World Bank: Stimulus program will drive economic recovery

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“The Mongolian economy is projected to recover in 2021 as stimulus measures prop up domestic demand, the adverse impact of the global economy recedes, and businesses and consumers adjust to the new norm of living with the pandemic as vaccines are rolled out,” the World Bank outlined in its latest economic update for East Asia and the Pacific (EAP), published on March 25.

The report, “Uneven Recovery” focuses on vaccination, fiscal, and climate change policies. The World Bank predicts Mongolia to see growth of 6.8 percent in 2021 after documenting an above-global-average economic contraction (5.4 percent). But its new 10 trillion MNT comprehensive action plan, issued by the Mongolian government to prevent COVID-19 health risks and stimulate economic recovery, is expected to fuel investment and non-mineral sector output through targeted policy loans.

“In Mongolia, in 2021, renewed investment in the mining sector should result in positive growth. In the short run, relief measures will be constrained by the government’s rising deficit. Its fiscal consolidation plan commits to medium-term adjustment but keeps current support measures in place until mid-2021,” the report read.

Global economic recovery and rising commodity prices are also expected to foster foreign direct investment and production in the mining and other mining dependent sectors including transportation. However, further surges in COVID-19 cases globally and domestically could seriously undermine the recovery, warned the World Bank.

The report calls for action to contain the disease, support the economy, and green the recovery.  With current stocks and allocation of vaccines, industrial countries are likely to achieve more than 80 percent population coverage by the end of 2021, while developing countries will achieve only about 55 percent coverage, according to the report.

“We need international cooperation more than ever, to contain the disease, support the economy, and green the recovery,” said Aaditya Mattoo, chief economist for EAP at the World Bank. “China can play a vital role, by exporting more medical products, boosting its consumption, and taking stronger climate action. And it too would benefit from a safer world and more balanced growth.”  

Only China and Vietnam are experiencing a V-shaped rebound where output has already surpassed pre-pandemic levels. In the other major economies, output remained on average around 5 percent below pre-pandemic levels. Hardest hit of all have been the Pacific Island countries. Economic performance has depended on the effectiveness of virus containment, the ability to take advantage of the revival of international trade, and the capacity of governments to provide fiscal and monetary support.

In 2020, poverty in the region stopped declining for the first time in decades. An estimated 32 million people in the region failed to escape poverty (at a poverty line of 5.5 USD a day) due to the pandemic.

“The economic shock caused by the COVID-19 pandemic has stalled poverty reduction and increased inequality,” World Bank’s Vice President for East Asia and the Pacific Victoria Kwakwa remarked. “As countries begin to rebound in 2021, they will need to take urgent action to protect vulnerable populations and ensure a recovery which is inclusive, green and resilient.” 

Inequality increased, driven by the pandemic and resulting shutdowns, as well as unequal access to social services and digital technologies. In Mongolia and other countries, children in the poorest two-fifths of households were 20 percent less likely to be engaged in learning than children of the top one-fifth.

Growth in the region is expected to accelerate from an estimated 1.2 percent in 2020 to 7.5 percent in 2021. China and Vietnam are expected to grow even more strongly in 2021, by 8.1 percent and 6.6 percent, respectively, up from 2.3 percent and 2.9 percent in 2020. Other large economies, more scarred by the crisis, will grow about 4.6 percent on average, slightly slower than pre-crisis growth.  Recovery is expected to be particularly protracted in tourism-dependent Island economies.

The report calls for international cooperation in the production and approval of vaccines as well as in allocation based on need, to help contain COVID-19.  Fiscal coordination would magnify the collective impact because some governments tend to under-provide stimulus. Apart from cooperative reduction in emissions, international assistance is anticipated to help poorer developing countries take deeper climate action.

Dulguun Bayarsaikhan