Local Currency Bond Markets Law Reform: A Methodology for Emerging Markets and Developing Economies

IMF Working Papers, November 20, 2020

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Canonical URL: Local Currency Bond Markets Law Reform: A Methodology for Emerging Markets and Developing Economies

Authors: Wouter Bossu, Cory Hillier, Wolfgang Bergthaler
Publication date: November 20, 2020
Core objective: Outline a strategically anchored methodology to design, build and implement the legal and tax foundations for the development of local currency bond markets (LCBMs) in emerging markets and developing economies.
Rationale:
- Recent financial crises including the ongoing one caused by the COVID-19 pandemic have highlighted the need to strengthen public debt management in emerging markets and developing countries.
- Deeper and more efficient domestic government debt markets—being, a key segment of the LCBM for many emerging markets and developing economies—play a key role in reducing financial vulnerability to shocks and enable governments to finance critical economic and fiscal policy measures in response to them.
- Robust legal and regulatory frameworks are recognized as critical building blocks for the structure, development and functioning of LCBMs.

Importance of LCBMs:
- Developing and strengthening LCBMs is a key policy prescription to sound public debt management.
Role of legal and tax frameworks:
- Legal and tax foundations are essential to address common challenges and impediments to LCBM development.
Target outcomes:
- Reduce financial vulnerability to shocks.
- Enable governments to finance critical economic and fiscal policy measures.

Aim: Provide a methodology applicable to emerging markets and developing economies to:
- Design legal and tax frameworks.
- Build institutional foundations.
- Implement reforms to support LCBM development.
Strategic anchoring: The methodology is framed to adequately address common challenges and impediments specific to LCBMs in the target economies.

Strengthen public debt management through deeper domestic government debt markets.
Prioritize robust legal and regulatory frameworks as critical building blocks for LCBM development.
Align legal and tax reforms with the strategic objective of reducing financial vulnerability and enabling government financing capacity during shocks.