Proposal for a Global Credit Guarantee Facility (GCGF)

The Climate Policy Initiative (CPI) proposes a Global Credit Guarantee Facility (GCGF) to address the high cost of capital for renewable energy in emerging markets and developing economies (EMDEs), where debt costs are on average 7x higher than in developed economies. The GCGF would act as a trust fund providing partial guarantees to mitigate sovereign, off-taker, and average foreign exchange risks, while transferring political and residual FX risks to existing institutions like MIGA and TCX. CPI outlines three sizing approaches for the facility: a 'Conservative' model requiring USD 4.2 billion in funded capital, a 'Base Case' requiring USD 1.2 billion, and an 'Optimistic' model requiring USD 660 million. The paper estimates that an AAA-rated guarantor could reduce risk premiums by an average of 6% and improve credit ratings by 5-6 notches under its primary risk reduction approach.

• The cost of capital for debt in developing economies is significantly higher than in developed economies, with an average of 7x higher costs and spreads ranging from 3% to 50%.
• The proposed GCGF would function as a trust fund providing partial guarantees to mitigate credit risk, specifically sovereign, off-taker, and average FX risk, while political and residual FX risks would be handled by the Multilateral Investment Guarantee Agency (MIGA) and the Currency Exchange Fund (TCX).
• To meet solar targets for the countries analyzed, approximately USD 175 billion in capital is needed, with USD 120 billion (70%) being debt. A 50% guarantee coverage would require a total fund size of USD 15.2 billion.
• CPI presents three sizing options for the GCGF based on funded and callable capital: a Conservative approach (USD 4.2bn funded, USD 11bn callable), a Base Case (USD 1.2bn funded, USD 14bn callable), and an Optimistic approach (USD 660m funded, USD 5.9bn callable).
• Under the 'Overall Risk Reduction' approach, assuming an AAA-rated guarantor, the average reduction in risk premium for the sample countries is 6%, with an average credit rating improvement of 5-6 notches.
• A more conservative approach that only lowers the expected default rate results in a smaller average risk premium reduction of 3% and a rating improvement of 2-3 notches.

APA

Gautam, K., Purkayastha, D., & Widge, V. (2023). Proposal for a Global Credit Guarantee Facility (GCGF). Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2023/10/Discussion-Paper-Proposal-for-a-Global-Credit-Guarantee-Facility-GCGF-Oct-2023.pdf

Chicago

Gautam, Kushagra, Dhruba Purkayastha, and Vikram Widge. Proposal for a Global Credit Guarantee Facility (GCGF). Climate Policy Initiative, 2023. https://www.climatepolicyinitiative.org/wp-content/uploads/2023/10/Discussion-Paper-Proposal-for-a-Global-Credit-Guarantee-Facility-GCGF-Oct-2023.pdf.

Wikipedia

{{cite report |last1=Gautam |first1=Kushagra |last2=Purkayastha |first2=Dhruba |last3=Widge |first3=Vikram |title=Proposal for a Global Credit Guarantee Facility (GCGF) |publisher=Climate Policy Initiative |date=October 2023 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2023/10/Discussion-Paper-Proposal-for-a-Global-Credit-Guarantee-Facility-GCGF-Oct-2023.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gautam2023proposal, author = {Gautam, Kushagra and Purkayastha, Dhruba and Widge, Vikram}, title = {{Proposal for a Global Credit Guarantee Facility (GCGF)}}, institution = {Climate Policy Initiative}, year = {2023}, month = oct, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2023/10/Discussion-Paper-Proposal-for-a-Global-Credit-Guarantee-Facility-GCGF-Oct-2023.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }