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Development Account Projects

Building capacities in the Asia Pacific region to address financial implications of external shocks and climate change mitigation through innovative risk-management instruments

Background:

Sudden shocks, caused by natural disasters, a rapid deterioration of the exchange rate or abrupt movements in global interest rates, have caused a number of debt servicing and debt sustainability problems in developing countries and economies in transition over the last few decades. Using risk management instruments to limit sovereign debt service fluctuations in the face of exogenous shocks is a key prerequisite for avoiding future debt defaults and for maintaining debt sustainability.

The overall goal of the project is to improve the institutional capacity at the national level in five developing countries from the Asia-Pacific region to address the debt servicing implications of external shocks and climate change through risk analysis and the use of innovative risk-management instruments. It will be implemented through a sequence of activities aimed at developing appropriate risk management policies to address climate change and external financial shocks, as well as country experiences in managing these risks. The results of this policy development effort and country experiences will be delivered to end-users through workshops, the provision of policy advice to national policy- and decisionmakers, and the publication of a synthesis paper on the appropriate use of instruments for managing currency, interest and climate change risks.

This project addresses emerging problems identified by UNCTAD through its regular work in institutions dealing with debt issues. The need for technical assistance in this area is the result of new risks to debt servicing that have surfaced over the last few years.

Objective:

The project's aim is to strengthen the capacity of a selected number of developing countries in the Asia- Pacific region to use appropriate financial instruments to mitigate the financial and debt servicing impact of risks associated with climate change and foreign exchange and interest rate volatility.

The project also aims at increasing South-South cooperation in this area through its regional workshops and the exchange of experiences among officials from both countries that have experienced unsustainable debt burdens and countries that have managed to avoid such situations.

Expected Accomplishments:

  • EA1     Improved understanding by policy makers in developing countries from the Asia-Pacific region of the risks to debt servicing emanating from climate change and exogenous financial shocks.

  • EA2     Five public debt offices from developing countries in the Asia-Pacific region equipped with the analytical and operational capacity to use financial products for managing risks to debt service obligations caused by external financial shocks, especially natural disasters and currency and exchange rate volatility.

Implementation Status:

The overall goal of the project is to improve the institutional capacity at the national level in India, Vietnam, the Philippines, Thailand, and the Maldives to address the debt servicing implications of external shocks and climate change through risk analysis and the use of innovative risk-management instruments.

The project is planned for an execution over a period of 38 months. It will be implemented through a sequence of activities aimed at developing appropriate risk management policies to address climate change and external financial shocks, as well as country experiences in managing these risks. The results of this policy development effort and country experiences will be delivered to end-users through workshops, the provision of policy advice to national policy and decision makers, and the publication of a synthesis paper on the appropriate use of instruments for managing currency, interest and climate change risks.