The region and the globe remain in the grip of a slew of intractable crises on top of the persistent effects of Covid-19, posing precarious economic headwinds and dampening growth prospects for the coming years.
International Monetary Fund (IMF) chief Kristalina Georgieva gave an exclusive interview to The Post’s May Kunmakara on the sidelines of the 40th and 41st ASEAN Summits and Related Summits during her first visit to Cambodia, discussing the challenges and prospects ahead for the world economy, as well as the approaches she believes leaders should adopt in response.
What is the IMF’s take on ASEAN’s economic outlook, given the global economic slowdown amid multipolarisation, geopolitical competition, the Ukraine conflict and Taiwan issue?
We’re going through difficult times, hit by shock upon shock, upon shock. Although we’re still recovering from the pandemic, Russia’s military offensive in Ukraine has dramatically pushed up energy and food prices, leading to high inflation and crisis in many countries.
Our projection for global growth has been revised downwards, and we expect the world economy to grow by a mere 2.5 per cent next year, although there’s a probability we may go even lower, to below two per cent – at least one-third of all countries may be in recession.
On that dark horizon, ASEAN is actually in a bright spot: growth in ASEAN is anticipated to be five per cent this year, moderating a bit to 4.7 per cent in 2023, but still way above the global average.
Why has ASEAN been more successful? Because of the reform that its countries have taken, coupled with the degree of their intra- and extra-regional economic integration, as well as their highly effective response to Covid and other current shocks.
But, there’s no place for complacency. As for your question, we’re experiencing fragmentation, and that’s unfortunately creating more headwinds for ASEAN and the world.
In fact, we’ve calculated that if that fragmentation continues, and the world breaks into two main camps, that will lead to a loss of at least one and a half per cent of global gross domestic product (GDP) – twice as much in Asia due to its high levels of integration.
And for ASEAN, cast against the greater picture, significantly more difficult circumstances will mean that governments have to be even more determined to promote structural reforms as well as increase the quality and efficiency of public spending.
And how does the IMF view the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) Agreement that entered effect on January 1 in 10 of the 15 member states, including Cambodia?
We highly welcome the agreement, as an endorsement of interdependence and a joint approach in seeking solutions.
In the spirit of the ASEAN Summits, themed “Addressing Challenges Together” this year, we expect the deal to create higher living standards in least developed countries, and provide them more and better opportunities to, among other things, bring in investments that generate jobs and returns.
Cambodia’s is a particularly important case, due to its youthful population, the importance of jobs cannot be overstated, nor can the promotion of economic integration for the sake of improving growth prospects.
You have the ambition of becoming a higher middle-income country by the end of this decade, which you can only achieve by reaping the benefits of integration.
How exactly have the current set of global challenges affected regional and world growth prospects for 2023?
Prospects for 2023 are concerning, and we see a slowdown coming. In 2021, we were quite hopeful, with Covid recovery accelerating and global economic growth rebounding to 6.1 per cent.
But then in February 2022, Russia launched a military offensive in Ukraine that has caused a spike in energy and food prices, driving up inflation and interest rates, which poured cool water on growth and has led to tightening financial conditions.
In this environment, we have simultaneous slowdowns in China due to Covid-related restrictions and property sector issues, in the US due to increasing interest rates, and in Europe due to high prices, especially of gas and oil – at least half of the continent is expected to be in recession next year.
The more we fall into the trap of trying to rescue ourselves separately, the more difficult this is to overcome. So, it is paramount to get the world working together, overcoming tensions and seeking the spirit of consensus, which is the spirit of ASEAN. This is not only what Asia needs, but the whole world.
What does the IMF recommend for ASEAN leaders, given the gloomy economic outlook for Europe, which is home to many of the Southeast Asian bloc’s key trading partners?
The most important recommendation for leaders is to be really objective and realistic about the global environment; to recognise that interest rates are going to be elevated sometimes, and that demand from traditional partners is going to be lower.
Let’s remember that 40 per cent of ASEAN’s exports go to three destinations – the US, Europe and China – and all three are slowing down.
On that basis, ASEAN countries must formulate domestic policy to eliminate barriers for private investments and encourage capital inflows, with an even greater focus on domestic resources.
There are priorities that can be addressed domestically. Climate change resilience, for example, has become a major topic for the ASEAN countries, all of which are taking advantage of low-carbon development.
Right now is the time for ASEAN traders to seek to become leading partners in the global value chains driven by digitisation and green economic development goals.
But above all, a prudent domestic public policy focusing on the people must be ensured. After all, ASEAN’s most important resource is its youthful population, and with access to finance, entrepreneurs can develop – good things will follow.
What do you think of efforts to draw ASEAN into the US-led Indo-Pacific Strategy, or similar plans, which ostensibly seek to compete with China’s Belt and Road Initiative?
ASEAN countries are good places because they can work with everybody, and that has been the policy pursued: global integration and collaboration. It has been successful for ASEAN so far.
The big advantage ASEAN has demonstrated during Covid is its diverse set of partners that works. It is also in ASEAN’s interest to keep promoting global cooperation and economic integration as the most effective way to improve the standard of living of its peoples and grow optimally and sustainably.
How does the IMF view Cambodia’s ASEAN chairmanship this year?
Cambodia has done an excellent job in its choice of theme and in bringing the leaders of ASEAN, ASEAN Plus and other key partners as well as international organisations in this critical moment in time.
The Cambodian chairmanship has moved ahead with three important objectives – firstly, the mobilisation of the country in pursuit of structural transformation.
Taking advantage of changes and new opportunities such as those in digital transformations and the development of a low-carbon climate change-resilient economy is important, as is planting the seeds for the unknown opportunities of tomorrow.
Secondly, there’s trade, which has been an engine of growth for the Kingdom, and although the free and open rules-based trade system is quite important for everybody, it is especially so for ASEAN.
And thirdly, we’ve seen a strong orientation towards quality and inclusive growth, which is critical for the success of any country. Everybody – the young, the elderly – everybody, has to find their place and be respected for their contribution to society.
What impressions did Cambodia leave on you, given this was your first visit?
Since this is my first visit to Cambodia, I would like to share my impression: I am so happy to see the country so dynamic, overcoming all the dark chapters of its history so successfully, and becoming a model for how a poor nation can mobilise its talents and resources to stand up and emerge as one of the fastest-growing economies in the world.
This interview has been edited for length and clarity.