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Long-term Issues for Fiscal Sustainability in Emerging Asia

Author

Listed:
  • Masahiro Kawai

    (Dean and CEO, Asian Development Bank Institute)

  • Peter J. Morgan

    (Senior Consultant for Research, Asian Development Bank Institute)

Abstract

The aftermath of the global financial crisis of 2007–08 underlined the importance of maintaining fiscal space and fiscal sustainability. Even though many Asian economies implemented fiscal stimulus policies during the crisis period, their fiscal conditions generally improved rapidly thereafter, and their overall government debt positions, aside from that of Japan, appear strong. This reflects a number of supportive factors, including strong underlying growth, conservative fiscal management, and financial repression that keep interest rates low. Nonetheless, there are a number of reasons to believe that conditions in emerging Asian economies will not always be so supportive. First, economic growth will tend to slow as countries reach higher income levels. Second, many economies will face rapid aging, which will raise old-age-related spending dramatically, while tending to reduce economic dynamism. Third, financial repression is likely to diminish as financial markets develop, making debt management more challenging. The first objective of this paper is to identify long-term issues of fiscal sustainability risk for emerging Asian economies—such as large-scale subsidies, infrastructure investment requirements, aging and social protection spending, contingent liabilities, financial repression, and the exposure of the domestic banking sector to sovereign debt. The second objective is to recommend policies to reduce these risks to sustainability, including improving the balance of revenues and expenditures, implementing more explicit fiscal rules and frameworks, and establishing stronger fiscal surveillance at the national and regional levels.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Masahiro Kawai & Peter J. Morgan, 2013. "Long-term Issues for Fiscal Sustainability in Emerging Asia," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(4), pages 751-770, September.
  • Handle: RePEc:mof:journl:ppr023h
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    File URL: http://www.mof.go.jp/english/pri/publication/pp_review/ppr023/ppr023h.pdf
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    References listed on IDEAS

    as
    1. Nina T Budina & Tidiane Kinda & Andrea Schaechter & Anke Weber, 2012. "Fiscal Rules at a Glance; Country Details from a New Dataset," IMF Working Papers 12/273, International Monetary Fund.
    2. Yong Jin Kim & Jong‐Wha Lee, 2011. "Technological Change, Human Capital Structure, And Multiple Growth Paths," The Japanese Economic Review, Japanese Economic Association, pages 305-330.
    3. Ferrarini , Benno & Ramayandi, Arief, 2015. "Public Debt Sustainability in Developing Asia: An Update," ADB Economics Working Paper Series 468, Asian Development Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ray, Nikhil. & Velasquez, Agustin. & Islam, Iyanatul., 2015. "Fiscal rules, growth and employment : a developing country perspective," ILO Working Papers 994881313402676, International Labour Organization.
    2. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Lau, Evan, 2017. "Fiscal sustainability in an emerging market economy: When does public debt turn bad?," Journal of Policy Modeling, Elsevier, pages 99-113.
    3. repec:ilo:ilowps:488131 is not listed on IDEAS
    4. Ramkishen S. Rajan & Khee Giap Tan & Kong Yam Tan, 2015. "Fiscal sustainability in selected developing ASEAN economies," International Journal of Public Policy, Inderscience Enterprises Ltd, pages 186-203.

    More about this item

    Keywords

    fiscal space; fiscal sustainability; emerging Asian economies; global financial crisis; fiscal stimulus policies; government debt; demographics; social welfare spending;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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