Ambassador A.L. Abdul Azeez, Sri Lanka’s Permanent Representative to the United Nations Office at Geneva recently chaired a panel at the Debt Management Conference organized by the United Nations Conference on Trade and Development (UNCTAD). This conference, which is organized every two years by the UNCTAD provides a regular forum for sharing experiences and exchanging views between Governments, international organizations, academia, the private sector, and civil society on current issues in public finance, debt management and the debt crisis prevention.
This year’s Debt Management Conference brought together senior-level national and international debt managers and experts from around the world to discuss some of the most pertinent topics in both external and domestic debt, debt management and public finance.
The panel chaired by Amb. Azeez explored the issue of debt and the securitization of development finance. In this context the panelists discussed the role of securitization that can and should play in financing development, and furthermore how extensive securitization of development finance might affect developing country debt sustainability.
With regard to development finance, securitization is part of efforts to used blended (public-private) financing instruments to attract private finance to developmental projects. Securitization can help diversify individual investor risk and thus raise private capital. To this effect, developmental goals are being converted into asset classes, and public funds are used to de-risk such asset classes – a strategy to close the financing gap to meet Agenda 2030 commitments that is today being widely promoted by international organizations, including the United Nations.
Amb. Azeez pointed out that securitization is an essential element of a recent wave of financial innovation. “It refers to the bundling of loans against which asset-backed bonds can be issued. Securitization enables banks to replace volatile income generated through interest arbitrage with more stable fee income, and to transfer risks to third parties. Securitization thus serves to move risky, but seemingly profitable products and activities, off banks’ balance sheets into the so-called shadow banking” he said.
Securitization is not a new concept. It has been used to augment bank lending at least from the 1980s. While some expect securitization to play an important role in filling the huge developmental financing gap, others have pointed out that securitization does not come without systemic risks. It is of course widely known that securitization is associated with the Latin American financial crisis in the 1980/1990s and more recently, the Global Financial Crisis.
Amb. Azeez noted that it is a core concern to understand how securitization of development finance may affect debt sustainability of developing countries, such as Sri Lanka and what other options there may be to alleviate debt burden and reduce financial risk exposure.
Amb. Azeez was joined at the panel by Mr. Michael Chui, Senior Economist Emerging Markets, Bank for International Settlements, Switzerland, Dr. Daniela Gabor, Associate Professor in Economics, University of West England, UK, and Prof. Jan Toporowski, School of Oriental and African Studies, University of London, UK.
Permanent Mission of Sri Lanka
25th November 2019
Geneva
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