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The Case for Local Currency Loans: How IDA Could Help Borrowers Reduce Vulnerability to Debt Crises
Many low-income countries (LICs), particularly in sub-Saharan Africa, face the challenge of repaying loans in foreign currencies. With most of their debt in dollars or euros, these nations are in a difficult position: when their currency weakens, their debt burden goes up. This phenomenon—relying on foreign currencies for borrowing—is known as “original sin” and carries significant financial risk. In a recent paper, AfriCatalyst explores how local currency loans from the World Bank’s International Development Association (IDA) could help mitigate this risk.