WBG – Digital stimulus packages: Lessons learned and what’s next

As the world crosses a sobering threshold of over 68 million COVID-19 cases, the World Bank forecasts that the pandemic and its associated economic fallout will result in a 5.2% contraction in the global economy in 2020 with a 3.5% decline in per capita incomes and an estimated 88-115 million people expected to fall back into extreme poverty in 2020. There is great urgency for policymakers to not only address the immediate health threat but also look ahead towards a sustainable, inclusive path to recovery in the medium term.

The COVID-19 pandemic has revealed the critical importance of digital infrastructure, technologies, and services during times of crisis in enabling government, businesses, and society to continue to function. Beyond ensuring continuity and connectivity, digitalization sets the foundation for a more resilient and inclusive economic transformation.

The World Bank Group’s COVID-19 Crisis Response Approach (June 2020) outlines three key stages to respond to the pandemic: Relief, Restructuring, and Resilient Recovery. This blog focuses on the last two. Previous posts have covered the important digital response initiatives supporting COVID-19 relief measures which aim to address the pandemic’s immediate health, social, and economic impacts.

The World Bank’s Digital Development Global Practice has been tracking COVID-19 recovery stimulus plans across the world, with a particular focus on potential channels for incorporating digital ICT infrastructure and digital services as part of COVID recovery efforts. While many governments were already increasing investments in digital prior to the COVID-19 crisis, thus far, national governments have committed to more than USD$1.5 trillion to digital response measures as part of COVID-19 recovery stimulus packages, surpassing 3% of GDP in South Korea, China, and EU. This represents a concerted effort to not only support industries in distress such as hospitality, tourism, and airlines, but also to bolster digital technologies and infrastructure that serve as enablers for the whole economy.

 

COVID-19 recovery stimulus packages – Example digital recovery measures

 

Governments have employed a combination of public investment, state financing, and reforms for private investment to support three key digital recovery themes: enhancing connectivity, strengthening core data infrastructure, and accelerating innovation and digitalization of the economy. Countries that have passed major COVID-19 recovery stimulus packages cover all three areas, with digital innovation and connectivity as the most recurrent.

  1. Enhancing connectivity: Beyond bolstering broadband capacity in response to increased demand for internet services during the initial lockdowns, countries like Australia have made substantial commitments of government financing to expand internet access particularly in rural regions. Other countries such as China’s “seven new infrastructure” pillars and South Korea have gone further to support nationwide rollout of domestic 5G networks through public investment and tax/fee incentives, respectively.
  1. Strengthening core data infrastructure: Investments in digital solutions to store, compute, and safeguard big data have also been a key digital recovery feature included in stimulus packages. The EU for instance proposed a temporary recovery instrument to bolster investments in cross-border cloud infrastructure and sustainable supercomputing capabilities. South Korea’s “Korean New Deal” takes a multi-faceted approach with large-scale public investments in digital infrastructure, grants/subsidies to expand adoption of artificial intelligence, and strengthening of cybersecurity (e.g., develop AI security businesses and support SMEs in guarding against cyberthreats).
  1. Accelerating digitalization of the economy: Many stimulus packages include broad support for digitalization of small-medium enterprises (SMEs) and government services, green jobs, and/or investing in innovation and R&D to build a digital-driven ecosystem. For instance, Germany’s recovery package addresses climate change, innovation, and digital technology, including public investment and private sector funding e-charging infrastructure, AI projects, and e-government services. Several countries including SingaporeMalaysia, and Israel have expanded financial support and resources for businesses to adopt digital technologies and processes.

In the protracted fight against COVID-19, developing countries with limited fiscal space will need to prioritize resources and efforts to target highest impact areas. Investing in digital infrastructure, technologies, and services will not only help countries prepare against future shocks but also identify pathways to accelerate inclusive growth. Expanding access to affordable internet connectivity and ensuring secure data and computing infrastructure are core digital enablers to facilitate development of government e-platforms, digital financial services, digital skills, and new innovative business models across sectors.

The specific role of government interventions and policy design will depend on country-specific contexts, such as the extent of existing digital ecosystem development, competitiveness and productive capacity of the private sector, and strength of institutions and government internal capabilities to implement initiatives.

There are also risks for governments to consider. These include increased government presence in markets potentially crowding out the private sector, potential distortions in the allocation of resources across firms, and limited spillover effects on the labor market and SME segment of the private sector (particularly for countries with high levels of informality). Governments will also need to ensure effective accountability measures for the use of stimulus resources and adopt a feasible framework to balance fostering innovation and expansion of digital services while safeguarding users.

From the digital measures we’ve seen in COVID-19 recovery plans, there are opportunities for governments to be innovative and creative in deploying a combination of different approaches across direct public investment, government financing and incentives for private sector solutions, and sector reform to enable private digital solutions. What’s certain is that digital technology and services will play a key role in helping countries recover from the pandemic and build a more inclusive and resilient future.

By : JIAWEN TANG & TANIA BEGAZO
The authors are grateful for comments provided by Mark Williams.

Image Credit: Getty Image

 

Source : https://blogs.worldbank.org/digital-development/digital-stimulus-packages-lessons-learned-and-whats-next