COVID-19 fiscal stimulus is seen as an opportunity to shift the recovery trajectory towards a green and sustainable path. This is especially so as the size of economic packages launched by governments worldwide in just two months was already three times larger
than the amount spent during the 2008 global financial crisis.
Hence, the UN Secretary-General regards this as a ‘rare and short window of opportunity’. Other international organisations, such as the World Bank and IMF, have also called for green fiscal stimulus to ensure that the recovery trajectory from the COVID-19 pandemic aligns with climate targets.
In a similar vein, many leaders in the private sector also advocate for a ‘green recovery’. The World Economic Forum, for instance, launched the Great Reset initiative, where one of the critical components is to ensure a greener world after the COVID-19 pandemic.
Nevertheless, current assessments suggest that the amount of COVID-19 stimulus directed for energy transition among the ASEAN member states is limited. The Global Recovery Observatory database shows that zero recovery spending is considered green in six countries — Indonesia, Malaysia, Philippines, Thailand, Singapore and Vietnam.
On the contrary, some of the spendings may potentially harm the environment. These include incentives for airlines and other forms of transport without green conditions.
ASEAN has recognised the importance of a sustainable and resilient future in overcoming the pandemic by outlining implementation plans under its Comprehensive Recovery Framework. Several member states may have also launched unquantifiable programs for green recovery. However, the limited quantifiable stimulus for green recovery is alarming, suggesting that ASEAN might miss the one-time opportunity to build back better.
One crucial factor restraining ASEAN countries from allocating a substantial amount of fiscal stimulus for green recovery is structural problems, especially the limited budgetary capacity in developing countries. Countries with lower sovereign credit, higher sovereign bond spreads, and higher public debt found it more challenging to launch a substantial COVID-19 related fiscal spending.
ASEAN countries also experienced a vast fiscal disruption due to the COVID-19 pandemic. On average, the ratio of national governments’ revenues to GDP dropped by 1.09 percentage points. Countries faced more fiscal constraints and are forced to focus on pandemic control measures to help the most vulnerable households and firms in the hardest-hit sectors, such as tourism, transport, and small and medium-sized enterprises.
The situation would be more formidable in the medium term as ASEAN countries face widening fiscal deficits induced by the COVID-19 pandemic. Over the last year, member states’ budget deficit as a percentage of GDP worsened from -1.3 per cent in 2019 to -5.4 per cent.
As a result, debt also surged from 51.9 per cent of GDP in 2019 to 60.9 per cent. Many member states have outlined plans for fiscal consolidation to ensure sustainability in the long run. Without a recovery in tax revenue, the government has no choice but to pursue expenditure consolidation that could further limit the fiscal space to fund green transition projects.