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Law and Regulation

The challenges of informality

Shu Yu's picture

Download the January 2019 Global Economic Prospects report.

The informal sector — labor and business that is hidden from monetary, regulatory, and institutional authorities — accounts for about a third of GDP and 70 percent of employment (of which self-employment is more than a half) in emerging market and developing economies. While offering the advantage of employment flexibility in some economies, a large informal sector is associated with low productivity, reduced tax revenues, poor governance, excessive regulations, and poverty and income inequality.

Addressing the challenge of pervasive informality will require comprehensive policies that take into account country-specific conditions.  Initiatives to boost long-term development might include measures aimed at reducing regulatory and tax burdens, expanding access to finance, improving education and other public services, and strengthening public revenue frameworks.
 
One-half of the world’s informal output and 95 percent of its informal employment is in emerging market and developing economies. Both informal output and employment have declined since 1990, particularly in countries with higher output growth, rapid physical capital accumulation, and larger improvements in governance and business climates.

Share of informal output and employment

South Asia: A bright spot in darkening economic skies?

Hartwig Schafer's picture
South Asia is set to remain relatively insulated from some of the rising uncertainties that are looming large on the global economic horizon. The region will retain its top spot as the world’s fastest-growing region. The Siddhirganj Power Project in Bangladesh. Credit: Ismail Ferdous/World Bank

If, like me, you’re a firm believer in New Year’s resolutions, early January ushers in the prospect of renewed energy and exciting opportunities. And as tradition has it, it’s also a time to enter the prediction game.
 
Sadly, when it comes to the global economy, this year’s outlook is taking a somber turn.
 
In the aptly titled Darkening Skies, the World Bank’s new edition of its twice-a-year Global Economic Prospects report shows that risks are looming large on the economic horizon.
 
To sum up:  In emerging market and developing economies, the lingering effects of recent financial market stress on several large economies, a further deceleration in commodity exporters are likely to stall growth at a weaker-than-expected 4.2 percent this year.
 
On a positive note, South Asia is set to remain relatively insulated from some of these rising global uncertainties and will retain its top spot as the world’s fastest-growing region.
 
Bucking the global decelerating trend, growth in South Asia is expected to accelerate to 7.1 percent in 2019 from 6.9 percent in the year just ended, bolstered in part by stronger investments and robust consumption.  

Among the region’s largest economies, India is forecast to grow at 7.5 percent in fiscal year 2019-20 while Bangladesh is expected to moderate to 7 percent in fiscal year 2018-19. Sri Lanka is seen speeding up slightly to 4 percent in 2019.
 
Notably, and despite increasing conflicts and growing fragility, Afghanistan is expected to increase its growth to  2.7 percent rate this year.

In this otherwise positive outlook, Pakistan’s growth is projected to slow to 3.7 percent in fiscal year 2018-19 as the country is tightening its financial conditions to help counter rising inflation and external vulnerabilities.

However, activity is projected to rebound and average 4.6 percent over the medium term.

Moving toward green mobility: three countries, three different paths

Nancy Vandycke's picture
A local bus in Luxembourg. Photo: Fränz Bous/Flickr
As discussions concluded at COP24, countries still struggle to translate their climate commitments into effective and socially acceptable actions. This sense of stagnation is particularly evident in transport. With 23% of energy-related GHG emissions coming from the sector, transitioning to greener mobility will be crucial to the overall success of the climate agenda. Yet the world remains largely reliant on fossil fuels to move people and goods from A to B. As shown in Sustainable Mobility for All’s Global Roadmap of Action, there are multiple policy options that could help countries move the needle on green mobility, each with their own fiscal and political costs. To illustrate this, let’s look at three countries that did take concrete measures to cut carbon emissions from transport but opted for three different options: France, Luxembourg, and Norway.
 
What these countries have in common
 
These three countries all have a high level of income, which means the majority of their residents can afford to buy and own a car. The governments of these countries have also invested heavily into road and rail systems—including France’s transformative high-speed railway network. This effort has significantly increased the number of people who have access to fast and reliable transport, and helped bridge the social divide between urban and rural areas.
 
But “universal access” is only one of the four policy goals to achieve sustainable mobility: efficiency, safety, and green mobility are equally important.  Now that the infrastructure is in place, and carbon-intensive cars and trucks are on the roads, the challenge for policy-makers is to figure out how we can reach these three other goals in a world where individual mobility has become a new “social right”.  In other words, which policies will be most effective for reducing the environmental footprint of the current mobility system (GHG emissions, noise, and air pollution)?

What’s keeping Pakistan in the dark?

Fan Zhang's picture
 $18 billion in fiscal year 2015—that is 6.5 percent of the country’s economy.
Nearly  50 million Pakistanis still lack access to grid electricity. Power distortions cost Pakistan’s economy much more than previously estimated: $18 billion in fiscal year 2015—that is 6.5 percent of the country’s economy. Credit: Curt Carnemark/ World Bank

From 1990 to 2010, 91 million people In Pakistan received electricity for the first time.
 
And power outages across the country have gone down drastically over the past few years.
 
Clearly, Pakistan has achieved much progress in expanding its electricity access and production in recent decades.
 
However, nearly  50 million Pakistanis still lack access to grid electricity and the country ranks 115th among 137 economies for reliable power.
 
After peaking in 2006, per capita electricity consumption failed to grow for almost a decade, remaining only one-fifth the average for other middle-income countries in 2014.
 
To boost sustainable energy supply, Pakistan’s power sector needs urgent investments and reforms to target inefficiencies in the entire electricity supply chain.
 
Fittingly, my new report In the Dark analyzes what lies behind these inefficiencies and suggests relevant actions to improve the operation of power plants, cut down on waste and costs, and increase electricity supply in a cost-effective manner.
 
The study sheds new light on the overall societal costs — not merely the fiscal costs as in previous research — of subsidies, blackouts and other distortions in the power sector.
 
To that end, my team and I surveyed Pakistan's entire supply chain from upstream fuel supply to electricity generation, transmission and distribution, and eventually, down to consumers.
 
Put simply, the numbers we found are dire.
 
Power distortions cost Pakistan’s economy much more than previously estimated: $18 billion in fiscal year 2015—that is 6.5 percent of the country’s economy.
 
Problems begin upstream, where gas underpricing encourages waste and reduces incentives for gas production and exploration.
 
And with no recent significant gas discoveries, higher gas usage has widened the gap between growing demand and low domestic supply.
 
On top of that, the volume of gas lost before reaching consumers reached 14.3 percent in fiscal year 2015. By comparison, this number is about 1 to 2 percent in advanced economies.
 
Public power plants use 20 percent more gas per unit of electricity produced than private producers.
 
Poor transmission contributed to 29 percent of the electricity shortfall in fiscal year 2015, while weak infrastructure, faulty metering and theft cause the loss of almost a fifth of generated electricity.
 
Electricity underpricing and failure to collect electricity bills have triggered a vicious “circular debt” problem, leading to power outages.
 
A lack of grid electricity also leads to greater use of kerosene lamps that cause indoor air pollution and its associated respiratory infections and tuberculosis risks.
 
Lack of access to reliable electricity also adversely impact children’s study time at night, women’s labor force participation, and gender equality.
 
Connecting all of Pakistan’s population to the grid and increasing the supply of electricity to 24 hours a day would increase total household income by at least $4.5 billion a year and avoid $8.4 billion in business losses.

New year with a fresh start: Addressing urban poverty in Bangladesh

Wameq Azfar Raza's picture


Although Bangladesh has achieved much in the way of poverty reduction and human development, progress has been slower in some urban areas.

Issues such as slow-down of quality job growth, low levels of educational attainment (notably among the youth), and lack of social protection measures have taken the wind out of the proverbial urban reduction “sail.” As the country starts fresh in the new year, it is an opportune time to reflect on some of the key issues affecting urban poverty.

Despite the steady growth in Gross Domestic Product (GDP), successive Household Income and Expenditure Surveys (2005 to 2010 and 2010 to 2016) suggest that the rate of poverty reduction has been slowing down while the absolute number of extreme poor have been increasing in urban Bangladesh. Given the accelerating rate of urbanization, it suggests that more people live in extreme poverty in 2016 than they did in 2010. With nearly 44% of the country’s population projected to be living in an urban setting by 2050, this issue is only likely to intensify.  

Several factors may be driving this trend. Absence of education and skills dampen labor market participation and productivity. Among those who participate in the labor-force in urban areas, 19% of men and 28% of women are illiterate. For those who received at least some training, a recent study shows that only 51% of eighth-grade students met equivalent competency in the native language subject (Bangla). The figures were markedly lower for other subjects. Similar trends carry through to technical diploma and tertiary level institutes. As a result, many prospective employers report reluctance to hiring fresh graduates.

Is GovTech the missing ingredient to curb corruption?

Renaud Seligmann's picture



Along with other leaders from the World Bank Group, I am traveling back from a trip to Silicon Valley where we explored the links between technology and government, or GovTech, and their impact on developing countries and curbing corruption.

Shining a light on asset-disclosure practices at the International Anti-Corruption Conference

Laura Pop's picture



In October, hundreds of representatives of civil society organizations, public and private sector representatives, journalists and international organizations gathered in Copenhagen for the 18th International Anti-Corruption Conference. This annual conference is viewed by many as a leading forum in the field of anti-corruption.

Fighting tax evasion: notes from the International Anti-Corruption Conference

Anders Hjorth Agerskov's picture



The irony was hard to miss.

Last month, leaders from the public and private sectors, civil society, international organizations, academia, and the media met at the International Anti-Corruption Conference (IACC) in Copenhagen.

What will Croatia’s soccer players do next?

Maciej Drozd's picture
Photo: Drusany/Shutterstock
The 2018 World Cup brought fame to the Croatian team, with many fans around the world – including the author of this blog - rooting for the team in white-and-red checkerboard jerseys. For the players on the Croatian national team, the success they found on the field should also pay off financially, thanks to prize money, higher pay, and advertising revenues.
 
But the stories of the top-earning soccer stars living a glamorous life of wealth tend to make us forget that most athletes are not wealthy enough to retire when their careers end and find themselves facing the same challenges as everyone else looking to change professions.
 

Milk fortification in India: The journey so far

Edward W. Bresnyan's picture
 NDDB
In India alone, 185 million people don’t get enough nutrients. This hidden hunger is especially pervasive among children. as more than 70 percent of India’s children under five are deficient in Vitamin D, and 57 percent of all children in the country lack adequate levels of Vitamin A. Credit: NDDB
Globally, more than two billion people are deficient in key micronutrients, which are essential to their good health.
 
In India alone, 185 million people don’t get enough nutrients.
 
This hidden hunger is especially pervasive among children. More than 70 percent of India’s children under five are deficient in Vitamin D, and 57 percent of all children in the country lack adequate levels of Vitamin A. 
 
These deficiencies have contributed to high levels of stunting, wasting and underweight children.
 UNICEF 
Global micronutrient deficiency (as a percentage of the population). Two billion people in the world lack key micronutrients such as Vitamin A or iron. South Asia has the most critical malnutrition levels. Source: UNICEF 


Micronutrient availability can make or break a balanced diet
 
If accessible and affordable, nutritional supplements taken in the form of capsules or tablets can mitigate the symptoms of hidden hunger. But they can become toxic if consumed in large amounts.  
 
Unlike supplements, food fortification is a simple, preventive and low-cost approach to curb micronutrient deficiencies.
 
But except for mandatory iodine fortification of salt, India lags in adopting food fortification as a scalable public health intervention.  
 
This is a missed opportunity as a glass of fortified milk (320g) can provide approximately 34 percent of the recommended daily allowance of Vitamin A and 47 percent of Vitamin D.
 
In 2016, the Food Safety and Standards Authority of India released standards for the fortification of five staple food items: rice, wheat, salt, oil, and milk. Further to that, regulations are now in place to fortify milk variants such as low fat, skimmed, and whole milk with Vitamin A and D.   
 
But despite its significant health benefits, and while established for more than three decades by companies such as Mother Dairy, a subsidiary of the National Dairy Development Board (NDDB), milk fortification is not yet common practice across the Indian milk industry.
 
To fill that gap, NDDB partnered in 2017 with the South Asia Food and Nutrition Security Initiative (SAFANSI), the World Bank, and The India Nutrition Initiative, Tata Trusts to explore the possibilities of large-scale milk fortification in India.
 
Over the last twelve months, this collaboration has enabled ten milk federations, dairy producer companies, and milk unions across the country to pilot milk fortification for their consumers. Fifteen others have initiated the process.


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