Impact of CDBability

May 2023 Updated

New study by PwC UK

Capital markets have a critical role in the functioning of the economy. They link investors, such as lenders, to borrowers and transfer risk to those best placed to manage it. Access to capital markets allows governments to raise funding, enabling them to smooth government spending and to provide a buffer against external shocks and recessions, and to finance large investments.

Capital markets also finance businesses by complementing traditional bank financing, particularly for larger, longer-term and more risky investments. Numerous economic studies have shown that capital markets development has a positive impact on economic growth, particularly in the case of emerging markets.

Benefits of CDBability

Countries that are 'CDBable' generally have a set of characteristics that enable international investors to access domestic bond markets, such as efficient and secure asset ownership, an investor-friendly tax and regulatory environment and other features that enable connectivity between domestic bond markets and international investors.

CDB has published a number of case studies that show how achieving CDBability can help improve market conditions for emerging market sovereign and corporate debt, for example in the case of Chile and Peru.

By widening the pool of available investors, which enhances primary and secondary primary and secondary market liquidity, issuers have the opportunity to issue bonds on better terms, thus being able to raise more capital at lower borrowing costs and obtain greater fiscal flexibility.

However, to date there has been limited empirical analysis of the specific impact of CDBability. This study by PwC UK, addresses this gap by offering new evidence on the ability of emerging market sovereign and corporate issuers to raise capital in a more cost-effective manner.

The study shows that lower borrowing costs could also translate into broader welfare gains to CDBable countries through spending on healthcare and education, alongside encouraging public and private investment in infrastructure.