Local currency bond markets in Africa

The previous blog mentioned a conference at Francfort on "Developing Bond Markets in Emerging Market Economies". What did the experts find out and how can local currency bond markets promote development?

The Bundesbank pubished two presentations regarding Africa (and the rest of the conference papers):
1. Thierry de Longuemar, Vice President AfDB, Finance

He differentiates between external and domestic financing. A careful balance between both is needed. Domestic debt is associated in many SSA countries with high real interest rates. That gives governments an incentive to rely on external debt, which has the considerable disadvantage of exchange rate risk. He claims that SSA governments focus more on domestic finance in order to avoid renewed unsustainable external indebtedness.

In a graph he shows the tremendous increase in US$ equivalent debt issuances in the domestic markets and currencies of Botswana, Ghana, Kenya, Nigeria, Tanzania, Uganda and Zambia.
He sees that as evidence that a local debt market is developing.

He identifies several hurdles that remain. The macroeconomic environment remains often unfavourable. Bad fiscal and monetary and capital market unfriendly policies. The regulatory frameworks are weak - no strong disclosure requirements, weak enforcement mechanisms.

On the supply side the government is frequently the only issuer and then it issues small scales and on a irregular basis. The demand side is marked by a shallow investor base. Also the market infrastructure is weak. Modern technologies are not broadly applied and information of market participiants as well as regular publication of important data is absent.

Policy conclusions: First of all SSA debt markets are very heterogenous.

• Explain SSA governments the advantages of well functioning debt markets


• Small countries should consider a regional market approach


• IFIs should support governments through technical assistance and capacity building

Operational conclusion:

• Upgrade legal and institutional framework and modernise infrastructure


• Develop benchmark yield curve and lengthen maturities


• Deepen the issuer and investor base

The second paper will be reviewed later. It is by Hans J. Blommestein, OECD, and seems to be really interesting.