Speech

Opening Remarks at the 2017 IMF-JICA Conference

February 2, 2017

Mitsuhiro Furusawa, IMF Deputy Managing Director

Tokyo, Japan

As prepared for delivery.

Good morning everyone,

It is my honor to welcome you all, the Ministers, Governors, and other distinguished participants to our Fourth Joint IMF-JICA Conference.

The theme this year—Fiscal Risks, Fiscal Space and the SGDs —is very timely for all of Asia.

On behalf of the IMF, I am grateful to JICA, and Mr. Kitaoka, for their partnership in making this conference possible.

Today, let me start with an overview of the global and regional outlook. Based on our January update of the World Economic Outlook.

Against this background, I want to describe Asia’s development challenges under the new Sustainable Development Goals.

Here, I will highlight the importance of a pro-growth fiscal policy, to carefully manage fiscal risks and expand fiscal space.

I will close with some policy thoughts, including on the role of the IMF.

Global and Regional Outlooks and Risks

Let me begin with the global economic landscape.

Growth in 2016 was lackluster, reaching 3.1 percent.

But global economic activity is projected to pick up in 2017 to 3.4 percent, and 3.6 in 2018.

Our current forecast is based on the assumption of a changing policy mix in the US, especially an expected near-term fiscal stimulus.

So we have slightly marked up US growth, to 2.3 percent in 2017 and 2.5 in 2018.

But given the uncertainty about the new administration’s policy stance, these numbers remain uncertain.

While growth projections have been revised upward for quite a few advanced economies, it is the emerging market economies that continue to drive global growth.

Their growth is projected in 2017 at 4.5 percent.

Asia continues to perform strongly, and the near-term outlook remains strong.

Accommodative policies in the region will support domestic demand, offsetting weak export growth.

Asia’s GDP growth is estimated at 5.2 percent in 2016, increasing to 5.3 in 2017 and 2018.

We have revised up growth projections for China, on the expectation of continued fiscal policy support.

Japan’s growth was also revised due to its stronger-than-expected performance in the second half of 2016.

India, where its recent monetary reform has affected economic activity in the short run, is still projected to grow well over 7 percent a year over the medium term.

In ASEAN, growth was revised down in Indonesia, where private investment has been weaker than projected.

Thailand, which saw a temporary slowdown in consumption and tourism, also was revised down.

In Singapore—a good indicator of global and regional trade developments—recent activity bodes well for 2017.

Meanwhile, in Malaysia, Philippines, Vietnam and other emerging and developing economies, growth continues to be robust and was revised up.

This trend was generally driven by domestic demand.

Despite the stronger near-term outlook, downside risks dominate.

Financial conditions in Asia have tightened after the US election, and currencies have depreciated against the dollar.

Capital inflows seen in previous months have been reversed. Rising protectionism in advanced economies could affect Asia’s prosperity.

Uncertainties could contribute to financial volatility in the coming months.

Flexible exchange rates and timely use of macro-prudential policies, together with stronger reserves buffers, will be helpful, as has been the case during recent episodes of capital flow volatility.

China’s reliance on policy stimulus is another risk: it sustains growth in the near term, but at the cost of a continued rise in the credit to GDP ratio.

Upside risks relate to the ongoing rebalancing of China’s economy toward consumption and services.

Higher energy prices also are good for Asian commodity producers.

Asia’s development record and the challenge of meeting the SDGs

Due to its robust growth, Asia has taken huge steps in closing its development gaps: the number of Asians living in extreme poverty fell from almost two billion in 1990 to around 800 million in 2015.

The decline was most impressive in China, but South-East and South Asia also made large gains. School enrollments have risen.

Gender equality indicators have improved—women are being empowered, and maternal health has improved.

Child mortality rates have come down, and progress has been made combatting HIV/AIDS, malaria and other diseases.

The SDGs—the new global standard introduced in 2015—are comprehensive.

They emphasize environmental and resource sustainability and cover three key areas: economic development, social inclusion, and governance.

Unlike the MDGs, which focused on Low Income Countries, the SDGs are relevant for countries at all stages of development.

Meeting them will require an intensive global effort.

On current trends, Asia and the Pacific are expected to do very well on SDG goals for development, including poverty reduction, water and sanitation, energy and growth.

However, there are areas where Asia is likely to fall behind, if current trends are not reversed.

These include key environmental goals—reducing waste, combating climate change and protecting marine environments.

Pro-growth fiscal policy, fiscal risks and fiscal space

Given these development priorities and challenges, pro-growth fiscal policy is essential.

Such a policy often involves scaling up development spending.

But this is possible only if a government has the fiscal space to raise spending without endangering market access or putting debt sustainability at risk.

Meeting the SDGs will thus require improved access to finance and an enhanced role for the private sector in infrastructure delivery.

Since the Great Recession, there has been a greater awareness of the need for a comprehensive analysis and management of fiscal risks to help ensure sustainable public finances and macroeconomic stability.

Yet many developing countries have generally weak capacity in this area, including in dealing with fiscal risks arising from natural disaster and climate change.

Efforts to improve the monitoring and management of fiscal risks are important to help policymakers assess financing needs and preserve fiscal space.

Policy Implications and the role of the Fund

How can we all contribute to the SDG’s objectives?

Prudent fiscal policies and fiscal reforms help, as we have seen, for example, in Malaysia and Indonesia.

Such reforms include measures to broaden the revenue base, diversify away from volatile energy revenues, and reduce inefficient fuel subsidies.

Domestic revenue mobilization is also extremely important.

And there is a need to better prioritize spending and public service delivery.

Social safety nets remain necessary to protect the vulnerable, but they should aim to achieve their goals at a reasonable cost. Strengthening public investment management can help close infrastructure gaps, sustaining long-term growth.

We at the IMF stand ready to support efforts to build capacity in these areas through the development of analytical tools.

We have provided valuable diagnostic tools to improve tax administration in many countries.

We have employed Fiscal Transparency Evaluations and Public Investment Management Assessments to strengthen institutions.

We can also play a role in supporting these efforts through policy advice tailored to individual countries’ needs.

Last but not the least, we can help through our training and technical assistance activities, provided via regional technical assistance and training centers.

Let me give an example. In Lao PDR and Cambodia, our policy analysis and advice have concentrated on identifying and mitigating macro-financial risks to ensure sustainable growth and promoting economic diversification and inclusiveness.

A broad range of technical assistance is focusing on resource mobilization, financial market development and statistics.

We are working closely with our development partners as well.

This is what we stand ready to provide where needed.

To conclude, I hope that the sessions today will provide insights into the fiscal risks facing your countries.

Our exchange of views should be able to identify fiscal strategies that can be used to monitor and minimize these risks and create fiscal space.

These measures should go a long way toward meeting the SDGs.

I eagerly look forward to today’s discussions.