2018 - 2019 Edition of Citi Perspectives for the Public Sector

32 • Elections coming up in the next year or a currency highly correlated with the currency of a country anticipating a contentious political event. Changes in government often introduce some measure of instability into a country as citizens and investors evaluate potential new decision- makers and policy priorities. It is also possible for political dysfunction in one country to cause market shocks in another when investors believe strong links exist between two economies. None of these features necessarily signal the onset of a financial crisis in the near or medium term. Rather, it is our observation that, all else being equal, the major economic trends identified above are particularly challenging for countries exhibiting one or more of these attributes. The current economic and political climate requires flexible responses to external and internal shocks, whereas the above features constrain a country’s shock- absorptive capacity. How to build resilience The Sovereign Advisory team recommends that governments of high-risk economies consider building resilience well in advance of a crisis in order to protect their financial health. Here are three relevant instruments and services that Citi offers our government partners: 1. Liability Management to smooth debt maturities. Citi helps EM governments retire select outstanding debts and issue new obligations with the goal of smoothing annual principal payments over future years. The objective is to avoid spikes in debt service and, when possible, to reduce coupon payments. These outcomes reduce the probability of an unanticipated government liquidity shortage. 2. MDB Loan Modification to reduce currency or commodity price risk. For countries with foreign currency exposures, Citi uses our strong relationships with multilateral development banks (MDBs) to re-denominate, for example, USD MDB loans into local or other non-U.S. currencies to provide better currency matching between foreign exchange reserves Citi helps EM governments retire select outstanding debts and issue new obligations with the goal of smoothing annual principal payments over future years. Building Emerging Market Resilience to New Economic Challenges