WASHINGTON D.C., November 17, 2023 – The World Bank Board of Directors approved a US$350 million loan for Uruguay that marks a global first by linking financing conditions with the achievement of ambitious environmental targets.
The financing will support a reform agenda to drive a more sustainable economy and robust, resilient growth. Uruguay could see a reduction of up to US$12.5 million in interest on this Development Policy Loan (DPL) if it achieves a verifiable decrease in the intensity of methane gas emissions from livestock production.
“At a time when we urgently need to redouble our efforts to address the climate crisis, I am proud that a Latin American country is the first to benefit from an innovative credit mechanism that incentivizes key actions to protect the planet,” said Carlos Felipe Jaramillo, World Bank Vice President for the Latin American and Caribbean Region. “Uruguay once again demonstrates global leadership through institutional and financial innovations—as it has done before in areas such as smart agriculture, reducing carbon emissions and promoting renewable energy—that serve as a reference for other developing countries.”
Uruguay faces the challenge of promoting dynamic, sustainable economic growth while strengthening its resilience to increasingly intense and frequent climate events. In this context, the loan supports key measures that contribute to advancing a green economy, including regulations to promote organic production, incentives for the conservation of native forests, the protection of land and marine habitat and biodiversity, innovation, and the generation of an institutional framework to produce green hydrogen and other clean fuels.
Additionally, the loan supports measures that contribute to robust, resilient growth through the coordination of trade integration measures with regional partners, enhancements to the competition framework and the deepening of financial markets.
“The approval of this project is a first step toward a global paradigm shift and confirms that the World Bank is moving toward the incentive of good practices,” said Azucena Arbeleche, Uruguay’s Minister of Economy and Finance. The approval of this credit instrument is another innovative step for the country in its search for better conditions of access to international financing. It is equally important that it seeks to enhance Uruguay's positioning in agricultural export markets, which increasingly value sustainable production. The indicators included in this loan, and in the Environmental Bond issued in 2022, demonstrate Uruguay's determination and motivation to follow a development path that combines increased growth and productivity in the livestock sector -- an integral part of the country's economic structure -- with a commitment to non-deforestation of the native forest.”
How does the financing linked to environmental targets work?
Beginning in 2028, during the loan repayment period, an annual evaluation will be carried out to closely monitor the objective of reducing the emissions intensity of methane in livestock production in Uruguay. The target indicators are a reduction of at least 33% in methane emissions per unit of cattle between 2028 and 2032, and at least 36% between 2033 and 2037. These targets are 1% more ambitious than the nationally determined contribution (NDC) to reduce greenhouse gas emissions adopted by Uruguay as part of the Paris Agreement.
If this target is met, the World Bank will improve the loan repayment conditions for that year by reducing the interest rate.
Innovations between the World Bank and Uruguay
This financial innovation is aligned with the World Bank's new Evolution Roadmap, which seeks to create incentives for countries striving to integrate global challenges such as climate change mitigation into their development strategies.
Besides benefiting the country, the long-standing partnership between Uruguay and the World Bank has produced replicable programs that have generated innovative solutions that benefit other countries around the world. For example, the World Bank's support for Uruguayan public institutions and services has led to knowledge-sharing with countries such as Kazakhstan and Papua New Guinea on energy, as well as with Bolivia, Paraguay and, more recently, Botswana, Namibia and the Kyrgyz Republic on sustainable agriculture and animal traceability.
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