The Sustainability of Asia’s Debt: Problems, Policies, and Practices

Asia has shown the world what success in economic development looks like. From the amazing transformations of Japan, the Republic of Korea, and the other ‘tigers’ in the early 70s, to the more recent takeoffs of the People’s Republic of China (PRC), India, and the leading economies in Southeast Asia, the region has prospered at a startling pace. Technologies were adopted, productivity raised, and export markets conquered. Billions were lifted out of poverty. What was once a backwater is now a global engine of growth. That roaring progress was, however, fueled by a lesser-known factor: borrowing. Governments, corporations, and households financed their path to prosperity with debt—lots of debt. Today, the volume of debt hanging over Asian economies is huge, in both absolute and relative terms. It was growing fast before the pandemic and is projected to grow even faster because of it. Demography is bound to make matters worse in the long term. How sustainable is this? What should policy makers do to keep Asia’s finances stable? Should markets worry? These are the core questions of this book. Through a collection of chapters by renowned experts, a diagnosis of Asia’s debt accumulation is offered. The approach is both country- and issue-driven, so both idiosyncratic and common elements can be identified. Matters like Japan’s social insurance promises, the PRC’s state-owned enterprises, the Pacific islands’ aid dependency, and the saving habits of households in the Republic of Korea are dissected. As are trends that are present across countries, such as population aging, shrinking fiscal space, and contingent liabilities. This allows for a deeper understanding of what makes borrowing sustainable—or not. And it leads directly into policy recommendations, especially those involving the use of new financial instruments. The final product is a book whose comprehensiveness and practicality are unprecedented in the field. It will be equally invaluable for governments, investors, and scholars in Asia and beyond.

Table of Contents:
Contents: Foreword by Yasuyuki Sawada ix Overview and synthesis 1 Benno Ferrarini, Marcelo M. Giugale, and Juan J. Pradelli PART I A DIAGNOSIS OF ASIA’S DEBT 1 Debt in Asia: anatomy, evolution, and prospects 31 Juan Pablo Paladino and Juan J. Pradelli 2 Japan’s public debt sustainability before and after COVID-19 66 Jérémie Cohen-Setton and Keita Oikawa 3 People’s Republic of China: features and recent evolution of corporate debt 87 Ninghua Zhong and Mi Xie 4 Asia’s lower-income countries: concessional public debt, concessional rescues 108 Nicolas Depetris-Chauvin 5 Pacific Islands’ debt: financing post-COVID-19 recovery amid precarious sustainability 136 Roland Rajah and Alexandre Dayant 6 Subnational debt: developing a sustainable market 167 Lili Liu 7 Asia’s corporate debt: assessing its role in financial vulnerability 188 Hernán D. Seoane 8 Household debt: supply-driven sugar rushes 214 Maria Teresa Punzi PART II THE RISKS BEHIND ASIA’S DEBT 9 Fiscal uncertainty: the thankless task of forecasting Asia’s fiscal accounts 239 Ugo Panizza 10 Fiscal space: Asia’s fiscal safety net has shrunk 269 Andrea F. Presbitero 11 Contingent liabilities: monitoring exposures that are difficult to measure 299 Timothy C. Irwin 12 Debt generators: the case of energy subsidies 317 Klaus Enders 13 Population aging and debt 342 Sang-Hyop Lee, Andrew Mason, and Donghyun Park PART III WHAT NEXT? POLICIES TO KEEP ASIA’S DEBT SUSTAINABLE 14 Debt management capacity: a tale of three Asias 367 Phillip Anderson 15 Fiscal insurance: a new tool of fiscal stability 389 Luis de la Plaza 16 Thematic bonds to diversify fiscal sources 409 Farah Imrana Hussain Index 426