Transcript of Asia and Pacific Department Press Briefing

October 19, 2021

Director, Asia and Pacific Department, IMF

Deputy Division Chief, Communications Department, IMF

MS. UTSUNOMIYA: Greetings from Washington, D.C. Welcome to the IMF's virtual press briefing for the release of the October 2021 Asian Pacific Regional Economic Outlook. I'm Keiko Utsunomiya from the Communications Department. We are very happy to have you with us today. Many of you have already seen the review as we posted it under embargo but in case you have not, it is now published on

This issue is titled ‘Navigating Waves of New Variants: Pandemic Resurgence Slows the Recovery’. With that, let me introduce today's speaker, Mr. Chang Yong Rhee, Director of the IMF's Asia and Pacific Department. He will give short opening remarks summarizing the key findings of the report, then we will take questions from you. Chang Yong.

MR. RHEE: Thank you, Keiko. Good morning in D.C. and good evening in Asia. It's a great pleasure to have an opportunity to present some of the highlights of the IMF's regional economic outlook and publish the recommendations for Asia Pacific. Let's start with our regional economic outlook first.

The resurgence of the pandemic, amid initially low vaccination rates, has slowed the recovery in the Pacific-Asia region. As a result, the region's economic growth is downgraded by more than 1 percentage point compared to our April forecast to 6.5 percent in 2021. It is the largest downward revision compared with any other region. As vaccination rates accelerate, the region is expected to grow by 5.7 percent in 2022, 0.4 percentage point faster than projected in April.

Let me discuss briefly how the forecast differs across country groups. For advanced Asian economies, our forecast is broadly unchanged for 2021 with upgrades in Korea and New Zealand and downgraded in Japan and Australia. Japan downgrade is mostly due to several extensions of state of emergency in coping with the spread of the delta virus. While Korea's upgrade is experiencing a stronger than expected recovery in high-tech exports.

Most of the growth downgrade in the region come from emerging market and low-income countries, led by India and ASEAN countries. India is projected to grow by 9.5 percent after a sharp decline in 2020. The ASEAN-5 countries, Indonesia, Malaysia, Philippines, Singapore and Thailand are still facing relative severe challenges from a resurgent virus and weakness in contact-intensive sectors. At the same time, the outlook for tourism remains subdued, effecting the recovery in Cambodia, Lao P.D.R. and Thailand.

China's story is a little bit more complicated. China is projected to grow by 8.0 percent in 2021, revised down from 8.4 percent projected in April, reflecting partly the spread of delta virus and the significant fiscal policy tightening playing an important role too. To achieve authorities' policy leveraging, tightening in the property sector is unavoidable but it is continually weighing on real estate investment and there are signs of stress for some developers.

Finally, we also downgraded the growth outlook for Pacific Island Countries, reflecting the continued hit to tourism and constrained policy space. The COVID-19 pandemic is expected to leave medium-term scars to Asian economies. Divergency in economic prospects across countries, sectors, income and skill levels, age and gender will remain the most important feature of the ongoing recovery. Output levels of the developing countries compel with advanced countries, are expected to remain below pre-pandemic trends in the coming years, reflecting differences in policy support and vaccine rollouts.

Slower vaccination in Asia is one of the key factors for the slowdown in Asia's growth momentum this year. Let me reiterate some of the key findings from our first analytical chapter. First, ironically, successful containment of the virus in 2020 in Asia was a main factor which led to slower vaccine rollouts in Asia. While Asia's vaccination is catching up now, there is still divergence across countries along income groups.

Second, there is a complementarity between containment and vaccinations policies. So, using them both together can help re-open economies faster. Third, there are significant positive spillover effects from neighboring countries vaccinations, suggesting the need for more vaccine sharing. No single nation can fully recover until all countries are safe.

Turning to the risk around our forecast, the main risk is related to evolving pandemic dynamics. For example, the possibility of COVID becoming an endemic and the lower vaccine efficacy against new variants. Rising inflation is also posing uncertainties as higher commodity prices, supply chain bottlenecks and the rising shipping costs continue to put inflationary pressures. In is also increased risk of financial spillovers from U.S. monetary policy normalization as U.S. fair is more likely to start normalization earlier if inflation pressures increase further in the United States.

The increase in inflation in Asia, however, has been more subdued than in other regions so far but risk is rising. Given these challenges, how can policymakers best support the recovery? The first priority should be to address the health crisis. Swift and broad vaccinations and equitable sharing of vaccines globally are very critical.

Second, policymakers should articulate credible medium-term fiscal framework to ensure debt sustainability while acknowledging the need to maintain accommodative policies in the short run where the recoveries are fragile, and inflation is under control. Rising inflation amid persistent economic slack requires a careful balancing act with respect to monetary policy. Central banks should be prepared to act quickly if the recovery is faster than expected or where there is a tangible risk of rising inflation expectations.

A close eye must be also maintained on the emerging financial stability risks with proactive action as needed, including through macroprudential policies and policies to expedite the resolution of debt overhands to handle increasing reforms when policy normalization starts.

Trade liberalization which has historically been a powerful driver of growth in Asia can play an important role. The second analytical chapter in this report, underscores how reducing non-tariff barriers, which are significantly higher in Asian than in other regions, can help to accelerate inclusive prosperity.

Finally, digitalization and a synchronized push for green public investment can further lay the foundations for an inclusive, green, economic future. With this, I'd like to conclude my remarks and look forward to your questions. Thank you.

MS. UTSUNOMIYA: Thanks, Chang Yong. Let me turn to the Webex. Ms. Leika Kihara from Reuters Japan. Leika, please go ahead.

QUESTIONER: Can you hear me?

MS. UTSUNOMIYA: Yes, we can hear you.

QUESTIONER: Thank you. Thank you very much for the presentation. I have a question regarding inflation in Asia. How big is the risk that inflation becomes pronounced and long enough in Asia to de-anchor inflation expectations? And how will central banks in the region respond with interest rate hikes that are faster than desired? Thank you.

MR. RHEE: Thank you. Actually, the inflation pressure was one of the most, you know, highly debated topic during our annual meetings last week. We are already seeing the inflation pressures rising in many advanced economies, including the United States and U.K. and some European countries and some emerging markets too.

But in Asia, as of now, even though producer price has increased relatively significantly because of the, you know, commodity price increase and the higher demand that comes from the recovery of advanced economies and supply disruptions also affect Asia too. So, this is some producer price increasing but as of now, the increase in producer prices has not been transmitted to the consumer price increase.

Japan, as you know, the inflation rate is still close to zero. China inflation rate is CPI inflation rate is around 1 percent and Korea, the CPI inflation is between two to three. But definitely if the commodity price continues to increase and the supply disruption is very hard to forecast how soon it is going to end. So, even though our baseline assumption is that inflation will increase but, you know, due to come back to the trend level by mid next year. But there is some uncertainty.

But we are concerning two [concerns]. Even though a level of the inflation at this moment in Asia is low, we aren't too concerned. One concern is compared to advanced economies central banks, many Asian central banks are trying to adopt inflation targeting and hasn't built up in the same country [inaudible] for the inflation targeting framework. So, that may cause, you know, more risk anchoring the inflation expectation if the inflation starts to increase compared with many other advanced economies which has a history and a reputation.

Second one is that even though Asian inflation rate is relatively low, if the U.S. had a full increase in inflation rate, that would likely to cause U.S. Federal Reserve to increase the interest rate earlier than we expected. And that may have quite a significant implication for the region in Asia, especially our interest rate too.

MS. UTSUNOMIYA: Thank you. Next, let me turn to Ms. Maoling Xiong from Xinhua News Agency. Maoling, go ahead.

QUESTIONER: Thank you, very much. Thank you, Keiko and thank you, Changyong for the opening remarks. I have two questions. First, just wanted to follow up on the inflation question. You mentioned that there are concerns, one of which is if the U.S. has further higher inflation the central bank might move faster than expected and there will be significant implications for the Asia region. I was wondering whether you could elaborate a little bit on what the significant implication for the Asia economy and particularly for the Chinese economy.

Secondly, is about trade liberalization. I think the report mentioned, highlighted the importance of trade liberalization for the Asian economies and China has recently announced its implication to join the CPTPP. Could you share some thoughts on the latest development? Thank you very much.

MS. UTSUNOMIYA: Thanks, Maoling. Also, Enda Curran from Bloomberg has the same similar question. The impact of Fed tapering on Asia.

MR. RHEE: Okay, thank you. The impact from the, you know, possibility of the U.S. monetary policy normalization is an important topic in the recovery in our regional economic outlook report. And if I could summarize it, what kind of effect Asia will receive, depending on the driving cause of interest [increase] in the United States. If the U.S. grows go on further and maybe Biden's infrastructure investment plan actually have a more, you know, stimulus. So, if the U.S. economy continues to grow and that causes an inflation, an interest rate increase in the United States, I think there is a, you know, positive as well as negative impact. You know, in terms of U.S. higher growth means that many Asian countries have a more, you know, can have more exports to the United States. That is a positive aspect. And then the higher interest rate will tighten global financial markets so there will be some mixed impacts.

On the other hand, if the U.S. interest rate increase is actually caused by the supply side constraints such as, you know, the high inflation due to the supply side disruption kind of things without having a much higher growth rate, then I think that will have a more negative impact because of the interest rate.

What we are worried about is that, you know, after the global financial crisis, Asia was relying on large stimulus packages and then after COVID, given the limited policy space, many Asian countries actually increase leverages. So, if you look at the leverage ratio in Asia over all it's quite higher than before. So, the higher interest rate in the United States can cause a capital outflow from the region. That can cause a depreciation, that can cause a domestic finance market cost increase and those things will probably, you know, have a negative impact on the recovery of Asia which is still slightly slow.

And for the CPTPP, I think that, you know, China has RCEP trade agreement with many Asian economies. But compared with RCEP, CPTPP has a very higher ambitions in areas such as e-commerce, intellectual property and include many service sectors. So, I think given these higher ambition levels, if China joins the CPTPP and opens its market more, that it would be good for China but also very good for the global economy.

MS. UTSUNOMIYA: Okay next question will be Mr. Anthony Rowley of South China Morning Post. Anthony.

QUESTIONER: Can you hear me?

MS. UTSUNOMIYA: Yes, now we can.

QUESTIONER: Now you can, good. Okay well good morning. I don't actually have my questions right in front of me. But basically, you know, one of the reasons why inflation is taking off is because demand in the advanced countries has outstripped the ability of some of the developing countries or emerging markets to increase supply, largely because of COVID. But that's the general picture.

But I wonder if you've got any idea of, you know, what the impact, what the situation is in individual Asian countries. In other words, those countries that are most critical in the supply chains, those Asian countries. To what extent are they individually being impacted by the slow rate of COVID rollout? You know, I think what I'm trying to get is a more granular picture in the overall situation.

MR. RHEE: Yeah, I think one good example of your concern on the supply chain disruption by COVID, I can mention Vietnam, you know. Vietnam has very successful containment of the virus in 2020. But recently, you know, they could not escape the spread of the delta virus in early spring. So, around the time, you know, Vietnam's vaccination is well below 30 percent something.

And then, you know, there is very strong lock down of the factories and it can cause global supply chain. As you know, Vietnam is emerging as one of the factories of the world recently. So, semi-conductors and shoes and textiles, they're all, you know, affected because they cannot move the factory workers.

And now the situation from the second half is getting better. Now the vaccination rate is now increasing to well above 60 percent. So, this is a great example that containment policy alone is not enough and together with containment vaccination, the economy can open faster.

We have a second chapter in our regional economic outlook that shows that the effect of vaccination on economic and health outcome. So, one example that you asked may be a good example is Vietnam.

MS. UTSUNOMIYA: Thank you, Chang Yong. Let me move to India. Ms. Lalit Jha. Lalit, are you there?

QUESTIONER: Hi. Thank you for doing this. I just have one question about how the countries in the region can collectively address the COVID situation? You know, both India and China are working to provide vaccines to the countries in the region as well, and what are your thoughts on the steps that major countries in the region can work to successfully address the economic and health challenges being posed by the pandemic?

MS. UTSUNOMIYA: Chang Yong, if I may?

MR. RHEE: Okay.

MS. UTSUNOMIYA: I have a related question on COVID and vaccinations from a Mr. [Akim Kamal-Choudhury] from BSS Bangladesh. He's asking ensuring vaccination for all is very important to rebound the economy. Different development countries like Bangladesh are trying to do this. And due to the failure of commitment of producer countries, developing countries are not able to implement universal vaccination. What is the policy of the IMF in ensuring availability of vaccines for developing countries, including Bangladesh?

MR. RHEE: I think this is a great question. The Fund is a multilateral institution. We really emphasize the need to share the vaccine across countries, and especially for low-income countries. And we're very proud that India and China, as major vaccine producers, have provided a lot of vaccines to other countries. But, also, like Japan, shared the vaccines and donated 20 million doses of the vaccine, and they promise to donate further to 60 million. So, Asia is during their part.

But at some point, when Delta virus is actually spreading very fast, you know, India had to stop exporting these vaccines for the emergency treatment, but now they are starting to re-export their vaccines. So, overall, you know, the Fund, ourselves too, emphasized why the vaccine sharing is so important.

For example, if you read our third chapter, we have strong evidence that vaccination has strong, positive spillovers. So, one country's vaccination helps others, and no country can be safe until all countries are vaccinated. And we actually had a proposal to vaccinate, you know, 40 percent of every country's population by the end of this year, and the 60 percent in next year. And then we are actually, you know, going to push this proposal to the member countries together with other multilateral institutions.

For ourselves, I think we used our emergency lending facilities about $2 billion to help the countries, and that can be used for the vaccine purchase. At the same time, recent increase of our special drawing rights, SDR. Actually, it would be very helpful for vaccine purchase. For example, in Nepal government, already indicated that they will use this newly allocated SDR to buy more vaccines.

MS. UTSUNOMIYA: Let me remind you on the WebEx, please turn on your video so that we can see your Leika, please go ahead.

QUESTIONER: Thank you. I wish I had my video on. Think I have time to do that right now? Follow up question regarding the report's mention of the CBDCs. It mentions how China's experience with digital currency could hold useful lessons for those considering issuing central bank digital currencies, as long as they are backed by potential safeguards. What are some specifics other central banks can learn? If you can elaborate. And how would they mesh with the guidelines laid out by the G-7 on CBDCs? Thank you.

MR. RHEE: You know, Asia is actually at the frontline in the digitalization. Not only the CBDC issues, but also overall e-payment and digital economy overall. And to me, to your question, it would be very hard for me to say what specific lesson we learn from China to others because there are several, you know, experiments are going on in Asia right now. And each country has a quite different objective why they are doing this experiment.

For example, in China, China's digital currency, the CBDC, you know, issue. I think they are more motivated how to reduce the monopoly of the private, you know, payment system. And then how to make it more widely available without having a monopoly of several private platforms to have a more inclusive financing.

And in the sense, you know, China had a, you know, pilot and now scaling up the application. Surely, they are now trying to also try to see whether this can be used for cross-border payment system, and they are doing a joint experiment with Hong Kong and other Asian countries.

At the same time, if you look at Cambodia's, you know, Bakong project. That project is not a central bank digital currency, but that project is to increase the efficiency of payment system. So, probably they may think about this to help to de-dollarize their economy. And then, also, HKMA and the, you know, Singapore and other advanced Asian economies, they already have a very advanced e-commerce and e-payment system.

And what they want to enhance, you know, the efficiency of this payment and using it for cross-border. So, there are a lot of experiments going on. So, depending on the objective, I think we can learn many lessons from each other. So, at these stages, overall, we think that these types of payment systems has a plus, but at the same time a risk, and whether CBDC can actually contribute to the management of this payment system globally, and this has to be seen. So, I think it's a little bit early for me to say that this is a lesson we learned from one country or another. There are a lot of experiments going on, and I'm very proud that Asia is in the frontline. Thank you.

MS. UTSUNOMIYA: Let me now turn to Mr. Gabriel Yin from CCTV/CGTN. Gabriel, please go ahead.

QUESTIONER: Thank you, Keiko. Thank you, Chang Yong. My question is regarding climate actions. In the Asia-Pacific region there are some of the world's biggest emitters. But also, you know, in the region there are some of the most innovative economies. So, I wonder what's your take on, you know, the role that the Asian-Pacific region can play in future global climate action? Thank you very much.

MR. RHEE: Look, as you mentioned that this climate change issue is a very critical issue for our region, as you just mentioned. You mentioned that large emitters in Asia. I think in Asia, you know, top ten emitters, probably six countries are from Asia, five to six countries are in it from Asia.

And then also, but if you look at the other side, you know, which countries are most vulnerable for the climate change issues. There are many Asian countries. The Asian countries are mostly vulnerable for the climate change, including the small states in Pacific Island. But also, if you look at the highly density populated South Asia and countries, and even for advanced Asian economies these days because of Tsunami, earthquakes, and, you know, the flooding. It's really affecting our lives.

So, to me, this is going to be a challenge because as of now developing Asia rely on fossil fuel energy as a major source. And to reduce them and then moving to the more, you know, clean energy such as solar and, you know, wind, those will require technology.

And then, also, these days the using more nuclear energy is very politically controversial in many countries. So, the transition will be hard, but I believe that the transition, we have to bite the bullet, and have to, you know, move on for two important reasons.

First of all, Asia is very export-oriented economy, right. But if Asia did not react, other advanced economies already reacting. And I don't know whether the cross-border carbon tax will be implemented or not, but I'm sure that there will be more high regulation on the carbon imprint of many products that we export.

So, unless you reduce your carbon contents in your export, this export-driven economy cannot continue because other advanced economies won't use it, and we have to change. But more than that, I think if you think about this, you know, climate change issue. This really affects our quality of life. Now, your question you asked from China, so you know the air quality of China issues. Many ASEAN countries have when there's rain, they have a problem with, you know, traffic.

And, also, you know, the India and we all know the air quality, including even advanced Asian countries, including Korea and others. So, that can cause a lot of health issues too. So, before we think whether this is pressure from other advanced economies, at this moment, I think that addressing this climate change issue really affects our quality.

So, we may sacrifice some growth, but I hope that the technology development allows us to have both growth as well as emission cut. But if before the technology is available, addressing this issue is really critical for our quality of health.

MS. UTSUNOMIYA: Let me turn to the IMF's online Press Briefings and we received some questions in writing. Let me go to the one on Mongolia. Ms. Rinchinbat OYUNTSETSEG from icon Mongolia. She's asking –- sorry, she or he is asking what fiscal and monetary policies should Mongolia pursue to maintain its post-pandemic recovery, and achieve sustainable development goal. What are the biggest challenges and risks for Mongolia?

MR. RHEE: I think Mongolia suffered the worst because of COVID and the locked down economy even though both the people who was affected by COVID was relatively low. Now Delta virus there is an increase but still compared with the other countries their containment policy was relatively successful. So, that's the reason why, one of the reasons why they are rebounding from --5.0 percent growth rate and to a more than close to 5.2 percent growth rate a year we are expecting this year. And also, Mongolia was relatively in some sense lucky because commodity price increased. They are coal and copper price increased and worsened at the same time in taking advantage of the very low interest environment in terrible financial market. They did finally see some of the maturing debt in the next one or two years. So, Mongolia is in better shape than the others, but you asked what kind of monetary and fiscal policy, they have to do it. Definitely this is important for them to think about some exit policy given that they are recovering, but more importantly, I mentioned the structure policy is much more important than just simple monetary and fiscal policy. I think Mongolia now has some space. They have to use the opportunity to address more structural issues such as how to send some banking capital and banking sector reform, because otherwise Mongolia will continue having a boom-and-bust cycles. So, in order to avoid boom and bust cycles which depends on the commodity price cycles, I think Mongolia need to use this opportunity to the structure form such as banking secretary forms.

MS. UTSUNOMIYA: Next one is from Caixin Singapore, Ms. Yang Min is asking about Singapore and ASEAN. Singapore is one of the earliest countries to tighten monetary policy. Is it a good timing considering Singapore is still struggling with COVID-19 the new normal? What will be the influence of Singapore's tightened monetary policy for economies in ASEAN?

MR. RHEE: I think I cannot probably agree with the statement that Singapore is still struggling with the COVID. I think compared to other countries Singapore's vaccination rate is well above 80 percent and Singapore has contained the virus very well, and now with the high vaccination rate Singapore is moving from the pandemic to the endemic period. Policy is more toward how to live with pandemic. I think maybe in the future, and in that sense, Singapore shows an example what other countries can follow. I think we are expecting Singapore to grow six percent this year and they are showing that there are no new variants are coming, but given the high vaccination rate, I think Singapore can maintain at that rate. I think we are actually learning a lot from Singapore because they are now introducing many policies that are actually based on the assumption how we live with this pandemic as probably on a more regular basis. And that may be a wise policy. You never know what will be the new normal.

MS. UTSUNOMIYA: Okay. We have a couple of Philippine-related questions and let me combine them. Basically, there are asking about the COVID recovery policies. Mr. Norman P. Aquino from BusinessWorld, Philippines is asking the IMF just cut its 2021 growth focus for the Philippines to 3.2 percent from 5.4 percent. What are your expectations for the second half? Will the granular lockdowns help ease the effects on economic output even if there was a fresh surge in infection in August? Has the IMF focus already considered the granular lockdowns?

MR. RHEE: Yes. I think Philippines has maintained relatively high gross figure around seven percent before pandemic. When the pandemic started, Philippines actually suffered a lot because, you know, Philippines is heavily based to rely on tourism, and they have many contact intensive service sectors. It's the backbone of the economy and definitely is locked down, and will have some more impact negatively on the compared data economies.

So, at this moment why we have revised on our gross to 3.2, which is quite significant downward revision. But as you know, our data point cutoff date is around September, so we are reflecting the September data and if the government can control the Delta virus better and then now delta virus spread can significantly slow down, probably we will revisit our focus. But at this moment what we are worrying about is that the Philippines vaccination rate is still around 25 percent. That seems to be low. So, in order to have a more sound and stronger rebound, I think the vaccination must be the first priority.

So, as I mentioned, there is a complimentary between the containment policy as well as vaccination. Unless you have a higher number of the people vaccinated, you cannot forever maintain the containment policy because the economy impact will be very serious. So, I really hope that the Philippines government accelerate the vaccination of the people and with that I hope that they can go back to the previous economic trend, such as six to seven percent growth rate based on their build, build, build infrastructure investment plan.

MS. UTSUNOMIYA: Okay. Thank you, Changyong. I hope that answers to your questions and to Mr. Ben Arnold from Philippines Daily Inquirer. He was asking also policy recommendation to address the pandemic scarring. So, with that this will conclude our briefing on the Asian and Pacific regional economic outlook. The video recording of this briefing will be made available on our website, as well as various social media platforms. The transcript will be posted on later today as well. Thank you again for all of you to join us today. Please stay safe. Goodbye.

MR. RHEE: Thank you, so much.

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