World Development Report 2023 [Latest Report]

The World Bank publishes the World Development Report (WDR) annually. It has been published since 1978. The latest world bank report is the World Development Report 2023 which was released by the World Bank in April 2023.  

For the IAS Exam, the key findings of WDR 2023 with respect to migrants, refugees and societies are important for prelims and mains (GS 2, GS 3) exams.

World Development Report 2023: Highlights

• The world population reached eight billion and is expected to grow further in the coming decades.
• Most developing countries like India have a rise in the young population.
• About 2.3% of the world’s population (184 million) which includes 37 million refugees live outside their country. 
• Indians with low skills who migrated to the United States saw a significant rise in their income of around 500%.
• Similarly, the rise in income for highly-skilled workers such as engineers and doctors is even higher.
• The report classified migrants into the following major types:
  • With skills in demand 
  • Economic migrants with skills that match with demand
  • Distressed migrants
• It identified top migrant corridors as India-US, India-Bangladesh and India-Gulf countries.
• The issues related to migration are becoming widespread and urgent.
• Reasons are – severe divergences between and within countries— such as real wages, labour market opportunities, patterns of demography, and climate change.
• It vouched for better migration management in destination, transit, and origin countries.

World Development Report 2022: Highlights

The key role played by finance in the post-pandemic economic recovery is examined in the World Development Report 2022: Finance for an Equitable Recovery. It underlines the effects of the crisis that are most likely to have an impact on emerging countries and advocates a set of policies to reduce the interrelated financial risks brought on by the pandemic and guide economies toward a sustainable and fair recovery.

The worst economic crisis to hit the world in more than a century was brought on by the COVID-19 epidemic. In 2020, 90 percent of nations experienced a decline in economic activity, the global economy shrunk by around 3 percent, and poverty levels rose globally for the first time in a generation. According to the report, the government’s quick and comprehensive policy reaction helped to mitigate the crisis’s worst immediate economic effects. However, a few economic fragilities were made worse by the government’s response.

The following four urgent economic concerns are highlighted in the report, along with specific actions that policymakers may take to address them and ensure a strong and fair recovery:

• Delayed resolution of distressed loans:
  • Effective insolvency procedures, including out-of-court options, can minimise government participation in debt resolution, prevent resource misallocation, and lower the social costs of widespread financial crisis. 
  • Delay in taking action might hamper entrepreneurship, limit credit access and postpone the return of economic activity.
• Rising nonperforming loans:
  • Financial institutions can continue to operate steadily, with adequate capital, and the ability to extend credit, particularly to low-income individuals and small enterprises, by increasing transparency and lowering the ratio of non-performing loans.
• Elevated levels of sovereign debt:
  • By actively managing and reducing the national debt, fiscal resources that are required to support the recovery can be made available. Long-lasting recessions, rising inflation, and decreased investment in social safety nets, public health, and education, all of which disproportionately affect the poor, are linked to delays in resolving debt sustainability.
• Tighter access to credit:
  • Financial institutions, particularly those that offer credit to low-income borrowers, can benefit from innovations in digital finance and lending models by more accurately assessing and managing risk.
  • In contrast, businesses can invest and provide jobs, while households with maintained access to money are more inclined to continue their consumption.

Candidates can go through some relevant articles linked below for assistance in their exam preparation-

The World Development Report 2022 analyses the risks and suggests solutions in a total of six chapters. The summary of these chapters are given below:

What is the Economic Impacts of the Pandemic and Emerging Risks to the Recovery?

• The COVID-19 pandemic sparked the worst financial catastrophe to hit the world in almost a century, with particularly serious consequences for developing nations. Large economic measures implemented by governments in response were successful in the near term. According to the report the government response, however, made a number of pre-existing vulnerabilities worse, which will require careful management to encourage an equitable recovery. 
• The emergency response also created new risks—such as dramatically increased levels of private and public debt in the world economy—that may threaten an equitable recovery from the crisis if they are not addressed decisively.
• The economic impacts of the pandemic were especially severe in emerging economies where income losses caused by the pandemic revealed and worsened some preexisting economic fragilities.
• Global poverty increased for the first time in a generation, and disproportionate income losses among disadvantaged populations led to a dramatic rise in inequality within and across countries.
• Although households and businesses have been most directly affected by income losses stemming from the pandemic, the resulting financial risks have repercussions for the wider economy through mutually reinforcing channels that connect the financial health of households, firms, financial institutions, and governments. Because of this interconnection, elevated financial risk in one sector can spill over and destabilize the economy as a whole.
• Policies that can make a critical difference are those targeting the links between the financial health of households, businesses, and the financial sector. 
• Similarly, governments, central banks, and regulators used various policy tools to assist financial institutions and prevent risks from spilling over from the financial sector to other parts of the economy. 
• The crisis response will also need to include policies that address the risks arising from high levels of government debt to ensure that governments preserve their ability to effectively support the recovery.

Read about the Impact of Covid-19 on Indian Economy: RSTV in the linked article.

How to Resolve Bank Asset Distress?

• Debt moratoria, loan forbearance, and relaxed reporting rules reduced transparency about the health of bank balance sheets, particularly in the recognition of non-performing loans (NPLs). This affects the financial sector’s capacity to lend. 
• To mitigate this risk, governments and financial institutions need to ensure transparency, management of distressed loans, and proactive interventions for distressed banks.
• Past experience shows that asset quality issues do not resolve on their own without a swift and comprehensive policy response. Ignored, NPLs tend to grow, creating mounting losses for the financial system. 
• The key elements of the strategy outlined to support the timely identification and management of NPLs, in essence if not in its specific implementation, to MFIs are:
  • Improving transparency and reducing incentives for mismeasurement
  • Resolving troubled loans through regulatory interventions
  • Dealing with problem banks

How Can We Restructure Firm and Household Debt?

• A sudden increase in NPLs and bankruptcies poses a significant challenge for the capacity of insolvency systems to resolve bankruptcies in a timely manner.  
• Furthermore, borrowers cannot declare themselves insolvent in countries with nonexistent or limited insolvency mechanisms. 
• Creating or improving formal legal insolvency systems, facilitating out-of-court workouts, tailoring certain rules for small businesses, and promoting debt forgiveness and long-term reputational protection for former debtors, can help avoid the risk of long-term and unresolvable debt distress.
• The following reforms are recommended to ease COVID-19 debt distress and facilitate an equitable economic recovery.
  • Strengthening formal insolvency mechanisms
  • Facilitating alternative dispute resolution systems
  • Establishing accessible in-court and out-of-court procedures for small businesses
  • Promoting debt forgiveness and long-term reputational protection for former debtors

Learn and revise from Indian Economy Notes for UPSC Civil Service Exam, in the linked article

How to Increase Lending During the Recovery and Beyond?

• The ongoing impact of the crisis on business performance and household incomes could inhibit new lending because of increased credit risk, reduced visibility into borrower viability, and diminished ability to realize value from collateral. 
• However, innovations in alternative sources of data, product design, and lending context, can help keep credit flowing in regulatory environments that both support it and ensure consumer and market protections. 
• These innovative methods to increase lending are:
  • Credit guarantees for managing credit risk
  • Alternative data and product design to improve visibility and recourse
  • The government policy responses to support digital transformation can help foster a more robust, innovative, and inclusive financial sector.
• Governments and regulators must modernise policy frameworks to balance the sometimes-conflicting imperatives of encouraging responsible innovation, on the one hand, and protecting customers and the financial sector’s stability and integrity on the other.

Read in detail about the  International Monetary Fund by visiting the linked article.

What are the Ways of Managing Government Debt?

• Many governments borrowed to pay for the massive economic support programs, leading to a roughly nine percentage point increase in total debt burdens among low- and middle-income countries during the pandemic. 
• There is a risk of protracted recession in countries unable to service their debt. Preventing that requires active debt management through reprofiling or restructuring debt, and longer-term reforms for debt transparency and tax policy.
• In order to reduce the economic and social costs of unsustainable sovereign debt and make public spending a viable source of growth for everybody, nations must manage it swiftly and pro-actively. The strategy is based on how serious the debt difficulties are, or more specifically, what stage the issue is in. The following would be the approach’s elements.
  • Managing sovereign debt to free up resources for recovery: Broadly, there are two options for debt management: (1) debt reprofiling—that is, modifications of the aggregate schedule of future country repayments through refinancing, debt substitution, or renegotiations; or (2) debt restructuring—that is, modifications of the financial structure of liabilities to reduce their net present value.
  • Resolving debt distress: A primary tool at this stage is debt restructuring, coupled with a medium-term fiscal and economic reform plan.
• The surge in sovereign debt during the COVID-19 crisis highlights the need for strategies to facilitate granular debt management, debt renegotiation, and access to capital markets over the longer term. 
• Three broad initiatives stand out in the effort to achieve these ends: greater debt transparency, contractual innovations, and tax policy and administration reforms.

Learn about the International Organizations and Their Headquarters for the competitive exams.

What are the Policy Priorities for the Recovery?

• Few governments have the resources and political leeway to tackle all of the economic challenges related to the pandemic at once. Countries will recover at different rates and governments will need to focus on both the most urgent risks experienced by countries in different contexts and global issues, such as exchange rate risk.

Conclusion:

Focus on inclusive and sustainable finance: The Report includes in-depth highlights intended to elevate attention to the challenges of providing financing to vulnerable populations, including the unique challenges of non-bank, micro-finance lenders that typically serve this market and how governments use capital markets to finance green and sustainable developments. These important highlights are:

• Financial inclusion and financial resilience
• Strengthening the regulation and supervision of microfinance institutions
• Support for microfinance to sustain small businesses
• Public credit guarantee schemes
• Greening of capital markets: Sovereign sustainable bonds

World Development Report 2022 – UPSC Notes:-Download PDF Here

Highlights of World Development Report 2021

The World Development Report 2021 provides a blueprint on how to harness the power of data for development, to ensure no one is left behind. The theme of the World Bank’s published the World Development Report 2021: Data for Better Lives.

The main highlights of the report are given below:

• Data As a Force For Public Good: Many government tasks require public intent data, which is information gathered with the intention of benefiting the public good by informing the design, implementation, monitoring, and assessment of public programmes and policies. Public intent data can benefit development in a number of ways, including
  • holding governments accountable and empowering individuals,
  • improving service delivery, and
  • prioritising scarce resources.
• The Social Contract For Data: To get more value out of data while protecting people against harm and ensuring access and representation. It is necessary for various data-creating and -using parties to safely collaborate. The Value, Equity and Trust are the three elements of a social contract for data.
• Governing Data: Data governance has two functions.
  • To minimise risks by making sure that data and systems are secure, protected, and intact; and
  • To create norms and technical standards that will make it possible for data to be transmitted, merged, and exchanged more successfully.
• Infinite Possibilities: Repurposing and merging data with both public and private intent can assist deliver real-time and finer-scale insights, fill in data gaps, and get beyond each data type’s constraints.
• Improving Data Systems: To fully capitalise on the value of data, an Integrated National Data System must be built (INDS). Through following the guidelines of the social compact, the INDS is a means by which nations can realise the potential of data for development. The INDS architecture enables a nation to safely and equitably distribute data across its national members.
• Crossing Borders: Although data can be traded, it must be adequately protected when being sent over international borders.
• Connecting The World: Providing equal access to data for poor individuals and poor countries requires a strong data infrastructure.

Data Gaps In India: WDR 2021

• Concerns about the World Bank’s distorted assessment of global poverty as a result of the absence of information on it from India have been raised. 
• Despite an increase in the overall number of monitored indicators in the Sustainable Development Goals, four indications have been removed off the country’s tracking list.
• Out of the 130 SDG indicators, India is monitoring 54.
• The report called for strategic repurposing of existing data.

India has made the following steps:

• Platform for Open Government Data (OGD):
  • To foster better governance, decision-making, innovation, citizen engagement, transparency, and accountability.
  • To set up a platform that will enable proactive and unrestricted access to the data generated.
• National Data Sharing & Accessibility Policy (NDSAP): The National Policy is anticipated to expand the availability of non-sensitive data to registered users and make it simpler for them to share it among themselves for the advancement of science, business, and society.
• Change in Governance: Direct Service Delivery to Citizens, Collaboration Platform Creation, and Innovation in Service Delivery to Citizens.

Red Flags Highlighted by the Report

The report raised the following issues:

• Lack of open data: 
  • According to the report, just 11% of low-income nations make their data open (not accessible to the general public or research institutions).
  • Comparable rates were 19% for lower-middle-income nations, 22% for upper-middle-income nations, and 44% for high-income nations.
• Not a level playing field:
  • Concerns about competition are growing as the number of data platform companies rises, and new regulatory obstacles are emerging.
• Underinvestment in public intent data systems:
  • By 2019, just fifty percent of the nations had a national statistical plan that was fully funded. No low-income country has a national statistics strategy, compared to 93% of high-income countries which have it.
• Data platform: This is an integrated technology solution that enables users, data applications, or other technologies to regulate, access, and deliver data that is stored in databases for strategic business goals.
• Data misuse:  
  • By making data more widely available to users and developing systems that encourage their reuse, they also leave room for data to be exploited maliciously in ways that could hurt people or development goals.
  • The report also raised issues with misinformation, attacks on software, networks, and data systems, and the safety of personal data.
• Data on women and girls suffer from serious gaps: Of the 54 gender-specific indicators required by the Sustainable Development Goals (SDGs), only 10 (or 19%) were readily accessible.
• Problem specific to lower-income countries: Lack of institutions, autonomy in decision-making, and financial resources prevent them from implementing data systems and governance frameworks effectively, preventing them from fully utilising the potential of data.
• Data Infrastructure Gaps: There are significant differences between rich and poor people in terms of broadband access, and there is a growing gap between rich and poor nations in terms of the availability of data infrastructure.

Way Forward

• International cooperation: The recognising international collaboration to align laws and coordinate policies in order to maximise the value of data and lead efforts to create a sustainable, resilient, and inclusive recovery.
• Participation of the Poor: Data has the ability to significantly improve programmes and policies, stimulate economies, and empower communities. The world’s discussion about data governance has mainly excluded the perspective of the poor, which urgently needs to be heard.

The following article will be useful for the aspirants of the civil services exam:

• Alternative Investment Fund
• Global Indices and India’s Ranking
• Negative Yield Bonds

Key Findings of the World Development Report 2020

The World Development Report mentions the rise of Global Value Chains (GVC) and its role in boosting growth, creating better jobs and reducing poverty. Let us understand what GVC is.

GVC – Global Value Chain

It is a break-up of the production process across the countries. For example, one final product goes through value-addition in different offshore locations in place of getting fully manufactured in one place. This is how countries are not only trading goods and services but also know-how. GVC leads to the integration of know-how of lead firms suppliers of key components along the stages of production and in multiple offshore locations. The main and distinguishing feature of GVC is the inter-firm flow of know-how.

Importance of GVC

1. It promotes growth productivity.
2. It helps in creating more jobs.
3. It helps in boosting standards of living.
4. It promotes the trade of skills and technology leading to growth in countries at a much faster rate.
5. With increased productivity, employment is generated with the help of GVC.
6. The trade of know-how in different sectors like agriculture, manufacturing, and services lead to growth across industries.

Disadvantages of GVC

1. It is harmful to the environment – Transportation leads to higher carbon dioxide emissions, and packaging of goods leads to an excess of waste (in electronics and plastics especially.)
2. It puts a stress on the natural resources – Any trade if accompanied by production or energy subsidies promotes excess production that further leads to depletion of natural resources.

How national policies can boost GVC participation

1. Countries’ Foreign Direct Investment (FDI) related policies can remedy the scarcity of capital, technology and management skills.
2. Small domestic markets can benefit from trade liberalization at home and negotiations in trade liberalization abroad.
3. Reforms in transportation and communication infrastructure can bring benefits to remote locations of the countries.
4. Countries realizing the GVC participation determinants — Endowments, Geography, Market Size and Institutions can bring related policy changes to increase GVC participation.
   • Improving bank access
   • Reforms in labour costs
   • Empowering people with foreign skills
   • Better and deep trade agreements
   • Advance logistic services and ICT services
   • Governance reforms

The key findings of the WDR 2020 are:

1. Steepest declines in poverty are witnessed among those countries that became an integral part of the GVC. For example – Bangladesh, China and Vietnam.
2. The growth in GVC was rapid in the 1990s but since the global crisis of 2008, the GVC expansion has slowed:
   • Due to the decline in the overall economic growth
   • Due to the decline in the investment
   • Due to the slowing pace of the and reversals of trade reforms
   • Trade protectionism can hamper the evolution of GVC.
3. Two threats to labour-intensive, trade-led growth:
   • Arrival of labour-saving technologies
   • Trade conflicts among large countries
4. GVC drives employment, better standard of living, and reduced poverty:
   • Efficiency is enhanced by ‘Hyperspecialization’.
   • Durability in the firm-to-firm relationship helps in better diffusion of technology and access to capital and inputs along the chains.
   • A 1 percent increase in GVC participation is estimated to boost per capita income by more than 1 percent, or much more than the 0.2 percent income gain from standard trade.
   • GVC leads to structural transformation in developing countries by driving people out of less productive activities towards more productive manufacturing and service activities.
5. High female employment – The percentage of women employed in firms related to GVCs is more than the ones employed in non-GVC firms. However, more women are found in the lower value-added segments than as the owners or managers.
6. Boost in trade – New technologies create both opportunities and risks:
   • These technologies favour trade and GVCs.
   • Innovation leads to new traded goods and services– substantiated by the fact that in 2017, 65 percent of trade took place in categories which did not exist in 1992.

World Development Report and India

1. Since different countries participate in Global Value Chains in different ways, India too has its own participation in GVC. It along with the US produce services that are being increasingly traded and embodied in manufactured goods.
2. India is one among the list of nations that have transitioned from limited manufacturing GVCs into advanced manufacturing and services GVCs.
3. India has seen an expansion of GVC in services. For example, ICT and business services sectors have rapidly expanded.
4. India is one among the nations where outward direct investments of firms have surged from 7 billion US dollars to 200 billion US dollars (Between 2000 and 2015) which makes a ⅓ of global GDP
5. In India, Indonesia, and Nigeria, firms with fewer than 10 workers account for more than 99 percent of the total.

World Development Report – UPSC Notes:-Download PDF Here

For IAS 2023 preparation, candidates can refer to related links below: