The enhancement of local currency bond markets (LCBMs) is an increasingly important topic for emerging market and developing economies (EMDEs) as it shields public and private debt from foreign exchange risks and safeguards it from external economic spill-overs. In 2011, the G20 endorsed an action plan aimed at enhancing the development of LCBMs. The IMF and the World Bank annually produce a joint note updating the G-20 on the progress of the plan.
The Finance, Competitiveness & Innovation Global Practice of the World Bank Group asked the SIPA Capstone Team to enhance the database used for this report, with the aim of utilizing it to track LCBM development, identify main determinants of success, and augment their technical assistance framework. The team employed a three-pronged approach:
- Created a comprehensive, easy-to-update database architecture from which to produce reports using its quantitative and qualitative information for individual or groups of LCBM countries;
- Populated it using multiple automated and manual sources, including the World Bank, the BIS, and individual countries’ ministries of finance and central banks;
- Analyzed the data to devise a structure for classifying respective countries’ LCBMs. The analyses showed that many countries experienced strong LCBM growth before and during the Global Financial Crisis, only to plateau after 2012. It also demonstrated that as countries progressed they were able to issue debt with longer maturities and lower yields.
The project significantly enhanced the database and provided a solid foundation for further in-depth analysis of LCBMs in EMDEs.