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Financial Sector

To achieve #Housing4All, don't throw the baby out with the bathwater

Luis Triveno's picture
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Mexico City. Photo by VV Ninci via Flickr CC

In a world divided over how to deal with such serious problems as terrorism, immigration, free trade, and climate change, governments agree on the urgency of solving what is arguably the biggest problem of all: supplying safe, well-located, and affordable housing for the billions of people who need it.

There is even agreement on the basic steps to that goal:  improving land management and adopting more tenure-neutral policies.

There is also consensus on the fact that government alone cannot afford to pay the bill.  According to McKinsey & Co., the annual price tag for filling the “global housing gap” ($1.6 trillion) is twice the cost of the global investments needed in public infrastructure to keep pace with GDP growth.
 
As we approach the 70th anniversary in 2018 of the declaration of housing as a “universal human right,” it’s time for governments to turn to an obvious solution for closing the housing gap that they continue to ignore only at their peril: long-term market finance. Without a substantial increase in private capital, the housing gap will continue to increase, and so will the odds of social discontent.

World Bank guarantees help Pakistan get cheaper, longer term loans from international market

Enrique Blanco Armas's picture
Dasu
Photo Credit: Pakistan's Water and Power Development Authority (WAPDA)

Compared to their investment needs, developing countries have very limited concessional financing available to them. International commercial banks are constrained in terms of the size and tenors of credits to Emerging Markets and Developing Economies. A key challenge therefore, is to channel large savings and capital into productive investments in developing countries, partly by ‘de-risking’ investments and borrowings.  Pakistan is at the forefront of these efforts, recently making use of two World Bank guarantees to access over 1 billion US dollars in two international commercial loan financings.

A $420 million IBRD Policy Based Guarantee (PBG) was approved by the World Bank Board alongside a $500 million IDA credit in June 2016. The PBG guarantee partially takes over the risk of a commercial bank’s loan to a government. The PBG and the IDA credit supported a program of reforms including the adoption of a new and more inclusive poverty line, efforts to broaden the tax base, enhanced transparency of State Owned Enterprises, improved debt management and a significant overhaul of the regulatory framework of the financial sector.  Improved access to international financing through the PBG will reduce the government’s dependence on domestic financing and free up resources for private sector investment. The guarantee also signals the World Bank’s confidence in Pakistan’s economic reforms program – a signal that is particularly important after the successful completion of the IMF program. The government used the US$420 million PBG to partly guarantee a 10-year US$700 million loan, extending tenor significantly and achieving cost savings.  

Spending on bling: What explains the demand for status goods?

Martin Kanz's picture

When people spend money, their decisions are often influenced by the desire to signal wealth and attain social status. This insight is not entirely new – even Adam Smith, in the Wealth of Nations, complains that his contemporaries spend too much on “status goods” that are not a necessity of life, and which they most likely can’t afford.

Social signaling motives in consumption seem to be present in many different economic settings, and may in fact be so widespread that they can be linked to larger economic phenomena, such as inequality and persistent poverty. Studies using household surveys show, for example, that the poor around the world spend a strikingly large share of their income on visible expenditures, which may have negative implications for asset accumulation, household indebtedness, and investments in education.The same pattern has been shown to hold for ethnic minorities in the Unites States – so much so, that a recent study argues that differences in conspicuous consumption may account for as much as one third of the wealth gap between Whites and African Americans

Foreign exchange risk: How a liquidity facility could help

Joaquim Levy's picture

© Yang Aijun/World Bank

In a guest post for Infrastructure Investor, World Bank Group CFO Joaquim Levy says multilaterals’ provision of hard-currency liquidity facilities could do much to catalyze private investment into emerging market infrastructure.

The World Bank Group is playing a leading role in thinking through better approaches to infrastructure financing in emerging markets and developing economies (EMDEs). Part of this work entails understanding the key barriers that might impede private capital from participating more actively in EMDE projects. This is why we focus so much on developing local capital markets and other means to unlock the power of local institutional investors. It is also why we’ve been working to facilitate cross-border investment, in a time when returns in advanced economies remain low.

The Future of Jobs and the Fourth Industrial Revolution: Business as Usual for Unusual Business

Jieun Choi's picture
The global economy is on the precipice of a Fourth Industrial Revolution – defined by evolving technological trends that have the potential to fundamentally change life for millions of people around the world. Increasingly, technology is connecting the digital world with the physical one, resulting in new innovations such as artificial intelligence and self-driving cars.
 

Peer Pressure: Tax competition and developing economies

Michael Keen's picture
A race to the bottom. Graphic by Nicholas Nam/World Bank

Economists tend to agree on the importance of competition for a sound market economy. So what’s the problem when it comes to governments competing to attract investors through the tax treatment they provide? The trouble is that by competing with one another and eroding each other’s revenues, countries end up having to rely on other—typically more distortive—sources of financing or reduce much-needed public spending, or both.

All this has serious implications for developing countries because they are especially reliant on the corporate income tax for revenues. The risk that tax competition will pressure them into tax policies that endanger this key revenue source is therefore particularly worrisome.

What I Learned from Women Entrepreneurs in Oaxaca

Jorge Familiar's picture


I recently visited the small villages nestled in the mountains between Oaxaca and Veracruz to meet with women entrepreneurs running small forestry, toymaking, ecotourism and coffee businesses. I went to hear first hand their experiences starting businesses and taking on leadership roles in their communities. I also wanted to understand the challenges faced by them and generations of women to come.

Reaffirming our commitment to carbon pricing and climate action

Catherine McKenna's picture
Second Annual Carbon Pricing Leadership Coalition High-Level Assembly. Photo: World Bank


When the world united around the historic Paris climate agreement, in 2015, the message was clear: It’s unfair to pass the burden of climate change to future generations.

We now need to put words into action. This week, leaders from 20 of the largest economies are meeting in Hamburg to find solutions to global challenges. Climate change will be front and center.

As the co-chairs of the Carbon Pricing Leadership Coalition (CPLC), we want to accelerate climate action and reaffirm our commitment to carbon pricing. The discussions in Germany are a great opportunity to keep the momentum going.
 
Launched during the Paris climate talks, the CPLC now consists of 30 governments and over 140 businesses, all fighting for a common cause: to advocate for the pricing of carbon emissions across the world. We are calling for bold leadership from everyone – governments, companies, academia and civil society. The CPLC provides a forum for these groups to show collaborative leadership on carbon pricing.

Building deposit insurance systems in developing countries

Marlon Rolston Rawlins's picture



Deposit insurance systems (DIS) play a key role in building confidence among depositors and helping keep their money safe. However, deposit insurance should never be considered a "magic bullet," a "quick fix" or a stand-alone solution to maintain financial stability.

The 2008 global financial crisis created a crisis of confidence in banking systems around the world. As a response, the number of countries with deposit insurance systems quickly shot up from 84 (in 2003) to 125 (in 2016). For the existing DIS, this period tested their design and effectiveness.

Over the past decade, the FIRST Initiative has funded 16 projects across the globe to assist in strengthening existing deposit insurance systems or establishing new ones. Drawing from these experiences, we recently published a Lessons Learned Note on the Challenges in Building Effective Deposit Insurance Systems in Developing Countries. The note provides seven lessons learned from our work across the six World Bank regions and provides a number of specific country examples.

The note provides insights to better understand: (1) the role of a DIS, (2) how to design an appropriate framework and (3) keys to effective implementation and operations.  

Globalization and Banking

Asli Demirgüç-Kunt's picture

Since the global financial crisis of 2007, international banking has attracted heightened interest from policy makers, researchers, and other financial sector stakeholders. Perhaps no sector of the economy better illustrates the potential benefits—but also the perils—of deeper integration than banking. Before the crisis, international banks (banks that do business outside of the country they are headquartered in) were generally considered to be an important contributor to financial development as well as economic growth. This belief coincided with a significant increase in financial globalization in the decade prior to the crisis, particularly for banking institutions.


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