The first deputy governor of the Central Bank of The Gambia (CBG) has challenged member states of the West African Institute for Finance and Economic Management (WAIFEM) to always view their governments' securities market development as a dynamic process in which macro-economic and financial sector stability, remains essential to building an efficient market.
Basiru A. Njai was speaking Monday at the Paradise Suites Hotel in Kololi, where he presided over the opening ceremony of a five-day sub-regional course on developing bond markets (issuance and policy strategy) and risk management in financial services, organised by WAIFEM.
He said: "In essence, sound macro-economic policies, particularly prudent fiscal and monetary policies and credible exchange rate regime, matter profoundly."
Njai also told the gathering that bond markets are central to the development of an efficient economic system because they help make financial markets more complete by generating market interest rates. Those interests, he said, reflect the opportunity cost of funds at a wide range of maturities. "This is essential for efficient investment and financing decision. The absence of such market constrains investment opportunities," he added.
The CBG first deputy governor further told the gathering that the development of bond markets reduces dependence on bank financing and spread better corporate risk, while recalling that it was concentration of risks in banks that accentuated the 1997-98 Asian crisis.
While stressing that Central Banks should be particularly interested in the development of bond markets, Njai equally stated that the bond markets help to finance budget deficits in a non-inflationary manner and enhance the effectiveness of monetary policy.
He however observed that there are some challenges in developing bond markets in West Africa, saying with ample liquidity in the banking system, it is true that banks and financial institutions in ECOWAS countries have increased their appetite for bonds in recent years. "Institutional investors other than banks, such as pension funds have also played a more active role as the amount of funds under management continues to grow," he remarked.
Developing a well-functioning bond market, Njai went on, improves resource allocation by achieving a better balance between bank finance and bond markets. He said it also enhances market transparency through efficient price discovery and allows sustainability better risk management on the part of both investors and borrowers. He then called on the participants to ensure that they take the fullest advantage of the course.
Baba Yusuf Musa, the WAIFEM director of Debt Management, speaking on behalf of the director general of WAIFEM, disclosed that since the establishment and operation of WAIFEM in 1997, it has executed not less than 435 trainings and capacity building programmes through national and regional courses, workshops, seminars, as well as demand assessment and follow-up missions. These activities, he said, have benefitted about 12,176 officers, most of whom are middle, senior and executive level public sector officials from the ministries of Finance, Economic Planning and Development.
He said over the years, the institute has also built up collaborative arrangements with a list of institutions, notably the World Bank, IMF, as well as the African Development Bank and the United Nations Institute for Training and Research.
Yusuf Musa further informed the gathering that there is a growing recognition all over the world that financial development matters for economic growth. He said that the financial system contributes to economic development by enabling firms, governments and households to manage risks, avoid having to sharply compress their spending in bad times and invest in high-return projects that might otherwise remain beyond reach.
He averred that the bond market is a key element, along with the banking system and equity and derivatives markets of a well-developed financial system. He observed that this is not to say that the bond market can substitute for other components, where they are inefficient or underdeveloped. He however observed that it can complement their operation and reinforce their positive influence on economic development.
Yusuf Musa opined that a well-developed bond market with both government and corporate segments can enhance the efficiency with which the financial system helps to allocate resources within the economy and buttress financial and macro-economic stability.
He noted that financial markets in West Africa and most sub-Saharan African countries are shallow and have inadequate access to finance. This, he added, is as a result of mobilisation of domestic resources, as an alternative source of financing is becoming increasingly important in Africa, with many of the governments focusing on domestic markets in order to avoid recourse to unsustainable external indebtedness.