"Why did the World Bank issue a policy-based guarantee to Ghana?"

" Why did the World Bank issue a policy-based guarantee to Ghana? \r\n\r\nIn 2015, Ghana was facing difficult market conditions. It had large financing needs, high debt levels that were maturing soon, and no access to international financial markets.\r\n\r\nRefinancing deadlines, extending debt maturities to reduce fiscal pressure, and smoothing out its debt service profile were priorities for Ghana in 2015. Ghana\u2019s Ministry of Finance sought help from the World Bank to meet these goals, and requested a policy-based guarantee in combination with a credit from the International Development Association (IDA \u2013 The World Bank\u2019s fund for the poorest countries), to be able to mobilize the volume of financing needed to settle upcoming debt repayments.\r\n\r\nA policy-based guarantee is an instrument that allows a country to raise money by mitigating the risk for bond investors or commercial lenders in case of potential debt service payment defaults. In this case, Ghana issued a $1 billion Eurobond series due in 2030. The 2030 Eurobond was backed by IDA's guarantee covering up to $400 million in both principal and interest.\u00a0 Since then, Ghana has bought back and canceled $70 million of the 2030 Eurobond, reducing the amount of the guarantee to $372 million.\r\n\r\nGhana\u00a0 applied the proceeds \u00a0of the 2030 Eurobond issuance to refinance existing debt that had an interest rate of 25% to a lower rate of 10.75%. In addition, the maturity of the existing debt \u2013 which was between 90 days and two years \u2013 was increased to 15 years on average.\r\n\r\n What is the current situation in Ghana? \r\n\r\nDuring the COVID-19 pandemic, Ghana\u2019s public debt increased significantly, leading to credit rating downgrades, the exit of non-resident investors from the domestic bond market, and ultimately Ghana\u2019s loss of access to international capital markets. These adverse developments, further exacerbated by price and supply-chain shocks from Russia\u2019s invasion of Ukraine, have led to a large exchange rate depreciation, a surge in inflation, and pressure on foreign exchange reserves.\r\n\r\nOn December 19, 2022, faced with major economic, financial, and social pressures\u00a0 Ghana\u2019s Ministry of Finance declared \u00a0a moratorium on debt service payments under certain categories of its external debt, such as Eurobonds. Soon after, it restructured the bulk of its domestic debt and requested debt treatment under the G20 Common Framework.\r\n\r\n What has been the IMF\u2019s response?\u00a0 \r\n\r\nYou can learn more about the IMF\u2019s response here:\u00a0\u00a0 Key Questions on Ghana \r\n\r\n What is happening with the policy-based guarantee in light of the current debt situation in Ghana? \r\n\r\nAs a result of\u00a0 Ghana\u2019s debt moratorium , which the government declared on December 19, 2022, Ghana did not make its coupon payment due on April 14, 2023 under the 2030 Eurobond. On April 18, 2023, the World Bank received a demand for payment under the policy-based guarantee on behalf of the holders of the 2030 Eurobond. IDA will honor its contractual obligations under the policy-based guarantee.\r\n\r\n "

"Why did the World Bank issue a policy-based guarantee to Ghana?"

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