Building Subnational Debt Markets in Developing and Transition Economies : A Framework for Analysis, Policy Reform, and Assistance Strategy
Subnational debt markets can be a powerful force in a country's development. Through delegated monitoring by financial intermediaries and through debt placed directly with investors, subnational debt markets account for about 5 percent of GDP...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/05/437672/building-subnational-debt-markets-developing-transition-economies-framework-analysis-policy-reform-assistance-strategy http://hdl.handle.net/10986/18844 |
| Summary: | Subnational debt markets can be a
powerful force in a country's development. Through
delegated monitoring by financial intermediaries and through
debt placed directly with investors, subnational debt
markets account for about 5 percent of GDP in Argentina and
Brazil. But they remain embryonic in most developing and
transition economies. To resolve a potential clash between
the increased financing needs of subnational entities and
the limited development of domestic subnational debt
markets, it is critical to support the orderly, efficient
emergence of such debt markets. As a framework for policy
reform, the following steps (mirroring typical weaknesses)
are prerequisites for developing a country's
subnational debt market: reducing moral hazard, improving
market transparency, strengthening market governance,
establishing a level playing field, and developing local
capacity for accounting, budgeting, and financial
management. In countries where the government shows a clear
commitment to market development, says the author, the World
Bank should support the framework needed for policy-based
operations that establish hard budget constraints. In doing
so, the Bank should concentrate on 1) supporting national
and local capacity building in those areas essential for
developing a subnational debt market; and 2) financing
specific subnational projects with strictly nonrecourse
loans. At the same time, the Bank should offer a variety of
lending and guarantee instruments that encourage private
financing for investments by subnational entities-including,
for example, equity participation in (or lines of credit or
partial credit guarantees to) financial intermediaries
specializing in subnational investment finance or in funds
for financing local infrastructure. |
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