Transcript

Transcript of April 2023 Asia and Pacific Department Press Briefing

April 13, 2023

PARTICIPANTS:

Moderator:

TING YAN, Senior Communications Officer, International Monetary Fund

Speaker:

KRISHNA SRINIVASAN, Director of the Asia and Pacific Department, International Monetary Fund

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MS. YAN: Good morning and good evening to those who are joining us from Asia online. Welcome to this IMF press briefing on the Asian and Pacific Region’s economic outlook. My name is Ting Yan. I’m from the Communications Department. Joining me today is Mr. Krishna Srinivasan, Director of the Asian and Pacific Department. As we speak, we have just released an IMF blog on the Region’s economic outlook, authored by Krishna. I hope you have had a chance to look at it. Today Krishna will start with some opening remarks to summarize the key messages of the Region’s outlook, and then we will be happy to take your questions afterwards, both in the room and online, on IMF Press Center and WebEx. With that, Krishna, the floor is yours.

MR. SRINIVASAN: Thank you, Ting. Good morning to everyone here in Washington, D.C., and good evening, to everyone in Asia. Thank you very much for joining our press briefing for the Asia and the Pacific. Please allow me to make a few opening remarks. For the global growth is expected to decelerate and bottom out in 2023, as rising interest rates and Russia’s war in Ukraine weigh on activity. Global inflation’s easing, but remains stubbornly high, and banking strains the U.S. and Europe have injected greater uncertainty into an already complex economic landscape. But despite the somber backdrop of a challenging year for the world economy, Asia and Pacific remains a dynamic region.

So, what’s changed since our October World Economic Outlook, in terms of a forecast? I think here, let me start with China. China’s reopened economy is rebounding strongly, and this would generate streaming partners, providing fresh momentum for Asia’s growth. The Chinese economy is expected to expand by 5.2 percent in 2023, which is a 0.8 percentage point revision to our projection in October 2022, and this would generate a strong recovery in private consumption. In the past, the strongest flows regional growth having from Chinese demand for investment goods, but this time we expect the biggest flow effect will be from China’s increased demand for consumption goods.

Going beyond China now, what does this mean? What is China’s growth rebound mean for Asia Pacific? Here we have projected our growth for Asia Pacific to be 4.6 percent in 2023. This is a 0.3 percentage point higher than expected last October, and this upward growth largely reflects China’s reopening. This forecast implies that the region will contribute to more than 70 percent of global growth this year. In Asia, the vast economy’s growth was slowed to 1.6 percent. This is slower growth than we expected in October.

In Asian EMDs we see a lot of strong dynamism in 2023. This will be driven primarily by the recovery in China and the resilient growth in India. These two economies alone will account for about half of global growth this year. Growth in most of the economies expected to bottom out in 2023 in line with other regions. Now let me go into specific forecasts for a few countries in the region. In Japan, growth is expected to pick up slightly to 1.3 percent in 2023, supported by expansion in the monetary and fiscal policy stance. The downgrade related to last October reflects weaker demand in investment and carryover from disappointing growth in the last quarter of 2022.

In India, growth momentum will begin to slow, as softening domestic demand offsets strong external services demand. Growth is expected to moderate slightly from 6.8 percent in 2022 to 5.9 percent this year.

Korea’s growth in 2023 is revised down to 1.5 percent. This reflects a slowing growth momentum, partly because a downturn in the technology cycle and a weak end the quarter for 2022.

In Australia, weakening domestic demand linked to monetary tightening raising mortgage payments and lower real disposable income is expected to dampen growth prospects. The Australian economies are expected to see growth decreasing by 5.7 percent in 2022 to 4.6 percent in 2023, due to a slight moderation in domestic demand momentum, monetary tightening, lower commodity prices, and weaker demand from the U.S. and Europe.

And among the Pacific Island countries, the full reopening of borders, both domestically and in China, will boost tourism with growth expected to reach 3.9 percent this year. Now, despite the solid growth outlook for Asia Pacific, policymakers in the region cannot be complacent. The region is still facing four significant policy challenges. What are those? Inflation: inflation in the region is still above target. Core inflation remains sticky and has become a more important driver than inflation recently, which may lead to more persistent inflation and wage pressure. I would put gaps for Asian economy that are either closing or are already closed, and currency the position last year is still passing through to domestic prices.

These factors suggest that the battle of continuing inflation is not yet over, and yet, monetary tightening has slowed down or paused, in most countries in the region. Given the substantial inflation risk, weakening monetary policy in the region, we need to stay tighter for longer.

On financial risks, the global banking stress has had a limited impact on Asian markets so far. Direct exposure of Asian banks and investors to SVB, Silicon Valley Bank, were minimal, and we see Asian financial systems being well capitalized and profitable. In addition, as markets reprise apart from the Federal Funds Rate, the U.S. Treasury curve has fallen substantially. This has led to falling yields on Asian local currency bonds and strengthening of Asian currencies. Still, markets are vulnerable -- linked to high leverage and risk in the real estate sector.

On fiscal policy, the risks with high debt and rising interest rates, public debt levels in the region have increased significantly, impacted before the pandemic. Most governments in the region are expected to tighten fiscal budgets this year and next, however, the predicted consolidation may not be enough to stabilize debt, and rising interest rates may make the debt burden even more onerous.

Finally, the challenge of weak income growth, productivity growth in Asia is predicted to decline. China’s growth, though rebounding strongly this year, is expected to drop for the medium term. This will have important implications for the region, especially where those economies with significant trade links with China. On top of that, you have scarring from the pandemic, which also needs to be factored in.

So as Asia faces these important challenges, we advise policymakers to stay vigilant. Policymakers should keep a close eye for financial stress and build up contingency plans. Unless strains increase and raise broad stability concerns, central banks should separate monetary policy objectives from financial stability. To do so, they should use available tools, such as lending and discount facilities to ease any liquidity constraints in the banking sector, allowing them to keep rates tighter for longer until inflation falls durably back to target.

In addition, fiscal consolidation may need to be more aggressive in the interests of sustainability over the medium term. Policymakers must strike a balance between supporting growth, protecting the vulnerable, and addressing debt concerns.

And finally, Asian economies must also prioritize policy incentives that foster long-term growth. Structural reforms are needed to boost innovation and digitalization. Actually, the green transition -- energy transition, and reduce it from fragmentation and then show full security.

Thank you. I’ll stop here and am happy to take your questions.

MS. YAN: Thank you very much, Krishna. Now, we’re happy to take your questions. Please raise your hands, identify yourself, and keep your questions short, and for those who are online, you can send me your questions on OMBC or WebEx. Let’s go with Enda Curren from Bloomberg in the first row here.

QUESTIONER: Thank you very much. Enda Curren from Bloomberg. Krishna, two questions, please. Could you expand a little bit on how China’s shift to services is spilling over to the trading partners in the region, and also, I am -- have you seen any evidence of manufacturing -- or manufacturers pulling out of China, please? Thank you.

MR. SRINIVASAN: Thanks, Enda, very good questions here, so historically, investment has been a primary source of growth uptake in China. However, this year the prediction we had for growth is led largely by recovery in consumption, which was significantly repressed during the pandemic. On average, we expect growth in other countries to increase by about 0.6 percentage points, owing to this consumption rebound, and because investment-led rebound is much smaller, it really adds about 0.1 percentage points to growth, on average, for countries in the region over the next 18 months or 24 months.

Now, again, given the countries which have strong trade linkages with China will benefit the most, and those where -- that rely on tourism in China will also benefit a lot. Now, given the fact that this was largely a consumption-led recovery and much less so, investment side, countries which have typically benefitted from a rebound in commodity prices because of an uptick in investment-led growth in China will benefit much less this time around.

On your second question whether we see manufacturing where the funds are leaving China, is that your question, Enda? So, we don’t have that high frequency data observations to see whether there has been a shift. We do see reports both ways. Some talk about the fact that investment in China has gone up, and some would say that countries are relocating their investment elsewhere. But if you look at aggregate data on FDI, we don’t see a big shift. I mean, we did see a big rebound in the two years following the pandemic, in 2020 and 2021. In 2022, there’s some moderation going back to the 2019 levels, but again, not a big shift based on aggregate data. But again, Enda, to your question, there’s an issue of medium term, what happens over the medium term, and there, there are these risks of fragmentation which we have flagged in our World Economic Outlook, which involve fragmentation of financial flows, and if that, you know, goes with FDI, that could affect what goes into China over the medium term. Again, the whole idea here is that you flag the risks, and we should do everything to mitigate and make sure that those risks are actually manifest.

MS. YAN: Thank you. Cindy from Malaysia.

QUESTIONER: Thank you. The WEO mentions multiple indicators pointing in different directions amid increased financial market volatility. How long before the “fog” that has “thickened” around the world economic outlook clears and what would it take for that to happen? And you mentioned that fiscal consolidation needs to be more aggressive. How can -- how do you suggest that governments in Asia strike this balance between like [inaudible] slower growth and also tight fiscal space after the pandemic? Sorry, another question: Most Asian currencies have depreciated sharply amid US dollar strength, also reflecting large interest rate differentials. Is this also a potential vulnerability that could spring surprises on growth? What can policymakers do? Thank you.

MR. SRINIVASAN: Thank you, Cindy. I hope I remember all the questions, but let me -- you talked about a “fog” in the world economic outlook. Again, we have to keep in mind that what you’ve seen over the past few years is one shock after another. Even before we address one shock, the next shock is upon us. We had the pandemic, then we had the war in Ukraine, and then we had the international [financial] turmoil.

So, again, there’s heightened and certain difficulties of these things. So, how this thing dissipates is a function of how effective policies are, [ineffectiveness] of policies which both to address financial, you know, the inflation which is still pretty high both in Asia and elsewhere, and the financial turmoil recently. Now, so that again we can go a timeline to this, but when these policies become effective, and so on, you’ll see that dissipate in no period of time.

Now, in terms of Asia ‑‑ Asia is again the dynamic region here; and despite the heightened uncertainty, we’ve seen Asian growth pretty strong; and, like I said, you know, Asian growth this year is expected to contribute 70 percent to global growth. Again, that’s something which the dynamism, inherent dynamism of Asia remains, but that does not mean that Asia is completely immune to what’s happening elsewhere. So, one has to be alert to what’s happening elsewhere.

In terms of your question, you had a question on fiscal consolidation, right? So, we have pointed to the fact that this is one reason where debt has gone up. Again, a number I’d like to quote is between pre-pandemic until now, Asian share in global debt has gone up from 25 percent to 38 percent. Now, this is not just public debt it’s also, it’s public debt, non-financial corporate debt, and household debt. So, debt across sectors have gone up, but public debt has definitely gone up for sure. And, again, a lot of that is China but there is still an issue of debt going up.

So, how do you address that? Again, we have talked about the fact that, you know, the support which is provided in the context of pandemic needs to slowly roll back and made more targeted ‑‑ you know, targeted to people who’s been most affected, the poor and the vulnerable. So, that, you know, you start on the part of fiscal consolidation; and, again, the other point which I would note is, it is in this context that medium term, you know, fiscal frameworks are most useful. So, you have a part for how do you consolidate over the medium term you have, and that lends to credibility. So, that’s the way you do it. You build buffers by having a well fleshed out credible medium-term fiscal framework while, you know, providing more targeted support in the context of the post-pandemic world.

MR. SRINIVASAN: Sorry, you had one more question on the currencies, right? I missed that one. I told you I want to involve all of them. But, you see, currency movements have been both ways. Initially, when interest rates in advanced economies went up sharply and there was some lag in how Central Banks in other parts of the world responded, and Asia responded, there was interest rate differentials which led to depreciation of currencies.

And then, subsequently, in this year, you’ve seen an appreciation of the currencies when these things bridge. Not all currencies but many of them have come back appreciated. So, the question is in general exchange movements provide you, flexible exchanges provide you with buffer against shocks; but, at the same time, you know, rapid movements in exchange ratess can pose risks and they can highlight vulnerabilities of the balance sheets, which need to be guarded against.

QUESTIONER: Thank you for the opportunity. I’m Lijun Pan from Xinhua. First, a follow-up question considering the currency. Do you have specific assessment of the impact for the strong dollar and to the Asia-specific economic region due to the strong dollar led by the fast policy tightening. That’s the first one. Then, the second one, considering the Chinese economy. Can you actually elaborate more on the specific sectors that you see in China that’s going to actually, on release, more great potential? Thank you.

MR. SRINIVASAN: Thank you. Maybe for you, I think, Jim from CGTN and you also have a China question. Maybe you can combine them.

QUESTIONER: Sure, Jim Spellman, CGTN. I was wondering if you could comment with so much global growth based on China, the risks from external geopolitical issues, the situation in Ukraine, conflict with the Unites States, things like that and how they factored into the outlook, and how those challenges could play out?

MR. SRINIVASAN: Okay. So, on the quantification, I’m not sure we have an exact number in terms of just trying to identify the impact of exchanges rate volatility on growth. I don’t think we have that quantification, but maybe we will do that going forward.

Your second question. Again, as I said, this time we have seen consumption was quite repressed during the pandemic, right; and so, most of the growth we have seen in China, the rebound, is led by consumption, so it’s a consumption-led recovery; and so, sectors which feed into that are the ones where you see a big uptick in growth. Now, that’s linked to what happens in the rest of Asia. So, countries which have close links to China and which export final consumption goods will benefit the most; and that’s where we see, you know, some uptick in growth in some of the country’s region linked to what’s going to happen in China.

Also, if you look at numbers which came out today, you know, exports from China have risen quite sharply, and that gain reflects the dynamism inherent in how we see Chinese would going forward.

Now, you had a question on fragmentation. Again, here, we have done a lot of work on fragmentation; and, again, if you look at the fragmentation risk itself, there has been increased in trade uncertainty over the past few years, starting with 2017. If you just look at the impact of the tariffs, the U.S.-China tariffs, and how that’s affected global growth. For last year, the impact was 0.4 percent of global GDP.

Now, beyond that, if you look at what’s happened to fragmentation risks, you’ve seen in the post, in the fall in the war in Ukraine, these have been accentuated; and depending upon the scenario you have ‑‑ you know, it depend upon which countries, talking about which sectors, and what kind of trade barriers you have ‑‑ the cost of fragmentation could be anywhere from 0.2 percentage points to 7 percentage points, right. And if you add technological decoupling to that, that becomes 12 percent of GDP. So, again, the numbers, there’s a wide range and it depends upon which sectors, which countries are brought into this fragmentation exercise.

We’ve done some work specifically for Asia where we looked at ‑‑ I think in the last regional economic outlook ‑‑ where we looked at the very stylized scenario where the world fragments the two blocks and what happens in that scenario; and there, most of the impact comes from productivity, and there we assimilated the impact on Asia to be about 3 percent.

MS. YAN: Thank you. Let’s go to this part of the room. Gentleman on the second row. Yes, please?

QUESTIONER: Hi. Thank you very much taking on my question. You have mentioned the necessity of tightening monetary policy in the Asian region but Japan might be a bit too exceptional and BOJ new governor Ueda-san made the career that he stick to ultra-expansionary monetary policy as his predecessor, but the mounting pressure on him to adjust it including [inaudible] and what is your advice for him at the current juncture?

MR. SRINIVASAN: So, let me talk about what the discussion we had in the last article for discussion on Japan. Again, the way we see it is in Japan inflation that are both upside and downside risks. In the near term, you see upside risks from the ways negotiations are putting pressure on inflation. On the other hand, if you go back to what’s happening with the medium term, usually inflation goes back to below target; and the way we have it in the baseline is by 2024, inflation goes back to below 2 percent in Japan.

So, in the context of these discussions, what we have emphasized is a need for flexibility in the yields, and that’s what has been the focus of our discussions. So that when you move to a more, more away from the accommodative monetary policy stance, it’s more seamless and it’s less disruptive. So, that’s a discussion we’ve had and we continue having those discussions with the new governor. I’ve just met him once, so we can give you these discussions going forward.

MS.YAN: Thank you. Let’s take one more from the room, then we’ll go back to Webex. Kiesha, from Philippines, please?

QUESTIONER: Hi, this is Kiesha from the Philippines. Can you talk about your growth outlook for the Philippines? What is your inflation outlook and policy rate outlook? Thank you.

MR. SRINIVASAN: Yes. For Philippines compared to the world economic outlook, in October, we revised up to growth forecast as you’ve seen. Now, inflation has clearly been a concern in the Philippines, and Bangko Sentral ng Pilipinashas been one Central Bank, which has tightened monetary policy very aggressively, by about 425 basis points; and that is expected to lead to inflation coming down to below target by the end of the year.

But, again, Philippines is one country which is going to benefit from an opening up of China; and so, there are upside risks of growth going forward.

MS. YAN: Thank you. Let’s go to Webex now. I know we have many questions on Webex, too.

QUESTIONER: Hi. Good morning and thank you for taking my question. I have two questions regarding Korea, and I understand that the IMF has lowered its estimate for Korea’s growth rate for four consecutive times. So, can you explain the reasons behind this downward trend despite the opening of China. And my other question is about bank from oil. I mean given the recent banking turmoil in the U.S., how do you anticipate it will impact Asia region and including Korea. Thank you.

MR. SRINIVASAN: Thank you. I’m sorry I didn’t catch your name; but, again, very good questions. So, following a growth of 2.6 percent in 2022, we expected deceleration to 1.5 percent in Korea this year, revised down slightly from what we had in January.

Now, again, why have we marked down our forecast for Korea? This reflects a variety of factors, or a combination of factors. One is, of course, there’s been a worse than expected global semi-conductor cycle which has a bearing on Korea, which is a big player in this market, and that effects both exporter and investment. We’ve also seen slowing consumption following the post-COVID surge, and also the impact of monetary policy tightening, and the ongoing correction in the housing market. So, all that feeds into domestic demand waning compared to what we had in the past.

Now, that said, we do expect in the second half of this year, external demand from China to play a factor in Korea’s growth prospect. So, there are upside risks of growth to Korea as the effect of China opening up comes to bear on the Korean economy.

In terms of your second question is on vulnerabilities of the financial sector. Again, what you’ve seen is the financial turmoil in U.S. and Europe has had a limited impact on Asia. Again, the market sentiment has been, you know, abated somewhat by policy response by both U.S. and Europe, but overall, the impact on Asia has been limited, and so also on Korea.

Now, as I said banking system in Asia are well capitalized and profitable. However, as I mentioned, there are risks, right. Leverage has gone up in the region, and debt, you know, both corporate debt and household debt has gone up, so one has to be careful in monitoring the risks admitting from that; and so, for policymakers in Korea and elsewhere, has to be alert to, you know, how these risks could materialize and, you know, be ready to ask as they see them happening.

So, again, right now, we don’t see any direct impact because of exposure of the Korean banks of these banks in the U.S. and Europe which had problems, but you need to be alert to these risks.

MS. YAN: Thank you. Since we’re on Webex, we have one more. Indika from Daily Mirror in Sri Lanka. Indika, please go ahead.

QUESTIONER: Thank you, Ting. There is a Sri Lanka specific question. According to DSA, Sri Lanka needs to keep its FX debt service below 4.5% of GDP of any given year during 2027-32 period even after potential debt relief. So, my question is, should this come by the Sri Lankans? If so, what will happen to Sri Lanka's program with the IMF if we couldn't achieve this with the creditors? Thank you.

MS. YAN: Thank you. Before you answer, we actually also received a question from Ceylon Today on Sri Lanka. He's asking what exactly the debt restructuring for Sri Lanka's creditor has been suggested. What options are given to them? China has agreed to restructure is that, what have they suggested possibly they could do?

MR. SRINIVASAN: Thank you. Again, I didn't hear your question very clearly, but let me just -- I think the first was on debt relief, right? I think the way we have in the program right now, again, the targets we have in the program are aimed at restoring debt sustainability and balance of payment pressures even after the program expires, right?

So, debt relief is expected to contribute about 17 billion to close the BOP financing gap in 2023 to 2027, which is the overall gap is about 24 billion. So, the remainder of this gap is covered by financing from the IFIs and so on.

So, the decision on how the restructuring happens in terms of providing debt relief, that's something which varies. It has been negotiated between Sri Lanka and its creditors. Now, it could take the form of principle haircuts, extension of maturity and interest rate reduction. So, what form it takes has been negotiated between Sri Lanka and its creditors, and we don't get involved in that.

And that also addresses the second part, the second question, which you raised in terms of the engagement. Sri Lanka is expected to outline a strategy or a blueprint, engage with creditors later this month, and that'll provide a basis for engaging with the creditors on the restructuring.

MS. YAN: Thank you. Let me go back to the room. Lalit, second row here, please.

QUESTIONER: Thank you. This is Lalit Jha from PTI, Press of India. I wanted to ask you about the IMF WEO reduced India's growth rate projection from the current fiscal to 5.9 percent from 6.2. What are the main reasons for this, and how does IMF assess growth in India today? And what are the main risks?

And secondly, if I may ask, how does IMF see the RBI decisions to pause the monetary policy? What does it mean for inflation, which is a still of the higher end of tolerance ban?

MR. SRINIVASAN: Thanks for this question. Again, the revisions to India's growth has been very modest from 6.1 percent to 5.9 percent. Again, that reflects maybe two sets of factors. One is domestic consumption growth is starting to slow, albeit modestly. And again, the other factor is data revisions in 2019 to 2020, that suggests that the economic position of India. Before the pandemic was better. The impact of the pandemic was more limited than we thought, and recovery has been stronger.

So, all those point to the fact that output gaps are closing. And so that explains how we see the revisions to the forecast. Now, in terms of what are the risks, again, the external risks, which are same across the region in terms of what happens to partner country growth with slowing growth in U.S. and Europe. How does that affect India and market turbulence? All these are factors which are external risks to the growth forecast.

And domestically, the Government is placing a lot of emphasis on capital spending. If that comes below what's expected, that could also weigh on growth prediction.

In terms of how we see the RBI's, monetary policy stance, the recent, I mean, the pause you talked about, that's in line with our baseline projection. Basically, at the current policy rate is at 6.5 percent, which such as a broadly neutral policy stance, which is consistent with how we see economic conditions in India and available information on expectations of inflation one year out, which are pretty much well anchored.

So, again, we expect inflation to come below target this year. And in fact, the most recent print, which came out I think yesterday or day before, inflation has fallen to 5.7 percent, which is within the tolerance ban. So, we are in our assessment is broadly along the lines of what we had said before. And so we are fine with what the BRI has done.

MS. YAN: Thank you. Rully from Indonesia.

QUESTIONER: Thank you. Rully, CNN Indonesia. I want to ask about Indonesia. Can you explain why upsizing the projections of Indonesia economy to 5 percent? So, what are the drivers? And the second one, Indonesia is the chairman of ASEAN this year. So, can you also explain the downsides of economic growth in ASEAN? Thank you.

MR. SRINIVASAN: Thanks for the question. Again, in 2022 in growth in Indonesia did well, both because domestic demand was buoyant and external demand because of the commodity price shock the terms of trade work in Indonesia's favor, 2022 was a good year, both in terms of domestic demand and external demand. This year, we've had some slowing in domestic demand. But again, just like what I said for Philippines, there is upside because of what's happening from China's opening up. When China opens up, there are linkages, and that provides an upside to growth. At 5 percent, you can't quibble. This is the third fastest economy in the region. So, that's where it is.

In terms of ASEAN itself, we have put out the numbers there for Asia. There are two sets of factors at play here. One is slowing growth in U.S. and Europe, because ASEAN countries do export quite a bit to U.S. and Europe. That is a headwind. At the same time, China is opening up, so there's a tailwind there. So, you put the factors together on balance, we see improvement in our ASEAN's growth outlook.

MS. YAN: Thank you. Vietnam News Agency.

QUESTIONER: Hi, I'm from Vietnam News Agency. And I have two questions for Vietnam. So, the first question is, how do you assess Vietnam monetary policy to obtain inflation and while it's obtaining growth in the content of monetary tightening in many countries around the world?

And the second is Vietnam's growth in the first quarter of 2023 was lower than expected. So, what are your recommendations for Vietnam to boost growth in the coming quarters? Thank you.

MR. SRINIVASAN: Thanks for the question. Again, when it comes to the monetary policy stance, Vietnam is trying to do this balance between trying to support growth and combating inflation and addressing pressures in the real estate sector.

Again, we see inflation as still being pretty high. And so, it's important that Central Banks address that problem of inflation head on, so that you don't have to tighten much faster later. If you lose it now, it can have a bearing on expectation and so on. So, I think it's important for Vietnam to address inflation head on.

In terms of what could it do to address slowing growth. There's a public investment program, which could be in the context of, if there are more downside risks, that could be expanded further to provide support for the economy.

MS. YAN: Thank you. Somsack from Laos.

QUESTIONER: Hello. My name's Somsack from Laos. IMF projected the economic growth for Laos is 4 percent for this year and next year. I just wondering what is the key factor of driving economic growth in Laos? Secondly, Laos is one of country in Asia with high debt. So, I was just wondering what if IMF provide any source of policy advice to Laos to reduce the debt to GDP ratio? And what is the best effective approach to reduce the debt? Thank you very much.

MR. SRINIVASAN: Thank you for the question again. Following the pandemic and the opening of the economy what we've seen -- why do we see an uptick in growth? I think that again, relates to the factor of China opening up and tourism picking up. That's a big factor for a country like Laos. So, that's explains a large part of why we revised the growth forecast. So, the external demand is stronger. Tourism is picking up, and that explains a lot of the growth uptick.

Now, in terms of what, debt clearly is a problem in Laos. It's very high. And so how do you address that? Again, our advice to the country has been to embark on further fiscal consolidation. Again, not through cuts and expenditures, but mainly through revenue, through boosting of revenue, increasing by broadening the base improving tax administration and so on, which are very, very critical. So, those things, if you have that, if you embark on fiscal consolidation and have credible and well fleshed short-, medium-term fiscal framework that can help reduce debt.

Now, going beyond that, we've also been informed by the authorities that they're engaging with the creditors on some kind of a debt treatment. We are not privy to that. But again, that's something which could also help address the debt issue.

MS. YAN: Third row here. Yes.

QUESTIONER: Hi, thank you so much. I'm from Bangladesh working in a television channel. A couple of questions to Krishna. You have projected for Bangladesh this year, 5.5 percent GDP growth coming. So, let me know why you downsized the projection. The Government is still a stick to 7.5 percent growth, and they say that it'll be achieved.

And then, we have a program with IMF. So, will you please give us update what the program is going on, how the Central Bank is behaving in response to the reforms? Because still we are seeing that the lending rate is stick to 9 percent, and we are having multiple exchange rates. Even I have bought dollar 113 Taka that before coming to USA, and the bank is 108. So, a huge gap, five Taka. So, what's your comment on that? Thank you.

MR. SRINIVASAN: Thank you. I didn't catch your name, sorry, but --

QUESTIONER: One more thing, sir. The inflation is about to reach double digits, 9.33.

MR. SRINIVASAN: So, again, let me say that Bangladesh is one country, which was affected quite severely by the war in Ukraine, right. And so, the terms of trades moved against Bangladesh. It led to currency depreciation, stresses on the fiscal and the external accounts.

In response to that, Bangladesh proactively showed the IMF for a program, both a regular IMF program and the Resilience and Sustainability Facility. Now, it is embarking on reforms, which are consistent with what we have in the program.

There will be a review of the program implementation later this year where we can provide an update on how they're doing. But I could tell you that they are making some, just by a couple of things I could note, is that they are reducing untargeted fiscal subsidies by making them more targeted to people affected by high energy and electricity prices. But they have increased electricity and energy prices so that the subsidies of the provider are more targeted. So, again, that's on the fiscal side.

On the exchanges rate, they are making efforts to unify exchange rates on a market basis. So, I think that's something which we will assess when we go there, but I think that they are making reforms over that side.

In terms of what's affecting growth. Again, the growth you have right now is not insignificant, but it has been affected by what's happening on external demand and the risks coming from slowing markets in U.S. and Europe, which will bear upon Bangladesh exports and so on. But as these external headwinds ease, there should be an uptake or an upside potential to growth.

MR. YAN: Thank you. May Kunmakara from Cambodia, please.

QUESTIONER: Thank you very much for taking my question. I just want to follow up on what the gentleman about the slowdown of the U.S and Europe， which are the two key markets for Cambodia’s exports. What have observed this affect the slowdown in import from Cambodia? What should the country do to maintain its economic sustainability? At same time, we see Cambodia has been implementing the bilateral free trade agreements with China, South Korea and RCEP, how will this give an appetite to contribute to growth of exports?

MR. SRINIVASAN: Thank You for those questions again. Cambodia's two largest trading partners, U.S. and Europe are slowing. In fact, if I'm not mistaken 40 percent of Cambodia exports go to U.S., 20 percent go to Europe. So, those two markets are clearly affecting Cambodia's growth. Our analysis suggests that the 1 percent decline, or in U.S. GDP growth, it leads to an 0.5 percent decline in Cambodia's growth. So, again, these are clear headwinds for Cambodia's growth prospects.

Now, one needs to diversify your trading partners and where you export. And I think the investment you talked about, the investment PDs you talked about providing an opportunity to diversify your export markets.

MS. YAN: Thank you. Tao from China.

QUESTIONER: Thank you so much. This is Tao Xu from China Central Television. I have two questions. The first about the global supply chain. So, could you just comment on the impact of China's economic growth on the global supply chain recovering? Another is about the climate change. So, what's your comment on the China's efforts on the climate change? Thank you.

MR. SRINIVASAN: Yeah, I think on supply chains, as the economy has rebounded from the pandemic supply chain normalization has happened, is always happening. It's happening. It's for a long time, the economic activity, manufacturing activity was disrupted by closures in response to the pandemic. Now that the economy has opened up, you can see supply chains be normalizing. And in fact, one example of that was today's numbers on exports, which came very strong at 15 percent. And again, that is a lot of the exports were to ASEAN countries. So, again, the linkages between a ASEAN and trade and China are important and so normalization of supply chains in China will help the region.

Also, on a question on climate, again, China is being a lot of effort towards green transition. And we have been providing, we have had good engagement with them in terms of how to take this forward. Also, as a way to promote medium-term growth in China, right. If growth is slowing over the medium-term, we revise growth in China to below 4 percent, around 3.5 percent over the medium term, right. But if you want to bolster that growth, one aspect of that is this green transition where they're making efforts toward that effect.

MS. YAN: Thank you.

QUESTIONER: Thank you. I'm from Nepal. I have a couple of questions. First one is, IMF provided a bailout package for several countries in the world, some of which are from South Asia such as Sri Lanka, Palestine, and Bangladesh. Since many countries in the world are still facing economic crisis, you can see the slow down, do you expect that the countries that need suspects will increase in the days to come?

And my second question is, countries like Nepal are facing problems related to inflation and through demand. Nepal is facing a severe decline in Government revenue. When we can expect the economic situation would be out of this problem in these countries. Thank you.

MR. SRINIVASAN: Again, good question. You are seeing countries which have had problems we've had, because as I said, you've had a series of shocks which has affected all countries around the world, including Asia. And many of them have faced pressures on the external accounts and so on. And some of them have come to the IMF for assistance. And you mentioned the three countries Sri Lanka, Bangladesh, Nepal. The reason why countries come to the IMF for a program is one, is it makes the adjustment that much less disruptive. If you wait for too long, then the adjustment is that much more intense. So, one would hope that when countries face pressures, they do approach the Fund for financing so that the adjustment is less disruptive, is less abrupt, and so on.

So, again, that's something which its countries have to make that call. But again, I would say that it's not good for countries to wait until you hit the wall. You want to come proactively. And that's why I flagged the case of Bangladesh where they had a problem recognizing an issue following the war in Ukraine. They were affected and they reached out to the IMF proactively.

Your second question was on sorry, what --

QUESTIONER: -- inflation and slowdown demand?

MR. SRINIVASAN: Yeah, so I think inflation as I mentioned in my opening remarks, headline inflation is moderating in the region, but core inflation is sticking. And there are reasons to worry about the fact that core inflation is going to remain sticky. One is because output gaps are either closing or have already closed and second, exchange rate pass through is happening. And our analysis, which will be forthcoming in our regional economic outlook show that inflation is high, then passthrough is that much higher. And so, code inflation is likely to be sticky. So, it is important for Central Banks to address inflation issue head on. Again, in terms of demand it's, yes, tightening of monetary policy is likely to slow domestic demand, but you're better off addressing inflation head-on than wait because if you wait to address it, it will tighten much more down the road. So, you're better off addressing inflation head-on.

In terms of external demand, one would hope that at least for Asia, that with Asia, with China opening up and India growing strongly, it would provide a buffer against slowing external demand elsewhere in the world.

MS. YAN: Thank you very much everyone. This concludes our press conference. Let me remind you that actually we are releasing the full chapter of the Regional Economic Outlook on May 2nd in Hong Kong. So, please stay tuned. Thank you very much for joining us today. Have a great day.