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The World Bank Europe and Central Asia (ECA) Economic Update Annual Meetings Istanbul October 3, 2009. More than $350 billion of ECA’s foreign debt matures in 2010. Source: World Bank, DEC Prospects Group. Economic Update The Crisis Hits Home. Office of the Chief Economist

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the world bank europe and central asia eca economic update annual meetings istanbul october 3 2009

The World BankEurope and Central Asia (ECA)Economic UpdateAnnual MeetingsIstanbulOctober 3, 2009

slide2

More than $350 billion of ECA’s foreign debt matures in 2010

Source: World Bank, DEC Prospects Group

economic update the crisis hits home

Economic UpdateThe Crisis Hits Home

Office of the Chief Economist

Human Development Sector Management Unit

Poverty and Economic Management Sector Management Unit

Europe and Central Asia Region

World Bank

Annual Meetings

Istanbul, October 2009

main points
Main points

Good news for enterprises, but foreign debt clouds the future

Industrial production stopped falling in mid-2009

But $350 billion of external debt due in 2010

Bad news for families as poverty and unemployment rise, while household debt clouds the future

Poverty will rise by almost 15 million instead of falling by 15 million in 2009

Stress tests indicate more debt distress likely for households in 2010

Tough times ahead for governments, and social security debt clouds the future

Fiscal deficits will rise from 1.5 to 5.5 percent of GDP in 2009

Stress tests indicate pension deficits rising to 5-6 percent of GDP

4

industry has stopped shrinking
Industry has stopped shrinking

Industrial production, percentage change (saar)

Middle-East & North Africa

East Asia & Pacific

South Asia

Developing

Europe & Central Asia

Latin America

Source: World Bank, DEC Prospects Group.

interest rates are lower
Interest rates are lower

Emerging-market bond spreads have fallen but remain higher than pre-crisis levels

Corporate bonds

(CEMBI Global)

Sovereign bonds

(EMBI Global)

Before Lehman Brothers

Source: World Bank, DEC Prospects Group

business regulations are better
Business regulations are better

Countries that made at least one positive reform in 2008 (%)

Leading Ten Doing Business Reformers in 2008

Rwanda

Kyrgyz Republic

Macedonia, FYR

Belarus

United Arab Emirates

Moldova

Colombia

Tajikistan

Egypt, Arab Rep

Liberia

Source: World Bank, Doing Business 2009

but debt obligations loom large
But debt obligations loom large

More than $350 billion of ECA’s foreign debt matures in 2010

Source: World Bank, DEC Prospects Group

slide10
Bad news for families as poverty and unemployment rise, while household debt distress clouds the future
poverty will rise
Poverty will rise

Increases in poverty and vulnerability (change in people living on <$5/day)

This graph needs to be redone,

with a stacked bar chart with both

Poverty (<$2.50) and vulnerability

(2.50-5.00)

Source: World Bank Staff

11

poverty will rise everywhere
Poverty will rise everywhere

Share of households below national poverty lines

Note: Estimates are not comparable across countries.

Source: World Bank Staff

rising job losses
Rising job losses

Registered unemployment has risen in almost every country since mid-2008

Source: World Bank Staff

job losses most in middle income eca
Job losses most in middle-income ECA

Growth of unemployment rates, 2009 over 2008, percent

Source: World Bank Staff

unemployment in turkey has doubled
Unemployment in Turkey has doubled

Registered unemployment in Turkey, February 2008 to August 2009

Source: World Bank staff

incomes in turkey have been falling
Incomes in Turkey have been falling

Evidence from Turkey finds a particularly large hit to self employment income

Source: World Bank-UNICEF Survey

the sources of household distress
The sources of household distress

Shocks are transmitted to households through financial, product and labor markets

Source: World Bank 2009: The Crisis Hits Home

household stress tests show distress
Household stress tests show distress

Severe Stress likely in Bosnia, Croatia, Estonia and Hungary

18

Source: World Bank Staff

rapid fiscal deterioration in 2009
Rapid fiscal deterioration in 2009

Central and Eastern European government accounts were hit sooner

Source: World Bank Staff

social protection spending
Social protection spending

ECA spends a lot on public pensions (percent of GDP)

Source: World Bank staff estimates and OECD Social Expenditure Database.

Most data from 2000 to 2003.

good coverage of social assistance
Good coverage of social assistance

Is lowest in ECA’s poorest countries, but compares favorably with other regions

22

Source: World Bank Staff

and reasonable targeting
And reasonable targeting

Not all goes to poor, but accuracy compares favorably with programs in other regions

23

Source: World Bank Staff

reforms needed for social security
Reforms needed for social security

The reforms that help the most are inflation indexing and higher retirement ages

24

Source: World Bank staff

messages
Crisis is not over. Countries in Emerging Europe and Central Asia face a slow recovery

No green shoots for workers

Tighter money ahead. Post-crisis growth will likely be lower, and fiscal deficits higher

Smaller budgets for governments

Fiscal consolidation, not indiscriminate cuts. More efficiency of spending can mean more growth and more equity

Better prospects for both families and firms

Messages
how the world bank is helping
How the World Bank is helping

Supporting budgets

Increased lending (IBRD/IDA): $3.8bn in 2007, $4.2bn in 2008, $9.3bn in 2009

Operations in Armenia, Bulgaria, Georgia, Hungary, Latvia, Poland, Romania, Serbia, Tajikistan, Turkey, and Ukraine

Strengthening institutions

Helping countries such as Belarus, FYR Macedonia and Turkey improve social assistance programs

Helping middle income countries strengthen banking systems

Helping all countries improve social service delivery mechanisms

Improving policies

Public expenditure reviews, e.g., in Poland, Lithuania, Russia, and Latvia to identify areas for efficiency

Economic reports, e.g., in Croatia and Central Asia to strengthen integration in Europe and Eurasia

26

more information
More information

27

World Bank, 2009: The Crisis Hits Home: Stress Testing Households in Europe and Central Asia, Report No. 50158-ECA.

[email protected]

[email protected]

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