In its recent Regional Economic Outlook (REO), the International Monetary Fund (IMF) notes that the pandemic has worsened in Asia since the spring, as well as the region’s growth prospects. The growth projection for the Asia and Pacific region is lowered from more than 1.0% to 6.5% from the April 2021 forecast, more than for any other region. The downgrading is mainly due to the rapid spread of the delta variant amid initially low vaccination rates, which has tragically resulted in further devastating loss of life, especially in the densely populated regions of South Asia and Southeast Asia. South East. Although demand for Asian manufactures and exports from Europe and the United States have supported the recovery, the actual gross domestic product (GDP) performance in the first half of 2021 has been disappointing. Manufacturing has held up due to strong demand for supplies related to the pandemic, but contact-intensive sectors such as services and retail are taking longer to recover.
Despite the downward revision, Asia-Pacific remains the fastest growing region in the world. But the divergence between advanced Asian economies and emerging and developing economies is growing. High-tech (eg China, South Korea) or commodity (eg Australia, New Zealand) exporters can take full advantage of favorable external demand and accommodating financial conditions. In contrast, tourism-dependent economies such as Pacific island countries and Thailand, as well as economies with limited fiscal stimulus space (mainly low-income countries), are lagging behind.
As vaccination rates accelerate, the region is expected to grow 4.9% in 2022, 0.4 percentage points faster than forecast in April. However, production levels in emerging and developing economies are expected to remain below pre-pandemic trends for years to come.
Accelerating inflation remains a concern for the global economy, although price increases in Asia are more moderate than in other regions. Higher raw material prices, supply chain bottlenecks and rising shipping costs have had a greater impact on exports than on domestic production. And so, the increases in domestic consumer prices were contained.
As a result, monetary policies in the region have not tightened as much as in the rest of the world. While New Zealand was the advanced economy to reduce asset purchases and Korea the first to raise key interest rates (mainly for financial stability reasons), emerging Asia maintained a policy accommodative monetary policy to support the recovery, unlike other emerging markets.
There are downside risks to the region’s economic outlook. From a health standpoint, the uncertain trajectory of the pandemic and the weakening of the efficacy of vaccines against viral variants constitute a risk. Economically, global supply disruptions and the potential financial fallout from the Federal Reserve’s reduced support to the US economy are a concern for the region. Higher financing costs can interact with national financial vulnerabilities (rising debt levels in the business and housing sectors in some countries) and further slow the recovery. Natural disasters are also a growing threat to low-income countries, especially Pacific island countries.
Given these challenges, our latest assessment calls on policymakers to navigate carefully through uncertainties and adjust their policy responses accordingly. Their first priority should be to deal with the health crisis. Rapid and broad immunizations and equitable sharing of vaccines globally are essential. In addition, macroeconomic policy support should remain in place to the extent possible with better targeting of support to the most vulnerable people and sectors, until the recovery is more firmly established and the pandemic is underway. control. We also advise that fiscal policies be undertaken within medium-term frameworks to maintain credibility and keep borrowing costs low, while central banks must be prepared to act quickly if the recovery strengthens faster than expected or when ‘there is a tangible risk of rising inflation expectations. .
Structural reforms and investments to develop new engines of growth, including in the digital, education and green sectors, would help increase productivity and ensure more equitable outcomes for students and workers facing challenges. flip side of the pandemic of their learning and their lives.
To explore policies aimed at fostering a strong and sustainable recovery, this OER presents two studies. The first study provides new empirical evidence on the health and economic benefits of rapid vaccinations. The analysis quantifies how these vaccines can spill over across borders, demonstrating that no country can fully recover until all countries have wide access. The second study shows how trade, a historically powerful engine of growth in Asia, has stagnated, in part because of declining liberalization amid still high trade restrictions. The analysis highlights how reducing non-tariff barriers – which are significantly higher in Asia than in other regions – can help accelerate inclusive prosperity. It would also build on the progress made in the past through regional agreements, such as the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership.
In Bangladesh, several nationwide blockades have been imposed, the most recent being formulated to keep – the RMG sector and the agricultural sector – open. Support programs close to Tk1 trillion were announced from March to April 2020, which included wage assistance, working capital loans and social assistance. This was gradually increased up to Tk. 1,800 billion (about 6.0% of GDP). The national Covid-19 vaccination strategy, launched in January 2021, was supported by securing rapid access to funding for vaccines. However, these efforts were hampered by severe supply shortages. Although vaccination rates have since improved, Bangladesh still lags behind its South Asian peers.
The implementation of the stimulus package and the expansion of the budget deficit supported the recovery, although it was disrupted by the second and third waves of the pandemic in the last quarter of fiscal year 21 and in the first quarter of fiscal year 22. The slowdown in vaccinations has also added to this disruption. Supply side pressures kept food inflation high at the start of FY21, but pressures eased later in the year and inflation declined. Exports and remittances exceeded expectations, strengthening reserve buffers.
Bangladesh aims to achieve upper middle income status by 2031. Maintaining high pro-poor growth to achieve middle income status requires (1) the development of new growth engines and increased productivity for create well-paying jobs (2) close infrastructure gaps (3) invest in human capital and (4) tackle climate vulnerabilities.
Short-term political priorities in Bangladesh should focus on providing additional stimulus if needed and ensuring a timely and orderly exit from the stimulus. In the longer term, revenue mobilization through the modernization of the tax administration, the rationalization of the VAT structure and the management of fiscal risks remain key fiscal priorities. For monetary and exchange rate policies, the focus should be on gradually increasing exchange rate flexibility and maintaining adequate foreign exchange reserves. Strengthening banking regulation and supervision, improving corporate governance, reforming legal systems, and reforming and reassessing the role of public commercial banks are important reforms of the financial sector. In addition, lowering barriers for new businesses and streamlining the pricing structure would promote diversification. Finally, boosting women’s participation in the labor market and increasing financial inclusion would help maintain inclusive growth.
Changyong Rhee, Director, Asia and the Pacific Department, International Monetary Fund.