The COVID-19 pandemic and Russia’s invasion of Ukraine have collided to upend the fiscal and trade balances of many developing countries, undermining their financial stability and long-term growth prospects. The Financial Stability Board affirms that the current economic environment of high inflation, lower growth, and much tighter global financial conditions is particularly challenging for financial stability. The limited policy space in many jurisdictions makes it more difficult for authorities to intervene should a shock materialize.
The forces that have powered growth and prosperity since the early 1990s have weakened, resulting in a persistent and broad-based decline in long-term growth prospects. Productivity, trade, labor force, and investment growth are expected to flag over the remainder of this decade. The World Bank’s latest projections indicate that the world economy will remain frail—and at risk of a deeper downturn—into 2024. This unstable economic footing imperils the ability of emerging markets and developing economies to create jobs and deliver essential services. It puts development goals further out of reach.
The World Bank has long regarded strengthening the international financial architecture and enhancing developing countries' participation in the global trading system as global public priorities requiring global collective action. Today, the Bank’s support for financial sustainability and resilience has broadened beyond strengthening countries financial systems and macro-economic stability to include financial inclusion, access to finance, building effective and accountable institutions to tackle corruption, strengthening tax revenue generation and debt management, and improving financial resilience in response to natural disasters.
Trust funds and FIFs support this effort, especially through advisory services, analytics, and other knowledge-based activities that build institutional and human resource capacity to manage instability effectively. They contribute to projects that increase access to finance, promote free and fair trade, and help developing countries join and compete in the digital economy.
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