Just a short comment (I hope)
There are a number of things to talk about whenever anybody touched about GDP and linking it to bonds.
But one of the most popular reactions would be the increasing interest in creating bonds.
1. Bond servicing is higher during rapid growth but lower if the growth is slow.
2. For borrowers - issuance may stabilize public spending as Government can service more debt during affordable times and less during difficulties. It is also said to lower down crisis of debts and defaults. When you reduce the service of country's debt during recession, it may help in the recovery process.
3. For investors - losses may happen due to defaults. Thus, comapred to the conventional bond, this kind of bond (GDP-linked) can ensure higher total payment hence reducing default probability (what am I saying? )
4. The Government can help in financing some potential sectors if GDP-linked bonds are issued. In theory, some emerging or new sectors (any industry esp. manufacturing) can target to be listed in the Bursa Malaysia if they wish as bond issuance can help correction in the stock market.
5. It also helps in improving capital market as well (esp. corporate bonds - in Malaysia's case - the bonds issued by GLC). The corporate sector can reduce cost and improve capital efficience once bonds are integrated into the financial stucture.
Having said the above, there are disadvantages as well...I'll save the 'bad news' for another day.