President of the Asian Development Bank, Masatsugu Asakawa, warned that rising yields of United States treasury bill could trigger currency and debt crises in Asia like in the past - Photo by ADB Office

JAKARTA (TheInsiderStories) – President of the Asian Development Bank (ADB), Masatsugu Asakawa, warned that rising yields of United States (US) treasury bill could trigger currency and debt crises in Asia like in the past. Currently, he said, developing countries in Asia have accumulated debt in US Dollar=denominated to handle the COVID-19 pandemic.

According to him, this situation increases a risk of capital flight and loan default if it turns out further increases and result the exchange rates depreciation in Asia. Recently, an improving global economic outlook and progress on COVID-19 vaccinations have pushed up bond yields in emerging East Asia such as China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam.

Bond markets in emerging East Asia continued to grow, mobilizing funding for the region’ sustainable recovery from the pandemic. Successful vaccination campaigns, accommodative monetary policy stances, and easing of restrictions are spurring economic activity and shifting the recovery into higher gear,” ,” adds by chief economist of ADB, Yasuyuki Sawada.

While, vaccine rollouts have started in most markets in the region, lifting confidence, according to the report. At the same time, the uncertainty of the pandemic’ trajectory, particularly with regard to new variants and a possible resurgence in cases, continue to weigh on the development outlook.

Uneven vaccine access and a potential adjustment in asset prices due to an escalation of long-term interest rates also pose risks. During end of 2020 to Feb. 15,2021, the government bond yields in most advanced economies and emerging East Asian markets increased. While, improved sentiment boosted most equity markets and regional currencies.

Capital flows into the region’ equity and bond markets also recovered in the last quarter of 2020. According to the Asia Bond Monitor report, local currency bond markets in the region expanded to US$20.1 trillion by the end of 2020, 3.1 percent higher than the preceding quarter and 18.1 percent higher than a year earlier.

The size of the bond market grew to the equivalent of 97.7 percent of the region’ gross domestic product at the end of the fourth quarter of 2020. Local currency bond issuance stood at $2 trillion.

The government bonds dominated the region’ bond stock at $12.4 trillion as of the end of December and the corporate bonds amounted to $7.7 trillion. China remained the region’ largest bond market, accounting for 77.4 percent of emerging East Asia’s total bond stock.

Sawada has predicted developing Asia economic growth is expected to rise to 6.2 percent from a year ago is estimating grew 0.1 percent, the slowest growth for the region since 1961. Excluding the newly industrialized economies of Hong Kong, the Republic of Korea, Singapore, Taipei, China, developing Asia is forecast to grow 6.6 percent in 2021.

Economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic this year even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario. While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year, and this will not be a V-shaped recovery.

Governments should undertake policy measures to reduce the negative impact of COVID-19 and ensure that no further waves of outbreaks occur. Risks to the outlook remain on the downside. He adds, the pandemic may see multiple waves of outbreaks in the coming period and sovereign debt and financial crises cannot be ruled out.

Growth in China is forecast at 7.4 percent this year from last year at 1.8 percent. Hit hard by COVID-19, South Asia prospects for 2021 at 4.9 percent after  contracted by 3.0 percent in 2020. India’ economy is forecast growing to 5.0 percent from minus 4.0 percent in 2020. Economic activity in Southeast Asia is expected to contract by 2.7 percent this year before growing by 5.2 percent in 2021.

Contractions are forecast in key economies as containment measures affect domestic consumption and investment, including Indonesia, the Philippines, and Thailand. Central Asia’ economic activity is expected to recover to 4.2 percent after contracted by 0.5 percent in 2020 due to trade disruptions and low oil prices.

Restricted trade flows and declining tourism numbers have dampened economic outlook for the Pacific subregion. The subregional economy is forecast to contract by 4.3 percent in 2020 before rising to 1.6 percent growth in 2021. The inflation for developing Asia is forecast 2.4 percent from the previous year at 2.9 percent

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