ASEAN Central Banks Need New Tools for New Risks
Julia Anna Bingler and Matthew Poggi | 13 May 2026
Monetary, Op-Eds | Tags: ASEAN, Central Banks, Energy, Systemic Risks, Targeted Refinancing Lines
This article was first published in East Asia Forum.
Southeast Asia faces a growing exposure to novel interacting risks that drive inflation and financial instability. Under the Philippines’ leadership as 2026 ASEAN chair, there is an opportunity to strengthen the region’s response to reduce exposure to and manage the risks through the ASEAN Finance Track. Central banks and financial supervisors must adopt new tools, including targeted refinancing operations to support the ASEAN Power Grid and systemic risk buffers to manage compound shocks. These measures would help mobilise private capital and strengthen financial resilience in a constrained fiscal environment.
The Philippines’ 2026 ASEAN chairship — guided by the theme ‘Navigating Our Future, Together’ — comes as Southeast Asia faces compounding novel risks. To combat these interacting risks and build sustainable prosperity, the Philippines should use the ASEAN Finance Track to equip central banks and financial supervisors with the tools they need to support welfare and manage emerging crises.
The global oil and gas supply disruption from the Iran war has evolved into an energy and fertiliser supply crisis, adding to cost-of-living pressures. Flash floods in several ASEAN countries throughout 2025 and 2026 have destroyed crops, disrupted logistics and forced emergency fiscal responses. These events are tightening fiscal space and straining limited public resources.
The overlapping crises are signs of a pattern that will intensify. Floods damage crops and infrastructure, pushing up food prices. Energy disruptions raise input costs across entire economies. Together, these shocks feed inflation while weakening banks’ and insurers’ balance sheets. What were once separate risks are becoming a single, reinforcing dynamic — with direct implications for financial stability and prosperity.
Inflation volatility and financial instability driven increasingly by supply-side shocks, including climate and energy crises, undermine central banks’ core objectives. Central banks and financial supervisors will need to act, but effective action will require instruments suited to these risks.
Building financial and economic resilience is an active task that traditional fiscal policies cannot achieve alone. Fiscal space across Southeast Asia is strained by the legacy of the COVID-19 pandemic, demographic pressures, the fuel and emerging food crises, and the capital intensity of climate adaptation and low carbon transition investments. As crisis management dominates policymaking and extreme weather intensifies, public finances will face mounting pressure, making the large-scale mobilisation of private capital essential.
This approach is reflected in the Joint Statement of the 13th ASEAN Finance Ministers and Central Bank Governors Meeting, held in April 2026. Various measures to mobilise private finance for clean, secure and affordable energy, climate resilience and economic prosperity amid profound technological change have been put in place. While these initiatives are meaningful, central banks and financial supervisors need to play their role for them to be effective at scale. Central bank refinancing instruments and financial supervisory tools are indispensable to the policy mix.
The ASEAN Power Grid — an initiative to connect the power networks of ASEAN member states — is the region’s most important instrument for reducing dependence on fossil fuel imports, managing exposure to energy price volatility and building the cross-border infrastructure needed for a shared low-carbon transition. This will require significant investment in Southeast Asia’s electricity system — much of it in long-term, cross-border infrastructure with uncertain returns, making it difficult to finance under standard bank capital frameworks.
Targeted refinancing operations — involving favourable central bank lending to commercial banks, conditional on onward lending to eligible ASEAN Power Grid projects — could support the grid’s development. This would lower the financing costs of eligible projects in ways that fiscal instruments alone cannot achieve at scale. Under the Philippines’ chairship, a joint working group of ASEAN or ASEAN+3 central banks within the ASEAN Finance Track could be tasked with developing specific design and calibration proposals for this initiative before the end of 2026.
Implementing systemic risk buffers — additional macroprudential capital requirements for financial institutions — would also reduce the risk of region-wide systemic shocks. Novel risks do not arrive in isolation. They interact with wider economic stressors in ways that existing buffer frameworks underestimate.
A drought can push up food prices, weakening household balance sheets and raising credit risk. These effects reinforce each other, with total losses exceeding the sum of the individual shocks. Existing buffer frameworks are not designed to account for this. Having set resilience high on the agenda, the Philippines’ chairship could convene a working group of financial supervisors under the ASEAN Finance Track to develop a regional framework for systemic risk buffers.
The framework should be built on the dual-objective design as suggested for climate systemic risk buffers proposed by Satoshi Ikeda and Pierre Monnin, organised around two complementary components. The absorption component would require financial institutions to hold enough capital to withstand compound climate and macrofinancial shocks. The prevention component would lower capital requirements for institutions actively financing the energy transition, climate adaptation and investments in low-carbon businesses, helping to mobilise private capital to reduce overall exposure to these risks where fiscal space is limited. Buffers should be institution-specific, forward-looking and regularly updated as transition pathways evolve and understanding of novel risks improves.
These two initiatives are mutually reinforcing and together constitute something more than risk management. ASEAN Power Grid refinancing operations would reduce the energy insecurity and price volatility that feed inflation driven by some novel risks. Systemic risk buffers ensure the financial system can sustain lending through compound shocks and support long-term investments in welfare — rather than contracting when communities need credit most.
Both initiatives contribute directly to the sustained economic welfare and growth that the theme of ‘Navigating Our Future, Together’ promises. The Philippines’ chairship has the political architecture and the policy frameworks to deliver — and so it should put the instruments high on the agenda of the ASEAN Finance Track. The window for early action is still open, but it will not remain so for long.
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