limit the build-up of leverage in balance sheets. New challenges posed by fintech may need to be navigated carefully and, in some EMDEs, the capacity of regulators and supervisors needs to be built to adjust to rapidly evolving financial market developments (World Bank 2019a).

# Promoting domestic growth and resilience

Heightened downside risks to global growth highlight the need for policymakers to reinforce domestic policy room against possible negative shocks, and to shore up domestic growth prospects. In EMDEs, policymakers need to use the opportunity provided by stillbenign financing conditions to rebuild fiscal and monetary policy room to confront future shocks, while safeguarding or expanding growth-enhancing investment. Amid adverse debt dynamics and narrowing fiscal space, policymakers need to strengthen domestic revenue mobilization, prioritize growth-enhancing spending, and improve debt management and transparency. Increased public sector efficiency (including reining in poorly targeted subsidies to households or state-owned enterprises) and measures to foster private sector investments will also be key to meet large infrastructure needs and achieve critical development goals.

In countries where progress has flagged, steps are needed to reinvigorate sustainable growth (Figure 13). A key area of focus should be to improve policy and regulatory environments in ways that support stronger potential growth and social cohesion. This includes efforts to draw groups that are only marginally attached to the labor market into formal employment, to encourage skills development and entrepreneurial activity, and to expand private investment (G20 2018). Greater financial inclusion of groups lacking access to finance could also help increase productivity.

Measures to strengthen financial resilience are needed to address rising financial vulnerabilities. This can include initiatives to improve credit quality, insurance regulation, loan restructuring mechanisms, adequately enforced bankruptcy laws, recognition of nonperforming loans, cross-border bank resolution, buffers in bank and non-bank institutions, and the introduction of centralized clearing for derivatives transactions (IMF 2018b).

# Policy priorities

Policy priorities are necessarily country-specific. That said, there are some general patterns. For example, countries facing weak demand but having ample fiscal or monetary space may want to activate macroeconomic stimulus policies. Countries with precarious fiscal sustainability may want to prioritize strengthening fiscal positions in a manner that is the least damaging to output. This would likely require a focus on spending efficiency and domestic revenue mobilization. Countries with high foreign exchange exposures may want to prioritize macro- and micro-prudential measures. Countries with large informal sectors may want to prioritize investing in education, expanding access to finance and markets, and streamlining (and effectively enforcing) business and tax regulations (World Bank 2019c). Countries with flagging potential growth as a result of demographic trends may want to prioritize reforms to benefit systems as well as strengthening education and