = 0.7 based on GDP per capita in constant LCU. b/ Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026. MPO 275 Apr 24 sectors, including ICT, trade, and trans- port. As a result, the services sector de- SENEGAL Key conditions and celerated from 5.1 percent in 2022 to 3.3 percent in 2023. Gold production declined challenges by 15.5 percent (year-on-year) due to low- er demand, reserve depletion, and labor Table 1 2023 Senegal’s socioeconomic development strikes. Challenges in the extractive in- Population, million 17.8 challenges are heightened by rising un- dustry led to a slower-than-expected per- GDP, current US$ billion 31.1 certainty. Declining yet high inflation and formance in the industry sector despite GDP per capita, current US$ 1753.3 unfavorable global and domestic financial strong cement sales. Headline inflation a 9.9 International poverty rate ($2.15) conditions combined with high debt lev- averaged 6.1 percent in 2023 as food and a 36.3 els undermine macro-fiscal stability. energy prices continued their downward Lower middle-income poverty rate ($3.65) a 75.6 Structural vulnerabilities, such as low trends – although remaining well above Upper middle-income poverty rate ($6.85) Gini index a 36.2 productivity, limited human capital, high the regional Central Bank’s target band School enrollment, primary (% gross) b 83.3 informality, and youth emigration, persist of 1-3 percent. Poverty incidence (using b 67.1 and are exacerbated by external shocks, the $3.65 per capita per day in 2017 PPP Life expectancy at birth, years as seen during the COVID-19 pandemic international poverty line) remained sta- Total GHG emissions (mtCO2e) 36.4 and Russia’s invasion of Ukraine. Despite ble at 36.4 percent in 2023, from 36.5 per- Source: WDI, Macro Poverty Outlook, and official data. the emphasis on industrialization in the cent in 2022. While rising prices eroded a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy action plan PAP3 of the government’s the purchasing power of households this (2021). Plan Senegal Emergent, the transition to was mitigated by growth in the agricul- a more diversified economy with a larger ture sector, which employs most of the industrial base remains limited, with the poor. The national poverty trend is the re- economy remaining heavily reliant on sult of a slight increase in urban areas, Economic growth slowed slightly to 3.7 agriculture and services. The onset of hy- while the poverty rate slightly decreased drocarbon production offers an oppor- in rural areas. percent in 2023 due to social unrest and tunity to accelerate equitable investment The fiscal deficit is expected to remain delayed hydrocarbon production. The fis- in human capital, provided that related at 6.6 – above the 4.9 percent of cal deficit and debt remained high, fu- resources are managed within a strong GDP objective set in the 2023 Budget eled by energy subsidies and frontloaded governance framework. Law – driven by lower tax collection and persistently high energy subsidies. financing. Inflation averaged 6.1 per- The former declined to 17.3 percent of cent, eroding household purchasing GDP – about 1 percentage point be- power, but poverty remains unchanged. Recent developments low its 2022 level – owed to lower rev- Economic activity is set to rebound in enue collection on international trade. the medium term, supported by hydro- Economic growth remained broadly Public expenditure declined to 25.7 stable around 3.7 percent in 2023 (1.1 percent of GDP from 26.6 percent, carbon production. Political uncertainty, percent per capita) as political tensions thanks to a decline in current spend- hydrocarbon production delays, and and social unrest disrupted consumer ing. Fiscal measures to support pur- geopolitical tensions threaten the outlook. spending and delayed investment in key chasing power (0.6 percent of GDP) FIGURE 1 Senegal / Evolution of main macroeconomic FIGURE 2 Senegal / Actual and projected poverty rates and indicators real GDP per capita Percent Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 10 0 100 1200000 8 90 -5 1000000 6 80 70 4 -10 800000 60 2 50 600000 0 -15 40 400000 -2 30 -20 -4 20 200000 10 -6 -25 2015 2017 2019 2021 2023e 2025p 0 0 GDP growth (lhs) 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Primary fiscal balance (lhs) Current account balance (rhs) Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. MPO 276 Apr 24 and energy sector subsidies encompassing Projected growth, including in agriculture, outstanding arrears (4.2 percent of GDP the expansion of cash transfers, and de- end-September 2023) continue to hinder Outlook clining food prices are expected to affect fiscal consolidation efforts. Public debt re- household well-being positively. Conse- mains at moderate risk of debt distress, Economic growth is projected to average quently, poverty is expected to resume a with limited margins to absorb future 7.5 percent in 2024-2026 (4.8 percent per downward trend in 2024. shocks. The current account deficit is esti- capita) and be broad based, driven by hy- Fiscal consolidation efforts, including re- mated at 14.5 percent in 2023 from 20 per- drocarbon production from mid-2024, and duced energy subsidies and increased tax cent in 2022, driven by lower service im- a rebound in the mining sector spurred by revenues, should enable the fiscal deficit to ports related to hydrocarbon services, in- the discovery of new gold and phosphate decline toward the WAEMU convergence creased export prices, and the resumption mines as well as agriculture and services. criteria of 3 percent of GDP by 2025. Under of trade with Mali. It was financed by for- Aggregate demand will be supported by a benign base case, public debt is expected eign direct investments, portfolio invest- private consumption. The baseline as- to decline gradually to 67.2 percent in 2026. ments, remittances, and external credits. sumes favorable rainfall and fading polit- However, extreme weather shocks or in- To counter inflation across WAEMU coun- ical uncertainty. Inflation is forecasted to creases in security spending could delay tries, the Central Bank of West African decelerate to 2 percent by 2025 as food and the necessary fiscal adjustment and exac- States (BCEAO) raised policy interest rates energy prices maintain downward trends. erbate debt sustainability risks. The CAD by a cumulative 150 basis points since The BCEAO may need to continue monetary is projected to narrow significantly from mid-2022 to 3.5 percent for liquidity calls tightening in 2024 to bring inflation under 9.5 percent of GDP in 2024 to an average and 5.5 percent for the marginal lending control and in the context of rising uncer- 4.7 percent in 2025-6 as hydrocarbon ex- facility. However, inflation in the region tainties over the withdrawal of Niger, Mali, ports begin, although a potential risk re- (3.7 percent in 2023) was still above the and Burkina Faso from ECOWAS and po- mains as the Alliance of Sahel States with- 1-3 percent target and foreign exchange re- tential spillovers to WAEMU. These uncer- drawal from ECOWAS will impact exports serves have been on a downward trend, tainties are likely to increase investors’ risk to Mali. Regional uncertainties could lead estimated at 3.5 months of imports at perceptions leading to tighter financing to further tightening of financing condi- end-2023, down from 4.3 months at the conditions and putting additional strain on tions and put additional strain on already end of 2022. already low foreign exchange reserves. low foreign exchange reserves. TABLE 2 Senegal / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.5 3.8 3.7 7.1 9.7 5.7 Private consumption 3.4 3.5 2.3 3.1 3.6 3.7 Government consumption 14.4 1.5 -7.1 14.7 7.7 4.5 Gross fixed capital investment 15.8 11.0 12.5 6.0 8.8 8.6 Exports, goods and services 22.5 3.5 6.7 14.3 20.1 3.4 Imports, goods and services 16.0 12.4 6.0 5.4 4.9 3.1 Real GDP growth, at constant factor prices 6.3 3.6 3.7 7.1 9.7 5.7 Agriculture 0.8 0.3 6.2 6.3 6.4 6.5 Industry 7.1 2.6 2.9 16.8 23.4 3.9 Services 7.7 5.1 3.3 3.2 4.0 6.5 Inflation (consumer price index) 2.2 9.7 6.1 3.0 2.0 2.0 Current account balance (% of GDP) -12.1 -20.0 -14.5 -9.5 -4.8 -4.6 Fiscal balance (% of GDP) -6.3 -6.6 -6.6 -4.8 -3.0 -3.0 Revenues (% of GDP) 19.5 20.0 19.2 20.8 21.8 22.3 Debt (% of GDP) 73.4 76.1 79.5 72.4 67.5 67.2 Primary balance (% of GDP) -4.3 -4.4 -3.9 -2.2 -0.8 -1.1 a,b International poverty rate ($2.15 in 2017 PPP) 9.9 10.0 9.8 8.7 7.2 6.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 36.3 36.5 36.4 33.9 30.9 29.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 75.6 75.9 76.3 74.1 71.1 69.5 GHG emissions growth (mtCO2e) 3.1 1.1 0.5 3.8 5.5 5.1 Energy related GHG emissions (% of total) 24.2 24.5 24.0 24.2 24.5 23.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2021-EHCVM. Actual data: 2021. Nowcast: 2022-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 277 Apr 24 than 4 percent of the Seychelles’ budget al- located to climate resilience. SEYCHELLES Key conditions and Further improvements to the business en- vironment and a renewed focus on em- challenges ployment are needed to maintain inclusive growth. Labor earnings have been central Table 1 2023 The Seychelles is a high-income country to reducing poverty, yet labor and skills Population, million 0.1 with the highest GDP per capita in Sub-Sa- shortages and a growing rate of drug and GDP, current US$ billion 2.1 haran Africa but is highly vulnerable to ex- alcohol addiction constrain further ad- GDP per capita, current US$ 20446.9 ternal shocks. Tourism accounts for 31 per- vances. Labor shortages were partly ad- a 0.5 International poverty rate ($2.15) cent of GDP and 41 percent of exports. Over dressed through migration, with migrants a 1.2 90 percent of production inputs are import- representing 22 percent of the working-age Lower middle-income poverty rate ($3.65) a 6.7 ed, making the country highly vulnerable to population. The 2023 Enterprise Survey in- Upper middle-income poverty rate ($6.85) Gini index a 32.1 global commodity shocks and pandemics. dicates that firms identified a low supply School enrollment, primary (% gross) b 97.6 In 2020, during the COVID-19 pandemic, of skilled labor (20 percent of firms) and b 73.4 the economy shrunk by 8.5 percent, and the limited land (25 percent of firms) as major Life expectancy at birth, years fiscal deficit widened to 16.4 percent of GDP, obstacles in doing business. Total GHG emissions (mtCO2e) 1.0 while poverty rates based on the upper-mid- Source: WDI, Macro Poverty Outlook, and official data. dle-income line of US$6.85 per person per a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). day rose to 8.0 percent. Moreover, the Sey- chelles is vulnerable to climate shocks. The Recent developments heavy rains and the explosion that occurred in December 2023 highlight the country's Growth was an estimated 3.3 percent in 2023 vulnerability to climate change. compared to 8.9 percent in 2022, driven by Economic growth is expected to reach 3.5 Prudent macroeconomic management has modest increases in tourism, particularly percent in 2024, supported by tourism and helped the Seychelles manage shocks and from key markets in Europe impacted by the rebuilding of infrastructure damaged sustain growth. Measures implemented to tight monetary conditions and the war in by extreme weather and the blast at an ex- mitigate the pandemic supported a quick Ukraine. Furthermore, geopolitical issues in recovery and were subsequently phased Israel affected tourist arrivals from Asia. In plosives depot in 2023. Despite these out. The government has implemented fis- 2023Q3, employment decreased by 0.2 per- shocks, average earnings have increased by cal consolidation since 2021 and has taken cent, while average earnings saw a 4.8 per- 4.8 percent and the poverty rate remained measures to improve the resilience of the cent increase compared with the same quar- stable at 5.9 percent in 2023. The govern- economy while also addressing the effect ter in 2022 due to an upward revision to pub- ment has prioritized support for vulnera- of external shocks. Adaptation invest- lic sector wages. Heavy rainfall, landslides, ments to strengthen climate resilience use and floods in the north of Mahé island, ble groups and investments to enhance mostly concessional financing, comple- coupled with a massive explosion in a key climate resilience while maintaining its mented by private sector efforts. Fiscal industrial zone, damaged commercial commitment to fiscal prudence. measures such as the 2023 tourism envi- buildings, houses, and public infrastruc- ronmental sustainability levy help raise re- ture at the end of 2023. This incident has sources for climate initiatives, with more impacted growth and increased household FIGURE 1 Seychelles / Real GDP growth and sectoral FIGURE 2 Seychelles / Actual and projected poverty rates contributions to real GDP growth and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 10 12 300000 8 10 250000 6 4 8 200000 2 6 150000 0 -2 4 100000 Agriculture -4 Industry 2 50000 -6 Services Gross value added at basic prices 0 0 -8 2013 2015 2017 2019 2021 2023 2025 -10 International poverty rate Lower middle-income pov. rate 2019 2020 2021 2022 2023e 2024f 2025f 2026f Upper middle-income pov. rate Real GDP pc Sources: National Bureau of Statistics and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 278 Apr 24 vulnerability. Consequently, the govern- This is expected to contribute to an in- ment has provided support to households crease in public debt to 62 percent of and businesses to rebuild and re-occupy Outlook GDP. However, the government remains their premises. committed to containing public debt in Inflation remained low, prompting the Cen- The economy is expected to grow by 3.5 the medium term and developing the tral Bank of Seychelles to maintain the mon- percent in 2024, supported by tourism government securities market by issuing etary policy rate at 2 percent. In 2023, appre- and increases in flight seat capacity to bonds to reduce refinancing risk. In the ciation of the rupee and moderation in glob- the islands. Additionally, with 450 new context of low inflation expectations, the al commodity prices contributed to declin- hotel rooms expected to become avail- monetary authority is expected to main- ing domestic prices, with year-end inflation able during the year, tourism receipts tain the monetary policy rate at 2 per- of -2.71 percent. The primary fiscal balance are projected to increase. However, cent in 2024. More robust tourism earn- was 1.4 percent of GDP, as revenue in- weak trade and commerce within the ings are expected to contribute to a sta- creased, led by strong business and proper- Providence industrial zone due to the ble rupee, even though the current ac- ty tax collections, despite higher govern- gradual recovery from last year’s explo- count deficit is projected to widen as ment expenditure due to higher public sec- sion are expected to weigh on growth. imports increase for consumption and tor wages and the establishment of the Fiscal measures and reconstruction ef- reconstruction efforts. Home Care Agency. Although the budget forts to restore businesses’ operationali- The country’s reliance on the European allocated to capital expenditure was higher ty by end-2024 are expected to support tourist market is a risk, and delays in than in 2022, project under-execution of 32 the economic recovery beyond 2024. the opening of new and renovated ho- percent resulted in budget savings. Public Following the December incidents, the tels could also result in a lower-than-ex- debt declined to 60.1 percent of GDP due to government’s priorities are to support pected yield from tourism in 2024. Ad- repayments of external debt. The current ac- vulnerable groups whose homes were ditionally, attacks on commercial ves- count deficit narrowed to an estimated at 5.6 damaged and to invest in strengthening sels in the Red Sea could increase in- percent of GDP. The deficit is financed by resilience to climate events, including flation through higher import prices, foreign direct investments, equivalent to building and maintaining structures like which may disproportionally affect the 13.8 percent of GDP, primarily from invest- bridges, watersheds, canals, retaining poor. Lastly, climate shocks pose a sig- ments in hotels and resorts. Foreign ex- walls, and coastal blockades. Additional nificant risk, underscoring the impor- change reserves increased to US$681 million spending beyond already planned in- tance of sustainable growth and poverty in 2023, covering 3.8 months of imports. vestments is needed to rebuild better. reduction strategies. TABLE 2 Seychelles / 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 8.9 3.3 3.5 3.4 3.4 Private consumption 1.3 6.6 6.4 1.4 6.5 3.7 Government consumption 4.3 2.5 6.0 5.5 5.2 5.0 Gross fixed capital investment 0.4 2.7 34.3 8.6 -1.2 2.1 Exports, goods and services 6.2 9.1 5.7 8.7 6.2 6.0 Imports, goods and services 4.7 3.1 15.0 9.4 5.4 5.5 Real GDP growth, at constant factor prices 2.5 9.0 3.3 3.5 3.4 3.4 Agriculture 0.8 -1.0 4.2 2.1 2.1 2.1 Industry -4.9 3.3 5.1 -1.5 3.5 4.5 Services 4.2 10.5 2.9 4.5 3.4 3.2 Inflation (consumer price index) 7.9 2.5 -2.7 3.4 2.8 2.3 Current account balance (% of GDP) -8.9 -7.1 -6.9 -7.4 -7.2 -6.4 Net foreign direct investment inflow (% of GDP) 9.3 11.3 13.6 11.2 10.2 9.9 Fiscal balance (% of GDP) -5.8 -1.5 -1.3 -1.4 -0.9 0.1 Revenues (% of GDP) 33.0 31.2 32.6 35.1 35.7 35.2 Debt (% of GDP) 73.1 63.6 60.1 62.0 60.1 57.2 Primary balance (% of GDP) -2.9 0.7 1.7 1.0 1.1 1.6 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 0.5 0.5 0.5 0.4 0.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 1.7 1.2 1.1 1.1 1.0 0.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 8.4 6.4 5.9 5.9 5.6 5.4 GHG emissions growth (mtCO2e) 6.9 10.0 11.5 11.9 12.1 11.9 Energy related GHG emissions (% of total) 78.4 79.6 81.0 82.3 83.4 84.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2018-HBS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2018) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 279 Apr 24 coup attempt, has eroded households’ pur- chasing power and constrained private SIERRA LEONE Key conditions and consumption and investment. However, amidst these challenges, the mining sector challenges performed well, buoyed by strong iron ore production and exports, and promising Table 1 2023 Economic development has been con- agricultural output. Population, million 8.8 strained by the country's susceptibility to Inflationary pressures intensified, with GDP, current US$ billion 3.5 external shocks, often been compounded some tentative signs of moderation in the GDP per capita, current US$ 394.1 by weak macroeconomic management. last quarter of 2023. Headline inflation av- a 26.1 International poverty rate ($2.15) During the last decade, growth has aver- eraged 47.6 percent during 2023 – the sec- a 64.3 aged 4 percent (8 percent in the previous ond highest in Africa after Sudan – driven Lower middle-income poverty rate ($3.65) a 89.9 decade) with high volatility marked by by a combination of supply side factors Upper middle-income poverty rate ($6.85) Gini index a 35.7 episodes of boom and bust. The country’s (high food and fuel inflation), a depreci- School enrollment, primary (% gross) b 151.7 concentrated economic structure– heavy ated currency, and continued fiscal domi- b 60.1 reliance on low-value-added agriculture, nance. Food inflation averaged 57 percent. Life expectancy at birth, years mining, a sizable informal services sector In response, the central bank raised rates Total GHG emissions (mtCO2e) 9.7 – lends itself to volatility. Policy slippages by a cumulative 525 basis points in 2023 Source: WDI, Macro Poverty Outlook, and official data. with regard to macroeconomic manage- to 22.25 percent by year-end. However, the a/ Most recent value (2018), 2017 PPPs. b/ Most recent WDI value (2021). ment have aggravated the impact of exter- efficacy of monetary policy is limited by nal shocks. In addition to low growth, this shallow financial markets, and fiscal dom- has caused debt levels to rise markedly, inance. Inflation showed some signs of ranking among the highest in the region, moderating after peaking at 54.6 percent and headline inflation to increase to a two- (y-o-y) in October, down to 47 percent by decade high in 2023. Economic growth has January 2024. The economy continues to face signifi- been held back by structural factors such The fiscal position improved marginally cant challenges as policy missteps have as low private sector participation and in- in 2023 but fell short of the year’s targets. aggravated the impact of external vestments, inadequate human capital, The fiscal deficit narrowed to 8 percent – poor infrastructure, and weak institutions. 1.3 percentage points lower than in 2022 shocks, resulting in high and stubborn but 2.2pp higher than the budgeted tar- inflation, pressures on the currency, get. Expenditures were 2.6pp lower than high risk of debt distress and inadequate in 2022, with cuts in wages and salaries growth to support poverty reduction. Recent developments (1pp), subsidies (1pp) and capex (0.6pp). Despite some efforts in 2023, further Domestic revenue performance, although Economic activity slowed due to subdued 1pp below target, improved by 0.4pp due corrective fiscal and monetary measures aggregate demand and socio-political in- to partial implementation of policy mea- are urgently needed to address high in- stability. GDP growth is estimated at 3.1 sures introduced in 2023, and improve- flationary pressure and the worsened percent in 2023, marking the second consec- ments in tax compliance. Public debt de- food insecurity situation. utive year of a slowdown. High and persis- clined to 87 percent of GDP from 93 per- tent inflation, compounded by a recent cent in 2022, but liquidity and solvency FIGURE 1 Sierra Leone / Real GDP growth and contributions FIGURE 2 Sierra Leone / 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) 50 100 1.6 40 90 1.4 30 80 1.2 20 70 10 60 1.0 0 50 0.8 -10 40 0.6 -20 30 0.4 -30 20 -40 10 0.2 2001 2004 2007 2010 2013 2016 2019 2022 2025 0 0.0 Gov. cons. Exports GFCF 2011 2013 2015 2017 2019 2021 2023 2025 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: Statistics Sierra Leone and World Bank. Source: World Bank. Notes: see Table 2. MPO 280 Apr 24 risks to debt sustainability remain elevat- measures identified in the Medium-Term ed. External debt, mainly owed to mul- Revenue Strategy and near-term expendi- tilateral organizations, constitutes two- Outlook ture consolidation, especially on wages thirds of the total, while the remaining is and subsidies. Monetary policy tightening short-term domestic debt. Growth is projected to recover slowly to should be complemented with reduced The trade and current account balances 3.5 percent in 2024 against a backdrop of central bank interventions and developing improved slightly due to stronger iron high inflation and continued fiscal consol- the money market. ore exports and subdued import de- idation, before converging to its long-term Pace of poverty reduction is expected to mand. Capital inflows improved largely average of 4-4.5 percent in the medium- pick-up as inflation subsides in the medi- on account of higher project grants. term. The projected recovery will be sup- um term. The international poverty rate However, official reserves declined ported by (i) continued growth in iron (PPP$2.15 /day) is expected to decline to nonetheless to barely three months of mining with planned expansion at major 22.7 percent by 2026, supported by recov- import cover due to external debt ser- mines, (ii) resilience in agricultural pro- ering growth and moderating inflation. vice, currency interventions, and foreign duction as it trends closer to its long-term This outlook is subject to several down- currency payments to diplomatic mis- average of 3.2 percent growth, and (iii) side risks. Deviating from fiscal consoli- sions overseas. The currency depreciated gradual service sector improvements. In- dation may jeopardize stability, as debt by 18 percent (40 percent in 2022). flation will be influenced by global com- sustainability risks remain elevated. Ad- Decline in poverty slowed down in 2023. modity prices and monetary tightening verse global developments (including Extreme poverty rate is (PPP$ 2.15/day) es- and is expected to moderate to 15 percent slowing growth in China) can impact timated at 25.3 percent in 2023, compared by 2026. Elevated prices will continue to commodity prices and exports. Climate to 25.7 in the previous year. Rising food impact consumption and investment ap- vulnerabilities and inflation could in- price increases will continue to have a dis- petite, while fiscal consolidation will affect crease food insecurity and aggravate so- proportionate impact on the poor. WFP es- aggregate demand. cial tensions. The risk of political insta- timates high prevalence of insufficient Upholding fiscal and monetary policy bility remains high, following a disput- food consumption, affecting 55 percent of tightening is pivotal for macroeconomic ed general election and an attempted the population. stability. Fiscal outlook relies on revenue coup, that affected policy momentum. TABLE 2 Sierra Leone / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.1 3.5 3.1 3.5 4.0 4.3 Private consumption 36.7 -0.7 5.1 6.4 7.4 8.0 Government consumption 0.6 10.2 2.4 2.3 3.8 5.3 Gross fixed capital investment -30.0 -2.8 2.7 3.1 4.9 5.6 Exports, goods and services 1.9 5.0 20.0 19.5 18.0 15.0 Imports, goods and services 46.6 -0.3 10.5 12.0 13.0 13.0 Real GDP growth, at constant factor prices 4.0 3.6 3.1 3.5 3.9 4.3 Agriculture 2.5 3.0 2.7 3.2 3.3 3.3 Industry 17.4 8.2 5.0 6.0 6.6 6.6 Services 2.8 3.2 3.0 3.1 4.1 5.0 Inflation (consumer price index) 11.9 27.0 46.7 30.5 20.0 14.6 Current account balance (% of GDP) -8.7 -9.3 -7.8 -5.1 -4.6 -3.6 Net foreign direct investment inflow (% of GDP) 8.5 8.2 5.8 8.8 9.8 12.6 Fiscal balance (% of GDP) -7.6 -9.3 -8.0 -5.0 -3.1 -2.6 Revenues (% of GDP) 21.1 18.9 18.1 20.1 20.1 20.5 Debt (% of GDP) 84.7 93.0 87.0 76.6 65.4 60.9 Primary balance (% of GDP) -4.2 -6.0 -3.9 -0.5 1.0 1.0 a,b International poverty rate ($2.15 in 2017 PPP) 26.2 25.7 25.3 24.5 23.7 22.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 65.0 64.6 64.1 63.5 62.7 61.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 90.8 90.5 90.4 90.2 89.7 89.2 GHG emissions growth (mtCO2e) 1.6 2.4 0.4 0.3 0.3 0.3 Energy related GHG emissions (% of total) 11.3 11.0 10.9 10.9 10.9 10.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2018-SLIHS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 281 Apr 24 COVID-19 pandemic, protracted 15-month electoral impasse, prolonged and severe SOMALIA Key conditions and drought, floods, locusts’ infestation, higher international commodity prices, and in- challenges creased insecurity and conflict. As the government’s fiscal space remains limited Table 1 2023 Somalia continues to contend with fre- for development priorities and to re- a 16.1 Population, million quent shocks in the context of widespread spond to recurrent shocks, this debt relief b 11.7 GDP, current US$ billion fragility, conflict, and violence. Recurrent is expected to facilitate access to critical GDP per capita, current US$ 727.7 climate-related shocks such as cycles of additional financial resources needed to c 37.0 Gini index droughts, floods, locusts’ infestation, strengthen the economy, reduce poverty, c 25.0 volatile international commodity prices, as and promote job creation. School enrollment, primary (% net) d 55.3 well as increased insecurity and conflict Life expectancy at birth, years Total GHG emissions (mtCO2e) 43.7 have interrupted the country’s growth tra- jectory and slowed the transition from Source: WDI, Macro Poverty Outlook, and official data. a/ Estimates based on 2013 population estimates by UNF- fragility. Growth has been modest and Recent developments PA and assume an average annual population growth of does not generate the jobs needed to re- 2.8%. b/ Somalia released new GDP series (2017-22) in June duce poverty. It averaged only 2 percent The economy is rebounding gradually 2023, rebasing the old series. annually in 2019–23 with an average neg- with improved weather conditions con- c/ Somalia Integrated Household Budget Survey 2022 ative real GDP per capita growth of 0.8 tributing to the continued reversal of the (SNBS, 2023). d/ Most recent WDI value (2021). percent. Labor force participation rates are impacts of the prolonged 2020/23 severe exceptionally low with large gender gaps. drought. Favorable rains in 2023 led to Only one-third of men and 12 percent of improved agricultural production, re- women participate in the labor market. duced food insecurity, and supported Poverty is high and widespread, with re- private consumption. Exports recovery The economy continues its recovery as current shocks increasing the risk of more was faster than that of imports, as ex- improved weather conditions boost agri- people falling into poverty. ports of livestock rebounded. Neverthe- culture production, private consump- Somalia achieved a historic HIPC Comple- less, net exports continue to be a drag tion, and exports. GDP is estimated to tion Point (CP) milestone on December 13, on growth as the economy is heavily 2023. Following the CP, Somalia received reliant on imports. Private sector credit have grown at 3.1 percent in 2023, up full and irrevocable debt relief for the growth contributed to strengthening of from 2.4 percent in 2022. Supported by country of US$4.5 billion. As a result, So- construction, real estate, and investment favorable rains and declining global malia’s external debt is estimated at less as growth in remittances remained mut- prices, inflation eased in 2023 but re- than 6 percent of GDP in 2023, from 64 ed. Real GDP is estimated to have grown at percent in 2018. The country achieved this 3.1 percent in 2023, at par with population mained sticky. Nevertheless, recurrent milestone under a very challenging and growth, up from 2.4 percent in 2022. shocks such as the ongoing floods are fragile environment—the key structural Inflationary pressures eased in 2023, increasing the susceptibility of more reforms were implemented at a time when supported by better agriculture perfor- people falling into poverty. the country was plagued by multiple mance and declining commodity prices. shocks and challenges including the global Overall inflation, however, remained FIGURE 1 Somalia / Federal government revenue FIGURE 2 Somalia / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 8 100 710 7 90 700 80 6 70 690 5 60 680 4 50 670 40 3 30 660 2 20 650 1 10 0 640 0 2017 2019 2021 2023 2025 2018 2019 2020 2021 2022 2023 International poverty rate Lower middle-income pov. rate Tax revenue Non-tax revenue Grants Real GDP pc Sources: Somalia authorities and World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 282 Apr 24 sticky, averaging 6.1 percent in 2023 com- Poverty remains high. Projections based Real GDP growth is projected to ex- pared to 6.8 percent in 2022. Favorable on GDP per capita growth suggest poverty pand from 3.7 percent in 2024 to 4 per- rains in 2023 boosted agricultural produc- has increased from 71 percent in 2017 to cent in 2026. Economic reforms and in- tion, easing local staple food prices. Food in- 73 percent in 2023, based on the 2017 creased public investment with HIPC flation averaged 0.7 percent in 2023, com- poverty line. According to the 2022 Inte- CP dividends will boost investor con- pared to 13.9 percent in 2022. The easing of grated Household Budget Survey, while fidence and attract foreign direct in- global commodity prices has led to lower fu- poverty rates are highest among the no- vestment (FDI) encouraging increased el and energy prices locally, though still high madic population, due to Somali’s high ur- broad-based private sector activity. compared to pre-2022 levels, contributing to banization, the largest share of the poor Moreover, the recovery of agricultural the stickier overall inflation. are in urban areas. While the international production and exports is expected to The Federal Government of Somalia (FGS) community has provided support in the continue with improving weather con- ran a small surplus in 2023 but the fiscal form of food assistance, an expansion of ditions. This, coupled with further eas- situation remains challenging due to low social safety net programs, and support to ing of the global commodity prices, domestic resource mobilization (Figure 1). informal settlers in urban areas, people re- is expected to keep inflation low. Domestic revenue mobilization improved main vulnerable to falling below the Nonetheless, the outlook is subject to in 2023 to 2.8 percent of GDP, from 2.5 per- poverty line. Somalia remains vulnerable significant risks including climatic cent in 2022 but remained well below the to shocks, particularly climatic ones, un- shocks, security threats, and global development needs of the country. Pub- derscoring the importance of strengthen- economic shocks. lic expenditures are dominated by person- ing resilience through advancing reforms The poverty rate is projected to de- nel costs, while investments in human cap- to support growth, food security, and the crease between 2024 and 2026, reach- ital are largely financed by grants and in- provision of basic services. ing 71 percent in 2026, although still vestments in infrastructure are negligible. very high. Accelerating the pace of To improve fiscal sustainability and main- poverty reduction will require policy tain prudent fiscal policy, the government interventions and public investments will need to fast-track the numerous efforts Outlook that raise productivity, strengthen re- underway to increase domestic revenue as silience, create jobs, and expand pro- well as constrain its wage bill and its re- Medium-term recovery is projected to poor programs that focus on women liance on external donor funds. be modest as risks remain significant. and youth. TABLE 2 Somalia / Macro poverty outlook indicators (percent of GDP unless indicated otherwise) a 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.3 2.4 3.1 3.7 3.9 4.0 CPI inflation, annual percentage change 4.6 6.8 6.1 3.9 3.7 3.5 Current account balance -7.3 -8.0 -9.6 -8.6 -8.8 -10.4 Trade balance -50.9 -61.2 -58.8 -58.5 -57.7 -56.9 Private remittances 21.5 20.6 20.3 20.4 20.6 21.0 Official grants 23.0 33.0 29.3 29.8 28.6 25.9 b Fiscal balance -0.8 -0.1 0.2 -0.4 -1.2 -1.8 Domestic revenue 2.3 2.5 2.8 2.8 3.0 3.3 External grants 1.5 4.4 3.5 4.3 3.0 1.5 Total expenditure 4.7 7.0 6.2 7.5 7.1 6.6 Compensation of employees 2.5 2.5 2.5 2.6 2.5 2.5 External debt 39.9 36.7 5.4 5.0 5.7 7.2 c,d International poverty rate ($2.15 in 2017 PPP) 72.6 72.8 72.7 72.1 71.6 71.0 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 91.3 91.4 91.3 91.0 90.7 90.4 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 99.8 99.9 99.8 99.5 99.1 98.8 GHG emissions growth (mtCO2e) 0.0 0.0 0.2 0.3 0.3 0.2 Energy related GHG emissions (% of total) 1.5 1.5 1.5 1.5 1.5 1.5 Source: World Bank, IMF, and FGS. Emissions data sourced from CAIT and OECD. Notes: e = estimate; f = forecast. a/ GDP baseline estimates 2021-22 are by Somalia National Bureau of Statistics (SNBS, June 2023). b/ Federal Government of Somalia (FGS). c/ Calculations based on Takamatsu et al. (2022) “Rapid Consumption Method and Poverty and Inequality Estimation in Somalia Revisited.” Actual data: 2017. Nowcast: 2021–23. Forecasts: 2024–26. d/ Projection using neutral distribution (2017) with pass-through = 1 (High) based on GDP per capita in constant LCU. MPO 283 Apr 24 with the South African Reserve Bank’s price stability mandate. SOUTH AFRICA Key conditions and The political economy is complex. Amid growing discontent with eco- challenges nomic prospects and dismal public service delivery, the African National Table 1 2023 South Africa’s economy remains crippled Congress (ANC) is set to face highly Population, million 60.5 by multiple structural constraints, includ- contested general elections this year. GDP, current US$ billion 378.0 ing electricity shortages, transport bottle- Hence, there is uncertainty around the GDP per capita, current US$ 6248.5 necks (ports and freight rail), and a high economic policies the new government a 20.5 International poverty rate ($2.15) crime rate. Reforms to address them con- will prioritize. a 40.0 tinue to advance at a slow pace due to Lower middle-income poverty rate ($3.65) a 61.6 declining state implementation capacity Upper middle-income poverty rate ($6.85) Gini index a 63.0 and a lack of political consensus. Social School enrollment, primary (% gross) b 98.1 indicators remain dismal. Poverty is high Recent developments b 62.3 – estimated at 62.7 percent in 2023 when Life expectancy at birth, years using the upper-middle-income poverty Real GDP growth slowed from 1.9 per- Total GHG emissions (mtCO2e) 580.1 line – and inequality remains among the cent in 2022 to 0.6 percent in 2023. On Source: WDI, Macro Poverty Outlook, and official data. highest in the world. Progress on extend- the spending side, private investment a/ Most recent value (2014), 2017 PPPs. b/ Most recent WDI value (2021). ing access to basic services (such as wa- in alternative energy supported growth, ter, electricity, and refuse collection) is but a drawdown on inventories and stalling. Vulnerability to hunger has in- weak net export performance had a neg- South Africa’s economic growth slowed to creased since the COVID-19 pandemic. ative impact on growth. Domestic con- An estimated 12.9 percent of the popu- sumption remained constrained by poor 0.6 percent in 2023, undermined by con- lation was at risk of hunger in 2022, de- labor market outcomes and fiscal ex- straints on products and input markets spite the expansion of social grants. penditure restraint. On the sectoral side, and a broad-based decline in public ser- In the absence of structural reforms, the mining and manufacturing were affect- vice delivery (electricity supply, transport impact of fiscal policy on output (the fis- ed by power outages and transport bot- cal multiplier) has been low and declin- tlenecks. The services sectors performed and logistics, public safety). As this weak ing, reflecting inefficiencies in the alloca- better. Extreme weather events, includ- growth trailed population growth, per tion of resources and deteriorating state ing floods, severe storms, and droughts capita income contracted by 0.4 percent. capacity. Social spending has mitigat- in several provinces negatively affected The unemployment rate remains above 30 ed hardship, but weak job creation has agricultural output and had significant percent amid limited labor demand. hampered progress in reducing poverty. human and social costs. Higher public sector wages and transfers The unemployment rate averaged 32.4 Ahead of general elections in May, the to poorly performing state-owned enter- percent in 2023, with the rate for those 2024 Budget further extended social sup- prises have crowded out public invest- aged 15-34 at 44.9 percent. Even though port introduced during the pandemic ment, contributing to the erosion of the more jobs were created in 2023 – about while maintaining plans to stabilize debt. country’s public capital stock. Monetary 790,000 jobs – the pace of job creation is policy is sound, credible, and consistent not keeping up with the growing labor FIGURE 1 South Africa / Government financing FIGURE 2 South Africa / Actual and projected poverty rates and real GDP per capita Poverty rate (%) Real GDP per capita (constant LCU) 70 82000 60 80000 50 78000 40 76000 30 74000 20 10 72000 0 70000 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: National Treasury and World Bank. Source: World Bank. Notes: see Table 2. MPO 284 Apr 24 force, resulting in rising numbers of un- account deficit is expected to widen to employed people. 2.8 percent of GDP in 2024 and to 3 per- Consumer inflation, supported by sound Outlook cent of GDP by 2026. Nonetheless, it is monetary policy and lower global com- projected to remain financed by foreign modity prices, declined from 6.9 percent Persistent structural constraints limit capital inflows. in 2022 to 6.0 percent in 2023. The South South Africa’s economic potential. Real The fiscal trajectory is projected to im- African Reserve Bank left the key in- GDP growth is projected to average 1.3 prove gradually over the medium term. terest rate unchanged at 8.25 percent percent over 2024-26, as energy sector re- However, spending allocations remain since May 2023. Yet, high food and fu- forms are expected to improve electricity tilted toward current expenditure. Public el prices disproportionately affected the supply gradually. To accelerate the growth capital spending is projected below 3 per- most vulnerable people: the poorest 20 trajectory, broad-based reforms and faster cent of GDP over 2024-26 due to limited percent of households faced an inflation implementation are urgently needed. fiscal space. The government is planning rate of 9.3 percent. Inflation is expected to continue to decline, to draw down about US$8 billion from The current account deficit widened from easing the cost-of-living pressures on the Gold and Foreign Exchange Contin- 0.5 percent of GDP in 2022 to 1.6 percent households. The labor market is expected gency Reserve Account (GFECRA) – an of GDP in 2023, due to deteriorating to remain weak, driven by subdued pri- account at the central bank recording for- terms of trade (-4.8 percent in 2023), vate sector activity, skills mismatches, and eign exchange valuation changes in and logistics constraints on exports. Low- cumbersome labor regulations. This will rand–over the next three years to reduce er global commodity prices for South translate into unemployment rates in the its borrowing requirements, which is ex- Africa’s key exports contributed to weak- order of 32 percent over 2024-26. The weak pected to translate into slower debt ac- er fiscal revenue and, together with rising labor market will continue to weigh on cumulation. Public debt is projected to debt-service payments and persistent households’ consumption and progress on reach about 78 percent of GDP in 2026. spending pressures, negatively impact- social outcomes. The upper-middle-in- However, pressures on public wages and ed fiscal outcomes. The fiscal deficit come poverty rate is projected to remain state-owned enterprises, the extension of reached an estimated 6 percent of GDP high, at 62.5 percent in 2026. the COVID-19 social relief of distress in 2023/24, and public debt reached Less favorable terms of trade and persis- grant, persistently high interest rates, and an estimated 73.9 percent of GDP over tent transport bottlenecks are expected to high risks to growth and revenue could the same period. weigh on external balances. The current put fiscal consolidation at risk. TABLE 2 South Africa / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.7 1.9 0.6 1.2 1.3 1.5 Private consumption 5.8 2.5 0.7 1.4 1.4 1.4 Government consumption 0.5 1.0 2.1 -0.8 -0.3 -0.4 Gross fixed capital investment 0.6 4.8 4.2 4.2 4.0 4.0 Exports, goods and services 9.1 7.4 3.5 2.2 2.5 3.0 Imports, goods and services 9.6 14.9 4.1 3.8 3.0 3.0 Real GDP growth, at constant factor prices 4.4 1.9 0.6 1.2 1.3 1.5 Agriculture 7.4 0.9 -12.2 12.7 2.0 2.0 Industry 6.2 -2.5 -0.1 0.3 1.1 1.6 Services 3.8 3.4 1.3 1.1 1.3 1.4 Inflation (consumer price index) 4.5 6.9 6.0 4.9 4.5 4.5 Current account balance (% of GDP) 3.7 -0.5 -1.6 -2.8 -3.0 -3.0 Net foreign direct investment inflow (% of GDP) 9.7 1.6 2.0 1.5 1.5 1.5 a Fiscal balance (% of GDP) -4.6 -3.6 -6.0 -5.9 -6.0 -4.5 Revenues (% of GDP) 27.8 28.2 27.3 27.3 27.3 27.4 Debt (% of GDP) 67.8 70.9 73.9 74.5 76.9 78.0 Primary balance (% of GDP) -0.4 0.9 -1.0 -0.6 -0.6 1.1 b,c International poverty rate ($2.15 in 2017 PPP) 21.7 21.5 21.5 21.5 21.4 21.4 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 41.4 41.1 41.1 41.1 41.1 40.9 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 62.8 62.6 62.7 62.6 62.6 62.5 GHG emissions growth (mtCO2e) 3.2 3.7 -1.1 0.7 1.0 1.4 Energy related GHG emissions (% of total) 78.3 78.8 78.4 78.4 78.4 78.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ The Eskom debt-relief arrangement is reported above the line, in expenditures. b/ Calculations based on 2014-LCS. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2014) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 285 Apr 24 South Sudan’s economy faces vulnerabil- ities, including its dependence on non- SOUTH SUDAN Key conditions and concessional financing and limited fiscal space to respond to adverse global oil challenges and food price developments. The con- flict in Sudan presents acute macroeco- Table 1 2023 A decade after independence, South Su- nomic risks if oil pipeline routes through Population, million 11.1 dan’s development prospects remain con- the country are disrupted. GDP, current US$ billion 4.4 strained by fragility amid localized/inter- Implementing the 2018 peace deal and GDP per capita, current US$ 392.8 communal conflict. The 2018 peace agree- holding credible elections in December a 67.3 International poverty rate ($2.15) ment ended five years of civil war; how- 2024 is essential for domestic peace and a 86.5 ever, the transition period needed for its continued growth. Urgent implementation Lower middle-income poverty rate ($3.65) a 96.6 full implementation has been extended to of macroeconomic, governance, and trans- Upper middle-income poverty rate ($6.85) Gini index a 44.1 2025. Oil accounts for nearly all exports parency reforms is necessary to ensure School enrollment, primary (% gross) b 81.9 and about 90 percent of government rev- scarce resources are spent on development b 55.0 enues. Historic floods and the COVID-19 needs and to facilitate a sustainable and Life expectancy at birth, years pandemic upended a modest economic inclusive economic recovery. Reforms and Total GHG emissions (mtCO2e) 73.4 recovery in 2019. investments are especially critical in agri- Source: WDI, Macro Poverty Outlook, and official data. International Monetary Fund (IMF)-sup- culture, which supports livelihoods for 80 a/ Most recent value (2016), 2017 PPPs. b/ Most recent WDI value (2021). ported reforms initiated since 2021 have percent of the population; these will help helped improve macroeconomic and price to support diversification away from the stability and supported a recovery in the oil sector, create jobs, and build resilience Better harvests and a partial recovery in non-oil private sector. Higher oil prices fol- to climate change. lowing the war in Ukraine have lifted fiscal oil production following flooding-related revenues, although expenditures have also disruptions are lifting overall growth. increased. Poverty remains dire, with 7 in However, food insecurity and extreme 10 people living in extreme poverty. Some Recent developments poverty remain high because of climate 8.9 million people, 78 percent of the pop- ulation, face severe food insecurity, made GDP growth contracted by an estimated and external shocks, declining official de- worse by higher global food prices and 1.3 percent FY2022/23 due to a fourth velopment assistance, structurally weak domestic floods. In addition, 2 million consecutive year of flooding that dragged governance, inadequate service delivery, people are internally displaced (55 per- on oil production and higher food infla- and localized conflict. The conflict in Su- cent of whom are women and girls), tion due to the war in Ukraine and the dan presents acute risks to macroeconom- and 2.1 million remain refugees in neigh- lingering impacts of the COVID-19 pan- boring countries. Since the start of the demic. Nevertheless, a sustained recov- ic stability amid growing fiscal pressures conflict in Sudan, over half a million ery in private sector activity is evident, and pressing humanitarian needs; a loss Sudanese refugees and returnees from supported by improvements in macro- of momentum in the political transition South Sudan have registered in the coun- economic stability due to reforms an- could amplify these risks. try, compounding already severe domestic chored by IMF programs, higher govern- humanitarian needs. ment spending enabled by a recovery in FIGURE 1 South Sudan / Exchange rate developments FIGURE 2 South Sudan / Actual and projected poverty rates and real GDP per capita SSP/USD Spread, percent Poverty rate (%) Real GDP per capita (constant LCU) 1400 300 100 3500 1200 90 250 3000 80 1000 70 2500 200 60 2000 800 150 50 600 40 1500 100 30 1000 400 20 200 50 500 10 0 0 0 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 Oct-20 Apr-21 Oct-21 Apr-22 Oct-22 Apr-23 Oct-23 International poverty rate Lower middle-income pov. rate Spread (rhs) Official XR (lhs) Parallel XR (lhs) Upper middle-income pov. rate Real GDP pc Sources: Bank of South Sudan and World Bank. Source: World Bank. Notes: see Table 2. MPO 286 Apr 24 oil prices, an increased flow of credit to However, the government has accumulat- exports in recent months. Over the medi- firms, and a steady expansion in harvest- ed salary arrears since the start of the fis- um term, growth should remain close to ed areas as localized improvements in cal year and reverted to deficit moneti- 4 percent as oil output levels recover and peace and high crop prices encouraged zation. Data for FY24Q2 show continued non-oil activity improves, supported by farmers to expand planting. overdrafts at the central bank and the use moderating inflation and higher govern- Inflation has increased significantly in re- of oil advances to finance the budget. ment outlays on critical public invest- cent months, rising from 13.3 percent in Public financial management reforms to ments, health, and education. This outlook 2023H1 to 31.9 percent in January 2024 due strengthen expenditure controls and cash is predicated on prudent monetary and fis- to the weakening currency. The onset of management have been initiated. Howev- cal policies that anchor macroeconomic the conflict in Sudan and the recent Red er, there is limited transparency on oil rev- stability, progress on governance, trans- Sea crisis have impacted the oil revenue enues, including servicing of non-conces- parency, and structural reforms, and cred- flows, causing foreign exchange reserves sional external debt. South Sudan remains ible elections in 2024 that help to sustain to drop from 0.5 months of import cov- at a high risk of both external and domestic peace. The pressure on the current account erage in June 2023 to 0.2 months in De- debt distress. Despite a good trade deficit, is expected to increase due to higher debt- cember 2023. Amid increasing recourse to the overall current account deficit has service obligations, a decline in oil prices, deficit monetization, the official exchange gradually narrowed and shifted into a and a decline in international aid. rate has depreciated by 42 percent since small surplus due to large net transfers, Extreme poverty is expected to remain the start of 2024, and the premium in par- mainly remittances, reflecting increased stagnant at around 70 percent in the medi- allel markets has widened to 13.7 percent. confidence in the economy following the um term as real growth prospects are lim- Fiscal pressures proved more significant exchange rate reforms. ited. Addressing this reinforces the ur- than anticipated in FY2022/23. Higher oil gency of fiscal and public financial man- prices and non-oil revenue administration agement reforms that generate budgetary reforms increased overall revenues by resources to increase social expenditures. 42 percent. Expenses exceeded planned Outlook While efforts to modernize tax administra- outlays by 29 percent, with overall tion using digital solutions and to expand spending increasing by 41.9 percent, Growth is expected to rebound to 2 per- the tax base could help, fiscal pressures are mainly due to higher operational and cent in FY2023/24, supported by a sus- expected to remain substantial given siz- capital expenditures. The FY2023/24 bud- tained recovery in the non-oil sector and able debt-service obligations, a reduction get further raised capital expenditures, expanding crop planting. The recovery in in legacy arrears, and increasing social and increased public sector salaries by 130 oil production from the impacts of flood- humanitarian expenditures. It is thus al- percent to protect against the impacts of ing of oil fields has been partially offset so vital to strengthen the management and inflation, and raised transfers to regions. by a temporary decline in production and transparency of oil revenues. TABLE 2 South Sudan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -5.1 -2.3 -1.3 2.0 3.8 4.0 Real GDP growth, at constant factor prices -5.1 -2.3 -1.3 2.0 3.8 4.0 Agriculture -4.0 -1.8 -1.7 1.7 2.8 3.0 Industry -2.3 -4.8 -4.3 0.5 3.3 3.0 Services -9.7 1.7 3.6 4.1 4.7 5.6 Inflation (consumer price index) 43.1 22.0 18.0 35.0 22.0 12.4 Current account balance (% of GDP) -5.5 -1.6 5.0 4.2 5.7 6.4 Net foreign direct investment inflow (% of GDP) 0.9 1.0 0.8 0.7 0.6 0.6 Fiscal balance (% of GDP) -6.8 -6.1 1.9 2.0 2.0 1.9 Revenues (% of GDP) 30.9 30.1 30.6 32.0 31.8 31.5 Debt (% of GDP) 57.6 59.5 42.9 36.9 32.4 27.5 Primary balance (% of GDP) -4.4 -4.0 3.0 2.7 2.8 2.6 a,b International poverty rate ($2.15 in 2017 PPP) 67.5 68.8 69.5 70.1 70.0 69.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 86.6 87.6 88.0 88.3 88.2 88.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 96.7 97.1 97.2 97.3 97.3 97.3 GHG emissions growth (mtCO2e) 2.1 0.8 0.9 1.3 1.4 1.5 Energy related GHG emissions (% of total) 2.7 2.7 2.7 2.7 2.9 3.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2016-HFS-W3. Actual data: 2016. Nowcast: 2017-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2016) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 287 Apr 24 limited basis. As of end-March 2024, the ex- change rate stood at SDG 1150 in official SUDAN Key conditions and banks and SDG 1350 in the parallel market, a stark contrast to the pre-war rates of SDG challenges 580. Exports now take alternative routes to established channels due to decreased pro- Table 1 2023 The armed conflict that erupted in April duction. Smuggling has become common in Population, million 48.1 2023 has caused severe and long-lasting evading high duties, resulting in export rev- GDP, current US$ billion 109.3 damage to the economy, the industrial base, enues remaining outside Sudan’s official GDP per capita, current US$ 2272.5 education, and health facilities. It has also banking system. a 15.3 International poverty rate ($2.15) led to a collapse in domestic demand and a 49.7 economic activity (including commerce, fi- Lower middle-income poverty rate ($3.65) a 86.2 nancial, and information and communica- Upper middle-income poverty rate ($6.85) Gini index a 34.2 tions technology services) and is eroding Recent developments School enrollment, primary (% gross) b 77.8 state capacity. Fighting has spread across b 65.3 the country and reignited hostilities in tra- Amid the ongoing conflict, productive Life expectancy at birth, years ditionally restive regions, such as Darfur capacity has suffered drastically, and Total GHG emissions (mtCO2e) 126.6 and Kordofan. This in turn is impacting both private and government consump- Source: WDI, Macro Poverty Outlook, and official data. agriculture and trade, and exacerbating tion have plummeted. Export volumes a/ Most recent value (2014), 2017 PPPs. b/ WDI for School enrollment (2018); Life expectancy food insecurity and displacement. shrank and major external financial sup- (2021). Decreased local crop production seriously port and investment has been cut off. As threatens food availability. Direct fighting, a result, the economy is expected to con- displacement of civilians, and looting are tract for a seventh consecutive year in affecting farming and harvesting activities. 2024, by 3.5 percent, after an estimated Real GDP is expected to contract further The conflict is also exacerbating challenges contraction of 12 percent in 2023. linked to shortages of agricultural machin- Inflation has become more difficult to by 3.5 percent in 2024, after a 12 percent ery, extremely high fuel prices, and scarci- monitor. Indications are that rents have contraction in 2023, driven by wide- ty of labor. Sudan faces extreme levels of soared in safer areas, fuel costs have spread destruction of productive capacity food insecurity, with 17.7 million people soared across the country, and food prices due to the domestic conflict, and weak (37 percent of the population) experiencing have risen sharply in areas of scarcity but acute food insecurity. plummeted in pockets of oversupply as private consumption and exports. Infla- The currency has declined sharply against people have fled and sold off their pro- tion averaged 230 percent in 2023, and the US dollar, depreciating to unprecedent- duce. Inflation is estimated to have risen to the currency has depreciated by 125 per- ed levels given the high demand for foreign about 230 percent in 2023. In 2024, Sudan cent. The collapse of government institu- currency in response to both the crisis and topped the International Rescue Committee tions has disrupted public spending and related damage to the banking and payment watchlist of countries most likely to experi- systems. In particular, the electronic bank- ence a deteriorating humanitarian crisis. the exodus of people has reduced the tax The currency has significantly depreciated ing system stopped functioning for a time in base. Poverty remains widespread, and October 2023. Since then reports are that by 94 percent in the official and 125 percent food insecurity is extremely high. banking applications have operated on a in parallel markets since April 2023, and the FIGURE 1 Sudan / Real GDP growth and sectoral FIGURE 2 Sudan / Actual and projected poverty rates and contributions to real GDP growth real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 2 100 800 0 90 700 80 -2 600 70 60 500 -4 50 400 -6 40 300 -8 30 200 20 -10 10 100 Agriculture Industry 0 0 -12 Services 2009 2011 2013 2015 2017 2019 2021 2023 2025 Gross value added at basic prices International poverty rate Lower middle-income pov. rate -14 2018 2019 2020 2021 2022 2023 2024e 2025f 2026f Upper middle-income pov. rate Real GDP pc Sources: National Bureau of Statistics and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 288 Apr 24 premium between the parallel and official and oil. Gold mining and agriculture are rate has widened significantly, standing at expected to be the main drivers of growth 17.4 percent as of March 2024, compared to Outlook after the conflict de-escalates. 1.7 percent in March 2023. This reflects a rel- With a gradual stabilization in the po- ativeincreaseindemandforUSdollarsamid The outlook remains highly uncertain. It litical and economic situation, infla- an increasingly unregulated exchange mar- is based on a gradual cessation of conflict tion is projected to decrease further to ketaswellasforeigncurrencyshortages. over the coming year; however, it remains 80 percent in 2025 and 45 percent in The shock to the economy and public in- subject to large downside risks from pro- 2026. Sudan’s foreign currency short- stitutions, coupled with the disruption of longed conflict and tensions. Given the ages and currency depreciation are ex- budget execution has caused a contraction conflict-related economic losses and de- pected to persist throughout 2024-26, in spending and revenue. Despite the struction of infrastructure, the economy is as investment and other sources of heavy costs of the conflict, spending de- projected to contract by 3.5 percent in 2024 foreign exchange, such as aid flows, clined, as the conflict caused a marked and 0.7 percent in 2025. Inflation is forecast slowly resume. drop in subsidies and wages. The large ex- to decline to 180 percent in 2024, reflecting The fiscal deficit is expected to narrow odus of Sudanese and foreign nationals in- an adjustment of the base effect. as revenue increases (in line with a volved in commerce and business shrank Modest economic growth is expected from modest recovery, assuming the conflict the tax base. Consequently, the fiscal deficit 2026, assuming the inflows of international subsides) from 2025 onwards, backed is estimated at 3.5 percent of GDP in 2024. funding resumes. The economic recovery by reconstruction efforts. The current The current account deficit is expected to is expected to be driven by the reconstruc- account deficit is expected to widen widen to 6.9 percent of GDP in 2024 as tion of public infrastructure initially, as- throughout 2024-26, driven by an in- agricultural and mining exports were hit suming that the political upheaval begins crease in the trade deficit, given high by the fighting and both sides look to con- to ease and other macroeconomic funda- import requirements (first, due to the trol productive assets. Sudan’s external po- mentals improve from 2026. The conflict is war and later to meet reconstruction ef- sition is undermined by considerable cap- predicted to lead to a drastic reduction in forts). This should be accompanied by ital flight and disinvestment due to the economic output across all major produc- a gradual recovery in domestic demand highly uncertain political outlook. tive sectors, including mining, agriculture, and a partial recovery in exports. TABLE 2 Sudan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices -1.9 -1.0 -12.0 -3.5 -0.7 1.2 Private consumption -0.9 -0.8 -10.6 -3.1 -0.9 1.4 Government consumption -9.6 1.9 -36.5 -14.0 -4.9 3.0 Gross fixed capital investment -2.1 1.2 -20.0 -20.0 -1.5 1.8 Exports, goods and services 8.0 12.0 -32.0 -20.0 -9.0 5.0 Imports, goods and services -0.5 8.7 -36.0 -18.0 -14.0 8.0 Real GDP growth, at constant factor prices -1.9 -1.0 -12.0 -3.5 -0.7 1.2 Agriculture -0.6 1.0 -7.9 -2.0 1.1 1.1 Industry -0.7 -0.7 -11.6 -3.0 -1.5 1.0 Services -3.9 -3.0 -16.0 -5.5 -2.0 1.6 Inflation (consumer price index) 359.7 164.2 230.0 180.0 95.0 60.0 Current account balance (% of GDP) -7.3 -6.0 -0.6 -6.9 -7.2 -7.5 Net foreign direct investment inflow (% of GDP) -1.6 -1.3 -0.7 -0.9 -0.7 -0.5 Fiscal balance (% of GDP) -0.3 -1.7 -3.8 -3.5 -3.2 -2.8 Revenues (% of GDP) 10.5 10.0 4.8 5.5 6.2 6.5 a Debt (% of GDP) 215.6 183.6 167.3 158.5 149.5 139.3 Primary balance (% of GDP) -0.3 -1.4 -3.7 -3.5 -3.2 -2.8 b,c International poverty rate ($2.15 in 2017 PPP) 25.0 26.9 34.5 37.4 39.0 39.6 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 62.2 63.8 71.0 73.7 75.0 75.5 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 91.2 91.8 93.8 94.4 94.7 94.9 GHG emissions growth (mtCO2e) 1.1 -0.4 -1.9 0.0 1.7 2.5 Energy related GHG emissions (% of total) 17.6 17.3 15.5 16.6 18.0 19.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Debt projections do not include any restructuring achieved during the HIPC process. b/ Calculations based on 2014-NBHS. Actual data: 2014. Nowcast: 2015-2023. Forecasts are from 2024 to 2026. c/ Projection using neutral distribution (2014) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 289 Apr 24 for private sector and productive jobs cre- ation, as well as enhanced social protec- TANZANIA Key conditions and tion, human capital, and skills. challenges Table 1 2023 Tanzania’s economy has remained resilient Recent developments Population, million 67.6 amid multiple shocks, but the current GDP, current US$ billion 79.2 growth pattern is not inclusive enough. Despite the spillovers from the climate GDP per capita, current US$ 1170.8 The impact of economic growth on pover- change, Tanzania’ economic growth accel- a 44.9 International poverty rate ($2.15) ty reduction is near-zero. Increasing re- erated to 5.2 percent in 2023, from 4.6 per- a 74.3 liance on public infrastructure investments cent in 2022. The agriculture sector posted Lower middle-income poverty rate ($3.65) a 92.3 and a slowing structural transformation low growth at 3.4 percent, due largely to Upper middle-income poverty rate ($6.85) Gini index a 40.5 since 2014 led recent growth to be concen- frequent droughts and floods, while the School enrollment, primary (% gross) b 95.5 trated in modern sectors that employ few low growth in industry of 3.9 percent was b 66.2 workers from poor households. Policies due to underperformance of construction Life expectancy at birth, years designed to improve productivity and and water subsectors. Supported by buoy- Total GHG emissions (mtCO2e) 162.9 build resilience in Tanzania’s agricultural ant economic activities in financial and in- Source: WDI, Macro Poverty Outlook, and official data. sector—which produces just one-quarter surance, transport and storage, and trade a/ Most recent value (2018), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy of the country’s GDP and has employed and repair subsectors, the services sector (2021). three quarters of the poor—could help fa- remained the main driver of the economy cilitate structural transformation and re- and expanded faster by 7.3 percent in 2023. duce high and persistent poverty rates. Tanzania’s inflation continues to remain Diminishing role of Tanzania’s exports is low and stable at 3.0 percent in February Tanzania’s real GDP growth momentum another key challenge. Tanzania’s export 2024, thanks to eased global commodity to GDP ratio fell from 20.9 percent in 2012 prices, reasonably rapid fiscal subsidies, remained strong at 5.2 percent in 2023, to 14.3 percent in 2022. Main drivers be- and tightening monetary policies. with low and stable inflation. While both hind the deteriorating export competitive- Both external and fiscal balances have fiscal and current account deficit nar- ness are low productivity growth, high moderately improved. Bolstered by re- rowed, the foreign exchange challenge trade costs, as well as other tariff and non- duced domestic demand on imported tariff barriers. As a shrinking export vol- consumer goods, shrinking cost of oil persists. Over the medium term, the econ- ume will likely constrain growth in Tanza- imports, and an uptick in tourism re- omy is set to grow at around 6 percent, nia and yield fewer foreign exchange earn- ceipts, Tanzania’s current account deficit supported by increased private invest- ings, the government should implement has narrowed from 5.6 percent of GDP in ments resulting from strengthening busi- steadfast reforms to crowd in private 2022 to 3.8 percent in 2023. The improved ness environment. Major risks to the out- investment (including FDI) and reduce current-account position, combined with a trade costs to strengthen the country’s ex- relatively fast depreciation of Tanzania look are incomplete implementation of re- shilling against US dollars during the sec- port competitiveness. Priority policies in- forms, climate change, and deterioration clude active engagements in the regional ond half of 2023, partly alleviated pressure of global economy. free trade area, improving business climate on the BoT’s foreign-exchange reserves. FIGURE 1 Tanzania / Real GDP growth and sectoral FIGURE 2 Tanzania / Actual and projected poverty rates contributions to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant million LCU) 7 100 2.5 6 90 80 2.0 5 70 4 60 1.5 3 50 40 1.0 2 30 1 20 0.5 0 10 2020 2021 2022 2023e 2024p 2025p 2026p 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 GDP at constant prices Upper middle-income pov. rate Real GDP pc Source: World Bank staff estimates and projections. Source: World Bank. Notes: see Table 2. MPO 290 Apr 24 However, the forex supply-demand imbal- challenges still loom; heavy rains experi- rapid growth of gold, services, and man- ances persist, including a parallel foreign enced at the close of 2023, which ham- ufactured exports. Increasing FDI inflows exchange market though the premium re- pered sugar cane harvesting, alongside and concessional external borrowing will mains small. Between June and December recent floods in Hanang district, under- continue to fund the current account 2023, Tanzania shilling depreciated by 7.8 score the country’s vulnerability to cli- deficit and help keep official gross re- percent against US dollars while gross re- mate-related shocks. Climate shocks serves at an adequate level. The fiscal serves rose from US$5.2 billion (4.8 months strain an already fragile agricultural sys- deficit is projected to decline to 3.6 per- of imports) to US$5.5 billion (4.5 months tem, contributing to the escalation of cent in 2024 and near 3 percent in the of imports). Fiscal deficit has narrowed to food prices. Data from the National Bu- medium term. This is on account of ex- 3.8 percent of GDP in 2023 from 3.9 percent reau of Statistics, for instance, indicates pected higher tax revenue collections as in 2022 due to a combination of increased a 12 percent surge in food and non-alco- business climate improves and stabilized domestic revenue mobilization and con- holic beverages prices since January 2022, total expenditures. The financing sources trolled expenditures. Meanwhile, the risk disproportionately impacting urban areas of the narrowing fiscal deficit are both of external debt distress remains moderate. where poverty is on the rise, particularly foreign and domestic loans. Despite the shortages in US dollars, sug- in Dar-es-Salaam. The mains risks to the macro-economic ar, and electricity, the country is poised outlook include incomplete implementa- to sustain a downward trend in poverty. tion of structural reforms particularly Poverty measured at the international those related to boosting private sector, the poverty line of $2.15 per day (2017 PPP) Outlook intensifying impacts of climate change on is estimated to have dropped slightly food security and tourism sectors, and on- from 44 percent in 2022 to 43.5 percent in Real GDP is projected to grow at 5.6 per- going geopolitical tensions. 2023. The reduction in extreme poverty cent in 2024 and its long-run potential Projections suggest a continued decrease is accompanied by improvements in oth- of about 6 percent in the medium term, in the poverty rate, anticipated to decline er non-monetary poverty measures, as supported by improving business envi- from 42.4 percent in 2025 to 41.7 percent evidenced by data from the 2022 De- ronment and the steadfast implementa- in 2026. This downward trajectory is sup- mographics and Health Survey, where tion of structural reforms. The current ported by a promising macroeconomic progress has been observed in several account deficit is set to narrow further outlook and an agriculture budget aimed SDG indicators, such as the reduction to 3.3 percent in 2024 because of the at unlocking productivity through pro- in child stunting. Despite this progress, improved trade balance, supported by moting the intensification of agriculture. TABLE 2 Tanzania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 4.3 4.6 5.2 5.6 6.0 6.4 Private consumption 2.3 4.6 2.2 2.9 3.5 3.1 Government consumption 9.0 8.4 3.1 7.7 10.3 5.2 Gross fixed capital investment 7.8 9.6 3.8 6.2 6.9 9.4 Exports, goods and services 5.2 10.2 17.4 9.3 6.3 9.1 Imports, goods and services 9.6 23.7 2.3 4.2 4.1 6.5 Real GDP growth, at constant factor prices 4.3 4.6 5.2 5.6 6.0 6.4 Agriculture 3.7 3.8 3.4 3.8 4.8 5.5 Industry 4.1 4.3 3.9 5.6 6.2 6.3 Services 4.8 5.3 7.3 6.7 6.5 7.1 Inflation (consumer price index) 3.7 4.3 3.8 3.4 3.2 3.0 Current account balance (% of GDP) -3.2 -5.6 -3.8 -3.3 -3.2 -3.0 Net foreign direct investment inflow (% of GDP) 1.6 1.7 1.8 2.3 2.6 2.8 Fiscal balance (% of GDP) -3.8 -3.9 -3.8 -3.6 -3.4 -3.1 Revenues (% of GDP) 14.5 15.3 15.8 16.2 16.5 16.7 Debt (% of GDP) 42.0 43.6 42.2 41.0 39.7 37.3 Primary balance (% of GDP) -2.1 -2.1 -1.6 -1.5 -1.5 -1.3 a,b International poverty rate ($2.15 in 2017 PPP) 44.3 44.0 43.5 43.0 42.4 41.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 73.9 73.6 73.3 72.8 72.4 71.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 91.7 91.4 90.9 90.4 89.8 89.2 GHG emissions growth (mtCO2e) 1.3 0.6 0.8 1.1 1.2 1.2 Energy related GHG emissions (% of total) 11.1 10.9 10.9 11.0 11.0 11.1 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 2013- and 2018-HBS. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projection using point to point elasticity at regional level with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 291 Apr 24 to real income per capita gains of 2.4 per- cent per annum. Growth is estimated to TOGO Key conditions and have moderated to 5.4 percent in 2023, re- flecting weakness among key trading part- challenges ners and a retrenchment in public spend- ing as part of initial consolidation efforts. Table 1 2023 Growth has been resilient to a sequence of While the extreme poverty rate (at $2.15 Population, million 9.1 shocks since the COVID-19 pandemic, but 2017 PPP) dropped to 26.6 percent in 2021, GDP, current US$ billion 9.1 vulnerable populations have been adverse- from 28.4 percent in 2018, the actual num- GDP per capita, current US$ 1008.3 ly impacted by elevated inflation, while ber of extreme poor increased. Moreover, a 26.6 International poverty rate ($2.15) significant rural-urban disparities in eco- the rural-urban gap in welfare remained a 58.8 nomic opportunities and access to basic persistently high, with 41.3 percent of the Lower middle-income poverty rate ($3.65) a 86.8 services continued to hamper progress in rural population facing extreme poverty in Upper middle-income poverty rate ($6.85) Gini index a 37.9 reducing poverty and inequality. A strong 2021, compared to an urban rate of just 7.1 School enrollment, primary (% gross) b 122.5 fiscal response explains a significant part percent. Since 2021, rising inflation impact- b 61.6 of the economic resilience in recent years ed households’ purchasing power, and de- Life expectancy at birth, years but contributed to bringing public debt to spite sustained economic growth and Total GHG emissions (mtCO2e) 10.2 record high levels, averaging 63.0 percent higher agricultural incomes, extreme Source: WDI, Macro Poverty Outlook, and official data. of GDP in 2020-22. Amid tighter financing poverty remained nearly constant at 26.7 a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2022); Life expectancy conditions, rising debt service costs, and percent in 2022, dropping slightly to 25.6 (2021). growing regional uncertainty, developing percent in 2023. This slow poverty reduc- a well calibrated fiscal consolidation strate- tion coupled with faster population gy that preserves priority investments and growth led to about 40,000 additional ex- critical social spending, and privileging ex- treme poor between 2021 and 2023. Growth is projected to moderate in 2024 ternal concessional financing over more The fiscal deficit remained elevated at 6.6 expensive regional borrowing have be- percent of GDP in 2023 but narrowed from before picking up again in 2025-26, al- come increasingly urgent. Mobilizing pri- a three-decade high of 8.3 percent in 2022. beit at a slower-than-expected pace re- vate investment, including for infrastruc- The improvement resulted from lower flecting a deteriorated external environ- ture development and in agriculture, could transfers and subsidies, restrained goods ment including ECOWAS uncertainties, help boost growth and the welfare of most and services expenditure, and increased vulnerable and poorer populations while revenues. However, elevated security and ongoing fiscal consolidation efforts. fiscal space is being restored. spending and new economic and social in- As growth strengthens, the extreme frastructure investments prevented faster poverty rate should decline to 21.5 in consolidation, causing the debt-to-GDP ra- 2026, down from an estimated 25.8 in tio to further increase to 67.2 percent of 2023. Risks of regional instability, finan- Recent developments GDP. Regarding monetary policy, the Cen- tral Bank of West African States (BCEAO) cial turbulence, and climate pressures call Despite a series of unprecedented shocks, raised policy interest rates by a cumulative for resilience-enhancing reforms com- Togo maintained a robust 4.8 percent av- 150 basis points since mid-2022 (to 3.5 per- bined with prudent fiscal policies. erage growth rate over 2020-23, equivalent cent for liquidity calls and 5.5 percent for FIGURE 1 Togo / Real GDP growth and fiscal balance FIGURE 2 Togo / Actual and projected poverty rates and real GDP per capita Percent Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 7 4 100 700000 6 2 90 600000 80 5 0 70 500000 60 400000 4 -2 50 3 -4 300000 40 30 200000 2 -6 20 100000 1 -8 10 0 0 0 -10 2011 2013 2015 2017 2019 2021 2023 2025 2010 2012 2014 2016 2018 2020 2022 2024 2026 International poverty rate Lower middle-income pov. rate Fiscal balance (rhs) UTB recap. Real GDP growth Upper middle-income pov. rate Real GDP pc Source: World Bank. Source: World Bank. Notes: see Table 2. Note: World Bank projections start in 2023. MPO 292 Apr 24 the marginal lending facility) but inflation regain momentum from 2026 as fiscal con- spending and transfers on the expenditure in the region remained above the 1-3 per- solidation ends. Ongoing reforms should side, and by tax and customs reforms and cent target range and foreign exchange re- help support agriculture productivity and the rationalization of tax exemptions on serves dropped further to 3.5 months of boost private investment. The announced the revenue side. The government faces imports in 2023. exit of Mali, Niger, and Burkina Faso from difficult tradeoffs in its fiscal consolidation ECOWAS is expected to lead to relatively strategy to minimize disruptions to priori- modest trade disruptions in the short term ty investments and public services. but is heightening regional uncertainty, The growth outlook is subject to multiple Outlook which could weigh on investment senti- downside risks. Longer lasting disruptions ment, notably around the development of to global trade, commodity, and financial With global demand remaining subdued the Lome-Ouagadougou-Niamey econom- markets following a sequence of unprece- in 2024 and fiscal consolidation measures ic corridor. The BCEAO may need to con- dented shocks in recent years could have intensifying, growth in Togo is projected tinue tightening monetary policy in 2024 a significant knock-on effect on a small, to slow to 5.1 percent in 2024 (2.8 percent to bring inflation under control and pre- open, and relatively indebted economy per capita terms), before gradually vent further declines in foreign reserves. like Togo. A disorderly exit of Mali, Niger, strengthening to 5.4 percent in 2025 and 5.6 Poverty is projected to moderate gradually and Burkina Faso from ECOWAS, and pos- percent in 2026. While slower than initially in 2024 and 2025, and more substantially in sibly from WAEMU, could lead to financial expected due to faster fiscal consolidation 2026, to reach 21.2 percent. market instability in the short term and and regional uncertainties, growth will be In line with the fiscal framework agreed in trade dislocations over the medium term. supported by domestic demand with on- the context of the new IMF program and Additional downside risks stem from ris- going and planned private investment pro- WEAMU commitments, the fiscal deficit is ing insecurity in the North that could jects and a recovery in consumer spending expected to decline to 4.5 percent of GDP in weigh on investment, trade, and public fi- as inflationary pressures taper. Exports 2024 (excluding the one-off effect of the re- nances, as well as climate shocks that nega- will provide an additional boost from 2025 capitalization of the state-owned bank UTB tively impact agricultural productivity. Fi- as the global economy regains some amounting to 1.6 percent of GDP) and 3.0 nally, reforms could stall and hamper con- strength while public investment should percent in 2025 driven by a drop in capital fidence in Togo’s development trajectory. TABLE 2 Togo / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.0 5.8 5.4 5.1 5.4 5.6 Private consumption 9.9 1.3 4.8 6.0 5.9 5.8 Government consumption 0.2 8.8 5.6 3.1 6.1 5.9 Gross fixed capital investment -0.2 26.4 7.2 4.4 3.7 4.8 Exports, goods and services 5.3 -1.1 4.2 4.9 6.4 6.8 Imports, goods and services 6.9 5.1 3.8 4.3 5.0 5.4 Real GDP growth, at constant factor prices 5.3 6.2 5.3 5.0 5.4 5.6 Agriculture 3.4 5.0 5.1 4.1 4.5 4.2 Industry 5.7 7.3 7.1 6.4 6.8 6.9 Services 5.9 6.2 4.6 4.8 5.1 5.5 Inflation (consumer price index) 4.5 7.5 5.3 3.5 3.0 2.7 Current account balance (% of GDP) -0.9 -3.0 -3.3 -3.4 -3.0 -3.0 Net foreign direct investment inflow (% of GDP) 0.3 0.3 0.4 0.4 0.5 0.4 Fiscal balance (% of GDP) -4.7 -8.3 -6.6 -6.2 -3.0 -3.0 Revenues (% of GDP) 17.1 17.6 17.8 18.1 17.9 18.0 Debt (% of GDP) 63.0 65.8 67.1 68.8 67.0 65.0 Primary balance (% of GDP) -2.5 -5.9 -4.5 -3.8 -0.5 -0.7 a,b International poverty rate ($2.15 in 2017 PPP) 26.6 26.7 25.8 24.5 22.7 21.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 58.8 58.7 57.2 55.6 53.5 50.9 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 86.8 86.8 85.8 84.9 83.7 82.7 GHG emissions growth (mtCO2e) 6.4 5.4 2.9 4.0 4.4 1.2 Energy related GHG emissions (% of total) 25.7 26.9 26.4 26.4 26.4 20.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2018-EHCVM. Actual data: 2018. Nowcast: 2019-2023. Forecasts are from 2024 to 2026. b/ Projections using microsimulation methodology. MPO 293 Apr 24 innovative technologies. Finally, is to maintain prudent macroeconomic man- UGANDA Key conditions and agement alongside structural policies to avoid the ‘Dutch’ disease and to build re- challenges silience to climate shocks. Table 1 2023 Increased shocks and less momentum be- Population, million 48.6 hind policy reform create challenges for GDP, current US$ billion 42.0 sustaining economic growth and reducing Recent developments GDP per capita, current US$ 864.3 poverty in Uganda. Rapid population a 42.1 International poverty rate ($2.15) growth has kept a large share of the popu- Economic growth accelerated slightly to an a 71.8 lation below the poverty line, while human estimated 6.0 percent in FY24 despite exter- Lower middle-income poverty rate ($3.65) a 91.1 capital and infrastructure deficits have nal shocks. The Uganda Bureau of Statistics Upper middle-income poverty rate ($6.85) Gini index a 42.7 limited the country’s growth potential and estimates that GDP grew by 5.3 percent dur- School enrollment, primary (% gross) b 105.5 social welfare improvement. The challenge ing the first quarter of FY24. The industrial b 62.7 of creating productive jobs for the almost sector grew by 11.9 percent during this peri- Life expectancy at birth, years one million working age Ugandans enter- od, thanks to an oil-related construction Total GHG emissions (mtCO2e) 58.9 ing the labor market every year is enor- boom as FDI grew over 56 percent. Agricul- Source: WDI, Macro Poverty Outlook, and official data. mous. Although services constitute a large ture, too, accelerated despite volatile weath- a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2017); Life expectancy share of GDP, it has created a few jobs, er conditions. An uptick in private invest- (2021). mainly informal and low-skilled. Most of ments and employment growth reinforced the jobs are in the agriculture sector which domestic demand deeper into the year - de- is prone to natural disasters that climate spite a slight reduction in February 2024 to change is making more frequent and se- 51.7, Uganda’s Purchasing Managers’ Index Continued investment momentum, lower vere—and adapting to which is hampered has for the sixteenth consecutive month sig- by low adaptive capacity. naled a strengthening of private sector activ- inflation, and improved global supply To promote economic growth and reduce ity, with sustained increases in output, new conditions have supported a modest accel- poverty over the medium term, the Ugan- orders, and employment. While Uganda’s eration of GDP growth expected at 6.0 dan economy needs to structurally trans- exports surged with increased volumes of percent in FY24. A sustained fiscal con- form and shift labor into a more produc- production and improvement in terms of tive employment, ahead of oil revenue trade, resumption of gold trade, and recov- solidation will yield a primary fiscal sur- flows. The first required reform is to shift ery of tourism, imports grew stronger, sup- plus of 0.2 percent of GDP in FY26 and investments towards the private sector by ported by demand from oil investments. ease pressure on debt. GDP growth will reducing the cost of doing business and The Bank of Uganda (BoU) tightened accelerate beyond 6 percent in fostering access to finance. Second, the monetary policy in March 2024 to curb FY25–FY26, if not derailed by a global government must invest more strongly in possible passthrough of a fast-depreciat- human capital by shifting spending into ing shilling. Low inflation, averaging 2.9 slowdown, disruptions to oil production, percent during the first half of FY24 ben- social sectors, alongside measures to re- and weather shocks. Poverty will fall as duce inequality and strengthen resilience, efitted both investments and the poor incomes recover. and promoting uptake of digital and other households. During the second half of FIGURE 1 Uganda / Fiscal adjustment FIGURE 2 Uganda / Actual and projected poverty rates and real private consumption per capita Percent of GDP Percent of GDP Poverty rate (%) Real priv cons per capita (constant mil. LCU) 20 60 100 2.5 90 15 50 80 2.0 10 40 70 60 1.5 5 30 50 40 1.0 0 20 30 -5 10 20 0.5 10 -10 0 0 0.0 2019 2020 2021 2022 2023 2024e 2025f 2026f 2009 2011 2013 2015 2017 2019 2021 2023 2025 Public debt (rhs) Primary balance (lhs) International poverty rate Lower middle-income pov. rate Domestic revenue (lhs) Upper middle-income pov. rate Real priv. cons. pc Source: Ministry of Finance, Planning and Economic Development. Source: World Bank. Notes: see Table 2. MPO 294 Apr 24 FY24, inflation increased – gradually to 3.4 experience extreme weather events during The primary fiscal balance is expected to percent in February 2024, but forecast to next 12 months with higher negative ex- evolve into a surplus of 0.2 percent of GDP accelerate towards the target of 5 percent pectations among respondents from the by FY26, through more efficient spending as the Ugandan currency depreciated due poorest Northern and Eastern regions. and implementation of the Domestic Rev- to intensified portfolio outflows. Hence, on enue Mobilization Strategy. This fiscal con- March 6, 2024, BoU raised its policy rate solidation aims to continue reducing non- to 10 percent, from the 9.5 percent main- priority capital expenditures while main- tained since August 2023. Outlook taining the share of social spending, crucial The fiscal consolidation has steadily re- especially to poor households. Rationaliza- duced the primary fiscal deficit, estimated at Real GDP growth is expected to accelerate tion of exemptions and revenue adminis- 0.6 percent of GDP in FY24. While chal- to 6.6 percent by FY26, mainly driven by tration modernization to improve compli- lenged by persistent shortfalls, estimated at investments in the oil sector. With the pro- ance are expected to yield revenues of ap- about 12 percent below plans during the sev- gressed preparation of the Tilenga and proximately 0.5 percent of GDP in FY25. en months to January, government revenues Kingfisher drilling project areas, support- The reduction in the fiscal deficit will mod- share in GDP continued to increase. The ive infrastructure (including Kabaale air- estly reduce debt below 50 percent of GDP shortfall has been partially offset by under- port), and the pipeline construction, oil ex- through 2026, keep debt service manage- spending due to cuts and delays in the devel- ports are expected to commence by end of able, and reduce crowding out of private opment projects, which may have implica- 2025. However, timing may slip if the 60 sector investment. tions to growth. The fiscal deficit was mainly percent of the pipeline financing, anticipat- Accelerated growth may reduce poverty financed through external borrowing. ed from external creditors, delays. The in- (measured at the $2.15/day international Consistent with accelerated economic vestments and exports of oil will support poverty line) from 41.3 percent in 2024 to growth and low inflation, household per- government’s other promotion efforts for 40.1 percent by 2026. But given that house- ceptions on current and future economic tourism, export diversification, and agro- holds have limited adaptive capacity, the wellbeing are positive. According to the Oc- industrialization. Lower inflation will en- pace of poverty reduction will ultimately tober/November 2023 phone survey, re- able BOU to ease its stance, which com- depend on how food access and affordabil- spondents also experienced improved ac- bined with reduced fiscal pressures under ity evolve, and on the incidence of weather cess to essential products. Nevertheless, a fiscal consolidation, augurs well for both and any environmental shocks. The trick- about 41 percent of households continued foreign and domestic investment. le-down effect of oil for the poor will de- to be moderately food insecure and four Nonetheless, the slowdown of global pend on adopting the right set of policies percent were severe food insecure. About growth and disruptions in global financial and strengthening existing and setting up 40 percent respondents were certain to conditions remain major downward risks. new institutions. TABLE 2 Uganda / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 3.4 4.7 5.2 6.0 6.2 6.6 Private consumption 4.2 3.4 4.4 5.4 5.8 5.6 Government consumption 6.1 -17.4 18.3 2.0 -3.7 5.3 Gross fixed capital investment 5.1 20.1 1.8 9.5 10.6 9.9 Exports, goods and services 2.6 -18.6 7.0 7.7 8.3 8.4 Imports, goods and services 8.6 -8.9 3.2 8.6 8.7 8.8 Real GDP growth, at constant factor prices 3.4 4.7 5.2 6.0 6.2 6.6 Agriculture 3.8 4.4 4.8 4.9 5.0 5.1 Industry 3.4 5.4 3.8 6.2 6.5 6.5 Services 3.3 4.4 6.2 6.4 6.6 7.4 Inflation (consumer price index) 2.5 3.7 8.8 3.1 4.5 5.0 Current account balance (% of GDP) -10.2 -7.9 -8.2 -8.1 -7.4 -6.9 Net foreign direct investment inflow (% of GDP) 2.1 3.1 5.9 8.7 10.9 9.9 Fiscal balance (% of GDP) -9.5 -7.4 -5.5 -3.9 -3.7 -3.1 Revenues (% of GDP) 14.7 14.2 14.4 15.8 16.1 17.7 Debt (% of GDP) 49.6 50.7 49.1 48.5 47.8 41.9 Primary balance (% of GDP) -6.8 -4.6 -2.3 -0.6 -0.3 0.2 a,b International poverty rate ($2.15 in 2017 PPP) 42.2 42.1 41.8 41.3 40.7 40.1 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 71.7 71.8 72.0 72.4 72.8 73.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 90.9 91.0 91.5 92.3 93.2 94.1 GHG emissions growth (mtCO2e) 3.2 3.1 3.2 3.4 3.4 3.6 Energy related GHG emissions (% of total) 15.5 16.2 17.2 18.1 18.9 19.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2016-UNHS and 2019-UNHS. Actual data: 2019. Nowcast: 2020-2023. Forecasts are from 2024 to 2026. b/ Projection using point-to-point elasticity (2016-2019) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 295 Apr 24 domestic and external environments, they have supported economic recovery from ZAMBIA Key conditions and the multiple and compounding crises which started in 20220. Still, maintaining challenges macroeconomic stability remains challeng- ing due to uncertainty caused by protract- Table 1 2023 Zambia is a country with vast natural re- ed debt restructuring and declining min- Population, million 20.6 sources seeking to exploit economic op- ing performance over the past three years. GDP, current US$ billion 26.4 portunities to improve livelihoods by re- The recent contraction in the mining sector GDP per capita, current US$ 1283.5 ducing poverty and inequality, which are starting in 2021 has triggered a deteriora- a 64.3 International poverty rate ($2.15) high. The vast mineral resources (mainly tion in the external sector balances and a 81.0 copper) have been exploited with little val- softened fiscal revenues, leading to large Lower middle-income poverty rate ($3.65) a 93.2 ue addition and employment creation, currency depreciation, high inflation, and Upper middle-income poverty rate ($6.85) Gini index a 51.5 making growth and revenues volatile and a sharp increase in the cost of living. With School enrollment, primary (% gross) b 94.8 contributing little to inclusive growth. The the government’s capacity to finance de- b 61.2 mainstay agriculture sector, which em- velopment significantly constrained, com- Life expectancy at birth, years ploys most of the workforce, remains un- pleting debt treatment would give Total GHG emissions (mtCO2e) 93.5 diversified and has low and declining pro- breathing space for Zambia to restore Source: WDI, Macro Poverty Outlook, and official data. ductivity, exacerbating socio-economic de- macroeconomic stability and debt sus- a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). velopment challenges. The 2023/24 rainy tainability and support the administra- season’s drought, worsened by climate tion's ambitious reform program. change, has led to massive crop failure and Despite a protracted debt restructuring damage, affecting food security and liveli- hoods of 6.6 million people in 84 out of process and subdued copper production, 116 districts. The diminished water supply Recent developments Zambia’s economy has been recovering constraining hydroelectricity genera- since the COVID-19 recession, primarily tion—the dominant power source—is ex- Real GDP grew by 5.0 percent year-to-date driven by firmer services. In Q3:2023, re- pected to result in up to a 1000 megawatts and 5.1 percent y/y in Q3:2023, driven by annual deficit, disrupting business, espe- firmer services in transport, information al GDP grew by 5.0 percent year-to-date cially among most small and medium en- and communications, and hospitality. Cop- and 5.1 percent y/y. In 2024, a severe terprises, as blackouts intensify. per production remained below potential, drought affecting agriculture, electricity, Meanwhile, the current administration declining by 8.0 percent (y/y) due to legacy and water supply will significantly damp- continues to pursue bold fiscal and struc- operational difficulties at Mopani Copper en growth; however, an anticipated up- tural reforms to restore macroeconomic mines and Konkola Copper Mine (KCM). stability, reinvigorate growth, and increase This negatively impacted exports, with ex- turn in mining may offset some of the pro-poor spending since 2022. These re- port earnings declining amid heightened agricultural losses. Still, Zambia needs to forms followed a decade of unbalanced uncertainty arising from protracted debt re- finalize debt treatments to strengthen the fiscal expansion and unsustainable debt structuring, severely weakening Zambia’s response to drought and other shocks. accumulation that worsened distortions external balances. The current account and growth potential. Despite challenging slipped into deficit in 2023—the first time in FIGURE 1 Zambia / Selected macroeconomic indicators FIGURE 2 Zambia / Actual and projected poverty rates and real GDP per capita Percent Exchange rate Poverty rate (%) Real GDP per capita (constant LCU) 35 30 100 8400 30 90 8200 25 80 8000 25 20 70 7800 20 15 60 7600 15 50 7400 10 40 7200 10 5 30 7000 5 20 6800 0 0 10 6600 Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22 Feb-23 Aug-23 Feb-24 0 6400 6-8% target band Headline inflation 2010 2012 2014 2016 2018 2020 2022 2024 2026 Food inflation Non-Food inflation International poverty rate Lower middle-income pov. rate BOZ policy rate exchange rate (zmw/$) Upper middle-income pov. rate Real GDP pc Source: World Bank estimates. Source: World Bank. Notes: see Table 2. MPO 296 Apr 24 four years. The exchange rate depreciated revenues due to mining contraction. High- mining. This anticipated production im- by 41.8 percent against the US$ in 2023, save er non-tax revenues, better collection provement stems from a less wet rainy for short-lived appreciations in March and from non-mining, and higher grants season for open pit mining and the res- June around the news of expected break- from the development partners boosted olution of legacy operation challenges throughs in debt restructuring. overall revenue. leading to the potential realization of The sustained exchange rate depreciation significant pledged foreign direct invest- and a food price shock (due to a grain ment (FDI). Still, tight monetary policy deficit in the region) placed pressure on and elevated net domestic financing to domestic prices. Both food and non-food Outlook the government will likely constrain inflation picked up, leading to a broad- credit availability to the private sector based increase in headline inflation from A severe drought in the current rainy due to higher borrowing costs. 9.9 percent (y/y) in December 2022 to 13.5 season and cholera epidemic (with 20,577 There is substantial uncertainty surround- percent in February 2024, against the 6–8 cases and 699 deaths by end-February), ing the forecast. Firmer-than-expected cop- percent target range. Bank of Zambia which delayed the opening of schools, per prices would boost external sector per- (BoZ) raised the policy rate by 200 basis will significantly dampen growth to 2.7 formance and potentially reverse currency points (cumulatively) in 2023, with half of percent in 2024. The government de- depreciation. Finalizing a debt restructur- the increase in November amid intensify- clared the drought a national disaster ing deal would boost portfolio flows. Still, ing inflationary pressures and currency on February 29, 2024, and called for an downside risks are considerable. Copper depreciation. On February 14, 2024, the emergency response. Although crop fail- revenues may undershoot because of low- BoZ hiked the policy rate by an additional ure estimates are still preliminary, they er ore grades, delayed investments in the 150 basis points to 12.5 percent. It also suggest more than half of the planted sector, and weakening copper prices. The raised the statutory reserve ratio from 9.0 area is damaged, directly affecting pri- effects of climate change pose a risk in percent in January 2023 to 26.0 in February vate consumption. Despite the rationing terms of food security and hydropower 2024 to moderate FX demand and auc- of electricity to cushion real sector activ- generation. There could be additional in- tioned more than US$50 million in the in- ity, especially in the mines and critical flationary pressures from exchange rate terbank market, triggering a temporary ex- life support services, the power deficit pass-through effects and climate-induced change rate appreciation of 13.8 percent. is slowing down aggregate industry and events such as food shortages. Subdued The government continued the fiscal consol- services production. However, the min- global growth due to the contraction of idation launched in 2022, achieving a prima- ing sector is expected to recover in 2024 China’s economy, the primary market for ry fiscal surplus estimated at 0.2 percent of and stimulate growth in industry, ex- Zambia’s copper exports, could dampen GDP in 2023, despite underperforming ports, and services activities that support growth at home. TABLE 2 Zambia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 6.2 5.2 4.0 2.7 6.1 5.9 Private consumption 8.0 6.0 4.6 0.5 6.7 5.7 Government consumption 5.6 2.8 9.1 12.3 8.0 9.5 Gross fixed capital investment 4.7 5.0 6.0 6.0 7.0 6.6 Exports, goods and services 4.6 5.0 2.2 2.6 3.5 4.0 Imports, goods and services 2.5 4.0 4.5 3.5 4.0 4.0 Real GDP growth, at constant factor prices 6.4 5.5 3.9 2.7 6.1 5.9 Agriculture 6.9 -11.0 10.0 -20.0 2.0 2.0 Industry 7.1 -2.2 -1.7 1.8 3.8 5.0 Services 6.0 12.1 6.1 5.7 7.4 6.6 Inflation (consumer price index) 22.1 11.1 11.0 14.3 10.1 7.0 Current account balance (% of GDP) 9.7 3.7 -0.4 0.2 0.4 0.6 Net foreign direct investment inflow (% of GDP) 3.7 1.5 1.5 3.0 3.8 3.4 Revenues (% of GDP) 22.4 20.4 21.1 21.6 20.6 20.9 Primary balance (% of GDP) -2.0 -1.5 0.6 0.2 1.6 0.8 a,b International poverty rate ($2.15 in 2017 PPP) .. 64.3 64.0 64.0 63.2 62.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 81.0 80.8 80.8 80.2 79.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 93.2 93.1 93.1 92.8 92.5 GHG emissions growth (mtCO2e) 0.5 0.8 1.2 1.4 1.4 1.4 Energy related GHG emissions (% of total) 9.9 10.3 11.0 11.9 12.9 13.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on 2022-LCMS-VIII. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2022) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU. MPO 297 Apr 24 weather and global health shocks, and a weak social protection system. The nation- ZIMBABWE Key conditions and al extreme poverty rate has declined from its 2020 post-pandemic peak of 49 percent challenges to 43 percent in 2022. Yet, poverty and vul- nerability remain high, against a back- Table 1 2023 Zimbabwe’s economic performance is ground of cyclical agricultural production, Population, million 16.7 hampered by continued macroeconomic climate shocks, and elevated food prices. GDP, current US$ billion 33.5 instability and power shortages. High in- GDP per capita, current US$ 2012.0 flation, exchange rate distortions, and a a 39.8 International poverty rate ($2.15) difficult business environment raise the Lower middle-income poverty rate ($3.65) a 64.5 cost of doing business, which in turn are Recent developments a 85.0 leading to underinvestment, a rise in in- Upper middle-income poverty rate ($6.85) Gini index a 50.3 formal activity, and erosion of the fis- Driven by post-pandemic recovery, Zim- School enrollment, primary (% gross) b 96.0 cal revenue base. Jointly, this significant- babwe was one of the fastest-growing b 59.3 ly undermines the economy’s long-term SADC economies in 2022 and 2023. Real Life expectancy at birth, years growth prospects. The investment climate GDP is estimated to have grown by 5.5 in Total GHG emissions (mtCO2e) 115.8 is further hampered by inadequate elec- 2023, after a 6.5 percent growth in 2022, Source: WDI, Macro Poverty Outlook, and official data. tricity supply with power shortages esti- on the back of an expansion in agriculture, a/ Most recent value (2019), 2017 PPPs. b/ Most recent WDI value (2021). mated to cost Zimbabwe 6.1 percent of mining, and remittances-induced services GDP per annum. growth. Nevertheless, macroeconomic Zimbabwe’s external debt has rapidly in- volatility fuelled by monetary instability GDP growth is projected to slow to 3.3 creased in recent years, driven by external and substantial exchange rate distortions arrears and legacy debt. External debt has continues to keep Zimbabwe’s economic percent in 2024 after a solid post-pan- risen from US$9.5 billion in 2018 to activity below its potential. demic recovery in 2022-23. While a slow- US$17.5 billion in 2023 (an estimated in- Inflationary pressures remain high in 2024 down was expected, the growth is further crease from 26 to 95 percent of GDP). The as local currency depreciation intensified. affected by persistent macroeconomic in- increase is driven partly by debt arrears as Annually inflation increased for the fourth the GoZ stopped servicing external debt in consecutive month in February 2024, re- stability with high inflation and exchange 2000, and Zimbabwe’s external arrears ac- flecting sharp depreciation of the local cur- rate distortions, an El Niño-related cumulated to US$6.9 billion in 2023 mostly rency at both official and parallel foreign drought, and projected lower export to IFIs. The government is implementing exchange market. Annual inflation in- prices. The fiscal deficit is expected to in- arrears clearance and debt resolution strat- creased from 26.5 percent in December crease due to the transfer of RBZ’s exter- egy that is critical for debt resolution and 2023 to 47.6 percent in February 2024. The access to financial support. As part of this, official exchange rate has depreciated by nal liabilities to the treasury. Drought Zimbabwe also resumed token payments 788 percent in 2023 with the parallel mar- conditions will affect agricultural out- to multilateral creditors in 2021. ket premium estimated at 30 percent as of put and increase food insecurity and, Poverty has been elevated, on account of February 2024. Meanwhile, the Minister of potentially, poverty. continued macroeconomic instability, poor Finance announced a possible move to a job creation in the productive sectors, currency board, but details are lacking. FIGURE 1 Zimbabwe / Exchange rates FIGURE 2 Zimbabwe / Actual and projected poverty rates and real GDP per capita Poverty rate (%) Real GDP per capita (constant LCU) 100 16000 90 14000 80 12000 70 60 10000 50 8000 40 6000 30 4000 20 10 2000 0 0 2011 2013 2015 2017 2019 2021 2023 2025 International poverty rate Lower middle-income pov. rate Upper middle-income pov. rate Real GDP pc Sources: Zimstat and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 298 Apr 24 Fiscal pressures increased in 2023 ahead of the impact of structural bottlenecks, The current account surplus is expected national elections and the transfer of RBZ’s macroeconomic instability (high inflation to shrink further, reflecting an increase external liabilities to the treasury. The gov- and severe exchange rate volatility), an El in imports in the face of drought con- ernment increased civil servants’ salaries Niño-related drought, and lower commod- ditions and lower commodity prices. Ex- sharply, both in foreign and local currency. ity prices. El-Nino induced drought will ports are therefore expected to decline. The Treasury took over the servicing of affect most rain fed crops and may inten- Remittances remain the main driver of debt of US$1.8 billion in external liabilities sify electricity supply shortages. Neverthe- current account surplus. from RBZ. Meanwhile, some of the rev- less, continued increase in remittances will Poverty is expected to increase in 2024 enue proposals in the 2024 budget has help to stimulate growth in services due to drought and is projected to re- been reversed, casting doubt on the credi- (wholesale and retail trade), and construc- main high in the medium term. The bility of the budget. Nevertheless, the im- tion. Risks are titled to the downside and elasticity of poverty reduction to plemented taxes like sugar tax have led to include geopolitical tension, a weak global growth has proven to be very low in an increase in prices. environment for growth, and high infla- Zimbabwe, undermining the outlook The current account surplus narrowed in tion. Inflationary pressures will intensify for poverty reduction amid projected 2023, as remittances from non-governmen- in 2024, given drought conditions and in- deceleration of growth in 2024. This tal organization contracted. Nevertheless, crease in domestic taxes. is further exacerbated by El-Nino in- the trade deficit was slightly lower in 2023 The fiscal deficit will increase in 2024, dri- duced drought. In the medium term, compared to 2022. Exports increased by 9.7 ven by high interest payments on external vulnerability to poverty is expected to percent year-on-year, driven by tobacco debt, drought mitigation related spending, increase with changes in temperature and diamond. Imports increased by 6.4 wage pressures, and reversal of several and rainfall patterns linked to climate percent driven by fuel and maize imports. budget revenue measures. Interest pay- change. Key structural priorities to re- ments from servicing RBZ’s external liabil- duce poverty and break the depen- ities are projected to significantly increase, dence on weather cycles include boost- posing liquidity risks, amid limited access ing agricultural productivity, facilitat- Outlook to concessional financing. Fiscal deficit is ing structural transformation through projected to reach 2.3 percent of GDP in investment climate and monetary and Real GDP growth is projected to slow fur- 2024, before slowing to under 2.0 percent exchange rate reforms, and instituting ther to 3.3 percent in 2024, partly reflecting in the medium term. a robust social protection system. TABLE 2 Zimbabwe / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023e 2024f 2025f 2026f Real GDP growth, at constant market prices 8.5 6.5 5.5 3.3 3.6 3.5 Private consumption 1.5 4.9 3.0 4.0 3.6 3.5 Government consumption 142.1 31.3 30.6 3.6 1.8 2.0 Gross fixed capital investment 12.8 22.3 -18.0 -6.1 5.6 4.6 Exports, goods and services 47.0 43.9 3.0 1.5 3.4 3.4 Imports, goods and services 61.5 54.6 2.0 1.1 2.5 2.5 Real GDP growth, at constant factor prices 8.4 6.4 5.6 3.3 3.6 3.5 Agriculture 17.5 6.2 11.1 -5.9 6.0 4.9 Industry 6.4 5.5 2.8 4.0 3.0 3.1 Services 7.7 7.0 6.0 5.1 3.4 3.4 Inflation (consumer price index) 98.5 193.4 305.0 45.1 15.9 72.3 Current account balance (% of GDP) 1.0 1.0 0.8 0.1 -0.2 0.7 Net foreign direct investment inflow (% of GDP) 0.7 1.0 0.3 0.0 0.0 0.0 Fiscal balance (% of GDP) -2.0 0.1 -1.2 -2.3 -1.3 -1.2 Revenues (% of GDP) 15.3 16.4 17.2 18.4 18.6 18.4 Debt (% of GDP) 58.4 99.6 97.0 102.6 98.7 91.3 Primary balance (% of GDP) -1.9 0.2 -0.3 -1.4 -0.4 -0.5 a,b International poverty rate ($2.15 in 2017 PPP) 41.4 39.6 38.2 37.7 37.1 36.4 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 65.8 64.2 63.1 62.7 62.0 61.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 85.6 85.0 84.5 84.3 84.0 83.7 GHG emissions growth (mtCO2e) 0.4 1.2 0.7 -0.6 -0.4 -0.2 Energy related GHG emissions (% of total) 9.9 10.4 10.8 10.1 9.7 9.5 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 2019-PICES. 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 299 Apr 24 Macro Poverty Outlook 04 / 2024