Liao Shuping, Xiong Qiyue and Cao Hongyu also contributed to this article
Review and Outlook of the Asian Fiscal Policy from 2023 to Mid-2024
In 2023, as epidemic prevention and control measures were gradually withdrawn, the fiscal policies of Asian countries gradually returned to normalization, with decreased government spending and gradually narrowed fiscal deficit. In 2024, most Asian economies maintain a positive and prudent fiscal policy stance, and fiscal policies are diverging.
I. Fiscal policies turn prudent
In 2023, fiscal policies in Asian countries tended to be prudent, and the pace of fiscal expansion has slowed down. According to IMF data, the broad deficit rate of emerging markets and middle-income economies in Asia was 6.7% in 2023, narrowing by 0.5% compared to that of 2022. In 2024, it is expected that the broad deficit rate of emerging markets and middle-income economies in the Asia will rise by 0.2% to 6.9%.
China’s fiscal policy is moderately expansionary with relatively ample policy space. In 2023, China’s general public budget revenue was RMB 21.68 trillion , an increase of 6.4% compared to 2022, plus RMB 1.68 trillion transferred and carried over from the central budget stabilization fund, government fund budget and state-owned capital operation budget, totaling a revenue of RMB 23.36 trillion ; the general public budget expenditure was RMB 27.46 trillion , an increase of 5.4%, plus RMB 285.124 billion of supplementary central budget stabilization fund and RMB 500 billion of carry-over funds for the next year, totaling an expenditure of RMB 28.24 trillion ; the fiscal deficit was RMB 4.88 trillion . IMF data shows that China’s broad deficit rate was 7.1% in 2023, with a decrease of 0.4% compared to 2022, lower than the levels of the United States and India, but higher than those of the United Kingdom, France, Germany, and Japan. At the end of 2023, China’s general government debt ratio was 77% on the comparable basis of the IMF, which was relatively low globally, laying a favorable foundation for implementing moderately forceful, high-quality, and efficient fiscal policies. In 2024, China’s national general public budget revenue is RMB 22.40 trillion , a YoY increase of 3.3%, plus RMB 2.1 trillion transferred funds and the use of carry-over and surplus, totaling a revenue of RMB 24.29 trillion ; the national general public budget expenditure is planned at RMB 28.55 trillion , a YoY increase of 4%, continuing to narrow down from the 5.4% of the previous year; the general public budget deficit rate is expected to be 3%.
Japan has reduced fiscal spending, but the budget scale remains historically high. In April 2024, the House of Councillors of the National Diet of Japan approved the fiscal budget for the FY2024 (from April 2024 to March 2025). The total budget for this fiscal year is JPY 112.57 trillion, slightly lower than the budget scale of JPY 114.38 trillion in the previous fiscal year, ending the 11-year streak of record-high fiscal budgets, but it is only second to the FY2023, ranking as the second highest in history. In terms of budget expenditures, the new budget significantly reduces the reserve for coping with rising oil and commodity prices and promoting wage growth, from JPY 4 trillion in the FY2023 to JPY 1 trillion. It also completely cuts the reserve for emergency economic measures of JPY 1 trillion allocated for the Ukrainian situation in the FY2023. At the same time, Japan has increased expenditures on national defense, social security, disaster prevention and reduction, and science and education projects. In terms of fiscal revenue, the estimated tax revenue for the FY2024 in Japan is about JPY 69.6 trillion. To make up for the budget deficit, the Japanese government plans to issue new government bonds worth JPY 35.45 trillion, which will increase the dependence of its fiscal expenditure on government bonds to 31.5%. According to the IMF’s calculation, Japan’s broad deficit rate will reach 6.5% in 2024, expanding by 0.7% compared to 2023.
South Korea’s fiscal expansion has slowed down. In 2024, South Korea’s budget for fiscal spending is KRW 656.6 trillion, with a growth rate of 2.8%, reaching a new low since the restructuring of fiscal statistics in 2005; the budget for fiscal revenue is KRW 612.1 trillion, KRW 45 trillion less than the total expenditure. South Korean President Yoon Seok-youl emphasized in his policy speech on the 2024 budget proposal that fiscal austerity is crucial for stabilizing domestic prices and improving the country’s credit rating, and the South Korean government will take prudence as the overall tone of its fiscal operations. Against this backdrop, South Korea’s fiscal deficit is decreasing. According to IMF data, the broad deficit ratio of South Korea from 2022 to 2024 is 1.6%, 1.0%, and 0.6% respectively. In terms of fiscal expenditure structure, South Korea has adjusted KRW 23 trillion in expenses for research and development, treasury subsidies, etc., saving funds to strengthen national basic functions such as national defense, rule of law, education, and health, as well as to protect vulnerable groups.
The fiscal policies of Southeast Asian economies as a whole remain prudent. During the COVID-19 period, the fiscal deficits of Southeast Asian economies have increased significantly, and their debt burdens have become noticeably heavier. Since 2023, major Southeast Asian countries have aimed for normalizing fiscal policies, and their fiscal policies have become more prudent. The Indonesian Prabowo government is expected to increase investment in infrastructure construction, downstream industries of staple commodities, new energy, and other fields, and has proposed free lunch and milk programs in its election promises. The FY2025 budget in Thailand shows that fiscal expenditure for people’s livelihood is expected to account for about one-fourth, while the government will allocate funds for energy security, digital economy, electric vehicles and other industries. The total budget for the FY2024 in Singapore is SGD 131.37 billion, aiming to create a more equal society, provide support to residents, workers, and businesses, and help families and businesses to cope with urgent challenges such as inflation. The theme of the fiscal budget for Malaysia in 2024 is “Prosperous Economy, Empowered People”. The fiscal expenditure scale reaches a historical high of MYR 393.8 billion, with the goal of achieving a GDP growth of over 4%. Measures such as increasing the capital gains tax on unlisted stocks, raising the service tax rate, implementing luxury goods tax, and promoting electronic invoices are taken to boost tax revenue. The fiscal expenditure of the Philippines in 2024 is expected to increase by 9.5% YoY to PHP 5.768 trillion. The expenditure will focus on infrastructure construction, food security, digital transformation, and human capital development projects. The fiscal expansion pace of Vietnam in 2024 is relatively moderate, with an expected YoY growth of 2.1%, significantly lower than the 16.3% growth in 2023. The investment development expenditure is expected to decrease by 6.8% YoY, much lower than the 38.1% growth rate in 2023. The deficit rates for the FY2024 of Singapore, the Philippines, Thailand, and Malaysia decreased by 0.4%, 1.0%, 1.3%, and 1.2% respectively compared to those in the FY2023; the deficit rate of Indonesia remained stable, staying at 2.3% for both the fiscal years 2023 and 2024; the deficit rate of Vietnam showed an increase and then a decrease, reaching 4.4% and 3.6% for the fiscal years 2023 and 2024 respectively.
In July 2024, the first federal budget after the general election in India was announced, outlining the new economic roadmap of “Modi 3.0”. The new budget focuses on employment, social justice, urban development, energy security, infrastructure, and reforms. According to the budget, the total expenditure for the FY2024 in India will reach INR 48.2 trillion, a growth of 7.3% compared to that in the FY2023. The deficit rate is expected to decrease from the initial estimate of 5.1% to 4.9%. As one of the ways to boost the economy, the Modi government has doubled its expenditure on infrastructure in the past three years. The new budget estimates that infrastructure spending will reach INR 11.11 trillion, accounting for 3.4% of GDP, up from 1.7% in 2019/20. In addition, India has announced new progressive tax reforms and tax reductions or exemptions. In terms of tax reduction measures, the corporate income tax rate for foreign companies has been reduced from 40% to 35%, the threshold for personal income tax has been raised from INR 50,000 to INR 75,000, and the basic customs duty on mobile phones and chargers has been reduced to 15%. The tariffs on gold and silver have been lowered to 6%. In terms of tax increase measures, the long-term capital gains tax on all financial and non-financial assets has been raised from 10% to 12.5%, the tax rate on short-term capital gains has been raised from 15% to 20%, and the securities transaction tax on derivative trading has been increased.
The fiscal situation of oil and gas producers in West Asia has deteriorated. The fiscal situation of West Asian economies is closely related to oil and gas revenue. In 2023, due to the impact of the international oil price correction, the proportions of fiscal revenue to GDP of most oil and gas exporters in West Asia, except for a few countries such as Saudi Arabia and Iran, have declined to varying degrees, and that of Iraq has dropped to 37.0% from 46.5% in 2022. In terms of fiscal expenditure, many oil and gas resource countries have adopted expansionary fiscal policies to support infrastructure or economic transformation projects. The proportion of fiscal expenditure to GDP in Kuwait, Iraq, and Saudi Arabia has increased by 6.6, 6.0 and 4.3 percentage points respectively compared to that in 2022. Due to the increase in fiscal expenditure outpacing the increase in fiscal revenue, the fiscal balance of West Asian countries deteriorated in 2023. In 2024, international crude oil prices continue to decline, which may bring greater pressure on the public finances of oil and gas exporting countries in the region.
II. Policies focus on livelihood and industrial development
People’s livelihood issues have become a key concern of fiscal policies in various countries. Affected by factors such as slowing economic growth and sluggish inflation decline, countries in Asia are generally facing difficulties such as increased burden on residents’ lives and difficulties in the operation of small and medium-sized enterprises. Supporting people’s livelihood has become a key area of fiscal expenditure. In the FY2024, Japan’s budget for social security increases by 2.3% compared to the previous year, reaching a historical high and accounting for about one-third of Japan’s total fiscal expenditure. The South Korean government reduces the burden on enterprises and residents by reducing taxes in sectors such as consumption and investment, and providing subsidies to small businesses. Thailand plans to distribute cash to Thai people over the age of 16 with income below a certain threshold through a “digital wallet”, for their consumption in retail stores, convenience stores, and individual businesses. India proposes in the budget to provide a package plan of INR 2 trillion to increase employment within 5 years. The Turkmenistan government has increased wages, pensions, government welfare and student scholarships by 10%, and has built over 491,000 square meters of housing, as well as 52 social facilities and 34 water treatment facilities to support farmers.
Major economies continue to increase fiscal support for key industries. In order to accelerate the development of domestic semiconductor production bases, the Japanese government has allocated approximately JPY 1.5 trillion for additional semiconductor production and research and development subsidies in the supplementary budget passed at the end of November 2023. Together with special accounting and flexible use of existing funds, the actual funds used for semiconductor subsidies will reach JPY 2 trillion. The South Korean government has invested a large amount of funds in the development of local industries such as lithium batteries and chips. The Ministry of Economy and Finance of South Korea announced that it will provide KRW 38 trillion of policy financing to the South Korean lithium battery industry from 2024 to 2029, and proposed investment plans for lithium battery technology research and development, and reserves of lithium cobalt and other lithium battery raw materials. Starting from July 2024, the South Korean government has launched a comprehensive financial support plan of KRW 26 trillion to support its chip industry. Singapore has invested SGD 3billion in the “Research, Innovation and Enterprise 2025 Plan” for research and related investments in advanced manufacturing, sustainable development, digital economy, and healthcare, and specifically invested in AI computing, talent development, and industrial development.
Some countries have increased their fiscal investment in post-disaster recovery and disaster prevention and reduction. China has issued RMB 1 trillion of national bonds in the fourth quarter of 2023, all of which are arranged for local governments through transfer payments, specifically for supporting post-disaster recovery and reconstruction and improving disaster prevention and reduction capabilities, including post-disaster recovery and reconstruction, key flood control projects, natural disaster emergency capacity improvement projects, other key flood control projects, irrigated area construction and transformation, and key soil and water loss control projects. RMB 500 billion of the bonds was scheduled to be used in 2023, and the remaining RMB 500 billion would be carried over to 2024. To support the reconstruction of the earthquake-stricken area in the Noto Peninsula, the Japanese government revised the budget proposal of FY2024, increasing the reserve fund from JPY 500 billion to JPY 1 trillion. The Japanese government will extract the funds needed for the devastated area reconstruction of the Noto Peninsula from the reserve fund.
【This article is AFCA Working Paper No. 2025-09/200】
Expert Biography
Chen Weidong, Director Fellow of Asian Financial Cooperation Association Think Tankers Committee, General Manager of the Research Institute, Bank of China. Dr. Chen joined the Bank in 1999, and was closely involved in the IPO of Bank of China Hong Kong Limited and the restructuring and IPO of the Bank. From 2005 to 2011, Dr. Chen was the Deputy General Manager of the Strategic Development, Bank of China. From 2011 to 2014, he served as the Vice President of Bank of China Liaoning Branch. From 2014 to 2019, Dr. Chen served as the Executive Deputy Director and the Director of the Institute of International Finance, Bank of China. Dr. Chen is also the Secretary General of the China International Finance Society since February 2015, and the chief editor of the journals of Studies of International Finance and International Finance since July 2014.He graduated from the International Economy Department, Renmin University of China with a Ph.D. in economics in 1997.
Liao Shuping, Xiong Qiyue and Cao Hongyu also contributed to this article.
About AFTTC
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