2026 Perspectives for the Public Sector

3. Risk Management: Mitigating Currency Mismatches A common financial vulnerability for many SOEs stems from currency mismatches. While SOEs often benefit from concessional loans provided by multilateral development institutions (MDBs), a significant portion of these facilities are denominated in hard currency. Conversely, SOE revenues are typically generated in local currency, creating a substantial foreign exchange risk. To address this, SOEs can seek to re-denominate MDB loans into local currency. In parallel, the MDB would enter into a cross-currency swap with a global bank such as Citi; this swap converts the local currency repayments received from the SOE into the hard currency required by the MDB, effectively transferring the currency risk away from the SOE and facilitating more stable debt servicing. 4. Capital Expenditure Financing: Innovative Approaches for Infrastructure SOEs, particularly those in the utilities sector, often execute over 50% of all infrastructure projects. Traditionally, these projects are financed through corporate issuance or project finance instruments, which can directly increase the government’s consolidated debt burden. As an alternative approach, infrastructure projects executed by SOEs could be funded through the securitization of ring-fenced hard currency-denominated cashflows. In this structure, the SOE would issue financing backed specifically by these dedicated cashflows. Depending on the structural mechanics and the nature of the underlying cashflows (e.g., those generated from export activities or international services), this approach could also allow the SOE to issue debt with a credit rating higher than that of the sovereign. This is particularly advantageous if the hard currency cashflows are deemed sufficiently isolated from sovereign risk, leading to a lower cost of debt for the SOE and making infrastructure projects more financially viable. 34 FromVulnerability to Viability: Best Practices and Financial Instruments for State-Owned Enterprises