ASIATODAY.ID, JAKARTA – The threat of financial stability is haunting ASEAN countries, China, South Korea and Japan, which are members of ASEAN Plus Three due to large debt levels. This is the report by the ASEAN Plus Three macroeconomic research office (AMRO) entitled ASEAN Plus Three Financial Stability Report (AFSR) 2023.
“Rapid accumulation of debt by the private or public sector makes the financial system more vulnerable to sudden shocks,” said AMRO Chief Economist Hoe Ee Khor, at the launch of AFSR 2023 at the second ASEAN Plus Three Economic Cooperation and Financial Stability Forum which took part in network in Jakarta, Tuesday, December 5 2023.
The total debt ratio to ASEAN Plus Three Gross Domestic Product, including corporate, household and public debt, continued to increase to 325 percent of regional gross domestic product during the pandemic, before falling to 299 percent of gross domestic product at the end of the COVID-19 pandemic in 2022.
Rising debt and debt service costs amid the current high interest rate environment have increased risks to financial stability, especially as pandemic support measures have been or are being phased out.
Hoe said the higher debt increase was driven by abundant liquidity and measures to deal with the COVID-19 pandemic.
Abundant and low-cost liquidity provided by global central banks following the global financial crisis has fueled an increase in ASEAN Plus Three debt.
In conditions of long-term low interest rates, many companies, households and governments in the region have taken on new debt to finance consumption and investment.
“The long-term low interest rate environment that existed before the recent rise in global inflation facilitated the accumulation of large debts by businesses, households and governments,” he said.
In addition, monetary and fiscal stimulus measures implemented during the COVID-19 pandemic have further contributed to an increase in the debt to gross domestic product ratio.
Hoe said corrections in house prices and rising debt burdens due to rising interest rates or a recession could increase the risk of default, especially for highly leveraged households. Companies with weak balance sheets may face challenges in refinancing and meeting interest expenses.
“Governments with high debt-to-gross domestic product ratios may face increased refinancing costs and the risk of overextending debt maturities. “The resilience of several bank and non-bank financial intermediaries, which act as debt intermediaries and creditors, may be tested, potentially exacerbating vulnerabilities in financial markets,” he explained.
The ASEAN Plus Three Macroeconomic Research Office (AMRO) is an international organization established to contribute to maintaining macroeconomic and financial resilience and stability in the ASEAN Plus Three region, which consists of the 10 members of the Association of Southeast Asian Nations (ASEAN) and China, Hong Kong, Japan, and Korea. (AT Network)
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