Global Financial and Economic Crisis: Fiscal Policy Issues after the Crisis

Purpose

The purpose of this conference is to present the drafts of the papers on the implications of the post-crisis environment for fiscal policy issues in Asia. The participants will include members of the core study group, other resource persons who will comment on the various draft reports, and a broader audience including high-level officials of ASEAN+3's ministries of finance and central banks, multilateral agencies and academics.

Towards the end of the conference, the participants, guided by the findings of the various research papers and comments raised, will discuss implications for Asia's policy responses to the global crisis and identify possible policy measures.

Back to Top

Background

Sustained economic growth can contribute significantly to poverty reduction. Indeed, countries that have enjoyed economic growth for long periods of time have witnessed marked declines in poverty incidence. But an economic and financial crisis could frustrate such development. Even though countries can recover quickly from the crisis, they may not return to the same growth path as before the crisis, thus delaying further the economic development process. Because a crisis can have long-term developmental implications, ADBI and its co-organizers are keen on making a contribution to the understanding of the causes of a crisis and to the formulation of policy measures that ADB's developing member countries (DMCs) could adopt to avoid a crisis.

The current financial crisis and global economic downturn did not originate in Asia, and, indeed, Asian countries in structural terms are generally in good shape. Nonetheless, Asian economies and financial markets have already begun to feel the impacts of the crisis, and these are likely to deepen substantially over the coming year. The most obvious areas of impact have been exports and equity markets, which have declined sharply across the region, but stresses in currency and credit markets have emerged as well, and domestic demand has softened. This sensitivity has been heightened by the export-led growth strategies followed by many countries.

This activity focuses on issues related to the timing and sustainability of fiscal policy. Most economies in the region implemented significant fiscal stimulus packages to counteract the effect of the export downturn. Some were quite large, with the People's Republic of China announcing a package of $580 billion or CNY4 trillion and Singapore, Taipei,China, Malaysia, and Thailand announcing packages of at least 4 percent of GDP. These policies cannot be sustained indefinitely, both because of inflation risks as economies normalize and because of the rise of government debt to GDP ratios resulting from such policies may increase their vulnerability and impede their ability to finance future needs. This activity focuses on identifying the salient risks and limitations associated with such policies, the desirable pattern for fiscal policy over time, the impact of exit strategies on growth; and concerns related to accountability, institutional arrangements and governance.

Back to Top

Objectives

The objective of the activity is to produce a number of studies regarding issues related to the timing and sustainability of fiscal policy, both in response to the global financial crisis (GFC) and expected changes in the economic environment as the global economy begins to recover and normalize. The aim is to provide a forum for sharing experiences, provide lessons regarding risk and best practice, to stimulate demand for research and analysis in the region, and to come up with concrete guidelines and recommendations for policy makers in the region to achieve a transition to sustainable growth. Topics to be covered include:

• A general overview of issues related to fiscal policy during and after the crisis, including conditions affecting the amount of “fiscal space” available for stimulus measures, the effectiveness of various kinds of stimulus measures, finding the best trade-offs between supporting growth and fiscal prudence, preferred timing of stimulus measures, implications for government debt management, monetary policy coordination and foreign exchange management.
• Analysis of the experience of fiscal policy issues in developed economies.
• Analyses of fiscal policy issues including the effectiveness of stimulus measures implemented during the crisis, the degree of “fiscal space” available to individual countries for implementing fiscal stimulus; timing issues (including the degree of counter-cyclicality achieved), criteria for achieving medium-term debt stability, the long-run implications of welfare and infrastructure spending commitments, prospects for being able to unwind expanded entitlements and other commitments when needed, and issues related to governance and management of government spending for a number of countries, including the PRC, Indonesia, India, Korea, Thailand, and Viet

Back to Top

Outputs

Completed conference papers
ADBI Research Policy Briefs
ADBI Working Papers
A special issue of the PRI Policy Review

Back to Top

Partners

Japan's Ministry of Finance (MoF) Policy Research Institute (PRI)
Hitotsubashi University Center for Intergenerational Studies
International Development Research Centre (IDRC)