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Development of Domestic Debt Markets

In the past years the share of domestic public debt has been growing and many countries are developing their domestic debt markets. In fact, domestic debt markets have positive effects both for the government and for the economy.

For the government, having domestic debt market creates a more diversified base of investors, which in turn might be more stable and reliable and it may reduce currency mismatches. For the economy, it may help banks to better manage their liquidity, generate positive externalities on domestic corporate bonds, and it may provide an alternative to capital flight.

However, domestic markets can also crowd out private issuers, increase contagion from shocks between the private and public sector and lead to pressure on banks and institutional investors to absorb ¨too much¨ government debt.

As such, to effectively minimize cost and risk over the medium to long run, and to properly benefit from the expansion of their domestic markets, countries need to be cautious in how these develop. Countries require broad market access, transparency, effective regulatory frameworks, among others.

To ensure an effective development of domestic debt markets LAC Debt Group conducts seminars and workshops on this topic and encourages the exchange of experiences between countries in different stages of development of domestic markets.

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