NH-SFO Second-Loss - Angola Resilient and Inclusive Growth
Project Description
The Project entails 10-year commercial loan of up to US$400 million, made by lenders yet-to-be-determined, to the Government of Angola (GoA) as part of an IBRD Development Policy Financing (DPF).
The commercial loan will accompany an IBRD loan and its proceeds will be used by the GoA to voluntary prepay a portfolio of external commercial loans with short-term residual maturities and high interest rates, with a view to (i) improve the GoA’s public debt profile; (ii) allow the GoA to channel part of these debt service savings for essential development expenditure in the education sector (“Debt for Development” swap).
The commercial loan will be disbursed following the successful completion of a series of Prior Actions undertaken by the GoA that are defined under the DPF and which focus on (i) increasing fiscal resilience; (ii) promoting inclusive and sustainable private sector development; and (iii) boosting human capital, digital environment and access to jobs.
The commercial loan will benefit from a combination of a (i) US$240 million IBRD Policy-Based Guarantee, provided on a first-loss basis; and (ii) a MIGA Non-Honoring Sovereign Financial Obligations (NH-SFO) guarantee of up to US$310.6 million, provided on a second-loss basis. The guarantees will cover 95% of principal and interest payments, and 100% of MIGA’s premium under the commercial loan.
The IBRD Concept Program Information Document for this DPF can be accessed through the link below:
Environmental Categorization
The Project is classified as category C under MIGA’s Policy on Environmental and Social Sustainability (2013), as there is no specific use of proceeds or footprint. In line with the IBRD assessment, the Prior Actions are anticipated to have minimal or no adverse environmental or social risks and/or impacts.
Development Impact
The proposed Project, anchored in the IBRD DPF, is expected to provide net fiscal savings to the government of Angola through improved revenues and lower spending, and to reduce investment barriers in various sectors providing signaling effect to investors and facilitating inflows of private capital.
Underpinned by the DPF, the proposed Project will contribute to support a progressive and equitable fiscal consolidation, that includes gradually removing distortive subsidies in fuel, electricity and water, enhancing social safety nets to compensate for the impact of subsidies removal on the poorest, and strengthening efficient domestic revenue mobilization from the personal income tax and the reduction of tax incentives. Reforms also support a more inclusive and diversified economy through financial inclusion reforms, measures to promote digital access and the digital economy, private sector participation for better service provision in electricity and water, and a better environment for foreign investment.
The joint IBRD-MIGA guarantee operation will also maximize debt service savings, while the use of a Debt for Development swap provides Angola with an incentive to channel these debt service savings for essential development expenditure in the education sector.