Thank you, Chair, Samdech Prime Minister Hun Sen; Excellencies, and Colleagues. I am very pleased to join today’s dialogue on behalf of the World Bank Group.
People in developing countries are facing severe reversals in living standards from the compounded effects of COVID-19, conflict, and climate change. ASEAN countries are not immune to these reversals. A month ago at our Annual Meetings we discussed with country authorities how the fragile recovery from COVID is being threatened by rising inflation. This is due to both the lagged effects of policy support during the pandemic and the increased energy and food prices related to the war in Ukraine. We also focused on how to balance financial tightening and economic recovery.
East Asia and the Pacific region will be affected by slowdown in global demand, which we see deepening in 2023. We forecast growth to drop this year to 3.2%, from 7.2% in 2021, and recover to 4.6%–5% in 2023, on the basis of a potential easing of COVID restrictions in China.
I will make a parenthesis here to mention the economic situation in Myanmar. The combined effects of external and domestic developments have erased a decade of poverty reduction. We estimate that around 40% of the population is now poor, 1.4 million people are internally displaced, and 15 million people face food insecurity.
All these developments are happening against the visible effects of climate change. At COP 27, leaders noted the difficulty of aggressive climate action during a time of economic crises. But failure to do so will threaten the very existence and sustainability of economic gains made.
So what are governments to do?
The way governments respond to today’s challenges, will shape development in the long-term. We would advocate policy responses must meet short- and long-term objectives at the same time. Governments are now seeking a new balance between national security and openness. This will affect the flows of trade, finance, people, and ideas. Responses to energy security and affordability threaten to derail climate mitigation efforts.
In responding to challenges we live today, there are also new opportunities for ASEAN countries
In manufacturing, we see diversifying global value chains and new export opportunities for ASEAN members.
In services, digitalization is increasing access and efficiency of service delivery in education, health, finance, and many public services.
The increasing profitability of green technologies now allows many countries to reduce carbon emissions without unacceptable cuts in consumption, growth, and development.
To grasp these opportunities, there are three key actions that countries can take individually, and three that ASEAN can take collectively.
First, countries should gradually unwind fiscal and financial sector support provided during COVID and resolve balance sheet problems that were hidden by forebearance measures.
Second, countries need to enhance the efficiency of fiscal policy. With public debt in developing countries now at a 50-year high, fiscal policy space is limited. Tax revenues in ASEAN averaged 13% of GDP before COVID, compared to 25% of GDP for advanced economies. More can be collected by expanding the tax base without placing undue burden on the poor. Property and carbon taxes, and progressive personal and corporate income taxes can be particularly helpful. On the expenditure side, universal subsidies can be replaced by more targeted transfers.
Third, countries must increase the quality of human capital to recoup losses due to COVID and spur labor productivity and innovation. Investments in education are needed to ensure that they are preparing students for the jobs of the future, including digital and green economy skills. There is great experience in this region and within ASEAN to learn from.
To complement national efforts, we also need stronger international cooperation, which ASEAN can support, in the following three areas:
One is the coordination of macroeconomic policy to manage the overlapping crises and adjust policy stance. ASEAN meetings are an opportunity to intensify cooperation and solidarity.
Second, ASEAN has a key role to play in encouraging and supporting coordinated investments and policy harmonization that broaden country markets beyond its national borders.
Trade negotiations that catalyze reform at home and secure access to markets abroad can build on the ASEAN model of open regionalism as well as the recent Regional Comprehensive Economic Partnership. One immediate step would be to refrain from restrictions on exports that lead to worse collective outcomes.
Broadening markets also involves regional transport and energy connections – such as road, rail, port, electricity grids, and airport infrastructure. We are supporting road projects in Lao PDR with over 1,800 kilometers that form the backbone of the domestic road network, and connect Cambodia, Thailand, and Vietnam via Laos, making them a vital part of regional connectivity.
Third, climate action to lay the foundation for sustainable growth, a just transition that gives people a stake in a greener future and recognizes and addresses the switching costs. Last fiscal year alone the World Bank Group has provided a record of $31.7 billion in climate financing in FY22 toward these objectives. In the EAP region, 46% of our financing over the same period was for climate-smart development projects.
Finally, a word on Myanmar. While a political situation has unfortunately not been found, it is critical we find effective ways to support the most vulnerable – living in country and abroad. We are preparing a platform project to provide support to select communities in Myanmar, which could be scaled up.
Across all these issues, cooperation remains central to overcoming our shared challenges and grasping opportunities. In this spirit, I wish you a successful conclusion to the ASEAN summits.
Thank you.
