An IMF report advises emerging Asian economies to expand social safety nets and pension coverage to boost domestic demand. This would reduce household savings, increase consumption, and strengthen long-term economic resilience against global uncertainties.
Emerging Asian economies could boost domestic demand and strengthen long-term economic resilience by expanding social safety nets, improving pension coverage and protecting vulnerable households against income shocks, according to an International Monetary Fund (IMF) report.
The firm said in its report that such reforms could become increasingly important as ageing populations, job insecurity and global trade fragmentation expose the limitations of the region’s traditional reliance on exports and investment.
The report notes that household consumption remains subdued relative to income growth across several major emerging Asian economies, including India, China, Bangladesh, Indonesia and Vietnam. A key reason is that households save heavily to prepare for retirement, healthcare expenses, unemployment and other financial emergencies, particularly where public support is limited.
Strengthening Pensions to Boost Spending
Stronger pension systems could help reduce the need for retirement savings and encourage households to spend more. The IMF estimates that raising pension income replacement rates to close about half the gap with advanced economies could increase private consumption by 0.5 per cent to 2.5 per cent relative to the baseline, on average, over 2016–2050. Combining improved pensions with higher retirement ages, where appropriate, could also support labour supply and lift overall GDP by around one per cent relative to the baseline.
Targeted Support for Vulnerable Households
The report also highlights targeted income support as a way to strengthen consumption among vulnerable households. Under a modelled scenario involving conditional cash transfers equivalent to 1 per cent of GDP, alongside reforms to narrow the gender gap in labour force participation, output would be, on average, 6.4 per cent higher than the no-reform baseline. The consumption gains would be particularly significant in countries such as India and Bangladesh, where income uncertainty remains high and there is scope to increase women’s participation in the workforce.
Building a Resilient Economic Model
Policymakers will need to balance stronger household support with fiscal discipline and employment incentives. Well-targeted transfers, more adequate pensions and measures to improve women’s workforce participation could help convert savings into consumption without undermining long-term growth. For emerging Asia, the broader challenge is to build an economic model in which household spending complements exports and investment. Stronger social protection could provide a foundation for more stable, inclusive and resilient growth as external conditions become less predictable. (ANI)
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