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Localising sovereign debt: The rise of local currency bond markets in sub‐Saharan Africa

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  • Florence Dafe
  • Dennis Essers
  • Ulrich Volz

Abstract

This paper analyses the development of local currency sovereign bond markets (LCBMs) in sub‐Saharan Africa (SSA), a potentially important source of longer‐term public finance. We make two contributions to the literature. First, we build a novel data set comprising 28 SSA countries for the period 2000–14 to uncover the main correlates of LCBM capitalisation, of local currency bond (LCB) tenors and of LCB issue yields. We find that LCBM capitalisation in SSA relates to politico‐institutional factors, overall financial development and financial system structure. For LCB tenors and issue yields, inflation levels matter too. Second, we complement our econometric analysis with qualitative case studies of Kenya and Nigeria, where we further investigate the drivers of LCBM development and place LCBMs in a broader public debt context. While we document the increasing importance of LCBMs in SSA, we also highlight new vulnerabilities, including those related to investor base composition.

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  • Florence Dafe & Dennis Essers & Ulrich Volz, 2018. "Localising sovereign debt: The rise of local currency bond markets in sub‐Saharan Africa," The World Economy, Wiley Blackwell, vol. 41(12), pages 3317-3344, December.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:12:p:3317-3344
    DOI: 10.1111/twec.12624
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    Cited by:

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    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "ICT, Financial Access and Gender Inclusion in the Formal Economic Sector: Evidence from Africa," The African Finance Journal, Africagrowth Institute, vol. 20(2), pages 45-65.
    3. Simplice Asongu & Rexon Nting, 2020. "The comparative economics of financial access in gender economic inclusion," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 12(2), pages 193-207, December.
    4. Aleksandr V. Gevorkyan, 2019. "Exchange market pressure and primary commodity – exporting emerging markets," Applied Economics, Taylor & Francis Journals, vol. 51(22), pages 2390-2412, May.
    5. Kaltenbrunner, Annina & Perez Ruiz, Daniel & Okot, Anjelo, 2022. "A structural analysis of foreign exchange markets in sub-Saharan Africa," EIB Working Papers 2022/11, European Investment Bank (EIB).
    6. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "Finance, governance and inclusive education in Sub-Saharan Africa," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 17(8), pages 1044-1061, July.
    7. Simplice Asongu & Oludele Folarin & Nicholas Biekpe, 2019. "The stability of demand for money in the proposed Southern African Monetary Union," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 15(2), pages 222-244, August.
    8. Christian Senga & Danny Cassimon & Dennis Essers, 2018. "Sub-Saharan African Eurobond yields: What really matters beyond global factors?," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 8(1), pages 49-62.
    9. Daniela Gabor, 2021. "The Wall Street Consensus," Development and Change, International Institute of Social Studies, vol. 52(3), pages 429-459, May.
    10. Asongu, Simplice A. & Nnanna, Joseph & Acha-Anyi, Paul N., 2020. "Finance, inequality and inclusive education in Sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 162-177.
    11. Asongu, Simplice A. & Nnanna, Joseph & Acha-Anyi, Paul N., 2020. "Inequality and gender economic inclusion: The moderating role of financial access in Sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 173-185.
    12. Simplice A. Asongu & Joseph Nnanna & Paul N. Acha-Anyi, 2020. "Inclusive Education for Inclusive Economic Participation: the Financial Access Channel," Research Africa Network Working Papers 20/019, Research Africa Network (RAN).
    13. Belke, Ansgar & Volz, Ulrich, 2018. "Capital flows to emerging market and developing economies: global liquidity and uncertainty versus country-specific pull factors," IDOS Discussion Papers 23/2018, German Institute of Development and Sustainability (IDOS).
    14. SENGA, Christian, 2018. "Portfolio optimization at the frontier: Assessing the diversification benefits of African securities," Working Papers 2019001, University of Antwerp, Faculty of Business and Economics.
    15. Amr Hosny, 2020. "Nonresident holdings of domestic debt in Nigeria: Internal or external driven?," African Development Review, African Development Bank, vol. 32(3), pages 472-485, September.
    16. Pedersoli, Silvia & Presbitero, Andrea F., 2023. "Public debt management and private financial development," Economic Systems, Elsevier, vol. 47(1).
    17. Gabor, Daniela, 2021. "The Liquidity and Sustainability Facility for African Sovereign Bonds: a good ECA/PIMCO idea whose time has come?," SocArXiv erku6, Center for Open Science.
    18. Florence Dafe & Annina Kaltenbrunner & Ingrid Harvold Kvangraven & Iván Weigandi, 2023. "Local Currency Bond Markets in Africa: Resilience and Subordination," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1031-1064, September.
    19. Florence Dafe & Dennis Essers & Ulrich Volz, 2018. "Localising sovereign debt: The rise of local currency bond markets in sub‐Saharan Africa," The World Economy, Wiley Blackwell, vol. 41(12), pages 3317-3344, December.
    20. Yushi Chen & Ulrich Volz, 2022. "Scaling up sustainable investment through blockchain‐based project bonds," Development Policy Review, Overseas Development Institute, vol. 40(3), May.
    21. Daxin Dong, 2021. "The impact of financial openness on public debt in developing countries," Empirical Economics, Springer, vol. 60(5), pages 2261-2291, May.

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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