Scaling LCY finance requires a stronger information architecture. Data on market depth, currency exposure, risk and performance remains fragmented across institutions, making it harder to target support, coordinate action and track whether market conditions are improving over time.
A central priority is to establish standardised diagnostics for local markets, especially money markets. Shared tools covering liquidity conditions, interbank activity, participation, repo, benchmarks and pricing would provide a more consistent basis for country prioritisation and coordination across MDBs, DFIs and partners.
The IMF could strengthen this agenda through Article IV surveillance, FSAPs and technical assistance by giving more systematic guidance on the market conditions needed for safer LCY borrowing and FX-risk management. This should build on existing IMF and World Bank debt sustainability and local-currency market diagnostics, with greater attention to currency composition, money-market liquidity, repo and collateral frameworks, FX market functioning and when LCY borrowing reduces rather than redistributes risk.
Stronger diagnostics also depend on better institutional data. More consistent collection and sharing of LCY lending data, including currency composition, risk metrics and performance outcomes, would support MDB and DFI decision-making, improve transparency, reduce information asymmetries and strengthen risk pricing.
The OECD could complement this by strengthening reporting on local-currency ODA loans and private finance mobilisation. Clearer reporting on currency denomination, hedging treatment and the currency of mobilised finance would help shareholders assess whether official finance is reducing FX mismatch, rather than simply increasing volumes or shifting currency risk to borrowers.
GEMs could provide a stronger empirical foundation for the LCY agenda. Its MDB and DFI default and recovery data, including LCY-relevant credit-risk information, could be made more decision-useful through greater disaggregation by currency, tenor, instrument, borrower type, sector, geography, recovery experience and, where feasible, pricing or hedging characteristics. Case studies on borrower outcomes, avoided currency losses, risk-adjusted performance and real-economy impact would complement this evidence base.
Credit rating agencies also have a role in improving the investibility of LCY assets. Limited ratings coverage for LCY borrowers, MSMEs and pooled short-tenor assets constrains investor participation, even where domestic liquidity exists. Local and international rating agencies, working with MDBs, DFIs and data platforms such as GEMs, could help develop rating approaches for pooled receivables, factoring portfolios and other MSME-linked LCY assets, supported by stronger performance data and appropriate credit enhancement.
Specific propositions that attracted support included:
- Standardise money-market diagnostics. MDBs, DFIs and technical partners should develop shared diagnostic tools covering liquidity, interbank activity, benchmark credibility, repo, collateral frameworks and market participation.
- Improve MDB and DFI LCY reporting. Reporting should capture LCY lending by currency, tenor, product and instrument, rather than treating local-currency activity as an aggregate category. This reporting should be used for accountability as well as transparency. Shareholders should be able to track MDB and DFI progress in increasing LCY lending, reducing borrower currency mismatch, expanding the range of currencies and tenors available, and improving the evidence base for risk-adjusted decision-making.
- Build evidence on outcomes. MDBs, DFIs and shareholders should commission case studies and datasets that capture borrower outcomes, avoided currency losses, risk-adjusted performance and real-economy impact.
- Use LCY data to strengthen shareholder oversight. Shareholders should track MDB and DFI progress using data on the currency, tenor, instrument and performance of LCY lending, while investors should be given clearer evidence on risk-adjusted returns, borrower outcomes and avoided currency losses.