Structural balance is a measure of the sustainability of a government’s fiscal policies over the medium to long term. Budget balances in any one year are affected by the state of the economy. In a recession, finances will tend to worsen, and in a boom, they will tend to improve, even without any changes in government policy. They may also be affected by one-off events, such as large windfalls from selling public assets or expenses on significant public investments. Structural balance aims to estimate what the budget balance would have been had no such effects or events been present. By examining what the budget balance would be in a “normal” year, the structural balance can help illuminate whether a government’s current policies on resources and expenditure can be sustained over the medium to long term.
The structural balance is estimated to have worsened across SEA countries from -1.3% of GDP in 2019 to ‑2.0% in 2023 and 2024 (Figure 2.4). The balance worsened in all five countries for which data are available. Singapore was the only country estimated to have had a structural surplus in both years, though this decreased from +1.7% in 2019 to +1.1% in 2024. Similar trends were seen across the OECD, where the average structural deficit is estimated to have increased from -3.6% of GDP in 2019 to -4.7% in 2024. Two of the four OECD Member countries in the Asia-Pacific region are estimated to have worsened their structural balance over this period, and all four are estimated to have had a structural deficit in 2024.
Where data are available, COVID-19 was a major driver of the worsening of structural balances across the region (Figure 2.5). Both Indonesia and Thailand are estimated to have experienced a sharp deterioration in their structural balance through 2020 and/or 2021, before partially recovering from 2022 onwards. Similar trends were observed across OECD countries during this period. As explored below, the COVID-19 pandemic decreased government revenues and increased government expenditures, worsening governments’ budget balances.
Structural deficits will not be sustainable in the medium to long term. Both SEA and OECD countries will need a combination of growth and fiscal policy adjustments to return their finances to a more sustainable position. However, only two of the five SEA countries for which data are available are projected to improve their structural balance between 2024 and 2026 (Figure 2.6): the Philippines (+1.2% of GDP) and Malaysia (+0.9% of GDP). All countries in the region are forecast to remain in structural deficit in 2026, other than Singapore. Thailand’s structural balance is forecast to worsen from around -1.3% during 2024-2026 to around -1.1% in 2026. Thailand is expected to increase public expenditures, partly to finance new infrastructure investments (ADB, 2024). Three of the four OECD countries in the Asia-Pacific region are projected to decrease their structural deficits between 2024 and 2026. However, the OECD countries in the Asia-Pacific region other than New Zealand are projected to remain in structural deficit in 2026; on average, OECD countries are forecast to have a structural deficit of -4.6% of GDP in 2026.
