World Bank guarantees are available to all countries eligible for borrowing from the International Bank for Reconstruction and Development (IBRD) or the International Development Association (IDA). The World Bank through its guarantee instruments can help accelerate growth in developing countries by mobilizing private financing for infrastructure development and other projects of national importance.
By covering government performance risks that the market is not able to absorb or mitigate, the World Bank’s guarantee mobilizes new sources of financing at reduced financing costs and extended maturities, thereby enabling commercial/private lenders to invest in projects in developing countries.
Guarantees can mitigate a variety of critical sovereign risks and effectively attract long-term commercial financing in sectors such as power, water, transport, telecom, oil and gas, and mining. Guarantees can also enhance private sector interest in participating in privatizations and public private partnerships (PPPs). It can also help sovereign governments access the international financial markets.
Key Features of Guarantee Instruments
§ Guarantees are designed to help extend the reach of private financing by mitigating perceived risk and encourage private sector involvement in developing countries.
§ Guarantees provide support to lenders or project companies against a government’s (or government entity’s) failure to meet specific contractual obligations to a private or public project.
§ World Bank guarantees require a counter-guarantee from the Government.
§ The guarantee is “Partial:” The Bank only assumes a portion of risk.
§ The Bank Guarantee is a flexible instrument: different currencies (Local currency or Forex), any sector, variety of structures available to match specific needs of individual transactions.
§ Guarantees are an integral part of Country Assistance Strategies (CAS) / Country Partnership Strategies (CPS).
Types of Guarantee Instruments
The World Bank offers three kinds of guarantees:
§ Partial Risk Guarantees (PRGs) cover private lenders against the risk of a public entity failing to perform its obligations with respect to a private project. PRGs ensure payment in the case of default resulting from the nonperformance of contractual obligations undertaken by governments or their agencies in private sector projects. More…
§ Partial Credit Guarantees (PCGs) cover private lenders against all risks during a specific period of the financing term of debt for a public investment. PCGs are specially designed to extend maturity and improve market terms. More…
§ Policy Based Guarantees (PBGs) help to improve governments’ access to capital markets in support of social, institutional, and structural policies and reforms. PBGs are offered to countries with a strong track record of performance with a satisfactory social, structural, and macroeconomic policy framework and a coherent strategy for gaining (or regaining) access to international financial markets. More…