For a more inclusive and sustained recovery structural challenges such as low labour force participation of women, widespread informality, weak skills, rigid employment rules hampering reallocation and large share of low-quality employment have to be addressed. The COVID-19 related contraction in economic activity affected informal workers the hardest, as many work in contact-intensive services such as tourism, catering and retail trade.
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2021 Structural Reform Priorities
The recovery started during the summer, driven by vigorous quasi-fiscal stimulus and external demand, now faces significant headwinds. The number of COVID-19 cases surged again in autumn. Policy support has been scaled down to contain the current account deficit, inflation and exchange rate depreciation. GDP is set to contract by 1.3% in 2020, and – absent renewed macroeconomic tensions – it is projected to grow by 2.9% in 2021 and 3.2% in 2022. Unemployment is expected to increase. Contingent liabilities and the current account deficit remain very large and high risk premia and the exchange rate depreciation have hampered the outlook. Recent stability-oriented policy measures can enhance domestic and international sentiment and support the recovery.
Physical distancing measures need to be fully enforced and additional confinement measures may be needed. Confidence in the quality of official communication on the spread of the pandemic should be restored. Improving the transparency and the coherence of monetary, fiscal, quasi-fiscal and financial policies would help improve domestic and international confidence. Reducing employment costs and promoting more flexible formal employment forms would boost job creation in the formal sector.