Perceptions by business leaders of forward-thinking and future preparedness by governments have been on an improving trend in a number of countries before the pandemic, but have flattened out this year, and overall their level remains low. There has been progress by governments in creating the frameworks for the private sector to advance the adoption of digital technologies and to implement environmental, social and governance standards; yet, overall, the preparedness and long-term vision of governments must improve to prepare for new challenges and proactive efforts at transformation towards more productivity, shared prosperity and sustainability.

Governments will also need to upgrade their own processes and services. It became apparent during the crisis that governments which had built out the digital delivery of public services were much better placed to disburse emergency funding to distressed companies and households. The Chinese government, for example, was able to build on Ant Financials’ vast network to support millions of SMEs through the first wave of lockdowns.10

Long-term thinking by governments will further need to involve a deliberate shift to measuring economic success beyond GDP growth. A dashboard that considers people, planetary (environmental) and institutional targets on a par with growth objectives will need to be anchored in budget processes and become an integral part of a new narrative of economic performance.11

The management of macro-economic sustainability in the recovery phase and in the next few years will determine if the growth trajectory will be burdened by debt and vicious cycles marked by public finance weakness and slower growth. Among most advanced countries, debt affordability is currently not at risk; but it seems inevitable that to finance COVID-19 policy responses related to taxation will have to increase in the future. Long-term prosperity will significantly depend on how public budget and fiscal policies are managed (e.g. how efficiently recovery packages are implemented and the maturity structure and composition of public debt) as well as on the structural capacity to grow more rapidly.

Developing countries, however, are in a significantly weaker position as some of them are already highly indebted—and highly-indebted countries tend to attain lower investment and productivity levels during recovery periods.12 These countries will need the support of the international community and multilateral financial institutions to prevent defaults or situations where the cost of debt service diverts significant resources from economic and social policies budgets.13 For instance, debt standstill arrangements that flatten the curve of debt rescheduling can help.14

In order to close existing gaps, the world will need to invest $3.7 trillion, or 4.1% of global annual GDP a year, into infrastructure from 2017 to 2035—and 54% of this funding can be attributed to the needs of Asia. However, there is a projected shortfall of $5.5 trillion of infrastructure spending globally between 2017 and 2035, and this further varies regionally.15

The IMF estimates that allocating an additional 1% of GDP to public investment could create approximately 7 million jobs directly, and 20 million jobs indirectly worldwide. Maintaining and, where possible, expanding investments in transport, healthcare, housing, digitalization and energy transition would not only improve competitiveness, but also create more employment while preparing countries to become more resilient and sustainable.16 18

Effective infrastructure governance and management will be key to improving the efficiency of fund disbursement. To date, inefficient planning, allocation and implementation of infrastructure projects account for 30%-50% of expenditure losses; thus, countries could maintain their infrastructure budgets by streamlining and improving these processes.17 Similarly, stronger frameworks for project selection, fiscal planning, comprehensive budgeting, fair procurement practices, project oversight and monitoring of public assets may contribute to building better infrastructure at a lower cost.

Prioritize closing the digital divide within and across countries for both firms and households

The impact of the pandemic crisis should serve as a wake-up call for countries that need to embrace the digitalization process, incentivize companies to move towards digital business models, and invest in ICT development and digital skills.

Two immediate implications follow for reviving economies. First, the technology frontier will move ahead faster than before: private sector spending on technology is only momentarily retracting in 2020, but it is expected rebound strongly in 2021 and companies are expected to almost double their investments dedicated to digital transformation initiatives in the next three years.18 Economies that have been able to upgrade their ICT infrastructure and expand the adoption of digital technologies will be better equipped for the recovery phase, and those that are lagging behind could allocate parts of stimulus packages and policy action to this domain.

Second, digital transformation must occur hand in hand with human capital and legal framework developments. As technological advancements proceed, an economy’s productivity gains rest upon the capacity of companies and households to take advantage of the opportunities offered by new technologies. At the same time, legal codes need to catch up with the digital world and provide certain and simple rules for digital business models (e.g. e-commerce, sharing economy, fintech).

Few countries are already advanced on all aspects (Table 1.1), and even countries where ICT is broadly diffused (e.g. Korea and Japan) may need to adapt their business organizational models accordingly in the next phase of economic revival.