World Bank guarantees are powerful catalysts to attract private-sector investments and commercial financing for strong development outcomes that support economic growth and improve public services in developing countries. Our guarantees mobilize a wide array of commercial capital and private investments, including energy, transport solutions, sovereign and corporate financings for governments and state-owned enterprises—as well as innovative trade financing solutions and unique support to fragile countries.
Recent global discussions on financing for development have brought the potential impact of the guarantee instrument to the forefront, as the world looks to mobilize additional resources for development, especially from the private sector.
Our guarantees are often combined with other World Bank Group instruments, including from IFC and MIGA. They can also be combined with project bonds to finance transactions from construction to operation, providing a lift-up in the rating of these bonds.
There is an important cost-benefit analysis to be conducted before the deployment of sovereign guarantees implied in the use of World Bank guarantees. Nevertheless, used wisely, they can be powerful, well-targeted instruments.
The World Bank Guarantee Program aims to:
World Bank Guarantees are suitable for:
Guarantees are suitable to cover a wide array of government-related risks, such as:
In general, World Bank Guarantees are suitable to cover any government-related risks which is not of a purely commercial nature.
Benefits of World Bank Guarantees
Our guarantees offer multiple advantages to stakeholders involved in strategic government investments and programs.
For private investors
The World Bank Guarantee Program offers two main types of Guarantees:
Project-based Guarantees are applied in the context of specific investment projects where governments wish to attract private investment (equity and/or debt). They are designed to provide risk mitigation with respect to key risks which are essential for the viability of the investment.
These Guarantees may fall under one of the following sub-categories:
Loan Guarantees – intended to provide risk mitigation to commercial lenders with respect to debt service payment defaults caused directly or indirectly by government failure to meet specific payment and/or performance obligations arising from contract, law or regulation. Such as:
- Payment of debt service on commercial loans taken by private projects which rely on contracts with government for their cash flows e.g. tariff level agreed under an implementation agreement between government and a project.
- Payment of debt service on commercial loans taken directly by government
Payment Guarantees – intended to provide risk mitigation to private projects or to foreign public entities with respect to payment default on non-loan related obligations by government. Such as:
- Scheduled or unscheduled pre-determined payment obligations arising from contracts, law or regulation e.g. monthly payments under a Bulk Purchase Agreements (such as power or water purchase agreements), termination payment due under a Government Support Agreement or an airport concession contract as a result of a change in law, etc.
Policy-based Guarantees are applied in the context of development policy operations where the World Bank supports a member country with their program of policy and institutional actions that promote growth and sustainable poverty reduction.
This type of Guarantee is intended to provide risk mitigation to commercial lenders with respect to debt service payment defaults by government, when the proceeds of the financing are applied to budgetary support in the context of development policy operations.
The World Bank applies the following criteria to determine if a given project or policy is eligible for World Bank Guarantee support:
The implementation of a World Bank Guarantee requires the establishment of contractual relationships amongst the government as obligor, the private investors as beneficiaries, and the World Bank as Guarantor. It also requires a direct contractual relationship between the World Bank and the member country.
The following are the basic contracts that are required for a World Bank Guarantee. Exceptionally, depending on the specific structure of a project, other contracts may be required.
This is a contract between the World Bank (IDA/IBRD) and the beneficiaries of the Guarantee. This contract incorporates the terms and conditions of the Guarantee, such as tenor, covered events, conditions, termination and suspension events, etc. In the case of Loan Guarantees it is customary to have the Guarantee Agreement incorporated into the guaranteed loan agreement.
These are agreements to be entered between the World Bank (IDA/IBRD) and the project company and/or the sovereign/sub-sovereign, depending on the specific structure. These contracts incorporate standard undertakings to IDA/IBRD such as use of proceeds from the underlying financing, proper operation of the project, compliance with World Bank environmental standards, etc.
Guarantee Support Agreement
This is a contract amongst the government, the project company and the World Bank, whereby the government undertakes to pay the project company the amounts that are past due, in the event that the government-owned entity or the sub-sovereign which is the direct obligor fails to make the payments as due. This contract allows governments to address the default situation without triggering the World Bank Guarantee unnecessarily.
This is a contract between a member country (the sovereign government) and the World Bank, whereby the government will indemnify IDA/IBRD in the event that IDA/IBRD make payments to the beneficiaries under the Guarantee.