For six countries whose markets are not yet Euroclearable – Brazil, Colombia, India, Indonesia, Philippines and Turkey – the potential gains from Euroclearability could amount to a GDP increase of $13.4 billion over ten years.

That would allow them to increase their annual healthcare budgets by 1% and annual education spending by 1.2%.

These are not figures that we have dreamt up at Euroclear but the verdict of PwC analysts who conducted an in-depth study of what Euroclearability has done for other countries.

It confirms what we have always maintained – that optimising access to international capital through making a market Euroclearable has potentially far-reaching effects. It is not just about market impacts but macro-economic ones too.

In short, it provides a platform for large-scale social and welfare improvements. It can enhance a country’s scope for tackling deprivation and boosting growth.

As an example, that increase in healthcare spending PwC alludes to would translate into funding for an extra 1,500 hospitals over ten years. That is quite a prize.

Study launched at World Bank meeting

PwC’s study was launched at the World Bank’s spring meeting in Washington where Euroclear co-hosted a roundtable event with the US think tank, the Milken Institute. This was a high-level affair. Among those attending were a number of finance ministers. Jingdong Hua, the World Bank Treasurer, acted as moderator.

Mr Hua describes Euroclearability as a mark of acceptance. "For our client countries to become Euroclearable means they can attract international investors through transparent, standardised market practices," he remarks. "This is a virtuous circle."

While Euroclear has made its own assessments of the impact of Euroclearability the PwC study is the first of its kind to offer a third-party, expert perspective on the full macro-economic effects.

PwC’s findings demonstrate that Euroclearability enhances a market’s attractiveness to international investors, helps governments and corporate alike raise capital more efficiently or at lower cost, and reduces the volatility of borrowing costs.

The study highlights the experience of Poland. In the two years after the market became Euroclearable, Polish sovereign bonds saw a reduction in yield to maturity from 5.0% to 3.9% compared with the preceding two years.

"For our client countries to become Euroclearable means they can attract international investors through transparent, standardised market practices"


PwC also finds evidence of reduced yield volatility, ‘which may suggest that Euroclearability reduces the vulnerability of emerging markets to capital outflows’.

Quantifying the reduction in borrowing costs

Looking more broadly, and controlling for a variety of external factors, PwC calculates that Euroclearability reduces sovereign borrowing costs by an average of 28 basis points. ‘This is broadly equivalent to the yield differential of one credit rating notch (i.e. the difference between A- and BBB+),’ says the firm. It says the range of impacts is between 14 and 42 basis points.

‘We also find that Euroclearability is associated with greater liquidity in domestic sovereign bond markets, leading to higher trading volumes and lower bond yields in secondary markets. This is consistent with ... our primary market analysis,’ says PwC.

There are follow-on benefits for corporate debt markets, though PwC says they are likely to take longer to materialise as sovereign debt is normally the first target of international investors entering an emerging market.

"Euroclearability is associated with a reduction in corporate borrowing costs of 14 basis points"

‘Our cross-country econometric analysis shows that Euroclearability is associated with a reduction in corporate borrowing costs of 14 basis points, with the range of impacts between 10 and 18 basis points’, says PwC.

The World Bank’s Mr Hua stresses the importance of boosting corporate debt markets.

He draws on the example of India, where the offshore masala bond market has grown from $1bn to $10bn since IFC, the World Bank arm charged with helping private sector development in emerging markets, launched its first bond.

"If you look at the delta between emerging and developed markets," he says, "it’s the size of the corporate bond market.

"With most emerging markets, the government bond market is the bigger market. If corporates can access both domestic and international savers, that is a big plus."

Paving the way for more Euroclearable markets

More countries are lining up to make their markets Euroclearable. The World Bank event coincided with the signing of memoranda of understanding with Egypt and Saudi Arabia as a first step towards the two countries joining the growing list of Euroclearable markets.

In Chile, tax changes scheduled for the second half of this year will complete the lengthy process of making the country’s corporate bonds Euroclearable.

A number of other countries are in the process of assessing the steps they need to take to pave the way for Euroclearability – and the potential benefits it could bring. The PwC report provides a useful, and unbiased, guide in that respect demonstrating the scale of the gains on offer.

It will be supported by additional analyses, commissioned at regular intervals, to assess the evolution of markets as they also take the necessary steps to become Euroclearable.

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