WB suggests innovative steps to restart economy

NEWS DESK 

The World Bank recommends adoption of innovative policies to jumpstart the economy.

It says a combination of temporary work programs and a moratorium on debt servicing and rent payments could help prepare for the restart of the economy.

To maintain their financial credibility reliably with their development partners , the World Bank strongly recommends that the South Asian countries keep their sovereign debt sustainable through fiscal prudence and debt relief initiatives. 

Observing it is better for the South Asian countries to reduce dependency on few international partners, it said in the longer run, South Asia would do well by diversifying its international connections, while there are great opportunities to expand digital technologies for payment systems and distant learning to unlock remote areas in South Asia.

Public banks must perform free from interference

Making an observation that over 40 percent of South Asia's banking assets are owned by the public sector, the largest share among global regions and more than twice the level of East Asia (excluding China). This has both positive and negative effects, it says.

The report observes that on the positive side, their lending can be countercyclical, and they are more likely than private banks to provide services to people in remote areas and poor people. That is an opportunity in the current crisis. 

On the negative side, they suffer from inefficiency and are likely to reduce competition and thus slow innovation, while they face severe agency problems, leading to political interventions that result in an inappropriate use of public money. These negative characteristics were at the root of the rise in non-performing assets in recent years.

The bank recommended that the public banks in South Asia should be reformed according to best practices. 

They need much better-defined objectives and missions, in order to separate social mandates from profit-maximizing objectives, it said.

They need to be more transparent in their financial results, including in the amounts of implicit government subsidies and in contingent liabilities assumed by governments. Stronger governance and accountability could improve the performance of public banks, according to the WB report.

Finally, creditor rights must be strengthened, in order to recover parts of non-performing assets.

Remittance loss a worry, may be 7% 

The WB report says there are indications of disruption in flows of remittances to South Asia. One reason might be the money transfer agencies are closed. But migrant workers have also lost their jobs. 

The loss of jobs in the hospitality and transport sector will punch the country hard as workers in these sectors have no social safety nets coverage and at the same time, fiscal and monetary stimulus can not recreate their jobs because of travel restriction.

Remittance inflow may suffer big because of the fall in oil price. In fact, a $1 drop in oil price leads to 0.28 percent loss in remittance for South Asia. Since oil has already lost $28 a barrel, this would lead to a 7 percent remittance loss for the first quarter of 2020. Moreover, many workers' salaries  may get stuck.