The International Monetary Fund (IMF) report indicates that emerging Asian economies can increase domestic demand and strengthen their economic resilience by expanding social networks, improving pension coverage, and supporting vulnerable households against income shocks.
Economic Challenges and the Need for Reforms
The report notes that such reforms are gradually becoming more important due to an aging population, job insecurity, and fragmentation of global trade. In some of the major emerging Asian economies, including India, China, Bangladesh, Indonesia, and Vietnam, household consumption remains weak compared to income growth. One of the main reasons for this is households' tendency to save excessively in preparation for retirement, healthcare costs, unemployment, and other financial crises, especially in areas with limited public support.
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Strengthening Pension Systems and Targeted Support
Strengthening pension systems can reduce the need for retirement savings and encourage families to spend more. The IMF estimates that increasing the retirement income replacement rate by nearly half the gap with advanced economies could raise private consumption by an average of 0.5 percent to 2.5 percent compared to the baseline. Additionally, combining pension improvements with appropriate increases in retirement age could contribute to labor supply and increase GDP by about one percent compared to the baseline.
The report also introduces targeted income support as a way to boost consumption among vulnerable households. In a scenario that includes conditional cash transfers equivalent to one percent of GDP, along with reforms to reduce the gender gap in labor force participation, output would be on average 6.4 percent higher than the baseline without reforms. This increase in consumption would be particularly noticeable in countries like India and Bangladesh, where income uncertainty remains high and opportunities for increasing women's participation in the labor force exist.
Policymakers need to strike a balance between stronger support for households and fiscal discipline and job incentives. Targeted transfers, more adequate pensions, and measures to improve women's participation in the labor force can help convert savings into consumption without undermining long-term growth.
For Asia, the bigger challenge is to build an economic model where household spending complements exports and investment. Stronger social support can provide a foundation for sustainable, inclusive, and resilient growth, while external conditions become less predictable.
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