Long-Term Issues for Fiscal Sustainability in Emerging Asia

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

Estimating Demand for Infrastructure in Energy, Transport, Telecommunications, Water, and Sanitation in Asia and the Pacific: 2010-2020

Infrastructure plays a key role in promoting and sustaining rapid economic growth. Properly designed infrastructure can also make growth more inclusive by sharing its benefits with poorer groups and communities, especially by connecting remote areas and small and landlocked countries to major business centers. Even if the Asia-Pacific region has witnessed progress in infrastructure development, the growth of infrastructure lags behind its economic growth, and also behind international standards of infrastructure quantity and quality. Inadequate infrastructure can hamper the potential economic growth of Asian countries, weaken their international competitiveness, and adversely affect their poverty reduction efforts. The circumstances and effects of the recent economic and financial crisis provide a number of reasons to further develop national and regional infrastructure in Asia. Among these reasons is that regional infrastructure enhances competitiveness and productivity, which could help in economic recovery and in sustaining growth in the medium to long-term. Regional infrastructure also helps increase standard of living and reduce poverty by connecting isolated places and people with major economic centers and markets, narrowing the development gap among Asian economies. This paper estimates the need for infrastructure investment, including energy, transport, telecommunications, water, and sanitation during 2010-2020, in order to meet growing demands for services and facilitate further rapid growth in the region. By using top-down and bottom-up approaches, this paper provides a comprehensive estimate of Asia's need for infrastructure services. The estimates show that developing countries in Asia require financing of US$776 billion per year for national (US$747 billion) and regional (US$29 billion) infrastructure during 2010-2020 to meet growing demand

Institutions for Asian Connectivity

To make Asia more economically sustainable and resilient against external shocks, regional economies need to be rebalanced toward regional demand- and trade-driven growth through increased regional connectivity. The effectiveness of connectivity depends on the quality of hard and soft infrastructure. Of particular importance in terms of soft infrastructure which makes hard infrastructure work are the facilitating institutions that support connectivity through appropriate policies, reforms, systems, and procedures and through promoting effective coordination and cooperation. Asia has many overlapping subregional institutions involved in national and regional energy, transport, and telecommunications infrastructure connectivity. However, these institutions are characterized as being less effective, informal, and lacking a clear and binding system of rules and policies. This paper draws linkages between connectivity, growth and development, governance, and institutions. It details the benefits the region could achieve by addressing needed connectivity enhancements and the connectivity and financing challenges it faces. In addition, it presents various institutional options for regional infrastructure financing. To build seamless Asian connectivity, Asia needs an effective, formal, and rules-based institutional framework. The paper presents a new institutional framework together with the organizational structures of two new regional institutional mechanisms, namely the Pan-Asian Infrastructure Forum and the Asian Infrastructure Fund

Infrastructure policy in Asian developing countries

The urgent need for very large increases in investment in infrastructure in most developing countries in Asia is very clear. This paper surveys the challenges facing policymakers in the region. Nearly all of the main concerns for policymakers in Asia in addressing the global infrastructure imbalance are on the supply side. In particular, there are seven related supply-side issues that are of high priority for policymakers: selection and preparation of appropriate projects, finance, pricing, access, governance and management, policy and regulatory policies, and climate change. Governments and utilities need to improve their policies and performance to build confidence among stakeholders. Access to infrastructure services needs to be improved so that consumers will support realistic pricing policies, and investors will be encouraged to provide finance for infrastructure sectors. Copyright © 2010 The Author. Journal compilation © 2010 Crawford School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..