World Bank Raises 2017 Oil Price Forecast

The World Bank



WASHINGTON, October 20, 2016— The World Bank is raising its 2017 forecast for crude oil prices to $55 per barrel from $53 per barrel as members of the Organization of the Petroleum Exporting Countries (OPEC) prepare to limit production after a long period of unrestrained output.

Energy prices, which include oil, natural gas and coal, are projected to jump almost 25 percent overall next year, a larger increase than anticipated in July. The revised forecast appears in the World Bank’s latest Commodity Markets Outlook. Oil prices are expected to average $43 per barrel in 2016, unchanged from the July report.

“We expect a solid rise in energy prices, led by oil, next year,” said John Baffes, Senior Economist and lead author of the Commodity Markets Outlook. “However, there is considerable uncertainty around the outlook as we await the details and the implementation of the OPEC agreement, which, if carried through, will undoubtedly impact oil markets.”

A modest recovery is projected for most commodities in 2017 as demand strengthens and supplies tighten.

Metals and minerals prices are expected to rise 4.1 percent next year, a 0.5 percentage point upward revision due to increasing supply tightness. Zinc prices are forecast to rise more than 20 percent following the closure of some large zinc mines and production cuts in earlier years. Gold is projected to decline slightly next year to $1,219 per ounce as interest rates are likely to rise and safe haven buying ebbs.

Agriculture prices are expected to increase 1.4 percent in 2017, slightly less than expected in July, as food prices are projected to climb more gradually than anticipated (1.5 percent) and beverage prices are seen dropping by a greater extent (0.6 percent) on expectation of a large coffee output. Among food prices, grains prices are forecast to rise a steeper-than-anticipated 2.9 percent next year, while oils and meals prices are anticipated to rise a slower-than-expected 2 percent.

“Low commodity prices hit commodity-exporting emerging and developing economies hard but now appear to have bottomed out,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group. “Growth in this group of economies is expected to be near zero for the year. Where feasible, policymakers should pursue growth-enhancing strategies, such as investments in infrastructure, health and education, in the context of a credible medium-term fiscal plan.”

This edition of the Commodity Markets Outlook contains a Special Focus analyzing OPEC’s recent announcement of plans to limit production. Historically, agreements aimed at influencing the prices of commodities such as tin and coffee have succeeded in swaying markets for a time but eventually lost that ability and collapsed. OPEC’s ability to affect oil prices is likely to be tested by the expansion of oil supply from unconventional sources, including shale producers.

The World Bank’s Commodity Markets Outlook is published quarterly, in January, April, July and October. The report provides detailed market analysis for major commodity groups, including energy, metals, agriculture, precious metals and fertilizers. Price forecasts to 2025 for 46 commodities are presented along with historical price data.

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Why we need good transport networks to support development

ADB
Giovanni Verlini

Local residents near the power plant.

Legend has it that Amir Timur, the 14th century conqueror of much of Central Asia, ordered his men to hang pieces of meat in several locations of his empire. The place where the meat took the longest to decay turned out to be the Uzbek city of Samarkand, which was then chosen as capital.

No pieces of meat were left hanging in sight when I visited Uzbekistan last month, but as I disembarked from the plane at Tashkent airport I was struck by how dry the air is in the country, a sign that the sea is thousands of miles away. Indeed, Uzbekistan is a landlocked country in the middle of Central Asia. The Aral Sea, its largest freshwater body, shrunk considerably since the rivers that fed it were diverted to irrigate cotton fields.

Central Asia was once a region at the heart of a flourishing trade network for nearly 2,000 years, the Silk Road, but now finds itself isolated from the backbone of modern international commerce – sea trade. At the same time, its road and railway networks, which largely date back to Soviet times, are undersized and need upgrading.

Socio-economic development remains a challenge under the best of circumstances, but it becomes virtually impossible without reliable transport network sustaining trade. Whenever the exchange of people, goods, and services is hampered, communities, villages, and countries become isolated, and their economies go into a steady decline.

I have been familiar with this concept for years, having read it in countless articles and books, but I have never understood what it really meant until I visited Uzbekistan’s Talimarjan power plant. This is a $1.2 billion—of which ADB is providing $350 million—project to expand generation capacity at the plant. Two gas-fired combined cycle units are set to add 880 megawatts to the grid in a part of the country that is rich in hydrocarbon resources but short in power generation capacity.

Everything about this project makes sense: there’s a clear business case, the Shortan gas field supplying the plant is nearby, the finance secured, and the contracting companies available. This should be a no-brainer. Yet, there was a stumbling block in the project implementation – an easy way to transport components to the site.

These components were manufactured in places as far away as the United States, the Republic of Korea, Italy, the People’s Republic of China, and the United Kingdom. For example, the units’ 400-metric ton turbines—a weight equivalent to 30 double-decker buses—travelled 16,400 km from Japan. They left Kobe on a container ship that eventually docked at Iliyvchesk, Ukraine. From there they were transported through the Caucasus and across the Caspian Sea, reaching the port of Kuryk, Kazakhstan. The journey continued overland on a specially designed heavy-duty trailer with 48 axels and 1,056 tires moving at 5 km/h. Altogether it took them over a year to reach the Talimarjan power plant.

Distance, remote location, and lack of modern transport infrastructure, however, were not the only problem. The journey would have been much faster had it not been for lengthy bureaucratic delays at international borders.

These constraints, of course, are well known and the object of much attention. The Central Asia Regional Economic Cooperation (CAREC) Program has been working since 2002 on financing the construction of a strong transportation network that links countries in the region to each other and with the rest of the world, as well as on improving trade facilitation and border procedures. As of 2015, CAREC had implemented 166 projects worth around $27.7 billion. The work goes on, but the job is massive.

Standing in front of this behemoth power plant with its four towering chimneys, you can see with your own eyes why development is no easy feat. There are so many pieces to this giant puzzle: manpower, finance, knowledge, natural resources, political will, expertise, and many more. So much that needs to fall in place at the right time for a project like this to progress. The 400-metric ton turbines that travelled around the world to reach a remote part of Central Asia are just the largest, and heaviest, pieces of the puzzle. They stand as a reminder of the fact that development is a monumental task, and that even just reaching the starting line sometimes is a struggle.

Ironically, the Silk Road, flourished for centuries thanks to international trade, now finds itself at the margins of it. If you need evidence of the importance of trade and transport for development, look no further than the Talimarjan power plant. The work and dedication of those involved in the project turned a mission impossible into a success story. But it should have not been so hard for them. Today more than ever, Central Asia needs a 21st century Silk Road.

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Cambodia Gets Funding to Improve Public Financial Management Systems

ADB

The program will increase the availability and efficiency of public services in Cambodia, including services for poor and vulnerable groups.

PHNOM PENH, CAMBODIA – The Asian Development Bank (ADB) is expanding its support for better public financial management in Cambodia through a $30 million loan to support effective and efficient public service delivery and inclusive growth.

The loan will fund subprogram 1 of the Strengthening Public Financial Management Program (SPFMP), which supports implementation of stage 3 of the four-stage Cambodian Government’s Public Financial Management Reform Program.

“The program will increase the availability and efficiency of public services in Cambodia, including services for poor and vulnerable groups, by strengthening public expenditure and revenue management and linking budgets more closely with government development policy,” said ADB Country Director in Cambodia, Samiuela Tukuafu. “Better public financial management will create additional room in the government’s budget and help allocate budget resources more effectively to promote inclusive growth and reduce poverty.”

The SPFMP aims to improve the efficiency, effectiveness, and accountability of public expenditure and revenue management in three ways. Policy and regulatory frameworks will be strengthened for expenditure and revenue management led by the Ministry of Economy and Finance (MEF). Capacity at selected line ministries will be enhanced to implement budgeting and expenditure management reforms. Finally, the capacity of the National Audit Authority (NAA) for external audit functions will be improved.

The program will deepen ADB’s previous support for MEF, NAA and the three rural development ministries and will expand support to three additional priority ministries: the Ministry of Education, Youth and Sports; the Ministry of Labor and Vocational Training; and the Ministry of Public Works and Transport.

Based in Manila, ADB is dedicated to reducing poverty in Asia and the Pacific through inclusive and sustainable economic growth, and regional integration. Established in 1966, ADB, in December 2016, will mark 50 years of development partnership in the region. ADB is owned by 67 members – 48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.

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ADB Approves Loan to Boost Quality, Access to Upper Secondary Education

ADB



PHNOM PENH, CAMBODIA — The Asian Development Bank (ADB) has approved a $45 million loan to improve access to quality upper secondary education in Cambodia. The Upper Secondary Education Sector Development Program (USESDP) will support the government’s efforts to improve the quality of its human resources to sustain Cambodia’s economic development and enhance its competitiveness.

“The program will support reforms to improve the effectiveness of upper secondary education to address the increased demand for skilled workers by the labor market,” said Samiuela Tukuafu, ADB’s Country Director in Cambodia. “At the same time, students in disadvantaged provinces, especially female students, will be provided with more opportunities for quality upper secondary education.

Specific measures will include expansion of upper secondary education facilities, including science laboratories and providing information, communications and technology (ICT) learning facilities as well as other equipment and furniture at 12 upper secondary resource centers. Teacher housing units will be provided in areas of high need, as well as scholarships for upper secondary students in the science stream and for teacher candidates attending science and math pre-service training programs.

Upper secondary science, math, and ICT curricula will be reviewed and upgraded, while grade 12 student textbooks and teacher guides will be provided for all subjects. The capacity of school staff and management to evaluate secondary resource schools and of schools to promote the effective utilization of learning resources and the school improvement fund will be strengthened.

ADB has played a major role in education and technical and vocational education and training in Cambodia over the past 15 years. It has provided critical support in sector analyses and in the implementation of education reforms through investments and technical assistance.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 will mark 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.

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Ending poverty in China: The role of knowledge exchange in poverty reduction

The World Bank
Gladys H. Morales



China has made remarkable progress in poverty reduction by lifting over 700 million people out of poverty in the past three decades. Under sustainable development goal 1, the international community has committed to end poverty in all its forms and everywhere by 2030. An objective that China expects to achieve 10 years earlier of the deadline by lifting the remaining 55 million of extreme poor out of poverty by 2020.

On September 19, China released its national plan for the implementation of the 2030 Agenda for Sustainable Development at the United Nations Headquarters in New York. During his intervention at the event, Premier Li Keqiang confirmed his country’s willingness to participate in international cooperation to contribute to the achievement of the sustainable development goals, to increase investment in South-South cooperation and to share development experiences and opportunities.

Policy makers and implementers from other countries are interested to learn how China has been successful at reducing poverty and how it plans to achieve the total eradication of extreme poverty ahead of anybody else. However, the challenge is on developing and implementing effective information and communications technologys (ICTs) and knowledge exchange platforms that will allow comparison and analyses of the experience and performance and to adapt that experience and knowledge to different contexts.

In an effort to respond to such needs, the International Poverty Reduction Center in China (IPRCC) and China Development Gateway launched the Global Poverty Reduction and Inclusive Growth Portal (GPIG) with support from the World Bank and ADB. The portal is a knowledge sharing platform on poverty reduction in China and the entire Asian region through South-South and triangular cooperation.It provides handbooks, updates on key anti-poverty events and research, local and regional news on the progress towards poverty reduction, and the challenges faced by China and other countries in the region. It allows policy makers and implementers to learn from each other in a systematic and continuous manner.

Interview with Bert Hofman, Country Director for China

Since its launch in May 2016, the portal has reached millions of readers and has formed strategic partnerships with think tanks in the region and with other international organizations working towards the achievement of the sustainable development goals such as Food and Agriculture Organization (FAO) and International Fund for Agricultural Development (IFAD). However, effective knowledge delivery remains a challenge.

Concerted, organized and well-structured strategies is needed among the portal’s founders, donors and partners. Language is an obvious barrier in a region with over a dozen official languages and where key analytical work is mostly published only in each country’s official language.

In the case of China, the World Bank has been offering support to IPRCC to overcome this barrier by supporting relevant websites with English content to make knowledge available internationally. Similar efforts need to be made in other countries in the region so that at least the institutions that are part of the GPIG network can share knowledge and engage in dialogue that can lead to problem-solve together through constant communication and cooperation.

For this to happen, the international community needs to continue to work on a two-track strategy. First, it needs to continue to support the establishment and strengthening of regional and international partnerships. Second, to offer technical and financial assistance to build capacity at the institutional level so that knowledge management experts are trained and sustained technically and financially so that they can contribute effectively to the exchange.

The more inclusive the exchange process is, the higher the quality of knowledge will be. The World Bank, ADB, UNDP and FAO have all noted that human development is based on the acquisition, dissemination and use of knowledge. Hence, the achievement of poverty eradication can certainly benefit from access to accurate, up-to-date and relevant information that takes advantage of ICTs. ICTs can make such information available to an audience that is as broad as possible and that facilitates the participation of multi-stakeholders, in particular people living in poverty.

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What Are the Odds of Being Formally Financially Included in Senegal?

The World Bank
Siegfried Zottel



In developed countries, the vast majority of adults can be expected to hold an account at a formal financial institution such as a bank. However, in many Sub-Saharan countries, notably Senegal, is not the reality. In fact, a new World Bank Group (WBG) Financial Capability Survey revealed that less than one in five Senegalese adults (17%) report owning an account at a formal institution, which includes banks, microfinance institutions, or e-money agents. As compared to other lower-middle income economies, Senegal is in the middle of the pack in terms of financial inclusion, however it lags behind the average inclusion rate amongst Sub-Saharan African economies.

So why are nearly 6 million Senegalese adults financially excluded? To answer this question, it is important to understand that when it comes to being formally financially included, not everyone is on equal footing. In Senegal, financial inclusion varies substantially across sub-populations.

For instance, the odds of being financially included are 9 percentage points higher for Senegalese men than they are for Senegalese women. This difference can be partially explained by the fact that women generally participate less in household financial decisions. Having greater access to financial services, urban populations are also more likely to be financially included than rural populations (22% versus 13%). Furthermore, adults who earn a high or medium incomes are 12 percentage points more likely to be financially included than those earning a low income.

According to the same WBG survey, 54% of Senegalese report that they lack enough money to own a formal account. A preference for cash was cited by 19%, while 14% do not feel the need for a formal account. Lastly, 8% of financially excluded adults find formal accounts too costly to use.

The 2015 WBG Financial Capability Survey also indicates that there are several challenges concerning people’s awareness of financial concepts and products and their ability to choose financial products. For instance, while around 80% of the surveyed adults stated to be familiar with money transfer services, commercial banks are known by less than 70%, and microfinance institutions and their products are known by only around a fourth of the sample. An international comparison of survey participants in twelve countries shows that Senegalese adults tend to monitor expenses and plan for old age, but they are among the most challenged with respect to their ability to shop around, read terms and conditions, and choose financial products that fit their needs.

These findings are of concern because they hinder beneficial uptake and usage of formal financial products and services in Senegal. In addition, transactional accounts are a first entry point into the formal financial system, and without them, people are left to transact in ways that are often risky, wasteful, and inconvenient.

Senegal has taken important initial steps to help increase the odds of being formally financially included. In September 2012, the Senegal’s Ministry of Economy and Finance made a commitment under the Maya Declaration to raise financial inclusion and increase access to and responsible usage of financial products and services. It has successfully managed to raise the inclusion rate from 15% in 2014 to the aforementioned 17% in 2015.

However, given the challenges revealed through this recent WBG survey, Senegalese authorities can take further measures to increase the odds of being financially included, in particular for the poor, women, and rural dwellers. Here are a few suggestions:

• Continue to strategize. The authorities should continue to develop a National Financial Inclusion Strategy to ensure that the public and private stakeholder commitment to advance financial inclusion in Senegal is explicit, strong, and sustained over time.
• Allow and advocate for branchless banking. New business models such as mobile or agent banking can dramatically reduce the costs of delivering financial services, in particular in low-density and remote areas. Moreover, it can not only reduce explicit costs but also implicit costs such as the opportunity cost of time lost to traveling and waiting for the 54% of the adult population who indicated lack of sufficient income as a main barrier to formal account ownership.
• Encourage uptake and usage of basic transaction accounts at no or low costs. Existing regulation gives any person in Senegal the right to a basic bank account at no cost, but there may be little economic incentives for private sector parties to voluntarily offer these accounts to their customers.
• Promote provision of diversified financial services. Many Senegalese have little money, but this survey revealed that they still save, although mainly relying on informal channels. Formal savings products thus have potential and their promotion could contribute to safeguard savings, which can help households manage cash-flow spikes, smooth consumption, and build lump sums.
• Innovate. Conveying financial messages through innovative ways such as using popular TV soap operas, films, videos or radio programs can be quite effective, not only in improving knowledge but also in altering behavior. Periodic text messages and mobile applications could be another promising and cost-effective outreach channel.

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How results-based financing can help achieve the SDGs: dealing with a refugee crisis

The World Bank
Peter Holland



There are innumerable obstacles to achieving the new education sustainable development goals. Thankfully, there are probably even more answers. How we finance education systems may offer one such solution.

The idea of financing development results is centered on the belief that introducing the right incentives within education systems can help resolve bottlenecks. These incentives can release the binding constraints that will otherwise prevent us from achieving the education global goals. While it is tempting to think of Results-Based Financing (RBF) as a silver bullet that will guarantee value-for-money and make aid “smarter” or more effective, the truth is that realities on the ground offer very different reasons for employing RBF, for they tend to focus on finance as a tool to strengthen country systems.

I have recently returned from Beirut, where the Syrian refugee crisis is an excellent example of how education financing can help achieve results. Lebanon alone is hosting nearly 2 million refugees, with as many Syrian children enrolled in Lebanese public schools alongside Lebanese students. Despite tremendous progress achieved over the last years in getting more refugee children enrolled, the Government of Lebanon, together with its international partners, is now working to keep them there, and ensure they learn. All this while keeping its own education system from cracking under the considerable strain caused by the crisis.

Before we look at the application of RBF in Lebanon, let us take a step back and consider what this approach is, what it can deliver, and how.

Briefly, we define two types of RBF: i) RBF Programs, consisting of public sector reform elements featuring fiscal transfers (including external resources such as World Bank financing) that bind on results, and ii) RBF Modalities, whereby a specific bottleneck can be resolved through rewarding the verifiable results achieved (e.g. through performance-based contracting, or teacher incentives).

RBF can strengthen education systems by helping align various elements of the system—such as schools, teachers, curricula, materials, as well as policies, accountability mechanisms, resources and financing—more effectively. When there is better alignment, higher-quality services for children are not far behind. It is critical to think about how resources are mobilized and managed, and how those resources flow to – and through – education systems to coalesce efforts, provide incentives, bring attention to results and raise accountability. Given the particularities of all education systems, RBF solutions need to be crafted to the singular context that they are operating in.

Returning to the Lebanon case then, we believe an RBF program could help chiefly for the following four reasons:

First, it would shift the policy dialogue, both externally and internally within ministries. The Lebanese Ministry of Education and Higher Education is working extremely hard in very tough conditions. It is in a constant fire-fighting mode, resolving problems that arise at each school. Simultaneously, it is worrying about equipping schools, paying bills for water and electricity, running teacher training programs, mobilizing psycho-social support, and—on top of this—must find the time to meet with each external donor that finances one small sliver of this overall program.

In contrast, an RBF program would force all actors to take a step back, and start the conversation with where they want to be next year – or five years hence – and work backwards, identifying each binding constraint along the way. An RBF program would then condition disbursements to the achievement of the results, whether final outcomes, or intermediary results, or even on conditional payment on the resolution of the bottlenecks along the way. This won’t resolve the need to firefight, but it will keep the results in view, insuring that all of the activity moves us toward our objectives.

Second, it attracts and retains much needed attention – from policymakers to parents – to the ultimate results that are sought. By shifting the policy dialogue to results and tackling the bottlenecks preventing their achievement, the sustained attention will translate into resources, whether fiscal or in the form of staffing, to make sure the program stays on schedule for achieving the results.

Third, it serves to galvanize and align important (yet often uninvolved) actors in the pursuit of results. In this case, an RBF program would bring the Ministry of Finance more closely into the fold, helping to address liquidity constraints impeding the attainment of key results. It would also serve as a vehicle around which international partners could coalesce, using one unified government-owned program as the platform to coordinate planning, implementation, monitoring, and evaluation. Attaching disbursements to results would also bring complementarity between the initiatives that international actors are supporting. Building on the good principles of sector-wide approaches, RBF can take donor harmonization to the next level toward the Organisation for Economic Co-operation & Development ‘s 2005 Paris declaration on aid effectiveness.

Finally, it necessarily instills a culture of measurement, eventually to be institutionalized through strengthening systems. Predicating disbursements on results elevates the importance of monitoring systems, forcing data collection to be more accurate, timely, and meaningful. When designed properly, this enables government capacity to be stronger and better positioned to tackle future challenges.

Financing results is promising. However, to succeed, it must be carried out correctly: supporting clients willing to focus more on results, building in the requisite systems, working with policymakers to identify and resolve binding constraints, and accompanying program implementers through the technical challenges and course correction needed for success. Such an approach will not resolve the Syrian refugee crisis. But it might offer the best chance for Lebanon’s education system to survive – and perhaps even thrive – during these unprecedented times.

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