Stronger, More Inclusive Labor Market Can Boost Mongolia's Economic Recovery

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Mongolia will need to create more and better jobs than created over the past decade while increasing opportunities for women, young people, and urban residents, according to a World Bank report released today.
Mongolia’s sustained economic growth of 5.4 percent on average between 2000 and 2019 powered job growth and an increase in real wages. More recently, the COVID-19 pandemic has brought real challenges, with employment dropping by around 5 percent in 2021, though the government’s recovery package mitigated a potentially steeper decline, according to the Mongolia Jobs Diagnostic.
“Mongolia’s current challenge is that the labor market is not strong enough to create sufficient quality jobs for a growing labor force and reduce unemployment,” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “There is a continuous supply of a young and increasingly educated labor force, but more and better jobs need to be created to meet their aspirations. This calls for a more conducive policies for business environment to encourage quality job creation in the private sector.”
The report highlights that less than 60 percent of the working-age population (ages 15 and older) participated in the labor market, and only about half were employed in 2021. Women, urban residents, and people with an intermediate level of education have the lowest participation rates. The transition of young people into the labor market is not going well, especially for the less educated. Even young people with tertiary education have high unemployment rates.
Skills mismatches pose another challenge as an inadequate number of skilled workers are prepared in strategic sectors, according to the report. In addition, many recent graduates do not have the skills needed in the labor market, especially to fill higher-skilled jobs.
The Mongolian labor market challenges require a diverse set of interventions that include all parts of government, especially those responsible for private sector development. The report recommends more dynamic job creation in the private sector, upgrading the workforce via reforms to improve the skills development system, and enabling social assistance beneficiaries to work. Other recommendations include improving the functioning of the labor market via a comprehensive labor market information system, transforming active labor market programs into effective tools for employment, and improving the protection offered by unemployment insurance.
Support for the Mongolia Jobs Diagnostic report was provided by the Korea-World Bank Group Partnership Facility.
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Kenya’s economy continued to rebound from the pandemic in 2022 with real gross domestic product (GDP) increasing by 6% year-on-year in the first half of 2022, driven by broad-based increases in services and industry. This recovery was dampened by global commodity price shocks, the long regional drought, and uncertainty in the run up to the 2022 general elections.
The 26^th edition of the Kenya Economic Update (KEU) notes that the ongoing drought and the cost-of-living increases have affected households throughout the country. The agriculture sector contracted by 1.5% in the first half of 2022 and, with the sector contributing almost one fifth of GDP, its poor performance slowed GDP growth by 0.3%. A recent rapid response phone survey that monitors the impact of shocks on households shows a rise in food insecurity, most severely in rural areas whereover half of households reduced their food consumption in June 2022. Most households reported an increase in prices of essential food items and with many being unable to access core staples, such as beans or maize. In response to the inflationary pressures, the Central Bank of Kenya (CBK) has raised the policy rate thrice since May 2022 by a cumulative 175 basis points to reach 8.75%.
“Kenya can further leverage the agriculture sector to spur growth, poverty reduction, and food security,” said Keith Hansen, World Bank Country Director for Kenya. “Boosting food resilience through community interventions in arid and semi-arid lands while supporting farmer groups to link into sustainable value chains will help to better feed Kenya during periods of drought.”
Kenya’s medium term growth prospects remain positive with GDP projected to grow by 5.2% on average in 2023–24 notwithstanding current global and domestic shocks. The baseline assumes robust growth of credit to the private sector, continued low COVID-19 infection rates, a near term recovery in agricultural production, and high commodity prices favorable to Kenyan exports. These developments are in turn expected to catalyze private investment to support economic growth over the medium term.
“Private sector led growth is critical to job creation and a steady increase in household living standards over time,” said Naomi Mathenge, World Bank Senior Economist for Kenya.
The government reduced the budget deficit in fiscal year (FY) 2021/22 from 8.2% to 6.2% through revenue measures and expenditure moderation. Total revenue increased to 17.3% of GDP in FY2021/22 from 15.7% in FY2020/21, reflecting the pick-up in domestic demand and a range of tax reforms as well as improvements in tax administration and the use of technology. These have yielded a reduction in tax expenditures through harmonization of exemptions, enhanced compliance through voluntary disclosure programs for previously undeclared tax, and easier access to the Kenya Revenue Authority (KRA) web system. The reduction in the fiscal deficit has contributed to the stabilization of the debt-to-GDP ratio at about 67.3% in FY21/22, thereby underlying the importance of fiscal consolidation.
The report recognizes that responding to the rising cost of living and climate change shocks, amid limited fiscal space are some of the immediate challenges facing the government. The KEU recommends the need to prioritize policy options that help to raise both productivity and resilience, at the household, producer, and national levels. The special focus section of this edition delves into policy priorities to advance productivity improvements in agriculture where a large number of Kenyans remain employed, spur economic transformation and job creation through the digital economy, while ensuring support for the most vulnerable households.
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Europe and the US are heading towards a serious trade and economic conflict, writes “Berliner Morgenpost”.
In the European Union hopes are fading that the US government will significantly amend the controversial subsidies law by providing billions in bailouts to US manufacturers. This forces the EU to protect domestic companies from threatening competitive advantages over US competition and to prevent investment from moving to America.
Fear of the “de-industrialization” of Europe is spreading. For example, buyers of a “Made in USA” electric vehicle with a battery also made in the USA receive a $7,500 subsidy. Subsidies also go to companies that make wind turbines or solar panels from American steel. Europeans are worried that not only will they have to contend with heavily subsidized US competition in future strategic sectors, but industrial cooperation with US companies could also be threatened.
The head of the trade committee in the European Parliament, Bernd Lange, told: “I assume that a few small changes to implement the IRA can still be agreed upon in the negotiations. But I do not think that anything will change significantly, because the Law has already been passed.”
The US IRA law goes into effect on January 1. By that time, the EU countries should have found a common line. France is already openly threatening a trade war and agitating for a tough counterattack: the EU should take a protectionist course and respond with the Buy European initiative. But there are also concerns in Berlin.
An EU trade expert argues that lower energy prices for industry should be considered, as they are currently ten times higher than in the US. European Commission economic policy spokesman Markus Ferber is also calling for a hard line: If the US side doesn’t give in now, the EU commission should “put all instruments of torture on the table” and consider boosting trade. Disappointment with the protectionist course of US President Joe Biden is great, Ferber says: “The American anti-inflationary law threatens Europe, and can make its economic situation much worse.”
International Affairs
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Emmanuel Macron warned that the U.S. risked “fragmenting the West” with a flagship climate law that the French president said would distort competition by massively subsidizing American companies to the detriment of European industries, informs “The Financial Times”. The harsh words, which came on the first day of his state visit to Washington hosted by president Joe Biden.
In a speech at the French embassy in Washington, Macron said while he agreed with the objectives of Biden’s Inflation Reduction Act, it would have negative repercussions for Europe by making it less attractive for companies to invest there. “We need to co-ordinate and re-synchronize our policy agendas.”
Macron called the new U.S. Inflation Reduction Act (IRA) “super aggressive for our companies,” according to comments reported by Agence France-Presse and confirmed by a person present. “Perhaps this law will solve your problems but it will make mine worse,” he said, adding that many jobs would be destroyed.
Macron has also called on the EU to pass a so-called “Buy European Act” that would offer similar subsidies to local industries. Other countries such as Germany are less supportive of the idea.
U.S. President Joe Biden was forced to retract. He said that new laws that give incentives for domestic production of computer chips and renewable energy parts were never intended to exclude European allies and could be tweaked.
Speaking with French President Emmanuel Macron at a joint press conference at the White House, Biden said “There are tweaks that we can make that can fundamentally make it easier for European countries to participate and/or be on their own.”
The United States and France also announced the formation of ‘Joint task force’ between the Unites States and the European Union to deal with trade disputes around clean energy issues emerging from the IRA.
Europe’s industry fears that the bill, which gives tax credit for each eligible renewable energy component produced in a U.S. factory, would take away potential investment from the continent.
Biden said he makes no apologies for promoting American manufacturing of essential goods, but said large legislation often requires tweaks to deal with unintended consequences.
“We’re going to continue to create manufacturing jobs in America but not at the expense of Europe,” Biden said.
Macron told reporters that he was encouraged by his talks with Biden and is hopeful of a fair resolution.
…We’ll see whether Biden keeps his word or not.
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