2025 Public Sector Perspectives

Alexander McWhorter, Citi Ukraine’s Citi Country Officer, commented on this milestone: “Since the war broke out, at Citi we’ve been working towards supporting Ukraine’s community and economy. The collaboration with the EBRD is one more step towards providing more capital and financial solutions for stakeholders involved in Ukraine’s reconstruction.” Case Study: IFC and Citi sign facility to increase access to local currency financing in Kenya In July 2024, IFC and Citi announced a $65million (Kenyan shillings equivalent) finance facility to expand IFC’s ability to provide local currency financing in Kenya. IFC sought local currency to on-lend to clients on the ground to help expand Kenya’s digital infrastructure. “Currency volatility and debt distress has made access to local currency financing more important than ever,” said John Gandolfo, IFC Vice President and Treasurer, Treasury & Mobilization. “By partnering with Citi, IFC can expand its ability to source local currency financing to provide local currency solutions for our clients and help shield them from currency fluctuations.” “We are pleased to partner with the IFC to develop innovative local currency solutions,” said Julie Monaco, Global Head of Public Sector Banking at Citi. “This inaugural Citi facility with IFC in Kenya is a first-of-its-kind solution and has the strong potential for replication across our emerging market franchises. By working strategically with multilateral development banks and development finance institutions, Citi’s local currency platform addresses currency mismatches and foreign exchange risk, especially prominent in Africa, which then accelerates financing for development projects.” IFC offers a wide array of local currency products to its clients, including loans, bond investments, cross-currency swaps, securitizations, guarantees, and risk-sharing facilities. Between July 2023 and June 2024, IFC committed $5.9 billion in local currency financing, which represents more than 30% of its long-term debt commitments. Over the last decade, IFC has committed over $30 billion in more than 70 local currencies. New solutions moving forward: Private Sector Investment Lab (PSIL) Given the widespread recognition that local currency funding is a proven effective tool to help borrowers meet financial obligations and better insulate them from external shocks, it is critical to find sources of local currency beyond swaps and derivatives if MDBs are to meet project needs and lower breakage costs. This is a key focus of the Private Sector Investment Lab (PSIL), an initiative launched in 2023 between the WBG and a core group of 15 CEOs and Chairs of leading private sector institutions. The goal of the Lab is to develop solutions that promote private sector investment in emerging markets through approaches that can be implemented at scale. The Lab has already delivered a variety of recommendations, including on the use of guarantees, regulation, originate-to- distribute models, and more. 11 The Lab is developing additional solutions to mitigate FX risk other than just through hedging. This includes solutions to increase local currency financing and facilitate private investment, especially to promote the transition to a greener economy. 12 For example, WBG is working in collaboration with PSIL on 11 https://www.worldbank.org/en/about/unit/brief/private-sector-investment-lab 12 https://www.worldbank.org/en/about/unit/brief/private-sector-investment-lab 13 https://www.iadb.org/document .cfm?id=EZIDB0000577-986313001-135 a solution called the Multi-Layer FX Risk Sharing Facility, which would allow FX risk to be spread across a variety of stakeholders, including the private sector, governments, and WBG. 13 Other solutions include unfunded products such as guarantees and risk sharing facilities in local currencies. These new and innovative solutions highlight some of the many ways local currency can be used to mitigate FX risk for borrowers. Conclusion Local currency funding is critical to mitigate risks for borrowers that result from hard currency lending by MDBs. Until now, shallow domestic markets have, in the majority of emerging market countries, hampered MDBs’ ability to hedge local currency lending or borrow locally. The importance of resolving this challenge led to the establishment of the PSIL by the WBG and of leading private sector institutions with the goal of finding alternatives to both hedging and local currency bonds. Citi’s MDB Lending Solution leverages the bank’s global network to realize these ambitions with an innovative tool that has already been successfully deployed. It provides a stable long- term source of local currency funding, helping to address the mismatch for MDB’s clients and development projects, enabling MDBs to plan more effectively. As well as overcoming the FX risk associated with local currency lending, Citi’s solution provides a valuable boost to broader efforts to develop emerging market and frontier countries’ financial market capabilities, to the long-term benefit of their economic prosperity and resilience. Citi would welcome the opportunity to explore how its MDB Lending Solution could benefit additional MDBs and DFIs and encourages interested readers to get in touch. Citi Perspectives for the Public Sector 45