Asia local bond market going strong despite challenges – ADB

Kicking off today’s 11th Asian Bond Markets Summit in Shanghai, A. Noy Siackhachanh, senior advisor of the sustainable development & climate change department at the Asian Development Bank (ADB), highlighted the remarkable progress of Asia’s local currency bond (LCB) markets.

Reflecting on the 20 years since the Asian Financial Crisis, Siackhachanh praised the strong will of policymakers to reform and move away from foreign currency borrowing: “At the national level, reforms were mainstreamed to develop local currency bond markets to meet their financing needs and reduce their foreign currency borrowing from international banks and bond markets,” says Siackhachanh.

The drive to develop the local bond market was followed by regional initiatives under the ADB’s Asian Bond Markets Initiative (ABMI) including the Chiang Mai Initiative Multilateralization and the Credit Guarantee and Investment Facility (CGIF). Under the CGIF, issuers with lower credit ratings were now able to raise long-term funding through the scheme.

A. Noy Siackhachanh at the 11th Asian Bond Markets Summit in Shanghai.

The positive impact of these initiatives can be felt now: “The combined strengthening of reforms at the national and regional levels, coupled with the build-up of regional safety nets has yielded some important gains,” says Siackhachanh. “Most importantly, the crisis-affected economies, with few exceptions, were turned around within 2-3 years after the crisis and with sustainable growth, albeit at a more moderate pace for many of them.”

Since 2002, local currency bonds in emerging East Asia grew from just under US$1 trillion to US$10.2 trillion by the end of 2016, ADB data reveals. “Over the past decade, LCB markets have become the key source of funding for authorities in Indonesia, Malaysia, the Philippines, and Thailand for the financing of their expenditure programmes,” says Siackhachanh.

“ABMI will promote the use of LCBs in three key areas of financing gaps: SME, housing, and infrastructure. The bond guarantee capacity of CGIF will be gradually increased and in view of massive infrastructure needs in the region, CGIF will be encouraged to increasingly expand its credit enhancement for project bonds to help address infrastructure financing needs,” she says.

As for the ADB, Siackhachanh says that the multilateral organization will continue to work with member countries to reform bond markets and financial sectors. “ADB is assisting ASEAN+3 to explore options to promote the use of green bonds for infrastructure development, looking particularly on the experience of the PRC in promoting green finance. To date, ADB has issued two panda bonds in 2005 and 2009 and is looking at the possibility of issuing the third in the future.”