Debt Markets in Emerging Economies: Major Trends

Abstract

This paper documents the major trends in debt (bank and bond) markets in emerging economies since the early 1990s, when these markets started expanding. The paper shows that banks have increased in size in most emerging economies though from low bases. But bond markets have expanded even more, gaining importance relative to banks. The nature of financing has also changed. Local currency bond financing has expanded, the extent of dollarization of loans and bonds has declined, and the maturity of public and private sector bonds has typically increased. However, not all regions have moved in the same direction. Eastern Europe for instance increased its foreign currency debt before the global financial crisis. Relative to developed countries, emerging countries’ financial systems still remain in many aspects underdeveloped. Except in a few cases, liquidity in secondary bond markets has been declining. And the public sector captures a significant share of bond markets.