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Public Sector and Governance

The Supply Side of the Coin: Is Monetary Policy (Where There Is One) Passing Results?

Matija Laco's picture

Sovereign difficulties have divided financial markets in the Euro area, thereby increasing differences in bank lending rates across countries. Policy makers in both Brussels and Frankfurt are concerned about an uneven transmission of policy interest rate cuts by the European Central Bank (ECB) to bank lending rates across the region.

Based on this situation, a key question stands out: is the link between official, market, and retail interest rates broken?

When markets are functioning properly, interest rates on loans follow the policy rate in a uniform way across countries (granted with some lag). But, in the context of the ongoing crisis, markets became somewhat irresponsive – resulting in ECB rate cuts being unevenly passed on to borrowers across Euro-area countries. This uneven distribution has meant that those countries facing greater financial difficulties had to endure tougher financing conditions than those facing fewer difficulties – as exemplified when comparing Spanish and Italian retail rates to the much-lower French and German ones.  

So far, the economic literature has been relatively robust in arguing that government bond yields or credit default swaps (CDSs), given their stability, do not exert much influence on the way banks set their interest rates for their clients. However, the crisis has shown that because of the interconnectedness of central bank and sovereign balance sheets, developments in sovereign markets affect retail interest rates.

How has this played out in the EU11 countries? Have retail interest rate decreased in those countries where central banks reduced their policy rates? Or, was this a reaction on downward movement of CDSs?

Figure 1.  Interest rates on new lending to enterprises (in Percent) and CDS spreads (in basis points) in selected EU11 countries


 

What’s in Kyrgyzstan’s future?

Alex Kremer's picture

The problem with the World Bank’s 20th anniversary in Kyrgyzstan last November was that everybody else’s party had happened already.

There has been a blur of speeches, gala concerts, jazz bands, canapés, toasts and traditional performances as one embassy after another feted twenty years of partnership with the Kyrgyz Republic. The same guests, speeches, and – truth be told - probably the same canapés.

We had to do something different. So, as we celebrated the last 20 years of our work in Kyrgyzstan (which have been quite good), we toasted the next 20 years as well.


 

South East Europe Six: Growth, please!

Željko Bogetic's picture

Just six months ago, in the previous South East Europe Regular Economic Report (SEE RER) covering the six Western Balkan countries of Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia (SEE6), we looked at the double-dip recession in this region, and structural policies needed for recovery.
 
Now, we are happy to report that recovery is, indeed, under way in each of these countries. In 2013, the SEE6 region is projected to grow 1.7 percent, thus ending the double-dip recession of 2012. Electricity, agriculture, and even some exports are helping with this rebound of output. Kosovo is leading the pack with a growth rate of 3.1 percent, with Serbia (which accounts for nearly half of the region’s GDP) expected to grow by 2 percent on the heels of increased FDI, exports, and a return to normal agricultural crops. (In 2012, by contrast, agricultural output in Serbia dropped 20 percent on account of a severe drought). Albania, FYR Macedonia, and Montenegro are all expected to grow by between 1.2-1.6 percent. Rounding out this group is Bosnia and Herzegovina – with expected growth of 0.5 percent.
 
So, are things finally looking up in the Balkans? Not exactly.

Figure 1: SEE6 Unemployment Rates, 2012



Source: LFS data and ILO. Kosovo’s tentative data suggest unemployment as high as 35 percent.

Three Pillars for Prosperity in Montenegro

Željko Bogetic's picture

Over the last decade Montenegro has trebled its gross national income (from $2,400 in 2003 to $7,160 in 2012), has reduced its national poverty headcount from 11.3 percent in 2005 to 6.6 percent in 2010, and enjoys the highest per capita income among the six South East European countries.

Despite this considerable progress, however, Montenegro remains a country in need of a new economic direction. The global financial crisis has exposed Montenegro’s economic vulnerabilities and has called into question the country’s overall growth pattern. The period between 2006 and 2008 was characterized by unsustainably large inflows of foreign direct investments (FDI) and inexpensive capital, which fueled a domestic credit consumption boom and a real estate bubble. When the bubble burst in late 2008 and in 2009 real GDP shrank by almost 6 percent, triggering a painful deleveraging and a difficult recovery that is not yet complete. With the base for Montenegro’s growth narrowing and the country’s continued reliance on factor accumulation rather than productivity, it has become clear that this old pattern cannot deliver the growth performance seen just a few years ago.
 
So, what kind of growth model can drive Montenegro’s next stage of development in the increasingly competitive environment of today’s global economy?
 
As spelled out in the recent report “Montenegro – Preparing for Prosperity” this country can go a long way toward returning to the impressive economic gains it was making just a few years ago by emphasizing three critical areas of development: sustainability, connectivity, and flexibility.
 

Mapping the Kyrgyz Republic’s Poverty Distribution

Sarosh Sattar's picture
















A significant share of the population in the Kyrgyz Republic – 37 percent – lived below the poverty line in 2011, according to the latest available data. And despite a relatively modest population of about 5.5 million, poverty rates across oblasts (provinces) span a striking range -- from 18 percent to 50 percent.

Why? Well, that is a surprisingly difficult question to answer.  

The Many Faces of Corruption in the Russian Federation

Gregory Kisunko's picture

"No single national score can accurately reflect contrasts in the types of corruption found in a country." Michael Johnston, 2001

Corruption comes in various forms - administrative corruption being one example, state capture (a.k.a. “grand corruption”) being another. Although administrative corruption is not necessarily the most damaging form for economic growth and private sector development in Russia, and while its occurrence appears to be declining in Russia, perceptions of “state capture” are worsening.

Can Citizen Feedback Strengthen Development? (Replay Chat)

Lauren Clyne Medley's picture

Read this post in: Español, Français

Citizen Voices ConferenceThat was the first question up for debate at the Citizen Voices Conference on March 18. And the communal answer was a clear and resounding "yes."

The next question up posed more of a challenge – How do we build our public and private institutions so citizens can access information and influence decisions impacting their own lives? The answer to this was pulled apart for eight hours by technology innovators, development specialists, government officials, academics, civil society representatives, and members of the private sector at this interactive and multilingual conference.

Citizen Engagement in Development Projects: What We Know, What We Need to Do and Learn

Caroline Anstey's picture
Also available in: العربية

Read this post in Español, Français

Remember the old saying "the customer is always right"? The motto used by a number of prominent retailers (like Marshall Field) was all about placing value on customer satisfaction. In essence it was about listening to the customer – the final point person at the end of the retail line.

Today we are seeing business build far more sophisticated means of using modern technology to get feedback from their customers. It begs the question – if business can do that, why can't we try and do the same in the business of development - with the benefit of modern technology?

I've seen the evidence that we can do it. Last October at the World Bank, we applauded the work of teams in Bangladesh, Brazil, Cambodia and India, who've been using the mix of modern technology and development to boost results.

Citizen Engagement - Seven Questions, One Conversation

Tiago Carneiro Peixoto's picture

Read this post in: Español

Citizen Voices

Calls for increased citizen empowerment are heard from across the spectrum, ranging from governments and donors to CSOs and multilateral efforts such as the Open Government Partnership.

The World Bank Group, in partnership with CIVICUS, the Government of Finland and InterAction will host a conference on citizen engagement on March 18, 2013 to highlight the value of engaging with citizens for effective development.

The Citizen Voices conference will focus on citizen engagement and feedback systems that strengthen the quality of policy making and service delivery, where the impact on the poor is most direct. The conference aims to explore how citizen engagement is essential for effective development, move from knowledge to action, and establish concrete partnerships for scaling up at global and national levels.

But while the claims for citizen engagement abound, less discussion is dedicated to how to design and implement participatory processes that deliver their expected benefits, such as increased accountability and better delivery of policies and services. As part of this problem, not enough attention is paid to the various outcomes that participatory processes may engender and what they mean for policy and development.

Russia’s growth prospects: what about aging?

Kaspar Richter's picture

Spare a thought for the economist.

While in the past, people might have resorted to reading tea leaves to figure out what their future has in store for them, these days, at least on economic matters, people turn to the next available economist. But while economists are great at analyzing the past, predicting the future is still a complicated task.

In order to come up with projections, economists look at data. Now, it turns out that economists are often making long-term assessments based on the latest news. Take a look at these growth projections for ten years ahead for Russia, based on polls of economists conducted by Consensus Economics, along with actual growth in the year of the projections (Figure 1).  Clearly, while long-term projections are less volatile, the two are correlated – the better the present the better the future, and vice versa. In particular, long-term projections have noticeably nudged down since the crisis.

Figure 1: Actual Growth and 10-Years Ahead Growth

 

Projections for Russia (percent), 2004 to 2012

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