Trade wars may dominate the headlines, but fiscal policy is key for boosting sustainable growth in the long run. A report by HSBC Research on fiscal developments in the region found that most countries are broadly on track to reach their fiscal targets in 2018.
Indonesia, Vietnam, and Malaysia continue plans to consolidate deficits, but they face growing hurdles in their mission. Meanwhile, the report found that fiscal policy will remain a significant growth driver in Singapore, the Philippines, and Thailand over the medium term.
- Vietnam, Malaysia: Based on budget positions, Vietnam and Malaysia have consistently run the largest deficits in the region. As a result, they have been pursuing fiscal consolidation, mostly to reduce their large public debt stocks. But for Malaysia, the cancellation of GST will leave a hole in its revenue mix.
- Singapore, Thailand: On the opposite side of the spectrum, Singapore and Thailand have run relatively tight fiscal ships over the past decade. But they are pursuing a looser fiscal policy going forward, thanks to their export-driven growth models losing momentum, alongside subdued private consumption.
- The Philippines: The Philippines has gone from an average deficit of -1.8 per cent of GDP in 2007-2016 to 2.2 per cent in 2017, and is on track to hit 2.9 per cent in 2018 – with most of the increase going to infrastructure.
- Indonesia: Indonesia’s problem is that it has an extremely low revenue base, making it difficult to increase expenditure, especially given its 3 per cent constitutional deficit limit.