We speak with Arup Chatterjee, principal financial sector specialist, sustainable development and climate change department at Asian Development Bank, about how governments in the region must respond as they emerge from the pandemic, and the biggest challenge confronting Asian societies today.
Unravel: Asia looks to put the worst of the pandemic behind it. What must governments focus on to ensure more equitable growth?
Arup Chatterjee: The Asia-Pacific region is emerging from the effects of the pandemic, which had especially direct effect on the economic and social impact on women, youth, the poor, and other vulnerable groups. Managing and reducing the interconnected financial risks to households, businesses, banks, and governments is critical to economic recovery.
Key risks include weak bank balance sheets, the challenge to lenders in identifying sound borrowers during economic disruption, delayed redeployment of productive assets caught up in failing firms, and rising sovereign debt levels. To manage these risks, needed policy actions include managing and reducing loan distress, improving the legal insolvency framework, ensuring continued access to finance, and managing higher levels of government debt.
If the pandemic has taught us anything about public policy, it is the importance of social safety nets, public insurance schemes, and stabilisation funds. These can contribute to countercyclical intervention, public investment, and balanced expenditures encompassing appropriate growth-enhancing economic and poverty-reducing social investments.
The crisis should spur governments to strengthen social assistance, competitiveness, and support for small enterprises to build a more sustainable economy. However, for equitable recovery, countries must consider a differentiated mix of internal and external risk exposure when crafting their policy priorities. For many low-income countries, tackling unsustainable government debt will be the foremost priority. Middle-income countries with financial sectors more exposed to corporate and household debt, however, may need to focus on policies supporting financial stability.
Unravel: Are you hopeful of steps being taken in this direction?
Mr Chatterjee: The recovery from COVID-19 is an opportunity to move towards more resilient domestic financial markets, stronger regional financial cooperation, and robust reforms and programs for mobilising local savings and private sector finance. While economic recovery from the pandemic is expected to continue, growth momentum remains fragile. Inflation, notably rising energy and food prices, and supply-chain disruptions present an ongoing risk to the recovery. Russia’s invasion of Ukraine and rising interest rates in advanced economies could further affect financial markets. Bank profitability and lending have fallen in many countries in the region since the start of the pandemic. And labour markets will take time to heal from their pandemic losses.
Besides tapping multilateral institutions, countries can harness alternative sources of financing such as environmental, social and governance (ESG) bonds. However, bond markets in emerging Asia require stronger institutional and legal frameworks, financial literacy and investor protection, transparency, liquidity, and market infrastructure for investors to participate. Insurance-linked securities can provide additional financial coverage against extreme events. Regional cooperation, such as establishing epidemic and pandemic-risk pools, can also support recovery.
Unravel: What is the biggest challenge confronting Asian societies as we look into 2023?
Mr Chatterjee: Climate change is the biggest challenge confronting the Asia-Pacific region. It is deeply intertwined with global patterns of inequality given that the poorest and most vulnerable populations bear the brunt of the impacts, yet contribute the least to the crisis. Millions face rising extreme events; food, water, livelihood, and health security challenges, and migration and forced displacements. Moreover, major industrial transformations occurring as a result of climate change policies, such as the phase-out of high-carbon industries, put many workers jobs at risk. Some social groups, for example, female-headed households, children, people with disabilities, landless tenants, migrant workers, and the elderly are particularly vulnerable to crises.
Since environmental and socioeconomic risks are strongly interconnected, climate change is not merely an environmental crisis. It is also a social crisis. Therefore, issues related to inequality need to be tackled at multiple levels: between rich and poor countries and between rich and poor people within these countries. Of course, inequality between men and women, and between generations also need to be addressed.
Unravel: How do you think this might be addressed?
Mr Chatterjee: Rather than merely treating people as beneficiaries, engaging with communities as partners is critical. By bringing unique perspectives, skills, and a wealth of knowledge, communities can generate new ideas and take ownership of solutions that address climate change. This citizen engagement in tackling climate risk and green growth will enable them to make informed choices to build resilience for adaptation and mitigation. But creating such coalitions of support will require transparency and access to information. Besides helping reduce climate-related impacts and strengthening resilience, it will overcome political and behavioural barriers to decarbonisation.
It is also crucial that households and businesses have continuous access to financial services and instruments “beyond-credit”. Community based financing and risk management can underpin all efforts to restore economic growth and resilience to economic shocks. Today, the world’s development, adaptation, and humanitarian systems are overwhelmed by numerous challenges. So, investment in innovation, social protection, and safety nets is required. And we must pursue this goal with a clear imperative to protect poor people, be driven by climate justice, and implement it in combination with measures to reduce risk and adapt to climate change.
Success in addressing these risks will help limit the impact of climate change to development outcomes and maintain momentum for “greening” the world economy and “building back better”.
* The views expressed in the interview are personal and not those of the Asian Development Bank.
Arup Chatterjee is Principal Financial Sector Specialist, Sustainable Development and Climate Change Department, Asian Development Bank. His current work involves financial, governance, risk management, and regulatory reforms across different industries. He has held stints with the Bank for International Settlements in Switzerland, and Insurance Regulatory and Development Authority of India.