Not easy to repay bonds, says Volavola
21 July, 2015, 12:00 am
COUNTRIES in the Pacific such as Papua New Guinea and Fiji have issued international bonds to fund infrastructure development.
Fiji had also announced that the bonds would have to be rolled over and according to Pacific Islands Private Sector Organistion (PIPSO) CEO Mereia Volavola, it was not that easy to repay those bonds or loans.
This development or trend, she said, provided an indication of what the proposed Melanesian Spearhead Group Investment Bank (MSGIB) would have to deal with.
A plan for MSGIB was announced at the University of the South Pacific last week, where talks were underway for its processes and financier was planned to be outsourced from MSG countries superannuation funds.
She said infrastructure loans were associated with governments, and prudent financial management was required for countries that had undertaken infrastructure development to ensure the timely repayments of loans.
Apart from prudent financial management, she said a stable Government was also required.
“The biggest risk is the funding source which is the pension funds from the MSG countries. This is a concern,” she said.
“Infrastructure loans are successful if the loans are repaid on time.”
If governments cannot properly manage its cash flows, she said, they would have problems in repaying the loans in a timely manner.
“Infrastructure loans not repaid on time will have an investment impact on the return on pension funds.
“If the main funding sources of this Investment Bank are pension funds, Government guarantees will have to be provided to ensure the protection of pension funds.”
Like in the case of the National Bank of Fiji, she said, depositors funds were secured despite the bank closing down because of the Government guarantee.
Another risk, she said, was the currency on which this proposed bank would trade on.
While the different currencies in the MSG countries had different strengths, she said pension funds could dwindle in value.