African Domestic Bond Fund (ADBF)

The African Development Bank seeks to contribute to the development of sound domestic debt markets in Africa through the creation of the African domestic bond fund (ADBF). As the continent’s premier Development Bank, the AfDB is in a privileged position to lead, coordinate and drive the necessary inter-institutional effort needed for this initiative to be successful.

The ADBF will be invested in African Local Currency denominated sovereign bonds and it will be initially funded by the AfDB and African Central Banks. The specific objectives of this instrument are the following:

• Reduce African countries dependency on foreign currency denominated debt
• Encourage the deepening of domestic bond markets through investments in longer dated assets
• Contribute to enlarge the investor base in African Domestic Bond Markets

The project of creating an African Domestic Bond Fund (ADBF) is organized in two stages as portrayed in the Figure below:

Schematic of the ADBF

Stage 1

For the ADBF to be efficient, it needs to be created within a well functioning domestic debt market. At the outset, the AFMI will focus on building the necessary basic conditions for domestic debt bond markets to develop. Based on the current situation of African financial markets, we have identified and propose the following priority areas to be addressed during Stage 1:

• Strengthening of regulatory and supervisory framework
• Expansion of primary and creation of secondary bond markets
• Enhancing payment systems
• Development of local and international credit ratings
• Broadening of the investor base

Stage 1 includes the realization of a mapping study dedicated to domestic bond market development initiatives in Africa in order to avoid duplication of efforts amongst donors and to identify potential synergies between existing initiatives at a regional and country level and the AFMI.

Stage 2

Following the strengthening of domestic bond markets, Stage 2 will consist of the creation of an African Domestic Bond Fund (ADBF) invested in local currency denominated sovereign African bonds initially funded by the AfDB and African central banks. The ADBF will be passively managed and its return will be closely correlated with an underlying index.