The Asian Development Bank (ADB) is set to advance its initiative to enable Fiji and Tonga to issue local currency bonds in their respective currencies, the Fijian dollar and Tongan Pa’anga. This process of due diligence will involve a thorough examination of all legal and legislative requirements to facilitate bond issuance within these nations’ finance markets, as explained by Emma Veve, ADB’s Director General for the Pacific Department.
At the ADB’s recent meeting in Milan, it was revealed that Vanuatu and Samoa have also expressed interest in participating in local currency bond issuance, but the focus for now is on Fiji and Tonga, who have taken the lead. This initiative reflects ADB’s commitment to bolster the private sector in these nations, allowing for borrowing in local currencies, which can significantly mitigate foreign exchange risks for borrowers.
Veve emphasized that while ADB has previously lent in currencies such as US dollars, this new mechanism will enable local private entities to engage in borrowing directly in their own currencies. This development is vital as it not only decreases foreign exchange exposure but also aligns with a growing trend identified by the G20 for enhanced local currency financing, emphasizing sustainable economic growth and resilience.
The ADB has a track record of supporting local currency bonds, previously established in countries like the Cook Islands, but this new approach marks a significant step for addressing the needs of the private sector. Supporting these efforts, the ADB is also focusing on building banking capacity in the region, especially in light of the challenges posed by dwindling correspondent banking relationships.
Fiji and Tonga’s commitment to local currency bonds may pave the way for increased investment opportunities and more robust economic frameworks in the Pacific region. This venture highlights the importance of financial partnerships, not just with the ADB but also among regional stakeholders, to promote economic stability and potential growth in local markets.
Overall, this initiative promises to strengthen fiscal resilience and can lead to greater support for small and medium enterprises (SMEs) within these nations, contributing positively to their overall development and economic sustainability.
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