The fiscal balance is the difference between government revenues and expenditures over a year. When government spends more than it receives in revenues, a fiscal deficit occurs. Governments typically cover a deficit by borrowing, which increases public debt. A deficit does not necessarily indicate underlying issues with a country’s public finances. Deficits can occur, for example, when a government invests in assets that will yield returns, such as new infrastructure. However, sustained deficits over time can increase public debt, which can limit governments' future spending choices.
Deficits in countries in Southeast Asia (SEA) increased during the early 2020s as the coronavirus (COVID‑19) pandemic lowered revenue and increased spending. After the initial shock of the pandemic in 2020, SEA countries have generally improved their fiscal balances, though as of 2023, not all had fully recovered to their pre-pandemic situation. SEA countries had an average fiscal deficit of -2.1% of gross domestic product (GDP) in 2023 (Figure 2.1). Eight of nine countries had a fiscal deficit in 2023. Fiscal deficits in SEA countries were higher in 2023 than in 2019, when they averaged -0.9% of GDP. Deficits increased in Brunei Darussalam, Malaysia, the Philippines and Viet Nam. Thailand and Cambodia went from a fiscal surplus in 2019 to a fiscal deficit in 2023. The Lao People’s Democratic Republic (hereafter “Lao PDR”) was a regional exception, moving from a deficit of -3.2% of GDP in 2019 to fiscal equilibrium in 2023, following a period of expenditure controls (ADB, 2024). Singapore maintained a surplus of +3% to +4% of GDP across the period. Deficits in SEA remain smaller on average than those in the OECD, where the average deficit in 2023 was -5.3% of GDP.
Before the COVID-19 pandemic, SEA countries had generally maintained deficits at a stable level (Figure 2.2). Viet Nam’s steadily decreased through much of the 2010s. All countries for which data are available saw significant increases in public deficits between 2019 and 2020. Indonesia moved from a deficit of -2.1% of GDP in 2019 to -6.1% in 2020, and Viet Nam from -0.4% to ‑2.9% of GDP. Thailand shifted from a surplus of +0.4% to a deficit of -4.5% in 2020. A similar trend was seen in OECD Member countries, where the average deficit increased from ‑3.3% of GDP in 2019 to -10.2% in 2020. Since the pandemic's largest impacts in 2020 and 2021, most OECD Member countries and SEA countries have begun to return to the fiscal positions they held prior to COVID-19, although most had not yet fully done so by the end of 2023.
Primary fiscal balance is a government’s fiscal balance excluding interest payments on public debt. A government with a primary deficit is not able to pay interest on public debt after covering other expenditures, and needs to borrow to service its existing debt. A primary deficit is not sustainable in the medium to long term. Six out of eight SEA countries held primary deficits in 2023 (Figure 2.3). Their average primary balance was -0.8% of GDP. OECD countries in the Asia-Pacific region also had a primary deficit in 2023. On average across OECD countries, governments had a primary deficit of -2.4% of GDP. Net interest payments on public debt averaged 1.8% of GDP for SEA countries in 2023, and 2.3% for OECD countries. However, SEA governments spend a smaller proportion of GDP than OECD governments. Interest payments thus restrict the expenditure choices of many SEA countries more than OECD countries.
