## The Future of Asia: What a Difference a Year Can Make

_IMF Blog, March 17, 2021_

## Source details

**Canonical URL:** [The Future of Asia: What a Difference a Year Can Make](https://www.imf.org/en/blogs/articles/2021/03/17/blog-the-future-of-asia-what-a-difference-a-year-can-make)

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- [Markdown version](/en/blogs/articles/2021/03/17/blog-the-future-of-asia-what-a-difference-a-year-can-make/index.md)
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## Bibliographic details
- Authors: Chang Yong Rhee, Katsiaryna Svirydzenka
- Published: March 17, 2021

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### COVID-19 impact and outlook
- Having been hit by COVID-19 first, Asia is also recovering first.
- At the pandemic’s first anniversary, it is "too early to know for sure" whether the region is back to full health.
- The pandemic exacerbated existing long-term issues: slowing productivity growth, growing indebtedness, aging population, rising inequality, and managing climate change.
- Asia must remain agile and innovative to exit the crisis in a durable, greener, and more equitable way.

### Long-lasting effects
- Past recessions in advanced economies show that, on average, five years after the start of a recession, output is still almost 5 percent below its precrisis trend and unlikely to ever catch up.
- The COVID-19 pandemic has:
  - destroyed jobs,
  - worsened poverty and inequality,
  - created a public and private debt problem—especially for countries and firms already in fragile financial health beforehand.
- Potential lasting scars arise from persistent declines in the capital stock, employment, and productivity.
- Labor market impacts in Asia:
  - Unemployment surged.
  - Labor force participation plunged.
  - Job losses concentrated in industries with lower wages and among women and youth.
  - The poorest and most vulnerable were disproportionately hit, exposing severe gaps in social protection and exacerbating already high inequality in advanced and emerging Asia.

### Public and private debt hangover
- Many countries will have to contend with high public and private debt burdens—possibly too large for some to manage.
- Sovereign debt is an issue in small states; addressing it will require extra focus on revenue mobilization, public finances, and debt management, with support from multilateral partners and debt relief providing some breathing space.
- In larger emerging markets, the main problem might be record-high private debt:
  - More companies are not generating enough earnings to service their debts.
  - Government support is helping firms to keep afloat, but a large wave of corporate bankruptcies could follow when support is withdrawn and absent other interventions.
  - Vulnerability could be acute if global financial market conditions tighten during the recovery, leading to capital outflows and additional pressure on the corporate sector.
- Policy actions to address private debt vulnerability:
  - Reinforce private debt resolution frameworks.
  - Ensure the availability of adequate financing.
  - Facilitate access to risk capital to speed up the reallocation of resources towards growing sectors.

### Measures for unconventional times
- Most countries provided significant fiscal and monetary policy support to cushion the blow.
- Many—especially emerging and developing economies—resorted more to unconventional monetary policies to ease pressure on banks and borrowers.
- Country examples and measures:
  - India, Sri Lanka and Nepal announced debt service moratoria and targeted lending schemes for households and firms.
  - Financial regulation requirements related to capital and liquidity coverage were loosened.
  - Malaysia and Thailand provided extra liquidity to firms through central bank lending operations.
  - Indonesia and the Philippines used large-scale asset purchases.
- Risks and guidance:
  - More aggressive policies entail risks that increase the longer they are used.
  - Policymakers should focus on minimizing distortions and developing clear exit strategies for the unconventional measures adopted.

### Healing the scars — reforms and policies
- To prevent longer-term economic "scarring," Asia needs to expedite economic reforms to:
  - boost productivity growth and investment,
  - allow for adequate reallocation of resources across sectors,
  - support workers affected by the transition.
- Potential policy package elements:
  - Well-targeted hiring subsidies and worker retraining schemes.
  - Infrastructure upgrades.
  - Simplifying business processes.
  - Reducing regulatory and tax burdens.
- Social protection:
  - Upgrade social safety nets to bring workers into formal systems.
  - Support the vulnerable with targeted conditional cash transfers.

### Greener future and climate opportunities
- The COVID-19 shock provided a glimpse of possible structural change:
  - Temporary re-allocation away from energy-intensive sectors (airlines and transportation) provides an opportunity for job creation in more productive and cleaner sectors.
- Policy instruments and complementarities:
  - A well-designed carbon tax package combined with complementary product and labor market policies could support capital re-allocation and labor reskilling.
- Expected benefits:
  - Aid the global fight against climate change (Asia-Pacific contains some of the largest carbon dioxide emitters and polluters).
  - Improved local health conditions, better jobs, and more resources to meet developmental needs.

*IMF Blog article by Chang Yong Rhee and Katsiaryna Svirydzenka, March 17, 2021.*

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## References

- [日本語](https://www.imf.org/ja/News/Articles/2021/03/17/blog-the-future-of-asia-what-a-difference-a-year-can-make)
- [한국어](https://www.imf.org/ko/News/Articles/2021/03/17/blog-the-future-of-asia-what-a-difference-a-year-can-make)
- [new IMF staff paper](https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2021/03/01/Policy-Advice-to-Asia-in-the-COVID-19-Era-50009)
- [past recessions](https://www.imf.org/en/Publications/WP/Issues/2020/12/11/Addressing-the-Pandemic-s-Medium-Term-Fallout-in-Australia-and-New-Zealand-49931)

_Source: https://www.imf.org/en/blogs/articles/2021/03/17/blog-the-future-of-asia-what-a-difference-a-year-can-make_