Title page

Contents

Acknowledgments 12

Foreword 13

Executive Summary 15

Abbreviations 17

CHAPTER 1. GLOBAL OUTLOOK 18

Summary 19

Global context 25

Global trade 25

Commodity markets 26

Global inflation 27

Global financial developments 28

Major economies: Recent developments and outlook 30

Advanced economies 30

China 31

Emerging market and developing economies 32

Recent developments 32

EMDE outlook 33

LICs outlook 40

Per capita income growth 40

Global outlook and risks 46

Summary of global outlook 46

Risks to the outlook 47

Policy challenges 53

Key global challenges 53

EMDE monetary and financial policy challenges 56

EMDE fiscal policy challenges 57

EMDE structural policy challenges 59

References 63

CHAPTER 2. REGIONAL OUTLOOKS 67

East Asia and Pacific 68

Recent developments 68

Outlook 69

Risks 71

Europe and Central Asia 76

Recent developments 76

Outlook 76

Risks 79

Latin America and the Caribbean 83

Recent developments 83

Outlook 83

Risks 86

Middle East and North Africa 90

Recent developments 90

Outlook 91

Risks 93

South Asia 97

Recent developments 97

Outlook 98

Risks 100

Sub-Saharan Africa 104

Recent developments 104

Outlook 105

Risks 107

References 111

CHAPTER 3. HARNESSING THE BENEFITS OF PUBLIC INVESTMENT 114

Introduction 115

Evolution of public investment 119

Public investment-growth nexus: Channels of transmission 121

Macroeconomic implications of public investment 123

Database and methodology 123

Results 123

Policies to improve the macroeconomic benefits of public investment 128

Expansion of fiscal space 128

Efficiency of public investment 130

Enhanced global support 134

Conclusion 134

ANNEX 3.1. Identification of public investment shocks 143

ANNEX 3.2. Estimation of public investment multipliers 145

References 149

CHAPTER 4. FISCAL CHALLENGES IN SMALL STATES: Weathering Storms, Rebuilding Resilience 156

Introduction 157

Fiscal vulnerability to shocks 160

Evolution of fiscal positions in small states 162

Conceptual framework 162

Evolution of debt 163

Widespread rise in government debt 163

Deficit-driven government debt buildup 164

Reliance on official creditors 164

Evolution of primary deficits 165

Evolution of government revenues 166

Evolution of government expenditure 168

Fiscal policy options in small states 169

Domestic revenue mobilization 171

Expenditure efficiency 173

Robust fiscal frameworks 175

International cooperation 177

Conclusion 179

ANNEX 4.1. Debt decomposition 181

ANNEX 4.2. Fiscal reaction function 181

References 184

Statistical Appendix 190

Data and Forecast Conventions 195

Selected Topics 196

TABLE 1.1. Real GDP 20

TABLE 1.2. Emerging market and developing economies 62

TABLE 2.1.1. East Asia and Pacific forecast summary 74

TABLE 2.1.2. East Asia and Pacific country forecasts 75

TABLE 2.2.1. Europe and Central Asia forecast summary 81

TABLE 2.2.2. Europe and Central Asia country forecasts 82

TABLE 2.3.1. Latin America and the Caribbean forecast summary 88

TABLE 2.3.2. Latin America and the Caribbean country forecasts 89

TABLE 2.4.1. Middle East and North Africa forecast summary 95

TABLE 2.4.2. Middle East and North Africa economy forecasts 96

TABLE 2.5.1. South Asia forecast summary 102

TABLE 2.5.2. South Asia country forecasts 103

TABLE 2.6.1. Sub-Saharan Africa forecast summary 109

TABLE 2.6.2. Sub-Saharan Africa country forecasts 110

TABLE 4.1. EMDE small states, by feature 180

FIGURE 1.1. Global prospects 21

FIGURE 1.2. Global risks and policy challenges 23

FIGURE 1.3. Global trade 25

FIGURE 1.4. Commodity markets 27

FIGURE 1.5. Global inflation 28

FIGURE 1.6. Global financial developments 29

FIGURE 1.7. Major economies: Recent developments and outlook 31

FIGURE 1.8. Recent developments in emerging market and developing economies 33

FIGURE 1.9. Outlook in emerging market and developing economies 34

FIGURE 1.10. Per capita income growth 46

FIGURE 1.11. Global outlook 47

FIGURE 1.12. Risks from conflicts, trade fragmentation, and higher-for-longer policy rates 48

FIGURE 1.13. Other risks to the outlook 51

FIGURE 1.14. Global policy challenges 54

FIGURE 1.15. EMDE monetary and financial policy challenges 56

FIGURE 1.16. EMDE fiscal policy challenges 58

FIGURE 1.17. EMDE structural policy challenges 59

FIGURE 2.1.1. China: Recent developments 69

FIGURE 2.1.2. EAP excluding China: Recent developments 70

FIGURE 2.1.3. EAP: Outlook 71

FIGURE 2.1.4. EAP: Risks 72

FIGURE 2.2.1. ECA: Recent developments 77

FIGURE 2.2.2. ECA: Outlook 78

FIGURE 2.2.3. ECA: Risks 79

FIGURE 2.3.1. LAC: Recent developments 84

FIGURE 2.3.2. LAC: Outlook 85

FIGURE 2.3.3. LAC: Risks 86

FIGURE 2.4.1. MNA: Recent developments 91

FIGURE 2.4.2. MNA: Outlook 92

FIGURE 2.4.3. MNA: Risks 94

FIGURE 2.5.1. SAR: Recent developments 98

FIGURE 2.5.2. SAR: Outlook 99

FIGURE 2.5.3. SAR: Risks 101

FIGURE 2.6.1. SSA: Recent developments 105

FIGURE 2.6.2. SSA: Outlook 106

FIGURE 2.6.3. SSA: Risks 108

FIGURE 3.1. Infrastructure investment needs and investment growth 116

FIGURE 3.2. Public investment patterns in EMDEs 120

FIGURE 3.3. Macroeconomic impacts of public investment in EMDEs 124

FIGURE 3.4. Effects of public investment on output conditional on country characteristics 126

FIGURE 3.5. Effects of public investment on output by EMDE groups 127

FIGURE 3.6. Fiscal space in EMDEs 129

FIGURE 3.7. Public investment efficiency 131

FIGURE 3.8. Private sector participation in infrastructure 133

FIGURE 4.1. Small states and other economies: Output growth and structural characteristics 159

FIGURE 4.2. Fiscal outcomes around major events in small states and other EMDEs 162

FIGURE 4.3. Output since the COVID-19 pandemic in small states and other EMDEs 163

FIGURE 4.4. Government debt in small states and other EMDEs 164

FIGURE 4.5. Contributors to increases in government debt in small states 165

FIGURE 4.6. Fiscal balances in small states and other EMDEs 166

FIGURE 4.7. Contributors to changes in primary balances in small states and other EMDEs 167

FIGURE 4.8. Government revenue in small states and other EMDEs 168

FIGURE 4.9. Tax revenue composition in small states and other EMDEs 169

FIGURE 4.10. Government expenditure in small states and other EMDEs 170

FIGURE 4.11. Composition of government expenditure in small states and other EMDEs 171

FIGURE 4.12. Domestic revenue mobilization in small states and other EMDEs 172

FIGURE 4.13. Expenditure efficiency in small states and other economies 174

FIGURE 4.14. Fiscal performance and fiscal frameworks 175

FIGURE 4.15. Donor support for small states and other EMDEs 178

Boxes

BOX 1.1. Regional perspectives: Outlook and risks 35

BOX 1.2. Recent developments and outlook for low-income countries 41

BOX 3.1. Public investment dynamics around adverse events 136

BOX 3.2. Macroeconomic impacts of public investment: A literature review 139

Box Tables

TABLE B1.2.1. Low-income country forecasts 44

TABLE B3.2.1. Output effects of public investment: Summary of the literature 141

Box Figures

FIGURE B1.1.1. Regional outlooks 36

FIGURE B1.1.2. Regional risks 37

FIGURE B1.2.1. LICs: Recent developments 42

FIGURE B1.2.2. LICs: Outlook and risks 43

FIGURE B3.1.1. Public investment dynamics around adverse events 137

Annex Tables

TABLE A3.2.1. Sample used in the estimation of public investment multipliers 147

TABLE A3.2.2. Summary statistics for public investment shocks 147

TABLE A3.2.3. Definitions of data used and sources 148

TABLE A3.2.4. Selected additional results and robustness checks 148

TABLE A4.1.1. List of small states included in the debt decomposition analysis, and the fiscal reaction function analysis 183

TABLE A4.2.1. Variables, definitions, and data sources for fiscal reaction function analysis 183

TABLE A4.2.2. Small states' fiscal reaction functions: Results 183