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Local currency bond market development in Sub-Saharan Africa: A stock-taking exercise and analysis of key drivers

Listed author(s):
  • Essers, Dennis
  • Blommestein, Hans
  • Cassimon, Danny
  • Ibarlucea Flores, Perla

This paper studies the current state and drivers of government local currency bond market (LCBM) development in Sub-Saharan Africa. We argue that well-developed government LCBMs could reduce countries’ exposure to external shocks; help overcome ‘original sin’; facilitate domestic savings mobilisation; and may have important financial, macroeconomic and institutional spill-overs. With detailed information collected from various sources the paper first shows that quite a few African countries have made significant progress in developing LCBMs. Increasingly, African governments issue fixed-rate local currency bonds with tenors of ten years and more on a regular basis. However, we also find that LCBMs in Africa often have low liquidity, feature very few corporate securities and generally have relatively narrow investor bases dominated by commercial banks. The second part of the study presents an econometric analysis of the drivers of African government LCBMs based on a new high-quality panel dataset compiled by the OECD. Our results indicate that LCBM capitalisation is correlated negatively with governments’ fiscal balance and inflation, and positively with common law legal origins, institutional quality and strong democratic political systems.

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File URL: https://mpra.ub.uni-muenchen.de/65320/1/MPRA_paper_65320.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 65320.

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Date of creation: Jun 2015
Date of revision: Jun 2015
Handle: RePEc:pra:mprapa:65320
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