surviving covid: fiscal response and prospects in asia and ...€¦ · surviving covid: fiscal...
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Surviving COVID: Fiscal Response and Prospects in
Asia and the World
Session 3 Macro policy response, fiscal space and debt vulnerability
UNESCAP Virtual Expert Group Meeting:
Building Forward Better – Towards post-COVID-19 resilient economies
November 16-18
IMF Capacity Development Office in Thailand (CDOT)
Holger van Eden
IMF Regional Public Financial
Management Advisor for SE Asia
The activities of the Advisor are funded in
part by resources for capacity development generously provided to the
IMF by the Government of Japan
2
Overview of World Economic Outlook
Outlook
• A deep recession in 2020, followed by a by a strong, but partial and uneven
recovery in 2021
• Persistent effects on potential output expected as the deep downturn damages
supply potential
Risks of a stalling recovery
• Resurgence in pandemic
• Tightening of financial conditions, with historically high debt levels
• Escalating geopolitical tensions and social unrest
Policies need to adapt as the situation evolves, address near-term priorities and
medium-term challenges
• International coordination: global funding for vaccine, health spending, support
vulnerable countries
• Shield affected people and firms, support hiring, enable reallocation of resources
• Ensure soundness of the financial system
• Foster an inclusive, green, and resilient recovery
3
Q2 GDP: on balance, globally, not as severe a
contraction as expected;
*Haver Analytics seasonal adjustment (estimates)
Sources: Haver Analytics and IMF staff calculations.
2020Q2 GDP growth surprises
(q/q percent change; sa)
4
4
And strong recovery expected in 2021,
especially in Asia
5
Asia’s Emerging Market countries will also see a
strong rebound in 2021, though 2020 has been
tougher than expected….
6
Massive fiscal and monetary policy
support has prevented worse outcomes….
7
In Emerging Asia fiscal support, while
significant has been more limited
8
COVID-19 has led to an unprecedented
rise in debt and deficits in 2020…
9
Be it with wide variation, debt sustainability
in Asia is deteriorating…
24
Sources: World Economic Outlook, and IMF staff calculations.
Note: The regional aggregates are calculated as median for a given year.
0 10 15
Asia EM's
Asia AE's
Downgrade in Sovereign Ratings or Outlook(number of countries)
5Rating Outlook
Sources: S&P, Moody’s, and Fitch.
Note: Includes downgrades in 2020. Data as of September 30, 2020.
.
AsiaEMDE Asia EMDE LICs
Pacific Island Countries
0
40
20
60
80
100
120
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Public Debt(percent of GDP)
10th/90th percentile Median
Projections
Maldives
Sri Lanka
Mongolia
AsiaAE
10
Fiscal Response to crisis has depended
on pre-conditions
11
Relatively low public debt before the crisis
helped some Asian countries do more…
IMF Asia Pacific Regional Economic Outlook, October 2020
12
Distribution of Fiscal Support by
Beneficiary (as percent of total)
IMF Fiscal Monitor, October 2020
13
Fiscal Challenges as countries recover…
Short term
• Is stimulus enough to kick-start economy/private sector, while – for EMs -
avoiding capital market outflows
• Efficient/effective use of emergency spending
• For countries in financial difficulties: use of all available emergency finance
and debt restructuring options
• Gradually pullback of fiscal stimulus as private sector recovers – not too
early; resumption of growth is essential for pathway to sustainability
Medium term
• Return to a sustainable fiscal path, rebuild financial buffers
• Improve spending efficiency
• Develop equitable, green, and resilient policies and institutional frameworks
• Increase revenue mobilization – tax admin and policy
• Watch quasi-fiscal operations and contingent liabilities
• For some LICs: structural debt reduction and rethinking of architecture
14
Special focus in Asia:
• Targeted fiscal expenditure – health care, reaching the poor/ informal sector, SMEs, green investment
• Income inequality – On the rise, bad for social
stability and economic growth
• SDG goals – 60 percent of global SDG investment needs in Asia; will require structural increase in
spending
• Revenue Mobilization
15
Questions?