The first challenge is the Russian invasion of Ukraine which has caused tremendous suffering and sent shockwaves across the global economy. 

ASEAN’s direct exposure to Russia and Ukraine through trade and investment appears limited. But with the price of oil surging to its highest levels since 2008, inflation is heating up. ASEAN’s net oil importers face substantial challenges with rising import bills. Food security and fragile supply chains are at greater risk too. 

The second challenge is increasing interest rates in the United States which are complicating the inflation battle amid heightened uncertainties. Widening interest rate differentials between ASEAN economies and the US and a shift in investor confidence could trigger a sudden reversal in capital flows, currency depreciation, and financial instability. 

To sustain momentum for recovery, the region must stay vigilant and prepare for collective action to avert regional financial instability. In particular, authorities must carefully manage the combined effects of higher oil prices, US interest rate hikes, and the phasing out of fiscal stimulus. 

Against this backdrop, ASEAN policymakers face three important policy priorities: Strengthening regional cooperation to ensure a strong recovery; enhancing domestic resource mobilization; and scaling up investment for green and inclusive growth. 

Regional cooperation can pave the path to a sustained and resilient recovery. 

Strong regional trade and investment gave ASEAN a buffer during the global slowdown in trade and economic activity. The Regional Comprehensive Economic Partnership agreement, which became effective early this year, is expected to expand this buffer. ADB will remain a reliable partner for regional economies in this area by providing trade finance, technical assistance, and knowledge solutions. 

Deepening our local-currency bond and capital markets is also critical. ADB is supporting this through the ASEAN+3 Asian Bond Markets Initiative (ABMI). The ABMI aims to nurture local currency bond markets as an alternative source of funding to foreign-currency denominated bank loans to alleviate the currency and maturity mismatches in the region’s financing for investment and reduce the risk of financial vulnerability.

We also support the development and issuance of green, social, and sustainability bonds to help governments invest in environmental sustainability, climate change mitigation and adaptation, and resilience.

ASEAN’s efforts to strengthen food and energy security through regional cooperation, bolster regional health security, and strengthen disease surveillance mechanisms are crucial to mitigate risks and maintain sustainability.

A second priority is efficient domestic resource mobilization. This is important to restore fiscal sustainability to maintain post-pandemic recovery and finance efforts to achieve the Sustainable Development Goals. 

ASEAN has room for improvement here due to its comparatively low tax revenue mobilization. Several ASEAN members have strengthened their tax administration systems through digital solutions. We are working with economies to simplify processes for taxpayers that can enhance voluntary compliance and improve tax policy formulation.

We know that international tax cooperation is key to combatting tax avoidance and evasion. To promote this through knowledge sharing and coordination on tax policy and administration, we launched the Asia Pacific Tax Hub.

The third priority is scaling up investment in quality, climate-resilient infrastructure.

Asia and the Pacific is vulnerable to some of the most destructive effects of climate change, and these are expected to worsen. At the same time, our region is the source of more than 50 percent of annual global greenhouse gas emissions. We need to recognize that the battle against climate change will be won or lost in Asia and the Pacific.

ADB’s ambition is to deliver US$100 billion in cumulative climate financing from 2019 to 2030, including $34 billion for adaptation projects, to help the region’s response to the climate challenge. 

The ASEAN Catalytic Green Financing (ACGF) Facility, which is owned by all ASEAN members and managed with ADB, is supporting development and financing of green infrastructure projects. It has mobilized $2 billion in public and private resources with support from nine partners, including cofinancing from the European Union, Italy, United Kingdom, and the Green Climate Fund under the Green Recovery Platform launched at the United Nations climate conference in Glasgow (COP26) last year.

ACGF helps reduce risks in green investment and attract private capital by providing loans to cover high initial capital costs and grants to support governments as they identify and prepare commercially viable green infrastructure projects.

The Energy Transition Mechanism (ETM) is another innovative program launched by Indonesia, the Philippines, and ADB last year. ETM seeks to catalyze private capital and accelerate the transition from coal to clean energy in ASEAN. It aims to retire coal-fired power plants early; to scale up clean, renewable energy solutions; and to ensure that the transition is just and affordable.

ETM will provide low-cost financing by combining concessional public finance, private sector investment, and resources from philanthropies. This innovative mechanism has the potential to become the largest carbon reduction model in the world.

As ASEAN’s recovery from the COVID-19 pandemic moves into high gear, regional cooperation initiatives will remain critical to managing growing challenges and seizing new opportunities to build a stronger future.

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The writer is president of the Asian Development Bank.