regional snapshot of government bond markets, south asia & asia pacific
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Regional Snapshot of Government Bond Markets, South Asia & Asia Pacific. Colombo, Sri Lanka, June 8-11, 2004 Demet Cabbar, Thordur Jonasson The World Bank. Objective. To provide snapshot of government securities markets in the region Follows Handbook framework - PowerPoint PPT PresentationTRANSCRIPT
Regional Snapshot ofGovernment Bond Markets,South Asia & Asia Pacific
Colombo, Sri Lanka, June 8-11, 2004Demet Cabbar, Thordur JonassonThe World Bank
ObjectiveTo provide snapshot of government securities markets in the regionFollows Handbook frameworkBased on research and some survey responses from some Treasuries, Public Debt Offices and Central Banks of seven countries in East Asia Pacific and one country in South AsiaPreliminary study for an upcoming report Will be completed with your feedbackNot a conclusive assessmentA tool to start healthy discussion
Economic Outlook
Economic Growth by Region
-4
-2
0
2
4
6
8
10
1991-2000 2002 2003 2004-2005 2006-2015
East Asia Pacific
South Asia
Latin America
ECA
MENA
Sub Saharan Africa
Euro Area
Source: The World Bank, Global Economic Prospects 2004.
Average Annual % Growth
EAP and South Asia have the highest growth prospects
EAPSouth Asia
Key Econ. Indicators: South Asia & EAP
Note: 1. Fixed investment, measured in real terms. 2. Weighted average growth of import demand in export markets 3. Goods and nonfactor services.Source: The World Bank, Global Economic Prospects 2004.
GDP Growth Excluding India, EAP values excluding China
Growth Rates/Ratios (percent) Region 1991-2000 2002 2003 2004 2005 2006-15
Real GDP Growth South Asia 5.2 4.2 5.4 5.4 5.4 5.4
EAP 7.7 6.7 6.1 6.7 6.6 6.2
Consumption per Capita South Asia 2 1.5 2.9 3.3 3.5 3.3
EAP 5.5 6.1 5.3 6.5 6.5 5.8
GDP Per Capita South Asia 3.3 2.5 3.7 3.7 3.8 4.1
EAP 6.4 5.8 5.2 5.8 5.7 5.4
Population South Asia 1.9 1.7 1.6 1.6 1.5 1.3
EAP 1.2 0.9 0.9 0.9 0.8 0.8
Gross Domestic Investment/GDP 1 South Asia 21.3 22.8 22.7 22.5 22.3 25
EAP 28.8 33 33.7 34.3 35.2 30.4
Export Market Growth 2 South Asia 7.7 2.9 6 7.5 7.3
EAP 8.3 3.9 6.9 8.2 8.1
Export Volume3 South Asia 11.5 3.5 5.9 7.4 8
EAP 11.5 15.7 14.6 13.7 11.4
Current state of the market
Main characteristics
Disparity in level of development among marketsDomestic government debt is greater than external government debt. Domestic debt is mostly local currency denominatedFixed rate bonds dominate most markets, and most are mid to long term maturitiesNon marketable securities are still sizeableShift towards longer term instruments
Size of the market – South Asia
Source: SBP Annual Report 2002-2003, MOF Statistics India 2003, Nepal Rastra Bank 2001-2002, Annual Report Bank of Bangladesh 2003, CBSL Estimates August 2002
Total Government Debt (US bn)
0
50
100
150
200
250
300
Nepal
Sri La
nka
Bangla
desh
Pakist
an
India
Avera
ge
Domestic
External
Size of the Economy - GDP
0.00
100.00
200.00
300.00
400.00
500.00
600.00
Nepal
Sri La
nka
Bangl
ades
h
Pakis
tan
Indi
a
2001
2002
US bn
Wide disparity in the size of the economies
Source: WDI Database, 2002
Size of the market
Government Debt as a % of GDP – South Asia
Source: SBP Annual Report 2002-2003, MOF Statistics India 2003, Nepal Rastra Bank 2001-2002, Annual Report Bank of Bangladesh, CBSL Estimates August 2002
0
20
40
60
80
100
120
Indi
a
Bangl
ades
h
Sri La
nka
Pakist
an
Nepal
Avera
ge
Domestic
External
Size of the market
Source: survey responses for EAP and SBP Annual Report 2002-2003, MOF Statistics India 2003, Nepal Rastra Bank 2001-2002, Annual Report Bank of Bangladesh, CBSL Estimates August 2002
Note: Indonesia and Thailand uses June 2002 data
Total Government Debt (US bn) - South Asia and EAP
0
50
100
150
200
250
Singap
ore
Nepal
Malays
ia
Sri La
nka
China
Thailan
d
Korea
Bangla
desh
Philipp
ines
Pakist
an
India
Indon
esia
External
Domestic
0
20
40
60
80
100
120Domestic
External
Size of the market
Government Debt as a % of GDP – South Asia & EAP
Source: survey responses for EAP and SBP Annual Report 2002-2003, MOF Statistics India 2003, Nepal Rastra Bank 2001-2002, Annual Report Bank of Bangladesh, CBSL Estimates August 2002
Note: Indonesia and Thailand uses June 2002 data
Size of the market GS Markets as a % of GDP by Region. Ext. Debt is lowest in East Asia Pacific
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
EAP ECA LAC SA MENA SSA
Domestic debt
External debt
Domestic GS composition
*excludes SU series bonds to the Central Bank
Note: 1999 data for India and Pakistan
Marketable vs. Non-marketable Securities
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Non marketable debt
Marketable debt
Domestic debt compositionDomestic marketable GS by type of
instrument
0%10%20%30%40%50%60%70%80%90%
100%K
ore
a
Mala
ysia
Chin
a
Thaila
nd
Sin
gapore
Phili
ppin
es
Indonesia
*
Avera
ge
Indexed
T-bills & otherdiscount paper
Fixed
Variable
*includes non marketable hedge bonds
Domestic debt composition
0%
20%
40%
60%
80%
100%
EAP MENA LAC SSA ECA
Fixed T-bills & other discount paper Variable Indexed
Fixed rate securities dominant in EAP and MENA
Source: WB Govt. Bond Market Surveys 2001-2003
Domestic debt by tenor
*Bonds issued for bank recapitalization
Internal debt securities by original maturity
8.2%
22.0%
34.1%
17.4%
21%
27%
79%
15%
39%
5%
22%
32%
31%
79.3%
72.7%
20.8%
76.3%
39.0%
67.0%
48.7%
33.7%
51.2%
28.0%
29.7%
0% 20% 40% 60% 80% 100%
Indonesia*
China
Korea
Malaysia
Thailand
Singapore
Bangladesh
Philippines
Average
<1 year 1-5 years >5 years
17 83
28 72
30 70
40 60
29 71
0 20 40 60 80 100
India
Pakistan
Bangladesh
Sri Lanka
Average
less than 1 year
greater than 1 year
Domestic debt by tenor
Short Term vs. Mid-to-Long Term in South Asia
Source: State Bank of Pakistan Annual Report 2002 – 2003, Bangladesh WB survey, Sri Lanka WB report, ADB Report 1999
Domestic debt by tenorLonger term securities most common in EAP
Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001-2003
0%10%20%30%40%50%60%70%80%90%
100%
EAP LAC SA MENA SSA ECA
<1 year 1-5 years >5 years
Institutional framework and primary markets
Institutional framework
Most countries formalize debt management objectives in the legal framework All countries have a legal framework for borrowing authority, limits on borrowingCentral Bank is still a primary issuer in marketsDebt Management is generally the responsibility of Ministry of Finance. Supervision is generally the responsibility of the Central Banks
Decisions made by Ministry of Finance – Asia Pacific
Features of issuedsecurities
Timing of issues Repurchase & advanceredemptions
Issuing securites vs.other borrow ing ;Type
of securities
Interest rate on newplacements
Buy backs or bondexchanges
ChinaSingaporeMalaysiaIndonesiaKoreaPhilippinesThailandBangladeshSri Lanka
CambodiaIndonesiaKoreaPhilippinesThailand
CambodiaMalaysiaIndonesiaKoreaPhilippinesThailandBangladesh
ChinaMalaysiaIndonesiaKoreaPhilippinesThailandBangladesh
CambodiaSingaporeMalaysiaIndonesiaKoreaPhilippinesThailandBangladeshSri Lanka
CambodiaChinaSingaporeMalaysiaIndonesiaKoreaPhilippinesThailandBangladeshSri Lanka
Note: Central Bank in the case of Singapore
Legal limits on borrowing
Different categories Net increase Gross amount Detailedspecification
Korea
Philippines
Singapore Indonesia
Thailand
Sri Lanka ChinaMalaysia
Limits on borrowing Borrowing from the Central bank
Not at all Limited borrowing No significantrestrictions
ChinaIndonesiaThailandBangladesh
KoreaMalaysiaSingaporeSri Lanka
Philippines
Fiscal & monetary policy coordination
Separate coordination committees in Malaysia Sri Lanka & Philippines, alternative coordination arrangements in other marketsCentral Bank securities issued in 5 countries requiring coordination with government issues Central Bank as issuer No Central Bank issues
IndonesiaKoreaMalaysiaChinaSri Lanka
SingaporePhilippinesThailandBangladesh
Market supervision – South Asia and Asia Pacific
0
1
2
3
4
5
6
7
Ministry of Finance Central Bank Specialized Authority
# o
f c
ou
ntr
ies
SingaporeMalaysiaPhilippinesThailandIndonesiaChinaSri LankaNepalBangladeshIndiaPakistan
MalaysiaThailandKoreaChinaNepal
KoreaPhilippinesThailandIndonesiaChina
Primary marketsPrimary dealer (PD) arrangements available in most marketsAuctions are main method of primary issuance, but alternate methods are also usedCentral Banks are generally auction agentsMost countries publish auction schedule, and have limits on participation in auctionsRe-openings are common
Primary dealersRole Privileges
China 101
Active part in primary and secondary market, market making and feedback
Excl. right to bid at auction, dealer financing
Korea 27 Similar to above As above, excl. channel for conduct of Central Bank OMO
Singapore 11 Similar to above, quote 2-way prices, market development
Excl. dealing with MAS in money market and forex ops, tax exemption on trading income…
India 19 4
PDs: wholesale primary and secondary markets; quote 2-way Satellite Dealers: for retail investors
Liquidity support, special funds facility for security settlement
Pakistan 11 keep primary and secondary market liquid; quote two-way prices
Right to participate in the auctions, carry short position thru repos up to max. of 4 consecutive wks for bonds & 1 wk for T-bills
Sri Lanka 12 Bid for min 15% of tendered amounts at each auction; create and maintain secondary market
access to T-bond and T-bill auctions, act as counterparts to CBSL transactions in secondary market, monthly meetings w/ CBSL
AuctionsSchedule Participation
Non competitive bids
Uniform price
Bangladesh Yes Primary Dealers, CB Yes, banks/govt agencies/Intermediaries
/firms
China Yes (quarterly) Primary dealers No
Korea Yes Primary dealers Yes
Multiple price
Malaysia Yes Primary dealers, CB No
Singapore Yes Primary dealers, CB Yes
Thailand Yes Financial intermediaries, CB, government agencies
Yes, Financial intermediaries/ govt
agencies
Both
India Yes Primary Dealers Yes, Ind. Invstr.
Philippines* Yes Primary dealers (GSEDs)Yes, Banks and
accredited GSEDs
Auctions are mostly settled in 1 or 2 days
Time from announcement of results to settlement
0
1
2
3
Up to 24 hours From 24 to 48 hours More than 48 hours
# o
f c
ou
ntr
ies
ChinaMalaysiaBangladesh
Korea PhilippinesThailand
Singapore
Secondary market and infrastructure
Secondary market
Banks and institutional investors are dominant holders (liquidity management & lack of lending opportunities)High statutory liquidity ratios and reserve requirementsDisparity in depth of the market (liquidity)Active repo markets in some countriesFew restrictions on forwards, short selling and borrowing/lending securitiesFew countries impose transaction tax
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Pakistan Sri Lanka Bangladesh
Other
Non-Banks
Commercial Banks
Central Bank
Investor base
Resource: SBP Annual Report 2003 for Pakistan and WB Survey
Note: Non-banks include EPF(31.7%), NSB (13.2%), and Savings Institutions in Sri Lanka and National Savings Scheme in Pakistan)
Investor Base of GS – South AsiaBanks and Institutional investors have largest share of GS in India, Pakistan and Sri Lanka
Investor base
*Malaysia: includes pension, insurance & Employee Provident Fund **Commercial banks and Special Financial Institutions combined
0%
20%
40%
60%
80%
100%
Indone
sia
Singap
ore
Korea
Thaila
nd**
Mal
aysi
a*
Holders of domestic marketable GS outstanding-EAP
Other
Residentinvestors*
Securities
Commercialbanks
Central Bank
Investor base
0%10%
20%30%
40%
50%60%
70%
80%90%
100%
LAC SSA EAP MENA ECA
Banks Public sector Other
Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 -2003
Banks are dominant holders of GS
Secondary market liquidity
Note: Turnover is calculated as Annual trading volume/Year end marketable securities outstanding. *Annualized data Jan-June 2002, Thailand Jan-Sep2002 ** No breakdown given *’includes National Housing bonds.
Government securities turnover
0 2 4 6 8 10 12 14
Singapore
Korea*'
China
Philippines**
Thailand*
Malaysia*
Indonesia*
(x)Outright Repos
Secondary market liquidity Average trading of GS highest in East Asia
0
1
2
3
4
5
6
7
8
To
tal
turn
ove
r (x
)
EAP LAC MENA ECA SSA
Note: Turnover is calculated as Annual trading volume (outright and repos) /Year end marketable securities outstanding. Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 and 2003 (which have provided data varying from end 2001-2003)
Trading possibilitiesTrading activity
Repos/Reverse Repos
Lending/ borrowing securities Short selling
Futures/Options
Interest rate
Swaps
Indonesia Yes Yes Yes Yes N.A.
India Yes Yes No Yes Yes
Korea Yes Yes Yes Yes Yes
Malaysia Yes Yes Yes No No
Pakistan Yes Yes Yes No No
Singapore Yes No Yes Yes Yes
Sri Lanka Yes No No Yes Yes
Thailand Yes Yes Yes No Yes
Source: IOSCO Debt Market Survey 2001 and WB debt market surveys
Tax regimeCapital gains tax
Withholding taxes
Non resident investment
Turnover tax
China Yes Yes NA Yes
Indonesia YesYes, some exemptions
Recoverable witholding tax No
Korea No Yes
Some irrecoverable
withholding tax No
Malaysia No YesRecoverable witholding tax No
Philippines Yes YesRecoverable
witholding tax No
Singapore No Yes Exempt No
Sri Lanka* No No NA Yes
* ADB Bond market report 1999
Infrastructure
OTC trading dominates, exchange trading is also developing.Paper securities is phasing outSettlement is mostly RTGS with delivery vs payment, but gross settlement w/o DVP still used in China and IndonesiaIndependent depositories used in China, and Korea, where Central Bank holds the Central Depository role in others.
Settlement arrangementsSettlement arrangement
Settlement Cycle
China Gross settlement w/o DVP
Sri Lanka RTGS with DVP T+3, T+5
India RTGS with DVP Securities transfer
gross, funds transfer net
T+0 – T+2
Malaysia RTGS with DVP T+0 in OTC, T+3 in Exchange traded
Thailand RTGS with DVP T+2Source: IOSCO Debt Market Survey 2001, WB Bond Market Survey
Depository arrangements
Note: Subdepository or other depository institutions
Central Depository Other depository institution
China China Govt Secs Depository Trust & Clearing Co.
China Securities Depository & Clearing Co (mainly sub custody for
stock exchange)India Central Bank's
SGLClearing Corporation of India Limited
for transacions thru Negotiated Dealing Systems (NDS)
Korea Korea Securities Depository
Central Bank (primarily for OMO)
Malaysia Central Bank Authorized Depository Institutions (licensed Financial Institutions),
linked to RTGS (RENTAS) system at Central bank
Philippines Bureau of Treasury
Central Bank is settlement agent
Sri Lanka CDS (Central Depository System)
Clearing and Settlements thru SSSS
Thailand Central Bank
Conclusions/AchievementsProactive stance in developing domestic debt marketsEnhanced macroeconomic stability in the region supports development of domestic debt marketsImprovements in the institutional framework facilitates development Fixed rate securities & development of mid to long term market is positive for development of a yield curveKey aspects of required infrastructure are availableDematerialization of securities is wide-spread
ChallengesStimulating a more diverse investor base
I.e Access of individual and foreign investors
Reduce reliance on non marketable debtEnhancing efficiency of the settlement systems – Integrating SytemsFostering more active secondary markets
Organizing the trading marketReducing fragmentation in some markets
Developing a benchmark yield curveEnhancing public debt and cash management
Thank you