Policy-based Guarantees

A policy-based guarantee is a financial instrument through which the IDB commits to cover, in full or in part, specific payment obligations of a government or public entity toward private lenders or investors, in the event of a default. Unlike policy-based loans where the goal is to provide financing to a government or public entity to support a program of policy reforms, the goal of a policy-based guarantee is to reduce the risk for lenders when a government or public entity borrows from them to support its program of policy reforms.

A PBG therefore does not disburse upfront but rather mobilizes third-party financing by reducing the risk that private financiers face when lending to government or public entities, and it is issued as a direct result of the borrowing country fulfilling agreed policy reform actions.

In a PBG operation, the government commits to implementing a defined set of policy actions (reforms that the IDB and the country have jointly identified as critical for development). Once those reforms are carried out to the Bank's satisfaction, the IDB issues the guarantee, which then backs the government's debt obligations toward its creditors.

In addition, the borrowing country provides a sovereign counter-guarantee to the IDB. This structure allows countries to access better financing terms in capital markets (such as longer maturities or reduced borrowing costs) while the policy reform commitment ensures that the proceeds support the country's broader development agenda.

PBGs can support sovereign bond issuances or other government borrowing instruments. They are particularly well suited for programmatic reform engagements, where the IDB accompanies a country over time through a series of linked operations combining policy dialogue, technical support, and access to private financing.

Examples

    
PBG for bonds and loans: Bahamas - support a standard bond issuance for the blue economy (BH-U0001)

Thematic debt swaps:

Debt-for-Biodiversity Swap: Ecuador - Policy Reforms to Reinforce Financial and Environmental Sustainability (EC-U0007)

Debt-for-Nutrition Swap: Ecuador - Improvement for Child Nutrition (EC-U0008)

Debt-for-Water and Sanitation Swap: Barbados - Policy reforms to create fiscal space for climate and water Investments and Resilience (BA-U0002)

Debt for Nature Swap: Bahamas – Blue Economy (BH-U0002)