4.5 Exchange Rates Questionbank

CASE STUDY: Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons-mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan's total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country's capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan's real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract in manufacturing and services. Improvements in transport connectivity-facilitated by ongoing infrastructure projects-have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019-2022)

Table 2: Trade and Social Indicators

QUESTIONS

ECONOMIC AND SOCIAL DEVELOPMENTS IN BAHRAIN

Bahrain is a small island nation in the Arabian Gulf, known primarily for its petroleum exports, robust financial services sector, and ongoing economic reforms aiming to diversify its economy. Despite its relatively high per-capita income compared to many other countries in the region, concerns over income disparities and pockets of poverty have led policymakers to introduce a variety of measures aimed at achieving inclusive growth.

In 2019, Bahrain’s government launched an initiative to reduce its reliance on crude oil exports, which historically contributed over 70% of total revenue. As of 2022, this share has declined to about 55%, aided by growth in sectors such as tourism, logistics, and information technology. Real GDP growth averaged 4.3% between 2019 and 2022, and inflation remained moderate, hovering around 2.1% in 2022. During the same period, the government also began phasing out universal subsidies on wheat and electricity, replacing them with more targeted assistance programs. Policymakers argue that such targeted subsidies are more effective in reaching low-income groups, while critics fear the resulting price increases may slow consumption.

On the social front, growing awareness about poverty has led to increased attention on improving human capital. Official figures estimate that approximately 7% of Bahrain’s population remains below the national poverty line, a percentage that has shown slow but steady decline over the past decade. Government officials hope to address the “poverty cycle,” where low income leads to low levels of education and productivity, in turn perpetuating poverty across generations. Recent policy discussions also center around improving labor market participation by women, who currently make up only 38% of the total workforce.

Foreign direct investment (FDI) is seen as a catalyst for economic diversification. Since 2020, Bahrain has attracted new investments in financial technology firms, signaling a shift toward knowledge-based industries. However, rising external debt (now at 92% of GDP) has raised concerns about fiscal stability. Analysts note that effective management of government spending, coupled with continued structural reforms, may be critical in maintaining investor confidence.

In terms of international trade, Bahrain is a member of the Gulf Cooperation Council (GCC), benefiting from reduced trade barriers within neighboring countries. The government is also exploring free trade agreements with Asian partners to expand its export base beyond hydrocarbons. Some local producers, however, express concerns that sudden liberalization of trade could expose them to greater competition, especially in agricultural outputs.

Bahrain’s Vision 2030 plan places strong emphasis on human development and social welfare. Education funding has grown by 5% annually over the last three years, and new vocational programs aim to upskill workers to meet private sector needs. The government has also introduced a modest value-added tax (VAT) of 5% on luxury goods, hoping that it will generate additional revenue without placing too much burden on low-income households.

Despite these efforts, income inequality persists, reflected in a Gini coefficient estimated at 0.39 in 2022. Policymakers believe continued refinements in subsidy targeting, investment in health-care and education, and support for small and medium-sized enterprises (SMEs) will be key in reducing inequality. Critics, however, argue that infrastructural spending particularly on large-scale projects risks diverting funds away from social programs needed to tackle persistent poverty.

The government acknowledges that more inclusive policies are necessary to ensure that marginalized groups share in the benefits of economic growth. As part of its efforts, authorities are discussing the possibility of introducing small-scale microfinance schemes to foster entrepreneurship among low-income communities. Whether these measures will be sufficient to break the cycle of poverty depends on the ongoing balance between encouraging private sector investment and providing a safety net for the most vulnerable.

Below are two sets of data reflecting Bahrain’s macroeconomic indicators and social development indicators, which inform much of the current debate on how best to achieve sustainable growth with equity.

Table 1: Bahrain’s Selected Macroeconomic Indicators (2019–2022)

Table 2: Poverty and Development Indicators for Bahrain

Economic Developments and Challenges in Ethiopia

Ethiopia, located in the Horn of Africa, has undergone rapid economic transformation in recent years. From 2015 to 2022, the country’s real GDP growth averaged approximately 7.5% per annum, largely driven by an expansion in the services sector and increased investment in infrastructure. Coffee remains Ethiopia’s largest export commodity, accounting for about 25% of total export earnings. Yet, recurring droughts, coupled with a high population growth rate of nearly 2.7% per year, have heightened concerns about food security and rural poverty.

Government programs, such as the Growth and Transformation Plans (GTP I and GTP II), have prioritized industrialization, infrastructure development, and agricultural modernization. Although these programs stimulated some growth in the manufacturing sector, limited foreign currency reserves and inflationary pressures have posed major challenges. Ethiopia’s inflation rate peaked at around 35% in 2021 due to a combination of supply shocks, global commodity price increases, and expansionary monetary policy. The National Bank of Ethiopia has since adopted tighter monetary measures to reduce inflation. However, small businesses complain that tighter credit availability hinders their operations.

Despite sustained growth, Ethiopia’s Human Development Index (HDI) remains relatively low, indicative of widespread poverty and inequality. An estimated 22% of the population lives below the national poverty line, while rural areas struggle with underemployment and limited access to clean water. The government has attempted to address these issues through rural electrification programs, improvements in primary education, and targeted social protection schemes. Nevertheless, inequality persists, and rising urban living costs make life difficult for low-skilled workers in cities. Furthermore, frequent currency devaluations have increased the cost of imported inputs for domestic industries, prompting calls for greater export diversification beyond coffee and traditional agricultural products.

Ethiopia has also sought to enhance its global economic integration by reducing tariffs on specific manufacturing inputs and negotiating free trade agreements within regional blocs. These efforts, officials argue, accelerate the country’s transition from a largely agrarian economy to a more diversified one, while attracting foreign direct investment (FDI) into industrial parks. However, bureaucratic bottlenecks and limited infrastructure in some regions—especially inadequate road and rail networks—remain obstacles to realizing Ethiopia’s transformative goals.

Table 1: Selected Macroeconomic Indicators (2018–2021)

Table 2: Poverty Indicators and Development Measures

Using an exchange rate diagram, explain how an increase in foreign direct investment (FDI) might affect the exchange rate of the Azerbaijani manat.

Recent Economic Trends in Chile

Chile, located along the western coast of South America, is widely regarded as one of the region’s most stable and prosperous nations. With a population of around 19 million, the country boasts a successful track record in macroeconomic management, marked by consistent economic growth and relatively low government debt levels. However, ongoing shifts in global trade, fluctuating copper prices, and recent policy reforms have brought new challenges to Chile’s economy.

In 2022, Chile recorded an average monthly wage of approximately US$600, though the cost of living in major urban centers such as Santiago continues to rise. To maintain price stability, the Central Bank of Chile has long operated an inflation-targeting regime, typically aiming for annual inflation close to 3%. Yet external pressures—like disruptions to global supply chains—pushed the inflation rate up to 7.2% in 2022. Unemployment remains a pressing issue; following a peak of 10.7% in 2020 when economic activity contracted, joblessness has gradually declined as the economy recovers.

Chile’s economic identity is strongly tied to mining, particularly copper, which accounts for a significant proportion of export revenues. In 2022, approximately 45% of total exports came from copper and other minerals. While copper has been a major driver of economic growth, economists and policymakers increasingly emphasize diversification to protect against commodity price volatility. The government has also expanded support for agricultural and service industries, promoting increased global competitiveness through various trade agreements with North American and Asian partners.

On the fiscal side, Chile historically prided itself on low government debt, yet debt levels have slowly risen to 37% of GDP by 2022. This reflects higher spending on social programs, including public healthcare and education subsidies. Policymakers are attempting to strike a balance between prudent fiscal management and ensuring equitable access to basic services. In the microeconomic arena, Chile introduced an excise tax on sugar-sweetened beverages to discourage unhealthy consumption and reduce negative externalities tied to rising obesity rates.

Foreign direct investment (FDI) flows remain relatively stable in non-mining ventures, particularly in renewable energy sectors such as solar and wind. The government has enacted regulatory changes that encourage private-sector participation in green investments, hoping to lessen reliance on fossil fuels. Analysts predict that over the next decade, renewable energy might comprise up to 30% of Chile’s energy mix, helping the country manage environmental externalities while sustaining long-term economic growth.

Despite Chile’s liberalized trade regime, some domestic industries face competitiveness hurdles from global market fluctuations. The peso’s exchange rate is influenced by copper prices. Therefore, this has spurred officials to pursue greater diversification.

Income distribution remains a topic of debate. Chile has recorded improvements in its Gini coefficient over the past decade, yet inequalities persist—especially in rural areas where access to education and healthcare lags behind that in urban regions. Government initiatives to raise the minimum wage and invest in vocational training signal attempts to address income disparities, which some critics argue need more comprehensive policies.

Private enterprise plays a central role in Chile’s leading export industries. In the mining sector, large multinational firms partner with domestic companies, creating jobs and contributing to government revenue. Nevertheless, critics point to environmental costs from mining activities and the need for stricter regulations to ensure sustainable resource use. Many also question whether enough investments are being channeled into non-traditional sectors like technology and advanced manufacturing—areas widely seen as key to sustainable future growth.

Moving forward, Chile’s policy landscape continues to evolve. Discussions about strengthening social safety nets, investing further in green energy, and maintaining a competitive exchange rate occupy center stage. The government’s approach to promoting inclusive development includes balancing social spending with structural reforms that attract both domestic and foreign investors. Ultimately, Chile’s ability to diversify its economy beyond copper and ensure equity across various regions will determine its long-term path to stable and inclusive growth.

Table 1: Chile’s Macroeconomic Indicators (2019–2022)

Table 2: Chile’s Export Composition (2022)

CASE STUDY: Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons-mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan's total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country's capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan's real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract in manufacturing and services. Improvements in transport connectivity-facilitated by ongoing infrastructure projects-have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019-2022)

Table 2: Trade and Social Indicators

QUESTIONS

Recent Economic Developments and Policy Initiatives in the United Kingdom

Over the past few years, the United Kingdom has experienced profound structural changes and economic challenges. The combined effects of global shocks and post-Brexit transitions have resulted in fluctuating economic growth rates. Between 2019 and 2020, growth fell sharply from 1.5% to –9.8%, rebounding to 7.4% in 2021 as consumer demand recovered. However, inflation accelerated in 2022, surpassing 9% according to official statistics, driven partly by higher energy costs and supply chain disruptions. In response, the Bank of England pursued a more restrictive approach to its monetary policy, raising interest rates multiple times in an effort to contain inflation. While these measures helped temper price pressures, they also increased borrowing costs, posing potential risks to investment and household spending.

In the microeconomic arena, government interventions have focused on mitigating the impact of rising energy costs on households. A temporary energy price guarantee scheme was introduced in late 2022, aimed at capping per-unit gas and electricity fees. This measure, designed to protect consumers, has substantial fiscal implications, as it expands government expenditure. Meanwhile, the government has also debated altering the structure of income taxes, exploring higher income tax thresholds to offset some cost-of-living pressures. Critics argue that such policies may not sufficiently protect marginalized households, especially those affected by wage stagnation and increasing rent costs.

International trade policies have been another focal point of debate. As the UK seeks new markets beyond Europe, the government has been negotiating deals with countries like Australia, Japan, and the United States. One contentious aspect is whether the UK should maintain or eliminate an agricultural quota on poultry imports from certain trading partners. Businesses in the food sector expect that removing such quotas will reduce input costs. However, domestic producers worry about intensified foreign competition. Britain’s trade balance remains in deficit despite recovering exports in advanced manufacturing, pharmaceuticals, and financial services. In 2022, net exports improved slightly due to a weaker pound, but overall trade volumes remain below pre-2019 levels.

Labour market dynamics have also evolved. The national unemployment rate rose from 4.0% in 2019 to 6.3% in 2020, declining again to 4.6% by 2022. Yet there are mounting concerns over structural unemployment in regions once reliant on manufacturing, as well as skill shortages in high-tech industries. Government initiatives to improve training and apprenticeships have begun to address these gaps, but businesses still report persistent challenges in recruiting skilled workers. Additionally, some economists highlight rising levels of underemployment, suggesting that headline unemployment figures may understate the true slack in the labour market.

Income inequality and sustainable development continue to shape policy objectives. The UK government has pledged to reduce carbon emissions by 68% by 2030 (compared to 1990 levels), with significant investments in offshore wind and nuclear energy. It is also expanding green bond issuance to finance public infrastructure that supports climate goals. However, critics argue that regional disparities remain stark, as wealth and employment opportunities often concentrate in London and the Southeast. A new focus on “levelling up” includes spending on public transport connectivity, digital infrastructure, and housing in economically disadvantaged areas, aiming to improve both social equity and economic resilience.

Policymakers face the difficult task of balancing inflation control, economic growth, and social welfare. The Bank of England’s main policy rate stands at its highest level in over a decade, curtailing inflation but cooling investment. Meanwhile, government debt surpassed 95% of GDP in 2022, raising questions about the sustainability of large-scale fiscal interventions such as the energy price guarantee. Nonetheless, optimism persists in certain sectors: foreign direct investment is slowly recovering in tech and green industries, albeit at lower levels than before 2019. The UK’s long-term prospects may hinge on effectively managing new trade relationships, tackling regional inequalities, and implementing consistent climate-related policies to ensure inclusive, sustainable growth.

Table 1: UK’s Selected Macroeconomic Indicators (2019–2022)

Table 2: UK Exports by Sector (2021–2022)

ECONOMIC DEVELOPMENTS AND CHALLENGES IN VANUATU

(1) Vanuatu is a small archipelago nation in the South Pacific, consisting of over 80 islands. Despite its relatively small population of approximately 320,000 people, the country has shown steady economic growth in recent years. In 2019, Vanuatu’s nominal GDP reached US$950 million, but tourism-related disruptions caused by global events in 2020 and 2021 have posed significant economic setbacks. Additionally, rural communities remain reliant on subsistence agriculture, and the government is focused on introducing policies to foster both macroeconomic stability and inclusive growth.

(2) Tourism is the backbone of Vanuatu’s economy, accounting for more than 40% of GDP in 2019. However, the tourism industry was severely impacted by travel restrictions in 2020, leading to an estimated contraction in real GDP of 7%. Inflation remained moderate at around 3% in 2021, due in part to subdued demand and government measures to stabilize food prices. The authorities are closely monitoring the exchange rate of the vatu against major currencies to support export competitiveness and manage imported inflation.

(3) On the microeconomic front, small-scale farming and fishing dominate local livelihoods. Many households engage in subsistence agriculture, producing staple crops like taro and cassava. Recent government programs offer microcredit to smallholder farmers, aiming to increase efficiency and diversify agricultural output. In 2021, about 2,500 farmers benefited from these loans, collectively raising production of cocoa beans and kava, two key export products. Nonetheless, the challenge of inadequate transport infrastructure persists, limiting market access and driving up costs.

(4) Internationally, Vanuatu has aimed to reduce trade barriers. The country became a World Trade Organization (WTO) member in 2012, contributing to lower tariff rates, currently averaging 9% across key imports. In 2021, Vanuatu’s merchandise trade balance was slightly negative, primarily due to higher imports of machinery and intermediate goods required for infrastructure projects. The government hopes the easing of administrative barriers will inspire greater foreign direct investment (FDI), especially in tourism and fisheries. According to official estimates, FDI inflows rose to US$55 million in 2021, although most of these investments concentrated on hospitality projects near Port Vila.

(5) Over the past few years, Vanuatu’s Ministry of Agriculture has championed climate-resilient farming methods. In 2020, an estimated 18% of rural households adopted drought-tolerant seeds and new irrigation systems to mitigate climate risks, supported by international donors. While these initiatives have marginally increased production costs, they also have the potential to enhance productivity and reduce vulnerability to cyclones and droughts.

(6) Concerns over income inequality have drawn attention to inefficiencies in the delivery of social services. Although the official Gini coefficient is not publicly reported annually, the government acknowledges uneven distribution of income, with urban centers such as Port Vila attracting higher wages and better services. Rural electrification programs and community-based healthcare projects have been proposed to reduce disparities, though progress is gradual given fiscal limitations.

(7) In line with ongoing development plans, the government has embarked on a new “Tourism Transformation Strategy,” introduced in late 2021, aimed at diversifying tourist offerings beyond coastal resorts. Officials foresee growth in eco-tourism activities such as trekking and cultural tours, tapping into the rising global demand for sustainable travel. Additionally, the forecasted resumption of regular cruise ship visits in 2022 is expected to bolster small businesses that cater to incoming tourists. The Ministry of Finance anticipates that these policies could lead to an annual real GDP growth rate of approximately 5% by 2023, provided external conditions remain stable.

(8) While the medium-term outlook is optimistic, Vanuatu faces the long-term challenge of balancing environmental sustainability with ambitions for continued growth. Policy efforts target infrastructure development—particularly in transport and digital connectivity—to integrate rural producers into broader markets and lessen reliance on a limited range of commodities. With strategic planning and wider partnerships, officials hope Vanuatu can enhance economic resilience, accommodate a rising population, and reduce poverty more effectively.

Table 1: Selected Macroeconomic Indicators for Vanuatu (2018–2021)

Table 2: Sectoral Contribution to GDP in 2021

Economic and Social Developments in Hong Kong

Hong Kong is an international financial center located on the southern coast of China. Renowned for its open trading environment and large foreign exchange reserves, Hong Kong has historically pursued free-market policies to spur economic growth. However, recent challenges, including sluggish global demand and ongoing demographic shifts, have contributed to concerns about rising income inequality and persistent poverty. The government reports that 15.8% of the population (over 1.1 million people) live below the official poverty line, which is defined relative to median household income. In addition, Hong Kong’s Gini coefficient remains among the highest in developed economies, at around 0.539 in 2021.

Hong Kong’s role as an entrepôt for Chinese exports and as a major financial hub has driven its economic growth over several decades. Services make up close to 93% of GDP, while manufacturing accounts for only 1% of GDP. The region’s unemployment rate has typically been low, hovering around 2.9% in normal times. However, certain sectors particularly tourism and hospitality experienced a downturn due to global movements in travel restrictions and changing consumer behavior. This contributed to a slight pick-up in the overall unemployment rate to 4.7% by 2021.

The government maintains a near-balanced budget, attributable in part to revenue sources such as profits tax, stamp duties on real estate transactions, and land lease sales. Nevertheless, there is growing debate on whether Hong Kong’s minimal social welfare spending is sufficient to address structural poverty. Some argue that targeted subsidies and cash transfers are needed to prevent low-income households, especially the elderly, from slipping into deeper poverty. Indeed, the government launched a pilot scheme in 2020 offering housing vouchers to households below 60% of median income, claiming initial success in reducing homelessness by 15%.

Hong Kong also faces macroeconomic challenges. Real GDP growth decelerated from 3.0% in 2018 to -1.2% in 2019, before contracting again in 2020 due to global economic disruptions. By 2021, real GDP marked a modest recovery of 2.5%. Inflation remained relatively low, averaging 1.6% in 2021, owing partly to subdued consumer demand. At the same time, the Hong Kong Monetary Authority (HKMA) employs a currency board system pegging the Hong Kong dollar to the US dollar, which limits the use of independent monetary policy instruments.

In response to developmental concerns, the government has initiated programs focused on skill enhancement and vocational training to prevent the formation of a “poverty cycle,” where poor access to education and health-care perpetuates low wages and limited economic mobility. A new Child Development Fund aims to provide means-tested asset-building accounts for underserved youth, while strong emphasis is also being placed on technology upskilling and English language proficiency to enhance employability in service-oriented sectors.

Despite these measures, Hong Kong’s open economy leaves it exposed to global trade fluctuations. Exporters face falling demand from some of Hong Kong’s key markets, even as rising regional competition for port and logistics services puts additional pressure on trade revenues. On the other hand, foreign direct investment (FDI) inflows rose to HKD 1.1 trillion in 2021, reflecting sustained investor confidence in Hong Kong’s legal framework and financial markets. Policymakers must navigate a tight balance between preserving Hong Kong’s “small government, big market” tradition and addressing socioeconomic gaps that threaten long-term development.

Below are selected data illustrating the economy’s performance and its social challenges.

Table 1: Hong Kong’s Selected Macroeconomic Indicators (2018–2021)

Table 2: Poverty and Development Indicators for Hong Kong

Economic and Social Developments in Malta

Malta, a small island nation in the Mediterranean, has evolved from a predominantly manufacturing-based economy into a highly service-oriented hub, with tourism, financial services, and information technology now accounting for a large share of GDP. Over the past few years, the Maltese government has pursued policies to diversify the economy further and address pockets of poverty still affecting certain communities, including migrant and low-skilled workers.

One key challenge has been balancing rapid economic growth with equity and social cohesion. Although Malta’s overall unemployment rate is relatively low, underemployment and precarious work remain concerns, especially in tourism and seasonal industries. Furthermore, recent spikes in global energy prices have increased Malta’s cost of living, prompting the government to introduce targeted subsidies on utilities for low-income households, as well as to expand vocational training programs in collaboration with the private sector.

Malta’s central bank continues to play a vital role in stabilizing the economy. While the Eurozone membership means that monetary policy is largely determined by the European Central Bank (ECB), the Maltese authorities coordinate closely with EU institutions to manage challenges around inflation and competitiveness. Foreign direct investment (FDI) has grown steadily, with multinational companies attracted by Malta’s strategic location, English-speaking workforce, and links to European and North African markets. However, some observers argue that the benefits of FDI have not yet trickled down to vulnerable groups, leaving inequalities in wage distribution.

Additionally, the government has taken steps to expand Malta’s export portfolio beyond the tourism sector. Initiatives to promote advanced manufacturing, pharmaceuticals, and maritime services are part of an ongoing strategy to reduce reliance on seasonal tourism flows. More recently, Malta signed agreements with trade partners to facilitate cross-border e-commerce, and there has been discussion of setting up special economic zones to encourage higher-value-added exports.

Despite its developed status, Malta still grapples with pockets of poverty. Official estimates suggest that 12% of the population lives close to the at-risk-of-poverty threshold. In certain urban neighborhoods, individuals face low educational attainment, limited job prospects, and rising housing costs. To break the intergenerational transmission of poverty, the government has introduced a pilot social welfare reform focusing on conditional cash transfers and expanded early childhood education aimed at lifting families out of the poverty cycle.

In line with EU sustainability targets, Malta also invests in greener practices. While still reliant on imported fossil fuels, recent years have seen an increase in renewable energy projects such as solar farms. Authorities point out that a transition to green energy can reduce pollution and create jobs, though critics worry about initially higher costs being passed on to consumers.

Overall, Malta’s economic success stands alongside ongoing challenges to ensure inclusivity. Continued attention to education, infrastructure, trade diversification, and targeted welfare policies will be key to sustaining growth and raising living standards across all segments of the population.

Table 1: Selected Macroeconomic Indicators for Malta (2019–2022)

Table 2: Social and Development Indicators for Malta