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ASIAN INTELLIGENCE An Independent Fortnightly Report on Asian Business and Politics No.
1,087 Wednesday March 9, 2022 REGIONAL OVERVIEW .......................... 2 PHILIPPINES .......................................... 10 CHINA ......................................................... 3 SINGAPORE............................................. 11 HONG KONG ............................................. 4 SOUTH KOREA ....................................... 11 INDIA .......................................................... 6 TAIWAN ................................................... 12 INDONESIA ............................................... 7 THAILAND .............................................. 14 JAPAN ......................................................... 8 VIETNAM ................................................. 15 MALAYSIA ................................................. 9 EXCHANGE RATES ................................ 16 POLITICAL & ECONOMIC RISK CONSULTANCY LTD. Fiscal Balancing Acts in Asia in 2022 Political & Economic Risk Consultancy, Ltd. Issue #1,087 REGIONAL OVERVIEW How governments are adjusting fiscal policies After two years of fiscal revenues being pinched by the harsh economic conditions and government spending pushed up by the need to fight the pandemic, most governments in the region are trying to restore a better balance to their fiscal accounts.
This year could see slower GDP growth in most countries compared with 2021, but tax revenues should expand as household and corporate improve and sales tax revenues are incomes supported by higher consumer spending.

A few governments are also raising certain taxes this year or preparing their populations for tax increases in 2023.
Most countries are trying to maintain or increase their spending on physical infrastructure, but they are holding the line as much as possible on recurrent Consequently, most governments are budgeting for smaller deficits in 2022 – if not in monetary terms than in terms of the size of the deficit relative to the GDP.

expenditures.

A few governments will be holding elections in 2022.

Elections normally mean extra spending, but this year even those countries seem to be holding the line on fiscal outlays.
The main variables that will shape the economic environments for Asia in 2022 are common to most countries.

They include the extent that individual countries are able to put COVID-19 behind them, how their fiscal revenues will be affected by higher oil and other commodity prices, rising US interest rates, supply-chain disruptions, and the fallout from the Russia-Ukraine war.

For most Asian governments this will translate into stronger headwinds.
However, for a few, it could mean that conditions are easier.

its in ways in 2022. fiscal equation China is in the camp of those that are seeing that will greatly conditions change complicate The government intends to cut some taxes and encourage more spending on infrastructure.

This is being interpreted by many economists as a sign that the government wants to stimulate the growth of the slowing economy, which is true.
However, the main priority is to preserve stability ahead of the major political meeting in the fourth quarter that will officially extend Xi Jinping’s term as head of the Party and the government.

Preventing the economy from slowing too much is one requirement for stability, but there are other dimensions too.

In particular, China’s economy as well as its regional and global political influence are likely to be affected more by the Ukraine war than will be any other country in East Asia.
The more for achieve China’s response to the war is out of step with the regional and global isolated the more response, China will be and the more the it will be difficult government the to it craves.

for which stability Global sanctions imposed against Russia could hurt China directly too, especially if its insistence on maintaining trading links with Russia prompts those imposing sanctions to apply pressure on China too.
On the other hand, the war is also likely to prompt China to boost its own military spending more than it is doing Page 2 ASIAN INTELLIGENCE March 9, 2022 Fiscal Balance As a % of GDPPhilJapanIndiaMalIndoVietThaiS.K.HKChinaSingTaiFY2021-9.3-8.9-6.8-6.5-4.7-4.7-6.9-4.4-0.6-3.2-0.9-0.4FY2022-7.6-7.4-6.4-6.0-4.3-4.1-3.4-3.3-3.1-2.8-0.50.1-10-8-6-4-202FY2021FY2022Percent Issue #1,087 Political & Economic Risk Consultancy, Ltd. All this already and to pay more attention to the issue of Taiwan.
is making the world more complicated for the leaders in Beijing.

They would probably like to throw more money at these problems, but that would have major downside risks as well in terms of inflation and debt management.

Japan is the one country covered by this report whose current fiscal policy that seems to be out of step with the immediate needs of the economy.
The government drew up its budget for 2022 at a time when the main focus was on COVID and the weakness in consumer spending in Japan, but politics delayed the passage of this plan, and by the time it was actually passed last November, the economic challenges had changed.

COVID was receding as an issue and consumers were starting to spend again, but there was a much bigger need to raise the level of investment, productivity, and job security.

The new Budget does not really address these issues.
Defense concerns have also greatly increased because of the Ukraine crisis, and now the surge in the price of oil, one of Japan’s biggest imports, is threatening to be an even bigger drag on the economy in 2022.

It is very likely, therefore, that fiscal planners in Tokyo will have to make some major fiscal policy adjustments this year.

Those countries that are facing a more favorable fiscal outlook for 2022 are confined mainly to oil and other commodity producers like Indonesia, Malaysia, and Vietnam.
They will benefit from higher prices for oil, natural gas and a number of other commodities, boosting tax revenues from these sources in ways that enable the governments to than most were fiscal deficits reduce anticipating just a few months ago.

faster On the other hand, big oil importers like India, Thailand, and the Philippines will suffer fiscally as a result of the higher energy prices.

Likely fallout CHINA from the war in Ukraine will add to this threat.
Not only will their revenues take a hit, but also they might not be able to push as hard on new infrastructure projects as their current budgets indicate they would like to do.

Higher costs and supply chain bottlenecks could interfere with the implementation of these programs.

The governments of Asia’s four Tiger economies have historically been very conservative in their approaches to fiscal policy.
They had to abandon, or at least modify, this conservatism during the pandemic, but all showed an intention in their latest budgets to return to these conservative principles as soon as possible.

The only one that indicated it will not go back fully to its pre-pandemic fiscal policies is South Korea, where both major political parties have recognized the need to pay more attention to welfare and other social programs.
As matters currently stand, few of the countries covered by this report are likely to suffer a deterioration in their sovereign ratings in 2022.

In fact, oil producers like Indonesia could see an improvement.

Unlike last year, when the downside risks came mainly from COVID.

This will be a diminishing factor in 2022.

Instead, inflation, soaring oil prices, and rising US interest rates that could shift current exchange rate trends are increasing as influences on Asian governments’ fiscal plans.
Because budget deficits will be smaller, access to international financing should not pose big risks in 2022 in any of the countries covered here, but the rise in US dollar interest rates will push up debt servicing costs.

While fallout from the war in Ukraine is the big wild card.

It is also likely to be a factor that ratchets up existing geopolitical risks in Asia like tensions on the Korean peninsula, Taiwan’s autonomy status, South China Sea claims, and US- China tensions.
Comments Although the government cut taxes and fees by over Rmb 1.1 trillion (US$174 billion) last year, total revenues still increased 10.7% to Rmb 20.25 trillion (US$3.20 trillion).

Expenditures rose only 0.3% to Rmb 24.63 trillion (US$3.90 trillion).

Last week, Premier Li Keqiang set a target for an 8.4% increase in budget spending in the coming year and a 3.8% rise in fiscal revenues.
The government wants to reduced the fiscal March 9, 2022 ASIAN INTELLIGENCE Page 3 Political & Economic Risk Consultancy, Ltd. Issue #1,087 deficit to 2.8% of GDP from 3.2% in 2021.

Fiscal goals include supporting manufacturing, smaller businesses and self-employed individuals with tax refunds and cuts reaching Rmb 2.45 trillion (US$395 billion).

The tax rebate for R&D spending by SMEs will be raised from 75% to 100%.
The government will also increase the defense budget by 7.1% to Rmb 1.45 trillion (US$237 billion), faster than last year’s 6.8% increase.

to Transfer tax and payments local governments will be increased 18% to help ease their fiscal strains resulting from the local fee cuts on impact of government revenues.

The government wants to boost infrastructure investment, focusing on projects under construction and major projects, while preventing debt risks.
Towards this end, the finance ministry has offered local governments an early quota allowance of Rmb 1.46 trillion for 2022 special-purpose bonds.

The total limit for local government special-purpose bonds for the full year has been raised to Rmb 3.65 trillion (US$577.8 billion), up from Rmb 3.43 trillion in 2021.

What the authorities do not want to see is for the infrastructure projects local to add the hidden debt of to governments through off-balance-sheet borrowing.
Although both fiscal and monetary policy are turning more stimulatory, the top priority of the leadership in Beijing is on maintaining stability in 2022.

The authorities still want to deleverage the country’s property sector, which acconts for about a third of economic activity but has been hit by a series of defaults among major developers.
But this concern now needs to be balanced against new worries like the potential for higher inflation, negative fallout from Russia’s invasion in the Ukraine (and the unsettling impact of global sanctions on Russia and its handful of supporters in the wake of this invasion), the deteriorating situation in Hong Kong, and weak consumer confidence at home to translate into social and political problems in China.
The worst of all worlds for Xi Jinping this year, when he is getting ready to extend his term in office, would be to have domestic problems emerge that could be blamed on the way his government has managed risks.
Avoiding that is what Xi and other leaders mean by preserving “stability.” HONG KONG Comments The Hong Kong Government, which unveiled its Budget for the fiscal year starting on April 1, is planning on running another deficit, which would be the fourth consecutive year it has done so, but the underlying fiscal policy remains conservative.
The SAR faces a number of major challenges that could cause it to lose some of its appeal as a regional base for multinational companies and banks if the government fails to restore conditions in which companies feel comfortable in posting their senior managers, but fiscal mismanagement is not one of them.
Rather, it is the government’s approach to fighting COVID and the disruption this is having to companies’ ability to have their staff travel into and out of the SAR, as well as the major lifestyle inconveniences for expatriates and their families residing in Hong Kong that are causing more people to leave Hong Kong and companies to shift certain functions elsewhere.
Page 4 ASIAN INTELLIGENCE March 9, 2022 China’s Fiscal Deficit as a % of GDP1.83.43.83.74.22.83.63.22.80.00.51.01.52.02.53.03.54.04.5201420152016201720182019202020212022PercentFigure for 2021 is a estimate and figure for 2022 is a government target.

Issue #1,087 Political & Economic Risk Consultancy, Ltd. No one is complaining about the level of taxation, which remains low.
The major change in the latest Budget is the acknowledgement that Hong Kong intends to follow the OECD’s move to set up in 2023 a minimum top-up tax for large multinationals to ensure their tax rates reach the global minimum effective rate of 15%.

There are no major changes to corporate or individual tax rates this year, and the government will provide more relief in the form of cash vouchers for individuals, one-off tax rebates, utility tariff cuts, and rate concessions.
Total government expenditure for 2022-23 will increase by 15.5% to HK$807.3 billion, including a 15.1% rise in recurrent outlays to HK$682.5 billion and a 17.84% expansion in development spending to HK$124.8 billion.

Total government revenue for 2022-23 is estimated to be HK$715.9 billion, up 4.85% from 2021-22.

The magnitude of the fiscal deficit is not a big worry.
It is equivalent to only about 3.05% of the GDP, and the government is not having any trouble financing it with bond proceeds and transfers from funds and reserves.

Last year, the government fell short of spending all it had budgeted and was able to raise more revenues than it projected.

Consequently, the deficit on the consolidated account, at HK$16.2 billion, was only about 12% of the size projected in the original Budget for last year.
The government is also not in danger of squeezing out the private sector.

Total fiscal spending is equivalent to only about one quarter of the GDP.

There is good reason to believe that the growth of revenues in the years ahead will at least match the increase in expenditures and that the government will not have to take on a heavy debt load.

It will be issuing some bonds under its Green Bond Program.

Such bonds are set to total HK$35.1 billion this year.
Unfortunately for Hong Kong, the quality of the government’s fiscal policy is starting to be measured less by its ability to keep taxes low and still run a surplus (or a temporary manageable deficit) than by its effectiveness in producing the desired results.

There are three areas in which the government is leaving itself exposed to criticism.

One, which has been a criticism for years, is the government’s failure to resolve a housing problem that has priced housing out of the reach of many families.
The present government has not had any more success than previous governments in addressing this issue.

A second criticism of the government’s fiscal policy is that it has set wrong priorities and sounded alarm bells that have been used as excuses for big spending increases when none were really needed.
This criticism centers on the way the government has followed Beijing’s instructions to emphasize how Hong Kong is exposed to dangerous national security risks and that big spending increases on police and other security are needed to meet these risks.

While the government likes to emphasize how it is plowing more funds into the Social Welfare Department, some of the steepest spending increases in the past three years have been allocated to the police.
This year the force has been allocated 15% more than in FY 2021/22.

Finally, the criticism is really mounting on the government for not doing a better job in getting COVID-19 under control and for allowing the dislocations involved with fighting the pandemic go on for so long that it is starting to sap confidence in Hong Kong’s ability to remain attractive as an international business center.
The March 9, 2022 ASIAN INTELLIGENCE Page 5 HK’s Consolidated Fiscal Balance1111.1149.067.9-16.9-251.8-136.7-16.2-91.4-300-250-200-150-100-50050100150200HK$ billion1Before issuance and repayment of bonds.

Political & Economic Risk Consultancy, Ltd. Issue #1,087 fact that the government has spent as much money as it has on this fight is no longer a boasting point.
It is starting to be used as evidence of a lack of leadership competence and an inability to strike the right balance in dealing with competing priorities.

INDIA Comments Finance Minister Nirmala Sitharaman announced an extremely aggressive Budget in February that will emphasize capital spending in the fiscal year starting April 1.
Total spending for FY2022-23 is projected to increase only 4.6% over the revised estimate for the current year to ₹ 39.45 lakh crore (US$533.5 billion), but recurrent outlays are being held steady, while the government has sharply hiked the capital expenditure budget by 24.5% to ₹ 7.50 lakh crore (US$99.9 billion).

This would be equivalent to almost 2.9% of the GDP.
Together with grants in aid for creation of capital assets, the effective capital expenditure for the next year is budgeted at ₹10.67 lakh crore (US$142.2 billion), 27% more than the revised estimate for the current fiscal year of ₹ 8.40 lakh crore and equivalent to about 4.1% of the GDP.
The finance minister highlighted spending on infrastructure, including roads, railways, airports, ports, public transport, waterways and logistics, as well as the green energy transition, digitalization, public health and social infrastructure.

To help finance this spending, the government plans to issue sovereign green bonds.

For ordinary income tax payers, there were no real takeaways other than some easing of compliances and a new I-T return system.
And for the bottom of the pyramid that suffered income and job losses during the pandemic, the Budget did not offer any major support despite five states including Uttar Pradesh and Punjab going to polls.

However, the government will extend the Emergency Credit Line Guarantee Scheme, a facility to provide collateral-free loans to small and medium enterprises, by another year and enhanced the credit line by ₹50,000 crore to ₹ 5 lakh crore.
The government is also planning to allow the Reserve Bank of India to launch a “digital rupee” in the coming year.

The new Budget tax a cryptocurrency trading profits at 30%.

Such a proposal includes to high rate could discourage trading in the highly controversial asset.
The underlying tone of optimism in the new fiscal plan, including the reduction in the size of the deficit relative to the GDP to 6.4% in FY 2022-23 from 6.9% in the current year, is based on the assumption that the GDP will grow 7.8% in real terms.

This is a more realistic approach than last year, when the government originally predicted a real growth of 11% but then had to scale it back to 9.2%.
Still, raising development spending as much as the government has indicated it would like to do could stretch its capabilities.

It might be better to call the development plan “aspirational” rather than a realistic projection.
Revenues in the coming fiscal year are not expected to match the 27.3% increase now estimated for the current year, but they are still budgeted to grow nearly 10% to ₹ 22.84 lakh crore (US$305.3 billion), which Page 6 ASIAN INTELLIGENCE March 9, 2022 India’s Fiscal Deficit as a % of GDP4.13.93.53.53.44.69.56.96.4012345678910Percent Issue #1,087 Political & Economic Risk Consultancy, Ltd. would leave the government with a deficit of US$227 billion, or only slightly larger than the one projected for the current year.
In addition to a decline in the burden required to fight COVID, India’s fiscal accounts should be helped by the sales of shares in major state enterprises.

To be sure, Indian equities are currently under heavy selling pressure, but the government would still benefit from its sale of a 5% stake in Life Insurance Corporation of India.

The government is hoping to raise US$8 billion from this IPO alone.
It would like to complete the sale fast so it can include the proceeds into the calculations for this year’s fiscal accounts, but it is more likely to complete the deal in FY 2022/23, delaying the benefit until next year.

High oil prices and supply distortions are likely to replace COVID as the main dangers impeding India’s growth and the government’s ability to carry out its aggressive infrastructure investment program.
There is already a US$20-per-barrel increase in the price of oil over the estimates used by New Delhi in drawing up its Economic Survey 2022.

This impacts India’s growth story.

The Ukraine crisis adds to this threat.

Russia in not a major supplier of oil and gas to India, but the war is already pushing up energy prices, and this could have a major negative impact on India in the coming year, upsetting a number of the government’s current plans.
INDONESIA Comments Indonesia’s actual fiscal performance last year was stronger than when the government unveiled its Budget.

The finance ministry originally projected a fiscal deficit for the 2021 of Rp 1,006.4 trillion (US$72 billion), equivalent to 5.7% of the GDP.

However, the actual shortfall for 2021 is estimated to have been only Rp 783.7 trillion, or 4.65% of GDP, as revenues greatly exceeded original projections.
Thanks to higher than expected prices received for oil and other commodities, Indonesia’s revenues grew 21.6% to Rp 2,003.1 trillion (US$140.43 billion).

Total government spending in 2021 was Rp 2,786.8 trillion (US$139 billion), in line with original budget plans to hold spending to Rp 2,750 billion.

For 2022, the government has projected a budget deficit of Rp 868.2 trillion, which would be equal to 4.85% of GDP.
However, as was the case last year, the actual shortfall for 2022 could be less than what is now being forecast.

Although few economists are so optimistic as to predict that the size of the deficit might drop to as low as 3%, the upper legal limit the government has set for 2023, this target could be a lot more achievable if tax hikes approved by parliament in late 2021 are factored into the revenue target and recent increases in commodity prices are sustained.
In other words, this could be a surprisingly good year for Indonesia, despite the ongoing problems with COVID-19 and the certainty that tourism earnings will stay depressed.

State spending for 2022 has been set at Rp 2,714.2 trillion (US$189 billion), including Rp 1,944.54 trillion allocated for the central government spending and Rp 769.61 trillion regional administration spending.
The revenue target has been set at the for March 9, 2022 ASIAN INTELLIGENCE Page 7 Indonesia’s Fiscal Deficit as a Percentage of GDP1.902.302.252.582.462.511.762.236.104.654.850123456720122013201420152016201720182019202020212022Government forecastPossible result in view of higher commodity pricesPercent Political & Economic Risk Consultancy, Ltd. Issue #1,087 Rp 1,846.0 trillion.

This would be 5.9% more than the original revenue target set for last year but 7.8% less than the amount actually raised.
However, global conditions have changed substantially since this projection was made (in September 2021), and actual revenues for this year could be considerably higher.

This year about 20% of central government expenditure will be spent on paying interest.

However, a smaller fiscal deficit means the government could reduce its bond issuance target for 2022, which could help to strengthen its reputation in the eyes of major credit rating agencies.
The economic recovery from the COVID-19 pandemic and high commodity prices should support 2022's tax take.
Revenues will also be boosted by new tax measures, including an increase in the standard VAT rate from 10% to 11% from 1 April 2022 (with a further increase to 12% scheduled for January 1, 2025), the removal of a number of VAT exemptions, a new top individual income tax rate of 35% on income exceeding Rp 5 billion from 2022, along with an increase in the upper threshold for the 5% rate from Rp 50 million to Rp 60 million, and the introduction of a new carbon tax from April 2022 based on market pricing per kg of CO2 equivalent on goods and activities with greenhouse gas emissions, with a floor rate of Rp 30 per kg that will initially apply for coal power plants.
JAPAN Comment Economists are very critical of Japan’s latest Budget, unveiled late last year.

They complain that politics delayed the finalization of a new fiscal plan and resulted in priorities that reflected conditions of the past rather than what Japan needs now.
Critics say the government should be focusing on ways to longer-term growth boost the economy’s through targeted investments in areas such as the health infrastructure, but it is instead emphasizing short-term fiscal stimulus by transferring cash into the hands of households.
public labor force and The government’s aim when it began formulating the Budget for 2022 was to stimulate consumer spending and confidence in the wake of the disappointing Tokyo Olympics, the rapid rise in COVID cases in the months that followed, and the change in political leadership in September, which resulted in a general election being called for October and a delay in announcing the new fiscal plan.
By the time the new Budget was announced in November, the economy was already recovering and confidence was improving as a result of a relaxation of COVID-19 restrictions.

This boosted consumer spending and helped the GDP grow at an annualized rate of 5.4% during the fourth quarter of 2021.
A direct distribution of 100,000 yen (US$872) to households with children younger than 18, which is a central part of the new Budget, is unlikely to produce the desired results, especially since evidence shows that the last time the government made such a distribution, around 70% of the money ended up in bank savings, not consumer spending.
The Budget for 2022 calls for an increase in general account total expenditure of only 0.93% over the amount originally planned for 2021 to 107.6 trillion yen (US$936 billion).
One third of the total spending has Page 8 ASIAN INTELLIGENCE March 9, 2022 General Account Expenditure and Tax Revenue Trends020406080100120140160Total expenditureTax revenuesTrillion yen Issue #1,087 Political & Economic Risk Consultancy, Ltd. been earmarked for social security programs, 5.7% for public works, 5.1% for education and science, and 5.0% for national defense.
The contingency fund for fighting COVID-19 is equal to 4.6% of total spending, while national debt services will absorb 22.6% of total expenditures.

Revenues are forecast to grow 13.55% over last year’s planned amount to 65.24 trillion yen (US$567 billion), leaving a projected deficit of 42.4 trillion yen (US$369 billion), which will be financed by borrowings and other revenues.
Of the borrowings, 30.68 trillion yen will be raised through special deficit-financing bonds and another 6.25 trillion yen from construction bonds.

This will push up the ratio of outstanding government bonds to GDP to 181.8% in 2022 from 177.0% in 2021.

MALAYSIA Comments The government allocated a total of RM332.1 billion in spending for the fiscal year that started on January 1, 2022, which would be equivalent to 20.3% of anticipated GDP.
The 6.3% planned increase in operating expenditure is mainly due to supplies and services, debt service charges as well as emoluments.

Development expenditures will be directed towards the implementation of programs and projects under 12th Malaysia Plan.

These include the Electrified Double Track Rail Gemas - Johor Bahru, Rapid Transit System Link and Pan Borneo Highway.
Government revenue is expected to increase 5.9% to RM234 billion in 2022, driven by the anticipated increase in tax revenue collection to RM171.4 billion and non-tax revenue to RM62.6 billion.

The fiscal deficit for 2022 is projected to shrink to 6.0% of GDP from 6.5% in 2021.

New tax initiatives include the imposition of an income tax on Malaysian residents on income derived from foreign sources and received in the country from January 1, 2022.
Sales tax levy to be imposed on low- value goods from abroad sold by online merchants and sent to consumers in Malaysia via air courier services, while service tax has been levied on e-commerce platforms except for food and beverages delivery and logistics.

The government also plans to introduce a special one-off tax, a “prosperous tax,” on high-income companies.
Overall Fiscal Position of the Malaysia Government for FY2022 to FY2022 RM billion % change 2020 2021 revised 2022 planned 2020 2021 revised 2022 planned Revenue Operating expenditure Current balance Gross development expenditure Less: Loan recovery New development expenditure COVID-19 Fund Overall balance Primary balance 225.08 224.60 0.48 51.36 1.26 50.10 38.02 -87.64 -53.15 221.02 219.60 1.42 62.00 0.80 61.20 39.00 -98.78 -59.78 234.01 233.50 -0.51 75.60 0.60 75.00 23.00 -97.49 -54.39 -14.9% -14.7% -5.2% -21.5% -4.7% -1.8% -2.2% 20.7% -36.5% 22.2% 2.6% 5.9% 6.3% 21.9% -25.0% 22.5% -41.0% The government’s fiscal position this year could turn out to be stronger than what the authorities have currently budgeted thanks to a windfall from higher oil revenues.
When at the end of October it unveiled the Budget for the fiscal year that started January 1, 2022, it assumed that the price of oil would average US$67 per March 9, 2022 ASIAN INTELLIGENCE Page 9 Political & Economic Risk Consultancy, Ltd. Issue #1,087 barrel this year.

Moreover, it extended this assumption not only through 2022 but also through 2024, projecting that the government’s total income from oil revenues during this three-year period would be RM135.3 billion, or 18.4% of total revenues.
Considering that it is only early March and world oil prices are already over US$100 per barrel, the government should receive a lot more in dividend payments from Petronas than it is currently projecting.

How much more is anyone’s guess at this point.

At the present rate, actual revenues from petroleum could be 38% more than is currently projected, but the disruptions to global fuel supplies and the impact on oil prices from the conflict in the Ukraine has just started.
It is entirely possible that the war will last longer than Moscow had hoped and, even if it does not, it is a certainty that sanctions leveled against Russia will have a disruptive impact on energy and raw material prices in ways that push prices higher rather than lower in the short term.

For most of the world, this will be a painful burden for their economies to carry, but for Malaysia it could be a major boon.

This could help to improve investor sentiment toward Malaysia considerably.
The large size of the public sector debt would no longer look so intimidating, the high costs of dealing with COVID would look much more affordable, and the fiscal deficits for 2022 as well as following years could be much smaller than what the government is currently predicting.
PHILIPPINES Comments The main goals of the government’s fiscal policy in 2022 are to support the recovery of the economy from COVID-19, with special attention on getting funds to local governments, enhancing the country’s health system, and providing more social support.

Despite this being an election year, the program is the most conservative since 2019.
The pandemic hit government revenues more than it did spending, and official estimates are that the fiscal balance as a percentage of GDP increased to 7.6% in 2020 and then to 9.3% last year.

The goal for 2022 is to bring the deficit back down to 7.6% and then to keep reducing it in the following two years until it reaches 5.3% in 2024.
Such a reduction will require two things: first, spending and revenue estimates will have to be on target and, second, the GDP will have to accelerate to a growth of 7%-9% in 2022 and then stay above 6% in the following years.

Although possible, these targets are very ambitious, and if the next government, which will take over in the middle of this year, holds the same vision and priorities as those of the Duterte administration.
it remains to be see The current Budget for 2022 calls for an 11.5% increase in spending in 2022 to ₱5.024 trillion (US$96.5 billion), while revenues are projected to grow 14.1% to ₱3.290 trillion (US$63.2 billion).
This would result in a slightly larger deficit than last year -- ₱1.734 trillion vs. ₱1.623 trillion in Page 10 ASIAN INTELLIGENCE March 9, 2022 Government Debt-to-GDP Might Be Peaking39.654.659.160.860.7303540455055606520192020202120222023Source: Department of Budget and ManagementPercent Issue #1,087 Political & Economic Risk Consultancy, Ltd. 2021, but if the growth of the GDP accelerates to 7%-9% from 5.6% in 2021 as the government is currently forecasting, the deficit would decline as a share of the economy.
By sector, education accounts for the largest chunk of the 2022 Budget at ₱803.0 billion.

The second largest allocation (₱771.8 billion) will go to the Department of Public Works and Highways and be spent on communications, roads, and other transport.

Social seurity welfare and employment has been allocated ₱475.9 billion and the health sector ₱252.8 billion.
Public order and safety will receive ₱321.0 billion, while another ₱224.4 billion has been allocated under a separate category called domestic security.

The government plans to spend ₱512.6 billion on debt servicing and interest payments plus another ₱28.7 billion in net lending, which means the debt burden will account for 10.8% of total disbursements.

The government plans to borrow a total of ₱2.473 trillion in 2021.
Following an 77:23 policy, where domestic sources are favored over foreign sources, this amount will be used to fund public services and pay for government debt.

As a result, the national debt level is expected to rise further in 2022 to 60.8% of GDP from 59.1% last year.
SINGAPORE Comments Perhaps the most outstanding feature of the government’s fiscal plan that was announced on February 18 is not that it is prepared to run a deficit again in the financial year that starts on April 1 but that its approach to fiscal policy remains conservative and that it is prepared to raise taxes in order to pay for the government’s spending plans even if that means placing a damper on the growth of consumer spending in the future.
In last year’s Budget, the government tried to prepare the public psychologically for a hike in taxes by announcing that the goods and services tax (GST) would be raised as some undisclosed point in the future.

In this year’s Budget, the government defined that point: starting January 1, 2023, when the GST will be raised by one percentage point to 8%.

It will then be raised another percentage point to 9% a year later.

The government is also bracing the public and business for a rise in other taxes.
The top marginal personal income tax will be raised to 24% with effect from Year of Assessment 2024.

Taxes on luxury cars will also go up., while property taxes will be raised starting in 2023.

The carbon tax will jump fivefold in 2024 to S$25 per ton, and subsequently raised until it reaches between S$50 and S$80 per ton by 2030.
The government is also considering a top-up tax for the corporate tax system which would involve introducing a minimum effective tax rate of 15% to keep Singapore in line with ongoing reform of global tax rules aimed at curtailing tax avoidance by multinational companies.

None of these changes have major implications for new fiscal year, which will remain a period of recovery.

The Singapore government is planning for another deficit to help tide the country through the rest of the pandemic.
However, next year’s projected shortfall of 0.5% of GDP would not only be less than the 0.9% ratio of FY 2021-22, but also would be one of the smallest deficit burdens of any country covered by this report.

Much of the extra spending will again go into the health sector, while the rest will go to support workers and businesses in harder-hit sectors.
However, if the pattern of last year is repeated again in FY 2022, actual development expenditures will fall short of the amount being budgeted, while tax revenues could exceed current projections.

If this happens, the actual size of the fiscal deficit in the coming fiscal year could be less than the S$5.4 billion that is currently being projected.
As the table here shows, the shortfall for the current fiscal year now looks like it will be less than half the S$11.0 billion originally budgeted and barely one tenth the size of the record shortfall suffered in FY 2020.
March 9, 2022 ASIAN INTELLIGENCE Page 11 Political & Economic Risk Consultancy, Ltd. Issue #1,087 Overall Fiscal Position of the Singapore Government for FY2019 to FY2022 (S$ million) Operating Revenue Tax Revenue Fees and Charges Others Total Expenditure Operating Expenditure Development Expenditure Primary Surplus / Deficit Special Transfers Special Transfers Excluding Top-ups to Endowment and Trust Funds Basic Surplus / Deficit BLANK BLANK FY2019 FY2020 FY2021 (Budgeted) FY2021 FY2022 (Revised) (Budgeted) (1,063) (18,989) (25,702) (18,040) (20,652) 15,129 50,822 4,863 7,897 6,242 1,561 33,502 4,863 7,897 2,192 (2,625) (52,491) (30,566) (25,937) (22,844) Top-ups to Endowment and Trust Funds 13,568 17,320 - - 4,050 Net Investment Returns Contribution 17,038 18,244 19,556 20,329 21,558 Less: Interest Costs and Loan Expenses 97 Overall Budget Surplus / Deficit 845 (51,567) (11,010) (5,609) (5,433) Note: Negative figures are shown in parentheses.
SOUTH KOREA Comments The government will maintain its expansionary fiscal policy throughout 2022, to provide the impetus for an economic recovery in the first half by frontloading 63% of the annual budget.

This means that supplementary budgets will be announced as the year progresses.

One was already unveiled in February, while at least one more is likely to be announced after a new government takes over following the coming elections.
The February reset raised total government expenditure in 2022 to 624.3 trillion won (US$517.9 billion), an increase of 3.2% from actual spending for last year.

More than one-third of the Budget will be spent on health care, social welfare and job creation, while 14% will be allocated to the education sector.

The country plans to spend 11.9 trillion won for the environment sector to achieve its goal of going carbon neutral by 2050.
Under the proposal, it envisions adding 500,000 eco- friendly cars and a 2.5 trillion-won fund for fighting climate change.

For small business owners, 1.3 trillion won was added to the Budget in the supplementary package.
The correction factors for compensation of the loss was raised to cover 90% of the loss and account for restaurants and cafes which installed protective partitions, and expand relief payment recipients to include simplified taxpayers and hospitality and restaurant businesses with annual sales revenue between 1 to 3 billion won.

To support the vulnerable groups, 1 million won will be paid to dependent employed workers, freelancers, corporation-owned taxi and bus drivers, and artists and performers.
Support for care workers, activity assistants for the disabled, and child care services will be strengthened as well.

Page 12 ASIAN INTELLIGENCE March 9, 2022 Issue #1,087 Political & Economic Risk Consultancy, Ltd.

There has been no change in revenue projections.

They are to increase 14.7% over last year’s original revenue target and by 7.6% over the revised target to 553.6 trillion won (US$459.3 billion).
Although the consolidated fiscal deficit is now expected to increase to 70.8 trillion won from 54.1 trillion won in the original budget for this year, the projected shortfall will still be less than last year’s deficit of 90.3 trillion won, reducing its share of the GDP to 3.3% from 4.4%.

The size of the outstanding government debt will rise to 1,075.7 trillion won (US$892 billion) from 965.3 trillion won last year.
While this would push up the ratio of government debt- to-GDP to above 50% for the first time, that is still a small burden compared with most OECD countries and is a reflection of the underlying conservatism practiced by Korea’s fiscal planners.
Korea’s 2022 Supplemental Budget Proposal (won trillion, percent) TOTAL REVENUES (Y-O-Y, %) TOTAL EXPENDITURES (Y-O-Y, %) CONSOLIDATED FISCAL BALANCE (% TO GDP) GOVERNMENT DEBT (% TO GDP) 2020 BUDGET 2021 BUDGET 2022 BUDGET Original Revised Original Revised Original Revised 481.8 -1.2 512.3 -9.1 -30.5 -1.5 805.2 39.8 470.7 -1.1 554.7 -18.1 -84 -4.4 846.9 43.9 482.6 2.5 558.0 0.6 -75.4 -3.7 956 47.3 514.6 9.3 604.9 9.0 -90.3 -4.4 965.3 47.3 553.6 7.6 607.7 0.5 -54.1 -2.5 553.6 7.6 624.3 3.2 -70.8 -3.3 1,064.4 1,075.7 50 50.1 Korean authorities modified their longstanding commitment to fiscal discipline to fight COVID-19.
Now that the pandemic is lessening, they might try to stop the growth of the deficit, but a change in underlying priorities is likely to mean there the government does not return completely to its former practice of running annual surpluses.

Both major political parties are starting to embrace more expansionary programs that included planned spending increases related to job creation, welfare payments, and research & development.
TAIWAN Comments Taiwan’s legislature passed the Budget for 2022 in mid-January.

Lawmakers cut the Cabinet's proposed expenditure by NT$27.34 billion to NT$2,251 billion (US$80.2 billion).

This was still 5.4% more than the amount budgeted for last year.

A little more than one quarter of total spending has been allocated for social welfare, and another 20% for education, cultural and science projects.

It also proposed a five-year special defense budget of NT$237.3 billion (US$8.45 billion) from 2022.
This package comes on top of a record annual defense budget of NT$471.7 billion set for 2022.

Russia’s invasion of Ukraine and the surprisingly strong defense being put up by the Ukrainian people in the face of overwhelming odds – coupled with the strong global suport other countries have shown for Ukraine in large part for its determined response – resonates strongly in Taiwan and could prompt an even bigger defense push.
Consequently, the special defense package unveiled in January is likely to be increased even more through both special supplementary budgets and large annual increases in defense allocations in future budgets.
March 9, 2022 ASIAN INTELLIGENCE Page 13 Political & Economic Risk Consultancy, Ltd. Issue #1,087 Lessons from the Russia-Ukraine war are also likely to convince Taiwan to shift away from investments in more conventional defense platforms and spend more to island’s "asymmetrical" enhance capabilities, such as unmanned vehicles, anti- ship missiles and air-to-ground cruise missiles.

the Central government revenues are being projected at NT$2,267 billion for 2022, up 10.4% from last year.
This would bring the government’s fiscal accounts back into surplus by NT$15.9 billion, after having shown a deficit of NT$82.5 billion in 2021. this small surplus, the outstanding central government debt is expected rise to NT$6,627.6 billion this year from NT$6,378.4 billion last year.

However, as percentage of the 3-year-average GDP, the debt is projected to fall back slightly to 32.98% from 33.52% in 2021.
This would be relatively low compared with most other countries in the region, including developed economies, and is an example of the generally conservative approach of the government to fiscal matters.
However, even with THAILAND Comments Low economic growth during the pandemic and lower-than-planned tax collection upended the government’s normal conservative approach to fiscal policy and caused the deficit to swell to the point where many economists feared it could exceed the finance ministry’s cap of 60% of GDP.

Apparently, it has not yet passed that threshold, but it is knocking at the door.
At the end of December 2021, total public debt is estimated to have reached 9.6 trillion baht (US$295 billion), equivalent to 59.6% of GDP.

The total public debt comprised 9.5 trillion baht of domestic loans and 180.7 billion baht of foreign loans (1.1% of GDP).

Thailand’s fiscal year runs from October 1 through September 30.
Although FY 2021-22 is not yet half over, the Cabinet has already approved a 3.185 trillion baht (US$97.8 billion) budget for the 2022-23 fiscal year, up 2.74% or 85 billion baht, from this year’s spending target, which, in turn, was 185 billion baht less than spending in FY 2020-21, the peak year.

The reductions reflect the country’s fiscal planners’ aversion to running budget deficits and their desire to return to pre- pandemic levels of spending.
The military Page 14 ASIAN INTELLIGENCE March 9, 2022 Burden of Central Government Debt(Outstanding Debt/Average GDP for Previous Three Years, %)36.3%35.9%35.8%34.4%33.0%31.6%30.7%29.6%30.1%33.5%33.0%0%5%10%15%20%25%30%35%40%20122013201420152016201720182019202020212022PercentSource: Debt Management Division, National Treasury Administration, MOF.Rapid Growth of Government Debt(outstanding government debt, in baht billion and annual % change)3,0893,5173,8283,9544,4144,4605,0275,5515,7377,0448,5380%5%10%15%20%25%01,0002,0003,0004,0005,0006,0007,0008,0009,00020112012201320142015201620172018201920202021Total government debtAnnual % changeBillions of bahtSource: Bank of Thailand Issue #1,087 Political & Economic Risk Consultancy, Ltd. leaders currently heading the government might have more ambitious spending plans, especially when it comes to defense purchases, but as powerful as they are politically, they seem to be bowing to the fiscal experts when it comes to managing the accounts lately.
This is good news, but the country still was reckless in its policies in the early days of the pandemic.

They initially tried to shore up the battered economy, but it was mostly with short-term borrowing, which jumped from only 19.1% of total government and state enterprise borrowing in 2019 – the year before the pandemic – to 45.4% in 2021.

The authorities now seem to be trying to break this trend.

Throughout the pandemic the government has been far too optimistic in its projections of economic growth.
The pandemic caught every government by surprise, so it is understandable that the 6.2% contraction in the GDP in 2020 was not even contemplated by budget planners, but they expected the GDP to grow by 2.5% - 3.5% in 2021, when the actual expansion rate was only 1.6%.

Budget planners are assuming a growth of 3.2%- 4.7% for this year.
That looks like it could be on the high side too, although not by as much as in the previous two years, but a combination of high oil prices and the possibility of increased domestic political instability means the margin for error is probably more on the downside than the upside.

Moreover, the assumption for inflation, at 1%-3%, could turn out to be too cautious in view of recent oil and commodity price trends.
Of the total spending in the fiscal year that starts next October, recurrent expenditures are to rise 0.72% to 2.39 trillion baht (US$73.49 billion).

This will leave the emphasis on development spending, which is to increase 13.8% over the current year to 695 billion baht (US$21.4 billion).

The caveat here is that such a large development spending increase might be more than the government can implement in a 12-month period.

Actual investment spending is likely to grow more slowly.
Net state revenue is projected at 2.49 trillion baht (US$76.6 billion), up 3.8% on the year, while the planned deficit is 695 billion baht (US$21.37 billion), or 0.71% less than in fiscal 2022.

VIETNAM Comments The Ministry of Finance has set a spending target of VNĐ 1,780 trillion (US$78.05 billion) for 2022, up 4.5% from last year.

Revenues are targeted at VNĐ The 1,410 trillion (US$61.7 billion).

resulting deficit is projected at VNĐ 372.9 trillion (US$16.31 billion), equivalent to 4% of GDP.
This is in line with the magnitude of the deficit registered in 2021 but is up from the average annual fiscal shortfall equivalent to 3.6% of the GDP in the 2016-2020 period.

The major assumptions behind the new plan are that the GDP will increase 6%-6.5% in real terms, consumer price inflation will be about 4%, and total export revenue will grow 5.4%.

The ministry is forecasting that the public debt would be around 47% of the GDP in 2022 and 49% in 2023.
March 9, 2022 ASIAN INTELLIGENCE Page 15 Fiscal Trends in Vietnam0200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0001,800,0002,000,000Total expendituresTotal revenuesBillion dong Political & Economic Risk Consultancy, Ltd. Issue #1,087 The government has set four major goals: reopening the economy in tandem with enhancing healthcare capacity and pandemic preparedness (VNĐ 60 trillion), ensuring social welfare and job creation (VNĐ 53.15 trillion), support for businesses and cooperatives (VNĐ 110 trillion), and developing infrastructure (VNĐ 113.85 trillion).
The investment spending will focus on transport, information technology, digital transformation, and prevention of riverbank and coastal erosion.

The major revenue change in the new Budget is to reduce the VAT rate to 8% from 10% from February 1 for qualified goods and services.
Unfortunately, there are quite a few exceptions to this reduction, including telecommunications, financial activities, real estate, refined petroleum, information technology, and goods and services subject to special consumption tax.

Around VNĐ 5 trillion is reserved to enhance the country’s internet infrastructure.
EXCHANGE RATES Currency Chinese renminbi Hong Kong dollar 3/04/22 6.3177 7.8140 Indian rupee 76.42165 Indonesia rupiah Japanese yen Malaysian ringgit Philippine peso Singapore dollar South Korean won Taiwan dollar Thai baht Vietnamese dong 14,388 114.83 4.1780 52.0490 1.3598 1,217.52 28.14 32.660 22,840 Commercial middle rate expressed in terms of US$1.

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