Transcript

Transcript of Asia and Pacific Department Press Briefing

October 13, 2022

PARTICIPANTS:

Moderator:

TING YAN
Senior Communications Officer

International Monetary Fund

Speakers:

KRISHNA

Director of the Asia and Pacific Department

International Monetary Fund

ANNE-MARIE GULDE-WOLF

Deputy Director of the Asia and Pacific Department

International Monetary Fund

SANJAYA PANTH

Deputy Director of the Asia and Pacific Department

International Monetary Fund

* * * * *

MS. YAN: Good evening, everyone. Thank you for joining this IMF press conference on the Asia and Pacific Region’s Economic Outlook. It’s great to see everyone here in person and, of course, thank you for those who are joining us online from Asia. My name is Ting Yan. I’m from the Communications Department. I’m glad to be joined today by three speakers from our Asia and Pacific Department. We have Krishna Srinivasan, Director of the Asian and Pacific Department, and we also have Anne-Marie Guide-Wolf, Deputy Director, and Sanjaya Panth, Deputy Director. As we speak, you may have seen that we just published a blog on the Region’s economic outlook, and I hope you have had a chance to look at it. And for today, we will have Krishna to give some opening remarks to summarize our key messages for the region, and then we will be happy to take your questions from the room and also online. With that, Krishna, the floor is yours.

MR. SRINIVASAN: Thank you, Ting. Good morning to everyone in Asia and good evening to everyone here in Washington, D.C. Thank you very much for joining our Press Briefing for Asia and Pacific. Please allow me to make a few opening remarks.

The three risks we flagged at the time of our spring meetings have materialized, and now present significant headwinds to the outlook for Asia. First, we have seen a significant tightening of global financial conditions, which is raising government borrowing costs and depreciating Asia’s currencies.

Second, the war in Ukraine has dragged on, provoking a sharp slowdown in Europe and keeping global commodity prices high and volatile.

Third, the Chinese economy is experiencing an uncharacteristic and sharp slowdown in growth which, in turn, is weakening momentum in countries in the neighborhood and globally. With respect to the April WEO, growth forecasts for Asia and Pacific are being downgraded by 0.9 percentage points in 2022 and 0.7 percentage points in 2023. So, growth in 2022 and 2023 is projected at 4.0 and 4.3 percent, respectively. While this rate of growth is much lower than the 5.5 average growth enjoyed over the previous two decades, the region continues to perform better than the rest of the global economy. You have the numbers in front of you, so I won’t talk about individual growth forecasts.

The global conjecture is sobering, with uncertainty and risks remaining elevated, and policymakers have to contend with numerous challenges and policy tradeoffs. We are advising our member countries in Asia to set policies prudently. Our advice for most of the region is for monetary policy to continue tightening, and for fiscal consolidation to continue. China and Japan are exceptions, where the recovery has been weaker, slack remains substantial, inflation has not risen as sharply as elsewhere, and policy space exists. Let me elaborate a bit here.

While inflation rose more modestly in Asia during 2021 than it did in other regions, the sharp bout of volatility in global commodity markets after Russia’s invasion of Ukraine in February put additional pressure on Asia’s headline inflation in the first half of 2022. This increase has been driven by rising food prices, particularly in Asian EMDEs, but also reflects higher core inflation as the region recovers and output gaps close.

Core inflation now exceeds central bank targets in most Asian economies and, in many cases, by a wide margin. There is, thus, a need for further tightening of monetary policy to ensure that inflation returns to target and inflation expectations remain well anchored.

We have seen many Asian currencies depreciate quite sharply. The tightening of U.S. monetary policy has led to widening interest rate differentials, and this has been a main factor driving depreciation across Asia this year. The war in Ukraine has also contributed by leading to a deterioration of the terms of trade for many countries in the region.

While our baseline is for inflation to have peaked by end-year, large exchange rate depreciations could lead to higher inflation and greater persistence, particularly if global interest rates rise more forcefully and, thus, require more monetary policy tightening in Asia.

Fiscal consolidation is needed, both to support the stance of monetary policy and stabilize debt. Given limited fiscal space, interventions to mitigate the impact of global food and energy shocks on vulnerable households should be well targeted, temporary, and budget neutral to sustain consolidation.

Asia is now the largest debtor in the world besides being the biggest saver, and several countries are at high risk of debt distress. Public and private debt dynamics are already worse following the pandemic because of slower growth, rising rates, and higher debt levels. Large depreciations and rising interest rates could trigger financial stress in countries with high leverage among non-financial corporates and households as well as unhedged balance sheets and those facing refinancing risks. If interest rates rise substantially, this would raise the fiscal balance needed to stabilize debt, crowding out fiscal space for other priorities.

We are also concerned about signs of growing geo-economic fragmentation. Asia and Pacific plays a central role in global production. Our Regional Economic Outlook, which will be launched on October 28th, has a chapter that shows that the region has a lot to lose in the event of sharp fragmentation scenarios where the world divides into separate trading blocs.

As Asia faces these headwinds and risks, continued vigilance is crucial, as well as a careful calibration and communication of policies. Higher inflation and interest rates would worsen debt dynamics and add to scarring. Fragmentation and protectionism will reduce growth, adding to scarring effects and harming debt dynamics. After the tremendous progress made in reducing poverty over the past few decades, Asia’s young could face a lost generation where prospects are not as bright as those enjoyed by their parents. Policymakers must work hard to prevent this. Thank you.

MS. YAN: Thank you very much, Krishna. We have already received many questions online, and I see we also have questions in the room. So, let me take Maoling from Xinhua News Agency in China. She’s having some technical issues with Webex, so I’m going to read her questions.

She has two questions. First, the WEO Report noted the risk is where the economy fragmenting further are real and could weight on the outlook. How would that impact Asia? And she also has a question on China. The Chinese economy is expected to slow remarkably. Seems very challenging in the near term. Do you expect it to rebound afterwards? How do you see China’s medium-term growth. Thank you.

MR. SRINIVASAN: Thanks. So, the increase in trade disputes in recent years, most notably, U.S./China create tensions has raised trade policy uncertainty, and shown signs of early trade and investment diversion, which could slow productivity growth. And the war in Ukraine further risks exasperating these tensions.

A scenario where the world fragments into different trading blocs will lead to significant economic losses, especially for Asia, which has benefitted greatly from integration. So, it’s important that we seek solutions that reduces trade policy uncertainty and rolls back damaging trade restrictions, and awards sharp fragmentation scenarios to which are likely in the technical field and energy security in the future.

So, that’s very important to make sure that we lower the risk of fragmentation because this could really affect Asia in the [inaudible]. In fact, there’s a chapter in our Regional Economic Outlook, which will be launched on October 28th, which documents these losses in a scenario, which we use for illustration.

Yeah, you also had a question on China. So, on China, we have lowered our growth forecast for this year and for next year, and this reflects two key factors. One is the factor, zero-COVID strategy is a significant headwind for growth prospects in there. The second is a continuing stress in the real estate sector which needs to be addressed. This is in addition to the fact that external demand is weak.

So, in terms of how do we get growth going, it’s very important that these headwinds are addressed. In terms of the zero-COVID, at first need to be made to find a safe exit from the strategy; and, similarly, for the real estate sector, we need to have a cogent and comprehensive strategy which addresses real estate distress and revives confidence in the housing market.

Beyond this, over the medium term, as I said, there are risks of fragmentation which could arise because the world divides into blocks, and in that context, we had to find ways to reduce this kind of tensions. And more broadly for China, I would say it’s important to increase productivity, address issues about labor force decline, and greater integration going forward in the light of these fragmentations. Thanks.

MS. YAN: Thank you, Krishna. Let me take a question from Enda Curran, Bloomberg Hong Kong on Webex.

QUESTIONER: Thank you, Krishna. I wonder could I ask please, given your comments on debt and inflation across Asia, how much more scope is there for policy tightening in Asia in this current policy-tightening cycle, please? Thank you.

MR. SRINIVASAN: Thanks for the question. So, just to put things in perspective. We didn’t see inflation being a big factor in Asia in 2021, and that was for some very specific reasons, including a good harvest in India, a rebound in hog population after the swine flu, and for the fact that rice prices did not increase so much, and which is a staple food in Asia.

However, in 2022, we have seen inflation rising quite sharply across many countries in the region, and this is broadened from increasing headline inflation to core inflation. So, inflation’s clearly broadening from headline to core inflation, and that reflects, in some sense, pass through from the position, which [inaudible] that, the position could be more persistent in the context of inflation remaining high. So, it's important that countries in the region, central banks in the region, tackle inflation head on so that inflation expectations don't get unanchored and central banks can maintain their credibility.

So, in some sense, given the fact that inflation is likely to continue rising –– we have it peaking at the end of 2022 in our baseline forecast –– it is important for central banks to raise interest rates to address inflation head on.

Thanks.

MS. YAN: Thanks.

Now, let's come back to the room. I see some hands here.

Sophie, please. Please introduce yourselves and also try to be as short as possible.

Thank you.

QUESTIONER: Thank you. Sofia Zhang from 21st Century Business Herald from China.

And just as you mentioned, affected by geopolitics, global supply chains are more fragmented, but in Asia, as the RCEP has entered into effect to promote regional economic integration, how do you view the prospect of economic integration in Asia and what do you think is the key to RCEP's success?

Thank you.

MR. SRINIVASAN: Thank you, Sophie. I'll have Sanjaya answer the question for you.

MR. PANTH: Thank you very much, Sophie, for that one.

Look, I think it's very important to put in context how trade has been important for Asia. You know, inter-regional trade in Asia improved very significantly over time and is now constituting over half of total Asian trade. Indeed, the region is a poster child for how trade can be an engine or growth and lift literally billions of people out of –– you know, lift living standards for billions of people. And in this context, you know, Krishna spoke earlier about the risk of fragmentation and uncertainty and there's concern that this could go into reverse and the benefits of shared trade could go down. And, indeed, we have a chapter in the WEO that talks about –– shows that.

So, against the prism, against this background of how important trade is, [RCEP] is really very welcome. You know, it is –– the signing demonstrated important progress showing that there is still appetite for further integration within Asia. It has the potential to promote trade, investment, and growth. So, overall, we think it's a very welcome development.

At the same time, however, I think, you know, it remains important for all countries to continue their efforts to seek also multilateral solutions, including through WTO. So, this is good, but at the same time we need to also continue at the multilateral level.

Thank you.

MS. YAN: Thank you.

Next let's go to Lalit, PTI.

QUESTIONER: Thank you. Thank you for doing this. Lalit from PTI, Press Trust of India.

I wanted to ask you about how does China slow down or impact the regional economy of other countries in this neighborhood in Asia Pacific region?

And, secondly, a lot has been talked about during these two days about India's digitization effort. Can you give us a sense how IMF looks at it and if that can be replicated and implemented in other countries and in what way?

Thank you.

MR. SRINIVASAN: Thanks, Lalit.

I'll take the first question and pass on the question on India to my colleague, Anne-Marie.

So, I think it's very important to note, as Sanjaya just mentioned, that intra-regional trade is 50 percent or more of total trade in Asia and China is a big player there. So, to the extent that China slows down, right –– you're already seeing the signs. With China slowing you've seen growth slowing in some countries which are linked to China very closely in the region, but more broadly, as China slows it's going to have spillover effects for the rest of the region. All countries, either they import or export to China. In that sense, if China slows, it's going to have to a significant impact on the region. And that's why it's important for China to address these headwinds, which we talked about, so that growth can pick up and others can also, you know, show signs of uptick in activity there.

And on digitalization, Anne-Marie will take that one.

MS. GULDE-WOLF: Yeah. So, thank you so much on the question on digitalization.

As is well known by now that India has been a leader in digitalization over the last couple of years, particularly with the provision of digital infrastructure. Together this has increased innovation and it has overcome some of the administrative bottlenecks that there were before.

Digitalization now has taken on added importance as we exit from the Covid. Under Covid there has been significant scarring in Asia and elsewhere and digitalization promises to be one of the avenues to increase productivity of firms. And we do have some empirical evidence for that. Our forthcoming Regional Economic Outlook will have a chapter that looks at productivity of firms and it shows that from the Covid recession that firms that were at the forefront of digitalization did in fact perform better. Of course, there is still a way to go. Further progress should be made by narrowing the digital divide and by increasing digital literacy.

And let me also mention that at the IMF we have a program that looks at digitalization and how it helps government implementing reforms. We call that [Govtac]. And the IMF is doing increasingly also technical assistance in that area, and we work very closely with India on this where India is on the forefront on this digital provision of government services, which is also used during the pandemic in distributing benefits, which was very beneficial.

MS. YAN: Thank you, Krishna and Anne-Marie.

Let's take more. Here, the gentleman in the second row.

QUESTIONER: Thank you, Ting. I'm from Bangladesh.

I'm going to ask a couple of quick questions.

First of all, yesterday and today also IMF MD, Kristalina, she said that three countries, Barbados, Costa Rica, and Rwanda, they're going to get the fund from the Resilience and Sustainability Trust fund. So, far I know my government, Bangladesh government, also asked for funds from these –– sorry, is there a development that you can share with us?

And we are late, so if we miss, would you please tell what is there for Bangladesh in this economic outlook?

Thank you.

MS. GULDE-WOLF: Yeah, so thank you very much.

So, Bangladesh has in fact asked for a program from the IMF, a program that contains two components, a regular UCT program and Resilient and Sustainability Trust program, as you mentioned.

We are currently preparing for negotiation mission, for first negotiation mission to Bangladesh, which will start next week. We are also using the current period of the authorities here to already start discussing some of the issues that have come up.

You are asking me about the outlook for Bangladesh. Bangladesh is still growing strong this year. We expect 7.2 percent of growth, but there are global headwinds that are quite significant. Bangladesh is an export dependent economy, and with headwinds in its major markets, our forecast for growth next year is 6 percent. We also have seen the taka depreciate by about 20 percent. Reserves have gone down. They're still at a comfortable level, but the direction has been towards going down.

So, with this, we are pleased that the authorities have been proactive in engaging with the IMF in discussing an economic program that will contain measures to stabilize the economy and to avoid a further downturn in the economy.

Thank you.

MS. YAN: Thank you.

Before we come back to the room, I have received a question online from Anthony Rowley, South China Morning Post. His question is, with systemic financial risk now being flagged in just about all sectors of the global economy, sovereign, financial, and corporate, which Asian countries are best positioned to show resilience and avoid a full-blown crisis?

MR. SRINIVASAN: Let me take that.

So, I think, one, people harken back to Asian crisis when they talk about Asia here. I just want to let people know that Asia has come a long way in terms of addressing the vulnerabilities which led to the crisis in the '90s. Whether you look at the external accounts, whether you look at the fiscal accounts, whether you look at balance sheets across various sectors, Asia has come a long way. Monetary policy frameworks are credible, central banks have gained a lot of credibility through the inflation targeting frameworks.

So overall, the underlying fundamental in Asia are pretty strong across most countries.

The question was about where do you see the vulnerabilities. I think one area where I worry about is the fact that if you look at total debt in Asia and you take the total debt of the share of global debt, and Asia's share has risen from 25 percent pre-pandemic to 38 percent. Now, that's quite a sharp increase. Now, in the context of rising interest rates and slowing growth, are we going to see more debt distress. I think that's a question to ask and I that's something which we have to keep in mind.

MR. SRINIVASAN: David, the question, really, the question to that is do we have the frameworks to deal with debt distress if it happens? Going forward, I think there are issues which we have to address in terms of long-term and medium-term prospects for Asia. I think there, there are a couple of areas where I think it's important.

One, of course, is to address the issues of scarring from the pandemic, which are clearly there. And Asia is one region where a number of kids have not gone to school for a couple of years because of the pandemic. What does it mean for labor markets down the road? Similarly, you know, I talked about fragmentation that's a risk. So, guarding against risk for fragmentation is an important one.

So, these are things which are over the medium-term important to be addressed. Thank you.

MS. YAN: Thank you. Do we have more questions in the room? Yes, Sarah.

QUESTIONER: Thanks, Ting. I'm Hanting with China News Service. My question is about China. While this year China somewhat eased its monetary policy like cutting interest in August and recently it announced to lower its mortgage rate. The housing probably didn't fund loans so to support their real estate industry.

So, to what extent do you think this kind of policy's going to have an impact on China's overall economy as well as the economy of this region? Thank you.

MR. SRINIVASAN: Thank you. I'm sorry, I didn't catch your name. But that's a very good question. Like I said, we have revised our forecast down for China this year to 3.2 percent, and, yeah, and it's to 4.4 percent next year. And that reflects, you know, a key -- the fact is inflation also is muted in China, right? So, we make the case that to revive growth in China, you need to provide policy support. And to that extent, what they're doing is the right way.

But we also feel that they need to provide more fiscal support. So, that targeted fiscal support so that improving social safety nets and so on. So, consumption will rise. Now, what we have seen in China and what we need in China is actually a greater rebalancing to its consumption. And that was happening but it was interrupted with the pandemic. But now, all the policy measures we've seen recently are not promoting consumption. So, they need to provide more fiscal support targeted towards boosting consumption, notably through improving social safety nets, targeted transfers, and so on.

Going beyond that, I think the other headwind is in the real estate sector. I think there you need a comprehensive and cogent policy response, which addresses two things. One, is the sale of the completion of presold houses. That's one thing, which is very important to revive confidence in the sector. And second, is property deliverables for distress. How do you resolve that? That's an issue.

So, these two factors are interlinked and addressing that in a comprehensive and cogent strategy will take a long way towards reviving confidence in the sector and getting growth going. And, of course, beyond that you have the medium-term factors like productivity, which need to be addressed. But that, we can talk about that later if you want me to elaborate. Thank you.

MS. YAN: Thank you. We actually also received many questions on Sri Lanka. Let me read them and try to wrap them together. So, we have Leika Kihara, Reuters Tokyo, is asking, Sri Lanka has requested Japan cohost a creditors meeting. Would the IMF welcome such a meeting? What are the conditions for success? And what role should China play in the initiative, as well as bolder moves towards solving the crisis?

And Paneetha Ameresekere from Ceylon Today in Sri Lanka is asking about progress toward debt restructuring negotiation, IMF's program timeline, and whether Sri Lanka could be downgraded to low-income status.

Also, Indika Sakalasooriya from Daily Mirror is asking about issues of reducing corruption and how much money Sri Lanka will need from other multilateral lenders to stabilize its economy. So, we have many questions on Sri Lanka.

MS. GULDE-WOLF: Yes, thank you, Ting. In fact, a number of questions here. So, as you all know, Sri Lanka is facing a very severe economic crisis. And let me start by saying that we are very concerned about what's going on in Sri Lanka. And we all hope that we will be able to work very fast to end the suffering, especially the suffering of the poor and vulnerable.

We have reached a staff level agreement on a four-year EFF program on September 1 of this year. However, the initial disbursement of this program will only come after the board meeting, a board meeting has taken place. Now, a board meeting it will be preconditioned on the authorities taking certain prior actions on which they are already working. And importantly, on reaching a solution on the debt situation so far.

Sri Lanka's debt is assessed as unsustainable at this stage. And for the board to approve, we will need two specific financing assurances. The first would be from official bilateral creditors, we would need assurances that they will restore debt sustainability in the context of the program. And we need assurances that there are good faith efforts underway to deal with the private sector debt. So, Sri Lanka is currently working with their legal and financial advisors on this debt element.

It's difficult to predict a timeline because the process of debt negotiations is taking time. And with what we see from different countries that went through the process, these timelines differ depending on what -- who the creditors are and what is involved. We certainly are supporting the process as much as we can. And we hope that everybody can work expeditiously to get a process underway, and discussions are -- have been starting, including with support of all bilateral creditors that are involved.

There were other questions on a possible downgrade and other multilateral lenders. On the other multilateral lenders, I would say that we are working very closely with the World Bank, the Asian Development Bank, the Asian Investment Bank, on programs for Sri Lanka. Those programs would help for closing the financing gap. But I want to say also very importantly that the policies under the other multilateral lenders in their areas of expertise will be important to resolve Sri Lanka's longer term growth problems.

On the downgrade, all I can say is that Sri Lanka is a middle-income country and remains a middle-income country even with the decline in GDP that we have seen. The EFF is not a concessional. It's a regular IMF facility.

MS. YAN: Yeah. Let me come back to the room. Do we have any more questions?

QUESTIONER: Thank you. My name is Thanh Nguyen from the Vietnam Television. I'd like to ask you the question about the Vietnam. As you may know that in the last of the nine-month Vietnam has the increased more than 7 percent. So, what you -- what do you see the -- what do you command the Vietnamese achievement? And can -- do you see the Vietnamese government monitoring the economy in the challenges worth? Thank you.

MS. GULDE-WOLF: On Vietnam, let me just say that Vietnam has been among the best performing countries in the region in 2022. It's seen a very good recovery from the Covid last year. So, the first eight months of this year, we saw a growth of 8.8 percent. Based on the performance in the first part of the year, Vietnam was one of the few countries that we have actually upgraded in this outlook from the previous outlook. And we expect that this year growth will be 7 percent instead of 6 percent that we had forecast before.

So, the sources of this growth is very good fiscal support, but also vaccine, and good export performance, and manufacturing, and also domestic consumption has picked up.

Now, as you mentioned also, there are global headwinds and Vietnam is an export-oriented economy. So, for next year, we see that some of these headwinds might come to bear, and we forecast that growth will be slightly lower than this year at 6.2 percent. But still, we see Vietnam as a very dynamic economy.

To finish on Vietnam, there have been recently some financial jitters that some of you may heard about. I would say that the State Bank of Vietnam has acted appropriately with supporting liquidity and good communication. But I think this episode shows that there's still a need to improve transparency in the financial sector and to look at the interlinkages between the banking sector and the property sector. Let me stop here.

MS. YAN: We also have Sriram Lakshman from the Hindu. Sriram, you want to ask a question?

QUESTIONER: Sure. You’ve said that in your opening remarks that India’s going to slow down to 6.1 percent next year and this is because of tightening monetary conditions and also fiscal forces. So, my question is, is this inevitable and if so, to what extent and basically, can India do anything to mitigate or counter this slowdown next year given the overall global context. Thank you.

MS. GUIDE-WOLF: Thank you. I think to start with, I think in the global context, the growth rate of 6.1 percent is still a bright spot. But it’s absolutely true that one needs to look at what else can be done and we were talking about scarring before. So, a lot of the issues that need to be addressed are more on the structural side. We don’t see a lot of room for fiscal support given where we stand on the debt level. So, many further fiscal support would have to be very targeted and time limited.

Similarly, on monetary policy, given inflation situation, it’s difficult to -- there has to be a tightening bias there. But it is important to, you know, whatever can be done on the structural front to not create impediments for growth and to try and also create an expectation of continued forward movement. I think that is really important. But let me just come back with, you know, the gross downgrades that we have seen in other countries, I think India is still in the relatively bright spot. Thank you.

MS. YAN: We’ve also received a couple of questions from Indonesia, Kompas TV, Dyah Magasari is asking, what will be the biggest challenge for Indonesia in the economy in 2023? What about inflation rates, food prices, etc.? And she’s also asking about emergent Asia. What economic policy actions have emergent Asian economies taken to address this crisis?

MR. PANTH: Thank you. Thank you very much. I’m happy to take those. First, beginning with Indonesia. I think, you know, Asia as a whole is a bright spot relatively in the global economy and within Asia as we’ve heard from India and Vietnam, there are some very good performers given the direct context. Indonesia is another one of them. I think, you know, in Indonesia we expect Indonesian economy to continue its strong recovery in 2023 with read GDP growth projected at 5% which is well above the global average.

In terms of the challenges for Indonesia, you know, and also for other emergent market countries, I think some of the challenges that we’ve laid out earlier, in particular steeper than expected for a tightening cycle and a slowdown in China. These are the two things that I think are particularly germane. If these global risks materialize, Indonesia and other emergent market countries would face renewed currency depreciation pressures and increased risks to inflation.

In addition for Indonesia specifically, you know, Indonesia is a commodity exporter. So, unlike the other commodity importers, the rise in commodity prices has actually given a flip to the economy. So, declining commodity prices could also hit Indonesia’s growth and current account given how important it is for the country.

However, I think, you know, while the global environment is challenging, Indonesia is in a relatively good position. It’s got low public debt that’s predominantly denominated in the local currency in the Rupee. It has a strong set of policies and institutions that should help get through these challenges.

Turning more broadly to what policies emerging economies have taken to address the crisis, you know, we have a very androgenous set of countries in the region. But they’re all facing the similar challenge in one way or the other of setting policy under a very heightened global uncertainty. And if individually faced difficult trade-offs based on the current context and the characteristics of their economy, between supporting growth on the one hand, loading inflation and managing financial stability risks. Most station and banks have been using multiple tools to respond to these shocks and trade-offs. But, again, the mix depends on the exact position of the different countries in terms of how much they have recovered from the COVID downturn and what the output [inaudible] stand. And also, in terms of inflation and other structural characteristics.

For economies where their recovery remains incomplete and inflation has, you know, not quite become as much of an issue, monetary policy has not yet tightened materially, and we know we talked about China and Japan earlier in that respect.

In other countries where output gaps are closing or have already done so and where inflation has risen well above central bank targets, monetary policy has been more active. And this has been particularly true in the advanced economies in the region, in New Zealand, Australia, Singapore, and Korea.

In terms of fiscal policy, most economies, including ASEAN 5, Australia and India are consolidating, however China and Hong Kong, special administrative region, have also temporarily had to reverse their consultation paths to respond to, you know, outbreaks under the zero Covid policy. And New Zealand has also announced some fiscal support packages.

I would just like to conclude on this by saying fiscal policy has a very crucial role to play as we face global inflation and inflation picking up in Asia. I mean, you know, it's riding a cart, as I say, with two horses needing to pull in the same direction. And so fiscal policy, we need to be –– remain very mindful to complement monetary efforts to tame inflation in the region.

At the same time, of course, in our targeted and temporary fiscal transfers to support vulnerable people is also very warranted. When people face a lot of shocks, we need to protect the vulnerable, especially from high energy and food prices. But these should be targeted and temporary, and to the extent possible, unless there is, you know, fiscal room, it should be done in a budget neutral way.

So, I'll stop with that. Thank you.

MS. YAN: Thank you, Sanjaya.

Let me come back to the room and see if we have more questions. Oh, Lalit, please.

QUESTIONER: This is about G20. You know, this year Indonesia, the G20 president next year is India's turn. It is just a coincidence or reflective emerging economy of this region?

MR. SRINIVASAN: You mean who takes over the G20 presidency?

QUESTIONER: We have two years successive India and Indonesia becoming the G20 –– both are the same region, right. So, is this just a coincidence or is it reflective of this region's economic potential?

MR. SRINIVASAN: It's a good question. I think these things happy by rotation. So, I think it could just be coincidence. But we'll clarify and get back to you on that one. I'm not 100 percent sure, but I think it's by rotation, so. And I think next year is Brazil, right? So, I think it just happens in rotation. But we'll come back to you on that one.

MS. YAN: Thank you.

If we don't have more questions in the room, let me take our last questions online on Nepal.

So, we actually received two questions on Nepal. Sagar Ghimire from New Business Age is asking how do you see Nepal's outlook? The external sector, particularly balance of payment and FOREX reserve is under pressure. Some input restriction measures have been introduced in recent months in response to the stress on the external sector. Are they appropriate measures? What should the government do to shore up its reserves and make sure that the country does not plunge into a crisis?

Similarly, we also received a question from Sharad Ojha, Nepali Times. Nepal is suffering from the reduced FOREX reserve problems. What types of fiscal and monetary reform decisions do countries like Nepal have to take?

MS. GULDE-WOLF: Thank you. As you note, Nepal has a program with the IMF and we have a very close policy dialogue with Nepal. So, Nepal's post-Covid economic recovery is continuing and we expect growth to reach 4.2 percent this year. However, being an import reliant economy, Nepal is suffering from the global headwinds that we see. So, there's been –– especially the sharp increase in food and fuel prices and some decline in remittances has led to a decline in reserves in the recent past. But reserves are still at above six months of imports, so reserves, while they have come down, they are still at a comfortable level.

The Nepal Rastra Bank has quite appropriately already raised interest rates and going forward maintaining that tightening bias and careful implementation –– of conservative implementation of the [inaudible] will be important to keep safeguarding macroeconomic stability. We also support that authorities' plan to phase out import restrictions in October of this year –– later this month.

MS. YAN: Thank you very much.

If we don't have more questions from the room –– and I don't see any questions online.

So, before we wrap, I also want to remind you that as Krishna said, we will publish our full original Economic Outlook on Asia October 28 with a press conference in Singapore. So, stay tuned. We will have more content on Asia for you later this month.

And thank you very much, Krishna, Sanjaya, and Anne-Marie, and thank you everyone here for joining us, both in person and online.

Thank you. Have a nice evening.