The Flags of World Bank members - Photo by World Bank

JAKARTA (TheInsiderStories) – Economic growth in East Asia and the Pacific is projected to soften to 6 percent in 2019 and 2020, down from 6.3 percent in 2018, the World Bank said on Wednesday (04/24). Largely, the Fund said, reflecting global headwinds and a gradual policy-guided slowdown in China, .

Still, the region’ economies weathered the volatility of the financial market of 2018 relatively well largely due to effective policy frameworks and strong fundamentals, including diversified economies, flexible exchange rates, and solid policy buffers.

China’ ongoing, policy-guided slowdown will lead to 6.2 percent growth in 2019 and 2020, down from 6.6 percent in 2018. Growth rates in Thailand and Vietnam are expected to be slightly lower in 2019, each at 3.8 percent and 6.6 percent.

In the Philippines, postponing the ratification of the national government budget for 2019 is expected to weigh on GDP growth in 2019, but growth is expected to increase in 2020. While growth in Indonesia and Malaysia is projected to remain unchanged in 2019.

The World Bank predicts that Indonesia economy to grow by 5.2 percent in 2019 and 5.3 percent in 2020. The Bank’ Chief Economist for East Asia and Pacific Andrew Mason mentioned that East and Pacific Asia could be badly impacted by the increasing pressure since 2018. There’s export slowdown risk, even the global uncertainty is slightly diminishing.

Responding World Bank’ outlook, Indonesia Finance Minister Sri Mulyani Indrawati said that Indonesia will focus on supporting economic growth as anticipation to global economic slowdown condition. She added, Indonesia will encourage consumption to boost economic growth.

To deal with this ongoing risk, in the short term the World Bank recommends the need for buffer strengthening, including rebuilding foreign exchange reserves taken to manage exchange rate volatility in 2018. Monetary policy also needs to be adjusted to be more neutral because the risk of capital outflows has diminished.

The World Bank in its report highlighted the importance of sustainable structural reforms in the medium term to increase productivity, encourage competitiveness, create better opportunities for the private sector, and strengthen human capital.

Rising risks also make the World Bank highlight the need for sustainable investment in social assistance and insurance programs to protect vulnerable communities.

At present, developing countries in East Asia and the Pacific have the lowest social assistance coverage for 20 percent of the poorest population compared to other developing regions.

The report also emphasizes the importance of countries in the Pacific Islands improving debt management, quality of spending, and building fiscal space. While their public debt is relatively low, structural factors place countries in the Pacific Islands at high risk of debt pressure.

These structural factors include the prospect of moderate long-term economic growth, high vulnerability to natural disasters, and high costs for public services and infrastructure.

Meanwhile, the prospect of economic growth in smaller countries in East Asia and the Pacific remains good. Large infrastructure projects are expected to accelerate economic growth in Laos and Mongolia.

Cambodia’s economic growth is projected to remain strong, albeit at a slower rate compared to 2018, mainly due to weaker-than-expected external demand. While expansionary fiscal policies are expected to drive growth in Myanmar in the short term, while recent structural reforms are expected to support growth in the medium term.

Growth is expected to increase in Papua New Guinea in 2019 in line with the economic recovery from the earthquake in 2018. Growth in Fiji is projected to continue to increase, albeit at a moderate pace because the reconstruction effort is nearing completion after a tropical typhoon some time ago.

Vice President for East Asia and the Pacific Victoria Kwaka explained that strong growth in the region should have an impact on reducing poverty levels further, which has now reached historical lows. “Until 2021, we estimate extreme poverty will fall below 3 percent,” Kwakwa said.

However, she also said at the same time, half a billion people in the region remained economically unsafe, and risked falling back into poverty as a reminder of the enormous challenges facing policymakers.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com

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