Asian governments may have to borrow to meet US$685 billion in spending pledged over five years to counter slowing growth as demand for the region’s exports shrink. Developing economies in Asia will probably expand 5.5 percent this year, the slowest since 1998, the International Monetary Fund (IMF) said last month.

Asian governments, except for Hong Kong and Singapore, are expected to grapple with larger fiscal deficits in 2009 as the global economy continues to deflate, the ADB, a lender funded by governments to promote growth in the region, said in its report.

To help alleviate pressure on corporate borrowers, the ADB is in talks with countries in the Association of South East Asian Nations (ASEAN), plus Japan, China and South Korea to set up a fund providing credit guarantees for local-currency debt, Lee Jong-Wha, head of the ADB’s office of regional economic integration, said in a phone interview from Manila.

ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

Credit guarantees

“We hope we can announce details of the Credit Guarantee & Investment Mechanism in the first half of the year,” Lee said, declining to disclose the size of the trust fund.

Refinancing will be “an especially difficult issue for companies that had become used to issuing new equity, especially during 2005 to 2007, a period of cheap credit and high growth,” the ADB said in the report.

Sales of Asian-currency bonds will rise this year as governments turn to local capital markets for funding and overseas investors favor sovereign issuers or state-owned companies, the report said.

Local-currency bond sales in the last quarter of 2008 fell 59 percent from a year earlier to $446 billion, the ADB said.

Ninety percent of those were used to pay off existing debt, leaving net issuance at $43 billion, ADB data show. Corporate bond sales in local currencies fell 27 percent in 2008, the ADB said.

Stimulus spending

China’s government is rolling out a 4 trillion yuan ($585 billion) stimulus package after the economy grew 6.8 percent in the fourth quarter from a year earlier, the slowest pace in seven years.

The Indian government raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($41.1 billion) from the originally budgeted 1.45 trillion rupees, to meet extra spending plans. The country’s budget deficit may widen threefold from earlier estimates, the top economic adviser to Prime Minister Manmohan Singh said in an interview last week.

Malaysia may raise its budget deficit target, already set to match the biggest overspend since 2003, to stimulate the $181 billion economy, Deputy Prime Minister Najib Razak said on January 29. South Korea may allocate a record extra budget of 10 trillion won ($7.2 billion) this year to help meet its spending plans, the Dong-a Ilbo newspaper reported on February 5, citing government officials it did not identify.

Source: Bloomberg