Stimulus exit needs to be carefully timed: ADB

The Asian Development Bank said on Thursday exit strategies for fiscal stimulus packages in Asia should be carefully timed as economies in the region are leading the global recovery and set to clock accelerated growth.

"While we believe developing Asia is leading the global economic recovery, it is still too early to relax vigorous efforts to restore demand and stabilise financial systems.

"In particular, exit strategies for fiscal stimulus must be carefully timed," ADB president Haruhiko Kuroda said.

A study, commissioned by ADB and titled 'Policy Changes for Asia after the Global Recession: Impact of the Global Economy and Policy Implications', found Asian economies are poised for accelerated growth as the global economic crisis recedes.

Kuroda said the region is now showing signs of a V-shaped recovery, with a 6.6 per cent growth outlook for 2010. Noting that recovery continues to be fragile, the bank said carefully calibrated policy adjustments and collective action would be needed to sustain growth and cushion the region against future shocks.

"Mobile capital flows which can cause volatility in exchange rates and domestic liquidity also continue to pose a risk to emerging economies in the region," it added.

Many Asian nations, including India, had come up with substantial stimulus measures to bolster their respective economies in the wake of global financial crisis.

The agency noted that poverty reduction would not be sustained at the pace of pre-crisis years unless sources of growth are rebalanced toward more domestic and regional demand, and made more inclusive.

Another study commissioned by the agency said Asia should continue to strengthen cooperation in the financial sector as a bulwark against future crises in developed economies.

The report also stressed that integration efforts should be modest in size to ensure that real benefits are delivered.

"Policy makers should avoid using up scarce bureaucratic resources and limited political goodwill on huge initiatives which do not yield tangible benefits at the ground level but should instead focus on smaller scale efforts," it noted.

Titled 'Policy Changes for Asia after the Global Recession: Long Term Implications for Asian Economies', the study suggested that Asian countries should increase intra-regional trade.

"Smaller economies should adopt policies which attract low cost manufacturers, foreign direct investment, and tourism," it added.