The Scalability of Credit-Enhanced EM Climate Debt: What Role Can Guarantees, Collateralization, Securitizations, and Investment Funds Play?

Peter Lindner, Ananthakrishnan Prasad and Jean-Marie Masse

No 2025/002, IMF Working Papers from International Monetary Fund

Abstract: This paper reviews the main types of credit enhancement approaches used to support climate debt issuances by EMDE borrowers. Fragmentation on the part of the providers of credit enhancements was identified as a major factor impeding scalability of credit-enhanced debt. The acceptance of credit-enhanced debt is also hampered by the structural characteristics of the capital markets, especially the fragmentation of the investor base. To place significant amounts of credit-enhanced climate debt with private sector investors, MDBs, DFIs, and other stakeholders should focus on simple and replicable debt structures. Securitizations and investment funds could help fund private sector climate investments in EMDEs.

Keywords: Credit enhancements; blended finance; debt-for-climate swaps; climate mitigation; climate adaptation; climate finance; guarantees; securitization.; climate debt; B. credit enhancement; EMDE investor base; enhancement approach; replicable debt structure; capital market consideration; Bonds; Loans; Credit; Securities; Global (search for similar items in EconPapers)
Pages: 79
Date: 2025-01-10
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