Local currency loans in the global development finance architecture

ALFREDO SCHCLAREK; JIAJUN XU

Abidjan

Conferencia; Finance in Common Summit 2022; 2022

African Development Bank and the European Investment Bank

We analyze how multilateral development banks (MDBs) can lend in local currency to investment projects that are “domestic-oriented” (DOIPs), i.e. which do not generate hard currency, without incurring in currency mismatches between their assets and liabilities, which would downgrade their credit ratings. The main policy recommendation is that MDBs be recapitalized by their owners and use the hard currency proceeds to buy local currency to be used for local currency denominated lending.