Tighter Global Credit Heightens Need for South Asian Bond Market Development

HONG KONG, CHINA - As global credit markets tighten in the wake of events on Wall Street, the need for Asia, and in particular South Asia, to develop and strengthen domestic bond markets as a source of long term, local capital, has never been more acute.

In response to the rising need for domestic capital, the Asian Development Bank (ADB), along with the World Bank, Commonwealth Secretariat of UK, the Hong Kong Monetary Authority (HKMA), and Treasury Markets Association, organized the South Asia Bond Markets Conference in Hong Kong, which runs from 25 September to 27 September.

Influential figures from the public and private sector including the IMF, government officials, policymakers, regulators, and financial industry experts from South and East Asia, Australia and the Pacific are taking part. People’s Republic of China Assistant Finance Minister Zhang Tong gave a special address on his country’s debt market experiences.

Participants shared information on bond market development, and looked at obstacles to further progress. In the case of the five countries of South Asia - Bangladesh, India, Nepal, Pakistan and Sri Lanka - they sought to identify measures that could help them increase the availability of long term, local currency financing.

While many initiatives have been taken in Asia in recent years to create deep, liquid bond markets, the depth and maturity of such markets varies greatly, with countries in South Asia lagging counterparts in East and Southeast Asia. Typically, governments in South Asia have relied on bank borrowings and external aid as their main sources of finance in the past.

“Financial market diversification supported by well capitalized and judiciously regulated institutions has been at the heart of the tremendous growth that we have witnessed in East Asia,” said Simon Bell, Sector Manager for the World Bank’s South Asia Finance and Private Sector Development group.

The Association of Southeast Asian Nations, along with Japan, the People’s Republic of China and the Republic of South Korea, has been at the vanguard of Asian debt market development and is now exploring an initiative for a regional bond market which could help cut dependency on foreign currency funds and eliminate currency mismatches that have been a problem in the past.

“A strong and vibrant bond market is a key factor for growth in an economy as it provides an important conduit for both government and the corporate sector alike to raise finance for economic activities,” said Renato Limjoco, an ADB Lead Financial Sector Specialist.