Liquidity in Domestic Public Debt Markets for Enabling Infrastructure Financing: The Case of Sub-Saharan Africa

Among other factors, a key prerequisite for enabling public debt markets to support infrastructure financing is a robust market liquidity. We deploy a combination of nonparametric and parametric techniques to analyze a newly assembled primary dataset from eight of the most viable national bond markets in Sub-Saharan Africa (SSA), to ascertain their liquidity status for possibly enabling financing of infrastructures. Whilst 4 of these markets are deemed relatively liquid, 3-4 are assessed to be of low liquidity, with the sovereign bond markets unsurprisingly perceived to be more liquid than the corporate bond markets. Only the South African and Nigerian corporate bond markets are deemed to be currently capable of rallying private sector capital for possible infrastructure financing. Key impediments against bond market liquidity in SSA are irregular issuances of bonds, lack of bond primary dealers, narrow investor base, restriction on institutional investors’ participation, lack of Treasury bonds-based yield curves, and relatively inactive secondary bond markets. Going forward, SSA countries should prioritize policies and strategies aimed at mitigating, if not eliminating, factors identified as impediments to domestic bond market liquidity; as well as pursue reforms that further develop bond markets to robustly foster liquidity.