The International Monetary Fund (IMF) in its April Regional Economic Outlook projection envisages a growth rate of 5% in the Asia and Pacific region, including Bhutan for the current Fiscal Year. The IMF has stressed to focus on policies that calibrate on domestic needs.
Growth in Asia and the Pacific outperformed expectations in late 2023, reaching 5% for the year. Inflation has continued to decline, albeit at varying speeds: some economies are still seeing sustained price pressures, while others are facing deflationary risks.
However, Enrique Flores Curiel, IMF Mission Chief for Bhutan said that there are upside and downside risks, including the timing and composition of the 13th five-year plan, the stimulus plan, and large hydropower generation projects.
In 2024, growth is projected to slow modestly to 4.5%. Near-term risks are now broadly balanced, as global disinflation and the prospect of monetary easing have increased the likelihood of a soft landing. Spillovers from a deeper property sector correction in China remain an important risk, however, while geo-economic fragmentation clouds medium-term prospects.
Given the diverse inflation landscape, the IMF suggests central banks to calibrate policies carefully to domestic needs. Fiscal consolidation should accelerate to contain debt burdens and debt service cost, in order to preserve budgetary space for addressing structural challenges, including population aging and climate change.
Krishna Srinivasan, the Director of the Asia and Pacific Department said that the Asia Pacific region is marked by both resilient growth and rapid disinflation. The region remains inherently dynamic and will contribute over 60% of global growth this year, but it will slow down, growing at 4.5 percent in 2024, after 5 percent in 2023. Drivers of growth are as diverse as the region, ranging from resilient domestic consumption in most ASEAN countries to strong public investment in China, and most notably in India, and to a sharp uptick in tourism in the Pacific Island countries.
Disinflation has advanced throughout the region, albeit at different speeds. In some countries like Australia and New Zealand, it remains above target. In other countries, it is at or close to central bank targets. For example in emerging markets and Japan, there are risks of deflation.
China is a source of both upside and downside risks to the macroeconomic outlook. Policies aimed at addressing stresses in the property sector and to boost domestic demand will help both China and the region, but sectoral policies contributing to excess capacity will hurt China and the region.
In the current context, IMF recommends that Asian central banks should continue to focus on domestic price stability and avoid making policy decisions overly dependent on anticipated interest rate moves by the Federal Reserve. Asian countries are better placed to cope with exchange rate movements today, owing to fewer financial frictions and better macro-fundamentals and institutional frameworks, and should continue to allow the exchange rate to act as a buffer against shocks.
Policies to further reduce deficits and debt are an urgent priority, both to lessen the burden of higher debt levels and interest costs and to rebuild fiscal space needed to address medium-term structural challenges. Financial supervisors should continue to vigilantly monitor the buildup of risks associated with the passthrough of tighter monetary policies to corporate and household balance sheets. Industrial policies have been on the rise in Asia-Pacific and globally. They can lead to unintended consequences, such as trade distortions, which could reinforce geoeconomic fragmentation, a significant downside risk to the region and the globe.
Meanwhile, officials from the IMF will be visiting Bhutan in late May to conduct the Article IV consultation, which envisages detailed policy discussion with the authorities. The consultation will allow providing assessment and recommendations.
By Sangay Rabten, Thimphu
