EXECUTIVE SUMMARY
- ASEAN countries are eager to make a quick economic recovery to make up for lost time. It is timely therefore to evaluate their planned trajectories for a green transformation as some actions taken presently could inadvertently lock in their future decisions.
- ASEAN countries (minus Brunei and Laos) launched a total of US$472.95 billion worth of stimulus packages during the period of 2020-2021, which is equivalent to 14 per cent of the region’s total GDP in 2020. The distribution of support varies from country to country.
- Seven countries in the region received green-related donor assistance in the period 2020-2021 amounting to US$9.92 billion. These were Cambodia, Indonesia, Laos, Myanmar, Thailand, the Philippines and Vietnam. However, over 96 per cent of this assistance was in the form of repayable loans.
- Despite the high levels of interest in green investments in the region, some governments are wavering in their commitments to clean energy transition; this is partly due to the Ukraine crisis which has led to high energy and food prices, compounded by sustained inflationary pressures.
* Melinda Martinus is Lead Researcher (Socio-Cultural) at the ASEAN Studies Centre, while Sharon Seah is Senior Fellow and Coordinator of the ASEAN Studies Centre and Climate Change in Southeast Asia Programme, at ISEAS – Yusof Ishak Institute . The authors thank Beatrice Celine Zamora Riingen for providing data assistance and Siwage Dharma Negara for comments and suggestions.
ISEAS Perspective 2022/86, 26 August 2022
INTRODUCTION
ASEAN countries are moving at full speed to reopen their economies after more than two years of living with COVID-19. In the first quarter of 2022, Singapore, Cambodia, Malaysia, Thailand, Indonesia, Vietnam, and Indonesia fully reopened their travel borders for vaccinated tourists, signalling a determination to accelerate their economic recovery this year. The Philippines, Laos, and Brunei followed suit by lifting their pre-departure COVID-19 tests for fully vaccinated international travellers in May 2022. By July 2022, there were practically no restrictions left for travellers. Relaxation on mask-wearing was implemented in some countries.
Despite the spread of the Omicron variant and the war in Ukraine triggering global economic uncertainty and disruptions in commodity markets, the Asian Development Bank upgraded its forecast for the ASEAN region from 4.9 to 5 per cent in its July Supplement Outlook (ADB, 2022a). The top three economies with the highest predicted GDP are Vietnam (6.5%), the Philippines (6.5%), and Indonesia (5.2%) (ADB, 2022b).
ASEAN governments are now preoccupied with ensuring a quick and full economic recovery to make up for two and a half years of lost time. These unprecedented times also make it timelier than ever to evaluate their planned trajectories for a green transformation, especially since some actions presently taken could inadvertently lock in governments’ future decisions; for example, existing technologies and infrastructure with a combination of institutional governance structures and behavioural norms may lock in countries to a certain path dependency in their efforts to decarbonise (Seto et al, 2016).
This perspective seeks to evaluate ASEAN’s green recovery post-COVID-19. The first section will evaluate how ASEAN economies have utilised their stimulus funding during the period of COVID-19. Looking at the assistance provided by multilateral banks, the second section will analyse the green transformation component in donor assistance. This is particularly important to understand the big picture and the overall appetite for green transformation. Zooming in on the energy sector specifically, the third section will focus on three ASEAN countries to examine if they have been inspired to leverage the COVID-19 crisis and the Ukraine war crisis to transition to cleaner energy.
HOW STIMULUS PACKAGES WERE UTILISED
Over the past two years, the bulk of COVID-19 stimulus measures in ASEAN countries has been targeted at ramping up economic recovery and public health capacity. At the same time, development experts have suggested that countries should embed green stimulus measures to stimulate short-run economic activity while preserving, protecting, and enhancing environmental and natural resources in the long term (Strand and Toman, 2010). Green stimulus could include fiscal measures with a long-term vision, fossil subsidy reform, environmental taxation, and natural capital investment. Countries could also focus on key sectoral areas to expand their green recovery efforts in electricity decarbonisation, building efficiency, sustainable transportation, nature-based solutions, circular economy, and green finance (Dagnet and Jaeger, 2020).
ASEAN countries mostly launched various financial and monetary measures to cushion the impact of COVID-19 reversal from the year 2020 to 2021, however, and most of these were in the form of short-term economic assistance through (1) disbursement of cash assistance to retrenched workers and vulnerable groups, (2) supporting micro, small, and medium enterprises (MSMEs) operations, (3) providing financial assistance and incentives to the heavily-hit critical economic sectors, namely aviation and tourism, and most importantly (4) strengthening emergency health responses such as testing capacity and vaccination (Martinus and Seah, 2020).
According to the COVID-19 Stimulus Tracker provided by the United Nations Economic and Social Commission for West Asia (UNESCWA), ASEAN countries (minus Brunei and Laos) launched a total of US$472.95 billion worth of stimulus packages during the period of 2020-2021 or the equivalent of 14 per cent of the region’s total GDP in 2020 (see Appendix 1). Among these countries, Singapore, Thailand, and Malaysia were the top three spenders on COVID-19-related stimulus relative to their GDP; Singapore spent approximately 37.36 per cent on stimulus spending relative to their GDP, while Thailand and Malaysia spent more than 20 per cent of the same.
There were differences in how ASEAN countries disbursed their stimulus packages. Stimulus packages in low and low-medium-income countries such as Myanmar, the Philippines, and Cambodia were intended to help with the poor and vulnerable population. As Appendix 1 illustrates, in Myanmar, for instance, more than 70 per cent of the total stimulus packages were disbursed for social insurance. In the Philippines, more than 50 per cent of the country’s total stimulus spending was intended for social assistance.
Medium to high-income countries such as Singapore, Malaysia, and Thailand spent significantly less of their stimulus expenditure for health-related support compared to other low-income countries. This is probably due to the fact that these countries already have relatively robust health care infrastructure and facilities in place.
It is also interesting to note that Vietnam spent its stimulus packages (85.62 per cent) mostly on granting loans and tax benefits — the highest rate among ASEAN countries. This could be due to the national government’s priority to incentivise industries, businesses, and manufacturers rather than households and individuals during the pandemic (Medina, 2020). During the first stage of the pandemic, Vietnam saw a low spread of COVID-19 infection due to its proactive approaches in containing the disease, and it thus spent relatively less on public health and social assistance (Chi, 2021). But subsequently, the country was hit hard by the delta variant which led the government to increase measures to contain the outbreak (Huong, 2021).
Unfortunately, where environmental measures are concerned, ASEAN countries have missed the window of opportunity to leverage the COVID-19 crisis. A study from the Global Recovery Observatory found that six ASEAN countries; Indonesia, Malaysia, the Philippines, Thailand, Singapore, and Vietnam allocated zero recovery spending for the environment in 2020 (Oxford University Economic Recovery Project, 2022); the other four ASEAN countries were not covered in the study. Our previous study revealed that only three ASEAN countries, Malaysia, Myanmar, and Singapore introduced a modest amount of green investments in 2021 in their national budget. But even those measures were not necessarily a direct response to the pandemic, but were instead part of their national planning (Martinus and Seah, 2021).
GREEN TRANSFORMATION ASSISTANCE
During the pandemic, various multilateral donors played a critical role in assisting ASEAN member states, particularly low and middle-income countries. Our previous research estimated that as of 30 April 2021, seven ASEAN countries: Cambodia, Lao PDR, Indonesia, Myanmar, the Philippines, Thailand, and Vietnam received US$ 15.67 billion in health-related assistance from four multilateral banks: the Asian Development Bank (ADB), the World Bank (WB), the Asian Infrastructure Development Bank (AIIB), and the International Monetary Fund (IMF) (Martinus and Seah, 2021).
In the period 2020 to 2021, the Asian Development Bank (ADB), the World Bank (WB) and the Asian Infrastructure Development Bank (AIIB) disbursed a total of US$9.92 billion to fund green-related activities in seven ASEAN countries: Cambodia, Indonesia, Laos, Myanmar, Thailand, Philippines, and Vietnam (see Appendix 2). The assistance was disbursed through a combination of loans and grants—notably with 96 per cent in the form of repayable loans. This green-related assistance includes investments in improving disaster risk resilience, sustainable agriculture, green energy transition, water infrastructure, and sustainable forestry, and so forth.
Indonesia and the Philippines were the two largest recipients with more than US$3 billion green-related assistance provided to each over the course of two years. Various assistance provided to these two countries showed the high appetite of both governments and donors for green-related investments. This could be due to relatively high economic growth projection on both countries. Indonesia and the Philippines are among the top three ASEAN countries with the highest predicted GDP growth in 2022 (ADB, 2022c). It should be noted that further studies on private sector green-related investment are needed for a holistic view of appetites for green transformation in these two countries.
There is no scope within this paper to examine the debt levels of Southeast Asian countries when accepting these loans. Global debt rose to US$226 trillion due to the Covid-19 crisis. The IMF’s Global Debt Database documented the largest one-year debt surge after World War II in 2021 with government borrowing accounting for slightly more than half of the increase (IMF, 2022). The emerging markets and low-income developing countries accounted for small shares of the global debt increase but they also faced higher debt ratios due to the large fall in nominal GDP in 2020 (Ibid). The danger, as the IMF warns, is that if global interest rates increase at a rapid pace and growth falters, the debt sustainability of governments would be in question (Ibid). It may bear watching to see how the combination of recovery loans against sustained high inflationary patterns affect the repayment abilities of these countries later on.
POLICIES AND MEASURES FOR CLEAN ENERGY TRANSITION
The steady flow of donor-related assistance to the region demonstrates high levels of interest in green investments in the region. We observe a similar pattern in the issuance of sustainable bonds in the region. The ASEAN Sustainable Finance State of the Market 2021 report reported exceptionally strong growth of green, social and sustainability (GSS) bonds, and loans for the region (Manuamorn, Nguyen, and Tukiainen, 2022). The ASEAN sustainable debt market expanded 76.5 per cent year-on-year with nearly two-thirds of GSS deals being green themed (ibid, p.4). According to one report, ASEAN and East Asia constituted 18.1% of the global sustainable bonds, second only to Europe (Loh and Regalado, 2022).
Despite these trends, some ASEAN governments’ efforts in energy transitions are wavering (see Appendix 3). Over the course of the pandemic, they leveraged the economic crisis to introduce various energy transition policies but nevertheless adopted some environmentally-harmful measures. Due to the absence of data, we decided to focus on Indonesia, the Philippines and Vietnam as case studies of commitment to green transformation.
In the early stages of the pandemic, the government of Indonesia inevitably provided tax incentives for oil and gas and aviation companies to save employment in these industries and protect the economy at large. When the economy recovered slightly, the appetite to increase investments in the renewable energy sector improved. Various policies and programmes such as Program Listrik Surya Nusantara and the elimination of Value Added Tax (VAT) and income tax for various renewable energy projects were introduced. Unfortunately, the war in Ukraine which caused global energy supply crunch inadvertently pushed Indonesia to provide a subsidy package for energy consumption.
The governments of the Philippines and Vietnam are also found to be similarly faltering in their commitments. Although both governments had introduced relatively progressive policies to advance renewable energy and decarbonisation plans when their countries were able to mitigate the COVID-19 crisis, the surging energy and food crisis resulting from the Ukraine war has inevitably pushed them to return to environmentally harmful measures. But unlike Indonesia, which has plans (Sulaiman and Soroyo, 2022) to introduce an additional fossil fuel subsidy package for general consumers, the Philippines (Lagare, 2022) utilised a more targeted measure by providing cash grants and fossil fuel subsidies for low-income groups such as fishermen, farmers and public utility vehicle (PUV) drivers. Similarly, Vietnam does not plan to increase fossil fuel subsidies but intends to temporarily reduce its environmental tax on petroleum products (Viet Nam News, 2022).
Although Vietnam’s and the Philippines’ measures are relatively more calibrated in responding to the global inflationary crisis, there will be those who may potentially backtrack their climate commitments they made earlier at the 26th United Nations Climate Change Conference (COP26) in Glasgow last year. Vietnam and Indonesia pledged to achieve a net-zero target in 2050 and 2060 respectively, while the Philippines is committed to cut its greenhouse gas emissions by 75% by 2030. State Parties to the Paris Agreement have been urged to strengthen their commitments in the lead-up to COP27 in Egypt.
CONCLUSION
The ASEAN region is currently facing a double whammy challenge of COVID-19 recovery and the global inflationary pressures caused by the Ukraine war. Although in general the appetite for green transformation of the governments and international organisations in the region remains high, reducing dependence on oil, gas, and coal has proven difficult. Should ASEAN countries fail to make ambitious moves towards greening the energy sector – one of the largest contributors of greenhouse gas emissions in the region, they are at risk of not achieving their net-zero pledges or their Nationally Determined Contributions (NDCs) to the Paris Agreement. There remains much needed progressive decarbonisation, and energy transition levers such as regulatory framework, investments, national planning, public-private partnerships, and carbon taxation to help them accelerate their climate ambitions.
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Appendix 1: Covid-19 Stimulus Spending in Selected ASEAN Countries (2020-2021)
Source: UNESCWA COVID-19 Stimulus Tracker https://tracker.unescwa.org (accessed May 2022)
* GDP as of 2020
** There are various stimulus amount data on the Philippines. Some sources indicated a much higher amount than this number because some COVID-19 interventions were also embedded in the national budget announcements.
Appendix 2: Green-Related Assistance Provided by Multilateral Banks for ASEAN Countries (2020-2021)
Sources: Asian Development Bank, World Bank, and AIIB Websites
Appendix 3: Policies and Measures in the Energy-Related Sector in Indonesia, Philippines, and Vietnam (2020-2022)
Sources: collected from various media sources
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