The Bank of Korea: "ASEAN Fiscal and External Conditions Worsen... More Stable Than Other Emerging Countries"

Bank of Korea 'Overseas Economic Focus'

[Asia Economy Reporter Eunbyeol Kim] As the novel coronavirus disease (COVID-19) situation prolongs longer than expected, the fiscal and external sector conditions of the Association of Southeast Asian Nations (ASEAN) countries are projected to deteriorate somewhat compared to before. However, their basic economic conditions are relatively sound compared to other emerging countries, and it is judged that the impact is generally absorbable.

On the 8th, the Bank of Korea stated in its 'Overseas Economic Focus' report, "Despite large-scale fiscal spending to respond to COVID-19, economic activities in the five ASEAN countries have generally contracted due to lockdown measures for quarantine and recessions in major trading partners," adding, "In particular, the five ASEAN countries have a high proportion of exports and tourism, so the negative ripple effects from the global demand decline are significantly evident."

According to the International Monetary Fund (IMF), the GDP growth rate of the five ASEAN countries is expected to record a negative figure for the first time since 1998 (-8.1%). The IMF revised down the growth rate for the five ASEAN countries this year by 1.4 percentage points from the June forecast (-2.0%) to -3.4%.

The current account balance to GDP ratio of the five ASEAN countries is expected to maintain a surplus of 0.8% this year, but the surplus margin is projected to shrink significantly compared to last year (1.1%). By country, the surplus scale of Thailand and Malaysia is expected to shrink considerably, while Indonesia and the Philippines are likely to maintain a deficit trend in the medium term.

The Bank of Korea forecasted, "The downturn in tourism and the decrease in overseas remittances due to COVID-19 will greatly affect the economies of the five ASEAN countries." The direct and indirect share of tourism in GDP as of last year is Indonesia (5.7%), Malaysia (11.5%), Thailand (19.7%), the Philippines (25.3%), and Vietnam (8.8%).

The forecasted government debt-to-GDP ratio of the five ASEAN countries (47.0%) is also sharply increasing compared to last year (38.6%) and the average of the previous three years (38.5%). The Bank of Korea pointed out, "Large fiscal deficits this year and next will rapidly increase government debt, and some ASEAN countries face potential risks such as significantly expanded interest burdens." This means that due to expanded government spending to respond to COVID-19, a deficit trend is inevitable for the time being. The primary fiscal balance to GDP ratio forecast for the five ASEAN countries this year is -4.7%, a sharp decline compared to last year (-0.7%).

The Bank of Korea added, "The increased interest cost burden due to the rapid rise in government debt and the proportion of foreign currency-denominated debt may act as risk factors in some countries," noting, "In particular, the proportion is rapidly increasing in Indonesia, Malaysia, and the Philippines, and countries with a high proportion of foreign currency-denominated debt such as the Philippines and Indonesia may respond sensitively to changes in external conditions such as depreciation of their own currencies."

However, despite potential risks such as a significant increase in interest burdens in the five ASEAN countries, their overall condition is evaluated as better than other emerging countries. It is expected that once the COVID-19 recovery phase fully begins, they can quickly regain previous growth momentum. Furthermore, "this fiscal and external sector stability is expected to have a positive impact on exports from South Korea, which maintains close trade relations with these countries," the report added.

This content was produced with the assistance of AI translation services.