22 March 2022 – Economic activity in Emerging Asia will continue to recover in 2022, but important uncertainty and risks remain. Policy makers in the region need to broaden financing options, further deepening capital markets and instruments, to ensure a sustainable recovery, according to the Economic Outlook for Southeast Asia, China and India 2022: Financing Sustainable Recovery from COVID-19 released today.
The moves in commodity prices and financial markets seen since the beginning of the large scale aggression by Russia against Ukraine could slow the recovery of Emerging Asian economies (ASEAN-10, China and India), although the overall impact is projected to be smaller than in OECD economies.
“While we expect the economic recovery from the COVID-19 pandemic to continue, the growth momentum remains fragile. Inflation, notably rising energy and food prices, and supply-chain disruptions present an ongoing risk to the recovery,” OECD Secretary-General Mathias Cormann said. “Governments in the region need to implement effective macroeconomic and structural policies to safeguard their economies, continue to improve citizen’s well-being and accelerate progress to achieve the Sustainable Development Goals.”
The global consequences of the war in Ukraine and rising interest rates in advanced economies could further affect financial markets. Bank profitability and lending have fallen in many countries in the region since the start of the pandemic. The deterioration of the labour markets will take time to heal. Monetary policy has been appropriately very accommodative in most economies in response to their fragile recoveries. Several countries in Emerging Asia have continued to provide fiscal stimulus, but its extent has been more moderate than at the start of the pandemic.
Given the challenging fiscal and monetary context, policy makers in Emerging Asia should consider a broader range of options to finance the recovery from the pandemic. Using multilateral initiatives, such as syndicated loans or swap arrangements, would help to manage the stock of public debt. In addition, policy makers can harness alternative sources of financing such as Environmental, Social and Governance bonds. To develop bond markets, the Outlook recommends establishing robust frameworks of classification and certification and dedicated regulatory frameworks, increasing the supply of sovereign bonds, and improving the incentives for investors to participate in the markets. Insurance-linked securities can provide additional financial coverage against extreme events. Regional co-operation, for instance in the form of pandemic-risk pools, can also support the post-pandemic recovery.
Bond markets in Emerging Asia require stronger institutional and legal frameworks, investor protection, transparency, liquidity and market infrastructure. These needs are particularly apparent in countries with less developed markets. Improving financial literacy in Emerging Asia would help investors better understand complex financial instruments, thus promote greater market participation. Finally, the Outlook calls for a strong macro-prudential framework to enable bond-market development by enhancing the stability of the financial sector.
For further information on the 2022 edition of the Economic Outlook for Southeast Asia, China and India, please visit: www.oecd.org/dev/economic-outlook-for-southeast-asia-china-and-india-23101113.htm.
Journalists are invited to contact Kensuke Tanaka, Head of Asia Desk, OECD Development Centre ([email protected], +33 6 27 19 05 19), or Bochra Kriout at the OECD Development Centre’s Press Office ([email protected], +33 1 45 24 82 96) and Yumiko Yokokawa, at the OECD Tokyo Centre ([email protected], +81 3 55 32 00 21)