MEFMI member countries urged to implement domestic debt reforms

As part of efforts to support member countries to develop local currency bond markets, MEFMI collaborated with the International Monetary Fund (IMF), World Bank and Financial Sector Deepening (FSD) Africa to deliver a regional workshop on Domestic Debt and Local Currency Bond Market (LCBM) Development. Held from 17 to 28 June 2019 at Palace hotel in Arusha, Tanzania, the workshop was attended by officials from 12 of the 14 MEFMI member countries.

The main objective of the workshop was to develop participants’ capacity for managing domestic debt and drive reforms in domestic debt markets. It was necessitated by the fact that countries in the MEFMI region are highly exposed to external vulnerabilities arising from foreign debt while they also continue to lag peers in terms of developing LCBMs. Their markets are characterised by instrument fragmentation and narrow investor base, resulting in high cost of borrowing. In addition, lack of liquidity in secondary markets inhibits development of a reliable yield curve that could provide a risk-free benchmark for corporate borrowers. Potential investors are deterred by high transaction costs and risk, leaving a big part of household savings in the informal sector. The low savings and financial exclusion partly explain governments’ inability to fully implement development programs using domestic resources. Moreover, most countries are highly exposed to external vulnerabilities arising from high external debt. Therefore, developing local capital markets is a priority for governments in the region.

In his opening remarks at the workshop, the Commissioner responsible for External Finance in the Ministry of Finance in Tanzania, Mr. John Rubuga, commended MEFMI for supporting member countries endeavor to develop local currency bond markets. He said that deep and efficient domestic debt markets create access to long-term, local-currency finance, and are the foundation for a thriving private sector, which is a key driver of job creation and economic growth. He therefore urged governments to to implement reforms aimed at developing domestic debt markets to make them a cost-effective and sustainable source for financing development priorities.

The workshop was delivered using lectures, case studies, guided exercises and plenary discussions. To facilitate peer learning, the agenda included interactive sessions for participants to share their country experiences. At the end of the workshop, participants had clear understanding of the key reforms needed to develop their domestic debt markets. It also provided a platform for participants to learn from experiences and good practices in peer countries. In addition, the workshop provided MEFMI an opportunity to engage participants and understand key constraints to domestic market development and learn about countries’ envisaged plans and reforms. This information will be useful in assisting MEFMI to align future capacity interventions with priorities of the region while informing development of country-specific work plans for follow-up in-country technical assistance.