NH-SFO Second-Loss- Panama fiscal management and growth development policy
Project Description
The Project entails 10-year commercial loan of up to US$1.40 billion (or an equivalent amount in EUR or JPY), made by lenders yet-to-be-determined, to the Government of Panama (GoP) as part of an IBRD Development Policy Financing (DPF). The commercial loan will accompany an IBRD loan and will be used for general budgetary purposes, following the successful completion of a series of Prior Actions undertaken by the GoP that are defined under the DPF and which focus on improving fiscal sustainability and mobilizing private investment. The commercial loan will benefit from a combination of a (i) US$600 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$1,174 million, provided on a second-loss basis. The guarantees will cover 95% of principal and interest payments (including MIGA 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 the targeted government expenditures are anticipated to have minimal or no adverse environmental or social risks and/or impacts. As above, it is expected that the loan proceeds may be used by the Government of Panama for expenditures in commercial financing for budgetary purposes.
Development Impact
The proposed project, anchored in the IBRD DPF, is expected to significantly impact Panama's fiscal sustainability and private investment mobilization. By supporting policy reforms aimed at improving fiscal management, tax administration, pension sustainability, and debt management, the transaction aims to place Panama's debt-to-GDP ratio on a declining path by 2028. Additionally, the project will facilitate foreign direct investment and domestic investment by enhancing regulatory frameworks, exiting the EU list of non-cooperative jurisdiction. These efforts are anticipated to foster sustainable and inclusive growth, job creation, and environmental sustainability, aligning with Panama's Strategic Plan 2025-2029 and the World Bank Group’s Country Partnership Framework FY24-28 for Panama.