The International Monetary Fund has cautioned that capital flight and growing debt will be Asia’s leading economic concerns next year as interest rates keep rising. Also, the IMF cut its outlook for the world economy in its most recent economic forecast earlier this week and issued warnings that several regions of the world might experience a downturn next year.
IMF deputy director says rising debt creates challenges for Asian economies
Annie-Marie Gulde, IMF Deputy Director of the Asia and Pacific Department, said that debt has continued to rise in Asia. She explained that debt has been rising in the private sector since the global economy, and in the public sector, it has grown following the COVID-19 pandemic. Therefore, everything which affects international lending rates creates new challenges for Asian economies.
We have seen capital flows increase, going to levels that we have last seen [sic] at the time of the taper tantrum and certainly anything that further raises interest rates will go through this channel will have impacts on borrowing costs in Asia. So it’s a very important concern that we have.
The IMF warned that several Asian nations were experiencing debt difficulties and countries whose currencies were weakening against a higher dollar risked experiencing a worsening cost of living problem. For example, the dollar’s value relative to the yen is almost at a 24-year peak.
Bond crisis in the UK to have limited impact on Asian economies
According to Gulde, the UK bond crisis will likely have a limited ripple effect on Asian markets. She explained that any event that results in market turbulences would easily impact other economies.
She told CNBC:
Pension fund investing in Asia is less than it had been… what I would want to emphasize is that anything that creates financial market turbulence will find a way and a channel of transmission.
Mercer’s Asia Wealth Business Leader Janet Li said that liability-driven investments (LDIs) exposure is less in Asia than in the UK since long-stream pension’s funds are uncommon relative to lump-sum withdrawal schemes. LDIs, which pension funds mostly hold, match liabilities and assets to guarantee payments to pensioners.
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