Emerging countries urged to spend more to shore up economies

MANILA, Philippines — Emerging economies in Asia like the Philippines should continue to strengthen their fiscal response to ensure economic recovery as the pandemic’s end is nowhere within sight.

In the latest Asian Development Bank blog, ADB principal economist Jong Woo Kang expressed concern that emerging countries are not spending enough to shore up their economies despite suffering from the impact of the pandemic.

Kang said this is evident with advanced economies recording large increases in fiscal deficits in 2020 while developing countries’ fiscal responses have been much more constrained.

“Asian economies need to look beyond the simple numbers and look for ways to wisely use debt financing opportunities while safeguarding their economies from the risks of runaway debt,” Kang said.

“Now is not the time to withdraw proactive fiscal expansions. Many countries have to continue to strengthen fiscal responses and beyond, to bounce back from the economic downfall and ensure sustainable and resilient economic recovery,” he said.

According to the Institute of International Finance, the global debt to gross domestic product (GDP) ratio rose to 105.4 percent. For emerging markets, the ratio is at 63.5 percent, but advanced economies recorded a whopping 130.4 percent.

The Philippines’ debt to GDP ratio rose to 54.5 percent last year, the highest in 14 years.

Based on the international debt sustainability framework, the total public debt of developing economies in the range of 70 percent and more is considered strong. Below the threshold is classified as medium at 55 percent and weak at 35 percent.

However, a high debt level for a developing economy often prompts credit rating downgrades alongside withdrawals in capital inflows and a plunge in local currency value.

“Developing countries are facing severe economic and social damage due to the sheer size of informal economies with vulnerable, low-income workers who cannot enjoy the luxury of work-from-home arrangements, and face poor hygiene and healthcare conditions,” Kang said.