Economy

The Economic Outlook for Southeast Asia, China and India is a regular publication on regional economic growth and development in Emerging Asia. It focuses on the economic conditions of the Association of Southeast Asian Nations (ASEAN) member countries: Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam. It also addresses relevant economic issues in China and India to fully reflect developments in the region. This Update presents the region’s economic outlook, depicting rapidly changing trends and macroeconomic challenges amidst external headwinds.

Appropriately designed Product Market Regulation (PMR) is essential to enhance productivity, boost economic growth and increase welfare. Regulation is needed to address market failures and guarantee the health and safety of consumers. However, by limiting the entry and expansion of firms, a too stringent regulatory environment can hinder an efficient allocation of resources both within and across industries. This paper provides a detailed review of PMR in Indonesia and analyses the country’s performance in this area relative to OECD countries, other G-20 members and regional peers. To do so, it relies on the OECD’s PMR Indicators, which have been recently compiled for Indonesia. These indicators assess the extent to which the regulatory framework of a country is competition-friendly across a range of sectors and regulatory areas. The analysis reveals that PMR in Indonesia is less conducive to competition than in most OECD countries. The scope for improvement is particularly great in areas such as barriers in network sectors, command-and-control regulation, public procurement, the governance of State-owned Enterprises (SOEs) and the extent to which the impact on competition is assessed when designing new regulation. The paper proposes concrete policy measures to align the regulatory environment of Indonesia with that of best performing countries.

Many Emerging Asian countries have been refining macroprudential policies, particularly since the Global Financial Crisis. For instance, they have developed policies targeting housing markets and broadly transposed the Basel III requirements into their national legislation. In the wake of the COVID-19 pandemic, policy makers now need to identify emerging vulnerabilities and their associated financial stability risks and respond with the appropriate macroprudential tools. This publication provides a detailed overview of the current macroprudential policy situation in Emerging Asian countries and explores how the macroprudential policy toolkit has evolved. The report discusses some of the most pressing challenges to financial stability, including the interaction of macroprudential policy with other policies. It also devotes special attention to macroprudential policies for emerging priorities, such as achieving green goals and updating regulatory frameworks to reflect ongoing Fintech developments. Climate change will indeed create new challenges in financial markets, while Fintech developments bring about many economic opportunities and deepen financial systems, but present a variety of novel risks requiring rapid policy responses.

Favourable demographics has boosted Indonesia’s economic growth in recent decades, but its contribution will wane over time. Skills and competences will therefore become increasingly important to raise living standards. Educational attainment has improved considerably, but the quality of education remains disappointing. At the same time, technological changes, new organisational business models and evolving worker preferences make upskilling and reskilling increasingly important. This warrants continuous investment in improving education and lifelong training, in terms of both quality and quantity, with an enhanced role for social partners. Tackling existing and rising skill shortages requires more participation from women, older adults, internal migrants, disadvantaged groups, and foreign workers. Expanding access to early childhood education would provide all children with better opportunities and bring significant benefits. Reducing informality is key to encouraging investment in skills. The COVID-19 crisis has highlighted workers’ insufficient protection against shocks, underlining the need for unemployment insurance. It is also an opportunity to boost digitalisation and innovate with smart practices. School closures are already penalising learning outcomes and will reduce future earnings.

The COVID-19 crisis has had a profound impact on SME access to finance. In particular, the sudden drop in revenues created acute liquidity shortages, threatening the survival of many viable businesses. The report documents an increase in demand for bank lending in the first half of 2020, and a steady supply of credit thanks to government interventions. On the other hand, other sources of finance declined, in particular early-stage equity. This paper, a special edition of Financing SMEs and Entrepreneurs, focuses on the impacts of COVID-19 on SME access to finance, along with government policy responses. It reveals that the pre-crisis financing environment was broadly favourable for SMEs and entrepreneurs, who benefited from low interest rates, loose credit standards and an increasingly diverse offer of financing instruments. It documents the unprecedented scope and scale of the policy responses undertaken by governments world-wide, and details their key characteristics, and outlines the principal issues and policy challenges for the next phases of the pandemic, such as the over-indebtedness of SMEs and the need to continue to foster a diverse range of financing instruments for SMEs.

The design of intergovernmental fiscal relations can help to ensure that tax and spending powers are assigned in a way to promote sustainable and inclusive economic growth. Decentralisation can enable sub-central governments to provide better public services for households and firms, while it can also make intergovernmental frameworks more complex, harming equity. The challenges of fiscal federalism are multi-faceted and involve difficult trade-offs. This synthesis paper consolidates much of the OECD’s work on fiscal federalism over the past 15 years, with a particular focus on OECD Economic Surveys. The paper identifies a range of good practices on the design of country policies and institutions related strengthening fiscal capacity delineating responsibilities across evels of government and improving intergovernmental co-ordination.

The Revenue Statistics in Asian Countries publication is jointly undertaken by the OECD Centre for Tax Policy and Administration and the OECD Development Centre, with the co-operation of the Asian Development Bank and with the financial support of the European Union. It compiles comparable tax revenue statistics for Indonesia, Japan, Kazakhstan, Korea, Malaysia, the Philippines and Singapore. The model is the OECD Revenue Statistics database which is a fundamental reference, backed by a well-established methodology, for OECD member countries. Extending the OECD methodology to Asian countries enables comparisons about tax levels and tax structures on a consistent basis, both among Asian economies and between OECD and Asian economies.

The Revenue Statistics in Asian Countries publication is jointly undertaken by the OECD Centre for Tax Policy and Administration and the OECD Development Centre, with the co-operation of the Asian Development Bank and with the financial support of the European Union. It compiles comparable tax revenue statistics for Indonesia, Japan, Kazakhstan, Korea, Malaysia, the Philippines and Singapore. The model is the OECD Revenue Statistics database which is a fundamental reference, backed by a well-established methodology, for OECD member countries. Extending the OECD methodology to Asian countries enables comparisons about tax levels and tax structures on a consistent basis, both among Asian economies and between OECD and Asian economies.