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The Currency Premium and Local-Currency Denominated Debt Costs in South Africa

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  • Martin Grandes
  • Marcel Peter
  • Nicolas Pinaud

Abstract

One of the priorities set out in the Capital Flows Initiative of the NEPAD is to increase private capital flows to Africa, whereby providing African economies with longterm affordable and sustainable resources to finance their development. In this respect, lower debt costs may be of utmost importance in boosting investment and future output growth on the continent. This paper aims at identifying the determinants of South African currency premia — such premia usually form an important element of debt cost in developing countries — in order to assess the scope of South African economic policies for narrowing the spread on local-currency denominated debt. South Africa is one among very few emerging economies able to borrow long-term domestically and abroad in its own currency, the rand, and one of the few to have developed its domestic bond market fairly well. However, the rand nominal exchange rate has proved increasingly unstable and volatile over the last years. As a result ... L’une des priorités définies dans l’Initiative du NEPAD sur les mouvements de capitaux est d’accroître les entrées de capitaux privés en Afrique afin de fournir aux économies du continent des ressources bon marché et à long terme pour financer leur développement. De ce point de vue, des coûts d’endettement moins élevés pourraient être de la plus haute importance pour stimuler l’investissement et la croissance de la production. Ce Document de travail identifie les déterminants de la prime de risquemonétaire en Afrique du Sud — celle-ci étant habituellement un élément important de la charge de la dette dans les pays en développement. Il s’agit de déterminer la marge de manœuvre des politiques sud-africaines pour réduire les différentiels de taux sur la dette libellée en monnaie locale. L’Afrique du Sud est l’une des très rares economies émergentes en mesure d’emprunter à long terme sur son marché et à l’étranger dans sa propre monnaie, le rand, et l’une des rares à avoir développé ...

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File URL: http://dx.doi.org/10.1787/608773542458
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 230.

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Date of creation: Dec 2003
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Handle: RePEc:oec:devaaa:230-en

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Cited by:
  1. Thierry Mayer, 2006. "Policy Coherence for Development: A Background Paper on Foreign Direct Investment," OECD Development Centre Working Papers 253, OECD Publishing.
  2. Janine Aron & John Muellbauer, 2006. "Review of Monetary Policy in South Africa since 1994," CSAE Working Paper Series 2006-07, Centre for the Study of African Economies, University of Oxford.
  3. Aron, Janine & Muellbauer, John, 2006. "Review of Monetary Policy in South Africa: 1994-2004," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5831, C.E.P.R. Discussion Papers.
  4. Schaling, E., 2005. "Capital Controls, Two-tiered Exchange Rate Systems and the Exchange Rate Policy: The South African Experience," Discussion Paper, Tilburg University, Center for Economic Research 2005-110, Tilburg University, Center for Economic Research.
  5. Marcel Peter & Martín Grandes, 2005. "How Important is Sovereign Risk in Determining Corporate Default Premia? the Case of South Africa," IMF Working Papers 05/217, International Monetary Fund.

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