Governments and businesses in emerging economies often borrow in foreign currencies such as the U.S. dollar to fund critical infrastructure or fuel growth. But there’s a fundamental mismatch: the revenue from those projects is earned in local currency. If the exchange rate remains stable, all is well. But when local currencies weaken — as they often do in times of economic stress — repaying that debt becomes far more expensive.
It’s a cycle that repeats across the developing world, contributing to financial instability, amplifying debt burdens, and making countries more vulnerable to global shocks.
Take Ghana, for example. A growing local business secures dollar-based funding to expand. But then the Ghanaian cedi loses 40% of its value. Suddenly, even though the business is thriving, its debt repayments become crushing — not because the business failed, but because the currency did.
About the author
Adva Saldinger@AdvaSal
Adva Saldinger is a Senior Reporter at Devex where she covers development finance, as well as U.S. foreign aid policy. Adva explores the role the private sector and private capital play in development and authors the weekly Devex Invested newsletter bringing the latest news on the role of business and finance in addressing global challenges. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.
