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Guidance Note for Developing Government Local Currency Bond Markets (English)

This guidance note was prepared by International Monetary Fund (IMF) and World Bank Group staff under a project undertaken with the support of grants from the Financial Sector Reform and Strengthening Initiative, (FIRST). The aim of the project was to deliver a report that provides emerging market and developing economies with guidance and a roadmap in developing their local currency bond markets (LCBMs). This note will also inform technical assistance missions in advising authorities on the formulation of policies to deepen LCBMs. The guidance note discusses commonly faced challenges and bottlenecks in the journey to efficient and deep LCBMs. In particular, the guidance note explores how to overcome difficulties in implementing some existing best practices. Experience points to the interdependent nature of the required development actions and the need for supportive actions outside the narrow field of LCBM agents. The challenges discussed and accompanying policy guidance draw from the IMF and World Bank’s extensive technical assistance (TA) provision in this area, cross-country experience in LCBM development, and results from a recent survey of country authorities. The guidance note intends to be a resource for a wide range of stakeholders interested in government bond market development. Country authorities and TA providers can use the diagnostic on the level of LCBM development to design a proper sequence of policy actions to further improve the functioning of the domestic government debt market. Country authorities and IMF and World Bank country teams can use the guidance note to identify key macroeconomic and financial issues linked to LCBM development and integrate it into their policy analysis and advice. The diagnostic findings regarding weaknesses in LCBMs also can be used to help identify financial vulnerabilities and their remedies, in the authorities’ ongoing financial sector surveillance and in the context of Financial Sector Assessment Programs and Financial Sector Stability Reviews.


  • Author

    Bango,Zsolt, Gragnani,Jose Antonio, O'Reilly Gurhy,Bryan, Paladines,Cindy Elizabeth, Hashimoto,Hideo, Mooi,Yen Nian, Pedras,Guilherme, Roy,Arindam, Chung,Kay, Galeza,Tadeusz, Papaioannou,Michael G., Katz,Peter

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    Working Paper

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    The World Region,

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  • Doc Name

    Guidance Note for Developing Government Local Currency Bond Markets

  • Keywords

    money market; financing need; local currency bond market; legal and regulatory framework; Public Debt Management; primary market; market development; domestic debt market development; sale and repurchase agreement; interest-bearing financial asset; central bank monetary policy; broad range of stakeholders; demand for government security; government bond market development; issuance of long-term security; investor base; secondary market; government debt market; market interest rate; use of repo; financial market; monetary policy operation; interest rate control; repo transaction; Counterparty Credit Risk; global financial crisis; financial sector soundness; monetary policy framework; secondary market liquidity; international financial institution; repo market; foreign currency deposit; inflation targeting framework; debt management strategy; domestic capital market; global financial stability; overall debt portfolio; repository of information; primary dealer system; democratic political system; prudent fiscal policy; monetary policy implementation; secondary market development; transfer of title; sovereign debt crisis; technical assistance provider; financial sector assessment; financial sector stability; collective investment scheme; central security depository; delivery versus payment; exchange rate volatility; information on market; government funding source; foreign currency risk; local currency debt; domestic interest rate; foreign interest rate; global capital market; debt management authority; financial sector instability; central bank operation; long-term government security; foreign exchange swap; purchase of security; sale of security; interest rate derivative; debt management entity; local capital market; annual borrowing plan; market exchange rate; sovereign debt restructuring; types of indicator; emerging market economy; floating rate instruments; interest rate swap; financial market participant; treasury bill issuance; contractual saving institution; aspect of debt; public debt market; multilateral development bank; regional financial institution; implementation of policies; macroeconomic policy framework; exchange rate targeting; lack of transparency; diversified investor base; domestic saving rate; stable exchange rate; exchange rate risk; risk of debt; excessive interest rate; real interest rate; exchange rate regime; form of taxation; capital market development; long-term economic growth; technical assistance mission; formulation of policies; Exchange Rates; reference rates; banking sector; enabling conditions; macroeconomic condition; legal framework; operational target; financial system; reverse repo; fiscal position; debt position; investor confidence; liquidity position; macroeconomic performance; outcome indicator; financial repression; banking system; currency asset; Learning and Innovation Credit; best practice; short-term yield; market rate; liquidity management; fiscal discipline; reserve requirement; debt sustainability; short term securities; monetary targeting; reform plan; macroeconomic environment; institutional investor; inventory management; road map; liquid money; market operation; trading volume; stable inflation; foreign investor; borrowing cost; bank deposit; domestic borrowing; master agreements; tax treatment; monetary condition; small economy; adverse events; debt holding; virtuous cycle; tax framework; assessment framework; excess liquidity; simple average; market infrastructure; marketable debt; macroeconomic fundamentals; advanced economy; local bank; domestic resident; fiscal control; financial outcome; payment arrears; budgetary cost; short-term maturity; refinancing risk; market pricing; investor incentive; inflation expectation; fiscal space; fiscal condition; survey results; long-term debt; long-term asset; external loan; Clearing houses; market price; inflation pressures; electronic trade; legal transaction; legal opinion; market practice; ownership right; liquid benchmark



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Bango,Zsolt Gragnani,Jose Antonio O'Reilly Gurhy,Bryan Paladines,Cindy Elizabeth Hashimoto,Hideo Mooi,Yen Nian Pedras,Guilherme Roy,Arindam Chung,Kay Galeza,Tadeusz Papaioannou,Michael G. Katz,Peter

Guidance Note for Developing Government Local Currency Bond Markets (English). Washington, D.C. : World Bank Group.