As the global economy navigates a complex recovery marked by slowing growth, rising borrowing costs and demographic shifts, fiscal policy has become central to building economic resilience, especially in ASEAN+3. At the recent ASEAN+3 Fiscal Policy and Management Exchange (AFPME) Capacity Building Workshop, policymakers and experts convened to examine how to promote growth, maintain fiscal stability and prepare for long-term structural shifts.

The evolving landscape of fiscal sustainability

The International Monetary Fund (IMF) opened with an emphasis on fiscal sustainability and growth, prompting reflection of the current climate. According to the IMF, sustainable public debt requires a primary balance that is both economically and politically feasible, keeping rollover risk low and growth intact. Yet, the benchmark “risk-free” US Treasury rate is itself under scrutiny, as the US struggles with a US$38 trillion debt and declining demand for its long-term bonds, particularly from ASEAN+3 members.

Despite the privileges conferred by issuing the global reserve currency, the US has fallen short of the standards for sustainable public debt. The recent surge in gold prices and talk of “de-dollarization” reflect market skepticism about the US’ fiscal trajectory. This poses a significant challenge when advising countries on their fiscal positions and borrowing costs with reference to the US, particularly given that the US is currently facing difficulties in balancing and funding its own fiscal deficit.

Global public debt, including that of the US, is at its highest level since just after World War II (WWII). Unlike the post-WWII era, which saw rapid growth, financial repression and moderate inflation that reduced debt, today’s governments face greater challenges in managing debt because these factors are now weaker.

A notable example highlighted during the discussion was the treatment of State-Owned Enterprises (SOEs) in fiscal policy. SOEs are often encouraged to reduce costs and consider privatization for greater financially viability. Yet, evaluating them purely on financial metrics or shareholder returns overlooks their broader societal role.

Unlike private companies, SOEs provide essential services and help reduce inequality—benefits not reflected in standard financial assessments. Hence, SOEs should be judged not just by profit margins but by their economic and social contributions. However, any government support should be transparently recorded in fiscal budgets to ensure accountability.

Rethinking the role of fiscal policy

Fiscal policy must move beyond the narrow goal of balancing budgets; it should be seen as a vital instrument to build sustainable, inclusive economies. Governments have the unique ability to create and allocate financial resources toward productive uses, shaping the broader direction of economic development.

The central challenge is not simply whether or not to spend, but how to invest wisely in infrastructure, human capital and economic capacity, while keeping inflation and inequality in check. Fiscal policy must actively support growth, especially in digital and green transitions, without jeopardizing debt sustainability.

The experience of the COVID-19 pandemic underscored the need for flexibility in fiscal policy during times of crisis, and the importance of rebuilding fiscal buffers afterward. Strong fiscal rules and medium-term frameworks help maintain market confidence credibility, allowing for sustainable investment alongside fiscal discipline.

Population aging: fiscal challenges and opportunities

Population aging was a key topic in the workshop, highlighting fiscal challenges for economies such as Japan, Korea, Singapore, Thailand and China. Notably, many emerging and low-income economies are aging before achieving substantial economic growth, compounding the difficulty of managing fiscal resources.

A shrinking workforce can slow productivity and growth, but aging also brings new possibilities. An IMF report highlighted that “the 70s are the new 50s”. Data from 41 advanced and emerging economies shows that, on average, a 70-year-old in 2022 had cognitive abilities equal to a 53-year-old in 2000. This extends the period older people can work and contribute, fueling the “silver economy”.

Rising life expectancies, such as China’s remarkable increase from 71.4 years in 2000 to 78.6 years in 2023, present fiscal pressures, especially for healthcare and pensions. Meeting these costs without undermining intergenerational equity is critical, but such pressures can also drive reform and innovation. Governments should invest in productivity, lifelong learning and care infrastructure to ease fiscal pressures and support growth. Societies that invest in their elderly and workforce strengthen resilience in their economies.

Debt sustainability frameworks

The program’s final day addressed debt sustainability frameworks, underlining the need for rigorous analysis as global debt remains elevated. Effective frameworks help economies manage debt and safeguard fiscal health. Core principles include transparent data for accurate risk assessment, prudent risk management and strong fiscal rules to ensure stability and market confidence.

While the IMF’s framework is widely accepted, China has developed its own for Belt and Road lending decisions. China’s approach prioritizes making finance sustainable, focusing on debt transparency and long-term viability rather than simply restricting borrowing. Ultimately, debt sustainability is not purely a mathematical exercise—it hinges on economic strength and governments’ productive use of resources.

Shaping collective futures

In sum, fiscal policy is not merely an exercise in balancing ledgers, but a strategic lever to shape more equitable outcomes and prosperous societies. By anchoring fiscal frameworks in social objectives, ASEAN+3 economies have the opportunity to harmonize fiscal stability with sustained growth and innovation. By embracing the challenges and opportunities of an aging population, the region can foster inclusive progress and resilience, ensuring economic dynamism and social well-being are mutually reinforcing for generations to come.