Policy-Based Guarantee

This guarantee partially backstops sovereign commercial borrowing for budget support in the context of a Development Policy Financing operation supporting policy reforms. It enhances the sovereign's credit profile, facilitating access to capital markets or commercial financing on more affordable terms. By reducing the probability of default and potential losses for lenders, our Policy-Based Guarantee enables governments to secure financing with lower interest rates and longer tenors than would be available solely based on the sovereign's own credit risk. 

This can be particularly valuable for countries with less established track records in international capital markets or those facing temporary economic challenges. The guarantee coverage is calibrated to provide only the minimum amount of credit protection necessary to catalyze the desired commercial financing, ensuring efficient use of our guarantee capacity. This product allows us to support our member countries' reform efforts by enhancing their access to external financing sources. 

World Bank guarantees are financial tools to leverage commercial financing for development purposes while optimizing the use of scarce public resources. The World Bank deploys its guarantees at the request of a member country. In exchange for the World Bank offering a guarantee, the member country requesting the guarantee provides a sovereign counter-guarantee to indemnify the World Bank if the guarantee is ever drawn (Indemnity Agreement). The World Bank only provides guarantees that backstop the risk of non-performance by governments or public entities for commercial financiers and, to the extent necessary, mobilize private capital to support public and private sector programs and projects.  As with any other guarantee, World Bank guarantees do not inherently reduce the risk of government non-performance. Instead, they shift the financial responsibility for the risk cover to the World Bank as a guarantor. The World Bank then transfers this financial responsibility to the Government through the Indemnity Agreement if that risk ever materializes.