Perspectives 2019 2020 Public Sector

Citi Perspectives 13 Transforming Debt in Frontier Markets John Finnigan  Valentina Antill  Gabriel Kimyagarov  Vassiliy Tengayev  Guocheng Zhong Frontier market countries face significant challenges to meet the ambitious 2030 Agenda for Sustainable Development. By de-risking their FX exposure they can meet their budgetary needs, prudently manage debt and associated risks, and unlock financing on a grand scale. The 2030 Agenda for Sustainable Development provides a shared blueprint for the future with its 17 Sustainable Development Goals (SDGs). The Agenda is “a plan of action for people, planet and prosperity” that integrates social, environmental and economic aspects of sustainable development. The United Nations has been working with governments to integrate the interconnected SDGs into national development plans and policies. Today, there is widespread recognition that investment in physical and social infrastructure is crucial to promoting economic and social growth. Nevertheless, ageing infrastructure simply cannot keep pace with development, making it difficult for any frontier or emerging market to deliver an adequate standard of living — where the challenges addressed by the SDGs are most acute. Financing the SDGs Revenue generated from infrastructure investments is largely denominated in local currency, hence, requiring funding in local currency. This poses a notable challenge especially for the frontier market countries, invariably constrained in raising funds in local currency by the size of their economies, monetary systems, capital markets and number of players engaged in their currency markets. As a result, local currency capital formation in these countries is insufficient for their current capital investment needs. While some local markets are deepening, there is little prospect of sourcing local capital on the scale required to meet the SDG targets. In Focus: Sustainable Development Goal 9 Goal 9 calls for building resilient infrastructure, promoting inclusive and sustainable industrialization and fostering innovation, which have a positive knock-on effect to many other SDGs including climate action, smart cities, water, health and education. Infrastructure spending currently stands at $2.5 trillion to $3.5 trillion per year across both the public and private sector; this represents about half of the amount needed to meet the estimated $6 trillion of annual infrastructure demand.