January 31, 2024
PRESS OFFICER: Huong Lan Vu
Phone: +1 202 623-7100Email: MEDIA@IMF.org
PARTICIPANTS:
Moderator:
JACQUELINE DESLAURIERS
Communications Department
Panelists:
KRISHNA SRINIVASAN
Director, Asia Pacific Department, IMF
AKIHIKO YOSHIDA
Director, Regional Office for Asia and the Pacific (OAP)
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T R A N S C R I P T
MS. DESLAURIERS: Welcome to this press briefing on the Regional Economic Outlook for Asia and the Pacific. My name is Jacqueline Deslauriers with the IMF Communications Department. And today we are joined by Dr. Krishna Srinivasan, Director of the IMF Department for Asia and the Pacific, and by Akihiko Yoshida, Director of the IMF Regional Office for Asia and the Pacific here in Tokyo.
Yesterday we released our World Economic Outlook Update, including the latest data analysis and policy advice for Asia. You can find all the latest information on the Outlook by visiting imf.org, by reading our blog, and by following us on social media.
Today, Krishna will start with some opening remarks and after that we'll be happy to take your questions. We will take questions in the room and online. Krishna, the floor is yours.
MS. SRINIVASAN: Thank you, Jacqueline. Good morning. Before I begin my remarks, let me just express my heartfelt condolences to those affected by the earthquake on New Year's Day in the Noto Peninsula. Allow me to make some introductory remarks on global economic developments, notably in Asia and Pacific, and policy priorities for Asian policymakers.
Let me start with global developments. Global growth has proven to be surprisingly resilient and inflation continues to decline steadily. Stronger private and government spending upheld demand in 2023 despite tight monetary conditions. On the supply side, higher labor force participation, the unwinding of supply chain bottlenecks, and lower energy prices all supported activity. For the world economy, we now project growth at 3.1 percent for 2024, the same growth rate as we had in 2023. For 2025, we anticipate a modest increase to 3.2 percent.
The good news is that these figures are somewhat better than the forecast we had in the October 2023 World Economic Outlook. The not so good news is that they remain significantly below the historical average for global growth, which was 3.8 percent. So 3.8 percent was the average annual growth over 2000, 2019, so we are well below that. Global inflation is projected to fall from 6.8 percent 2023 to 5.8 percent in 2024 and to 4.4 percent in 2025. So core inflation is also on a downward trend.
Turning to Asia, the good news is that we have revised growth upward for both 2023 and 2024. For 2023, we now estimate growth at 4.7 percent compared to a projection of 4.6 percent in October. China and India account for most of the upward revision. In China, growth was supported by higher spending on disaster reconstruction and resilience projects. In India, strong domestic demand underpinned another increase in our growth estimate.
We also upgraded our Regional Forecast for 2024 to 4.5 percent from 4.2 percent in October. What explains this increase in growth forecast for 2024?
First, part of the positive dynamic comes from what happened in 2024.
Second, a more supportive external environment, notably, robust growth in the United States reinforces domestic resilience. Demand for technology, computers, electronics, and other optical products has picked up in recent months, and this bodes well for countries like Korea and Singapore. Third, countries like China and Thailand have announced sizable policy stimulus. So that explains why we have upped the forecast for 2025.
Overall, Asia is on track to deliver, again, two thirds to global growth in 2024. This is the same number we had in 2023. So again, Asia remains the dynamic region in the world.
The regional average, however, hides significant divergence between countries. In Japan, we expect growth to remain above potential, but to slow from 1.9 percent in 2023 to 0.9 percent in 2024, as one of factors that supported activity last year fade.
In particular, we had a yen depreciating, we had strong tourism, and we had a recovery in business investment. These factors will fade, and that explains why we see growth slowing in the outer years. Growth in India, on the other hand, is expected to remain strong at 6.5 percent in both 2024 and 2025. For 2025, we project growth in the region to decelerate mildly to 4.3 percent, reflecting to a large extent China's growth slowdown on inflation.
The news has also been mostly positive, which improves the prospects for a soft landing. Let me take a step back. In Asia, post Covid price increases were on average less intense than elsewhere in the world. They are now receding sharply. We estimate that average Asian inflation fell from 3.8 percent in 2022 to 2.6 percent in 2023. With particularly swift progress in emerging Asian economies. Many regional central banks are on course to reach their inflation targets in 2024. Provided policymakers hold steady until inflation firmly re-anchored, scope for monetary easing may emerge later in the year.
Again, the picture across Asia is not uniform. In China, inflation was only 0.3 percent in 2023, fueling concerns about deflation. The weakness reflects mainly lower food and energy prices, but also subdued core inflation. Inflation is expected to recover gradually through 2025 in China. In Japan, we expect inflation to slow from 3.2 percent in 2023, but to remain about a 2 percent inflation target until 2025.
The relatively benign inflation environment had unexpected side effects in 2023, with less price pressures to combat, Asian central banks needed to increase interest rates by less than their counterparts elsewhere. Hence, in the second half of 2023, the U.S. Federal Funds Rate, exceeded the average pulse rate in emerging Asia. An unusual consolation that triggered depreciation pressures on Asian currencies in the fall of 2023.
These pressures have abated for now, as the Federal Reserve has signaled interest rate cuts going forward. However, there's a risk that divergent monetary stances in the U.S. and in Asia would trigger sharp exchange movements also this year. If so, central banks should avoid being distracted by temporary turbulence and focus primarily on price stability.
Even though the outlook has improved, important risks remain. First, a larger and more drawn out correction in China's property sector could curtail domestic demand further, especially if this is accompanied by stress in local government finances. It would also reduce demand for the region's exporters. On the upside, stronger than expected policy support in China could boost demand and generate positive spillovers. Second, financial conditions are still volatile. Tighter than expected conditions, the U.S. or Asia, could put pressure on heavily indebted industries and economies. Third, rising risks of geopolitical fragmentation are particularly onerous for Asia, given the region's deep integration into global trade. We already see evidence of negative effects in the form of longer and less efficient supply chains. The threat of higher shipping costs reinforces risks for trade.
Now, what should policymakers prioritize? In our view, this is a time to strengthen the resilience of Asia's economies. Fiscal consolidation is key to restoring buffers and safeguarding debt sustainability. In 2023, budgetary balances improved somewhat in Asia, but consolidation was slower than we had anticipated. So more belt tightening will be needed. Strong financial supervision and systemic risk monitoring is needed to safeguard against potential financial sector vulnerabilities. Finally, structural reforms remain imperative to boost productivity and mitigate challenges from global derisking, while accelerating a green transition is essential for sustainable growth.
Before addressing your questions, please allow me to make a couple of points on the excellent cooperation between the IMF and the Japanese authorities. We work very closely together in many areas that support the global community, including through our regional office here in Tokyo. Akihiko, who's sitting next to me, is the Director of that office and will be answering some of your questions today.
I would also like to thank Japan for its steadfast support of the Fund. There are too many contributions to list them all but let me mention a few highlights.
Japan was critical for meeting the IMF's fundraising targets for the Poverty Reduction and Growth Trust or PRGT, the trust that allows IMF to lend to low-income countries at subsidized rates. Japan provided loan resources as well as a subsidy contribution.
In 2023, Japan also contributed to the IMF's newest facility, the Resilience and Sustainability Trust, or RST, the trust that finances lending to address longer term challenges such as climate change. And as you all know, in Asia, Bangladesh is the first country to access the RST.
Japan also raised its pledge regarding SDR channeling, which further strengthens the IMF’s ability to support low income and vulnerable member countries. Beyond these financial contributions, Japan remains an important thought leader in the discussion of SDR channeling and a crucial and reliable partner of the Fund in its support for low-income countries.
These are just a few examples of our great cooperation between Japan and the IMF. Thank you very much. Now Aki and I are both ready to answer your questions. Thank you.
MS. DESLAURIERS: Thank you, Krishna. We'll now open the floor to your questions, and I'll just begin with some ground rules. We'll begin with questions on the regional outlook and the global forces affecting the region, and then we'll turn to your country specific questions. For reporters in the room, we have a colleague with a microphone, so please raise your hand and I will call on you so you can ask your question. Please give us your name and your news organization affiliation. For reporters joining us online, you may raise your virtual hand to ask your question and I will call on you. Or you can type your name, affiliation, and question in the chat, in the Zoom chat. We'll begin today with a question in the room. The gentleman in the back row.
QUESTIONER: I did submit two questions in advance, actually. Do you plan to take those first or shall I go straight into my question?
MS. DESLAURIERS: The regional question would be wonderful first, please.
QUESTIONER: Okay. Anthony Rowley and I write for the South China Morning Post and other publications. The IMF is saying in its blog, latest blog, that the chances of soft landing for the global economy are looking rather better, which is hopefully correct. But I just wonder whether this is not underestimating the financial stress, the stresses in the financial system, or potential stresses. I mean, the period of very long, low interest rates has gone. Interest rates have risen, there's a record amount of debt, and although interest rates may fall this year, they're not going to go back to zero for sure. So within the Asia region -- I know this is a very broad question, at the sovereign level, at the corporate level, and at the household level, how much of a problem is this? In other words, people are going to, entities are going to have to go on paying higher interest rates than they were for some time, and this is going to create stresses, presumably. Could it create crises rather than stresses?
MS. SRINIVASAN: Thank you. Before I answer that question, let me just make one point clear. I just want to give very clear thing of what our growth forecasts are for Asia. For 2023, it's 4.7 percent. For 2024 it's 4.5 percent and for 2025 it's 4.3 percent. I may have spoken incorrectly during my remarks. Thank you for that question.
Clearly, we see that prospects for soft landing have improved. The Fed has signaled interest rates cuts going forward. And as I mentioned in my remarks, there's also scope for monetary easing by central banks in the region. That said, even as interest rates turn the corner, the higher interest cost of debt issued, over the last two years, is starting to show up in the form of higher debt service costs across the region. And this will continue to weigh on governments, corporates and households in the coming years.
Just to give you one number, Asia's share of global debt. I'm talking of Asia's share of global debt went from 25 percent before the global financial crisis to around 38 percent now. And of course, a lot of that is China. But clearly this is a region where debt has gone up and this is debt across households, corporates, and public, right? So in the context, so in some of the economies you face deflation dynamics, and for both firms and households, that could see the real value of the debt increase, heightening vulnerabilities, and carrying potential implications of consumption or investment.
Now, again, the pressure points are not the same across countries. If you look at where's debt high in the property sector, clearly you have countries, like China and Vietnam, where this is an area of concern. Now, if you look at debt across corporate sector, there are countries such as Korea, Indonesia, Thailand, Vietnam, where debt is concentrated in firms with high interest costs. This also warrants close monitoring. I'm not saying any of this is a systemic risk, but I'm just saying it warrants closed monitoring going forward. And again, many of these countries have announced macro potential tools such as debt to income or debt to service ratio, loan to valuation, and so on. Those should be used to proactively bring down leverage across these sectors. Thank you.
MS. DESLAURIERS: Thank you. We have a question online, Krishna, just to confirm some of the data from Chris Gilbert at FSN, following the correction you just made at the top, can you confirm that the written numbers in the statement we released under embargo are correct?
MS. SRINIVASAN: Yes, I think they're right.
MS. DESLAURIERS: Yes, that is confirmed. So if you are joining us online, thank you very much. If you would like to ask a question, please raise your hand virtually, or you can, if you're more comfortable, typing your question in the chat. Please do, as long as you give us your name and affiliation as well. I see a hand up from the Korean Publication, Donga Ilbo, Soo Kim.
QUESTIONER: Hi, thank you for taking my question. I'm Soo from Donga Ilbo, a Korean newspaper. You mentioned earlier that despite the expected rate cut, there is a risk that divergent monetary policies in Asia could trigger sharper movements in exchange rates. So could you explain more about this? I'm particularly curious about how the Fed Record will impact Asian countries, especially Korea. And I have another question, this is about current geopolitical tensions in Middle east and the Red Sea. How do you think these are influencing the economies of Korea and other Asian countries in general that are heavily dependent on exports? Thank you.
MS. SRINIVASAN: Thank you for both those questions. To answer your first question, let's put things in context. Now, it’s important to look at what happened over the past year. Inflation pressures were generally lower in Asia than elsewhere. And so with less price pressure to combat, Asian central banks had largely completed the policy rate increase by the first half of 2023, and needed to increase intricate by less than a counterpart elsewhere. Hence, in the second half of 2023, the U.S. Federal Funds Rate, exceeded the average policy rate in emerging Asia. This created pressures for Asian currencies to depreciate.
Now, clearly, the Fed has signaled interest rates going forward, so those pressures have eased. And so in that sense, what happens when the U.S. starts cutting? You'll see the kind of pressures we saw in the first second half of 2023 abate. But that said, there is potential for volatility. Why do I say that? Now, markets are expecting central banks to cut rates several times in 2024. However, if inflation and financial conditions turn out to be different than what markets expect, then there's going to be some recalibration, and that's going to be leading to higher volatility. That's something which emerging markets have to be cognizant of, including countries like Korea.
Now, going back to your question, you also asked about broader going beyond Korea, you say, what could be the impact. Now, even if as interest rates turn the corner, right, even as interest rates come down. The fact of the matter is the higher interest cost of debt issued last two years is starting to show up across in debt service costs across various sectors. So that's something of another issue which I mentioned in response to earlier question, that has bearing for countries including Korea, where you do have the household debt, is, if I'm not mistaken, 100 percent of GDP or slightly above that. So you have to start bringing leverage down gradually in the household sector in Korea. You had a question on, was it on fragmentation?
MS. DESLAURIERS: The second part of your question, Soo?
MS. SRINIVASAN: The second part of your question was on fragmentation?
SQUESTIONER: It was geopolitical tensions in Middle east, Red Sea, and yeah.
MS. SRINIVASAN: The geopolitical tensions have been quite prominent over the last few years. And if the conflict in the Middle east escalates, it could have impact on two things. It could affect oil prices, which will have a bearing on many countries in the region, including Korea. If what you're seeing in the Red Sea, if those things escalate, then you could have trade disruptions, which will be particularly detrimental to countries like Korea, which rely a lot on trade and which are highly integrated in world trade. And so those countries, countries like Korea, are likely to be hurt further. Thank you.
MS. DESLAURIERS: Thank you, Krishna. Again, just to confirm for Chris Gilbert online, yes, the written numbers in the statement that you received under embargo are correct. I would like to turn back to the room briefly. If anyone here has a question in the second row of desks, please.
QUESTIONER: Can I ask a country specific question?
MS. DESLAURIERS: Please, go ahead.
QUESTIONER: Okay, thank you. I'm Yuko Fukushima from NHK World. I have a question about China's property sector. IMF mentions that it could be a downside risk. So what kind of restructuring policy package does IMF recommend to Chinese officials to contain this trouble in the sector by protecting the home buyers and minimizing the risk to the whole economy? Thank you.
MS. SRINIVASAN: Thank you. That's a good question. So the property sector, the real estate sector, if you include all related sectors, accounts for about 20 percent of value added. It's quite big. And clearly, leverage was very high in the sector, and there was a decision taken, positive decision taken, to lower leverage and so to bring the sector back to more sustainable levels. Now, we’ve seen that that has led to, you know, contagion across developers. It's led to confidence coming down and so on.
So what we have argued is that there needs to be a clear, consistent policy message to address the property sector. What do we mean by that? One is you need to separate the viable from the unviable property developers. So some property developers who are not viable will have to be resolved. That's important. Have a strategy, resolve the developers, so that the ones which are viable can lend to confidence coming up in the sector.
Second, and at the same time, you have to protect the interests of home buyers. And so there's a stock of prepaid houses which need to be built. And I think that's another important issue to be done. And here we have, in the past talked about, at least, I think it was last year, when we said you need about 5 percent of GDP as the amount of central government support to finish the houses which had been promised, which had been paid for.
So I think these are the kind of measures you need. You need a consistent, clear set of messages resolved with developers so that the viable ones survive, the unviable ones fold. And that will lead to confidence coming back in the sector, which will help boost consumption and investment going forward. Otherwise, it'll remain a significant downside risk for the Chinese economy.
QUESTIONER: Do you see the Chinese government taking those measures?
MS. SRINIVASAN: Well, to be fair to them, they have taken many measures. They have provided support to builders, they have lowered interest rates, they have lowered down payments for housing and so on. But I think what is needed is a way by which you can resolve these developers, because that's like a big issue which is hanging out there, and that needs to be paid close attention to. So that's where I think more action is needed. And you will need to -- central government needs to provide some support to the sector to make sure that the interests of homebuyers are protected.
MS. DESLAURIERS: Thank you very much. I'm now going to turn to another question on China online from Chris Gilbert of FSN. The question is, what new pressures is China facing as leading economies, the G7, look to derisk their bilateral trade relationships, and how could this affect the regional and global economy going forward?
MS. SRINIVASAN: So if you recollect in our October Regional Economic Outlook, we had talked about the rising risks of geoeconomic fragmentation. We had talked about the fact that since 2017, 2018, trade uncertainty, trade barriers had all been in an increase. And so clearly, geographic fragmentation is an important one. The world has benefited a lot from great, great integration, but now you see that there's a lot more risks of fragmentation.
In that context, we had analyzed two scenarios, one where we talked about near shoring and one we talked about reshoring. In the case of near shoring, countries tend to decide to trade more with what they see as the friendlier countries to them. And in reshoring, all countries becoming more protection, go back to being more insular. In both these scenarios, what we see is that the global economy takes a big hit, and particularly so in the context of the reshoring scenario. And in both these scenarios, China loses a lot. And because China is a big hub for the region, when growth in China slows, it slows growth in every other country.
So the point we were trying to make in these scenarios is that fragmentation of any kind, whether it's reshoring or near shoring, has a significant detrimental effect on global growth, regional growth, and so on. And that's the reason why you have to do everything possible to ensure that you don't have fragmentation happening.
MS. DESLAURIERS: We have another question online about Bangladesh. This is from Rejaul Karim Byron. What is your observation about the recent monetary policy of the Bangladesh bank?
MS. SRINIVASAN: So, as you know, Bangladesh has a Fund supported program in the context of back-to-back shocks. Like many other countries, Bangladesh too had to endure shocks, starting from Covid to the Russia's war in Ukraine and subsequent shocks. In that context, Bangladesh sought access to a Fund supporter program. And as part of that program, there are many pillars, and one pillar, of course, is to bring down inflation. The other pillar is to make sure that you have fiscal sustainability while protecting the poor and the vulnerable. You also had governance reforms, and you had reforms which were aimed at protecting the poor and the vulnerable through our conditionality. Now, what we've seen is they have taken measures to tighten the monetary policy to bring inflation down. And inflation is coming down, but further actions needed to ensure that inflation is durably coming down and comes back to target sooner than later.
MS. DESLAURIERS: Perfect. I'd like to turn back to the room if there are questions in the room at the moment. The gentleman in the back row, please.
QUESTIONER: Question was raised about China's property sector. But problems in the property sector go beyond just China. I mean, the IMF this week, I think, produced a blog which showed that commercial property prices in the United States had fallen by, I think, 11 percent in the past 18 months. And in a situation of falling real estate prices, especially commercial real estate, you would get problems with debt servicing and so on. Generally in Asia, I know it's, again, a very big region, but how do you see the outlook for real estate and prices because it's an important factor in deciding credit worthiness and debt sustainability and so on?
MS. SRINIVASAN: So again, as I mentioned in the beginning, debt levels have risen in Asia, including in the sectors both household, corporate, and the public sector. It varies country from country. And we have seen price corrections happening in the housing market. For instance, in Korea, price corrected by 10 percent. The one difference between Korea and China is in China, you don't see much by way of price adjustment. Which is another element of the reform you need, which is allow prices to adjust so that people make more informed decisions on how to invest, where to invest, and so on and so forth.
So, clearly, the fact that interest rates have been high for some time you are going to see pressures building up across sectors and you see that in some cases. Vietnam was on the case in point where you have problems in the property sector which are slowly getting resolved, but they're still there. So these are things which we have to monitor and gradually bring down leverage where they are high. We have made this recommendation in the case of Korea, where household debt is 100 percent of GDP and it's not a systemic issue because the debt is mainly mortgage debt and assets almost offset liability. But clearly debt levels are high. And so, they are putting in place macro potential measures to bring leverage down gradually, which we fully endorse.
MS. DESLAURIERS: We have another question online, this one about the Philippines. This is from Keisha Ta-asan from BusinessWorld. Today, the authorities announced the Philippine economy grew by 5.6 percent in 2023, significantly slower than the GDP growth in 2022 and short of the government's target. What are our views on this? Also, how do we see growth for this coming year in the country? And what are the key drivers of growth for the Philippines? Third part is on monetary policy. The Central Bank has also delivered aggressive rate hikes, is the question, and what is the impact of those hikes on growth?
MS. SRINIVASAN: Thank you. Jacqueline. I’ll let Akihiko answer this question.
MR. YOSHIDA: Thank you. Well, we expect growth in Philippines to bottom out in 2023 before bouncing back to 6.0 percent in 2024. A real GDP growth projection for 2024 which revised up slightly from the October WEO forecast of 5.9 percent, reflecting somewhat stronger than expected recovery in investment and exports.
While the outlook for the Philippines economy is favorable, risks to the near-term growth outlook is tilted to the downside, including due to persistently high inflation, necessitating a further tightening of monetary policy, weaker global economic growth, intensification of geoeconomic fragmentation and broadly in global risk premier, and tightening in global financial conditions. Headline and core inflation were elevated in 2023 and though they had both been decelerating in recent months, we expect inflation to approach the target of 3 percent in the second half of 2024. But the risks to the inflation outlook is tilted to the upside, reflecting risk of food price surges, commodity price volatility, and potential second round effects. Thank you.
MS. DESLAURIERS: Thank you. We have another question online, this one about China. This is from Qingting Zheng. I'm sorry, I don't have your affiliation. The question is, how do you see the momentum of China's consumption recovery this year? And how would the Red Sea crisis affect Asia's inflation and supply chain?
MS. SRINIVASAN: Thank you. So, as you may remember, we had projected growth rate of 5.4 percent in our Article IV Consultation on China. But then it so happened that in the quarter four, growth came out weaker than expected than we had expected, and a large part of that consumption. So consumption was very weak at the end of 2023. In general, it's been a bit of a bouncy ride in China, and consumption remains weak. Now, going forward, you know, it's important that some of the downside risks we talked about are addressed. For example, the property sector has a clear bearing on consumption because Chinese invest a lot, invest their savings in the housing sector, and if that sector is not resolved, it has a bearing on confidence, consumer confidence, and a bearing on consumption. So to the extent that these underlying problems in the property sector address, you will see an uptick in consumption going forward. But if that is not resolved, you are likely to see consumption remaining more tepid. Your second question was what?
MS. DESLAURIERS: That was on -- pardon me, on China.
MS. SRINIVASAN: Maybe that was it.
MS. DESLAURIERS: The second part of the question was the impact of the Red Sea crisis on inflation and supply chains.
MS. SRINIVASAN: Yeah. So clearly any kind of disruption is going to have a bearing on supply chain. You know, the Red Sea thing, you have seen some disruption in shipping and all that could have a bearing on both trade and on prices. But again, too early to quantify that.
MS. DESLAURIERS: At this point in time. We now have another question online on Bangladesh from Syful Islam. The government of Bangladesh has started issuing bonds worth billions to clear bank debt against arrears at an interest rate of 7.5 percent, which is further raising the government's debt total. What else can the government have done to pay the arrears instead of issuing bonds?
MS. SRINIVASAN: So there it would be important to see what are the choices you have. The government, as part of the IMF supported program, is embarking on significant fiscal tightening to ensure that, you know, revenue mobilization remains robust, expenditures are more targeted and so on. So fiscal consolidation in that context can have as an offset, but the question is how much more consolidation can it do? And that's where it's important. In the context of what we have been talking about is in the context of interest rates being high, that countries have to go beyond what they've been doing in terms of fiscal consolidation and further tightening may be needed. Again, this is something which the country team working on Bangladesh will be assessing in the months forward to provide a more definitive answer.
MS. DESLAURIERS: Thank you, Krishna. I'd like to take another question online. This one is from the Pacific islands. Gorethy Kenneth from the Post Courier Papua New Guinea. The question is, how is the Pacific economic outlook specifically, obviously for Papua New Guinea. And the IMF loan, what are the conditions of this loan and how far has the country progressed on this front?
MS. SRINIVASAN: Thank you. So Papua New Guinea is one of the countries in the Pacific islands which has a Fund supported program. And earlier they had a staff monitored program which is followed by a proper Fund supported program. Things are gradually picking up. But the reforms basically address several factors are important for ensuring macroeconomic stability and also improving governance and corruption.
So one, we do have what we call quantitative criteria on fiscal. So to ensure macro stability, you have ceiling on fiscal deficit, and similarly you have a floor on reserve so that to maintain adequate reserve buffer. In addition, we also have what we call structural benchmarks which strengthen debt sustainability, alleviate foreign exchange pressures, and enhance corruption and governance frameworks. So it is a program which is built on many pillars, macro stability. Also we have there inbuilt to support the poor and vulnerable. We have floors which are what the government has to spend x amount of dollars as part of the program to support the poor and the vulnerable. So this program has many pillars and both macro stability, corruption, governance reform.
Now, as part of the first review, which happened not too long ago, there were also some performance criteria on medium term revenue strategy and the preparation for a roadmap for monetary and foreign exchange reforms, and also the appointment of commissioners and independent commissions against corruption. So there have been many. Both reforms aided macro stability and reforms at more what we call a structural long-term reforms. We had a review of the program, late last year, and the review basically indicated that PNG has done very well in terms of adhering to the promises commitments had made as part of the IMF program. So it is again, we will have another review in six months time. We'll assess the whole macro scenario, but as of now, the program has got off to a very good start.
MS. DESLAURIERS: We'll take another question online. This one is from Reuters. Leika Kihara, please go ahead.
QUESTIONER: Thank you for taking my question. Can you hear me?
MS. DESLAURIERS: Yes, we can.
QUESTIONER: Great, thank you. I have two questions. You mentioned a little bit about deflation fears, concerns in China. How big is the risk of China actually siding into prolonged period of deflation and stagnant growth? It might depend pretty much on how authorities deal with the property sector problems, but Beijing has also been making deep cuts in bank reserves and announcing spending packages. Would that help in any way or would it sort of drag the kind of more structural reforms necessary for the country? Another question I have is there is a U.S. presidential election looming and I know you'd be hesitant to talk about any specific impact for a candidate, but I fear that there would be more leaning toward protectionism in the U.S. How big do you think is this risk for Asia's economies, given a lot of them are reliant on trade with the United States? Thank you.
MS. SRINIVASAN: Thank you. So you had three questions. Let me take them one by one. First, on deflation risks in China. So clearly, we do have, in the last reading of headline, inflation in China was negative 0.3 percent in December, and it's been a negative since October, but core inflation is positive at 0.6 percent. Now, a lot of the signs you see in deflation, signs you've seen, reflects low oil and food and commodity prices and a slack in the economy. So in our baseline, we see this going away and we don't have a deflation scenario in our baseline. So once the impact of food and commodity prices wanes and slack is used up, you'll see inflation rising. So we don't see deflation as a baseline scenario in China.
You talked about the recent cuts in required reserve ratio. Clearly, this is consistent with what we have been telling them, that you need to have more monetary easing to support the economy, to support the property sector, and so on and so forth. But I think going forward, we would prefer if there were more policy rate cuts than cuts in required reserve ratio because that addresses more directly the demand issue.
Going beyond that, as you know, we have lowered our forecast for medium term growth or long-term growth in China to 3.5 percent, and that reflects an aging population and falling productivity. In that context, a lot of structural reforms will be needed to address both the decline in productivity and an aging population.
MS. DESLAURIERS: Perfect. Other questions in the room? The gentleman in the third row, please.
QUESTIONER: Finbarr Flynn from Bloomberg. I have a question on Korea. You mentioned Krishna, the household leverage. But authorities there have also been on guard for risks at builders. We've seen a credit crunch at the end of 2022 when short term rates spiked. So my question is, how concerned are you about defaults at builders, which appear to be revolving around project loan finance issues and the potential that could have on smaller and non bank lenders for the Korean economy?
MS. SRINIVASAN: Thank you. Clearly, there have been some concerns on the developer side, and our assessment is that the overall financial system itself is sound. We don't see systemic risk, but some of the smaller institutions could be at risk because of the problems you mentioned. So this is why I'm saying that the interest rates being high over the last two, three years has had a significant bearing in developers and being able to service their debt and so on. So it's very important for countries to monitor this very carefully. Again, I don't see this being a systemic issue in the case of Korea, but close monitoring will be needed, especially in this particular thing of developers and how it could affect the smaller lenders in the country.
MS. DESLAURIERS: Are there any other questions in the room? If not, I'll turn back online. This is a question on Bhutan and I apologize, I do not see your affiliation or your name. The newly elected government has pledged a 15 billion Nu economic stimulus budget. Do you think this budget is sufficient and the right plan to revive the economy?
MS. SRINIVASAN: So we've had some concerns about the overall macro situation in Bhutan, both in terms of the fiscal and in terms of the external position. And it requires both adjustment on the fiscal side but more longer-term reforms, longer term fiscal reforms, which can put the economy back on a more strong and durable path. So it would be very hard to say whether this stimulus is right. I need to know the details. I don't have the details in front of me, but I would say that at least what I've seen over the past six months is that we are concerned with some of the macro fundamentals, including on the fiscal and so on. So there's not much by way of room to provide greater stimulus.
MS. DESLAURIERS: Perfect. We then move back to Bangladesh. A follow up question from Rejaul Karim Byron, on, is Bangladesh on track with their IMF loan program?
MS. SRINIVASAN: Broadly speaking, yes. So we had a review of Bangladesh's program two months ago, I would say, and the review was satisfactory in terms of their meeting, the various -- what we call conditionality in the program. There were some areas where there could be slippages, particularly on the external side. And that's partly because in the run up to the election, the financial account was in some sort of asymmetrically on the current account side. The current account was doing reasonably well because of, you know, surging exports and some import compression. The financial account, a lot of money wasn't coming in. Now that the elections are behind, the uncertainty has dissipated, you would expect the financial account to also get back into more resilient.
MS. DESLAURIERS: We are almost out of time. I have one last question we've received online, Krishna, and we'll make this the last question, unless I hear otherwise from you. How do you see the level of the yen at the moment and our views on government intervention?
MS. SRINIVASAN: Thank you. Thank you, Jacqueline. So on this issue, we've had very good discussion with the Japanese authorities on exchange rate issues. And let me emphasize, I see no fundamental divergence and views between the Fund and the Japanese authorities about exchange rate policies. What do I mean by that? The Japanese authorities are committed to a flexible exchange rate which acts as a shock absorber and supports the monetary policy objective of price stability, as well as helping maintain external position which is in line with fundamentals.
With respect to the question which is asked, now, Japan has not intervened in the markets for almost 15 months now. When it did last, it was, I think, September or October of 2022. At that time, the authorities were concerned about excessive movements in the exchange rate and its deviation from underlying fundamentals. And at that time, staff investigated this issue very closely. And our empirical analysis, which was published in the 2023 Article IV Report, did find some evidence of specially sharp exchange rate movements during that time, and the yens depreciation to be more than what was implied by underlying drivers.
As mentioned in that report, we said at that time that FXI could help lower excessive volatility and keep the pace of the yen's position better aligned with fundamentals and well functioning markets. But we also noted that any kind of FXI has short term impacts and so it's not a substitute for macroeconomic adjustment. But more broadly speaking, I don't see a fundamental divergence in use. They see the exchange rate as a shock absorber, you know, allow the exchange rate to be completely flexible so that it absorbs shocks, allows them to meet the monetary policy objectives, and also keeps the external position in line with fundamentals.
MS. DESLAURIERS: Perfect. With that, thank you very much for joining our press briefing today. A short reminder that the full video and transcript of today's briefing will be available on imf.org. Please visit the news page for all the latest information. Thank you very much.
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