Stability in government funding plays an important role in building business confidence, encouraging investment and, in many instances, going a long way towards fulfilling certain United Nations Sustainable Development Goals.
A recent interesting study by the World Bank shows a marked shift in borrowing patterns by a number of sovereign issuers. In my view however, its focus is not comprehensive enough.
The study shows that, since 2013, there has been an increasing trend towards borrowing in euros. This is especially apparent in Latin America, a region that has traditionally borrowed in dollars.
The study notes a number of reasons – most obviously the divergence in US and European monetary policy, which has led to expectations that euro rates will remain ‘lower for longer’.
There is also the desire from borrowers to diversify the investor base. When Peru launched its first euro-denominated bond in 2016, it brought in mainly ‘new’ investors who had no previous exposure to the country.
The ability to issue debt in multiple currencies is doubtless a plus. But, what is more important from the issuer point of view is getting to the point where all options – including attracting the international investors to the local currency debt market– are on the table.