Social distancing has become the primary tool for protecting public health amid the coronavirus pandemic, and its inevitable impact on economic life has required governments to provide income and support to those who can no longer work, even as spending on public health rises.
Nearly all governments globally are now running large fiscal deficits, and a sharp rise in the stock of public debt globally is expected. Asian countries, though, are well-suited to handle this increase in public debt — with some exceptions.
Taiwan and South Korea have it easy
Economies like Taiwan and South Korea have it relatively easy. Taiwan was running a 10.5 percent of GDP current account surplus before the virus, using its high level of savings to invest around the world. Its life insurers in particular were big buyers of risky global bonds.
Thanks to an effective public health response, Taiwan appears likely to avoid the kind of economic shock experienced by Europe and the United States. But there is no doubt that it can accommodate large fiscal deficits. In fact, more Taiwanese bond issuance would help Taiwan’s insurers, who are being forced abroad by the lack of domestic supply.
South Korea is broadly in the same position. The country stood apart from the rest of the G20 by maintaining (unneeded) fiscal surpluses after the global financial crisis, instead relying on a weak won and exports for growth.
As recently as 2018, South Korea ran a fiscal surplus of close to 2 per cent of GDP. As a result, the nation can also reduce its overall risk profile by issuing domestic bonds to its National Retirement System and its life insurers. Financing…