ASEAN Economies in Stable State Against External Shocks: Qatar National Bank

Capital flows and economic resilience have positioned the Association of Southeast Asian Nations financial markets in a relatively stable state, according to Qatar National Bank.

In its latest economic commentary, QNB highlighted the robustness of large ASEAN economies — Indonesia, Thailand, Malaysia and the Philippines — against sudden changes in risk sentiment and capital flows. QNB’s analysis focused on assessing the external vulnerability of these economies, examining their external financing needs and the overall level of official foreign exchange reserves.

The commentary noted that strong FX reserves act as a crucial buffer to absorb external shocks, and these reserves should be evaluated in context with short-term external financing requirements and other macroeconomic indicators. Thailand remains well positioned to handle sudden capital flow changes, even with international tourism not yet back to pre-pandemic levels.

The country continues to run sizable current account surpluses, which have enabled it to accumulate US$221 billion in official FX holdings, covering 209% of the International Monetary Fund reserve adequacy metric. The IMF reserve adequacy metric assesses a country’s FX reserves to ensure they can cover short-term external debt, potential trade imbalances, import costs and capital flight risks, therefore maintaining financial stability and investor confidence.

Malaysia, a major producer of manufacturing goods and commodities, also shows resilience. The country has consistently run current account surpluses as a net exporter of oil and soft commodities. Despite tighter reserve adequacy metrics compared with Thailand, Malaysia’s central bank holds US$113 billion in FX holdings, covering 115% of the IMF reserve adequacy metric.

The Philippines, as a net external borrower with current account deficits, faces different challenges. The country’s large trade deficit, partially offset by remittances from expatriates, is expected to amount to about 2% of gross domestic product. However, the Philippines holds US$103 billion in official FX reserves, covering 196% of the IMF reserve adequacy metric, providing a significant cushion against external shocks.

Indonesia, traditionally the most exposed to external shocks of the large ASEAN countries, has returned to a current account deficit position after a brief period of surplus driven by a commodity boom.

The country is expected to run a current account deficit of about 1% of GDP this year, with the deficit likely to persist due to ongoing capital expenditure projects. Indonesia’s official FX reserves amount to $136 billion, covering 112% of the IMF reserve adequacy metric.