Guarantees

African Development Fund Partial Risk Guarantee

As a means of stimulating additional private sector investments in low income countries, the African Development Fund (ADF) introduced the Partial Risk Guarantee (ADF-PRG) instrument as part of the Twelfth General Replenishment of the ADF (ADF-12) to do two things. First, to leverage resources from the private sector and other co-financiers for ADF countries, including fragile states. Second, to incentivize governments to undertake policy and fiscal reforms necessary to mitigate performance-related risks.  The ADF-PRG insulates private lenders against well-defined political risks related to the failure of a government or a government-related entity to honor certain specified commitments.  Such risks could include political force majeure, currency inconvertibility, regulatory risks (adverse changes in law), and various forms of breach of contract.  It is a leveraged instrument that consumes only a fraction of the country’s Performance Based Allocation (PBA) but requires a counter-indemnity from the beneficiary member country, in which the country agrees to reimburse the Fund for any amount paid under the guarantee.

African Development Fund Partial Credit Guarantee

Starting with ADF-13, Partial Credit Guarantees (PCGs) have been added to the suite of ADF instruments.  The ADF PCG is an instrument designed to address the challenges faced by ADF countries that are performing well economically and State Owned Enterprises in their quest to mobilize both domestic and external commercial financing for developmental purposes.  The product serves to partially guarantee debt service obligations of low income countries (LICs) and well performing State Owned Enterprises in LICs.  Similarly,  to the ADF PRG, the ADF PCG is leveraged four times (4x) and therefore allows well performing LICs and SOEs to catalyze more financing at more attractive terms to finance their development needs.  ADF countries are eligible for PCGs only if they are classified as countries with low risk of debt distress (green light countries based on the World Bank / IMF Debt Sustainability Framework traffic light country classification) and deemed to have adequate debt management capacity.  Subject to meeting some defined stringent eligibility criteria, the ADF PCG will also be available to SOEs in ADF countries with low to moderate risk of debt distress (green and yellow light countries, respectively, based on the World Bank / IMF Debt Sustainability Framework traffic light country classification).  The ADF PCG also requires a counter-indemnity from the beneficiary member country in which the country agrees to reimburse the Fund for any amount paid under the guarantee.

Contact: ftry4@afdb.org