G20 Leaders concluded their summit over the weekend in Brisbane, Australia. G20 summits represent the culmination of a process of preparatory work and discussion that lasts a whole year. Concerns about weak prospects for global growth and job creation took center stage in the G20 agenda this year. Economic recovery in advanced economies has been slow and uneven and growth in the faster-growing emerging economies also has slowed. There is a growing recognition that restoring more robust global growth requires not only addressing the legacies of the global financial crisis but also implementing deeper, structural reforms to raise potential growth.
Against this background, all G20 countries were asked to prepare medium-term growth strategies to provide a systematic framework for addressing policies and priorities in the growth agenda. The strategies that have been prepared are comprehensive in scope, spanning macroeconomic policies and structural reforms to promote strong, sustainable, and balanced growth. They have a particular focus on four policy areas that the Australian G20 Presidency emphasized as key elements of the growth agenda, namely, investment and infrastructure, employment, competition and business environment, and trade. The emphasis in the strategies on investment and structural reforms is appropriate: while the proper calibration of macroeconomic policies is important to support aggregate demand in the short term, in the medium term it is the productivity-enhancing structural reforms and investments that will drive strong and sustainable growth. The strategies have benefited from an extensive process of discussion and peer review within the G20, supported by technical assessments prepared by international organizations. Final versions of these strategies were released yesterday together with the Leaders’ Communiqué and the Brisbane Action Plan (which provides an overview of these strategies).
Progress Towards the 2 Percent Collective Ambition. At the meeting of the G20 Finance Ministers and Central Bank Governors held in Sydney in February, a goal was set to raise G20’s collective GDP by more than 2 percent by 2018 over and above the projected growth trajectory based on existing policies (equivalent to a rise in the average annual GDP growth rate over this period of 0.4 percentage points). G20 members were asked to spell out in their growth strategies new policy measures that would help to achieve the additional 2 percent growth. So what is the likely growth impact of the strategies that have been prepared? Estimating the growth impact of a large number of policy commitments in diverse policy areas and country settings―and expressed with varying degrees of specificity―is a complex task and the estimates prepared inevitably are subject to a margin of uncertainty. Bearing these caveats in mind, an estimation exercise has been conducted by the IMF and the OECD, drawing also on inputs from other international organizations including the World Bank. It finds that the new policy commitments included in the growth strategies submitted by G20 members, if implemented, could raise G20’s collective GDP by 2.1 percent by 2018. This means that the G20 was able to deliver on its goal. This positive outcome owes greatly to the strong focus and coordination demonstrated by the G20 in the work on growth strategies throughout the year.
Policy Implementation and Policy Gaps. The big ‘if’ in this assessment is implementation. The estimated additional growth resulting from the growth strategies assumes full implementation of the policy commitments countries have made, which will present a significant challenge. Also, the baseline growth projections have been lowered since the 2 percent target was adopted in early 2014. So, even if the 2 percent target is largely achieved, aggregate growth could be lower than projected at that time. Besides, the 2 percent target was set by the G20 as a minimum goal. Meeting the jobs challenge effectively will require stronger medium-term growth. At the Brisbane summit, the G20 Leaders endorsed an Accountability Assessment Framework that will be used to monitor the implementation of the policy commitments countries have made and to make revisions to the growth strategies to incorporate additional measures to address policy gaps that remain and to respond to any sustained weakening of the global growth outlook. The framework will also monitor external spillovers of members’ policies in order to foster positive spillovers and minimize negative ones. The aim of this framework is to ensure that the G20 remains on track to achieve its growth objectives. The framework will involve a peer review process, with technical support from international organizations, including the World Bank.
World Bank Contributions. The World Bank closely supported the G20 work on the growth strategies throughout the year. As a first step in the preparation of the growth strategies, international organizations were asked early in the year to provide diagnostic notes on key areas of reform to help identify the major policy gaps that the G20 countries should address to boost growth. Bank staff contributed notes on competition and business environment, jobs, trade, infrastructure, and education and skills, identifying areas for priority attention. As a next step, the IMF, OECD, and the World Bank submitted a joint report to the G20 on macroeconomic and structural reform priorities, including presenting reform scenarios that could deliver additional growth. That report provided the technical basis for the adoption of the 2 percent additional growth goal by the G20 at its February ministerial meeting. G20 members submitted their draft strategies in May, which were peer reviewed in June. Informed by this review, revised growth strategies were submitted in August for another round of peer review in September. G20 members then finalized their strategies for release at the Leaders’ summit. The Bank, together with other international organizations, supported this review process by providing technical inputs and assessments.
The World Bank’s contributions had a particular focus on the growth strategies of G20 members that are emerging economies (10 in all). The Bank submitted its final report on the growth strategies of these countries just prior to the Brisbane summit. The report has a focus on structural reforms, which complements the IMF’s work on macroeconomic policies. The report evaluates the policy commitments countries have made in their growth strategies. It also identifies policy gaps that need more attention going forward.
The nature and strength of the policy commitments vary considerably across individual country growth strategies. Looking across individual countries, the Bank’s assessment provides the following messages in the key areas of reform covered in the strategies―in terms of where the policy commitments in general are stronger and where more action is needed to address continuing gaps:
- Investment/Infrastructure: The strategies are in general stronger on increasing investment levels and boosting financing but weaker on ensuring the quality and effectiveness of investment. Plans to increase spending need to be accompanied by stronger actions to improve public sector management of investment and the climate for private investment and public-private partnerships.
- Employment: The strategies are relatively strong on active labor market policies, vocational training, and policies to improve participation/employment of targeted groups―women and youth. These efforts (and demand-side measures) need to be complemented by deeper reforms of laws and regulations to improve labor flexibility and job formality―supported by well-designed and targeted safety nets―and of education and training to enhance quality and relevance.
- Competition/Business Environment: The strategies are generally stronger on reducing the cost and complexity of doing business and improving logistics to increase competitiveness but weaker on boosting competition. Areas needing more attention include strengthening competition policy, enhancing competition in service and network industries, and implementing deeper legal and institutional reform (such as to improve contract enforcement and the insolvency regime).
- Trade: The strategies typically have a strong focus on trade facilitation and actions to boost exports. Complementing these actions, the trade reform agenda would benefit from more attention to import liberalization and integration into global value chains, including liberalization of services trade. Beyond individual country actions, the G20 can do more on the collective action agenda on trade.