There have been many days over the past five years characterized as the final decision day, climax in a drawn-out attempt to resolve the Greek debt crisis and lead the country back onto a sustainable growth path. Today’s emergency summit of eurozone’s heads of government seems to be yet another of these days. Will Greece exit the euro or will there be another short-term respite? Are we really in the endgame? In the following, I will argue that whatever outcome, Greece will be on fiscal life support from the European Union for many years to come and that, ultimately, growth can only be restarted in Greece and not with externally imposed adjustment programs.
The frequency of natural hazards has increased over time. From 1970 to 2010, approximately 3.3 million people were killed (on average, 82,500 deaths per year), and the property damages exceeded US$2,300 billion, or 0.23% of the cumulative world output. After a disaster, governments should be able to respond fast with robust emergency relief aid as well as reconstruction. In fact, they should rebuild better. However, the average fiscal response after disasters across countries and time is close to zero (Melecky and Raddatz 2008, table 2).  This result can stem from very heterogeneous responses of countries, including due to the varying available fiscal space and ability of the private sector to respond alongside the government. In addition to good preparation, having available resources to respond after disasters is key, and financial development could help.
Effective management of retirement savings is fast becoming an important agenda in many countries due to a rapidly ageing population. In addition to fulfilling this critical function, pension funds, which are theoretically long-only investors, perform an important role by providing long-term financing and liquidity to the rest of the financial system.
These large institutional investors are often thought of as stabilizers for the financial system and are expected to behave in a patient, counter-cyclical manner, making the most of cyclically low valuations to seek attractive investment opportunities. Moreover, since pension funds are expected to invest with a long-term perspective, these institutions have generally not been thought of as adding to systemic risk.
Today we release our new research paper and the 2014 Global Findex dataset, an updated edition of the world’s most comprehensive gauge of global progress on financial inclusion. It’s based on interviews with almost 150,000 adults in more than 140 countries worldwide.
We have plenty to celebrate:
- Account penetration is deepening in every region. Sixty-two percent of the world’s adult population has an account, up from 51 percent in 2011, when the Global Financial Inclusion database (as it’s known formally) was launched.
- The ranks of the unbanked are shrinking Worldwide, the number of adults without an account tumbled by 20 percent, to 2 billion.
- Mobile money accounts — accessed via mobile phone — is powering Sub-Saharan Africa’s march toward financial inclusion. While just 1 percent of adults globally use a mobile account and nothing else, 12 percent of adults in Sub-Saharan Africa have a mobile account — versus just 2 percent worldwide. Of those adults in Sub-Saharan Africa with a mobile account, 45 percent rely on that account exclusively.
Despite pressing needs for spending on social services and public investment, most developing countries struggle to raise sufficient tax revenues to meet their needs. Pakistan raises only 10% of GDP in tax revenue, whereas the United Kingdom raises more than twice as much, 25% (WDI 2012. In large part, this is due to the fact that tax evasion is widespread in developing countries. Estimates are scant, but we know that a significant share of firms are not even tax-registered (Bruhn et al 2013), and many firms that are tax-registered misreport their taxable income and transactions (Pomeranz 2013, Carillo et al 2014). What is less well known is that the tax instruments used in developing countries also differ significantly from those in developed countries (Gordon & Li 2009). For instance, many developing countries use production-inefficient taxes such as turnover taxes, which can distort firms’ input choices, and which standard prescriptions based on developed country contexts would discourage. What motivates these policies, and could they actually be an optimal response to the presence of evasion? In a paper forthcoming in the Journal of Political Economy, we shed light at this question, using theory and evidence from Pakistan.
Various central bankers in emerging market economies have expressed concerns regarding the international spillovers of the U.S. and European quantitative easing, arguing for more coordinated global monetary policies. Despite the increasing interest in the topic, isolating the effect that the monetary policy of a country has on another country’s economy is not trivial, since many confounding factors (such as trade relations between countries or global macroeconomic shocks) take place simultaneously.
I’m thrilled to announce the April 15 launch of the 2014 Global Findex database, the world’s most comprehensive gauge of global financial inclusion. Drawing on interviews with almost 150,000 adults in over 140 countries, the Global Findex tracks worldwide changes in account ownership and explores how adults save, borrow, make payments, and manage risk. Financial inclusion, measured by the Global Findex as having an account that allows adults to store money and make and receive electronic payments, is critical to ending global poverty. Studies show that broader access to, and participation in, the financial system can boost job creation, increase investments in education, and directly help poor people manage risk and absorb financial shocks.
Our research updates the first Global Findex database, which the World Bank launched in 2011 in partnership with Gallup, Inc. and with funding from the Bill & Melinda Gates Foundation. Their continued support made it possible to add new features to the second edition of the database, including more nuanced questions on mobile banking and an extended module on domestic payments. The 2014 Findex for the first time sheds light on how adults use accounts — and what can be done to have people become more active users of the financial system.
There is much good news to report…. But to learn the details, you’ll need to follow our data launch during the annual World Bank-IMF Spring Meetings.
In 2008, one year ahead of national elections and against the backdrop of the 2008–2009 global financial crisis, the government of India enacted one of the largest borrower bailout programs in history. The program known as the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) unconditionally cancelled fully or partially, the debts of up to 60 million rural households across the country, amounting to a total volume of US$ 16–17 billion.
In both high-income and developing countries, firms’ long-term funding via equity financing plays a smaller role than bond issuances and syndicated loans (Cortina et al., 2015). However, developed and liquid stock markets are expected to play a key role by aggregating information about economic activity and firms’ fundamentals; information that in turn might be useful for firms’ managers, capital providers and regulatory authorities. In this sense, stock prices are expected to improve efficiency by directing capital towards more productive uses. For example, stock prices might facilitate firms’ access to credit by reducing information asymmetries between capital providers and firms, or alternatively, the stock price of a company might be informative to the manager when making a real investment decision.
In a new World Bank working paper, Bilal Zia and his coauthors study how insights from the biology of the human mind can help to better understand and facilitate learning of key development concepts, especially among illiterate populations in poor countries. To make people experience- rather than learning- the concept of probability, the researchers played a simple dice game in rural South Africa in a RCT involving 840 individuals. In the game each player started with one die and rolled till she got a six, then she was handed two dice and rolled till she got two sixes which on average took her much longer. Depending on how fast players were able to roll two sixes, they could reflect and update their beliefs about winning odds. Afterwards, players were told that winning the lotto would be equivalent to them rolling all sixes on nine dice. Read the complete blog post.