Countries that are depleting their resources in favour of short-term gains are putting their economies on an unsustainable development path, the Washington-based lender said in its Changing Wealth of Nations report released on Wednesday.
The report tracks the wealth of 146 countries between 1995 and 2018 by measuring the economic value of renewable natural capital, non-renewable natural capital, human capital, produced capital and net foreign assets.
Renewable natural capital includes forests, cropland and ocean resources while minerals and fossil fuels make up non-renewable natural capital. Human capital includes a person’s lifetime earnings while produced capital covers things such as buildings and infrastructure.
The report includes blue natural capital – in the form of mangroves and ocean fisheries – for the first time.
“A deeper and more nuanced understanding of the sustainability of wealth is crucial to a green, resilient and inclusive future,” said Mari Pangestu, World Bank managing director for development policy and partnerships.
“It is essential that renewable natural capital and human capital are given the same importance as more traditional sources of economic growth, so that policymakers take steps to enable long-term prosperity.”
The International Monetary Fund said in a report this month that the Covid-19 pandemic has deepened pre-pandemic vulnerabilities, with inequality on the rise. Much of the emerging market, as well as developing economies and some middle-income nations, could fall further behind, the report said.
The global economy contracted by 3.3 per cent last year. This month, the IMF reduced its growth forecast for 2021 to 5.9 per cent, from its 6 per cent estimate in July, while keeping its 2022 projection unchanged at 4.9 per cent.
It cited a “hobbled” recovery, owing to weakening momentum as result of Covid-19 outbreaks, uneven access to vaccines, supply chain disruptions and risks linked to rising inflation.
Global wealth inequality is growing, the World Bank report found. Low-income countries’ share of global wealth increased marginally to 0.6 per cent, from 0.5 per cent 1995, despite having about 8 per cent of the world’s population, according to the multilateral lender.
Lower middle-income countries’ share of global wealth grew to 7 per cent, from 5 per cent during the same period.
China’s performance was the most striking as its share of total global wealth increased to 21 per cent in 2018, from 7 per cent in 1995, the World Bank said.
Meanwhile, the total wealth of upper middle-income countries more than doubled during the period.
“Countries with a disproportionate share of wealth in individual assets, particularly subsoil resources such as oil, gas and minerals, have faced volatile and even declining wealth,” according to the report.
Wealth increased in the Mena region over the past two decades but to a lesser extent than the regional gross domestic product over the same period, the World Bank said.
Human capital makes up the lowest share of total wealth in this region, compared with other regions.
Wealth per capita stagnated or declined between 1995 and 2018 in 26 countries, and about half of these were in sub-Saharan Africa, including the Democratic Republic Congo, Niger and Zimbabwe, the report found.
Countries with declining wealth also tend to degrade their base of renewable natural assets. For instance, the forest wealth per capita of low and middle-income countries declined 8 per cent from 1995 to 2018, according to the report.
Meanwhile, the value of global marine fish stocks collapsed 83 per cent due to poor management and overfishing during the same period, the report revealed.
Globally, the share of total wealth in renewable natural capital is decreasing, in addition to being threatened by climate change, the World Bank said.
“By ignoring polluting and climate-warming impacts, fossil fuel assets have historically been overvalued, while assets that contribute to climate mitigation, like forests, are undervalued,” said Karin Kemper, World Bank global director for environment, natural resources and the blue economy.
Human capital is the largest source of wealth worldwide, comprising 64 per cent of total global wealth in 2018, the report found. Middle-income countries increased their investment in human capital and reported significant increases in their share of global human capital wealth.
Although the long-lasting effects of the Covid-19 pandemic are still unknown, low-income countries are expected to experience the most severe effects, with a projected loss of 14 per cent of total human capital, according to the World Bank.
Non-renewable natural capital wealth has declined since 2014, mainly due to falling commodity prices. Countries that are heavily dependent on fossil fuel wealth were found to have a lower share of wealth derived from human capital, despite their high income levels, the World Bank said.
The Washington-based lender advised policymakers to create enabling conditions for balanced investment in all components of wealth, not only produced and non-renewable assets but also human and renewable natural capital.
Governments must actively invest in education, health and nature, in addition to using policies and pricing to support socially beneficial assets and doing the reverse for those with negative external effects, the World Bank said.
Countries must also diversify and rebalance their asset portfolios to make growth resilient to external shocks such as climate change and global decarbonisation, the multilateral lender said.