October 10, 2023
Private-sector funding is vital for financing climate projects in emerging and developing countries. However, foreign exchange risk is a major barrier for Western investment in these projects. This risk was evident in Eastern Europe when homeowners took mortgages in hard currency, leading to financial instability when exchange rates moved unfavorably. Developing countries face a similar situation, holding a significant portion of their debt in hard currency. They lack the protections and options available to Eastern European borrowers. To address this, international institutions should consider debt adjustments and provide currency-hedging instruments to support these vulnerable nations in their climate financing efforts.
These are the main findings of the recent article published by Ruurd Brouwer, CEO at TCX, in which OGResearch was happy to provide analytical inputs.
The whole article is available here: https://oecd-development-matters.org/2023/10/09/currency-risk-is-stifling-climate-finance-for-developing-countries-it-should-and-can-be-mitigated/
