Banking on the blue economy: blue bonds as an economic recovery response to the COVID-19 shock
Date
2022-05-31
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Abstract
The Covid-19 pandemic has produced unprecedented challenges for both the
health and economy of each country. This has been seen in reduced sectoral output
attributed to the imposed lockdowns to contain the spreading of the disease. The
Philippines sits in the same boat as its debt-to-GDP ratio increases due to the reduced
output and increased debts; rising from 54.6% in 2020 to 60.5% in the last quarter of
2021. Some Filipino economists cite this as a “dangerous level” since the international
threshold for the debt-to-GDP ratio is 60%. As an archipelagic country, there is a
potential to reap the benefits of the vast blue economy of the Philippines. This paper
shows the underlying outcome of issuing blue bonds in the country as one of the
facilitators of economic recovery from the Covid-19 shock. Blue bonds are a subset
of green bonds under the larger term of sustainable bonds which aim to support the
sustainability projects related to the ocean economy. Given this, the purpose of the
study is to show the viability of blue bond issuance as a contributive solution to
lowering the debt-to-GDP ratio of the country. This paper exhibits the forecasted debt-
to-GDP ratios in contrast to the forecasted ones after blue bond issuances. In doing
so, the GDP share of the Philippine blue economy was forecasted using the type II
GVA multiplier, which serves as the induced effect of blue bond issuances. Using the
projected blue economy growth, results show that blue bond issuance has a significant
impact on facilitating economic recovery through the immense contraction of the
debt-to-GDP ratio by more than 50%. Possible channels that can be targeted are the
fishing and tourism industry of the country which has shown the most potential in the
Philippine blue economy.
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Keywords
banking, blue bonds, COVID-19, economic recovery