Widespread informal economic activity likely to slow recovery in EMDEs: World Bank

WASHINGTON, May 11 (Xinhua) -- A "strikingly" large percentage of workers and firms operate outside governments' line of sight in emerging market and developing economies (EMDEs) is likely to hold back the recovery, according to a study released by the World Bank Group Tuesday.

The study, The Long Shadow of Informality: Challenges and Policies, finds that the informal sector accounts for more than 70 percent of total employment - and nearly one-third of Gross domestic product (GDP) - in EMDEs.

The multilateral lender argued that that scale "diminishes" these countries' ability to mobilize the fiscal resources needed to bolster the economy in a crisis, to conduct effective macroeconomic policies, and to build human capital for long-term development.

"Informal workers are predominantly women and young people who lack skills. Amid the COVID-19 crisis, they are often left behind, with little recourse to social safety nets when they lose their jobs or suffer severe income losses," said Mari Pangestu, World Bank managing director for development policy and partnerships.

The study shows while it remains high, informality had been on a declining trend for three decades before the COVID-19 pandemic. Between 1990 and 2018, on average, informality fell by about 7 percentage points of GDP to 32 percent of GDP.

The study urged policymakers to take a comprehensive approach and tailor measures to country circumstances. Informality in EMDEs varies widely across regions and countries - as a percentage of GDP, it is highest in Sub-Saharan Africa, at 36 percent, according to the study.

The World Bank suggested governments should improve access to education, markets, and finance so that informal workers and firms can become sufficiently productive to move to the formal sector, improve governance and business climates so the formal sector can flourish and streamline tax regulation to lower the cost of operating formally and increase the cost of operating informally.