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Business Standard
5 days ago
- Business
- Business Standard
RBI Dy Guv bats for global unity, tech transfer to fight climate change
RBI Deputy Governor M Rajeshwar Rao has called for enhanced global cooperation including technology transfer and R&D funding to deal with challenges posed by the climate change. Stressing that no country can achieve net-zero in isolation, he said climate change is the quintessential global challenge and so the response. Rao was speaking at the Conference on Green Infrastructure Finance at College of Agriculture Banking, RBI here recently. "There is a requirement of enhanced global cooperation in this regard which must also extend to technology transfer, R&D funding, and skills development to enable development of technical expertise to identify, design, and structure bankable sustainable and green infrastructure projects," he said. The Reserve Bank posted his speech on its website on Friday. The Deputy Governor said that the focus needs to shift from project-based finance to overall market development with policy reforms, development of a project pipeline, and consistent regulatory frameworks, creating systemic conditions for fostering sustainable and green infrastructure finance. The senior RBI official also made a case for an adequate mix of public and private funding where the public funds crowd in the private funds through appropriate incentive structure. Specific mechanisms need to be enabled wherein global funds scale their mandates from project-level support to market-shaping interventions, also targeting underdeveloped sectors like adaptation infrastructure, and nature-based solutions. "There is also requirement for Multilateral Development Banks (MDBs), Development Financial Institutions (DFIs), National Development Banks (NDBs) and Vertical Climate and Environmental Funds (VCEFs) to harmonise approach and operations and enable joint funding to enable shift from being direct lenders to catalytic partners and bring in economies of scale in sustainable and green infrastructure projects financing," Rao said. He further said the international financial architecture also needs to be reoriented toward sustainability. The de-risking of sustainable and green infrastructure can work best when national, local, and multilateral institutions co-invest, signalling policy credibility and technical robustness, Rao said. He emphasised that MDBs and global climate funds may need to revisit their governance structure to reflect the voice of recipient countries, particularly the global south and not just donor countries. "Innovative financial instruments such as debt-for-climate swaps and climate-resilient debt clauses must also be scaled up to create fiscal space for green investments," he said. The Reserve Bank of India, he said has been proactive in its resolve to facilitate creation of a robust ecosystem wherein the assessment and mitigation of climate change risks are fostered and its impact on the economy and financial system is curtailed. Rao emphasised that the scale of the impact of events arising out of climate change requires sizeable investments in technology and scale of finance to both build resilience and enable mitigation. As per OECD report, the investment required for green and sustainable infrastructure is estimated at USD 3-5 trillion per year until 2050.
Daily Maverick
15-07-2025
- Business
- Daily Maverick
Road ahead is steep but not insurmountable– SA's G20 can still deliver for debt and development
The global economy has slowed and become less supportive of developing countries. African countries may be forced to resort to international capital markets to fill the gap in their development financing needs. It is crunch time for South Africa to begin delivering on its ambitious G20 development finance agenda. The third of the four meetings this year of G20 finance ministers and central bank governors takes place on 17 and 18 July. A communiqué is expected to be issued, focusing on the development finance issues that South Africa prioritised at the beginning of its G20 presidency. The agenda includes politically and economically complicated topics such as sovereign debt and the cost of capital and climate finance, which are issues that are high on the global policy agenda. At the recent African Union Conference on Debt held in Togo in May, African leaders, among other matters, called for the reform of the G20 common framework and for a 'new debt doctrine'. The Compromiso de Sevilla, the outcome document from the recently concluded UN-sponsored Fourth International Conference on Financing for Development (FfD4), also acknowledged the need for a more development-oriented debt architecture. Unfortunately, the international economic environment in which South Africa needs to deliver on this agenda has become significantly more complex and challenging. The global economy has slowed and become less supportive of developing countries. The World Bank recently reduced its estimate of global growth from about 2.8% to 2.3% and forecast that average global growth in the first seven years of the 2020s would be the slowest of any decade since the 1960s. Its chief economist declared that ' outside of Asia, the developing world is becoming a development-free zone '. Some G20 participating states have become less supportive of developing countries. For example, the US and the UK, among other countries, have significantly cut their official development assistance, with the US going as far as eliminating USAid, its main aid agency. US President Donald Trump's administration also pulled out of FfD4 and has given mixed signals on his participation in the G20 summit in November. He has even opposed the theme for South Africa's G20 presidency – Solidarity, Equality, Sustainability. These developments aggravate Africa's development challenges. Currently, Africa has an annual financing gap of around $900-billion to $1.3-trillion for Agenda 2063 and the SDGs. While domestic resources should be the major source of each country's financing for these needs, they are unlikely to be enough in the short to medium term. Unfortunately, the amount of funding from official sources such as donor governments and the multilateral development banks (MDBs) will not be sufficient to plug this hole. Therefore, African countries may be forced to resort to international capital markets to fill the gap in their development financing needs. The financing these markets offer is expensive, involves exchange rate risks and is pro-cyclical. In addition, evidence suggests that African countries are charged much higher interest rates than countries in other regions with comparable credit ratings. The resulting 'African premium' costs African countries $74.5-billion per year in excess interest payments, according to a UNDP report. The reasons for this premium are still up for debate. It has been attributed to credit rating bias, lack of quality data, a lack of sound fiscal and public finance management by African governments, and to the fact that many African countries are new to international markets, having only started issuing international bonds between 2007 and 2020. Meanwhile, as African countries continue to deal with these tough conditions on the international capital markets, efforts to address their existing debt burden remain painfully slow. The current approach to sovereign debt restructuring uses the common framework developed by the G20 to deal with the obligations to all official and commercial creditors of low-income countries. Unfortunately, this framework has failed to deliver adequate outcomes for African countries. South Africa's G20 presidency provides the next opportunity to address this challenge. As South Africa commences the last half of its G20 Presidency, we suggest that it prioritise the following issues on the development finance agenda: South Africa must champion the Borrowers' Forum This forum, promoted in the outcome document from FfD4, would facilitate the exchange of ideas, information and peer learning among sovereign borrowers. If supported by a permanent secretariat, as proposed in the Report of the UNSG's Expert Group on Debt, the forum could become the repository of information about sovereign borrowing and the source of technical support and capacity building for debtor countries. South Africa should advocate for the G20 to actively support the creation of the forum as soon as possible. It should also work with the African Union and African G20 guest countries to take the first actions to operationalise a regional borrowers forum in Africa. Improving sovereign debt architecture South Africa, as co-chair of the Global Sovereign Debt Roundtable (GSDR), must use it as a tool to promote the improvement of the sovereign debt architecture. The FfD4 Compromiso calls for the creation of a working group to propose a set of principles for responsible sovereign borrowing and lending that can make sovereign debt transactions and the international debt architecture more effective, efficient and more supportive of optimal development outcomes. The GSDR was established as an informal G20-linked forum, chaired by the G20 presidency, the IMF and the World Bank. It brings together a diverse array of creditors, debtors and other stakeholders to discuss how to make the sovereign debt process work better for all stakeholders. South Africa should convene a meeting of the GSDR to begin discussing the framework for promoting responsible sovereign borrowing and lending, including the planning and management of such transactions and their outcomes. Panel of technical experts South Africa must advocate for the G20 to appoint a panel of technical experts to study the barriers to affordable, adequate and predictable flows of development finance to African sovereigns and make recommendations on what the G20 can do to remedy this situation. This can complement the work of the African Experts Panel, which has a broader mandate of 'exploring and defining strategies that advance Africa's collective developmental interests'. South Africa's G20 presidency should not be the end of this year's advocacy for a new and more developmentally responsible debt architecture. These actions should also be promoted at the World Social Summit and the COP30 in Brazil. DM Daniel D Bradlow is a part-time G20 Senior Fellow at the South African Institute of International Affairs (SAIIA), where his research focuses on the finance track of the G20 and related Think20 issues.
Mint
04-07-2025
- Business
- Mint
India makes a push for cheaper foreign loans in yen, rupee
India is pressing multilateral development banks (MDBs) to lend more in Japanese yen and Indian rupees in an attempt to reduce borrowing costs and manage exchange rate risks more effectively, two officials aware of the matter said. New Delhi has steadily expanded loans and official development assistance (ODA) in yen to gain from ultra-low interest rates and the rupee's appreciation against the Japanese currency. Many of these loans finance infrastructure and development projects. 'Yen rates remain close to zero, and with the rupee having appreciated significantly against the yen since early 2023, yen borrowings, including through Samurai bonds, have emerged as a compelling option," one of the two officials cited above said, requesting anonymity. Samurai bonds are yen-denominated bonds issued in Japan by foreign entities to raise money. The development assumes significance since MDBs such as the World Bank, Asian Development Bank (ADB) and the International Monetary Fund (IMF) play a central role in global finance, especially in developing economies. These institutions lend in dollar as well as other reserve currencies. ADB, which mainly lends in dollars, has also issued rupee bonds. The Asian Infrastructure Investment Bank (AIIB) too lends in yen, euro and rupees. The yen is part of IMF's special drawing rights (SDR) basket of currencies, and can be used depending on borrower preference and availability. India is pushing for loans in yen, the second official confirmed, adding "These loans and ODAs are not free, and we pay interest on them. A lot has changed now with India's rise at the global high table, and we are in a better position to negotiate our terms and conditions with the MDBs," said the second person. 'Also, given our past record, India also happens to be very attractive for these lending institutions as well, given our repayment history and the credit profile. We will follow the strategy which is in our best interest," the person added. An ADB spokesperson said the bank has received a handful of requests from India for yen-denominated loans in the last two years, with three such agreements signed in 2023 and 2024. These include the Delhi-Meerut RRTS Tranche 3 (2023), the Nagpur Metro Urban Mobility Project (2024) and the Amaravati Capital City Development Programme (2024). The ADB spokesperson pointed out that despite the rising interest in yen loans, 20 out of 22 sovereign loans signed by ADB in India in 2024 were in dollars. 'ADB's advice to borrowers is to choose the most financially advantageous termsbased on needs and risk exposure of the project and the borrower's overall external debt portfolio," the spokesperson added. Queries emailed to the spokespersons of India's finance ministry, World Bank, AIIB, IMF and Exim Bank remained unanswered. 'India is expected to expand its yen exposure further as part of a calibrated shift to longer-tenure, lower-cost financing to mitigate exchange rate risks. It will also explore greater use of the domestic currency. However, the dollar will remain dominant in the medium term, given its role as the principal global reserve currency," the official cited earlier said. According to the Reserve Bank of India (RBI) data, yen-denominated liabilities rose to 6.2% of India's total external debt at the end of March 2025, up from 5.8% a year earlier. In absolute terms, this equals $45.6 billion out of the total $736.3 billion in external debt at the end of FY25. India's total external debt rose 10% in FY25. The US dollar still dominated India's external borrowings, accounting for 54.2%, followed by the Indian rupee (31.1%), yen (6.2%), SDR (4.6%), and the euro (3.2%). While the appeal of yen financing is clear, economists caution that since India lacks a deep forex market for the yen, most conversions still happen through cross-rates with the dollar or euro rather than direct market-determined rates, adding layers of complexity. 'Rupee-denominated loans are preferable from a stability standpoint. As for yen borrowings, unless a more efficient and transparent yen market develops, the advantages remain limited. In many cases, dollar- or SDR-denominated loans might still be more practical," said Bhanumurthy N.R., director of the Madras School of Economics. India's yen borrowing strategy is gaining traction across both bilateral and multilateral channels. In FY24 alone, India signed yen loan agreements with the Japan International Cooperation Agency (JICA) worth over ¥276 billion (around ₹15,600 crore), funding metro rail, logistics, and renewable energy projects. In FY25, JICA followed up with six ODA agreements worth ¥191.7 billion ( ₹11,181 crore) to support urban transport, water infrastructure, environmental protection, and livelihood programmes, including Delhi Metro Phase IV, Chennai's desalination plant, biodiversity projects in Punjab, and an aquaculture initiative in Assam. A separate ¥84.3 billion loan for Mumbai Metro Line 3 took the year's total to ¥276 billion ( ₹15,655 crore). 'India's push to secure more yen- and rupee-denominated loans from MDBs reflects a prudent effort to lower external borrowing costs while reducing exposure to the volatility of major foreign currencies like the US dollar," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm. 'From a bond market and risk perspective, rupee-denominated MDB funding is a strong fit. It eliminates currency mismatch, enhances debt predictability, and aligns well with India's broader strategy of deepening its local currency bond ecosystem. Yen-denominated loans, though historically low-cost, now come with added complexity due to heightened forex volatility and an uncertain interest rate trajectory in Japan," he added.
Time of India
04-07-2025
- Business
- Time of India
FM Nirmala Sitharaman calls for Global South unity to tackle uncertainties
Nirmala Sitharaman (File photo) NEW DELHI: Finance minister Nirmala Sitharaman on Friday stressed the need for decisive collective action by the Global South to deal with multiple uncertainties arising out of fiscal constraints in several economies and evolving geopolitical dynamics. She was speaking at the annual meeting of Board Governors of the New Development Bank (NDB) in Rio De Janeiro, Brazil on 'Driving Development: Fostering Innovation, Cooperation, and Impact through a Multilateral Development Bank for the Global South'. Sitharaman said the meeting is taking place at a defining moment for the Global South, as the world grapples with multiple uncertainties arising from fiscal constraints in several economies, climate transition issues and evolving geopolitical dynamics. "In response to these challenges, our collective action must be decisive, inclusive, and forward-looking," she said. The New Development Bank (NDB) has been established by BRICS nations. She noted that MDBs play a pivotal role in complementing our efforts in tackling these uncertainties. "MDBs have a distinctive comparative advantage in their ability to catalyse both public and private investments by offering a package of technical expertise, concessional financing, and effective risk mitigation tools thereby widening our policy options," she said. Sitharaman added that NDB has emerged as a key partner-channelising development finance, supporting resilient infrastructure, and fostering meaningful cooperation across the Global South through a pragmatic approach. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
Mint
04-07-2025
- Business
- Mint
India for collective action by Global South to deal with current challenges: FM
New Delhi, Jul 4 (PTI) Finance Minister Nirmala Sitharaman on Friday emphasised the need for decisive collective action by the Global South to deal with multiple uncertainties arising out of fiscal constraints in several economies and evolving geopolitical dynamics. She was speaking at the Annual Meeting of Board Governors of the New Development Bank (NDB) at Rio De Janeiro, Brazil on 'Driving Development: Fostering Innovation, Cooperation, and Impact through a Multilateral Development Bank for the Global South'. Sitharaman said the meeting is taking place at a defining moment for the Global South, as the world grapples with multiple uncertainties arising from fiscal constraints in several economies, climate transition issues and evolving geopolitical dynamics. "In response to these challenges, our collective action must be decisive, inclusive, and forward-looking," she said. The New Development Bank (NDB) has been established by BRICS nations. She noted that MDBs play a pivotal role in complementing our efforts in tackling these uncertainties. "MDBs have a distinctive comparative advantage in their ability to catalyse both public and private investments by offering a package of technical expertise, concessional financing, and effective risk mitigation tools thereby widening our policy options," she said. In this context, Sitharaman added that NDB has emerged as a key partner -- channelising development finance, supporting resilient infrastructure, and fostering meaningful cooperation across the Global South through a pragmatic and responsive approach. "India reaffirms its steadfast commitment to inclusive, sustainable, and innovation-led development of the global south," she said. Sitharaman said India's efforts led to the landmark inclusion of the African Union as a permanent member of the G20 to ensure that the Global South plays a pivotal role in discussions about issues impacting them. She told the gathering that the Indian economy has demonstrated remarkable growth and resilience in the post-pandemic era. Strong focus on macroeconomic stability, targeted efforts to promote digitalisation and inclusive policy design have been instrumental in achieving this, despite facing multiple domestic and external challenges. "India is poised to remain one of the fastest growing economies globally in the coming years," she said. She further said over the past decade, NDB has emerged as a credible institution with its client focus, agile response and financing several key infrastructure projects. As the Bank enters its next phase of growth, it must focus on strategic priorities, she said. "Mobilising private capital is key to sustaining growth given the limited fiscal space and competing demands for public capital expenditure. NDB should play a catalytic role in unlocking private sector capital," she said. Special focus must be placed on tailored support for Small and Medium Enterprises, especially women-led enterprises, to ensure inclusive participation, economic development and promote gender equity, Sitharaman added. She said that NDB has shown that a Global South-led institution can deliver development solutions that are timely, trusted, and context-specific. The Bank should foster cross-country partnerships to promote knowledge exchange, policy innovation, and technical cooperation, Sitharaman said. "India stands ready to collaborate with NDB in sharing successful models, such as our achievements in digital public infrastructure, scaling up renewable energy adoption, for broader replication," she said, adding that robust governance and transparent institutional mechanisms are vital for enhancing the credibility and effectiveness of the NDB. Continued focus on accountability, responsiveness, and stakeholder trust must remain a priority to ensure the Bank's long-term sustainability, she said while assuring India's continued cooperation with NDB, the member countries, and the stakeholders in this journey.
