Washing away original sin: vulnerability to crisis and the role of local currency bonds in Sub-Saharan Africa

This paper starts from the concept of ‘original sin’ to demonstrate that the development of local currency bond markets remains a priority for Sub-Saharan African countries, both as a prevention mechanism against external shocks and to exploit growth-boosting investment opportunities. We present evidence suggesting that in Sub-Saharan Africa, as in other developing country regions, original sin (at least in its domestic form) is today less prevalent than it used to be. An increasing number of African governments now issue non-indexed local currency bonds with tenors of 10 years and more on a regular basis. This is not to say that all is well. African bond markets often lack liquidity, feature few corporate securities, and have a narrow investor base of commercial banks. Many more hurdles remain to be taken, by African countries themselves and the international community, if we are to further wash away original sin.