Dhaka, Bangladesh
Asia has policy tools to address pockets of vulnerability: ADB

Asia has policy tools to address pockets of vulnerability: ADB

MANILA, Sept 29 (Xinhua): Policymakers in Asia and the Pacific have a wide range of options at their disposal to ensure that heightened global uncertainty due to monetary policy normalization in advanced economies and rising global trade tensions does not undermine decades of continuous growth, said a new Asian Development Bank (ADB) report released on Wednesday. The special theme chapter in the updated Asian Development Outlook (ADO) 2018 examines how the region can navigate the uncertain global environment by deploying well-coordinated and proactive policies designed to shore up macroeconomic stability. ADO is ADB’s annual flagship economic publication. “Developing Asia has prospered since the Asian financial crisis 20 years ago, but new challenges pose threats to its resilience and growth,” said ADB chief economist Yasuyuki Sawada. “Multiple pockets of vulnerability can be managed, however, if they are closely monitored and the policies to tackle them are well designed and carefully implemented,” Sawada added. The report identifies the emerging pockets of vulnerability that can undermine stability include elevated debt levels, volatile capital flows, sharp currency depreciation, high housing prices, and cross-border contagion. Countercyclical fiscal policies can help stabilize an economy but require ample fiscal space, the report notes. Besides reducing debt or widening the tax base, the report says governments can invest in countercyclical fiscal buffers such as well-governed sovereign wealth funds in resource rich economies, and in social safety nets to protect vulnerable communities. Monetary policy should pay attention to the credit cycle as well as the business cycle since the two cycles do not always coincide, the report says. It says that a more flexible exchange rate can better insulate economies against adverse external shocks but monetary authorities may need to take actions to smooth the large volatilities. Another option is to set controls on capital flows, which can reduce pressure on the exchange rate, the report says. Macro-prudential policies such as caps on loan to value and debt to income have become more popular since the Global Financial Crisis. Asia became the world’s most intensive user of macro-prudential measures, particularly to stabilize housing markets, the report notes. In addition to such options, the report says measures to strengthen macroeconomic and other fundamentals remain important. “Continued efforts are needed to ensure sound fiscal policy, independent central banks which engage in domestic policy coordination, deep financial sectors, market-oriented structural reforms, and adequate social safety nets,” the report says.

Share |