Leveraging Green Bonds to Address Debt Sustainability and Economic Recovery in South Asia: Lessons from EU and ASEAN Countries

Abstract

This paper intends to analyze how green bond markets can address debt sustainability and post-COVID-19 economic recovery in South Asia and draws lessons from the European Union (EU) and Association of Southeast Asian Nations (ASEAN) countries using desk approach and survey of grey literature. The study reveals that COVID-19 crisis induced the European governments to launch innovative bonds such as social and sustainability bonds to meet large public finances for pandemic and post-pandemic recovery actions, while issuance of green bonds in ASEAN region has been quite slow but remained positive despite declining trend in global market in 2020. Robust policies and regulations have been developed and implemented in the EU and ASEAN regions, whereas development of green bond markets in South Asian countries has been facing numerous barriers. The roadmap to promote green bond markets in South Asia should focus on following broad policy issues: primary policies, established instruments, innovative products and new strategies. The primary policy options should focus on building and strengthening infrastructure for development of green bond markets. In this context, the policies should focus on developing a shelf of climate-compatible green projects to achieve inclusive and sustainable post-COVID-19 recovery and to meet the sustainable development goals. Local bond markets should be bolstered to issue innovative green bonds and tactical public green bonds to finance the post-COVID-19 recovery in South Asian countries. The compatible EU and ASEAN green bond standards should be replicated with suitable modifications to develop South Asian country-specific green and sustainable bond standards.