Regional : Developing Local Currency Bond Markets for a Sustainable Future

Sovereign Project | 50405-004

The knowledge and support technical assistance (TA) will generate knowledge and information and foster knowledge sharing to support the local currency (LCY) bond market and sustainable bond market development in members of the Association of Southeast Asian Nations (ASEAN) plus the People's Republic of China (PRC), Japan, and the Republic of Korea (ROK) (collectively known as ASEAN+3). The proposed TA is included in the ADB management-approved annual work plan of the Economic Research and Development Impact Department (ERDI).

Project Details

  • Project Officer
    Tian, Shu
    Economic Research and Development Impact Department
    Request for information
  • Country/Economy
    Regional
  • Sector
    • Finance
Project Name Developing Local Currency Bond Markets for a Sustainable Future
Project Number 50405-004
Country / Economy Regional
Brunei Darussalam
Cambodia
Hong Kong, China
Indonesia
Korea, Republic of
Lao People's Democratic Republic
Malaysia
Philippines
China, People's Republic of
Singapore
Thailand
Viet Nam
Project Status Active
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 10282-REG: Developing Local Currency Bond Markets for a Sustainable Future
Japan Fund for Prosperous and Resilient Asia and the Pacific US$ 1.50 million
Operational Priorities OP1: Addressing remaining poverty and reducing inequalities
OP2: Accelerating progress in gender equality
OP3: Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability
OP6: Strengthening governance and institutional capacity
Sector / Subsector

Finance / Finance sector development

Gender Some gender elements
Description

The knowledge and support technical assistance (TA) will generate knowledge and information and foster knowledge sharing to support the local currency (LCY) bond market and sustainable bond market development in members of the Association of Southeast Asian Nations (ASEAN) plus the People's Republic of China (PRC), Japan, and the Republic of Korea (ROK) (collectively known as ASEAN+3). The proposed TA is included in the ADB management-approved annual work plan of the Economic Research and Development Impact Department (ERDI).

The proposed TA will be undertaken under Asian Bond Markets Initiative (ABMI) Task Force 2, following the guidance of the 2023-2026 ABMI Medium-term Road Map, which is supported by the Japanese government and endorsed by ASEAN+3 governments in May 2023. The TA will upgrade the bond market information platform of the ASEAN+3, the AsianBondsOnline (ABO) website to provide more comprehensive bond market information including local currency sustainable finance-related data. TA activities include offering public goods and services on bond market development, promoting good market practices, and fostering knowledge sharing across ASEAN+3. This TA will produce new market indicators and knowledge that support information accessibility and policymaking related to sustainable finance and local bond market development in ASEAN+3. The TA will also form synergy among all ABMI task forces to attract regional and global stakeholders in ASEAN+3 LCY bond markets.

The TA is well aligned with Strategy 2030 of the Asian Development Bank (ADB). Specifically, the TA will generate more publicly available information and promote knowledge sharing on ASEAN+3 bond markets, especially in sustainable bond markets. The TA is mapped to the following Strategy 2030 operational priorities (OP): (i) tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability (OP3); (ii) addressing remaining poverty and reducing inequalities (OP1); and (iii) accelerating progress in gender equality (OP2).

The TA activities are related to enhancing long-term and effective public finance management. The development of LCY bond markets, including debt instruments, operating modalities, transparency of pricing and issuance mechanisms, and the requirement to align issuances with strategy and annual financing plan, helps strengthen public debt risk management and timely government budget financing.

Project Rationale and Linkage to Country/Regional Strategy

After more than 20 years of development of the LCY bond market in ASEAN+3, the ABMI assessment report (2023) documented the double mismatch problems in emerging markets, i.e. the currency mismatch (financing LCY investment with foreign currency financing), and maturity mismatch (uses short term financing to fund long term investments), are no longer a key challenge in most of ASEAN economies, the PRC, and ROK (collectively known as ASEAN+2).

Nevertheless, there are remaining challenges in LCY bond market development in the region, especially in lower-middle-income ASEAN economies. In particular, boosting market liquidity remains a challenge in ASEAN+2. During the COVID-19 pandemic, ASEAN+2 witnessed historically high LCY bond issuance to support social and economic activities, while some major ASEAN central banks (including Indonesia, Malaysia, Thailand, and the Philippines) conducted local currency asset purchasing programs in 2020 to facilitate market liquidity, boost investors' confidence and demand. Insufficient market liquidity also leads to the lack of a reliable yield curve in LCY bond markets, especially in some relatively smaller bond markets in ASEAN.

As many ASEAN+3 economies have pledged to achieve net zero emissions, the role of capital markets to mobilize finance for sustainable investments becomes critical. The sustainable bond market is an important source to mobilize sustainable finance. In ASEAN+3, sustainable bond markets witnessed rapid development with outstanding sustainable bonds growing from USD 89.4 billion in March 2018 to USD 633.9 billion in March 2023. Nevertheless, the market remains at a relatively early stage and faces several development challenges. First, ASEAN+3 sustainable bond markets tend to finance shorter tenor issuances, with 50.8% of issuance of sustainable bonds during Q1 2023 having a maturity of less than 3 years, compared to 17.5% in EU-20. Second, the share of LCY financing in the ASEAN+3 sustainable bond market is also relatively low. In Q1 2023, local currency issuances accounted for 61.7% of total ASEAN+3 sustainable bond issuance, lower than the corresponding shares of 92.7% in EU-20, and lower than LCY financing's 94.6% in ASEAN+3 general bond market. Third, the public issuers' role remains small in ASEAN+3 sustainable bond market. During Q1 2023, the public sector accounted for 32.1% of ASEAN+3 sustainable bond issuance, compared to 72.0% in the general bond markets in the region. The relatively low share of LCY and long-tenor financing in the ASEAN+3 sustainable bond market is partly driven by a few development barriers. According to a G20 policy blog (2022), lack of clear taxonomy, less developed market ecosystem, higher transaction costs, less supply of sustainable bonds, and limited capacity to identify sustainable investment pipelines are listed as top challenges that constrain participants in ASEAN+3 sustainable bond markets.

Impact

Investors' awareness, information, and knowledge in regional local currency and sustainable bond markets improved.

Project Outcome
Description of Outcome

Information and knowledge sharing on the ASEAN+3 local currency and sustainable bond markets enhanced.

Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Knowledge to understand and address development challenges in sustainable bond market development enhanced.

Timely and relevant information and knowledge to address local currency bond market development challenges promoted.

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Brunei Darussalam - Nation-wide; Cambodia - Nation-wide; China - Nation-wide; Hong Kong, China - Nation-wide; Indonesia - Nation-wide; Korea, Republic of - Nation-wide; Lao People's Democratic Republic - Nation-wide; Malaysia - Nation-wide; Philippines - Nation-wide; Singapore - Nation-wide; Thailand - Nation-wide; Viet Nam - Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services Individual consultants will be recruited through framework agreements wherein shortlisted candidates may be hired as needed for the duration of the agreement to provide a total of 302 person-months from national consultants to coordinate, regional capital market analysis, website administration and development, graphic design. A total of 32 person-months estimated consulting services from international consultants include economic editor and finance sector specialists. ADB will engage consultants and carry out procurement following the ADB Procurement Policy (2017, as amended from time to time) and its associated project administration instructions and/or staff instructions.
Procurement The TA will use direct procurement for database services for bond market statistics including bond yields, interest rates, and credit spreads for all markets, key financial market condition indicators and government and corporate bonds where official data is not available.
Responsible ADB Officer Tian, Shu
Responsible ADB Department Economic Research and Development Impact Department
Responsible ADB Division Macroeconomics Research Division (ERMR)
Executing Agencies
Asian Development Bank
Timetable
Concept Clearance 13 Oct 2023
Fact Finding 02 Jun 2023 to 02 Jun 2023
MRM -
Approval 01 Mar 2024
Last Review Mission -
Last PDS Update 01 Mar 2024

TA 10282-REG

Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 1,500,000.00 0.00 0.00 0.00 0.00 1,500,000.00 - 0.00

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Tenders

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Procurement Plan

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