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

hvaneden@imf.org

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?