Citi warns of intensifying competition for capital amid higher rates

Citi warns of intensifying competition for capital amid higher rates

Citi believes a new era of competition for capital is emerging as governments and corporations increasingly compete for funding amid rising borrowing needs, resilient economic growth and accelerating investment in AI.

Citi said sovereigns are increasingly competing with private-sector borrowers for a finite pool of capital as governments fund infrastructure, energy security, defence and development priorities, while corporations continue to invest heavily in AI, data centres and digital infrastructure. This is happening against a higher-for-longer interest rate environment.

Stephanie von Friedeburg, global head of Public Sector Group, Citi. Image courtesy of Citi

“We are seeing a structural shift in global capital markets. Governments are borrowing to fund development, infrastructure and strategic priorities while the private sector is investing heavily in AI and digital infrastructure.

As competition for capital intensifies, access to financing and innovative funding solutions will become increasingly important,” said Stephanie von Friedeburg, global head of Public Sector Group, Citi on the sidelines of the International Monetary Fund and World Bank metings in Bangkok this week.

As elevated USD rates continue to shape funding decisions, sovereign and corporate issuers are increasingly turning to local currency funding markets such as RMB, AUD, HKD, and SGD.

Citi is leveraging its global platform and local market expertise to help clients navigate this shift through tailored multi-currency funding strategies that complement USD issuance, optimise cost of capital and diversify liquidity sources.

Citi also highlighted the growing role of sovereign wealth funds in supporting national development strategies, particularly in the Gulf, where governments are directing more capital towards domestic infrastructure, technology and AI-related investments.

At the same time, Gulf investors continue to play an important bridging role between Western and Asian markets.

The bank is also seeing increased interest from central banks in reserve management and optimisation strategies, particularly around gold holdings.

Rising gold prices are prompting reserve managers to explore solutions such as hedging, liquidity management and borrowing against gold reserves.

“Central banks are increasingly evaluating how to diversify reserves, manage concentration risk and make more efficient use of balance-sheet assets. This includes exploring gold-related financing and hedging strategies as part of broader reserve management objectives,” said Stephanie von Friedeburg.

Furthermore, while discussions about de-dollarisation continue, Citi expects the US dollar to remain the dominant global reserve currency, supported by the depth, liquidity and scale of US financial markets.

For emerging markets, elevated debt burdens and higher borrowing costs are creating pressure on public finances at a time when governments must continue investing in energy, transport and digital infrastructure.

To help address these challenges, Citi is supporting innovative financing approaches, including debt-for-development transactions and liability management exercises.

Looking ahead, Citi expects AI infrastructure, energy security, sovereign financing and debt sustainability to remain key themes shaping investment and policy decisions globally, while public-private partnerships will play an increasingly important role in mobilising capital for long-term growth.

As global financing needs continue to rise, Citi’s international network, capital markets expertise and sovereign advisory capabilities position it to support clients in navigating an increasingly complex and competitive funding environment.

VIR