In
order to sustain their long-term wellbeing and wealth, Asian economies should
keep public debt below 60% of gross domestic product, according to the Asian
Development Bank.
Chief economist Changyong Rhee said the
benchmark of prudent public debt often cited by economists should not be
applied to Asian countries as they received less credibility in the market than
advanced economies did in collecting tax revenue.
A country could suffer difficulty in
resolving public debt if liabilities were allowed to rise beyond economic gains
and confidence is undermined.
The Finance Ministry recently announced that
the level of public debt in Thailand was around 42% of GDP.
Although the public debt in many Asian
countries, including Thailand, are not as serious as in Western countries, Dr
Rhee said this was mainly because Asian countries do not have social
entitlement programmes and social safety nets as in Europe.
"The acceptable public debt standard of
60-70% of GDP is for advanced economies which have a wider tax base and higher
credibility. For Asian economies, the benchmark should be much lower," he
said.
Asian economies should consider the ability
to collect taxes as the first priority before introducing any spending
programmes for those on low incomes.
"Welfare that is not properly financed
is populism. We need more government intervention to reduce income inequality
as long as enough tax revenue can be collected and people should be willing to
pay more taxes," said Dr Rhee.
Tax rates in Asia are comparable to those in
Europe, but the region has a very high tax-exemption benchmark and poor legal
enforcement of tax collection.
Dr Rhee said most Asian economies have a tax
revenue ratio of only 15% of GDP, which is considered much too small for
advanced economies.
"I'm not so optimistic about the future
fiscal condition of Asia. It may change once Asia faces an ageing
population," said Dr Rhee.
He added that after governments enacted
spending with budgetary considerations, they can prioritise based on contributions
to economic efficiency.
The euro-zone debt crisis remains a key
global economic risk this year, with the sovereign debt crises in Spain and
Italy escalating. How the US reduces its budget deficit poses a new risk for
the world economy over the next year.
Dr Rhee said the economic growth of China and
India could moderate in the future after two decades of double-digit growth,
but Asean economic integration would drive economic momentum.
"Asean could be the world's most
promising region in the future," he said.
One of Asia's key challenges is to build
infrastructure linking poorer regions to more developed ones, said Dr Rhee.
Although competitiveness indicators showed
that Asean lagged behind China in terms of innovation and R&D, Dr Rhee said
innovation in Asean is driven by the private sector.
Higher wages in China made Asean more
attractive to foreign investors and offset opportunity losses caused by the
1997 economic crisis.
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