Bond markets key funds source for Asian economies: ADBNovember 18th, 2008 - 4:01 pm ICT by IANS
Manila, Nov 18 (Xinhua) Asia’s local currency bond markets have shown great resilience to global credit turmoil and can be a key source of funds for the continent’s finance expansionary fiscal policies, the Asian Development Bank (ADB) said Tuesday. The risks in the emerging Asian economies have tilted towards slower growth, and inflation has eased and monetary policy become more accommodative, the Manila-based bank said its Asia Bond Monitor report.
Slower global and regional growth, despite easier monetary conditions, suggests that economies in relatively comfortable fiscal positions are likely to introduce fiscal stimulus packages, boosting government bond issuance, according to the report.
“Domestic borrowing is likely to increase as funding becomes harder to access on the foreign market,” said Jong-Wha Lee, Head of ADB’s Office of Regional Economic Integration.
“Already we have seen China and South Korea unveil fiscal stimulus packages to boost their economies, a part of which may be financed through local debt issuance,” he said.
Despite global turmoil, local currency bond markets in the Asia continued to expand in the first half of 2008, though at a slower pace.
Between end of 2007 and end of June 2008 the markets grew 8.1 percent to $3.7 trillion, according to the report.
Government bond issuance continued to dominate the market, driven by deficit financing and monetary sterilization. During the first six months of this year, market size increased 9.1 percent to $2.7 trillion, the ADB said.
“It shows that if governments in the region can continue to develop their bond markets, they will emerge as a prime source of capital to raise funds for the fiscal stimulus packages that will be needed to keep their economies moving,” he added.
Meanwhile, the lender warned against risks to the outlook.
Tight dollar liquidity, deleveraging, and weakening regional currencies could dampen foreign investor interest, the ADB said.
It also urged policymakers to continue reforms to deepen their local bond markets. Greater transparency, strengthening regulatory frameworks, and stronger regional cooperation will improve liquidity and broaden the investor base, the bank said.