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By Biznomics Research Team

Market Embraces Sri Lanka Sovereign Bond Issue

Sri Lanka raised USD 2.0 billion international sovereign bonds on the strength that IMF has endorsed the country’s economic performance, while the bonds having been rated by international rating agencies as “Non-Investment” grade. In fact Moodys attached “B2” rating while Standard and Poor’s and Fitch assigned “B” rating. The USD 500 million face value bond with 5-year maturity was raised at a semi-annual coupon rate of 6.35 percent while USD 1,500 million with 10-year maturity was raised with a semi-annual coupon rate of 7.55 percent. The Bonds were subscribed by 91 percent fund managers while 5 percent came from insurance and pension funds.

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Sri Lanka entered in to the international bond market in 2007 and the June 2019 issue was the 14th USD benchmark offering. This was also the country’s second sovereign bond transaction this year. The Government of Si Lanka raised USD 1 billion 5-year bond at a semi-annual coupon rate of 6.85 percent and a 10-year bond at a semi-annual coupon rate of 7.85 percent in March 2019.

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Sri Lanka has USD 17 billion ISBs as of June 2019 and account for nearly 50 percent of Government external debt.

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BiZnomics Global Out-front Comments Off on BiZnomics Global Out-front 612

Article By: BiZnomics Research Team

USA Monetary Policy-Fed Dilemma

BiZnomics-Global-Out-front-03Federal Reserve Chair Jerome Powell mentioned that  US Monetary policy is “well positioned” to support the strong labor market, which is just now starting to benefit workers on the margins. He added that “the benefits of the long expansion are only now reaching many communities, and there is plenty of room to build on the impressive gains achieved so far,” a close look at the adjustments to employment data suggested the labor market may not have been as strong last year as previously thought, and thus we could once again witness a shift for lower interest rates. The September data released by the Bureau of Labor Statistics indicated a downward revision of the estimated job creation numbers. The agency said the economy added 170,000 jobs a month in the 12 months through March 2019, half a million fewer jobs than previously estimated. Powell in fact commenting on the job data numbers mentioned that “While this news did not dramatically alter our outlook, it pointed to an economy with somewhat less momentum than we had thought,”.

Germany Consumer Demand Shines

The mood among German consumers rose unexpectedly  heading into December, a survey showed this week that household spending will continue to prop up growth in Europe’s biggest economy at the end of the year. Record-high employment, inflation-busting pay hikes and historically low borrowing costs have turned household spending into a steady and reliable driver of growth in Germany, helping to cushion its export-dependent economy from trade problems. The consumer sentiment indicator, published by the Nuremberg-based GfK Institute and based on a survey of around 2,000 Germans, improved to 9.7 from 9.6 in November. A Reuter’s poll of analysts had predicted a stable reading. GfK said a subindex measuring economic expectations jumped as Germans became more optimistic about the growth outlook due to “tentative signs of easing” 

 

Australian economy continues to struggle

Wage growth in Australia looks to be stuck in the slow lane and it will take a sustained fall in unemployment to lift it to more economically desirable levels, a top central banker said on Tuesday. In a speech on employment and wages, Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said there was growing evidence that wage growth had become entrenched in a 2-3% range, down from the former 3-4% norm. This trend has been weighing on household incomes and spending, as well as dragging on the economy more broadly. “A gradual lift in wages growth would be a welcome development for the workforce and the economy,” said Debelle. “It is also needed for inflation to be sustainably within the 2–3% target range”. However, he held out little hope for acceleration any time soon, noting the bank’s liaison with firms showed 80% of companies expected steady wages growth and only 10% anticipated anything faster.” The more wages growth is entrenched in the 2s (2-3% range), the more likely it is that a sustained period of labour market tightness will be necessary to move away from that,” said Debelle. The central bank has cut interest rates three times since June, taking them to a record low of 0.75%, in part to try and drive unemployment down toward its goal of 4.5%.

China looks fragile

BiZnomics-Global-Out-frontOil prices slipped on Tuesday on concerns about economic growth and fuel demand as uncertainty remains about the ability of the United States and China, the world’s biggest oil users, to agree a preliminary deal to end their trade war. Brent crude futures were down 5 cents at $63.60, after rising 0.4% in the previous session. West Texas Intermediate crude futures fell 9 cents to $57.92, having risen 0.4% on Monday. Top trade negotiators from China and the United States held a phone call on Tuesday morning, China’s Commerce Ministry said, as the two sides try to hammer out a preliminary “phase one” deal in a trade war that has dragged on for 16 months.  “Oil traders remain hopeful a trade deal will get signed,” said Stephen Innes, chief Asia market strategist at AxiTrader. “Still, the lack of clarity around the tariff rollbacks, which is the key to economic growth and bullish for oil, continues to somewhat cloud sentiment. “China and the United States are “moving closer to agreeing” on a “phase one” trade deal, the Global Times – a tabloid run by the Chinese Communist Party’s official People’s Daily – reported earlier.

India Cuts Monetary Policy Rates for the six time

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The Reserve Bank of India will cut interest rates in December for the sixth time this year, and again before July, according to economists in a Reuters poll which forecast those reductions would either marginally boost the economy or have no impact. Currently the most aggressive major central bank in the world, the RBI has cut rates by 135 basis points this year to 5.15%, but inflation has remained low by historical standards and policymakers have barely moved the needle on growth. The Indian economy expanded 5.0% in the April-June quarter on a year earlier, its slowest annual pace since 2013, and was expected to grow 4.7% last quarter, according to the latest Reuters poll, taken Nov. 20-25.That was significantly lower than the 5.6% rate predicted in the last poll, and would mark six consecutive quarters of slowing growth, a first since 2012.

It also comes despite a recent series of fiscal stimulus from Prime Minister Narendra Modi’s government, which was re-elected in a landslide in May. “Further rate cuts are likely to have a limited impact on the economy as cost of borrowing is not the pressing issue. The lack of risk appetite and fragile sentiment are holding back fresh investment in the economy,” said Sakshi Gupta, senior India economist at HDFC Bank. “While further interest rate cuts would support growth at the margin, we need to see a turnaround in sentiment to restart the investment cycle.

Cont..

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Different Models of Developmental State 0 579

Development-Stage

To put it bluntly, there isn’t one economic theory that can single-handedly explain Singapore’s success; its economy combines extreme features of capitalism and socialism. All theories are partial; reality is complex

Development-Stage

Prof. Ha-Joon Chang

  • Former Consultant – (UNCTAD, WIDER, UNDP, UNIDO, UNRISD, INTECH, FAO, and ILO),
  • Former Consultant – The World Bank, the European Investment Bank, the Asian Development Bank.
  • Former Consultant for the Governments of Argentina, Brazil, Canada, Ecuador, Indonesia, Japan, Malaysia, Mexico, Namibia, Saudi Arabia, Singapore, South Africa, UK, Uruguay, Venezuela, and Vietnam.
  • Winner of the 2003 Myrdal Prize.
  • Winner (jointly with Richard Nelson of ColumbiaUniversity) of the 2005 Leontief Prize for Advancing theFrontiers of EconomicThought awarded by Tufts University.
  • Winners of the Prize include the Nobel Laureates Amartya Sen and Daniel Kahnemann as well as John Kenneth Galbraith and Albert Hirschman.
  • He was ranked no. 9 in the Prospect magazine’s World Thinkers 2014 poll.

The ‘classic’ developmental state is an ideal type derived from the East Asian – more specifically Japanese – experience between the 1950s and the 1980s. 

There were of course variations even within East Asia. Korea actually went further down the road than Japan did, although now it has moved to the opposite extreme, embracing neo-liberalism as if there is no tomorrow. Between the 1960s and the 1980s, the Korean state pursued some of the most market-defying selective industrial policies, using an extremely powerful pilot agency (the Economic Planning Board, or the EPB) and total state ownership of the banking sector, both of which were missing in Japan. The Taiwanese state may have intervened in the affairs of the private sector less forcefully and dramatically than Japan or Korea did, but that was in part because there were few no large private sector firms in whose affairs the state felt the need to intervene. The other side of the coin of the weakness of the private sector in Taiwan was that SOEs (especially in upstream intermediate inputs industries, where scale economy is crucial) and state-financed R&D played a more important role in Taiwan than in Korea or Japan. Singapore used yet another model, combining free trade, a welcoming (albeit carefully targeted) approach to foreign direct investment, and a massive SOE sector (one of the biggest in the non-oil-producing world, producing 22% of GDP, when the world average is 9-10%). 

Even the ‘classic’ developmental state was, however, not confined to East Asia. During the same period, under a similar political condition of nationalistic, interventionist rightwing hegemony, France used a very similar strategy of economic development, involving (indicative) planning by Commissariat Général du Plan (the planning commission), sectoral industrial policy (of course, somewhat constrained by the imperatives of European integration) led by elite bureaucrats, and aggressive use of SOEs (Cohen, 1977, Hall, 1986, Hayward, 1986, and Chang, 1994). There is even anecdotal evidence that Japanese bureaucrats stationed in France were reporting on French policy practice.

If we broaden our definition of the developmental state to include any state that deliberately intervenes to promote development, we could argue that the Scandinavian countries also practiced a variety of developmentalism, especially since the 1950s. 

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