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ADB: Asia Pacific to remain as world’s engine of growth

THE Asian Development Bank (ADB) believes Asia and the Pacific will remain an engine of growth for the world and will continue to do so under a digital Asian Century.

In a curtain raiser event for the 54th Asian Development Bank Board of Governor’s Meeting on Monday, ADB President Masatsugu Asakawa said the pandemic has fast-tracked digitalization in the region.

To cope, the region must exert effort to reduce the digital divide by improving connectivity; lowering the cost of Internet services; and enhancing the use of technology.

“I firmly believe that this region of Asia Pacific will continuously be an engine for global growth, economic growth by overcoming many, many challenges we’re now facing,” Asakawa said. “In order to make our recovery and development paths more sustainable and inclusive, we need to reduce the digital divide.”

Asakawa said around 50 percent of the global population does not have access to broadband connections. This has to change not only because of the need to recover from the current pandemic but also prepare for future pandemics.

These efforts can be addressed through regional and global cooperation, he added. The ADB president said regional cooperation can diversify regional supply chains and enhance the region’s health security, including conducting vaccination.

Asakawa said despite what is happening now, globalization will also help cement the world’s recovery from the Covid-19 pandemic.

“I’m quite sure that globalization will come back, and we need to enhance our global cooperation to fight against this Covid-19 which is also of such a global nature. I do believe that enhanced regional cooperation in this region would surely contribute to the rapid and robust recovery of the world economy. And ADB is most happy to support that,” Asakawa said.

Tax cooperation

Meanwhile, apart from digitalization, Asakawa said countries in the region should also subscribe to domestic resource mobilization and international tax cooperation in order to recover from the pandemic.

Currently, Asakawa said, many countries are “under enormous pressure” when it comes to their budgets and mounting public debt.

Asakawa said foreign-denominated borrowings, specifically those in US dollars, are a matter of concern for him.

He said when the US hikes its interest rates in the “context of monetary policy normalization,” this impacts capital markets globally, including those in developing countries.

When this occurs, Asakawa said, this leads to an increase in interest rates in these countries, creating pressure for capital outflow and depreciating currencies. These could hamper economic growth.

This is why he recommends that countries, particularly developing countries, rely more on domestic resources to reduce their dependency on external finance. This means, raising funds through taxation.

Asakawa said the tax-to-GDP ratio in the region remains low, indicating that developing member-countries have room to restructure tax policies and enhance tax administration capacity.

“I am of the view that this region of Asia-Pacific would continuously attract foreign investment in the form of investment by multinationals. That’s fine, they are welcome to come here, but if multinationals are coming here and conduct economic activities and make profit, then they should pay a fair amount of tax,” Asakawa said.

Tax hub

To this end, Asakawa encouraged countries to participate in the Asia Pacific Tax Hub on domestic resource mobilization (DRM) and international tax cooperation (ITC).

The Tax Hub is dedicated to maximizing international and regional resources of knowledge, expertise, and finance on domestic resource mobilization and international tax cooperation.

This will be done through close collaboration among finance and tax authorities, as well as the country’s development partners such as the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD) and the World Bank, and regional tax associations.

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