North Asia and India

The period between the Asian financial crisis and the global financial crisis (2000–07) was marked by a favourable macroeconomic environment combined with generally healthy fiscal positions and robust economic growth across most of emerging Asia (i.e., excluding Japan). The slump in 2007–08 forced several countries to opt for massive countercyclical policies to deal with the crisis, and this in turn worsened their fiscal positions. While the downturns induced by the global financial crisis proved to be temporary in Asia, there are two specific sources of domestic risk that appear to be a common denominator in most economies there. The first concerns rapidly inflating asset prices, particularly in the property sector. The second refers to aging-related expenditures that are likely to add to these economies’ fiscal pressures in the future. In order to maintain fiscal sustainability in the future, these economies must undertake greater efforts to curtail increases in social sector spending. Considering that the Asian economies do not have easy financing options available to meet the challenges arising from growing aging-related expenditures, especially with narrow and low tax bases, it is important that the economies take fiscal prudence seriously and make sure that they remain fiscally sustainable in the long run.