Developing local currency bond markets for long-term development financing in Sub-Saharan Africa

Abstract

This article discusses the role that local currency bond markets (LCBMs) can play in the long-term financing of sustainable development of Sub-Saharan African (SSA) economies, presents an empirical analysis of the factors which may hinder or promote the development of such markets in SSA. Using a new dataset for 27 SSA countries, our findings support earlier research on SSA and other regions, showing that LCBM development is related to country size, larger banking systems, greater trade openness, better regulatory frameworks and rule of law. Foreign investor participation broadens the investor base and can give a boost to LCBM development, yet it may also increase volatility of international capital flows. Hence, with a view to the experience of emerging economies in other regions, capital market liberalization should be pursued only very cautiously and in step with solid financial and institutional development.