Local Currency Funding of Emerging Asian Countries Imparts Stability

Emerging Asian countries, excluding China, will continue to fund themselves overwhelmingly from their domestic markets in local currency, using foreign currency debt for just 5% of their total gross financing needs. This relatively low dependence on foreign-currency denominated external financing imparts stability to government finances. 
 
According to Moody's Investors Serviceg ross financing needs are set to edge down to 13.8% of the group's GDP in 2013, from 14.5% in 2012. In dollar terms, the figure is $660 billion, up slightly from the estimation for 2012, Moody's says in a new report, titled: Emerging Asia 2013 Government Financing Needs: Predominance of Local Currency Funding Imparts Stability.
 
The exception is India, which the report estimates will direct close to 30% of its financing needs to funding its savings and reserve funds, thereby skewing the figures in the "other" category. Some 60% of the group's requirements will stem from debt amortization and 30% from central government deficits, with the balance going to "other" financing that ranges from reserve funds, as with India, to emergency measures, as with Thailand.
 
The report notes that virtually all emerging Asian sovereigns reduced their fiscal deficits in the years preceding the global financial crisis. But since then, group members have diverged in their fiscal consolidation efforts, with some, mostly Southeast Asian governments, successfully reducing their finances and others, mainly South Asian governments, failing in this area.
 
At the same time, for the group as a whole, debt/GDP ratios have generally improved, some because of fiscal consolidation, and others largely because of high nominal growth.
 
Credit trends have not been uniform across the region and rating drivers have varied. Most members of the group -- despite the divergence in their individual credit profiles -- have maintained their creditworthiness, but there is some variation.
 
This Emerging Asia group comprises 10 countries: Bangladesh (Ba3 stable), India (Baa3 stable), Indonesia (Baa3 stable), Malaysia (A3 stable), Mongolia (B1 stable), Pakistan (Caa1 negative), Philippines (Ba1 stable), Sri Lanka (B1 positive), Thailand (Baa1 stable), and Vietnam (B2 stable); China is excluded in this report.
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