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Unlocking local currency financing in emerging markets and developing economies: What role can donors, development finance institutions and multilateral development banks play?

Author

Listed:
  • Paul Horrocks
  • Catriona Marshall
  • Callum Thomas
  • Thomas Venon
  • Dave Portmann
  • Wuraola Okuwobi

Abstract

Scaling local currency financing solutions in emerging markets and developing economies (EMDEs) requires addressing critical foreign exchange (FX) risks that limit the mobilisation of resources towards sustainable development outcomes. Challenges include structural constraints in multilateral development bank (MDB) and development finance institution (DFI) business models, underdeveloped local financial markets, and a lack of incentives and scalable instruments to engage institutional investors. While current market solutions provided by donors – such as currency hedging tools, local currency bonds, and other blended finance approaches – offer potential, they also face a number of critical limitations. This paper proposes policy options for expanding local currency financing flows, deepening domestic capital markets and mobilising local actors, with aims of fostering long-term economic resilience and stability in EMDEs.

Suggested Citation

  • Paul Horrocks & Catriona Marshall & Callum Thomas & Thomas Venon & Dave Portmann & Wuraola Okuwobi, 2025. "Unlocking local currency financing in emerging markets and developing economies: What role can donors, development finance institutions and multilateral development banks play?," OECD Development Co-operation Working Papers 117, OECD Publishing.
    • Handle: RePEc:oec:dcdaaa:117-en
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    More about this item

    Keywords

    blended finance; development finance institutions; emerging markets and developing economies; foreign exchange risks; local capital markets; local currency financing; multilateral development banks;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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