Relative Importance of Risks in Hydropower Projects and Project Finance in Nepal

Hydropower is the sole internal source of electricity in Nepal. Since the government policy of private participation in hydropower sector launched, Independent Power Producers (IPPs) have gained significant presence under Public-Private Partnership (PPP) model of infrastructure development. Risk management is crucial in PPP projects as mishandling of any risk threatens sustainability and may result in project failure. This study analyses four major risks including Hydropower Sector Specific Risks, Project Finance Specific Risks, Hydropower Project Financing Risks and Country Specific Political and Legal Risks. Self-administrative survey utilizing questionnaire was conducted among the IPPs and domestic Banking and Financial Institutions (BFIs). Relative Importance Indices have been used to determine the importance of each risk item. Exchange rate changes, currency mismatch between local revenue and foreign loan, cost and time overrun, inflation, political turmoil and highly volatile political environment are few of the most critical risks found. For Project Finance proper allocation of risks among the stakeholders is crucial to make the projects bankable. Findings from this study indicate no risk should be neglected and relative importance of risks is critical in allocating risks among stakeholders. This study highlights assessment and the use of RII in the process of allocation and management of risks in infrastructure projects in general and hydropower in particular.

CURRENCY MISMATCHES IN EMERGING MARKET ECONOMIES: IS WINTER COMING?

We develop a currency mismatch index and examine the causes of currency mismatchesin emerging market economies. This study is based on a unique dataset on 22economies from 2008 to 2017. We also construct the original sin index using granulardata on international debt securities. We find Latin American countries, followedby Central European countries, suffer from the original sin and currency mismatchproblems. The panel regression estimates show that country size, trade openness, andthe level of economic and financial development explain cross-country variations incurrency mismatches. Our empirical results suggest that unstable monetary and fiscalpolicies are the primary causes of currency mismatches. The results indicate that abetter institutional environment reduces currency mismatches. These findings call formonetary independence, stable fiscal policy, and macroprudential policy measures tominimize currency mismatches.

RULES ON MONETARY POLICY AND INTERNATIONAL IMPERFECT SUBSTITUTIONS OF ASSETS

This paper revisits and extend discussions which evaluate the impact of different rules on monetary policy. Rules on one which excludes or includes stability of the exchange rate as an objective of monetary policy making, with currency mismatch existence as given, on the fluctuations of major economic variables. In this paper I develop a financial accelerator model with financial intermediary consistent with currency mismatch, and assume imperfect international substitutability of assets. This paper found that the variation of rule of monetary policy considered in the analysis produces variations in the fluctuations of the macroeconomic variable. However the impact of the different monetary policy rules on the stability of the macroeconomic variables is shock dependent.

Debt mismatch calls for renminbi convertibility

Subject China's foreign currency debt. Significance Recent weak economic data raised the prospect of renminbi depreciation as policymakers seek to mitigate the effects of weak exports on the domestic economy. Devaluation would reduce the value of China's foreign liabilities in dollar terms, but would do little to ameliorate the longstanding mismatch between China's onshore and offshore currency liabilities. The mismatch is centred on China's holdings of large foreign currency denominated assets and the slow pace of capital account liberalisation. While the release of positive foreign direct investment (FDI) data and a large cut in the commercial banks' reserve requirement have diminished the prospect of devaluation in the short term, the mismatch in China's net investment position poses a risk to the domestic economy. Impacts A devaluation of the renminbi would not improve China's net investment position in the long term. ODI and the expansion of the currently small pool of renminbi deposits held abroad reduce the risks from currency mismatch. Full internationalisation of the renminbi offers the most sustainable way of rebalancing China's net investment position in the long term.