## _wp10252

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---

### I. Introduction
- Sound fundamentals and quick and forceful policy responses, including fiscal stimulus, contributed to economic recovery in the ASEAN-5 after the crisis.
- Near-term challenge: identify, communicate and begin to implement fiscal exit strategies from policy support.
- Medium-term role of fiscal policy: help strengthen future growth potential by addressing infrastructure gaps, enhancing private consumption, and alleviating poverty.
- Paper organization:
  - Section II: reviews impact of the crisis and near-term exit challenges in the ASEAN-5.
  - Section III: role of public policy in strengthening future growth potential (infrastructure, private consumption, social safety nets).
  - Section IV: options for creating and preserving fiscal space.
  - Section V: conclusions.

### II. Exiting from Policy Support — The Cost of the Crisis
- Global context:
  - Fiscal deficits widened significantly in 2009; advanced G-20 fiscal deficits above 9 percent of GDP in 2009.
  - Emerging economies experienced large deficits in 2009 but on average less severe than advanced G-20 economies.
- ASEAN-5 aggregate impact:
  - Overall fiscal balances weakened by 3 percent of GDP on average in 2009 relative to pre-crisis levels.
  - Drivers of fiscal change: discretionary fiscal stimulus packages explain much of the deterioration; underlying trends (population aging, health care costs, structural deficits) also relevant.
- Starting fiscal positions and heterogeneity:
  - Better starting fiscal balances in Indonesia and especially Singapore helped explain relatively better 2009 outcomes.
  - Variation across ASEAN-5: large overall surplus in Singapore; near balance in Thailand and Indonesia; deficits in Malaysia and the Philippines.

Key statistics — General Government Overall Fiscal Balances (In percent of GDP)
- ASEAN–5:
  - Average 05–07: 0.3
  - Pre-crisis 2008: -0.2
  - 2009: -2.8
  - 2010: -2.2
  - 2011: -1.7
  - 2012: -1.6
  - 2013: -1.8
  - 2014: -1.7
- Indonesia:
  - Average 05–07: -0.1
  - Pre-crisis 2008: -0.1
  - 2009: -1.6
  - 2010: -1.5
  - 2011: -1.7
  - 2012: -1.6
  - 2013: -1.6
  - 2014: -1.6
- Malaysia:
  - Average 05–07: -2.6
  - Pre-crisis 2008: -3.2
  - 2009: -5.5
  - 2010: -4.6
  - 2011: -5.5
  - 2012: -5.2
  - 2013: -5.0
  - 2014: -4.8
- Philippines:
  - Average 05–07: -1.9
  - Pre-crisis 2008: -1.3
  - 2009: -3.9
  - 2010: -3.9
  - 2011: -3.5
  - 2012: -2.8
  - 2013: -2.0
  - 2014: -1.9
- Singapore:
  - Average 05–07: 6.4
  - Pre-crisis 2008: 5.1
  - 2009: -0.9
  - 2010: 2.4
  - 2011: 1.5
  - 2012: 1.8
  - 2013: 1.9
  - 2014: 2.1
- Thailand:
  - Average 05–07: 1.3
  - Pre-crisis 2008: 0.1
  - 2009: -3.2
  - 2010: -2.7
  - 2011: -2.3
  - 2012: -1.6
  - 2013: -1.5
  - 2014: -1.4

### III. Fiscal impact of the crisis and automatic stabilizers
- Reasons for larger deficits:
  - Long lasting, if not permanent, decline in revenues from contractions in international trade and financial/asset price declines.
  - Operation of automatic stabilizers amplified fiscal impact in the ASEAN-5, but less so than in advanced economies.
- Quantitative comparisons and within-ASEAN-5 differences:
  - Fiscal impact of automatic stabilizers in the ASEAN-5: about 1 percent of GDP.
  - Fiscal impact of automatic stabilizers in advanced G-20: close to 2 percent.
  - Automatic stabilizers relatively small in Indonesia and the Philippines; larger in Malaysia and Thailand.
  - A slight reduction in interest payments despite larger borrowing helped contain 2009 deficits.

Key statistics — Comparison of the 2009 Fiscal Positions Across the ASEAN-5 (In percent of GDP, unless otherwise indicated)
- 2009 fiscal balance:
  - Indonesia: -1.6
  - Malaysia: -5.5
  - Philippines: -3.9
  - Singapore: -0.9
  - Thailand: -3.2
- 2008 fiscal balance:
  - Indonesia: -0.1
  - Malaysia: -3.2
  - Philippines: -1.3
  - Singapore: 5.1
  - Thailand: 0.1
- Change in fiscal balance in 2009 (I - II):
  - Indonesia: -1.5
  - Malaysia: -2.3
  - Philippines: -2.7
  - Singapore: -6.0
  - Thailand: -3.3
- Fiscal impulse (deterioration (-)/improvement(+)):
  - Indonesia: -1.4
  - Malaysia: -1.1
  - Philippines: -2.3
  - Singapore: -4.9
  - Thailand: -1.3
- Automatic stabilisers:
  - Indonesia: -0.2
  - Malaysia: -1.2
  - Philippines: -0.5
  - Singapore: -1.1
  - Thailand: -2.1
- Additional (net) interest spending:
  - Indonesia: 0.1
  - Malaysia: 0.0
  - Philippines: 0.1
  - Singapore: 0.0
  - Thailand: 0.1

Memorandum items (2009)
- Real GDP growth (in percent):
  - Indonesia: 4.5
  - Malaysia: -1.7
  - Philippines: 1.1
  - Singapore: -1.3
  - Thailand: -2.2
- Gross public debt to GDP ratio:
  - Indonesia: 28.6
  - Malaysia: 55.4
  - Philippines: 48.9
  - Singapore: 110.0
  - Thailand: 45.2

### IV. Post-Crisis Outlook — general findings and debt risks
- Global outlook:
  - Post-crisis fiscal and debt outlook projected to deteriorate significantly in many countries in 2010 and beyond, more pronounced among advanced economies.
  - Underlying spending pressures (social security, health, pension) expected to increase deficits.
- ASEAN-5 outlook:
  - Fiscal outlook stronger than in advanced economies with recovery more entrenched in Asia.
  - Many countries began gradual exit from policy support in 2010; some postponed to 2011.
  - Need to manage risks to public debt sustainability, especially aging-related spending pressures.
- Post-crisis debt outlook and cross-border risks:
  - ASEAN-5 debt outlook stronger than advanced G-20 but debt tolerance considered lower than in advanced economies.
  - Average government debt just under 40 percent of GDP, slightly higher than emerging market average.
  - Structural primary deficits projected to remain considerable in some countries.
  - Singapore: foreign exchange assets in sovereign wealth funds far exceed public sector debt stock; net public sector debt negative.
  - Philippines: non-financial public sector debt at 61 percent of GDP; risks from narrow/volatile tax bases and state-owned companies.
  - Evidence cited:
    - Projected average increase in advanced-economy debt ratios could raise long-term real interest rates by almost 2 percentage points over the medium-term (IMF, 2010c).
    - A 10 percentage point increase in initial debt-to-GDP ratio associated with slowdown in annual real per capita GDP growth by 0.2 percentage point per year (IMF, 2010c).
- Policy implication: caution warranted with respect to future deficits given spillover risks and long-term interest rate and growth consequences.

Table 3 key fiscal and macro statistics for ASEAN-5 (2010, in percent of GDP unless otherwise indicated)
- 2010 fiscal balance:
  - Indonesia: -1.5
  - Malaysia: -4.6
  - Philippines: -3.9
  - Singapore: 2.4
  - Thailand: -2.7
- 2009 fiscal balance:
  - Indonesia: -1.6
  - Malaysia: -5.5
  - Philippines: -3.9
  - Singapore: -0.9
  - Thailand: -3.2
- Change in fiscal balance in 2010:
  - Indonesia: 0.1
  - Malaysia: 1.0
  - Philippines: 0.0
  - Singapore: 3.3
  - Thailand: 0.4
- Fiscal impulse (deterioration (-)/improvement(+)):
  - Indonesia: 0.1
  - Malaysia: 0.8
  - Philippines: 0.1
  - Singapore: 2.2
  - Thailand: -0.3
- Automatic stabilisers:
  - Indonesia: 0.0
  - Malaysia: 0.2
  - Philippines: 0.4
  - Singapore: 1.2
  - Thailand: 0.8
- Additional interest spending:
  - Indonesia: 0.1
  - Malaysia: -0.1
  - Philippines: -0.4
  - Singapore: 0.0
  - Thailand: -0.1

Memorandum items (2010)
- Real GDP growth (in percent):
  - Indonesia: 6.0
  - Malaysia: 6.7
  - Philippines: 7.0
  - Singapore: 15.0
  - Thailand: 7.5
- Gross public debt to GDP ratio:
  - Indonesia: 26.7
  - Malaysia: 55.1
  - Philippines: 46.3
  - Singapore: 100.4
  - Thailand: 45.5

Table 4 — General Government Debt and Primary Balance (Current WEO Projections, 2010) — selected figures (In percent of GDP)
- Indonesia: Gross Debt 26.7; Primary Balance 0.1; Structural PB 0.3
- Malaysia: Gross Debt 55.1; Primary Balance -2.9; Structural PB -3.9
- Philippines: Gross Debt 46.3; Primary Balance -0.6; Structural PB -0.7
- Singapore: Gross Debt 100.4; Primary Balance 1.7; Structural PB 0.0
- Thailand: Gross Debt 45.5; Primary Balance -1.9; Structural PB -1.8
- Average (PPP-weighted): Gross Debt 72.6; Primary Balance -3.5; Structural PB -3.1
- ASEAN–5: Gross Debt 45.1; Primary Balance -0.7; Structural PB -1.0
- ASEAN-4 (Excluding Singapore): Gross Debt 39.1; Primary Balance -1.0; Structural PB -1.1
- Advanced (Asia): Gross Debt 187.6; Primary Balance -7.4; Structural PB -5.7
- Emerging and newly industrialized: Gross Debt 36.7; Primary Balance -2.2; Structural PB -2.2
- Advanced: Gross Debt 97.3; Primary Balance -6.3; Structural PB -4.5
- Emerging: Gross Debt 37.8; Primary Balance -2.2; Structural PB -1.4

### V. Exit from Fiscal Policy Support — objectives, timing and design
- Exit objectives:
  - Roll back crisis-related fiscal stimulus measures.
  - Establish foundations for strong, sustainable, and balanced growth.
  - Lower public debt to create fiscal space for future counter-cyclical responses.
  - Be transparent, comprehensive, clearly communicated, and implemented within a specified timeframe.
- Country status (post-crisis exit actions):
  - Malaysia and Singapore: started gradual withdrawal of fiscal policy stimulus in 2010.
  - Philippines and Thailand: fiscal withdrawal likely postponed.
  - Indonesia: fiscal policy likely to remain broadly neutral.
- Medium-term challenges to address in exit strategies:
  - Narrow and volatile tax bases.
  - Rigid budget structures.
  - Need to create fiscal space for infrastructure and poverty reduction while undertaking fiscal adjustment.
  - Avoid cutting public investment as a quick fix.
  - Include growth-enhancing structural reforms to stimulate private infrastructure investment.
  - Enhance fiscal institutions, medium-term budget frameworks (MTBFs) and fiscal rules.
  - Emphasize revenue-based fiscal consolidation where governments are relatively small and tax collection efficiency is low.
  - Support exit strategies with revenue enhancing measures and reorientation of spending priorities.

### VI. The role of public policy in strengthening future growth potential
- Overarching goal: use fiscal policy to strengthen future growth potential by meeting infrastructure needs, supporting private consumption, and expanding social safety nets to reduce poverty.

A. Addressing Infrastructure Gaps — challenges and policy recommendations
- Observations:
  - Significant gaps in basic infrastructure in most ASEAN-5 economies; Singapore and Malaysia have comparative advantages from sustained investment and efficiency.
  - Indonesia and the Philippines face acute gaps in energy, transport (road, rails, water and air) and telecommunications.
  - Private infrastructure investment in East Asia (absolute dollar terms) was relatively low in 2008; commitments declined to the lowest level since 2002.
  - Public investment levels generally declined and remain low in several ASEAN-5 economies (Indonesia infrastructure investment below 4 percent of GDP in 2007; Indonesia and the Philippines averaged about 3 percent of GDP public infrastructure spending over past ten years).
- Policy recommendations:
  - Scale up public investment where fiscal space exists and improve quality of spending.
  - Budget reforms to improve administrative capacity for capital project implementation.
  - Use cost-benefit analysis; options include making it public, full disclosure/justification, independent evaluators, and linking to fiscal planning.
  - Increase use of PPPs with proper regulatory environment, transparent concession decision-making, and strong monitoring/performance evaluation.
  - Promote private investment via strengthened regulatory environment and enhanced market-based competition:
    - Allow tariff increases toward cost recovery.
    - Impose hard budget constraints on public utilities.
    - Remove barriers to entry in network industries.

B. Strengthening Private Consumption, Alleviating Poverty and Preparing for Ageing
- Role of social safety nets:
  - Strengthening social safety nets can support private consumption and reduce precautionary savings.
  - Priorities vary: poverty reduction more pressing in Indonesia and the Philippines; sustaining higher private consumption growth more relevant for Singapore and Malaysia.
- Private consumption (percent of GDP, 2008):
  - Indonesia: 60.9
  - Malaysia: 45.2
  - Philippines: 71.1
  - Singapore: 41.0
  - Thailand: 54.8
- Determinants of savings and consumption:
  - Demographics: age profiles and old-age dependency affect saving behavior.
  - Financial development: low consumer credit and underdeveloped corporate bond markets increase precautionary savings and corporate savings.
  - Social security systems: lack of coverage raises savings; improved coverage can raise consumption (e.g., Philippines).
- Poverty and inequality indicators:
  - Population Living Below $2 a Day (1990–2005):
    - Indonesia: 52.4
    - Malaysia: 9.3
    - Philippines: 43.0
    - Thailand: 25.2
    - China: 34.9
    - India: 80.4
    - Asia-12: 54.6
  - Income Share of Lowest Decile / Highest Decile (2004–05):
    - Indonesia: 2.3 / 32.3
    - Philippines: 2.2 / 34.2
    - Singapore: 1.9 / 32.8
    - Thailand: 2.7 / 33.4
    - China: 1.6 / 34.9
    - India: 3.6 / 31.1
    - Asia-12: 2.8 / 30.4
    - OECD: 3.1 / 24.2
- Policy implications:
  - Strengthen social safety nets to support consumption and reduce precautionary savings.
  - Increase and better-target public social spending to address poverty.
  - Prepare for ageing by managing age-related spending pressures through fiscal planning and social protection reforms.

Selected social spending and demographic pressures
- Social spending was "2.7 percent of GDP in Indonesia, Malaysia and the Philippines in 2004–05," compared to "5.1 percent of GDP in Asia and 30 percent of GDP in the OECD (OECD, 2009)."
- Simulation (China household data): a sustained "1 percent of GDP increase in public expenditures, distributed equally across education, health, and pensions, would increase permanently the household consumption ratio by 1¼ percentage points of GDP (Baldacci and others, 2010)."
- Current and projected age-related spending:
  - "In the Philippines, Indonesia and Thailand, spending on pensions and health is less than 2.5 percent of GDP."
  - "By 2050, this spending is projected to nearly double."
  - "In Malaysia, pension and health spending is expected to increase by 4.5 percent of GDP over 2010−50."
- ASEAN-5 Social Spending (preserved table entries):
  - Indonesia: Pension 0.9; Health 1.3; Education 3.5
  - Malaysia: Pension 2.9; Health 2.9; Education 4.5
  - Philippines: Pension 1.1; Health 1.4; Education 2.6
  - Singapore: Pension 0.6; Health 1.0; Education 3.2
  - Thailand: Pension 0.8; Health 1.6; Education 4.9
  - Regional average ASEAN-5: Pension 1.3; Health 1.6; Education 3.7

### VII. Fiscal space challenges and policy measures to create and preserve space
- Overall strategy:
  - Balance creating fiscal space for infrastructure and social spending while withdrawing crisis policy support and reducing public debt gradually.
  - Priorities: revenue mobilization, optimizing budget composition by reprioritizing expenditure, improving spending efficiency, and institutional reforms.
- Expenditure-side measures (re-orienting spending priorities):
  - Emphasize improving spending efficiency and composition: reduce unproductive expenditures (wage bill, subsidies, transfers) while protecting/increasing capital expenditure.
  - Structural reforms to accompany current-expenditure consolidations (e.g., eliminate generalized subsidies via public enterprise reform).
  - Evidence:
    - Primary spending generally lower in ASEAN-5 (except Malaysia) than in other Asian, emerging and advanced economies.
    - Capital expenditures generally lower compared to other Asian and emerging economies.
    - Wage bills constitute a high share of primary spending in some countries (e.g., Philippines).
  - Subsidies:
    - Tax-inclusive fuel subsidies are large in Indonesia and Malaysia; in Indonesia fuel subsidies comprised about ⅓ of total central government spending over the last decade.
    - Subsidies are inefficient, inequitable, and environmentally unfriendly.
    - Example: In the Philippines, food subsidies (over 70 percent of transfers in 2007) had 40 percent leakage rate to the non-poor.
  - Recommended actions:
    - Gradually reduce subsidies, particularly for energy products, while developing compensating mechanisms and effective targeting criteria.
    - Design transfer programs targeted to the poorest who are liquidity constrained to shore up domestic demand without adverse distributional tradeoffs.
  - Pension and health systems:
    - Preserve fiscal sustainability by limiting generosity in defined benefit systems, encouraging pre-funding, and improving compliance.
    - Contain health care cost growth by reforming provider payment systems.

- Revenue-side measures (revenue reforms):
  - Need for revenue-based consolidation where revenue-to-GDP ratios are low or declining.
  - Observations:
    - Some ASEAN stimulus packages comprised mostly permanent tax cuts (e.g., Indonesia and the Philippines), implying exits will require revenue improvements.
    - Raising revenues requires strengthening broad-based taxes on relatively immobile bases and improving tax compliance.
    - Move toward broadening consumption and property taxes that are less harmful to growth and reduce reliance on distortionary corporate income tax.
  - Country-specific tax efficiency observations:
    - VAT efficiency low in Indonesia and the Philippines.
    - Reliance on goods and services taxes relatively low in Malaysia and the Philippines.
    - Corporate income tax efficiency very low in Indonesia.
    - Thailand: relatively high efficiency in consumption taxes, low efficiency in personal income tax.
    - Indonesia should seek increased reliance on non-mineral revenue sources.
  - Tax administration improvements:
    - Combat tax abuse, build capacity, develop risk-based compliance strategies, strengthen legal frameworks, exploit information technology.

- Institutional and framework reforms:
  - Strengthen fiscal reporting and disclosure: improve breadth, depth and timeliness; more fully explore risks around fiscal forecasts.
  - Adopt clearly articulated fiscal objectives, comprehensive and binding MTBFs, independent scrutiny, and performance focus.
  - Fiscal rules and MTBFs:
    - Fiscal rules supported by MTBFs and independent fiscal institutions can promote discipline, conditional on political commitment.
    - Rules taking into account cyclical developments can help ensure countercyclical policies.
  - Debt targets and contingent liabilities:
    - Frameworks should aim at reducing public debt ratios and cover contingent liabilities and risks.
    - Guarantees to financial and other sectors should be publicly disclosed and incorporated into fiscal targets; estimate expected guarantee cost and maximum probable loss when feasible.
  - Use MTBFs to align fiscal developments with long-term objectives (e.g., financing infrastructure) and enhance automatic stabilizers.
  - For resource-dependent countries, fiscal frameworks should manage volatile resource revenue and commodity price exposure.

Key fiscal structure and tax indicators (preserved entries)
- General Government Expenditure Structure: Selected entries (2008) — selected preserved fragments:
  - Indonesia 2/ 3/ 18.6 4.6 0.8 5.7 24.9 4.3 30.6
  - Malaysia 2/ 27.5 ... 6.5 3.0 ... 23.6 10.9
  - Philippines 2/ 3/13.1 5.0 3.1 2.4 38.1 23.6 18.3
  - Singapore 2/ 17.8 ... 1.7 ... 9.6
  - Thailand 2/ 20.4 7.6 3.3 2.6 37.3 16.2 12.7
  - Average (unweighted) 22.1 6.1 4.3 4.3 31.3 19.0 19.1
- Revenue Structure: Selected entries (2008) — selected preserved fragments:
  - Indonesia 2008 13.3 7.1 6.6 0.7 49.7 39.8 5.5
  - Malaysia 2003 16.6 5.8 10.6 1.2 63.9 28.9 7.2
  - Philippines 2007 14.0 1.7 6.4 3.2 45.7 25.7 22.9
  - Thailand 2007 17.4 3.7 3.7 3.1 42.0 50.0 6.3
  - Average 14.8 3.5 6.8 1.7 45.1 41.3 11.3
- Tax Efficiency Indicators — preserved fragments:
  - Total tax revenues to GDP 14 13 17 17 14 20 21 20
  - VAT Rate 12 10 7 ... 7 11 16 16
  - Tax efficiency 4/ 18 42 54 ...... 48 47 40
  - Corporate income tax Rate (maximum) 30 30 30 27 18 28 26 26
  - Personal income tax Rate (maximum) 32 30 37 28 20 29 27 30

### VIII. Conclusions and policy priorities
- Fiscal strategies should aim to contain headline deficits and "maintain debt burdens well below those in advanced G-20 economies."
- Two key challenges:
  - Some economies have "debt ratios [that] are still relatively high by emerging market standards" and remain vulnerable due to narrow/volatile tax bases and spillover risks.
  - Long-term growth potential constrained by "infrastructure gaps, declining private consumption and ageing populations."
- Public policy priorities:
  - Promote private infrastructure investment and enhance public investment through market-based regulation, adequate PPP frameworks, disclosure of fiscal risks, and improved quality/quantity of public infrastructure services.
  - Support private consumption, alleviate poverty, and prepare for ageing by expanding social spending on health, pensions and education; strengthening social safety nets; and improving pension and health care design to contain future fiscal pressures.
- Policies to create fiscal space:
  - "Broadening tax bases can increase tax revenue efficiency."
  - "Containing wage bills, transfers, and subsidies, including by improved targeting and rationalizing of subsidies."
  - "Increasing the efficiency of public investment" through better project appraisal and selection.
  - Use PPPs where safeguards and frameworks exist.
  - "Controlling fiscal risks, including from guarantees and other contingent liabilities."
  - "Reforming pensions and health entitlements to ensure that coverage is increased in a fiscally sustainable manner."
  - Medium-term fiscal strategies should be "transparent, comprehensive, and clearly communicated early on, with the goal of lowering public debt within a clearly-specified timeframe," supported by stronger fiscal institutions such as MTBFs.

*Source: IMF working paper _wp10252.*

### References .............................................................................................................

### _wp10252 - References .............................................................................................................

### I. Introduction
- Sound fundamentals and quick and forceful policy responses, including fiscal stimulus, contributed to economic recovery in the ASEAN-5 in the aftermath of the crisis.
- Near-term challenge: identify, communicate and begin to implement fiscal exit strategies from policy support.
- Medium-term role of fiscal policy: help strengthen future growth potential by addressing infrastructure gaps, enhancing private consumption, and alleviating poverty.
- Paper organization:
  - Section II: reviews impact of the crisis and near-term exit challenges in the ASEAN-5.
  - Section III: role of public policy in strengthening future growth potential (infrastructure, private consumption, social safety nets).
  - Section IV: options for creating and preserving fiscal space.
  - Section V: conclusions.

### II. Exiting from Policy Support — The Cost of the Crisis
- Global response: government budgets and central banks provided substantial support; fiscal deficits widened significantly in 2009, with advanced economies experiencing a larger—and likely long lasting—deterioration.
- Advanced G-20: fiscal deficits above 9 percent of GDP in 2009 noted as unprecedented in scale.
- Emerging economies: large deficits in 2009 but on average less severe than in advanced G-20 economies.
- ASEAN-5 impact:
  - Fiscal impact mirrored global developments but was somewhat less severe than in emerging G20 economies as a whole.
  - Overall fiscal balances weakened by 3 percent of GDP on average in 2009 relative to pre-crisis levels.
- Starting fiscal positions:
  - Relatively strong starting fiscal positions in the ASEAN-5 provided space for stimulus packages.
  - Better starting fiscal balances in Indonesia and especially Singapore explain relatively better fiscal balances in 2009 despite the crisis.
  - Significant variation across ASEAN-5: large overall surplus in Singapore, near balance positions in Thailand and Indonesia, and deficits in Malaysia and the Philippines.
- Drivers of fiscal change:
  - Much of the change in fiscal positions in the ASEAN-5 is explained by discretionary fiscal stimulus packages.
  - Other underlying trends: population aging and health care costs were already putting pressure on public finances and structural deficits in some ASEAN-5 economies (e.g., Singapore).

### Key statistics from Table 1: General Government Overall Fiscal Balances (In percent of GDP)
- ASEAN–5:
  - Average 05–07: 0.3
  - Pre-crisis 2008: -0.2
  - 2009: -2.8
  - 2010: -2.2
  - 2011: -1.7
  - 2012: -1.6
  - 2013: -1.8
  - 2014: -1.7
- Indonesia:
  - Average 05–07: -0.1
  - Pre-crisis 2008: -0.1
  - 2009: -1.6
  - 2010: -1.5
  - 2011: -1.7
  - 2012: -1.6
  - 2013: -1.6
  - 2014: -1.6
- Malaysia:
  - Average 05–07: -2.6
  - Pre-crisis 2008: -3.2
  - 2009: -5.5
  - 2010: -4.6
  - 2011: -5.5
  - 2012: -5.2
  - 2013: -5.0
  - 2014: -4.8
- Philippines:
  - Average 05–07: -1.9
  - Pre-crisis 2008: -1.3
  - 2009: -3.9
  - 2010: -3.9
  - 2011: -3.5
  - 2012: -2.8
  - 2013: -2.0
  - 2014: -1.9
- Singapore:
  - Average 05–07: 6.4
  - Pre-crisis 2008: 5.1
  - 2009: -0.9
  - 2010: 2.4
  - 2011: 1.5
  - 2012: 1.8
  - 2013: 1.9
  - 2014: 2.1
- Thailand:
  - Average 05–07: 1.3
  - Pre-crisis 2008: 0.1
  - 2009: -3.2
  - 2010: -2.7
  - 2011: -2.3
  - 2012: -1.6
  - 2013: -1.5
  - 2014: -1.4
- Industrial Asia:
  - Average 05–07: -2.6
  - Pre-crisis 2008: -3.4
  - 2009: -9.1
  - 2010: -8.7
  - 2011: -7.7
  - 2012: -6.7
  - 2013: -6.4
  - 2014: -6.1
- Australia:
  - Average 05–07: 2.0
  - Pre-crisis 2008: -0.5
  - 2009: -4.1
  - 2010: -4.6
  - 2011: -2.5
  - 2012: -0.6
  - 2013: 0.1
  - 2014: 0.4
- Japan:
  - Average 05–07: -3.7
  - Pre-crisis 2008: -4.1
  - 2009: -10.2
  - 2010: -9.6
  - 2011: -8.9
  - 2012: -8.1
  - 2013: -7.8
  - 2014: -7.6
- New Zealand:
  - Average 05–07: 3.0
  - Pre-crisis 2008: 0.1
  - 2009: -3.5
  - 2010: -4.8
  - 2011: -4.2
  - 2012: -2.9
  - 2013: -2.1
  - 2014: -1.4
- Emerging and NIEs:
  - Average 05–07: -1.1
  - Pre-crisis 2008: -1.7
  - 2009: -4.3
  - 2010: -3.9
  - 2011: -3.2
  - 2012: -2.7
  - 2013: -2.2
  - 2014: -1.9
- Asia:
  - Average 05–07: -1.5
  - Pre-crisis 2008: -2.1
  - 2009: -5.5
  - 2010: -5.0
  - 2011: -4.3
  - 2012: -3.6
  - 2013: -3.2
  - 2014: -2.9
- Advanced G–20:
  - Average 05–07: -2.2
  - Pre-crisis 2008: -4.3
  - 2009: -9.5
  - 2010: -8.7
  - 2011: -7.4
  - 2012: -5.4
  - 2013: -4.7
  - 2014: -4.5
- Emerging G–20:
  - Average 05–07: 0.1
  - Pre-crisis 2008: -0.3
  - 2009: -4.7
  - 2010: -4.0
  - 2011: -3.2
  - 2012: -2.7
  - 2013: -2.3
  - 2014: -2.0

Source: IMF, World Economic Outlook, October 2010.
Notes: Averages are weighted by GDP at purchasing power parity adjusted exchange rates. For Indonesia and the Philippines, figures are for the central government.

### Key statistics from Table 2: Comparison of the 2009 Fiscal Positions Across the ASEAN-5 (In percent of GDP, unless otherwise indicated)
- 2009 fiscal balance:
  - Indonesia: -1.6
  - Malaysia: -5.5
  - Philippines: -3.9
  - Singapore: -0.9
  - Thailand: -3.2
- 2008 fiscal balance:
  - Indonesia: -0.1
  - Malaysia: -3.2
  - Philippines: -1.3
  - Singapore: 5.1
  - Thailand: 0.1
- Change in fiscal balance in 2009 (I - II):
  - Indonesia: -1.5
  - Malaysia: -2.3
  - Philippines: -2.7
  - Singapore: -6.0
  - Thailand: -3.3
- Fiscal impulse (deterioration (-)/improvement(+)):
  - Indonesia: -1.4
  - Malaysia: -1.1
  - Philippines: -2.3
  - Singapore: -4.9
  - Thailand: -1.3
- Automatic stabilisers:
  - Indonesia: -0.2
  - Malaysia: -1.2
  - Philippines: -0.5
  - Singapore: -1.1
  - Thailand: -2.1
- Additional (net) interest spending:
  - Indonesia: 0.1
  - Malaysia: 0.0
  - Philippines: 0.1
  - Singapore: 0.0
  - Thailand: 0.1

Memorandum items:
- Real GDP growth (in percent):
  - Indonesia: 4.5
  - Malaysia: -1.7
  - Philippines: 1.1
  - Singapore: -1.3
  - Thailand: -2.2
- Gross public debt to GDP ratio:
  - Indonesia: 28.6
  - Malaysia: 55.4
  - Philippines: 48.9
  - Singapore: 110.0
  - Thailand: 45.2

Sources: IMF, World Economic Outlook, October 2010 and Fund staff estimates.
Notes:
- 1/ Net public sector debt is negative, as public sector assets are much larger than the gross public sector debt. Gross official reserves in 2009 are US$84 billion (100 percent of GDP), in addition to US$100 billion assets of the GIC Fund.
- 2/ For Indonesia and the Philippines, figures are for the central government.

### Observations and policy implications drawn in the text
- Fiscal exit strategies are a near-term priority as economies recover from the crisis.
- Fiscal policy can play a role in strengthening medium-term growth by:
  - Addressing infrastructure gaps.
  - Stimulating private consumption.
  - Expanding social safety nets to alleviate poverty.
- Differences in starting fiscal positions imply heterogeneous space for stimulus and different priorities for exit timing and design across the ASEAN-5.

*Source: _wp10252 - References (excerpt provided).*

### Section IV.A). Furthermore, fiscal deficits increased because of a long lasting, if not

### _wp10252 - Section IV.A). Furthermore, fiscal deficits increased because of a long lasting, if not

### Fiscal impact of the crisis and automatic stabilizers
- Fiscal deficits increased because of a long lasting, if not permanent, decline in revenues resulting from large contractions in international trade or the financial sector and associated asset/real estate price declines.
- The operation of automatic stabilizers exacerbated the fiscal impact of the crisis in the ASEAN-5, though their impact was smaller than in advanced economies.
- Quantitative comparison:
  - Fiscal impact of automatic stabilizers in the ASEAN-5: about 1 percent of GDP.
  - Fiscal impact of automatic stabilizers in advanced G-20: close to 2 percent.
- Within the ASEAN-5:
  - Automatic stabilizers relatively small in Indonesia and the Philippines.
  - Automatic stabilizers larger in Malaysia and Thailand, where the macroeconomic impact of the crisis was stronger.
- A slight reduction in interest payments despite larger borrowing requirements across the ASEAN-5 helped contain fiscal deficits in 2009.

### B. Post-Crisis Outlook — general findings
- Global: Post-crisis fiscal and debt outlook projected to deteriorate significantly in many countries around the world in 2010 and beyond.
  - In advanced G-20 countries: fiscal deficits projected well above pre-crisis levels, leading to sizable accumulation of public debt.
  - Deterioration expected more pronounced among advanced economies compared to emerging market economies.
  - Underlying spending pressures (increased social security outlays, higher health and pension spending) expected to further increase pressures on deficits.
- ASEAN-5: Fiscal outlook stronger than in advanced economies.
  - Recovery of economic activity more entrenched in Asia, including ASEAN-5.
  - Many countries started gradual exit from policy support in 2010; in some cases postponed to 2011.
  - Exit reflects stronger-than-anticipated economic rebound and need to manage risks to public debt sustainability, especially aging-related spending pressures.

### Table 3 key fiscal and macro statistics for ASEAN-5 (2010, in percent of GDP unless otherwise indicated)
- 2010 fiscal balance:
  - Indonesia: -1.5
  - Malaysia: -4.6
  - Philippines: -3.9
  - Singapore: 2.4
  - Thailand: -2.7
- 2009 fiscal balance:
  - Indonesia: -1.6
  - Malaysia: -5.5
  - Philippines: -3.9
  - Singapore: -0.9
  - Thailand: -3.2
- Change in fiscal balance in 2010:
  - Indonesia: 0.1
  - Malaysia: 1.0
  - Philippines: 0.0
  - Singapore: 3.3
  - Thailand: 0.4
- Fiscal impulse (deterioration (-)/improvement(+)):
  - Indonesia: 0.1
  - Malaysia: 0.8
  - Philippines: 0.1
  - Singapore: 2.2
  - Thailand: -0.3
- Automatic stabilisers:
  - Indonesia: 0.0
  - Malaysia: 0.2
  - Philippines: 0.4
  - Singapore: 1.2
  - Thailand: 0.8
- Additional interest spending:
  - Indonesia: 0.1
  - Malaysia: -0.1
  - Philippines: -0.4
  - Singapore: 0.0
  - Thailand: -0.1
- Memorandum items:
  - Real GDP growth (in percent):
    - Indonesia: 6.0
    - Malaysia: 6.7
    - Philippines: 7.0
    - Singapore: 15.0
    - Thailand: 7.5
  - Gross public debt to GDP ratio:
    - Indonesia: 26.7
    - Malaysia: 55.1
    - Philippines: 46.3
    - Singapore: 100.4
    - Thailand: 45.5

- Notes from table:
  - Sources: IMF, World Economic Outlook, October 2010 and Fund staff estimates.
  - 1/ Net public sector debt is negative for Singapore, with estimated gross official reserves in 2010 of US$194 billion, in addition to at least US$100 billion assets of the GIC Fund.
  - 2/ For Indonesia and the Philippines, figures are for the central government.

### Medium-term headline fiscal balances and automatic stabilizers (ASEAN-5)
- Headline fiscal balances expected to improve in most ASEAN-5 economies over the medium-term but remain above pre-crisis levels.
- Withdrawing policy stimulus estimated to result in structural improvements in Malaysia and Singapore in 2010.
- Small continued fiscal stimulus in Thailand.
- Indonesia and the Philippines: fiscal stance estimated to be broadly neutral.
- Automatic stabilizers projected to further improve headline fiscal balances in 2010 with strong economic recovery.

### Table 4: General Government Debt and Primary Balance (Current WEO Projections, 2010) — selected figures (In percent of GDP)
- Gross debt, Primary Balance, Structural PB (where reported):
  - Indonesia: Gross Debt 26.7; Primary Balance 0.1; Structural PB 0.3
  - Malaysia: Gross Debt 55.1; Primary Balance -2.9; Structural PB -3.9
  - Philippines: Gross Debt 46.3; Primary Balance -0.6; Structural PB -0.7
  - Singapore: Gross Debt 100.4; Primary Balance 1.7; Structural PB 0.0
  - Thailand: Gross Debt 45.5; Primary Balance -1.9; Structural PB -1.8
  - Average (PPP-weighted): Gross Debt 72.6; Primary Balance -3.5; Structural PB -3.1
  - ASEAN–5: Gross Debt 45.1; Primary Balance -0.7; Structural PB -1.0
  - ASEAN-4 (Excluding Singapore): Gross Debt 39.1; Primary Balance -1.0; Structural PB -1.1
  - Advanced (Asia): Gross Debt 187.6; Primary Balance -7.4; Structural PB -5.7
  - Emerging and newly industrialized: Gross Debt 36.7; Primary Balance -2.2; Structural PB -2.2
  - Advanced: Gross Debt 97.3; Primary Balance -6.3; Structural PB -4.5
  - Emerging: Gross Debt 37.8; Primary Balance -2.2; Structural PB -1.4
- Notes:
  - 1/ The table reports gross debt; for some countries with sizable assets, net debt is considerably smaller. Structural primary balances are reported in percent of nominal GDP. General government data is used where available.
  - 2/ For Indonesia and the Philippines, figures are for central government.
  - Source: IMF, World Economic Outlook, October 2010.

### Post-crisis debt outlook and risks
- ASEAN-5 debt outlook stronger than advanced G-20 economies, but debt tolerance usually considered lower than in advanced economies.
- At just under 40 percent of GDP on average, government debt slightly higher than the emerging market average.
- Structural primary deficits projected to remain considerable in some countries.
- Singapore: public debt outlook particularly strong because foreign exchange assets in sovereign wealth funds far exceed public sector debt stock.
- Indonesia: debt-to-GDP ratio fell to 29 percent in 2009 (less than a third of its 2000 level).
- Philippines: public debt ratio has declined substantially, but:
  - Risks remain due to narrow and volatile tax bases, rigid budget structures, and low quality of public assets.
  - State-owned companies pose additional fiscal burden (Philippines non-financial public sector debt at 61 percent of GDP).
- Managing age-related spending pressures important even where fiscal and debt positions remain sound.
- Global spillover risks:
  - High debt levels in large advanced economies could raise long-term real interest rates worldwide.
  - Recent econometric evidence suggests projected average increase in debt ratios in advanced economies could raise long-term real interest rates by almost 2 percentage points over the medium-term, other things equal (IMF, 2010c).
  - Higher interest rates would adversely affect emerging economies’ financing conditions.
  - High debt levels in advanced economies could increase volatility of capital flows, commodity prices and exchange rates.
  - New evidence of inverse relationship between initial debt and subsequent growth: a 10 percentage point increase in initial debt-to-GDP ratio associated with slowdown in annual real per capita GDP growth by 0.2 percentage point per year, with smaller impact in advanced economies (IMF, 2010c).
- Policy implication: potential impact of these risks calls for further caution with respect to future deficits.

### C. Exit from Fiscal Policy Support — objectives and country status
- Exit strategies should:
  - Roll back crisis-related fiscal stimulus measures.
  - Establish foundations for strong, sustainable, and balanced growth.
  - Lower public debt to create fiscal space for counter-cyclical responses to future shocks.
  - Be transparent, comprehensive, clearly communicated, and implemented within a clearly-specified timeframe.
- Country status:
  - Malaysia and Singapore: already started gradual withdrawal of fiscal policy stimulus in 2010.
  - Philippines and Thailand: fiscal withdrawal likely postponed till next year.
  - Indonesia: fiscal policy likely to remain broadly neutral.
- Post-crisis exit strategies need to address medium-term fiscal challenges:
  - Narrow and volatile tax bases.
  - Rigid budget structures.
  - Need to create fiscal space to address developmental challenges (infrastructure, poverty reduction) while undertaking fiscal adjustment.
  - Avoid public investment cuts as quick fixes to achieve budget targets.
  - Include growth-enhancing structural reforms to stimulate private infrastructure investment.
  - Enhance fiscal institutions, medium-term budget frameworks and fiscal rules.
  - Emphasize revenue-based fiscal consolidation where governments are relatively small and tax collection efficiency is low.
  - Support exit strategies with revenue enhancing measures and reorientation of spending priorities.

### III. The role of public policy in strengthening future growth potential — overview
- Fiscal policy should help strengthen future growth potential in ASEAN-5 economies, including meeting vast infrastructure investment needs, supporting private consumption, and expanding social safety nets to reduce poverty.
- Public policies could help meet infrastructure investment requirements and support private consumption.

### A. Key Challenges: Addressing Infrastructure Gaps
- Higher infrastructure investment can positively impact output and growth if quality of public investment is sufficiently high.
- Impact of additional infrastructure greater for countries with initially lower levels of provision.
- Governments should seek to stimulate private infrastructure investment given fiscal constraints.
- Public policy reforms that enhance competition and market-based regulation can encourage private infrastructure investment.
- Greater use of Public Private Partnerships (PPPs), if well managed, could allow public sector to take advantage of private-sector efficiencies.

- Infrastructure needs:
  - Significant gaps in basic infrastructure in most ASEAN-5 economies.
  - Singapore and Malaysia: considerable comparative advantage across infrastructure sectors due to sustained investment and efficiency.
  - Investment climate surveys indicate inadequate infrastructure service provision is a serious obstacle to business development in Indonesia and the Philippines.
  - Acute gaps perceived in energy, transport (road, rails, water and air) and telecommunications in Indonesia and the Philippines.
  - Malaysia and Thailand: better for quality of energy and technological infrastructure, but needs in transport infrastructure (roads and ports).

- Private infrastructure investment:
  - Measured in absolute dollar terms, private investment in infrastructure in low and middle income countries in East Asia relatively low compared to other regions.
  - In 2008, investment commitments in energy, telecommunication, transport, and water and sewage declined to the lowest level since 2002, well below the 1997 peak.
  - Measured as share of GDP over 2001-08, private investment in infrastructure in ASEAN-5 not particularly low compared to other emerging economies.
  - Implication: efficiency of investment and project appraisal/selection processes could be important challenges.

- Public investment:
  - Public investment levels generally declined and remain low in a number of ASEAN-5 economies.
  - Malaysia’s public investment rate relatively high but downward over past decade.
  - Infrastructure investment quite low in some countries; Indonesia infrastructure investment below 4 percent of GDP in 2007.
  - In Indonesia and the Philippines, public spending on infrastructure averaged about 3 percent of GDP over the past ten years.

- Policy recommendations to increase investment:
  - Scale up public investment where fiscal space exists, and improve quality of spending.
  - Budget reforms to improve administrative capacity to spend efficiently and facilitate capital project implementation.
  - Use cost-benefit analysis to ensure good quality of investment choices.
    - Options to increase influence of cost-benefit analysis: make it public; impose full disclosure and justification of undertaken investments; have analysis performed by independent evaluators; link it to fiscal planning to feed into long-term fiscal projections.
  - Increase use of PPPs while ensuring proper regulatory environment and transparent decision making about concessions and PPPs.
  - Ensure proper monitoring and performance evaluation throughout contract period to guarantee value for money.
  - Promote private investment via strengthening regulatory environment and enhancing market-based competition:
    - Allow tariff increases toward cost recovery.
    - Impose hard budget constraints on public utilities.
    - Remove barriers to entry to foster higher investment in network industries (energy and telecommunication sectors).

### B. Key Challenges: Strengthening Private Consumption, Alleviating Poverty and Preparing for an Ageing Population
- Strengthening social safety nets can support private consumption and reduce poverty, contributing to durable and balanced growth.
- Lowering precautionary savings by strengthening social safety nets in countries where private consumption lags can help growth rebalancing.
- Relative priorities vary across ASEAN-5:
  - Poverty reduction more significant in Indonesia and the Philippines.
  - Sustaining higher private consumption growth more relevant for Singapore and Malaysia.

- Consumption patterns and determinants:
  - Private consumption varies considerably across ASEAN-5 due to demographics, financial development, and social security systems.
  - Private consumption:
    - Indonesia: 60.9 (in percent of GDP, 2008)
    - Malaysia: 45.2 (2008)
    - Philippines: 71.1 (2008)
    - Singapore: 41.0 (2008)
    - Thailand: 54.8 (2008)
  - Private consumption relatively low and declining in Malaysia and Singapore; higher and rising in Indonesia and the Philippines.

- Factors affecting household savings and consumption:
  - Demographics:
    - Age profile affects household savings; increasing old-age dependency ratios can raise savings in accumulation phase.
    - Declining savings in the Philippines attributed to high proportion of young dependents and spending needs for health and education.
  - Level of financial development:
    - Low financial development, including consumer credit, a main cause for high savings in much of Asia.
    - Low access to credit strengthens precautionary savings motive.
    - Underdeveloped corporate bond markets and low opportunity cost of funds lead firms to rely on internal finance, increasing corporate savings.
  - Social security systems:
    - Lack of social security affects household saving behavior; improving coverage typically raises consumption.
    - Philippines: increase in private consumption attributed to increased coverage ratio of the social security system.

- Poverty and inequality:
  - Poverty alleviation remains important; large shares of population living below poverty levels, especially in Indonesia and the Philippines.
  - Earnings inequality relatively high among ASEAN-5 compared to the region and OECD and has been rising.
  - Public social expenditure relatively low in these economies; access to social services by the most vulnerable remains a challenge.
  - Public health spending in the ASEAN-5 estimated at 1½ percent of GDP in 2005–06, lagging many Asian economies which averaged 2 percent of GDP.

- Selected poverty and inequality indicators (1990–2005 and 2004–05 where reported):
  - Population Living Below $2 a Day:
    - Indonesia: 52.4 (1990–2005)
    - Malaysia: 9.3 (1990–2005)
    - Philippines: 43.0 (1990–2005)
    - Singapore: not reported
    - Thailand: 25.2 (1990–2005)
    - China: 34.9 (1990–2005)
    - India: 80.4 (1990–2005)
    - Asia-12: 54.6 (1990–2005)
  - Income Share of Lowest Decile and Highest Decile (2004–05):
    - Indonesia: Income Share of Lowest Decile 2.3; Income Share of Highest Decile 32.3
    - Philippines: Income Share of Lowest Decile 2.2; Income Share of Highest Decile 34.2
    - Singapore: Income Share of Lowest Decile 1.9; Income Share of Highest Decile 32.8
    - Thailand: Income Share of Lowest Decile 2.7; Income Share of Highest Decile 33.4
    - China: Income Share of Lowest Decile 1.6; Income Share of Highest Decile 34.9
    - India: Income Share of Lowest Decile 3.6; Income Share of Highest Decile 31.1
    - Asia-12: Income Share of Lowest Decile 2.8; Income Share of Highest Decile 30.4
    - OECD: Income Share of Lowest Decile 3.1; Income Share of Highest Decile 24.2

- Policy implications:
  - Strengthening social safety nets to support consumption and reduce precautionary savings.
  - Addressing poverty through increased and better-targeted social spending.
  - Preparing for ageing populations by managing age-related spending pressures through fiscal planning and social protection reforms.

*Source: IMF, World Economic Outlook, October 2010 and Fund staff estimates (excerpts from _wp10252 Section IV.A and surrounding sections).*

### 2.7 percent of GDP in Indonesia, Malaysia and

### _wp10252 - 2.7 percent of GDP in Indonesia, Malaysia and

### Social spending, demographic pressures, and impacts on consumption
- Social spending was "2.7 percent of GDP in Indonesia, Malaysia and the Philippines in 2004–05," compared to "5.1 percent of GDP in Asia and 30 percent of GDP in the OECD (OECD, 2009)."
- Increasing public spending on health and education can reduce precautionary savings and "foster a welcome increase in private consumption by reducing the need to self-insure to finance future expenditures."
- Simulation result (China household data): a sustained "1 percent of GDP increase in public expenditures, distributed equally across education, health, and pensions, would increase permanently the household consumption ratio by 1¼ percentage points of GDP (Baldacci and others, 2010)."
- Current age-related spending and projected increases:
  - "In the Philippines, Indonesia and Thailand, spending on pensions and health is less than 2.5 percent of GDP."
  - "By 2050, this spending is projected to nearly double, given increasing old age dependency ratios (IMF, 2010d and 2010e)."
  - "In Malaysia, pension and health spending is expected to increase by 4.5 percent of GDP over 2010−50."
- Table excerpts (Social Spending; values preserved as in source):
  - ASEAN-5 PensionHealthEducation 2010 1/2010 1/2007 1/  
    - Indonesia0.91.33.5  
    - Malaysia2.92.94.5  
    - Philippines1.11.42.6  
    - Singapore0.61.03.2  
    - Thailand0.81.64.9  
  - Other Asian Economies  
    - China2.22.21.9  
    - India1.70.93.2  
    - Vietnam1.61.55.3  
  - Regional average  
    - ASEAN-51.31.63.7  
    - Advanced7.47.0...  
    - Emerging4.22.7...

- Dependency ratio trends (figure notes preserved):
  - Youth dependency ratio defined as population aged 19 years and under to population age 20−65 years.
  - Old-age dependency ratio defined as population aged over 65 years to population aged 20−65 years.
  - Figure indicates increases in old-age dependency by 2050 for IDNMYSPHLSGPTHA (country codes preserved from figure).

### Fiscal space challenges and overall strategy
- Fiscal policy must balance:
  - Creating fiscal space for large infrastructure needs in transport, energy, and communications, and increased social spending.
  - Exiting policy support requiring fiscal tightening and "gradual reduction in public debt to create room for countercyclical fiscal policy against future shocks."
  - Managing unfavorable demographic trends that increase future spending pressures.
- For ASEAN-5 the focus to create fiscal space is:
  - "revenue mobilization and optimization of the composition of budgetary expenditure by reprioritizing public expenditure, improving the efficiency of spending, as well as reforms which could help limit future fiscal pressures."
  - "Improvements in fiscal institutions would be needed to achieve these objectives."

### Re-orienting spending priorities (expenditure-side measures)
- Expenditure rationalization should emphasize improving spending efficiency and composition:
  - Reduce unproductive expenditures (wage bill, subsidies, transfers) while protecting or increasing capital expenditure.
  - Structural reforms accompany current-expenditure consolidations (e.g., elimination of generalized subsidies via public enterprise reform).
- Evidence of current scope for reallocation:
  - "Primary spending is generally lower in ASEAN-5 countries (except in Malaysia) than in other Asian, emerging and advanced economies."
  - "Capital expenditures are also generally lower, compared to other Asian and emerging economies, especially as a share of primary spending."
  - Wage bills "constitute a high share of primary spending in some countries such as the Philippines."
- Subsidies and targeting:
  - Tax-inclusive fuel subsidies are "quite large in Indonesia and Malaysia." Example: "In Indonesia, fuel subsidies comprised about ⅓ of total central government spending over the last decade."
  - Subsidies are characterized as "inefficient, inequitable, and environmentally unfriendly."
  - Universal food price subsidies vs targeted transfers: "In the Philippines, food subsidies which account for over 70 percent of transfers in 2007, had 40 percent leakage rate to the non-poor (World Bank, 2009b)."
- Recommendations on spending re-orientation:
  - "Gradually reduce the subsidies, particularly for energy products, while developing compensating mechanisms and more effective targeting criteria to protect the vulnerable."
  - Design transfer programs targeted to the poorest who are liquidity constrained to shore up domestic demand without adverse distributional tradeoffs.
- Pension and health system design:
  - Preserve fiscal sustainability by limiting generosity in defined benefit systems, encouraging pre-funding, and improving compliance.
  - Contain health care cost growth by "reforming provider payment systems."

### Revenue reforms (revenue-side measures)
- Need for revenue-based consolidation in countries with low or declining revenue-to-GDP ratios.
- Observations and priorities:
  - Some ASEAN stimulus packages comprised mostly of permanent tax cuts (e.g., Indonesia and the Philippines), implying exits will require revenue improvements.
  - "Raising revenues in an increasingly globalized economy will require strengthening broad-based taxes on relatively immobile bases and improving tax compliance."
  - Policy direction: move toward "broadening consumption and property taxes that are less harmful to growth" and reduce reliance on distortionary corporate income tax.
- Base broadening and administration:
  - Reduce exemptions and incentives; strengthen revenue administration; improve VAT efficiency where low.
  - Country-specific notes:
    - "Tax efficiency ratios, notably for the VAT, measured as the tax revenue divided by the tax rate, are low in Indonesia and the Philippines."
    - "Reliance on goods and services taxes is also relatively low in Malaysia and the Philippines."
    - "The efficiency of corporate income tax is very low in Indonesia."
    - "Thailand has relatively high efficiency in consumption taxes, but low efficiency in personal income tax."
  - In Indonesia, revenue reform must "seek increased reliance on non-mineral revenue sources."
- Tax administration measures:
  - Combat tax abuse, build capacity, develop risk-based compliance strategies, strengthen legal frameworks (including powers of revenue agencies), exploit new information technology to manage compliance.

### Institutional and framework reforms to maintain fiscal credibility
- Strengthen fiscal reporting and disclosure: improve "breadth, depth and timeliness of fiscal reporting," and "more fully explore the risks surrounding their fiscal forecasts."
- Adopt clearly articulated fiscal objectives, "comprehensive and binding medium-term budget frameworks," independent scrutiny, and performance focus.
- Fiscal rules and MTBFs:
  - Introduction of fiscal rules, supported by MTBFs and independent fiscal institutions, can promote discipline conditional on political commitment.
  - "Rules that take into account cyclical developments can help ensure countercyclical policies," though cyclical adjustment is challenging in emerging economies.
- Debt targets and contingent liabilities:
  - Frameworks should aim explicitly at reducing public debt ratios and have "broad institutional coverage encompassing various contingent liabilities and risks."
  - Guarantees to financial and other sectors "should be publicly disclosed and incorporated in fiscal targets."
  - When feasible, estimate expected guarantee cost and maximum probable loss (Value-at-Risk).
- MTBFs for long-term objectives and automatic stabilizers:
  - Wider use of MTBFs to align fiscal developments with long-term objectives (e.g., financing infrastructure).
  - Enhance automatic spending stabilizers to support private consumption during downturns.
  - For resource-dependent countries, fiscal frameworks should manage volatile resource revenue and commodity price exposure.

### Key tables and tax/revenue indicators (preserved values as presented)
- Table 9 (General Government Expenditure Structure: Selected Asian Economies, 2008) — selected entries preserved:
  - Indonesia 2/ 3/ 18.64.60.85.724.94.330.6
  - Malaysia 2/ 27.5...6.53.0...23.610.9
  - Philippines 2/ 3/13.15.03.12.438.123.618.3
  - Singapore  2/17.8......1.7......9.6
  - Thailand 2/20.47.63.32.637.316.212.7
  - China 2/20.5...6.0......29.2...
  - India 2/23.6...4.1......17.4...
  - Vietnam 2/28.6...4.98.9...17.131.1
  - Average (unweighted)22.16.14.34.331.319.019.1
- Table 10 (Revenue Structure: Selected Asian Economies, 2008) — selected entries preserved:
  - Indonesia200813.37.16.60.749.739.85.5
  - Malaysia200316.65.810.61.263.928.97.2
  - Philippines200714.01.76.43.245.725.722.9
  - Thailand200717.43.77.31.142.050.06.3
  - China20069.40.92.70.528.764.95.3
  - India200711.62.05.52.147.434.518.1
  - Vietnam200421.53.38.23.038.145.114.0
  - Average14.83.56.81.745.141.311.3
- Table 11 (Tax Efficiency Indicators) — selected preserved entries:
  - Total tax revenues to GDP1413171714202120
  - VAT Rate12107...7111616
  - Tax efficiency 4/184254......484740
  - Corporate income tax Rate (maximum)3030302718282626
  - Tax efficiency1231730...201313
  - Personal income tax Rate (maximum)3230372820292730
  - Tax efficiency71469...141012

### Conclusions and policy priorities (summary bullets)
- Fiscal strategies should aim to contain headline deficits and "maintain debt burdens well below those in advanced G-20 economies."
- Two key challenges:
  - Some economies have "debt ratios [that] are still relatively high by emerging market standards" and remain vulnerable due to narrow/volatile tax bases and spillover risks.
  - Long-term growth potential constrained by "infrastructure gaps, declining private consumption and ageing populations."
- Public policy priorities to address long-term growth:
  - Promote private infrastructure investment and enhance public investment through market-based regulation, adequate PPP frameworks, disclosure of fiscal risks, and improved quality/quantity of public infrastructure services.
  - Support private consumption, alleviate poverty, and prepare for ageing by expanding social spending on health, pensions and education; strengthening social safety nets; and improving pension and health care design to contain future fiscal pressures.
- Policies to create fiscal space:
  - "Broadening tax bases can increase tax revenue efficiency."
  - "Containing wage bills, transfers, and subsidies, including by improved targeting and rationalizing of subsidies."
  - "Increasing the efficiency of public investment" through better project appraisal and selection.
  - Use PPPs where safeguards and frameworks exist.
  - "Controlling fiscal risks, including from guarantees and other contingent liabilities."
  - "Reforming pensions and health entitlements to ensure that coverage is increased in a fiscally sustainable manner."
  - Medium-term fiscal strategies should be "transparent, comprehensive, and clearly communicated early on, with the goal of lowering public debt within a clearly-specified timeframe," supported by stronger fiscal institutions such as MTBFs.

*Source: IMF working paper _wp10252.*

### References

### References

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- _________, and Carlos Mulas-Granados, 2004, “Expenditure Composition, Fiscal Adjustment and Growth in Low-Income Countries,” IMF Working Paper 02/77 (Washington: International Monetary Fund).
- Heller, Peter S., 2005, “Understanding Fiscal Space,” IMF Policy Discussion Paper No. 05/4 (Washington: International Monetary Fund).
- Horton, Mark A., Manmohan S. Kumar, and Paolo Mauro, 2009, “The State of Public Finances: A Cross-Country Fiscal Monitor,” IMF Staff Position Note 09/21 (Washington: International Monetary Fund).
- Kumar, Manmohan S., Daniel Liegh, and Alexander Plekhanov, 2007, “Fiscal Adjustments: Determinants and Macroeconomic Consequences,” IMF Working Paper 07/178 (Washington: International Monetary Fund).
- Mackenzie, George A., David W. H. Orsmond, and Philip R. Gerson, 1997, The Composition of Fiscal Adjustment and Growth: Lessons from Fiscal Reforms in Eight Economies, IMF Occasional Paper No. 149 (Washington: International Monetary Fund).
- Tanzi, Vito, Ke-young Chu, and Sanjeev Gupta, 1999, Economic Policy and Equity (Washington: International Monetary Fund).
- Cebotari, A. and others, 2008, Fiscal Risks – Sources, Disclosure, and Management, Washington, available at http://www.imf.org/external/pp/longres.aspx?id=4265
- Coady, David, Robert Gillingham, Rolando Ossowski, John M. Piotrowski, Shamsuddin Tareq, and Justin Tyson, 2010, “Petroleum Product Subsidies: Costly, Inequitable, and On the Rise,” IMF Staff Position Note No. 2010/05 (Washington: International Monetary Fund).

### Public investment, infrastructure, and public-private partnerships
- Asian Development Bank, Japan Bank for International Cooperation, and the World Bank, 2005, Connecting East Asia: A New Framework for Infrastructure.
- Easterly, William, Timothy Irwin, and Luis Servén, 2007, “Walking Up the Down Escalator: Public Investment and Fiscal Stability,” World Bank Policy Research Working Paper No. 4158 (Washington: World Bank).
- Égert, Balázs, Tomasz Kozluk, and Douglas Sutherland, 2009, “Infrastructure and Growth: Empirical Evidence,” OECD Economics Department Working Papers No. 685, (Paris: Organization for Economic Co-operation and Development).
- International Monetary Fund, 2004, “Public Investment and Fiscal Policy” Available via the Internet: http://www.imf.org/external/np/fad/2004/pifp/eng/
- _________, 2005, “Public Investment and Fiscal Policy—Lessons from the Pilot Country Studies” Available via the Internet: http://www.imf.org/external/np/pp/eng/2005/040105a.htm
- Schwartz, Gerd, Ana Corbacho, and Katja Funke, 2008, Public Investment and Public-Private Partnerships. Addressing Infrastructure Challenges and Managing Fiscal Risks (Washington: International Monetary Fund).
- Irwin, Timothy C., 2007, Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure Projects (Washington: World Bank).

### Oil, natural resources, and commodity price volatility
- Augustina, C. and others, 2009, “Black Hole or Black Gold? The Impact of Oil and Gas Prices on Indonesia's Public Finances”, World Bank Policy Research Working Paper No. 4718 (Washington: World Bank).
- Budina, Nina and Sweder van Wijnbergen, 2008, “Managing Oil Revenue Volatility in Nigeria: The Role of Fiscal Policy,” in Africa at a Turning Point? Growth, Aid and External Shocks, Chapter 10 (Washington: World Bank).
- Davis, Jeffrey M., Roland Ossowski, and Annalisa Fedelino, 2003, Fiscal Policy Formulation and Implementation in Oil-Producing Countries (Washington: International Monetary Fund).

### Global crisis, exit strategies, and post-crisis fiscal issues (IMF outputs)
- International Monetary Fund, 2009a, “Global Economic Prospects and Principles for Policy Exit, prepared for Meetings of G-20 Finance Ministers and Central Bank Governors, November 6–7, 2009.
- International Monetary Fund, 2009b, “Fiscal Rules: Anchoring Expectations for Sustainable Public Finances,” Available via the Internet: http://www.imf.org/external/np/pp/eng/2009/121609.pdf
- International Monetary Fund, 2010a, “Exiting from Crisis Intervention Policies” Available via the Internet: http://www.imf.org/external/np/pp/eng/2010/020410.pdf
- International Monetary Fund, 2010b, “Fiscal Policy Issues after the Crisis,” paper presented at the Conference on the Global Financial and Economic Crisis, ADBI-MoF PRI-Hitotsubashi University, Center for Intergenerational Studies-International Development Research Centre, Tokyo, January.
- International Monetary Fund, 2010c, “IMF Fiscal Monitor: Fiscal Challenges Beyond the Crisis,” May 2010, (Washington: International Monetary Fund).
- International Monetary Fund, 2010d, “Aging and Fiscal Sustainability in APEC Economies,” paper prepared for the 17th APEC Finance Ministers’ Meeting (FMM), February, Washington, DC.
- International Monetary Fund, 2010e, “From Stimulus to Consolidation—Revenue and Expenditure Policies in Advanced and Emerging Economies,” Available via the Internet: http://www.imf.org/external/pp/longres.aspx?id=4452.

### Asia and Philippines—saving, competitiveness, and public expenditure
- Bersales, Lisa G. and Dennis Mapa, 2006, “Patterns and Determinants of Household Saving in the Philippines,” prepared under the EMERGE Project of USAID. Available via the Internet: www.stat.upd.edu.ph/ARTICLES/Article3/Paper_BERSALES_MAPA.pdf.
- Jha, Shikha, Eswar Prasad, and Akiko Terada-Hagiwara, 2009, “Saving in Asia: Issues for Rebalancing Growth,” ADB Economics Working Paper Series No. 162 (Manila: Asian Development Bank).
- World Bank, 2010, “Philippines Public Expenditure Review, Gearing Public Finance for Inclusive Growth,” forthcoming (Washington: World Bank).
- World Bank, 2009a, “Philippines Transport for Growth, an Institutional Assessment of Transport Infrastructure,” Report No. 47281-PH, (Washington: World Bank).
- World Bank, 2009b, “Philippines Development Report, 2009, Battling the Global Recession,” Washington D.C.
- Organization for Economic Co-operation and Development, 2009, Society at a Glance, Asia-Pacific Edition (Paris).
- World Economic Forum, 2009, Global Competitiveness Report 2009–2010.

### Other cross-cutting analyses and methods
- Berg, Andrew, Jonathan Ostry, and Jeromin Zettelmeyer, 2008, “What Makes Growth Sustained?” IMF Working Paper 08/59 (Washington: International Monetary Fund).
- Brixi and Schick (2002), Government at Risk: Contingent Liabilities and Fiscal Risk, The World Bank and Oxford University Press, 2002.
- Jha, Shikha, Eswar Prasad, and Akiko Terada-Hagiwara, 2009, “Saving in Asia: Issues for Rebalancing Growth,” ADB Economics Working Paper Series No. 162 (Manila: Asian Development Bank).
- Tanzi, Vito, Ke-young Chu, and Sanjeev Gupta, 1999, Economic Policy and Equity (Washington: International Monetary Fund).
- Schwartz, Gerd, Ana Corbacho, and Katja Funke, 2008, Public Investment and Public-Private Partnerships. Addressing Infrastructure Challenges and Managing Fiscal Risks (Washington: International Monetary Fund).

*Source: _wp10252 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10252.pdf_