Boost domestic consumption to sustain fiscal growth


Staff Writer

Asia’s steady economic growth is likely to continue on the back of an upbeat global economy though concerns linger from trade policy uncertainties by the new U.S. administration under the “America-First” stance in addition to tighter immigration control around the world, economists said.

“The world economy is in a cyclical recovery stage, so it is likely that this momentum in Asia will continue for the time being,” Toru Nishihama, chief economist at the Dai-ichi Life Research Institute, told The Japan Times. “Asia’s developing economies are inclined to rally dependent on the upbeat global trend as many economies in the region have high export dependencies.”

World growth is estimated to rise to 3.5 percent in 2017 and 3.6 percent in 2018 from 3.1 percent in 2016, according to the International Monetary Fund’s World Economic Outlook released in April. In the meantime, the Asian Development Bank predicted developing Asian economies would expand by 5.7 percent in both 2017 and 2018 in its Asian Development Outlook 2017 published last month.

However, Nishihama expressed concerns that the recent anti-globalism tide could interrupt such an upward trend that Asia enjoys thanks to the well-functioning flow of manpower, goods and capital.

“I’m very concerned about the moves by some countries looking to place tighter control on immigrants” who have become a pillar to support the economies in their countries of origin by transferring money from migrant destinations, Nishihama said. He added such immigrants could become human resources to help develop their homelands after they return.

On April 18, U.S. President Donald Trump signed the “Buy American, Hire American” executive order, calling for the overhaul of that country’s skilled worker visa program. Australia announced it plans to tighten citizenship rules on April 20, while New Zealand said it intends to introduce tougher requirements for skilled overseas workers.

“We are absolutely committed to the principle of Kiwis first,” New Zealand’s Immigration Minister Michael Woodhouse reportedly said in a speech.

According to the Migration and Remittances Factbook 2016 by the World Bank Group’s Global Knowledge Partnership on Migration and Development initiative, India topped the list of Top Remittance-Receiving Countries in 2015 with $72.2 billion, followed by China with $63.9 billion and the Philippines with $29.7 billion.

Moreover, the Trump administration could urge countries with which the U.S. has a significant trade deficit to decrease their trade surplus, Makoto Saito, an economist at NLI Research Institute said.

“Demanding to decrease the U.S. trade deficit for such countries means to increase the import of the American products,” Saito said. “If they are pressured to scale back the volume of their exports to the U.S., they are forced to move relevant industries abroad, which could cause problems in their industrial structure.”

U.S. government data shows nine Asian economies ranked among the top 15 trading partners that the country has a trade deficit with. China topped the list with a $347 billion trade surplus, followed by Japan ($68.9 billion). Vietnam ($32 billion), South Korea ($27.7 billion), Malaysia ($24.8 billion), India ($24.3 billion), Thailand ($18.9 billion), Taiwan ($13.3 billion) and Indonesia ($13.2 billion) are also included in the 2016 figures.

Amid such unclear external factors, it is essential for Asia’s developing economies to further boost their domestic consumption to pursue steady economic growth, in addition to efforts on the export front, Nishihama pointed out.

“In that sense, developing infrastructure and putting a better investment environment in place are required. Then they have to invite investment and create the flow of manufacturing products within their borders and consuming them domestically,” he said.

To that end, Nishihama stressed financial assistance is crucial from countries and international financial institutions such as Japan and the ADB.

In February, the ADB said in its Meeting Asia’s Infrastructure Needs publication that developing Asia will need investment of $26 trillion between 2016 to 2030, or $1.7 trillion per year, “if the region is to maintain its growth momentum, eradicate poverty and respond to climate change.”

Economists agree that to meet such demands for further growth, the economies requiring investment must undertake their own efforts to further receive financial support and increase budget revenue.

They need to come up with steady individual development blueprints, which are also coupled with larger and overall development plans, to show investors and aid providers that a specific plan works out comprehensively, Nishihama noted.

“There could be cases that a project doesn’t make it due to a lack of a relevant legal system though some infrastructure may have been completed. Or the legal framework may have been properly introduced, but the execution was performed poorly. Bottlenecks could occur at various stages of a project,” he said.

As a way to partly cover the cost of infrastructure development, NLI’s Saito pointed out the economies need to further organize tax collection systems so that governments can boost tax revenues without omissions.

“They have to reinforce mechanisms to collect value-added and individual income taxes,” he noted. “There needs to be work on improving the capture rate.”

Saito also said developing local bond markets would be another source to procure funds for the relevant parties.

“If the scale and transparency of such a market is ensured, they are likely to have further financial arrangements with low rates since there could be many more lenders,” he said.

Meanwhile, Nishihama argued that the roles of the private sector should be given more consideration for infrastructure development in developing Asian economies.

“There are many things that can be done by the private sector,” Nishihama said. To decide what projects should be financed through official development assistance, it is necessary for all the relevant players to discuss what each can be responsible for, he added.

As the ADB’s leading country by investment ratio with 15.7 percent, there are many more things that Japan can do for the development of its neighbors, especially in the “soft side” of infrastructure development and other relevant work, experts agreed.

Nishihama pointed out Japan, in cooperation with international organizations, can contribute to crafting common rules necessary for infrastructure development and investment.

Meanwhile, Saito said the country needs to help nurture local talent that can handle management duties as various projects and businesses go local.

Download the PDF of this 50th ADB annual meeting