The World Bank has said that the Russia-Ukraine war was hampering the prospects of a post pandemic economic recovery in emerging and developing economies The ongoing war in Ukraine has dimmed prospects of a post-pandemic economic recovery for emerging and developing economies in Europe and Central Asia region.
In its Economic Update for the region, released today, the World Bank said that economic activities may remain deeply depressed through 2023, with minimal growth of 0.3% expected as energy price shocks continue to impact the region.
According to the global lender, the region has weathered the storm of Russia-Ukraine war better than previously forecast.
The Bank noted that regional output is now expected to contract to 0.2% this year, reflecting above expectation growth in some of the region’s largest economies and the prudent extension of pandemic-era stimulus programs by some governments.
It further noted that Ukraine’s economy is now projected to contract by 35% this year although economic activity is scarred by the destruction of productive capacity, damage to agricultural land, and reduced labor supply as more than 14 million people are estimated to have been displaced.
The World Bank estimates estimate that at least, a total of $349 billion would be needed to carry out recovery and reconstruction needs across social, productive, and infrastructure sectors.
“Russia’s invasion of Ukraine has triggered one of the biggest human displacement crises and exacted a heavy toll on human and economic life.
“Ukraine continues to need enormous financial support as the war needlessly rages on as well as for recovery and reconstruction projects that could be quickly initiated,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region.
The global economy continues to be weakened by the war through significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions.
The global development institute noted that while global prices for oil, gas and coal have been rising since early 2021, they skyrocketed when the war started. The unprecedented crisis, the Bank says has implications for consumers and governments alike – constraining fiscal affordability; firm productivity; and household welfare.
Hardest hit will be countries with medium to high reliance on natural gas imports for heating (which accounts for 30% of energy demand), industry, or electricity, as well as countries closely connected with EU energy markets.
These countries must prepare for gas shortages and put in place emergency plans to mitigate the worst impacts on households and firms, including saving energy, boosting energy efficiency, and implementing quota/rationing plans. Behavior change campaigns that focus on heating efficiency in homes and buildings, such as resealing windows and adding insulation, require relatively minimal investment and have immediate impacts.
Ms. Bjerde said: “The overlapping crises of the war in Ukraine, the ongoing pandemic and the surge in food and fuel prices are painful reminders that governments need to be prepared to manage massive, unexpected shocks that unravel very quickly. Social protection systems, which are the bedrock of anti-poverty efforts, need to be modernized to make them effective in the face of shocks as well as longer-term challenges.”
To address this, the Bank said policy makers should come up with social protections systems adaptive and inclusive to effectively address both short-term shocks to the economy, and the longer term trends which are transforming labor markets, including globalization, demographic trends, technological innovation, and the impacts of climate change and climate action.
“Policy interventions to building social protection systems for the future can include a combination of guaranteed minimum income support designed to protect individuals and households from adverse shocks, regulatory reforms that gradually remove restrictions on firms’ hiring and dismissal practices, and ultimately support the creation of formal jobs in the private sector and a reduction in informality; enhanced coverage of and protection for vulnerable groups; and digitalization for improved quality and quantity of services provision,” the report said.
