Saving Lives, Scaling-up Impact and Getting Back on Track - World Bank Group COVID-19 Crisis Response Approach Paper (June 2020)

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Executive Summary

This paper sets out the WBG approach to providing support exceptional in speed, scale and selectivity to countries as they tackle the unprecedented threats posed by the COVID-19 crisis. WBG support focuses on helping countries address the crisis and transition to recovery through a combination of saving lives threatened by the pandemic; protecting the poor and vulnerable; securing foundations of the economy; and strengthening policies and institutions for resilience based on transparent, sustainable debt and investments. The paper outlines the operational framework for the approach and discusses the medium-term outlook for the WBG’s financial capacity. Working as One WBG, the approach emphasizes selectivity and public-private joint interventions to scale up private sector solutions while staying focused on results.

i. Disrupting billions of lives and livelihoods, the COVID-19 pandemic threatens decades of hard-won development gains and demands an urgent, exceptional response. There were over 6.2 million confirmed cases and 372 thousand confirmed deaths across 188 countries by June 1, 2020. The severity of the pandemic is challenging the world’s health systems, while associated lockdowns and travel restrictions have upended normal life for most people – even as lockdowns ease in some countries. The number of new cases worldwide is accelerating, with more than 100 thousand now reported daily, and the pandemic’s geography is shifting. Reported new infections have recently shown signs of tapering in advanced countries, but they are now rising rapidly in some developing countries in Asia, Africa, Latin America and the Middle East. The crisis is spurring changes in behaviors and trends likely to transform the post-COVID-19 world.

ii. The range of growth outcomes in 2020-21 remains exceptionally uncertain, and recovery is highly dependent on global progress in containing and mitigating the pandemic. The COVID-19 pandemic has triggered what is likely to be the deepest global recession since World War II. In a base case scenario, the global economy could shrink by 5.2 percent in 2020 before rebounding in 2021; in the downside scenario of prolonged shutdowns, world output could contract by almost 8 percent in 2020 (roughly equivalent to the combined GDP of France, Italy, and Spain). The recession in advanced economies is hitting developing countries hard, and the World Bank now projects negative growth for over 150 countries in 2020. The emerging food crisis could intensify, and food insecurity could spread much more widely.

iii. Billions of jobs are under threat worldwide. Nearly 80 percent of the world’s informal economy workers – 1.6 billion people – have faced COVID-19 lockdowns and slowdowns in hard- hit industries including wholesale and retail, food and hospitality, tourism, transport and manufacturing. With 740 million women globally in informal employment and a majority employed in services, women are particularly hard hit by the crisis. Remittance flows – economic lifeline for many low-income families and a key source of revenues for many developing economies – are expected to fall by one-fifth in 2020.

iv. The COVID-19 crisis is exacting a massive toll on the poor and vulnerable. Millions of people will fall into extreme poverty, while millions of existing poor will experience even deeper deprivation – the first increase in global poverty since 1998. This will mean an estimated additional 18 million extremely poor people in FCSs, and the pandemic is deepening existing sources of fragility and exacerbating instability in FCV settings. The pandemic is exacerbating specific risks for women with sharp increases in domestic and gender-based violence and a substantial increase in emergency calls for domestic violence cases.

v. The scale of the financing challenge for developing countries is measured in trillions of US Dollars. The sudden reversal of capital flows has helped finance the exceptional fiscal packages in the advanced economies but has left emerging markets and developing economies (EMDEs) exposed. The additional financing needs for developing countries arising from the crisis remain uncertain, but they will be exceptionally high and likely to persist over the medium term. Pandemic-related external financing gaps for active IDA countries could be in the range of US$25- 100 billion per year – assuming that incremental financing needs arising from the crisis are in the range of 2.5-10 percent of GDP per year and that only half of these can be met internally. For IBRD borrowers (representing approximately one-third of MIC GDP), the equivalent range is US$150- 600 billion annually.

vi. The WBG is repositioning from regular operations to mount an exceptional crisis response to help developing countries address spillover effects from the massive, sudden stop in global economic activity, just as the countries themselves are hit by the coronavirus. The WBG’s objective is to assist countries to meet the dual challenge they now confront: (i) addressing the health threat, and the social and economic impacts of the COVID-19 crisis, while (ii) maintaining a line of sight to their long-term development vision. The ambition of the WBG crisis response is to help client countries assist at least one billion people impacted by the COVID-19 crisis and to restore momentum on the Twin Goals. Intensified partnerships and coordinated support will be integral to responding at the scale needed to flatten the pandemic’s curve, protect prosperity and steepen the curve of recovery.

vii. The WBG COVID-19 crisis response is aligned with its comparative advantages and anchored in longstanding core principles – which taken together guide selectivity. The comparative advantage of the World Bank Group comes from the powerful combination of country depth and global breadth, public and private sector instruments and relationships, multisector knowledge and practitioner expertise, and the ability to mobilize and leverage financing. This positions the Bank to respond to multidimensional crises such as COVID-19, drawing on global experience and lessons learned. At the same time, the WBG’s resources are limited and it is committed to serve all clients. Therefore, its crisis response must focus on scaling up selectively for impact. Core principles guide this process, fighting poverty and promoting shared prosperity, sustainability, inclusion, fair burden-sharing, transparency, governance and respect for the rule of law. Equally, the approach reflects continued commitment to building human and natural capital and to preserving global public goods like public health, climate and biodiversity.

viii. Operating across the three stages of Relief, Restructuring and Resilient Recovery, four thematic pillars anchor a selective WBG crisis response. The relief stage involves emergency response to the health threat posed by COVID-19 and its immediate social, economic and financial impacts. As countries bring the pandemic under control and start re-opening their economies, the subsequent restructuring stage focuses on strengthening health systems for pandemic readiness; restoring human capital; and restructuring, debt resolution and recapitalization of firms and financial institutions. The resilient recovery stage entails taking advantage of new opportunities to build a more sustainable, inclusive and resilient future in a world transformed by the pandemic.