Asian economies are going to brace for the growing debt and capital flight, IMF cautions

October 14, 2022: -Asia’s most significant economic challenges will be increasing debt and capital flight as interest rates continue to grow, the International Monetary Fund has stated.

The warnings are coming to IMF trimmed its global growth predictions in its recent economic outlook this week and warned the recent year would feel such a recession for areas of the world.

“Debt has increased in Asia,” IMF Deputy Director of Asia and Pacific Department Anne-Marie Gulde said on Wednesday.

“First, private sector debt has increased since the global financial crisis, but since Covid, public sector debt has gone up. So anything that moves global interest rates gives additional headwinds for Asian economies.”

“We have seen capital flows surge, going to levels that we previously saw at the taper tantrum. Certainly, anything that further raises interest rates through this channel will impact borrowing costs in Asia.”

“It’s a significant concern that we have.”

The taper tantrum of 2013 came when investors responded to the U.S. Federal Reserve’s thoughts to ease quantitative easing by selling off bonds quickly, which triggered a price plunge. 

The IMF gave a warning that debt distress was prevalent in countries in Asia, and those with currencies that depreciate against a stronger U.S. dollar could suffer a more profound cost-of-living crisis. For example, the U.S. dollar is hovering close to a 24-year high against the yen.

Source: International Monetary Fund *Advanced Asia economies refer to Australia, Hong Kong, Macao, Japan, Singapore, South Korea, Taiwan, and New Zealand.

The IMF thinks that global growth will slow to 2.7% in 2023, that’s 0.2 percentage points lower than its July forecast.

In Asia, it cut growth projections for China to 4.4%, down 0.2 percentage points from July’s forecasts. The fund trimmed growth numbers for the ASEAN-5 group of Indonesia, Malaysia, Philippines, Thailand, and Vietnam by a similar amount to 4.9%.