Economy Recover From the COVID-19 Crisis

The informal economy is undermining the ability of emerging markets and developing countries to recover from the COVID-19 crisis

Over 70% of total employment, and nearly a third of GDP in emerging markets and developing countries, falls under the informal sector.

A new study conducted by the World Bank concluded that a large proportion of employment and companies in emerging and developing markets operate outside the field of the formal economy, which represents a major challenge, and constitutes an obstacle to economic recovery, if the governments of these countries do not adopt a comprehensive set of policies to address the shortcomings, which The informal economy is afflicting.

The site "Modern diplomatic" ( Modern Diplomacy ) in a report, that this analytical study published by the World Bank a few days ago entitled " The dark shadows of the informal economy: challenges and policies", show flaws of the informal economy and its negative effects on the fragile economies under the Corona crisis current.

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The study found that more than 70% of total employment, and nearly a third of GDP in emerging markets and developing countries, falls under the umbrella of the informal sector, which limits the ability of these countries to provide the financial resources necessary to support the economy during crises, and implement Effective policies to advance the overall economy and build human capital in order to achieve sustainable more development economy.

The economies, where informal activities are widespread, suffer from limited government resources to combat recessions and revive troubled sectors, compared to the major economies.

According to the study, total government revenues in emerging markets and developing countries, which depend on the informal economy at high rates, amounted to about 20% of GDP, 5 to 12 percentage points lower than their counterparts in advanced economies, and expenditures are government is less than 10% of GDP. In addition, the ability of these countries' central banks to support the economy is constrained by "underdeveloped financial systems" linked to the spread of the informal economy.

important study

Commenting on the study, World Bank Managing Director for Development Policy and Partnerships Marie Pangestu emphasized that “women and youth who lack skills make up the majority of employment in the informal economy. In the midst of the coronavirus crisis, they are often left behind without the ability to turn to Social safety nets when they lose their jobs or suffer heavy losses. This analysis will help fill knowledge gaps in an understudied field, and get policy makers back on the right track.”

According to the study, the acceleration of the spread of the informal economy undermines the efforts of governments to contain the effects of the Covid-19 epidemic and promote economic growth. Limited access to social safety nets has left a large proportion of workers outside the formal economy unable to afford to stay at home and abide by the rules of social distancing, especially since firms operating within the informal economy constitute 72% of the service sector in emerging markets and developing countries. .

In general, these high levels of involvement in the informal economy mean weak implementation of development policies, low wages, high poverty rates, more income inequality, less developed financial markets, and weak investments.

Relative success before the Corona crisis

The study confirmed that policies to contain the informal economy in emerging markets and developing countries achieved good results in the past three decades, before the outbreak of the Corona pandemic. Between 1990 and 2018, the rate of informal activity decreased by about 7%; It constitutes 32% of the GDP.

This may be due - according to the study - to the efforts made by the governments of emerging markets and developing countries to reform their economic policies over the past years, and to increase the benefits of engaging in the formal sector by reducing its costs, through tax reforms, facilitating access to finance and strengthening governance.

The study provided 5 recommendations for decision makers in emerging markets and developing countries, mainly focusing on a comprehensive approach; Because the informal economy reflects a deep backwardness, and it cannot be dealt with in isolation from other economic problems, and measures are taken that fit the special situation of the economy Because the reasons for the spread of the informal economy vary from one country to another.

In addition, access to education, markets and finance must be improved; To facilitate the transition of workers and companies to the formal sector, and to enhance the governance and business climate so that the formal sector flourishes. Finally, improving tax regulations to reduce the cost of working in the formal sector and increase the cost of informal activities.

The gradual implementation of coronavirus vaccines and financial support in the United States and some countries have greatly improved the global economic.

The gradual implementation of Corona virus vaccines and financial support in the United States and some countries greatly helped in improving the economic .

The Organization for Economic Cooperation and Development (OECD) has positively revised its forecast for the growth of the Turkish economy for 2021 from 2.9 to 5.9%.

The organization explained in a report today, Tuesday, that the gradual implementation of Corona virus vaccines and financial support in the United States and some countries helped significantly improve the global economic outlook.

She added that the organization's forecasts for growth in the global economy during 2021 were revised from 4.2 to 5.6%, and from 3.7 to 4% in 2022, while the organization raised the growth forecast for the Turkish economy from 2.9 to 5.9%, according to what was published by Anadolu Agency.

She pointed out that the restrictions imposed to combat the pandemic in some countries will delay growth in the short term, and that the slowdown in vaccination operations and the emergence of new mutations of the virus will lead to a weak economic recovery, losses in employment and bankruptcy of many companies.

The report stated that the US economic growth forecast was revised from 3.2 to 6.5% in 2021, and from 3.5 to 4% in 2022.

In the eurozone, growth forecasts were raised from 3.6 to 3.9% this year, and from 3.3 to 3.8% next year.

As for the outlook for the Chinese economy, the report lowered its growth forecast from 8 to 7.8% for the current year, noting that its forecast for 2022 was estimated at 4.9%.

The Organization for Economic Cooperation and Development was founded in 1961, and includes 31 developed countries that are committed to democracy and a market economy, and is based in the French capital, Paris.

The organization is committed on economic market to supporting sustainable best growth, employment, raising the standard of living, maintaining financial  with more stability, assisting other all countries in economic development, and contributing to the growth of global heavy trade.