PNG eyes money bond mart

Business, Normal

The National, Thuresday 12th January 2012

WITH Papua New Guinea poised to reap the benefits of its resource boom, an expansion of its local currency bond market will provide the country with another tool to manage its new- found wealth, an expert says.
East Asian nations have seen a dramatic growth in their local currency bond markets – from a total of A$836 billion in the year 2000, to more than A$5 trillion this year.
Papua New Guinea is also looking at ways of following suit and it has sought the advice of the Asian Development Bank (ADB).
ADB PNG economist Aaron Batten said in an interview with Radio Australia recently such a move would bring many benefits.
“At the outset, by encouraging greater levels of competition in the bond market, the government can firstly help to lower its own cost of borrowing and deepen access to domestic sources of credit,” he said. 
“A number of recent assessments have also shown that developing a secondary trade market in government securities would help to improve PNG’s international credit rating, raising the attractiveness of PNG as a destination for foreign investment,” Batten said.
The government budget estimated revenue from the country’s LNG project would deliver about K1 billion in 2016 going up K6 billion a year by 2026, and such a bond market would help manage liquidity, he said.
The main government strategy to manage its LNG revenue is through the creation of  a sovereign wealth fund  which was recently passed by Parliament.
“But LNG development and the growth of the resource sector generally will lead to a large rise of liquidity within the commercial business sector in the coming years, so by deepening the domestic bond market, we can more effectively manage this liquidity and give them a bigger range of short and long term investment opportunities.”
This would certainly help mitigate the effects of external economic shocks, Batten said.
“A key benefit of a local currency bond market that we have seen throughout Asia over the last decade or so is that it allows both government and the private sector to borrow or make investments in domestic currency rather than foreign currency.
“By expanding the government and businesses’ access to this domestic currency option, bond markets can help shield the economy from global instability and, in particular, exposure to volatile exchange rates.”