Statistical Yearbook for Asia and the Pacific 2012
 
   
G. Economy
 
G.2. Fiscal balance

Fiscal balance refers to the difference between government revenues (through taxation and sales of assets) and expenditure. A budget surplus indicates a positive fiscal balance whereas a deficit indicates a negative fiscal balance. Budget deficits can be cyclical or structural; that is, they can remain across business cycles due to excessive government spending compared with revenues. Fiscal policies have a direct effect on the economic performance of a country. The present topic focuses on the fiscal policies adopted by countries in the Asian and Pacific region in an effort to mitigate the effects of the recent financial crisis and to maintain economic growth.

Fiscal positions have deteriorated in most countries in Asia and the Pacific since the global financial crisis began in 2008. This is demonstrated through the increase in fiscal deficits as a percentage of GDP.

Figure G.2-1
Fiscal balance as a percentage of GDP, Asia and the Pacific, 2010 and 2011

Figure G.2-1 Fiscal balance as a percentage of GDP, Asia and the Pacific, 2010 and 2011

The average fiscal deficit in developing economies in the Asian and Pacific region nearly doubled from 1.0 per cent of GDP in the five years prior to the global financial crisis (2003-2007) to 1.9 per cent of GDP during 2008-2011. This was due to an unprecedented scale of fiscal support to revive domestic demand and sluggish economic activities, partly at the expense of tax revenue. The crisis indeed reversed the improving trend in the fiscal performance observed in the pre-crisis period, when the average deficit softened from 2.6 per cent of GDP in 2001 to 0.8 per cent of GDP in 2006 before turning to a small surplus in 2007. If developed economies in the region are included, the overall picture in 2010 would be even less encouraging given a turnaround from fiscal surpluses to deficits in Australia and New Zealand and more pronounced deficits in Japan.

Figure G.2-2
Government expenditure and revenue trends, Asia-Pacific developing economies, 2000-2011 (percentage of GDP)

Figure G.2-2 Government expenditure and revenue trends, Asia-Pacific developing economies, 2000-2011 (percentage of GDP)The average fiscal deficit in developing economies in the region stood at 1.7 per cent of GDP in 2011, which was comparable to 1.8 per cent of GDP in 2010. The marginal change in the regional average nonetheless masks a further increase in the already high deficits in countries of the South Asian Association for Regional Cooperation, at close to 6 per cent of GDP in 2011. While South-East Asia and developing economies in the Pacific recorded a slight increase in their fiscal deficits the same year, the fiscal conditions improved in East and North-East Asia, excluding Japan and Central Asia (based on 2010 data). As in the several preceding years, India, Malaysia, Maldives, Myanmar, Pakistan and Sri Lanka experienced sizeable fiscal deficits in 2011. The persistent shortfalls have constrained fiscal space in many of these countries, thereby weakening their ability to weather adverse demand shocks. On the other hand, Brunei Darussalam, Kiribati, Singapore and Hong Kong, China have consistently enjoyed fiscal surpluses in recent years.

Figure G.2-3 Government expenditure and revenue trends, Least developed countries (LDC), 2000-2011 (percentage of GDP)Figure G.2-3
Government expenditure and revenue trends, Least developed countries (LDC), 2000-2011 (percentage of GDP)

Countries with lower income levels faced higher budget deficits in 2010 and 2011.

Figure G.2-4
The distribution of fiscal balance-GDP ratio in selected groupings, 2007-2011 average

Figure G.2-4 The distribution of fiscal balance-GDP ratio in selected groupings, 2007-2011 averageMost least developed countries have exhibited notable fiscal deficits over recent years. As a group, least developed countries appeared to fare less favourably than landlocked developing countries and Pacific island developing economies. Although the average government revenue-expenditure ratio in least developed countries rose steadily from 62.0 per cent in 2000 to about 72.4 per cent in 2010-2011, the level is still much lower than that of developing economies in the region (at slightly above 90 per cent). The data point to a need to push up the government revenue-GDP ratio in least developed countries from the currently low level of about 10 per cent.

Note: The chart displays data for 44 countries in the region, 14 least developed countries, 12 landlocked developing countries, and 12 Pacific island developing economies. Brunei Darussalam and Kiribati are excluded from the chart, as their average fiscal balances during 2007- 2011 were about 20 per cent of GDP. For the Pacific island developing economies grouping, the data are missing for American Samoa, French Polynesia, Guam, Nauru, New Caledonia, Niue and Northern Mariana Islands.

Box G.2
Fiscal policy in Asia and the Pacific
a

Some countries in the Asian and Pacific region have implemented measures to improve fiscal conditions and to ensure that public spending achieves inclusive and sustainable development.

Several countries have recently launched measures to enhance fiscal conditions in the aftermath of the financial crisis. On the revenue side, new taxes have been introduced or reintroduced: the value added tax in the Lao People’s Democratic Republic in 2010, the 15 per cent withholding tax on interest from bank deposits in the Cook Islands, the net profit tax in the Federated States of Micronesia in late 2012, and the licensing scheme for foreign vessels in Nauru. Efforts to broaden the tax base, simplify the tax structure or modernize the tax administration are seen in Bangladesh, Myanmar, Pakistan, the Philippines and Sri Lanka. On the expenditure side, Turkey rationalized administered prices in 2012 to relieve some fiscal burden, while Malaysia placed greater emphasis on the value-for-money of public spending programmes. Meanwhile, India announced its five-year fiscal consolidation plan.

Examples of the use of government revenues for inclusive development include financial assistance to vulnerable groups such as low-income and elderly citizens in Malaysia and Singapore, higher health insurance subsidies in Viet Nam, a free education policy in Papua New Guinea, and electrification in Myanmar and Timor-Leste. Some countries in Asia and the Pacific have also demonstrated a shift towards programmes that support sustainable development, such as energy-saving technology in China and green growth in the Republic of Korea.

____________________
a ESCAP, Economic and Social Survey of Asia and the Pacific 2013: Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development (United Nations publication, Sales No. E.13.II.F.2).

Further reading

ESCAP. Economic and Social Survey of Asia and the Pacific 2013: Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development (United Nations publication, Sales No. E.13.II.F.2). Available from www.unescap.org/pdd/publications/survey2013/index.asp.

International Monetary Fund. Fiscal Monitor. Available from www.imf.org/external/ns/cs.aspx?id=262.

Technical notes

Fiscal balance (percentage of GDP)
The difference between total revenues and total expenditures of the central Government expressed as a percentage of GDP. Aggregate calculations: Weighted averages using GDP as weight. Missing data are not imputed.

Government revenue (percentage of GDP)
Total current and capital revenues received by the central Government expressed as a percentage of GDP. Aggregate calculations: Weighted averages using GDP as weight. Missing data are not imputed.

Government expenditure (percentage of GDP)
The sum of current and capital expenditures of the central Government expressed as a percentage of GDP. Aggregate calculations: Weighted averages using GDP as weight. Missing data are not imputed.

Source

Source of fiscal balance data: Asian Development Bank, Key Indicators for Asia and the Pacific 2012 (Mandaluyong City, Philippines, 2012). Data on government expenditures and revenue are mostly taken from country sources. The coverage of budget data is not standard throughout the region. Data provided by many countries refer only to the central Government, but those provided by other countries refer to provincial and local governments as well. Data obtained: 13 February 2013.

 
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