Southeast Asia’s Economies Can Gain Most by Packaging Ambitious Reforms
IMF Blog, March 25, 2025
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Bibliographic details
- Authors: Anne-Charlotte Paret Onorato
- Published: March 25, 2025
Summary
- Combining overhauls in areas including business and external regulation, governance, and human development can boost output levels by 3 percent over four years.
- Packaging together broad, economy-wide reforms is shown to yield larger output gains than sequenced, gradual approaches.
- The analysis focuses on the five largest ASEAN emerging market economies: Indonesia, Malaysia, Philippines, Thailand, and Vietnam (the five largest emerging markets out of 10 economies in the Association of Southeast Asian Nations, or ASEAN), with the goal of helping them join Singapore among high-income countries within the next two to three decades.
Key empirical findings
- Income per capita in the largest Southeast Asian economies has grown at least three-fold over the past 20 years.
- Vietnam’s income level is 11 times higher than in 2000.
- Comprehensive and simultaneous economy-wide reform packages could increase long-term real economic output, on average, by 1.5 percent to 2 percent after two years and up to 3 percent after four years.
- A major simultaneous reform package improving business and external regulation, governance, and human development could raise output levels by up to 3 percent after four years.
- The benefits from enacting a single major economic reform would be more modest than from packaged reforms.
Four factors assessed
- Trade and economic openness
- The six main ASEAN economies are generally more open than the average emerging market in the Group of Twenty.
- These countries still have more barriers to trade—and are relatively harder to trade with—than the median OECD country, based on the Trade Facilitation Performance index.
- Improving logistics and trade facilitation would make cross-border transactions faster, cheaper, and less uncertain and would boost growth.
- Addressing lagging services trade can maximize pro-competitive gains, technological spillovers, and create high quality jobs; transitioning to more services does not reduce catch-up potential if the transition is to highly productive services.
- Economic sophistication
- The major ASEAN economies are generally well diversified, with varying degrees of economic complexity, led by Singapore.
- Countries with lower economic complexity typically have relatively lower levels for education and labor productivity.
- Spending more and better on high-quality education, improving the quality of learning, and better matching skills with jobs would improve productivity and move the economy up the sophistication ladder.
- Investment and governance conditions
- The largest ASEAN emerging markets tend to lag the median for OECD countries on governance measures such as government effectiveness and regulatory quality, though they are ahead of the average emerging market in the G20.
- ASEAN countries often show weaker logistics performance and higher business regulation—Singapore being an exception.
- Domestic credit is relatively ample, but financial inclusion remains insufficient in some countries (low share of people with a bank account).
- Strengthening governance and anti-corruption efforts, and improving infrastructure quality, would support accountability, business certainty, and investment.
- Human development
- All major ASEAN emerging market countries enjoy a demographic advantage relative to benchmarks (more people working than dependants).
- There is an opportunity to implement reforms before aging populations increase fiscal burdens such as pensions and healthcare.
- These countries generally display greater inequality than the OECD average, and lower life expectancy, population health, and living standards, with greater prevalence of informal work.
- Closing these gaps would better support inclusive and resilient growth.
Reform priorities and policy implications
- Packaging ambitious, economy-wide reforms across business and external regulation, governance, and human development is the recommended approach to achieve higher potential growth and sustainable progress toward high-income status.
- Such packaged reforms can also build resilience to shocks by fostering diversified, broad-based, inclusive domestic growth and ensuring a credible institutional framework to unleash private sector-driven growth.
- Political economy challenges are substantial for packaged reforms; consensus building across key stakeholders is needed to facilitate implementation and deliver sustainable gains.
Source: Southeast Asia’s Economies Can Gain Most by Packaging Ambitious Reforms, IMF blog, March 25, 2025.