At the G20 Summit in Brazil, Egis, in collaboration with Dalberg Advisors, contributed to a key report aimed at mitigating these risks. This document proposes concrete solutions for emerging markets, strengthening financial resilience and encouraging private and public investment.
Managing currency risk to accelerate infrastructure investment: Egis' contributions to the G20
Published 06.12.24
2 mins read
Infrastructure, the driving force behind global economic development
Modern infrastructure is at the heart of regional growth, but the challenges it faces differ between Europe and emerging markets. While the issue is pressing in Europe — given the combined challenges of environmental transition and demographic change — it is even more so in emerging and developing economies, whose economies are handicapped by a lack of infrastructure.
The infrastructure challenges of emerging markets
Infrastructure projects in emerging markets and developing countries are heavily dependent on international funding. This dependence reflects a complex reality, including currency instability, budgetary constraints and limited local resources. While international funding dominates these strategic projects, exchange rate volatility threatens not only their economic viability but also local sovereignty. At the crossroads of financial and geopolitical issues, managing exchange rate risk is a prerequisite for building a sustainable future beyond bridges and roads.
G20: Solutions to mitigate exchange rate risk
As part of the G20 Summit in Brazil (18-19 November), Egis, together with Dalberg Advisors, has contributed to the production of a flagship report entitled "Addressing Exchange Rate Risk in Infrastructure Projects in EMDEs".
Produced under the auspices of the G20 Infrastructure Working Group (IWG), the Global Infrastructure Facility (GIF) and the International Monetary Fund (IMF), the report aims to provide concrete solutions to mitigate exchange rate risks that hinder investment in infrastructure projects.
Key solutions for managing FX risk
- Promote local currency financing. By developing strong local financial markets and encouraging investors to use instruments denominated in local currencies and/or proxies (as opposed to hard currency) to reduce reliance on foreign currencies.
- Using risk hedging instruments such as currency swaps, options or currency guarantees, often facilitated by multilateral development banks and international financial institutions.
- Establish risk-sharing mechanisms involving cooperation between governments, multilateral institutions and private investors to spread the impact of exchange rate fluctuations equitably.
What is the G20 Infrastructure Working Group (IWG)?
The G20 Infrastructure Working Group is a technical group dedicated to global infrastructure development and financing. It brings together government experts, international financial institutions (World Bank, IMF) and other stakeholders to formulate policy recommendations. Its objectives include reducing the infrastructure deficit, promoting sustainable solutions in line with global priorities, and strengthening public and private financing through innovative approaches.
Authors.
Iacopo LevenheckHead of Financial Engineering
Jean-Hugues ChérifSenior Financial Engineering Consultant