Push and Pull : Emerging Risks in Frontier Economy Access to International Capital Markets
Over the past decade, a large number of low- and lower-middle income ‘frontier economies’ have begun to access international private capital markets to meet fiscal financing needs. In this paper we seek to identify drivers of this trend, identify a...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/448611487936936412/Push-and-pull-emerging-risks-in-frontier-economy-access-to-international-capital-markets http://hdl.handle.net/10986/26273 |
| Summary: | Over the past decade, a large number of
low- and lower-middle income ‘frontier economies’ have begun
to access international private capital markets to meet
fiscal financing needs. In this paper we seek to identify
drivers of this trend, identify associated risks, and
present policy implications for frontier-market
policy-makers. Through simple analysis of the
characteristics of recent frontier market issuers, we show
that smaller, poorer, and less well-governed economies are
now accessing global credit markets. Through cross-country
regression analysis, however, we demonstrate that the
capacity of these countries to issue debt (and the cost of
this debt) continues to be influenced by their macroeconomic
performance and quality of governance. Drawing on evidence
from Ghana and Zambia, we illustrate potential risks arising
from recent expansions of access to global debt markets,
where rapid debt accumulation of foreign-denominated debt in
the context of lessened market discipline and following
recent debt relief is now posing pronounced debt
sustainability and refinancing risks. We conclude that
increased access to international debt markets presents both
opportunities and risks to frontier issuers. The new cohort
of frontier issuing economies should: i) take careful
account of debt risks and debt sustainability considerations
when developing fiscal policy and debt strategies; ii) work
to reduce the costs of ongoing external borrowing through
adopting sound economic policies and protecting credit
ratings; and iii) develop domestic debt markets as a
potential alternative source of fiscal financing through
which to reduce reliance on foreign-denominated Eurobond
debt with its associated refinancing and currency risks. |
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