Against all odds: pursuing a new chance for green recovery in ASEAN | Reviews | Eco-Enterprise


The COVID-19 pandemic has had a profound impact on the global economy, including the countries of the Association of Southeast Asian Nations (ASEAN). Virtually all ASEAN authorities have launched fiscal stimulus packages throughout the pandemic to mitigate the negative impact of COVID-19.

On average, ASEAN member states devoted about 7.7% of their GDP to fiscal stimulus. This includes health and non-health related expenditures (6.2% when combined) and cash support (1.5%).

The COVID-19-related fiscal stimulus is seen as an opportunity to shift the recovery trajectory towards a green and sustainable path. This is especially true given that the size of economic programs launched by governments around the world in just two months was already three times the amount spent during the 2008 global financial crisis.

Therefore, the UN Secretary-General considers this to be a “rare and short window of opportunity”. Other international organizations, such as the World Bank and the IMF, have also called for a green fiscal stimulus to ensure that the recovery path from the COVID-19 pandemic aligns with climate goals.

Along the same lines, many private sector leaders are also advocating for a “green recovery.” The World Economic Forum, for example, launched the Great Reset initiative, one of the essential elements of which is to ensure a greener world after the COVID-19 pandemic.

Nonetheless, current assessments suggest that the amount of COVID-19 stimulus aimed at energy transition among ASEAN member states is limited. The Global Recovery Observatory database shows that zero stimulus spending is considered green in six countries: Indonesia, Malaysia, the Philippines, Thailand, Singapore and Vietnam.

The Global Recovery Observatory database shows that zero stimulus spending is considered green in six countries: Indonesia, Malaysia, the Philippines, Thailand, Singapore and Vietnam.

On the contrary, some expenses can potentially harm the environment. These include incentives for airlines and other forms of transport without green conditions.

ASEAN has recognized the importance of Connecticut Bankruptcy for a sustainable and resilient future to overcome the pandemic by outlining implementation plans as part of its comprehensive recovery framework. Several Member States may also have launched non-quantifiable green recovery programs. However, the limited quantifiable stimulus for the green recovery is alarming, suggesting that ASEAN may miss the unique opportunity to build back better.

Structural problems, especially the limited fiscal capacity of developing countries, are a crucial factor preventing ASEAN countries from allocating a substantial amount of fiscal stimulus to the green recovery. Countries with weaker sovereign credit, higher sovereign bond spreads and higher public debt have found it more difficult to initiate substantial fiscal spending related to COVID-19.

ASEAN countries have also experienced vast fiscal disruption due to the COVID-19 pandemic. On average, the ratio of national government revenue to GDP fell by 1.09 percentage points. Countries are facing more budgetary constraints and are being forced to focus on pandemic response measures to help the most vulnerable households and businesses in the hardest hit sectors, such as tourism, transport and services. small and medium enterprises.

The situation would be more daunting in the medium term, as ASEAN countries face growing budget deficits induced by the COVID-19 pandemic. Over the past year, Member States’ budget deficit as a percentage of GDP has worsened, from -1.3% in 2019 to -5.4%.

As a result, debt also fell from 51.9% of GDP in 2019 to 60.9%. Many Member States have presented fiscal consolidation plans to ensure long-term sustainability. Without a recovery in tax revenues, the government has no choice but to pursue the consolidation of expenditure which could further limit the fiscal space to finance green transition projects.

Meanwhile, the ASEAN Energy Cooperation Action Plan 2021-2025 specifies a 23% share of renewables in total primary energy supply by 2025. This target is to be achieved by increasing the share of renewable energies in installed electrical capacity by 35%. percent from 2005 levels, and reducing energy intensity by 32 percent over the same period.

It is estimated that ASEAN countries need to invest US$367 billion in the power sector to meet the ambitious targets. The limited fiscal space Member States have faced during the pandemic may put this objective at risk. In this case, it requires additional efforts from the governments of the region to cope with a limited budget budget while working towards their energy transition objectives.

To achieve the twin goals of improving the fiscal position post-COVID-19 while achieving energy transition goals, governments should integrate a green perspective into fiscal consolidation efforts.

Options include:

  • Leveraging private participation through green and sustainable bonds;
  • Exercise global and regional financing with multilateral development partners and banks;
  • Implement carbon pricing.

Some countries have considered green bonds as an alternative to using private participation to achieve a green recovery. In 2020, China’s green bond market managed to reach a new high of $44 billion, an increase of 12% from the previous year, despite the impact of COVID-19.

Second, multilateral development banks can play a role in promoting a green recovery from the pandemic. One example is the ASEAN Catalytic Green Finance Facility (ACGF) Green Recovery Program, supported by the Asian Development Bank. It’s about using the Green Climate Fund to help ASEAN countries bounce back without environmental degradation while boosting economic growth by creating green jobs.

Finally, regulated carbon pricing will trigger more energy transition innovations in the private sector and reduce the burden on fiscal space. Singapore, for example, has effectively passed a carbon pricing law since 2019 in its effort to transition to a low-carbon economy.

To mitigate potentially higher energy costs, Singapore uses tax revenue to provide incentives for low-income households and investments for companies that innovate environmental, social and governance initiatives.

ASEAN member states could consider focusing on improving the enabling environment for green recovery. These include establishing a clear and coherent policy framework, introducing incentives to increase investment in clean energy, as well as strengthening institutional arrangements and effective coordination between competent authorities. Adequate green fiscal policies will help mitigate potential inflation due to the transition from fossil fuels and their volatile prices.

With the deadline for climate targets fast approaching, ASEAN countries cannot afford to miss another opportunity for a green recovery from the pandemic. As fiscal disruptions limit countries’ abilities to fund green projects, there is hope to turn the tide.

As governments prepare for fiscal consolidation, it is crucial to build a green perspective into the plan. If green fiscal consolidation is put in place, we can turn the crisis into an opportunity.

Rika Safrina is a Technical Officer in the Modeling, Policy and Planning Department of the Asean Center for Energy, a Jakarta-based energy think tank.

Imaduddin Abdullah is a researcher at the Institute for Development Economics and Finance in Indonesia.


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