Full Report - Subregional Office for East and North-East Asia - escap

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ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2013 Active fiscal policy helps boost domestic demand Fiscal policy remained accommodative across the subregion, with several countries increasing public outlays for infrastructure. In mid-2012, the Government of Indonesia announced additional capital spending of 0.3% of GDP mainly to enhance lagging public infrastructure. The Government plans to boost infrastructure spending by 15% in 2013, although underspending has been observed in previous years. Similarly, fiscal policy was stepped up in the Philippines to sustain domestic demand dynamism, with the increased spending primarily concentrated on infrastructure projects. Initiatives on private-public partnerships, which had earlier exhibited slow progress, have benefited from increased investor confidence. In Thailand, a largescale public investment plan for water management contributed to fiscal policy support, although the boosting impact could be lower than planned due to slow disbursement of funds. In the Lao People’s Democratic Republic, the Government established a State accumulation fund to be used in the event of natural disasters or major economic shocks. In Myanmar, the Government plans to allocate more spending on infrastructure, especially for expanding electricity production and supply. In Timor-Leste, where oil revenues allow for policy space, the Government is investing heavily in infrastructure, including electrification and road upgrades. For infrastructure development in the Philippines, private-public partnerships have benefited from increased investor confidence Fiscal policy was also aimed at boosting domestic consumption. In Thailand, the Government temporarily waived excise taxes for first-car purchases, introduced higher minimum wages nationwide and raised salaries for civil servants with university degrees. To help the business sector cope with rising labour costs, however, the corporate income tax rate was reduced from 30% to 23% in July 2012, and further to 20% in January 2013. In Indonesia, the minimum level of taxable income was also raised to support consumer spending. Fiscal policy was also aimed at supporting vulnerable segments of society and enhancing basic social services. In Malaysia, cash assistance was furnished to low-income families and book vouchers to students. In Singapore, schemes to support households are focused on financial assistance to elderly and disabled citizens, expanding health-care services and helping low-income families, with such means as pre-school subsidies and a larger endowment fund. In Viet Nam, the Government raised its health insurance subsidy for the poor from 50% to 70% of the premium in June 2012, as part of its efforts to achieve universal health care coverage by 2014. 10 In Myanmar, the Government cut military spending from 23.5% to 14.5% of total expenditure in fiscal year 2012/13, while increasing social spending from 5.4% to 7.5%. In addition to the above-mentioned demand-boosting measures, higher-income countries had greater policy space to accommodate medium-term development strategies. For instance, the Government of Malaysia announced in July 2012 a new strategic fund to facilitate technology acquisition by local firms and fiscal incentives that help Malaysian companies to acquire foreign companies to gain frontier technology. In Singapore, small and medium-sized enterprises benefited from a cash grant and training programme as well as financial incentives for firms to enhance productivity and innovation efforts. In Brunei Darussalam, the $5.2 billion budget approved in March 2012 prioritized improved human resources and government services, in line with the country’s plan to further diversify its economy. More active fiscal policy in 2012 resulted in manageable increases in deficit in 2012 in countries such as the Philippines and Thailand (see figure 2.15). In Indonesia, subsidies on fuel and electricity exceeded their target and contributed to a larger budget deficit. To finance the development expenditures, the Philippines is focusing on widening the tax base and efficient expenditure management. In 124
MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2 Figure 2.15. Budget balance in selected South-East Asian economies, 2010-2012 4 2 0 Percentage of GDP -2 -4 -6 -8 Cambodia Indonesia Lao People's Democratic Republic Malaysia Myanmar Philippines Singapore Thailand Viet Nam -10 2010 2011 2012 Sources: ESCAP, based on national sources; and CEIC Data Company Limited. Available from http://ceicdata.com (accessed on 30 March 2013). Note: Data for 2012 are estimates. Malaysia, the focus is on efficient revenue collection and value for money for spending programmes. Domestic resource mobilization remains a particular challenge for low-income countries. Despite a reduction in fiscal deficit in 2012, Cambodia’s overall tax-to-GDP ratio has remained at about 10-11% of GDP since 2008. To address this issue, the Government introduced a new strategy for revenue mobilization. The Lao People’s Democratic Republic has been more successful in raising the tax-to-GDP ratio, with non-natural resources-based revenue increasing with the introduction of value added taxes in 2010. In Myanmar, as part of the country’s ongoing economic reforms, the Government plans to simplify the commercial tax on domestic sales and enhance tax administration and capacity. Monetary policy supports growth while curbing short-term inflows Monetary policy was supportive of economic growth across the subregion in the light of the heightened global economic uncertainty. In particular, policy interest rates were at historically low levels. The Philippines central bank cut the overnight rate four times in 2012 to a record low level of 3.5%. In Thailand, the policy interest rate was lowered to support the recovery from a sharp, flood-related economic downturn and was further reduced to 2.75% in October 2012 as the global economic slowdown deepened. The Indonesian central bank resumed policy interest rate cuts in late 2011 and early 2012 but has since left it unchanged amid strong domestic demand; still, the level of 5.75% as of February 2013 is lower than the trough recorded during the peak of the global crisis. Unlike most peers in the subregion, Malaysia left unchanged its policy interest rate since May 2011 on resilient domestic demand, but the current level of 3% is still lower than the pre-crisis level of 3.5%. Low interest rates translated into a double-digit growth in consumer and business loans in Indonesia and the Philippines. While the banking sector remained generally healthy, the central banks used various macroprudential measures to ensure financial stability. In the Philippines, the central bank redefined real estate activities to lessen the bank’s exposure to the sector. In Indonesia, a more stringent rule on down payments was announced in mid-2012 to slow credit growth for the purchase of housing and automobiles. Similarly in Malaysia, asset price build-ups in certain sectors have been dealt with by using macroprudential measures rather than changes in the policy rate. At the same time, countries remained vigilant to the impact of liquidity injections in the advanced economies, in particular the pressure on exchange 125
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UNDER EMBARGO UNTIL 03.30 GMT, THUR
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ECONOMIC AND SOCIAL SURVEY OF ASIA
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PREFACE The Economic and Social Sur
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EXECUTIVE SUMMARY FORWARD-LOOKING M
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on education and health. Indebted c
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ACKNOWLEDGEMENTS This report was pr
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CONTENTS Page Foreword ............
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CONTENTS (continued) Page Australia
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BOXES Page A. Forward-looking macro
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FIGURES (continued) Page 1.20. Ineq
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TABLES Page 1.1. Main destination e
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References to dollars ($) are to Un
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ABBREVIATIONS ADB AEC APEC ASEAN AS
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SOURCES OF QUOTATIONS (a) Page 1: a
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WHY FORWARD-LOOKING MACROECONOMIC P
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▲ WHY FORWARD-LOOKING MACROECONOM
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THE STATE OF INCLUSIVE AND SUSTAINA
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MACROECONOMIC PERFORMANCE AND POLIC
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INVESTING IN INCLUSIVE AND SUSTAINA
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Percentage of GDP INVESTING IN INCL
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❚ ❚ ✕❚ INVESTING IN INCLUSI
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207 REFERENCES
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REFERENCES REFERENCES Abdyrasulova
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REFERENCES (2012a). The debate on e
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REFERENCES (2012). World Energy Out
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REFERENCES Ma, K-H (2008). Assessme
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REFERENCES (2011b). Child Poverty i
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REFERENCES United Nations, Economic
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STATISTICAL ANNEX STATISTICAL ANNEX
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STATISTICAL ANNEX Table 2. Poverty
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STATISTICAL ANNEX Table 4. Resource
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STATISTICAL ANNEX Technical notes T
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STATISTICAL ANNEX Source: Barro, Ro
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STATISTICAL ANNEX estimates based o
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This publication may be obtained fr
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READERSHIP SURVEY The Macroeconomic
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Half a decade since the onset of th
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