汇丰银行亚洲宏观ASEANPerspectivesFiscalpolicythequietgrowt

MiFIDII–ResearchIsyouraccessagreed?CONTACTustodayDisclaimer&DisclosuresThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.Issuerofreport:TheHongkongandShanghaiBankingCorporationLimitedViewHSBCGlobalResearchat:ThestrongupturninexternaldataandimprovinglabourmarketindicatorshaveledthecyclicalimprovementacrossASEAN…Butsince2016,fiscalpolicyhasturnedgraduallymoresupportiveofgrowth,backedbyrevenue-enhancingreformsFiscalpolicyisslowlybecomingamoreeffectivestabilizationforceacrosstheregion,butitisfarfromperfect…Amidstallthenoiseofthecurrentcyclicalrecovery,withexportsstillrisingbydoubledigitsandnear-recordlevelsofelectronicsoutputacrossASEAN(albeitbothareshowingdeceleratingmomentum)itiseasytolosesightofthelessflashyundercurrentthathasbeensupportiveofgrowthsincetheregion’scyclicaltroughin2015:fiscalpolicy.Wehavewrittenaboutthistrendbefore.Unfortunately,inthepast,fiscalpolicyinASEANhastendedtobeacautionarytale.Forexample,withsignificantfiscalconstraintsinMalaysiaandIndonesia,therewerealwaysfearsoffiscalslippage,aperennialconcernofratingagencies(see:ASEANPerspectives:Thinwallets:WhatfiscalslippagemeansforASEAN).However,thestabilizationofoilprices–albeitatalowlevel–alongsideanrevenueandexpenditure-basedreformssuggeststhatspendingisleanerandmoregrowth-enhancingthaninthepast,evenamidstfiscalconsolidationincertaincountries.Forthetimebeing,fiscalpolicyoffersmoreupsideratherthandownsideriskstogrowth.Thismattersmostfortheregion’sinfrastructureplans(see:ASEANPerspectives:Fillingtheinfrastructurepothole),akeyfactorinboostinglong-termproductivityandcompetitiveness.Regionaldevelopmentexpenditurehasincreased(butnoteverywhere),andinmanypartsoftheregion,governmentshaveimprovedPPPframeworksandarebetterutilizingprivatefunds,especiallyinMalaysiaandthePhilippines.ThenthereistheChinaangle.ThereisapipelineofapproximatelyUSD77bnofChinese-fundedinfrastructureprojectsinMalaysia,Indonesia,andthePhilippinesthatwillboostinvestmentactivityinthecomingyears(ASEANPerspectives:Sizingupthe‘OBOR’impact).Whileonthesurfacethismayappeartobeforeigndirectinvestment(FDI),mostoftheprojectsareultimatelyownedbygovernment-linkedfirmsaspartofabroaderconglomeratewithChineseSOEs–withtheChineseprovidingthemajorityoffinancing.Assuch,wethinktheprojectsshouldbeseenasanindirectchanneloffiscalpolicy,especiallysincetheprojectsmayultimatelyincreasegovernmentcontingentliabilities.Inadditiontotheabove,inthispiecewealsotakestockofrecentgovernmentspendingtoascertainthecyclicalimpactongrowth,andmostimportantly,theabilityoffiscalpolicytocontinuefuellinggrowthshouldtheexport-ledrecoverytaperoffin2H17(seeAsianEconomicsQuarterly).WhileASEANcontinuestofacevariousstructuralproblemsandthemedium-termgrowthtrendremainsrelativelysluggish,wethinkfiscalpolicyisnowoneoftheregion’sbrightspots.30June2017JosephIncalcaterraEconomistTheH[e-mail][phone]NoelanArbisEcon[e-mail][phone]MaitreyiDasAssociateBangaloreASEANPerspectivesECONOMICSASEANFiscalpolicy:thequietgrowthengineECONOMICS●ASEAN30June20172Apositivestory,fornowSlowlybutsurely,ASEANfiscalpolicyhasbeenundergoingaperiodoftransformation.Theincreaseininfrastructurespendingoverthepasttwoyears(justabouteverywhere)necessitatedrevenue-boostingmeasures,particularlygiventhetrendoffiscalconsolidationinMalaysia,Indonesia,andVietnam.Weoutlinethesemeasuresinthetablebelow:AnoverviewofrecentchangesinfiscalpolicyRevenuereform/measuresSpendingreform/measuresSpendingtarget/constraintsIndonesiaTaxamnestyprovidedarevenueboostofcUSD10bn(1.1%of2016GDP)inadditionalrevenuesthrough1Q17Energysubsidyallocationdeclinedfrom3.0%ofGDPin2015to0.6%inthe2017budget3%constitutionallimitMalaysiaThenewGSTprovides3.3%ofGDPinrevenues(anetincreaseof1.4%fromprevioustaxes)Totalsubsidyallocationdeclinedfrom2.4%ofGDPin2015to1.5%*in201755%debt-to-GDPlimitPhilippinesAdditionalexcisetaxesandclosingVATloopholeswillprovide2%ofGDPinadditionalrevenuesby2019Interestpaymentsdeclinedfrom19%oftotalbudgetin2010to12%in20163%targetSingaporeAmoreprogressivetaxsystemboostedtaxrevenuesby0.5%ofGDPTheFY2015budgetbroughtaboutac40%increaseindevelopmentexp.Balancedbudgetoveragovernment’stermVietnamThegovernmentbroadenedcorporatetaxestodiversifyfundingwhilemodernizingthetaxcollectionsystem3.5%deficitceilingfor2017Source:HSBC,CEIC,newssourcesForexample,inMalaysia,theintroductionoftheGoodsandServicesTax(GST)–whichnowcontributesnetadditionalrevenuestothetuneof1.5%ofGDP(comparedtotheprevioussalesandservicestaxes)–diversifiedrevenuespreciselywhencommodity-relatedrevenuesstartedtofalloffacliff.However,overallrevenuesnonethelessmoderatedinrecentyearsfrom21.4%ofGDPtoin2012to17.3%in2016(afterall,oil-relatedrevenuesoncestoodataround40%ofthetotalpie).Whileexpenditurealsofell–inlinewiththegovernment’sfiscalconsolidation–recentincreasesinprivateinfrastructur