A Delicate Balance
While many countries across the region of Asia and Oceania are showing resilience in the face of a multitude of crises, the structural vulnerabilities of several others have become increasingly apparent. At the same time, economic developments have laid bare deep social and structural fault lines that pose a growing risk to stability. The interdependencies of the three core dimensions assessed by the BTI – political transformation, economic transformation and governance – are also coming into sharper focus.
The BTI 2026 report on Asia and Oceania underscores the region’s remarkable ability to weather multiple shocks, including the lingering effects of the pandemic, energy- and food-price shocks, and rising geopolitical tensions. Yet beneath this resilience lies a landscape marked by increasingly divergent transformation trajectories. Politically, Asia and Oceania – which is the largest BTI region in terms of territory, population and economic momentum – remains starkly split, with 12 autocracies alongside 10 democracies. While Malaysia and Sri Lanka experienced modest democratic gains, authoritarian regression dominated in Afghanistan, Myanmar and Pakistan. In Indonesia, President Joko Widodo’s dynastic power politics and alliance with Prabowo Subianto have brought the country’s democracy perilously close to autocracy. By contrast, Taiwan and South Korea offered notable examples of democratic resilience. While Taiwan’s free elections reaffirmed its democratic course despite mounting polarization, civil society and parliament in South Korea jointly thwarted a declared state of emergency in December 2024 (–0.55 points).
Thanks in part to effective inflation-control efforts, macroeconomic stability returned across much of the region, but growth trajectories diverged sharply. While Bangladesh, India, the Philippines and Vietnam emerged as the most dynamic performers, mature economies saw more modest gains, and fragile states, such as Afghanistan, Laos and Myanmar, stagnated. Although average governance performance remained at a low level across Asia and Oceania, there were some positive exceptions. Taiwan held its top position in the overall BTI ranking, while Bhutan and Timor-Leste demonstrated consistent steering capability in policymaking under adverse conditions. At the opposite end, steering capability has all but collapsed in Afghanistan (–0.98 points) and Myanmar (–0.32), and the situation in Bangladesh has remained fragile despite some improvements (+1.14).
Political transformation
A drift toward authoritarianism
The 2024 edition of the BTI had already flagged a growing authoritarian tilt under South Korea’s conservative president, Yoon Suk Yeol. Yet few anticipated the severity of the democratic rupture that followed. The late-night declaration of martial law on December 3, 2024, stunned both citizens and the international community. Citing an alleged threat from “unscrupulous pro-Pyongyang anti-state forces” in the National Assembly – and accusing the main opposition party of orchestrating a “legislative dictatorship” – Yoon sought to justify the imposition of emergency rule. The attempted self-coup collapsed within hours, undone by coordinated resistance from parliament and civil society. But the episode starkly revealed the extent of democratic erosion among South Korea’s political elites and underscored the intensifying polarization of its political landscape.
In Indonesia, as well, the president was mainly responsible for the increasingly manifest crisis of democracy. After failing to secure a constitutional amendment allowing a third term, President Joko Widodo (Jokowi) pivoted to a dynastic strategy, forging an alliance with his former rival, Prabowo Subianto. In return for Jokowi’s support in the February 2024 election, Prabowo accepted Jokowi’s politically inexperienced son, Gibran Rakabuming Raka, as his running mate. The result was the least fair election since Indonesia’s democratic transition in 1998. With Prabowo now in office, the country has edged further toward autocracy, a development reflected in a 0.35-point decline in its democracy status score.
Among the region’s remaining seven democracies, most show signs of stress, particularly India and the Philippines. In India, the 2024 parliamentary elections brought unexpected losses for the ruling Bharatiya Janata Party (BJP), forcing it into a coalition government. In the Philippines, the presidency of Ferdinand Marcos Jr., son of the late dictator, has been characterized by power struggles within entrenched elite circles and political dynasties.
Only Malaysia and Sri Lanka saw meaningful democratic gains. In Malaysia (+0.60 points), Prime Minister Anwar Ibrahim’s unity government maintained political stability through cross-party cooperation. Key reforms included bolstering administrative capacity, strengthening the auditor general’s authority and improving the transparency of party financing. Sri Lanka also saw a notable political shift. In September 2024, President Ranil Wickremesinghe, who had steered the country through economic recovery but ruled with an authoritarian hand, was voted out of office. His successor, Anura Kumara Dissanayake of the National People’s Power (NPP) alliance, secured a broad electoral mandate across ethnic lines (+0.35).
The region’s entrenched autocracies – China, Laos, North Korea and Vietnam – remain unchanged. In these countries, authoritarian rule is not only normalized but perceived as the sole political model. Elsewhere, however, authoritarian regimes are showing signs of increasing fragility. Even where repression has been intensifying, regimes face growing public resistance and crises of legitimacy. The most striking example is Bangladesh: When students took to the streets to protest discriminatory hiring practices in public service exams, the government – led by Prime Minister Sheikh Hasina, in power since 2009 – responded with torture and abuse, and up to 1,400 were reportedly killed. Despite the crackdown, the regime ultimately collapsed. A transitional government, led by Nobel Peace Prize laureate Muhammad Yunus, has since assumed power and launched wide-ranging reforms of the political system, economy and constitution (+0.68).
Economic transformation
Between recovery and structural change
Between February 2023 and January 2025, countries across Asia and Oceania found themselves navigating a critical juncture: the path from post-crisis recovery to long-term structural transformation. While the immediate effects of the COVID-19 pandemic and global energy- and food-price shocks had largely subsided, their long-tail impacts continued to shape economic trajectories. Many economies made progress in adapting to the new landscape, restoring macroeconomic stability, curbing inflation, stabilizing debt levels and adjusting trade flows to a shifting geopolitical order.
At the same time, the region’s development paths are increasingly diverging. In addition to resulting from geography or natural endowments, these differences critically hinge on the quality of state institutions and the effectiveness of political leadership. At the top end of the spectrum, Taiwan, Singapore and South Korea have maintained their economic edge. But these high-income economies are now facing deep-seated structural headwinds, as aging populations, labor shortages and surging costs of living have begun straining middle-class households. In many cases, wage growth has failed to keep pace with productivity gains, while housing affordability has emerged as a flashpoint for public discontent. The top-performing emerging economies, such as China, Malaysia and Thailand, have shown a more mixed picture during the review period. Although key development indicators have remained stable, urban-rural divides have widened. Education systems, meanwhile, are under growing pressure to equip the workforce with skills for a digitally driven and environmentally sustainable economy.
Among the region’s lower-tier emerging economies, several recorded some of the fastest GDP growth rates worldwide in fiscal year 2023/2024: India (9.2%), Vietnam (7.1%), Bangladesh (6.5%) and the Philippines (5.7%). However, these impressive figures did not wholly translate into broad-based social progress. Persistent structural challenges, including large informal sectors, limited rural healthcare access, and a mismatch between education and labor market needs continued to hamper inclusive development. At the other end of the spectrum, fragile, low-income states, such as Afghanistan and Myanmar, experienced outright reversals. Political instability and armed conflict wiped out previous gains in literacy, maternal health and access to clean water.
The findings for the region reaffirm a clear correlation between political and economic transformation. Closed autocracies, such as Afghanistan, Myanmar and North Korea, continued to register severe economic failure throughout the review period, while democracies, such as South Korea and Taiwan, remained economically resilient. Nonetheless, two groups of outliers break this pattern. The first consists of authoritarian regimes with relatively high economic performance: China, Singapore, Thailand and Vietnam. The second includes four democracies with low levels of economic transformation, largely due to structural disadvantages. The achievements of Bhutan, Nepal, Sri Lanka and Timor-Leste are particularly noteworthy given the constraints they face.
Governance
Interdependence clearly evident
The interlinkages between governance performance and broader political and socioeconomic transformation processes are most apparent in a long-term comparison between the BTI 2006 and the BTI 2026. This perspective shows that states that are governed without democratic legitimacy and in which political elites operate without meaningful democratic incentives or checks and balances tend to deliver weaker governance outcomes than countries with more robust democratic institutions. The sole outlier among the region’s autocracies is Singapore, which consistently demonstrates governance performance well above the BTI average. In terms of resource efficiency, the city-state – under the uninterrupted rule of the People’s Action Party (PAP) since 1959 – leads the BTI ranking and ranks second in steering capability. The country’s governance deficits remain concentrated in consensus-building.
At the same time, the 20-year comparison reveals how governance quality has eroded most significantly in backsliding democracies and entrenched autocracies. Nowhere is this clearer than in Afghanistan (–2.32 points since the BTI 2006), where governance has been rated as failed for the first time in two decades. Although the security situation has improved, the Taliban have shown no willingness to reform, relying instead on military structures and authoritarian command rather than inclusive dialogue or rule-of-law procedures. Their lack of legitimacy on the international stage remains evident, as no state has recognized the movement as Afghanistan’s rightful government.
Sharp governance declines are also visible in countries like India (–0.83 points) and South Korea (–0.81). In the latter, blame cannot be placed solely on former President Yoon (2022-2025). His successor, Lee Jae-myung, and the opposition bloc, have also proved largely unwilling to engage in constructive or compromise-driven policymaking. From the start of his presidency, Yoon sought to sideline the opposition-controlled parliament, while the opposition responded by blocking nearly every government initiative. The result has been political paralysis and a deepening polarization in both politics and society. South Korea’s recent crisis can be seen as a lesson in democratic resilience – but also as an alarming sign. Indeed, for the second time in less than a decade, democratic actors have proved unable to prevent an elected government from undermining core principles and processes of the democratic system.
Governance improvements were most pronounced in Bangladesh (+1.14), particularly in areas such as strategic prioritization, the efficient use of assets and resources, anti-corruption measures and public consultation. These gains should be viewed with cautious optimism, however. The fall of the Awami League government has opened up a historic opportunity for political renewal. Several reform commissions have proposed sweeping changes to the political system, economy and administrative structures, which could serve as a foundation for broad-based dialogue across party lines. Yet the challenges facing any future government remain enormous.
Outlook
Three challenges
Looking ahead, three central challenges stand out for Asia and Oceania. First, the region’s democracies must find ways to reduce political polarization and strengthen institutional safeguards against democratic backsliding. The risk is real. In seven of the nine countries classified as democracies in the BTI 2006, the level of political transformation has since deteriorated. As BTI data show, once the liberal foundations of democracy begin to erode, the electoral dimension is unlikely to remain intact over time.
Second, autocracies face mounting pressure to determine whether they can continue to manage rising socioeconomic tensions without engaging in political reform. Long-term legitimacy increasingly hinges not on growth rates alone, but also on the fair distribution of resources and the ability to pursue climate-resilient development. Effective, transparent and inclusive governance will be critical in determining whether transformation succeeds or stalls. Without progress in the rule of law, anti-corruption efforts and consensus-building, many states risk slipping into political stagnation without even the prospect of initiating democratic change.
Third, authoritarian and anti-pluralist actors have become more assertive on the international stage. This growing self-confidence is evident not only in China, India and Singapore, but also in countries like North Korea – which is arguably one of the geopolitical “winners” of Russia’s war against Ukraine – as well as Cambodia and Pakistan. Although the impact of a second Trump administration’s foreign and trade policy in the Indo-Pacific region cannot be assessed by the BTI 2026, early signs suggest it may push countries like India and Vietnam closer to China, unsettle traditional allies like South Korea and Taiwan, and shift the balance of power further in Beijing’s favor. The era of a dominant and uncontested Western narrative is over.