Five developing economies in Asean – Indonesia, Malaysia, the Philippines, Thailand, and Vietnam – will show steady growth this year before heading up in 2015 when inflation in Indonesia should cool down and political tensions in Thailand should recede, according to the Asian Development Bank (ADB).

After expanding by 5.2 per cent in 2013, growth in the five largest economies in the Association of Southeast Asian Nation will be steady in 2014. According to the Asian Development Outlook 2014, a new publication by the development bank which was released today, domestic factors and moderating growth in China will largely offset the benefits of higher demand expected from the major industrialised economies. Indonesia’s inflation is expected to fall from 6.4 per cent last year to 5.7 per cent in 2014 and 4.8 per cent in 2015. Meanwhile, Thailand’s economic growth is projected to stay unchanged at 2.9 per cent this year, before growing 4.5 per cent next year.

“The growth outlook improves to 5.6 per cent in 2015, driven by better performances in the two largest Asean economies as inflation cools in Indonesia and political disruption recedes in Thailand,” said the report.

Factors affecting each of them differ, it noted.

Subregional GDP decelerated to 5.0 per cent in 2013 as soft export markets and slowdowns affected Indonesia, Thailand, and Malaysia. Growth in Indonesia, the biggest of these economies, was dampened by policies the government adopted to subdue inflation after it sharply raised fuel prices. Against

this trend, GDP in the Philippines quickened to 7.2 per cent, driven by stronger private consumption and fixed investment. Subregional growth is forecast to be similar in 2014, as gains from better export markets are offset by moderating domestic demand. However, labor tensions in Cambodia and political unrest in Thailand are restraining growth in these neighbors. The outlook improves in 2015, with growth picking up in Indonesia after inflation ebbs, and Thailand’s economy rebounding if political disruption recedes. Southeast Asia’s inflation rate accelerated to 4.2 per cent in 2013, driven by hikes in administered fuel prices in Indonesia and Malaysia. It is forecast to inch up further to 4.3 per cent in 2014 but to ease again to 4.0 per cent in 2015 on lower global commodity prices.

Throughout Asia, all developing economies are expected to extend its steady growth. The region’s growth is projected to edge up from 6.1 per cent in 2013 to 6.2 per cent in 2014 and 6.4 per cent in 2015.

The bank warned that widening income gaps in developing Asia strengthens the case for greater use of fiscal policy to foster equality of opportunity. While the region has benefited from fiscal prudence in the past, demographic and environmental challenges are expected to compete for public resources in the coming years. To boost public spending on equity-enhancing programs such as education and health without undermining fiscal sustainability, the authorities will need to explore a wide range of options for mobilising revenue and to build equity objectives into their fiscal plans.

The ADO 2014 showed that public spending on education averages 5.3 per cent of GDP in the advanced economies, 5.5 per cent in Latin America, but only 2.9 per cent in Asia. The difference is starker for health care (8.1 per cent in advanced economies, 3.9 per cent in Latin America, but only 2.4 per cent in developing Asia) and doubly so for social protection (20.0 per cent in advanced economies, 12.0 per cent in Latin America, but only 6.2 per cent in developing Asia).

Meanwhile, developing Asia needs to expand and strengthen its comparatively limited fiscal resource base. During the 2000s, the ratio of tax revenue to

GDP averaged 17.8 per cent in developing Asia, below the 21.8 per cent recorded in Latin America, 31.9 per cent in the OECD, and 28.6 per cent worldwide. This clearly shows that the region must improve its mobilisation of fiscal resources across all categories. A stronger and broader fiscal resource base will secure the fiscal

space needed to accommodate inclusive fiscal policies.

Greater mobilization of fiscal revenues requires exploring all possible sources. Options include broadening the base for personal income tax and value-added tax (VAT), enlarging corrective taxes and nontax revenues, and introducing naturally progressive taxes on property, capital gains, and inheritance. -The Nation