Australia to pull debt guarantee scheme at end of year

An initiative which enabled Australian states and territories to more easily raise finance for infrastructure projects during turbulent economic times is to be withdrawn as confidence in market conditions grows.

An Australian government initiative which guaranteed debt raisings by states struggling to raise money for infrastructure projects is to be withdrawn at the end of this year. The move comes as confidence increases that Australian borrowers have less need for guarantee schemes as the country’s economic recovery gathers pace.

The central bank-administered state and territory borrowing guarantee commenced in July last year and was designed to allow state and territory governments to continue to access funding for infrastructure needs at a time of financial market turbulence.

While there had been no official deadline for the scheme to be brought to an end, the fact that one has now been announced appears to reflect growing confidence among Australia’s financial regulators that guarantee schemes introduced at the height of the financial crisis can now be phased out because of improved funding conditions.

A separate scheme designed to help Australia’s banks borrow funds overseas is being phased out on March 31 this year. This scheme, which was introduced in October 2008, had been expected to run for three years.

In a statement, Australian government treasurer Wayne Swan said that – of the two schemes – a longer withdrawal period was needed for the state and territory borrowing guarantee “for banks to establish liquidity in new unguaranteed bond lines”.