Opening welcome remarks by Ingrid van Wees, ADB Vice-President for Finance and Risk Management, at the 2020 Asian Regional Public Debt Management and Foreign Exchange Reserves Management Forum on 9 November 2020.
Ladies and Gentlemen, on behalf of the Asian Development Bank, I am delighted to welcome you to the 2020 Asian Regional Public Debt Management and Foreign Exchange Reserves Management Forum. Our central theme is the “Inclusive, Resilient, and Sustainable Recovery from the Pandemic”. I extend my appreciation to all speakers and panelists, and to you for making time to actively participate in this forum.
When we had to postpone the planned Public Debt Management Forum in June in Wuzhen, the People’s Republic of China, we did not think we would have any forum this year. I am therefore delighted to share with you today, that we have a record number of over 300 delegates, representing 37 ADB member countries at this event.
I now briefly discuss three key issues:
First, ADB’s role in assisting developing members during the pandemic;
Second, the challenges for debt managers in the time of COVID-19; and
Third, the challenges for central banks to mitigate the impact of COVID-19.
ADB’s role in assisting developing member countries during the pandemic
As the pandemic continues to disrupt global economic activity, GDP forecasts have been downgraded in the Asian Development Outlook 2020 Update, published in September this year.
- The region is now expected to contract by 0.7% in 2020, resulting in the first regional recession in nearly 6 decades.
- GDP is projected to grow by 6.8% in 2021, resulting in a growth below the pre-COVID-19 forecast.1
In March, ADB announced a $6.5 billion package to address the immediate needs of its developing members as they responded to the pandemic. The following month, ADB enlarged the envelop to $20 billion, including about $2.5 billion in concessional and grant resources. This package included the establishment of a COVID-19 Pandemic Response Option, “CPRO” in short, under ADB’s Countercyclical Support Facility.
As of October 31st, ADB has committed about $12.5 billion in financial and technical assistance to finance countercyclical and economic stimulus packages in 19 countries, and other sovereign, COVID-response projects, including contingent disaster financing. In addition, ADB mobilized $8.0 billion in cofinancing commitments, including $5.9 billion for CPRO and $1.8 billion in nonsovereign operations.
While ADB provides this immediate relief from the pandemic’s devastating impacts on health and economies, it is also important to design smart interventions for recovery.
There is a critical window of opportunity to reset our economies ensuring implementation of environmentally sound and inclusive solutions that put us on a sustainable recovery pathway. We must seize this opportunity of large-scale recovery packages to invest in future-focused green and blue economies to regenerate our worlds and create inclusive, resilient jobs. We need to work together to amend regulatory frameworks and policies to support resilient, inclusive and sustainable economies. Funds need to be channeled toward these investments, some of which are viable, and some are not. I encourage all of you to consider a change in strategic direction and partake in the new opportunities these developments can create.
In a similar vein, heads of the 10 leading Multilateral Development Banks and the International Monetary Fund discussed their collective response to the pandemic in October. The spotlights are on:
- promoting regional cooperation and integration;
- investing in improved health, education, and social protection;
- stimulating quality infrastructure;
- accelerating digital transformation;
- strengthening domestic resource mobilization; and
- ensuring equitable and affordable access to vaccines.
Challenges for debt managers in the time of COVID-19
Let me now move to the challenges for debt managers. Debt Management Offices, or DMOs in short, in Asia and the Pacific are facing unprecedented challenges, manifesting in significantly increased borrowing programs, rising fiscal risks, increased operational risks, and disruption to market access.
In addition, the operating environment under lockdown has posed challenges to the punctual and efficient execution of funding and payment programs. DMOs will need to constantly review and revise their policies and operations as well as the compensatory initiatives introduced to cope with the new normal.
Despite this challenging environment, bond markets in emerging East Asia continued to expand to assist with the funding needs of both public and private sectors in containing the pandemic and tackling its impact. Local currency bond issuance climbed to $2.0 trillion in Q2, equating to a 32.0% year-on-year growth; issuance of government bonds grew 27.8% and issuance of corporate bonds rose by 38.5%.
As a whole, the size of the local currency bond market expanded to $17.2 trillion, rising 15.5% year-on-year and reaching a share of regional GDP of 91.6%, an increase of 10% from 81.5% at the end of June 2019. Government bonds comprised 60.8% of the region’s total local currency bonds outstanding at the end of June.
Challenges for central banks in mitigating the impact of COVID-192
Let me now focus on the challenges for central banks. Central banks have been at the forefront of an unprecedented response and have deployed the full range of crisis tools to ease financial stress to support the real economy. I would like to share an insightful statistic from the IMF’s Global Financial Stability Report published in October 2020. Of 50 central banks from emerging markets, the vast majority, 92% have cut policy rates, 58% have intervened in currency markets, and about half, 52% have cut reserve requirements for banks, providing liquidity to the financial system and easing credit conditions.
All central banks in the East Asian region maintained easy monetary policy stances to support economic recovery and lowered rates between 30bps (PRC) and 175 bps (Philippines) since the beginning of 2020; four central banks lowered rates by at least 100 bps.
There were also many firsts — Some 20 emerging market central banks introduced quantitative easing, by buying government and private sector debt to alleviate stress and support functioning markets. Secondary market purchases of government securities from the central banks since March 2020, equated to about 1.0% of GDP in both Indonesia and Thailand, and 0.6% of GDP in Malaysia.
Reserve managers are facing a challenging investment environment with ever lower and in some cases, negative interest rates and volatile exchange rates. While financial conditions have eased significantly and rapidly since late March, reserve managers will continue to place a premium on liquidity while considering the risk-return trade-offs in their investment decisions.
In conclusion, public debt and foreign exchange reserves management are key areas in which ADB will continue to assist its developing members. This forum continues to be an integral part of our efforts in promoting best practices and bringing together public debt and foreign exchange reserves managers from member countries. I encourage you to be active participants by sharing your thoughts and ideas.
In closing, let me express my sincere appreciation to the organizing team for arranging this important forum and an outstanding roster of panelists and speakers. I would also like to thank in advance all participants from different ministries, central banks, and organizations for sharing their valuable insights.
Finally, given the critical juncture where the world is now, with the pandemic disrupting our economies and tearing through the social fabric of our societies, I would sincerely like to encourage you that in your discussions throughout this forum, you reflect and share with each other,
- how you and your institutions can contribute in steering your national economies on a more inclusive and path;
- how you will overcome the inertia which prevented us collectively to address the external risk of a pandemic; and
- how we access the ingenuity of all men and women and develop collaborative partnerships to convert our collective knowledge into action and find solutions to the complex challenges the world is facing now.
I wish you all an inspiring, productive and successful forum.
1 Asian Development Outlook 2020 Update: Wellness in Worrying Times, ADB (September 2020)
2 Global Financial Stability Report: Bridge to Recovery, IMF (October 2020)