China plays big­ger role in fi­nanc­ing fron­tier mar­kets: Moody’s

The Myanmar Times - - International Business -

WHILE tight­en­ing global mone­tary poli­cies would put more pres­sure on short­term liq­uid­ity in fron­tier mar­kets (FMs), Chi­nese fi­nanc­ing could help mit­i­gate liq­uid­ity risk for these coun­tries, said Moody’s, a rat­ings agency, in a re­port re­leased on Mon­day.

Moody’s de­fines FMs as sub-in­vest­ment-grade coun­tries that rely heav­ily on con­ces­sional fi­nanc­ing. Moody’s rates 36 FM coun­tries, most of which carry rat­ings in the B1-B3 range.

“Be­nign global liq­uid­ity con­di­tions have per­mit­ted some FMs to raise com­mer­cial US dol­lars sovereign debt, at rel­a­tively fa­vor­able rates,” Anne Van Praagh, a Moody’s Manag­ing Direc­tor, said. “One quar­ter of FMs had is­sued new debt on com­mer­cial terms as of Au­gust 2017.”

“Look­ing ahead, as global liq­uid­ity con­di­tions evolve, el­e­vated debt ser­vice costs and liq­uid­ity risks are key credit chal­lenges for FMs,” she added.

The most vul­ner­a­ble sov­er­eigns are those with larger ex­ter­nal vul­ner­a­bil­i­ties, lim­ited do­mes­tic fis­cal pol­icy space, high gross bor­row­ing needs and low in­sti­tu­tional strength, the re­port said.

Higher global in­ter­est rates could limit mar­ket ac­cess and sig­nif­i­cantly raise debt ser­vic­ing costs for sov­er­eigns with a ma­te­rial pro­por­tion of ex­ter­nally fi­nanced debt and large gross bor­row­ing re­quire­ments.

Ac­cord­ing to the re­port, liq­uid­ity risks are most acute in Egypt, Pak­istan and Mon­go­lia.

“Fi­nanc­ing from China through for­eign di­rect in­vest­ment and swap line ar­range­ments has be­come more im­por­tant for some FMs, 16 of which are listed un­der China’s Belt and Road Ini­tia­tive,” said the re­port.

“Chi­nese fi­nanc­ing could help mit­i­gate near-term liq­uid­ity risks,” said the re­port.

“It is en­cour­ag­ing a shift away from fi­nanc­ing by in­ter­na­tional fi­nan­cial in­sti­tu­tions, which have his­tor­i­cally pro­vided a sta­ble fund­ing source, in­clud­ing on con­ces­sional terms.”

– China Daily

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