Proposal for a Global Credit Guarantee Facility (GCGF) - To de-risk climate investments in emerging markets
13 October 2023
The discussion paper aimed to better understand the impact of investment risks specific to solar project development on the commercial viability of such projects, i.e., the risk premia on the delivered cost of capital for projects in these countries. [...] Subsequently, the G20 New Delhi Leaders’ Declaration built on the above: • The 21st century requires an international development finance system that is fit for purpose, especially for the scale of need and depth of the shocks facing developing economies, the poorest and most vulnerable of them in particular. [...] For the sample set of countries, the average reduction in risk premium is 6% and the average improvement in rating is 5-6 notches.4 APPROACH 2: ONLY LOWERING THE DEFAULT RATE Rating agencies may hold a more conservative view and consider the guarantee to lower only the expected default rate and not the overall risk. [...] Consequently, the unexpected loss of the portfolio will be equal to the square root of the sum of the squares of individual unexpected losses. [...] Consequently, the unexpected loss of the portfolio will be equal to the square root of the sum of the squares of individual unexpected losses.