Building Capacity to Develop Local Currency Government Bond Market

Fourteen debt managers and central bank officials from eight Central Asian and Eastern European countries benefitted from a virtual training course held on the development of local currency government bond markets (LCBMs). The one-week workshop was held virtually by the JVI in partnership with the IMF and World Bank during June 21-25, 2021. The workshop held in an interactive manner provided an overview of the concepts of local currency government debt market development by focusing on the key building blocks related to Money Market, Primary Market, Secondary Market, Investor Base, Legal and Regulatory Framework, and Market Infrastructure. The workshop was supported by the Debt Management Facility III.

The need for LCBM development has emerged as a key priority as a financing source for countries in this region, some of which are oil importing countries and have a dollarized financial sector. A robust LCBM can provide secure and stable means of financing for the sovereign, thereby helping to mitigate currency risks on balance sheets of the sovereign and financial institutions and provide more resilience to withstand sudden movements in foreign capital flows. LCBM development would also lead to externalities like better monetary policy transmission mechanism, providing risk-free benchmark rates and supporting corporate bond issuance.

The course took the opportunity to disseminate the recently published “Guidance Note for Developing Government Local Currency Bond Markets” jointly by the IMF and the World Bank. The Guidance Note provides a detailed framework for assessing the market development stage for the respective building blocks.

Overall, the officials found the event to be very effective in enhancing their professional development and useful for applying the knowledge gained to promote market development in their respective economies. At the end of the training course, the country officials made a brief presentation on the issues and key challenges related to their local currency bond markets along with a self-assessment on the stage of their market development.

A similar event is expected to be held in the future for other member countries which were not covered in this event. The JVI in partnership with the IMF and World Bank also plans to provide a more comprehensive face-to-face workshop in the future once the countries return to normalcy from the travel restrictions related to the COVID-19 pandemic.

Arindam Roy, Senior Financial Sector Expert, International Monetary Fund