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Rethinking the role of the debt office: Driving local-currency bond market development

Rethinking the role of the debt office: Driving local-currency bond market development

The HIPC and MDRI programmes in the mid-90s cancelled large portions of external debt in about 30 African countries. Current debt-to-GDP ratios are mostly well below 50 percent; with 40 percent regarded as sustainable for a developing country. The worrying trend is that most African countries’ borrowing has been in foreign currencies associated with more favourable interest rates. With higher interest rates expected in the US and Eurozone, developing countries with high levels of foreign-currency debt exposure will face refinancing and exchange-rate risks. If these risks materialise, debt-service costs may become unaffordable, crowding out critical public expenditure and dampening countries’ prospects of further development.