The Future of Government: What does it mean for infrastructure finance?

Recognizing that governments across the globe find themselves at an important inflectionsolar_porwe_wb point—with overlapping crises such as the COVID-19 pandemic, the war in Ukraine and other conflicts, sharp economic slowdown, and the effects of climate change that will touch us all—the World Bank recently launched a report on The Future of Government.

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Aiding the digital revolution in global financial inclusion

“Expanding people’s access to finance, reducing the cost of digital transactions, and channeling wage payments and social transfers through financial accounts will be vital to mitigating recent economic setbacks in developing countries. Governments and the private sector can help further this transformation in several ways.”


Around the world, high inflation, slow economic growth, and food shortages are hurting the poor the most. Coming on top of the unequal effects of the COVID-19 pandemic, today’s multiple crises have already caused dramatic reversals in development and led to a substantial increase in global poverty.

On the positive side, the COVID-19 crisis spurred unprecedented change, especially in industries with a large digital component . This digital revolution has catalyzed increases in access to and use of financial services in developing economies, transforming how people make and receive payments, borrow, and save. 

These changes are strikingly evident in the latest edition of the Global Findex database, compiled from a survey of more than 125,000 adults in 123 economies, covering use of financial services throughout 2021. The survey found that 71% of adults in developing economies now have a formal financial account – whether with a bank, another regulated institution such as a credit union or microfinance lender, or a mobile money service provider – compared to 42% when the first edition of the database was published a decade ago. In addition, the difference in the share of men and women in developing economies who own an account has fallen for the first time, from nine percentage points to six. 

This digital transformation makes it easier, cheaper, and safer for people to receive wages from employers, send remittances to family members, and pay for goods and services. Mobile money accounts can better handle high-volume, small-denomination transactions, which help users to access financial services and save in order to cope better with crises. Individual accounts also give women more privacy, security, and control over their money.

The share of adults in developing economies who make or receive digital payments grew from 35% in 2014 to 57% in 2021 . In Sub-Saharan Africa, 39% of mobile money account holders now use their accounts to save. And more than one-third of people in low- and middle-income countries who paid a utility bill from an account did so for the first time after the start of the COVID-19 pandemic.

Importantly, the digital revolution also serves as a powerful anti-corruption tool, because it helps to increase transparency as money flows from a government’s budget to public agencies to citizens . Government social programs can now reduce delays and leakage by channeling transfers directly to their beneficiaries’ mobile phones. Millions of people in developing countries received payments in this way during the pandemic, helping to cushion the impact of COVID-19 on livelihoods.

Building on these encouraging trends is crucial, especially given the current economic headwinds. Expanding people’s access to finance, reducing the cost of digital transactions, and channeling wage payments and social transfers through financial accounts will be vital to mitigating development setbacks resulting from the ongoing turbulence.

Governments and the private sector can help further this transformation in several critical areas. First, they need to create a favorable operating and policy environment. For example, enabling the interoperability of systems allows for payments across different types of financial institutions and between mobile money service providers. Improving access to finance depends much more on the mobile-phone system than on the physical banking system. Cheap and functional mobile phones and affordable internet access are prerequisites for expanding digital finance. Consumer protections and stable regulations are also needed to foster safe and fair practices that bolster trust in the financial system.

Establishing digital-identification systems also is essential, because lack of verifiable identity is one of the main reasons why some adults remain excluded from financial services . We know from the experiences of countries such as India and the Philippines that government identification programs and financial-inclusion programs can work in tandem to equip hard-to-reach populations with official identification documents and financial accounts. India, for example, has pioneered a successful accessible digital ID system that pays due attention to safety and privacy.

Another high priority should be to promote the digitalization of payments. The Global Findex data for 2021 show that 865 million account owners in developing economies opened their first account at a bank or similar institution in order to receive money from the government. This helped households directly and also helped build the digital financial ecosystem, because people who received payments into an account were more likely to use their account to make payments and access other services. Digital payments by governments thus serve as a foundation for assembling credible social registers and identifying gaps and overlaps.

As digital payments become more widespread and less costly, many private businesses will be able to pay their workers and suppliers electronically – and should. The digital revolution offers a chance to increase formal-sector employment without making compliance excessively burdensome. At a time of tighter government budget constraints, digital payments can help broaden the revenue base by reducing tax avoidance and evasion.

Finally, policymakers will need to make additional efforts to include underserved groups. The gender gap in financial access has narrowed, but it still exists. Women, along with the poor, are more likely to lack a form of personal identification or a mobile phone, to live far from a bank branch , and to need support to open and use a financial account. Financial-education programs, especially those that involve peer-to-peer learning (such as through women’s self-help groups) are essential as well.

The World Bank is firmly committed to expanding financial inclusion through digitalization. We will continue to support countries as they enhance mobile-phone networks, rework regulations to foster access to finance, adopt e-government platforms, and modernize social-protection systems. For the many millions of people who still lack an account, we need to redouble our efforts and find creative ways to connect them to the financial system, build economic resilience, and reap the benefits of inclusion.


This piece was originally published by Project Syndicate on July 7, 2022

 

Future-proofing cities: How our prosperity tomorrow depends on transforming cities today

Today, 4.4 billion people— just over half the world’s population—live in cities. In just the next adobestock_226185431-herothree decades, two out of every three people on the planet will live in cities.  Cities are the drivers of productivity and prosperity: over 80 percent of all economic activity is concentrated in them. But they are also on the frontlines of multiple crises – feeling the impacts of COVID-19, of conflict and fleeing populations, and of climate change – that can exacerbate risks and widen inequalities.

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The Future of Government: Reimagining Government for Good

The impact of the COVID-19 pandemic, the need to deliver climate change commitments, and the rise in conflicts have amplified the need for a more effective government from the central to the local level.

The Future of Government report and supporting website is a guide for governments and non-governmental actors to reimagine the role of the State in formulating policy, providing regulation, and delivering services for development outcomes. The report includes a call to action for those working in government and those seeking to influence government for the better, to start building coalitions for change, now.

SHARE THIS: Watch the replay of the launch of the #FutureofGovernment report to learn more about how governments and other stakeholders can start discussing how to create a government of the future. 

 

Investing in cities today is the key for a resilient future

By 2050, cities will be home to an additional 2.5 billion people, with two out of every threekatowice2 people living in urban areas.  The mounting impacts of climate change, combined with the COVID-19 pandemic and its aftermath, and conflict and fleeing populations, hit cities the hardest and requires them to become resilient to shock waves of change. Cities are also uniquely vulnerable to climate shocks and natural disasters. At the same time, investing in cities can deliver major impact for green, resilient, and inclusive growth.

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COVID-19 Drives Global Surge in use of Digital Payments

Three quarters of adults now have a bank or mobile money account; gender gap in accountAgricultura digital ownership narrows

WASHINGTON, June 29, 2022— The COVID-19 pandemic has spurred financial inclusion – driving a large increase in digital payments amid the global expansion of formal financial services. This expansion created new economic opportunities, narrowing the gender gap in account ownership, and building resilience at the household level to better manage financial shocks, according to the Global Findex 2021 database

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When the debt crises hit, don’t simply blame the pandemic

Every debt crisis begins with unheeded warnings and ends with severe limits on investmentshutterstock_2051836073_blog_june_28heroimage1 in education, health, and infrastructure among other things. These crises often spark civil unrest and government collapse, delivering a lasting setback to the growth prospects of the affected country. 

Raising the bar on debt data transparency

Total public debt stands at an alarming 50-year high in low- and middle-income economies,jun2022_debttransparency_datablog_mainimage the equivalent of more than 200 percent of government revenues. With the pandemic-induced economic slowdown, the impact of the war in Ukraine, and the rise of interest rates, many countries are facing severe challenges in servicing their debt. 

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Why Is the World Facing a Food Crisis? | The Development Podcast

The world is facing rising food prices that are hitting poor and developing countries hardest. Even before COVID-19 reduced incomes and disrupted supply chains, chronic and acute hunger were on the rise due to factors, including conflict, socio-economic conditions, natural hazards, climate change and pests.

The disruption caused by the war in Ukraine has added to price pressures, with costs likely to remain high for the foreseeable future and expected to push millions of additional people into acute food insecurity.

In this episode of The Development Podcast, World Bank Food and Agriculture Global Practice Manager Julian Lampietti explains the challenges and discusses some of the solutions. And we hear from a pizza restaurant owner in Cairo who is struggling with the rising cost of bread.

THE DEVELOPMENT PODCAST

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