EMERGING East Asian economies risk slower growth after they failed to take advantage of ample cash supply made available by global monetary authorities to build roads and ports, the Asian Development Bank (ADB) said.
Funding infrastructure needs has become harder following recent turmoil in regional financial markets, and borrowing costs could rise further when the United States Federal Reserve (Fed) starts tightening policy, the Manila-based lender said in a report yesterday.
Weakening growth momentum could accelerate capital outflows, and moves to defend Asian currencies by raising interest rates will further curb economic expansion, it said.
The ADB estimates the region needs to invest US$8 trillion (RM25.7 trillion) in transport, communication and energy framework in the decade through 2020 to sustain growth. Developing deep and more liquid bonds markets can help emerging economies attract investors such as pension funds to finance such projects and guarantees can help boost the ratings of infrastructure bonds, it said.
"When you are having a party, plenty of cheap money, you don't really pay too much attention on what is more fundamental and needed in the long run," said Iwan Azis, head of the ADB's economic integration office, from Manila.
Building "strong infrastructure" would help shield the region's growth prospects in the event of tapering of global stimulus, he said.
The lender classifies emerging East Asia as comprising China, Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Thailand, Vietnam and the Philippines.
In 2011, Thailand and the Philippines spent 1.5 per cent and 1.6 per cent of their gross domestic product (GDP) on infrastructure, respectively, according to yesterday's report. Spending by Malaysia, Singapore and South Korea each amounted to about 2.3 per cent of GDP, while investment in Hong Kong was at 4.7 per cent, it said.
The ADB in July cut its 2013 growth forecast for developing Asian economies, including India, to 6.3 per cent from a 6.6 per cent expansion predicted in April. The projection for 2014 was lowered to 6.4 per cent from 6.7 per cent.
Indonesia's rupiah is Asia's worst-performing currency this year, losing 16 per cent, as investors fled nations with worsening current-account deficits amid concern less money will flow into emerging markets. Bank Indonesia has raised its benchmark reference rate by a total of 150 basis points, or 1.5 percentage points, since June this year to 7.25 per cent.
Fed chairman Ben S. Bernanke said on September 18 more evidence of a recovery in the US economy is needed before the central bank starts paring its US$85 billion a month of bond purchases. The average yield on Asian-local currency bonds has climbed 68 basis points to 4.17 per cent since May 21, the day before Bernanke first hinted the Fed may start scaling back its record stimulus, an index compiled by HSBC Holdings Plc shows. Bloomberg