2025 Public Sector Perspectives

Building a coalition of the willing Clearly, much work remains to be done; Citi is committed to seeing it through. We have begun to engage the U.S. Government on Basel III interpretation, specifically advocating for changes to capital requirements and risk-weighted asset treatment. We are in direct dialogue with the World Bank’s Basel team on ways to modify existing World Bank products to make them Basel compliant; and there is continued engagement with the G7 and G20 to push for a standardized guarantee template that is Basel-eligible. And we are not alone. Moreover, a “coalition of the willing” has begun to emerge among commercial banks, insurers, asset managers and NGOs committed to promoting recognition of DFI-enabled transactions as a standalone asset class. The newly released GEMs data provides valuable evidence that transactions using MDB/DFI risk defeasance tools perform better than similar transactions that do not. As the market begins to recognize this, we believe that the financial industry will evolve its understanding of risk and view blended finance in a new, more constructive light. Using the MDB/DFI tools will start the process: their unique mitigation features will demonstrate the risk/reward trade-offs inherent in these projects. Over time, these proven benefits will encourage investors to participate in more complex blended finance structures. In turn, increased demand will prompt MDB/DFIs to develop platforms to increase access and market standardization, which will further encourage investors to take on more clean risk. If projects enabled by MDB/DFI risk defeasance tools come to be seen as a specific asset class by both regulators and investors, many of today’s challenges could be easily addressed. With the creation of a unique, defined asset class, MDB/DFIs could become the true catalysts of global development that shareholders intended when they were created. By using their new power effectively to leverage private sector financing, the goal of billions-to-trillions in support of the Paris Agreement and the UN’s SDGs could finally become a reality. Citi Perspectives for the Public Sector 13