Front Matter

Title Page

WP/21/283

IMF Working Paper

Financing for the Post-pandemic Recovery: Developing Domestic Sovereign Debt Markets in Central America

by Jean Francois Clevy, Guilherme Pedras, and Esther Pérez Ruiz

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

INTERNATIONAL MONETARY FUND

Copyright Page

© 2021 International Monetary Fund

WP/21/283

IMF Working Paper

Western Hemisphere Department

Financing for the Post-pandemic Recovery:

Developing Domestic Sovereign Debt Markets in Central America

Prepared by Jean Francois Clevy, Guilherme Pedras, and Esther Pérez Ruiz

Authorized for distribution by Manuela Goretti

December 2021

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Abstract

The pandemic has urged countries around the globe to mobilize financing to support the recovery. This is even more relevant in Central America, where the policy response to cushion the pandemic’s economic and social impact has accentuated pre-existing debt vulnerabilities. This paper documents the potential for local currency bond markets to diversify and expand financing for the recovery, lowering bond yields, funding volatility, and exposure to global shocks. The paper further identifies priority actions, both national and regional, to support market development.

JEL Classification Numbers: E44, E62, H63.

Keywords: Bond Markets, Fiscal Deficit, Public Debt, Global Spillovers.

Author’s E-Mail Address: jclevyaguilar@imf.org; gpedras@imf.org; eperezruiz@imf.org

Table of Contents

  • ABSTRACT

  • I. INTRODUCTION

  • II. FINANCING CONDITIONS IN CENTRAL AMERICA DURING THE PANDEMIC

  • III. BENEFITS FROM FURTHER DEVELOPMENT OF LCBM IN CADR

  • IV. STATUS OF LCBM DEVELOPMENT IN CADR

  • V. DOMESTIC SOVEREIGN BOND YIELDS IN CADR: THE ROLE OF LCBM DEVELOPMENT

  • VI. POLICY IMPLICATIONS

  • VII. REFERENCES

  • ANNEXES

  • I. The LCBM Framework

  • II. Status of LCBM Development in CADR

  • III. Panel Unit Root Tests

  • IV. Main Policy Recommendations for LCBM Development

Financing for the Post-pandemic Recovery: Developing Domestic Sovereign Debt Markets in Central America
Author: Jean François Clevy, Mr. Guilherme Pedras, and Mrs. Esther Perez Ruiz