Transcript of April 2023 Asia and Pacific Department Press Briefing
IMF News, April 13, 2023
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- Published: April 13, 2023
Regional growth outlook and key projections
- China
- Reopened economy expected to expand by 5.2 percent in 2023 (a 0.8 percentage point revision to IMF October 2022 projection).
- Rebound led mainly by private consumption rather than investment; consumption-led spillovers to partners larger than investment-led spillovers.
- Medium-term growth revised below 4 percent, around 3.5 percent.
- Asia and Pacific region
- Projected growth of 4.6 percent in 2023 (a 0.3 percentage point upward revision from October 2022).
- Region expected to contribute to more than 70 percent of global growth in 2023.
- Growth in the “vast economy” slowed to 1.6 percent (as reported).
- Asian emerging market and developing economies (EMDs) dynamism driven by China recovery and resilient India; China and India together expected to account for about half of global growth in 2023.
- Country-specific forecasts and revisions
- Japan: growth expected to pick up slightly to 1.3 percent in 2023.
- India: growth expected to moderate from 6.8 percent in 2022 to 5.9 percent in 2023.
- Korea: growth in 2023 revised down to 1.5 percent (after 2.6 percent in 2022).
- Australia: reported as decreasing by 5.7 percent in 2022 to 4.6 percent in 2023 (statement reflects moderation in domestic demand and external demand).
- Pacific Island countries: growth expected to reach 3.9 percent in 2023 with full reopening of borders.
- Philippines: monetary tightening of about 425 basis points; inflation expected to come down to below target by year-end.
- Bangladesh: projected GDP growth for the year noted at 5.5 percent (IMF downgraded projection relative to government target of 7.5 percent).
- Laos: projected economic growth of 4 percent for the year and next year.
Inflation, monetary policy, and financial risks
- Inflation dynamics
- Global inflation easing but remains stubbornly high; core inflation in Asia described as “sticky” and an increasingly important driver.
- Output gaps in many Asian economies are either closing or have already closed; exchange rate pass-through is contributing to domestic price pressures.
- India: current policy rate at 6.5 percent; most recent inflation print reported at 5.7 percent.
- Bangladesh: inflation noted reaching about 9.33 percent (commented as approaching double digits).
- Monetary policy guidance
- Given substantial inflation risks, IMF message: “stay tighter for longer.”
- Central banks should separate monetary policy objectives from financial stability where possible; use targeted liquidity tools (lending and discount facilities) to address banking-sector liquidity while keeping policy rates elevated until inflation falls durably to target.
- Japan: IMF baseline projects inflation to fall back below 2 percent by 2024; IMF advises flexibility in yields to enable a seamless, less disruptive move away from ultra-accommodation.
- Financial sector and market risks
- Recent U.S. and European banking strains injected uncertainty but had limited direct impact on Asian banking systems to date.
- Asian banks and investors had minimal direct exposure to Silicon Valley Bank; Asian financial systems described as well capitalized and profitable.
- Markets remain vulnerable to high leverage and risks in the real estate sector; rapid exchange-rate movements can expose balance-sheet vulnerabilities.
Fiscal risks, debt, and balance-of-payments considerations
- Debt trends and vulnerabilities
- Asian share in global debt (public, nonfinancial corporate, household) rose from 25 percent to 38 percent between pre-pandemic and the present.
- Rising interest rates may increase the debt burden; fiscal consolidation underway in many governments but predicted consolidation may not be sufficient to stabilize debt.
- Fiscal policy guidance
- Fiscal consolidation may need to be more aggressive over the medium term to ensure sustainability.
- Recommended approach: roll back broad pandemic-era support gradually and replace with more targeted support for vulnerable households; implement credible medium-term fiscal frameworks to enhance credibility.
- Revenue-raising measures emphasized (broadening the base, improving tax administration) as preferable routes to consolidation in highly indebted countries.
- Sri Lanka specifics (as discussed)
- Debt relief is expected to contribute about 17 billion to close the balance-of-payments (BOP) financing gap for 2023–2027; the overall BOP financing gap cited at about 24 billion.
- Debt treatment options negotiated between Sri Lanka and creditors could include principal haircuts, maturity extensions, and interest-rate reductions; IMF not directly determining creditor terms.
Structural risks, fragmentation, and medium-term growth
- Productivity and medium-term growth concerns
- Weak income growth and declining productivity growth in Asia are highlighted risks; pandemic scarring may also lower potential growth.
- China’s medium-term slowdown has important implications for trade-linked economies.
- Fragmentation and decoupling scenarios
- IMF referenced costs of fragmentation scenarios:
- Cost range from 0.2 percentage points to 7 percentage points of GDP, depending on sectors and countries involved.
- Adding technological decoupling could raise costs to 12 percent of GDP.
- Stylized IMF analysis for Asia suggests a fragmentation scenario could imply about a 3 percent impact on the region (productivity channel dominated).
- Policy recommendations for long-term growth
- Prioritize structural reforms to boost innovation and digitalization.
- Advance the green (energy) transition to support medium-term growth and resilience.
- Diversify trade partners and export composition to reduce vulnerability to slowdowns in key markets.
IMF operational and country-level engagement highlights
- Bangladesh
- Engaged with IMF via a program and the Resilience and Sustainability Facility; implementing reforms including targeting subsidies and moving toward unified market-based exchange rates.
- A program review was anticipated later in the year to assess reform implementation.
- Laos
- IMF advises fiscal consolidation focused on revenue measures and credible medium-term frameworks; authorities reported engaging creditors on debt treatment.
- Cambodia
- Heavy export exposure to U.S. and Europe noted (approximate shares cited: 40 percent to U.S., 20 percent to Europe); 1 percentage point decline in U.S. GDP estimated to reduce Cambodia growth by about 0.5 percent (IMF analysis cited).
- RCEP and bilateral FTAs with China and South Korea offer diversification and export expansion opportunities.
- Indonesia, Philippines, Vietnam
- China reopening offers upside to growth for commodity exporters and tourism‑dependent economies.
- Vietnam: recommended addressing inflation directly; public investment can be used countercyclically if downside risks materialize.
- Philippines: aggressive monetary tightening (~425 basis points) aimed at bringing inflation below target.
Summary policy priorities highlighted by the IMF speaker
- Maintain monetary policy tightness until inflation is durably back to target; use liquidity tools to address banking-sector strains without easing policy prematurely.
- Implement credible, medium-term fiscal consolidation with a focus on protecting the vulnerable via targeted support while restoring sustainability.
- Monitor financial-sector vulnerabilities (leverage, real estate risk, currency pressures) and build contingency plans.
- Pursue structural reforms to raise productivity: innovation, digitalization, and the green transition.
- Mitigate fragmentation risks through policies that limit forced decoupling of trade, finance, and technology.
Transcript of April 2023 Asia and Pacific Department Press Briefing, IMF Communications Department, April 13, 2023.