FISCAL and monetary tools for spurring the economies of the region are limited, with governments still consolidating the debt they took on during the pandemic and interest rate cuts unlikely to be large enough to boost household and business spending, ANZ Research said.
“Fiscal and monetary policies will offer limited support to overall growth in ASEAN-4 economies in 2025,” it said in a Jan. 6 report.
The aggrupation’s members are Indonesia, Malaysia, the Philippines and Thailand.
“As part of ongoing efforts to consolidate public finances after a substantive relaxation during the pandemic, policymakers will stick to conservative fiscal policies this year,” it said.
ANZ said the measure of “efficacy” in 2025 is the ability of fiscal policy to boost household consumption.
“Therefore, the net welfare support, measured by the difference of new tax measures and welfare spending, becomes an appropriate gauge of governmental support to households,” it said.
For the Philippines, this metric is set to be “mildly negative” or a decrease of 0.03% of gross domestic product (GDP) in assistance to households, ANZ said.
“Though there are some increases pencilled in education spending and other social areas, implementation of new taxes that were postponed in 2024 will outweigh them,” it said.
Among the recently signed tax measures are the 1% withholding tax on online sellers, 12% value-added tax imposed on digital services and the stamp tax on vape products.
BMI said the equivalent number for Thailand is 0.6% of GDP in support to households after adjustment for higher taxes, including the withdrawal of excise tax cuts for diesel and fuel, and increased budget allocation for community and social service.
Indonesian and Malaysian will provide household support equivalent to a net 0.2% of GDP, it said.
In addition, ANZ said the ASEAN-4 “lacks well-defined fiscal rules that adequately lay out grounds for deviating from budget targets” and usually “tended to enhance welfare spending only in periods of extreme shocks like the pandemic.”
After the increase in debt due to the pandemic, the Philippines is now aiming to bring the debt-to-GDP ratio down to 60% by 2026, according to guidance laid down in its medium-term fiscal framework (MTFF).
A debt-to-GDP ratio of 60% is the rule-of-thumb maximum sustainable debt load for developing countries, according to international development banks.
“The specific target is to reduce it to 59.8% from 61.3% at the end of the third quarter of 2024,” it said.
In terms of how US monetary policy is constraining domestic monetary policy, ANZ said the Philippines “is less impacted to the extent that its central bank’s threshold for a weaker peso is higher.”
The Bangko Sentral ng Pilipinas has lowered its rate cut expectations this year from 100 basis-points (bps) to “something less than 100-bp.”
Aside from Thailand, the fiscal stance for the rest of the economies in the region is contractionary, whereas monetary policy action will be constricted by a shallow easing cycle, it said.
“As a result, the decline in real policy rates is set to be mild. The historical evidence of pursuing strong counter-cyclical policies in the region is limited,” ANZ added. — Aubrey Rose A. Inosante
