Imperatives for addressing inflation, exchange rate, and interest rate risks in public-private partnership (PPP) infrastructure projects in developing countries were explored during the launch of a virtual 4-part Multilateral Cooperation Center for Development Finance (MCDF) PPP “hot topics” workshop series on 23 July.

Co-organized with the Egyptian Ministry of Finance, African Development Bank, Asian Development Bank, Public-Private Infrastructure Advisory Facility, World Bank, and World Association of PPP Units and Professionals, the first workshop began by highlighting practical experiences and lessons in using local currencies to mitigate foreign exchange fluctuations in PPP projects.

Ministry officials, PPP practitioners, financiers, and stakeholders from Africa, Asia, and beyond discussed the division of foreign and local currency costs at the individual project level as well as systemic level approaches.

“A solid local currency framework includes a robust group of projects seeking long-term, fixed-rate debt, a stable macroeconomic environment, and institutional investors looking for infrastructure assets,” explained Mr. Ede Ijjasz, MCDF Senior Advisor to the CEO and a moderator of the workshop.

“Deep and liquid capital markets and domestic development banks mandated to crowd in private sector investments in infrastructure are also critical to local currency frameworks,” he added.

Participants went on to examine hedging instruments to support PPP transactions by reducing foreign exchange risks through long-term commitments. They noted the importance of government knowledge capacity and a supportive policy environment for the successful use of these instruments.

Participants also highlighted the need for PPP transactions to have a combination of instruments, such as hedging, guarantees, and insurance, to manage financial risks in many situations.

The workshop concluded with a look at solutions for tackling rapid changes in domestic interest rates and inflation rates, drawing upon experience. Mr. Atter Hannoura, Director of the Central PPP Unit of the Egyptian Ministry of Finance, described how specific clauses in PPP contracts can help to deal with these risks if clear approaches to contract negotiation are employed under well-defined scenarios.

“Negotiation of PPP contracts is inevitable,” said Mr. Hannoura. “To have successful negotiations, you have to come with your toolbox and you have to come with your toolbox in the contract.”

The PPP hot topics workshop series will continue on 6 August with a session on PPP project preparation funds. It will be followed by workshops on PPPs for new technologies on 27 August and on new sources of public financing for PPPs on 5 September.

Click here for more information and to register for the upcoming workshop series sessions.