Governments in Southeast Asia are dealing with high debt and fiscal deficit levels

Governments will attempt to rein in spending over the next 18 months as their finances are stretched

B2B and healthcare firms that serve government projects should expect lower levels of spending over the next 18 months than recent announcements suggest. As governments’ fiscal space remains severely strained, they are likely to be more open to private sector participation in government projects. Firms should monitor potential opportunities for collaboration on government projects in 2022 and 2023 while bearing in mind that highly localized companies will be favored for these projects. 


Finances of Southeast Asian governments are facing pressure from three key areas:

External debt – External debt in Southeast Asian economies rose substantially during the pandemic. With most currencies depreciating substantially, the value of this external debt is ballooning. Moreover, as global interest rates rise, these economies will also be squeezed by higher interest expenses on their external debt.

Fiscal deficit – All Southeast Asian governments were forced to spend heavily during the pandemic, which led to alarmingly high fiscal deficits in 2020 and 2021. Fiscal deficits are estimated to remain high in 2022 to support economic recovery followed by a gradual reduction from 2023 onward.  

Subsidies – Southeast Asian governments have provided a host of subsidies in the past four months to soften domestic inflationary pressures. These subsidies have taken the form of price ceilings, cash handouts, reductions in tax rates, and fuel subsidies. The provision of these subsidies has exhausted a substantial portion of government funds.

Our View

Southeast Asian governments’ finances will be under immense strain over the next 18 months. With continued currency depreciation through 2022, the value of foreign debt will only increase further. Continued inflationary pressures in 2022 and 2023 will create the persistent need for government interventions to cool prices. Moreover, Southeast Asian governments will also look to control spending in nonessential areas to rein in the fiscal deficit. Thailand and the Philippines will be under more pressure than other Southeast Asian markets due to extremely high debt levels and large fiscal deficits in 2021.

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