Long-term Issues for Fiscal Sustainability in Emerging Asia

Masahiro Kawai () and Peter Morgan

Finance Working Papers from East Asian Bureau of Economic Research

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.

Keywords: Fiscal Sustainability; emerging Asia; fiscal stimulus policy; fiscal management; financial repression; fiscal rules and frameworks; fiscal surveillance (search for similar items in EconPapers)
JEL-codes: H2 H51 H54 H55 H62 H63 J11 (search for similar items in EconPapers)
Date: 2013-08
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Long-term Issues for Fiscal Sustainability in Emerging Asia (2013)
Working Paper: Long-term Issues for Fiscal Sustainability in Emerging Asia (2013)
Working Paper: Long-term Issues for Fiscal Sustainability in Emerging Asia (2013)
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