Localising sovereign debt: the rise of local currency bond markets in Sub-Saharan Africa

Dafe, Florence / Dennis Essers / Ulrich Volz
External Publications (2017)

London: SOAS University of London (Department of Economics Working Paper 202)

This paper analyses the development of local currency sovereign bond markets (LCBMs), a potentially important but often overlooked source of longer-term public finance, in Sub-Saharan Africa (SSA). We construct a novel dataset comprising 28 SSA countries for the period 2000-2014 to identify the main correlates of LCBM capitalization, of local currency bond (LCB) tenors and of LCB issue yields. Our econometric analysis is complemented by case studies of Ghana, Kenya and Nigeria, where we further investigate the drivers of LCBM development and place LCBMs in a broader public debt context. We find that LCBMs have become important sources of financing in SSA but that new vulnerabilities emerge from the
costs of domestic borrowing, short bond tenors and the composition of the investor base.