Key Findings
The report delves into commercial financing challenges and opportunities for mobilizing local currency financing for infrastructure and climate investments. It provides a global knowledge base, an analytical framework, and actionable insights for policymakers, financial institutions, and private sector stakeholders. The report highlights:
Key Drivers of Local Currency Financing Development
- Scale of private savings and willingness of local credit markets to provide long-term debt.
- Potential of local capital markets to finance infrastructure and climate projects.
- Cost differences between local and foreign currency debt.
- Capacity for credit evaluation and project structuring skills.
Challenges and Opportunities in Local Credit Markets
Banks, the primary source of debt financing in many developing economies, face limitations in providing long-term local currency financing due to asset-liability mismatches and credit risks. Regulatory frameworks, such as Basel III, have further constrained long-term lending.
Lessons from Benchmark Countries
Case studies from Egypt, Indonesia, Kenya, the Philippines, and Uzbekistan reveal that emerging markets and developing economies are at different stages of establishing local currency financing, often hindered by key structural and institutional challenges. In contrast, examples from Malaysia and South Africa emphasize the importance of sound macroeconomic policies, efficient financial systems, and innovative tools, such as pooled investment vehicles, to effectively mobilize local currency financing.
Policy and Market Interventions
Recommendations include promoting macro-financial stability, deepening local currency markets, encouraging institutional investments, and developing attractive project pipelines through public-private partnerships.