ASEAN Economies Maintain “Stable Outlook”
Sept. 24 – Despite the lingering effects of the global economic crisis, the ASEAN economies have “maintained a stable outlook,” according to a report released last week by RAM Ratings. The Southeast Asian credit rating agency cited improving fiscal policies and strong macroeconomic conditions for the region’s positive outlook.
According to the report, “the [ASEAN economies] now have lower external debt levels, better-regulated and stronger financial sectors, robust domestic demand, low unemployment and inflation rates, and high levels of savings.”
Of the ASEAN nations, Singapore received the highest long-term credit rating – gAAA. The country’s strong GDP growth and a current account surplus worth 17.6 percent of gross domestic product contribute to Singapore’s “superior capacity to meet its financial obligations.”
Malaysia (gAA), Indonesia (gA) and Thailand (gBBB) also received ratings in the top tranche of RAM’s rating structure, conferring investment-grade status to these countries’ sovereign bonds.
As emerging economies, the credit rating agency emphasized the importance of domestic policies designed to avoid mass capital outflows, such as those that caused the 1997-98 Asian financial crisis. The ASEAN economies earned their stable outlook in part because of new measures to avoid these unstable capital flows, including large foreign-currency reserves, low foreign-currency debts and efficient exchange rate mechanisms.
“With sufficient foreign reserves to sustain at least 6 months of imports and cover more than twice their short-term external debts, these countries are well able to absorb external shocks, hence reducing the impact of reversals in capital flows.”
Malaysia currently has a capital account worth 8 months of imports. RAM expects this number to remain high as the government prioritizes domestic infrastructure projects, which are not capital account intensive.
Of the major ASEAN nations, RAM believes Thailand and Indonesia are exposed to the greatest risk of capital flow sensitivity due to softening international demand, weakening both countries’ current accounts. Despite this, both nations received the highest short-term credit rating by the agency thanks to strong domestic demand and growing gross domestic products.
The Philippines also received the highest short-term credit rating thanks to its “strong capacity” to meet its immediate financial obligations, according to the report. The country has seen rapid economic growth in recent quarters, up 7.5 percent over the previous year in Q2. The Philippines has also expanded its capital reserves, which can now cover 16 months of imports with a current account surplus of 17.6 percent of its GDP.
The region will continue to show stability as policymakers focus on “protecting their currencies [and] supporting domestic growth” as these are “key determinants of economic and financial stability in the ASEAN region,” said the report.
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