This report by the Independent Evaluation Group looks at the World Bank Group’s experience with implementing policy based guarantees – a relatively new and important tool in development finance. The paper looks at the performance of the policy based guarantees in terms of results and the underlying practices behind their implementation.
The World Bank first introduced the use of policy based guarantees (PBGs) in 1999 to cover private lenders against the risk of default by sovereign borrowers. Interest in the product has been on the rise in recent years, especially after the global financial crisis. Since 2011, the World Bank has issued eight PBGs with seven countries.
In 2013, the operational framework was streamlined to make PBGs more accessible to clients by bringing the instrument fully under the Operations Policy that covers all development policy financing.
Member countries are particularly attracted to the scale of financing and the market access under financial stress that Policy Based Guarantees have made possible.
The report includes lessons on:
The role of PBGs in helping members overcome difficult financing and reform challenges.
The importance of having a robust macroeconomic and fiscal policy framework for sustaining benefits from improved access to private finance for deficit financing.
The impact of PBGs on borrowers’ credit terms.
Why greater attention to the modality for raising private finance is needed.