Localising Sovereign Debt: The Rise of Local Currency Bond Markets in Sub‐Saharan Africa

28 Pages Posted: 18 Dec 2018

See all articles by Florence Dafe

Florence Dafe

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Dennis Essers

University of Antwerp - Institute of Development Policy and Management

Ulrich Volz

University of London - School of Oriental and African Studies (SOAS) - Economics; Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Date Written: December 2018

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.

Keywords: local currency bonds, long‐term finance, public debt, sub‐Saharan Africa

Suggested Citation

Dafe, Florence and Essers, Dennis and Volz, Ulrich, Localising Sovereign Debt: The Rise of Local Currency Bond Markets in Sub‐Saharan Africa (December 2018). The World Economy, Vol. 41, Issue 12, pp. 3317-3344, 2018. Available at SSRN: https://ssrn.com/abstract=3302787 or http://dx.doi.org/10.1111/twec.12624

Florence Dafe (Contact Author)

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 6
Bonn, 53113
Germany

Dennis Essers

University of Antwerp - Institute of Development Policy and Management ( email )

City campus building S
Lange Sint Annastraat 7
Antwerp, 2000
Belgium

Ulrich Volz

University of London - School of Oriental and African Studies (SOAS) - Economics

London, WC1E 7HU
United Kingdom

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 4
Bonn, 53113
Germany

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