ADB: Fiscal prudence, not just growth, is needed after the crisis

Despite the higher growth rates forecast for the region, the Manila-based Asian Development Bank (ADB) reminded developing member-countries (DMCs) like the Philippines of the importance of fiscal prudence after the global economic crisis.

While the average gross domestic product (GDP) growth of the region is seen to hit 7.5 percent in 2010 and 7.3 percent in 2011, this is not enough, said the ADB in the annual report of its countercyclical support facility (CSF).

In a postcrisis environment, DMCs will benefit greatly if they reverted to prudent spending and effective public-finance management they had implemented in the precrisis period, the ADB said.

The $3-billion CSF was established in 2009 for the fiscal-stimulus packages for DMCs affected by the economic crisis. The Philippines was one of the five countries that received CSF loans of $500 million each.  The others were Bangladesh, Indonesia, Kazakhstan and Vietnam. The ADB said the fund will continue to operate until the end of year, with the remaining balance of $500 million available up to December 31.

“As more favorable international and domestic economic circumstances return, DMCs will benefit from a return to prudence and discipline, to prepare themselves for future downturns and emerging challenges, such as inflation in some countries. As economies improve, the CSF’s role as a budget-support instrument for crisis-related fiscal stimulus is diminishing,” the ADB said.

“History shows that premature withdrawal of expansionary macroeconomic policy has been the cause of prolonged economic downturns in other parts of the world.

The global economic crisis was an important reminder that emergency originating in developed countries may easily affect developing Asia,” the ADB said. “The ADB will continue to monitor the recoveries of Asia and Pacific economies.”

The funds, according to the ADB, provided countries with the means to respond to the global economic crisis. The Philippines, for one, averted a recession and posted a positive economic-growth rate of 0.9 percent in 2009.

The bank said the CSF loan for the Philippines was signed in August 2009 and became effective in September 2009.

The loan helped support the government’s social-spending and poverty-alleviation programs, and investments to meet long-term development objectives.

The ADB said the CSF supported the government’s ongoing and scaled-up social-assistance undertakings, such as the Conditional Cash Transfer and the quick-disbursing infrastructure programs in the social and agriculture sectors.

These included the construction and repair of schools and libraries, the enhancement of health facilities and the construction of farm-to-market roads, the bank said. –Cai U. Ordinario / Reporter, Businessmirror