Guarantees Program

The World Bank Guarantee Program offers two main types of Guarantees:

• Project-based Guarantees
• Policy-based Guarantees

Project-based 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.

More information on Project-based Guarantees

Policy-based Guarantees

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.

More information on Policy-based Guarantees

The World Bank applies the following criteria to determine if a given project or policy is eligible for World Bank Guarantee support:

• The relevant project or policy must be implemented in a member country suitable for IBRD or IDA support.
• The project or policy must have a clear and defined development impact. It must promote broad-based economic growth, contribute to social and environmental sustainability, enhance the effectiveness of the public or private sector, or otherwise contribute to the development of member states.
• There must be a need to mobilize private investment (equity or debt) or mitigate government payment risk.
• The project, whether it is public or private, must be of strong interest to, and have the express commitment of, the host Government.
• The project must be technically and financially viable and sustainable in the short, medium and long-term.
• The project can be public or private. If it is a private project, it might be eligible for a World Bank Guarantee if it is the direct beneficiary of an obligation from the Government, a political sub-division of Government, or a Sovereign Owned Entity, which can be guaranteed by the World Bank.
• In the case of Loan Guarantees, the debt must be extended by commercial entities. World Bank Guarantees are not available to support bilateral debt or debt extended by publicly owned entities that operate under public law for public policy purposes (e.g. DFIs, ECAs).
• The project must be capable of meeting the World Bank Group environmental, social, and anti-corruption guidelines.
• In the case of Policy-based Guarantees, the member country must have an adequate macroeconomic policy framework and must also commit to a specific reform program, including sector or macroeconomic policies and country systems. 

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.

Guarantee Agreement
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.

Project 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.

Indemnity Agreement
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.

Pricing of World Bank Guarantees is set by the World Bank Board following the same principles as those applied to its lending instruments. Level of guarantee fees is set at IBRD and IDA level is adjusted by average life of the guarantee and pricing group to which the host country belongs to. IBRD and IDA countries are classified in four pricing groups which are described below. The level of guarantee is not adjusted by project-related risks.

Pricing of World Bank Guarantees includes upfront and recurring fees, both of which are generally paid by the implementing entity in the case of project-based guarantees and by the Government in the case of policy-based guarantees. Once guarantee-related fees are fixed for a specific guarantee, they remain unchanged for the life of that guarantee.

The following table summarizes the pricing structure and fee levels for World Bank Guarantees.

World Bank Guarantee Pricing

¹ The guarantee fee level is determined by the average life of the guarantee and the classification of the country

Group A: Angola, Antigua and Barbuda, Armenia, Belize, Bolivia, Bosnia and Herzegovina, Cabo Verde, Cameroon, Congo, Republic, Dominica, Equatorial Guinea, Fiji, Georgia, Grenada, India, Iraq, Kenya, Lebanon, Libya, Mauritius, Moldova, Mongolia, Montenegro, Nauru, Nigeria, Pakistan, Palau, Papua New Guinea, Seychelles, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Swaziland, Timor-Leste, Trinidad and Tobago, Uzbekistan, Vietnam, Zimbabwe

Group B: Albania, Algeria, Azerbaijan, Belarus, Botswana, Colombia, Dominican Republic, Ecuador, Egypt, El Salvador, Gabon, Guatemala, Indonesia, Iran, Jamaica, Jordan, Macedonia, Morocco, Namibia, Paraguay, Peru, Philippines, Serbia, South Africa, Thailand, Tunisia, Turkmenistan, Ukraine, Venezuela

Group C: Argentina, Brazil, Bulgaria, China, Costa Rica, Croatia, Kazakhstan, Malaysia, Mexico, Panama, Romania, Russian Federation, Turkey

Group D: Chile, Poland, Uruguay

Last Updated: Jul 16, 2018

Bank Guarantees are an effective instrument for mobilizing commercial financing for development purposes. As of 2019, 48 guarantee transactions utilizing $7.4 billion in IBRD/IDA commitments supported the mobilization of $30.2 billion of commercial financing plus $20 billion of public financing. Additionally, the World Bank approved 15 guarantees transactions utilizing $1.5 billion in IBRD/IDA commitments that are in final negotiations with private financiers. These 15 transactions are expected to mobilize $5.4 billion in commercial financing.