WASHINGTON, November 10, 2011—The World Bank Board of Directors today approved a Policy Based Guarantee (PBG) of EUR 100 million for the Former Yugoslav Republic of Macedonia (FYR Macedonia), providing partial coverage in support of the country borrowing EUR 130 million from international lenders. This operation will help FYR Macedonia access new financing sources at improved terms and, at the same time, support the continuation of reforms necessary for improving the country’s resilience to shocks, and build the basis for a stronger economy in the future.
“The Policy Based Guarantee supports reforms which will help reduce future risks to stability by strengthening the sustainability of public finances and the resilience of the financial sector. It also supports improved protection of the most vulnerable, as well as enhanced incentives for formal labor market participation,” explains Lilia Burunciuc, World Bank Country Manager for FYR Macedonia. “The Guarantee will enable the Government to borrow during the current turmoil at reasonable cost and to diversify sources of financing.”
Policy Based Guarantees are offered to countries with sound performance over a longer-term. FYR Macedonia has established a solid, decade-long track-record on macroeconomic stability, and has been implementing critical structural and social reforms to promote growth.
The reform program supported by the Policy Based Guarantee is also consistent with the country’s European Union accession efforts. It is expected to have a positive impact on the functioning of labor markets, the conduct of economic and monetary policy, and social cohesion, which have been identified as critical benchmarks to begin membership negotiations.
“The distinguishing feature of the Policy Based Guarantee is that they are used to catalyze private financial flows in developing countries,” says Evgenij Najdov, Senior Country Economist and Task Team Leader. “Similar to Development Policy Loans, Policy Based Guarantees support government programs aimed at growth and poverty reduction. In this way, by using the Policy Based Guarantee, countries can benefit from both the development goals of the project, as well as from establishing relations with private investors which will become increasingly important going forward.”
The Policy Based Guarantee is issued by the International Bank for Reconstruction and Development (IBRD) and will cover EUR 100 million of the EUR 130 million principal of a commercial loan with a 5-year bullet maturity.