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Public-Private Partnerships (PPPs) in emerging markets often rely on foreign currency (FX)-linked debt while generating revenue in local currency, creating a mismatch that exposes governments to exchange rate volatility and fiscal pressure. Local currency (LC) financing can align project revenues with liabilities, but its adoption remains limited due to high borrowing costs, lack of long-tenor instruments, and insufficient investor-friendly options. Drawing on insights from the May 2025 WAPPP webinar and examples from Egypt, AfDB, OECD, InfraCredit Nigeria, and RMB, this policy brief explores how blended finance—combined with risk-sharing tools, institutional incentives, and regulatory reforms—can unlock local capital for infrastructure investment. Solutions include credit guarantees, concessional capital, CPI indexation, and procurement incentives. Beyond risk mitigation, LC financing supports broader policy goals such as market deepening, PPP oversight by finance ministries and central banks, and stronger local financial institutions. Together, these tools can reduce FX dependency and improve the long-term viability of PPP programs.
Public-Private Partnerships (PPPs) in emerging markets often rely on foreign currency (FX)-linked debt while generating revenue in local currency, creating a mismatch that exposes governments to exchange rate volatility and fiscal pressure. Local currency (LC) financing can align project revenues with liabilities, but its adoption remains limited due to high borrowing costs, lack of long-tenor instruments, and insufficient investor-friendly options. Drawing on insights from the May 2025 WAPPP webinar and examples from Egypt, AfDB, OECD, InfraCredit Nigeria, and RMB, this policy brief explores how blended finance—combined with risk-sharing tools, institutional incentives, and regulatory reforms—can unlock local capital for infrastructure investment. Solutions include credit guarantees, concessional capital, CPI indexation, and procurement incentives. Beyond risk mitigation, LC financing supports broader policy goals such as market deepening, PPP oversight by finance ministries and central banks, and stronger local financial institutions. Together, these tools can reduce FX dependency and improve the long-term viability of PPP programs.
