## 041526-gsdr-lmo-manual - Section 1 and Section 2

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---

### Introduction
- Purpose: practical guidance for policymakers and debt managers on assessing feasibility and implementing liability management operations (LMOs) supported by credit enhancements (CEs).
- Nature: step-by-step practitioner’s manual drawing on lessons from recent LMOs and a survey on CE availability among major multilateral providers.
- Scope and status:
  - Intended to support decision-making, applied with country-specific considerations.
  - Published as a GSDR Cochairs document; non-binding and to be updated periodically.
- Definitions:
  - LMOs: market‑based transactions used to improve the cost‑risk profile of public debt, through exchanges, buybacks and similar operations.
  - CEs: third‑party instruments, usually provided by MDBs or bilateral creditors—such as guarantees or insurance—aimed at improving the terms of new debt instruments.

### Practical steps and high-level guidance
- Role of CEs:
  - Can compress borrowing costs, extend maturities, broaden or strengthen investor demand.
  - Impact varies with characteristics of repurchased debt and CE type.
  - Implementation is not automatic and entails costs and risks; thorough analysis required.
- Framework:
  - Decision/implementation framework summarized (Figure 1 referenced in source).

### Stage A – Strategic screening
- Objective: combine debt sustainability and macroeconomic adequacy assessment with a debt-portfolio review to decide if an LMO is warranted or requires further analysis.
- Key screening points:
  - First step: assess debt sustainability and adequacy of macroeconomic policy framework (Q1).
  - LMOs generally not appropriate when a comprehensive debt restructuring is needed to restore sustainability.
  - CE eligibility: often restricted to countries meeting credit or DSA criteria and credible macroeconomic frameworks.
  - Distressed scenarios: LMOs in distress may trigger rating action (see Annex 1). Exception: prepaying instruments that could delay or complicate future restructurings (Q3).
- Liquidity vs solvency rationale:
  - When liquidity (not solvency) is the main concern, CE‑supported LMOs can be effective—e.g., addressing roll‑over risk or debt service spikes (Q2).
  - Opportunistic use: remove problematic legal/financial instruments (Q3) or take advantage of favorable CE terms vs existing loans (Q4) or bonds (Q5).
- Operational note:
  - Instrument-by-instrument analysis of the debt portfolio is crucial.
  - WB or financial advisors can assist technical identification of high‑potential instruments.
- Decision rule:
  - Existence of at least one strong rationale may justify advancing to Stage B.

### Stage B – Cost/Benefit quantification and feasibility
- Purpose: assess CE availability and quantify financial and operational implications; test feasibility via initial market sounding (Q6, Q9).
- CE availability:
  - CEs typically provided by official sector creditors; many MDBs offer CE products with varying conditions (Annex 2 survey results referenced).
  - MDBs typically impose regional, risk, or income‑based eligibility criteria.
  - CE providers may restrict use of proceeds (e.g., support for LMOs, refinancing, debt‑for‑development swaps).
  - Providers may set guidelines on currency selection and instrument types—address early.
- Direct savings requirement:
  - Fundamental prerequisite: LMO must generate direct savings in both nominal terms and net present value (NPV) terms (Q7).
  - Practical calculation steps:
    - Calculate cash flows (principal, interest, fees/commissions) for both existing and new (guaranteed) debt in a consistent currency.
    - Nominal savings = difference in total debt service over a limited time horizon (such as 3 or 5 years) to mitigate time-distribution effects.
    - NPV savings = discount each cash‑flow stream using the sovereign yield curve relevant to each instrument’s duration.
    - If reliable market benchmarks unavailable, a single discount rate (e.g., the marginal cost of borrowing) may be applied to both streams.
  - Constraint: Any LMOs must be at least NPV neutral.
- Indirect costs and benefits to estimate (Q8):
  - Alignment with debt management strategy: ensure LMO supports—not undermines—medium‑term debt strategy and market development objectives (e.g., share of domestic vs. external debt, development of liquid domestic market).
  - Risk of rating action: LMO can reduce refinancing risk and borrowing costs but may be viewed negatively if perceived as distressed by CRAs—early communication with CRAs important (Annex 1).
  - CEs’ opportunity cost: use of MDB capped country allocations entails opportunity cost; compare displaced alternatives (e.g., policy lending or investment projects). Leveraged operations (such as the WB’s PBG accounting up to 1:4 on the country allocation) can reduce but not eliminate opportunity cost.
  - DSA impact: simulate transaction’s impact on the DSA by comparing projected cash flows of old vs new debt, with emphasis on liquidity thresholds; critical when swapping domestic debt with external debt.
  - Change in seniority: consider implications on credit seniority if CE is called, including possible reduction of restructurable perimeter (guaranteed portion may displace debt available for restructuring).
- Market testing and advisory support:
  - Confirm funding assumptions through initial market sounding (Q9).
  - Engage potential investors early to minimize execution risk and retain flexibility to postpone or cancel if conditions unfavorable.
  - CE providers or the DMO’s financial advisor typically best positioned to connect with final investors.
  - Advisory services:
    - Financial advisors leverage investor and CE provider relationships to optimize cost and risk.
    - Legal advisors provide critical guidance; ensure ad‑hoc mandates follow transparent criteria.
  - Note: private foundations or philanthropies may be potential funders for D4Ds.

### Stage C – Execution
- Goal: implement LMO—transaction design, advisor and creditor engagement, launch and completion, coordination, communication, risk management.
- Launch process:
  - First step: launch a Request for Proposals (RfP) among multiple potential investors for the new financing (range of 10/12, typically large international commercial banks or institutional investors/asset managers).
  - Competitive process usually managed by the DMO or its financial advisor to achieve optimal pricing and terms.
  - Regular engagement (including non‑deal roadshows) helps identify potential investors.
  - Borrower must develop a clear narrative explaining how the transaction fits debt strategy and strengthens the issuer’s credit profile.
- Term sheet and transaction parameters:
  - Key terms typically include: size of financing, tenor, base rate (fixed or floating) currencies, CE’s coverage level, pricing, and legal/regulatory constraints.
  - Maintain flexibility on some terms (e.g., currency or base rate options) but avoid leaving too many variables open.
  - CE legal structure must be specified upfront—ambiguity increases pricing.
- Information sharing during RfP:
  - Design Q&A and investor relations strategy to provide timely clarifications.
  - Prevent misunderstandings that could delay execution.
- Selection process:
  - Structured, typically two‑step: shortlist top 2‑3 bidders into a second round.
  - Process length: typically can be completed within approximately four weeks, end to end.
  - Offer validity: pricing and terms usually valid for 90 days.
- Offer evaluation:
  - Selection based on “all‑in” cost analysis to compare offers accurately.
  - Use spread compression relative to unguaranteed yield as a useful metric.
  - Include non‑price considerations: execution capability, transaction track record, jurisdiction experience.
- Contractual scrutiny and underwriting clarity:
  - Scrutinise clauses that allow investors to change price/terms post‑selection (e.g., “market flex” clauses).
  - Clarify banks’ underwriting strategy: percentage underwritten, hold levels, expected syndication strategy, whether pricing is “subject to syndication” or on “best efforts” basis.
- Execution mechanics:
  - New funds used to repay maturities or implement LMOs targeting bonds or loans.
  - Loan prepayment: operationally straightforward—notify creditor; amount includes outstanding balance, prepayment fees, accrued interest.
  - Bond buybacks or switches: reverse auctions or tender offers most common; standing offers or bookbuilding also used.
  - Reverse auctions: issuer announces intention to buy, sets target (amount, eligible bonds, price caps, single vs multiple price), market participants bid.
  - Market reaction: markets may move unfavorably after announcement; final buyback price may be at a premium to prevailing secondary market levels and depends on targeted amount.
- Reporting and transparency:
  - Required budget provisions and proper debt recording should ensure transparency and compliance with domestic and international accounting and reporting standards.
  - Any indemnity agreement signed as part of the CE should be reported publicly.
- Strategic caveat:
  - CE‑backed LMOs are powerful when well designed and anchored in a credible macroeconomic and debt management framework, but are not suitable in all cases—use selectively, transparently, and based on rigorous analysis.

### Annex 1 – Information sharing and dialogue with credit rating agencies (CRAs)
- CRAs and LMOs:
  - LMOs, with or without CE, can support CRAs’ ratings if conducted transparently within a credible strategy as part of active debt management.
  - CRAs typically deem an LMO or exchange “distressed” when it signals the sovereign cannot or would not meet its original obligations and when creditors receive reduced value compared to original terms.
  - Methodological differences exist across CRAs (table referenced in source).
- CRAs’ indicative criteria (as summarized from CRAs):
  - S&P:
    - An exchange is distressed when, in the absence of such an exchange, the issuer is likely to default in a conventional manner.
    - When investors receive less value than originally promised, including if coupons appear lower or maturities longer.
    - Evidence of financing pressure or lack of market access.
    - Exchange appears forced or motivated by upcoming maturities the sovereign cannot meet.
    - Classified as a Selective Default (SD) until future payments normalize.
    - Local or Foreign Currency CY or FCY ratings may be temporarily set to SD.
  - Moody’s:
    - An exchange is distressed when it results in diminished value relative to the debt obligation’s original promise for creditors; and has the effect of allowing the issuer to avoid a likely eventual default, for instance amid liquidity or solvency stress.
    - Sovereign faces heightened liquidity or solvency pressures, typically indicated by elevated yield levels or a low rating level.
    - Market access is limited or has deteriorated; high rollover risk.
    - Exchange part of a broader restructuring or undertaken near payment deadlines.
    - Typically classified as an event of default under Moody’s definitions once exchange is completed.
  - Fitch:
    - There is a material reduction in terms; and material reduction in terms: principal, interest, maturity, currency, payment form, or coercive indenture amendments.
    - Whether non-participating creditors continue to be serviced on original terms.
    - Maturity profile, volume, and price of debt exchanged.
    - Whether the sovereign could have met original obligations without the exchange.
    - The exchange is designed to avoid a traditional payment default.
    - Leads to a Restricted Default (RD) rating. A forward-looking rating based on credit fundamentals is applied once the exchange is concluded.
  - Footnote: "Unless it can be clearly shown that creditors would likely be indifferent between the old and new terms."

- Engagement best practices:
  - Proactive engagement can help clarify considerations and avoid distressed exchange classifications.
  - Early, transparent engagement with CRAs should include:
    - Clear articulation of policy rationale.
    - Evidence of continued market access or alternative financing.
    - Transaction design avoiding coercive features.
    - Timely cost‑risk analysis, DSA implications, and investor‑feedback to reinforce non‑emergency nature.
  - Treat CRAs as key stakeholders via regular updates and prompt responses to data requests to reduce risk of unexpected outcomes.

### Annex 2 – Mapping of existing CEs by MDBs (Dimensions for Country Authorities to Check)
- Note: TO BE FURTHER COMPLETED BASED ON ADDITIONAL SURVEY RESULTS
- Survey timing: Credit enhancement survey carried out among IFIs and bilateral creditors in February-March 2026.

- Dimension 1. Eligibility & Macroeconomic Conditions
  - Checklist for authorities:
    - Does my country meet general eligibility requirements?
    - Does my country meet risk requirements?
  - MDB summaries:
    - ADB: Developing member country (DMC) of ADB; Debt sustainability assessed during processing.
    - AfDB: Partial Credit Guarantee available to all regional member countries depending on DSA rating.
    - AIIB: Partial Debt Guarantee available to all AIIB members.
    - IDB: Policy Based Guarantee (PBG) available to all borrowing IDB member countries.
    - WB: Policy-Based Guarantee (PBG) available to eligible IBRD/IDA borrowers; Requires moderate risk rating under DSA.

- Dimension 2. Opportunity Cost & Leverage
  - Checklist for authorities:
    - Does the guarantee use country allocation or other scarce capacity?
    - Can allocation be leveraged (e.g., 1:4)?
  - MDB summaries:
    - ADB: Uses country allocation. $1 of allocation can support up to $4 of guarantee for ADF.
    - AfDB: Uses country allocation. $1 of allocation can support $1 of guarantee.
    - AIIB: Uses country allocation. $1 of allocation can support up to $4 of guarantee.

- Dimension 3. Indemnity & Fiscal Implications
  - Checklist for authorities:
    - Is a sovereign counter-guarantee or indemnity agreement required?
  - MDB summaries:
    - ADB: Optional sovereign indemnity agreement.
    - AfDB: Requires sovereign indemnity agreement.
    - AIIB: Requires sovereign indemnity agreement.
    - IDB: Requires sovereign indemnity agreement.
    - WB: Requires sovereign indemnity agreement.

- Dimension 4. Risk Coverage & Structure
  - Checklist for authorities:
    - What risk is covered?
    - Is coverage partial or full?
  - MDB summaries:
    - ADB: Non-payment risk and political risks; Up to 100% coverage.
    - AfDB: Non-payment risk; Partial coverage (no min or max).
    - AIIB: Non-payment risk; Up to 100% coverage.
    - IDB: Covers non-payment risk; Partial coverage (no min or max).
    - WB: Non-payment risk; Partial coverage (40 - 60%).

- Dimension 5. Eligible Instruments & Currency
  - Checklist for authorities:
    - Can the guarantee apply to FX bonds, loans, or local currency instruments?
  - MDB summaries:
    - ADB: Either local currency or FX-denominated loans or bonds.
    - AfDB: Either local currency or FX-denominated loans or bonds.
    - AIIB: Either local currency or FX-denominated loans or bonds.
    - IDB: Either local currency or FX-denominated loans or bonds.
    - WB: Typically FX-denominated instruments.

- Dimension 6. Pricing & Timeline
  - Checklist for authorities:
    - How are fees determined (rating, tenor, size)?
    - What is the expected approval timeline?
  - MDB summaries:
    - ADB: With counter-indemnity: policy-based pricing. No counter-indemnity: based on credit risk. Timeline varies.
    - AfDB: Guarantee Fee = Lending Margin for AfDB and Service Charge for ADF. Typically ~9 months.
    - AIIB: With sovereign indemnity: AIIB pricing policy and decision. Typically ~6 months.
    - IDB: Flat fee. On average, a range between 9-24 months (timelines vary widely).
    - WB: Fees based on IDA/IBRD pricing framework. Typically ~6 months.

_Source: 041526-gsdr-lmo-manual - Section 1 and Section 2_

### Section 1

### 041526-gsdr-lmo-manual - Section 1

### Introduction
- Purpose: practical guidance for policymakers and debt managers on assessing feasibility and implementing liability management operations (LMOs) supported by credit enhancements (CEs).
- Nature: step-by-step practitioner’s manual drawing on lessons from recent LMOs and a survey on CE availability among major multilateral providers.
- Scope and status:
  - Intended to support decision-making, applied with country-specific considerations.
  - Published as a GSDR Cochairs document; non-binding and to be updated periodically.
- Definitions:
  - LMOs: market‑based transactions used to improve the cost‑risk profile of public debt, through exchanges, buybacks and similar operations.
  - CEs: third‑party instruments, usually provided by MDBs or bilateral creditors—such as guarantees or insurance—aimed at improving the terms of new debt instruments.

### Practical steps and high-level guidance
- Role of CEs:
  - Can compress borrowing costs, extend maturities, broaden or strengthen investor demand.
  - Impact varies with characteristics of repurchased debt and CE type.
  - Implementation is not automatic and entails costs and risks; thorough analysis required.
- Framework:
  - Figure 1 summarises key decision and implementation steps (decision/implementation framework).

### Stage A – Strategic screening
- Objective: combine debt sustainability and macroeconomic adequacy assessment with a debt-portfolio review to decide if an LMO is warranted or requires further analysis.
- Key screening points:
  - First step: assess debt sustainability and adequacy of macroeconomic policy framework (Q1).
  - LMOs generally not appropriate when a comprehensive debt restructuring is needed to restore sustainability.
  - CE eligibility: often restricted to countries meeting credit or DSA criteria and credible macroeconomic frameworks.
  - Distressed scenarios: LMOs in distress may trigger rating action (see Annex 1). Exception: prepaying instruments that could delay or complicate future restructurings (Q3).
- Liquidity vs solvency rationale:
  - When liquidity (not solvency) is the main concern, CE‑supported LMOs can be effective—e.g., addressing roll‑over risk or debt service spikes (Q2).
  - Opportunistic use: remove problematic legal/financial instruments (Q3) or take advantage of favorable CE terms vs existing loans (Q4) or bonds (Q5).
- Operational note:
  - Instrument-by-instrument analysis of the debt portfolio is crucial.
  - WB or financial advisors can assist technical identification of high‑potential instruments.
- Decision rule:
  - Existence of at least one strong rationale may justify advancing to Stage B.

### Stage B – Cost/Benefit quantification and feasibility
- Purpose: assess CE availability and quantify financial and operational implications; test feasibility via initial market sounding (Q6, Q9).
- CE availability:
  - CEs typically provided by official sector creditors; many MDBs offer CE products with varying conditions (Annex 2 survey results referenced).
  - MDBs typically impose regional, risk, or income‑based eligibility criteria.
  - CE providers may restrict use of proceeds (e.g., support for LMOs, refinancing, debt‑for‑development swaps).
  - Providers may set guidelines on currency selection and instrument types—address early.
- Direct savings requirement:
  - Fundamental prerequisite: LMO must generate direct savings in both nominal terms and net present value (NPV) terms (Q7).
  - Practical calculation steps:
    - Calculate cash flows (principal, interest, fees/commissions) for both existing and new (guaranteed) debt in a consistent currency.
    - Nominal savings = difference in total debt service over a limited time horizon (such as 3 or 5 years) to mitigate time-distribution effects.
    - NPV savings = discount each cash‑flow stream using the sovereign yield curve relevant to each instrument’s duration.
    - If reliable market benchmarks unavailable, a single discount rate (e.g., the marginal cost of borrowing) may be applied to both streams.
  - Constraint: Any LMOs must be at least NPV neutral.
- Indirect costs and benefits to estimate (Q8):
  1. Alignment with debt management strategy: ensure LMO supports—not undermines—medium‑term debt strategy and market development objectives (e.g., share of domestic vs. external debt, development of liquid domestic market).
  2. Risk of rating action: LMO can reduce refinancing risk and borrowing costs but may be viewed negatively if perceived as distressed by CRAs—early communication with CRAs important (Annex 1).
  3. CEs’ opportunity cost: use of MDB capped country allocations entails opportunity cost; compare displaced alternatives (e.g., policy lending or investment projects). Leveraged operations (such as the WB’s PBG accounting up to 1:4 on the country allocation) can reduce but not eliminate opportunity cost.
  4. DSA impact: simulate transaction’s impact on the DSA by comparing projected cash flows of old vs new debt, with emphasis on liquidity thresholds; critical when swapping domestic debt with external debt.
  5. Change in seniority: consider implications on credit seniority if CE is called, including possible reduction of restructurable perimeter (guaranteed portion may displace debt available for restructuring).
- Market testing and advisory support:
  - Confirm funding assumptions through initial market sounding (Q9).
  - Engage potential investors early to minimize execution risk and retain flexibility to postpone or cancel if conditions unfavorable.
  - CE providers or the DMO’s financial advisor typically best positioned to connect with final investors.
  - Advisory services:
    - Financial advisors leverage investor and CE provider relationships to optimize cost and risk.
    - Legal advisors provide critical guidance; ensure ad‑hoc mandates follow transparent criteria.
  - Note: private foundations or philanthropies may be potential funders for D4Ds.

### Stage C – Execution
- Goal: implement LMO—transaction design, advisor and creditor engagement, launch and completion, coordination, communication, risk management.
- Launch process:
  - First step: launch a Request for Proposals (RfP) among multiple potential investors for the new financing (range of 10/12, typically large international commercial banks or institutional investors/asset managers).
  - Competitive process usually managed by the DMO or its financial advisor to achieve optimal pricing and terms.
  - Regular engagement (including non‑deal roadshows) helps identify potential investors.
  - Borrower must develop a clear narrative explaining how the transaction fits debt strategy and strengthens the issuer’s credit profile.
- Term sheet and transaction parameters:
  - Key terms typically include: size of financing, tenor, base rate (fixed or floating) currencies, CE’s coverage level, pricing, and legal/regulatory constraints.
  - Maintain flexibility on some terms (e.g., currency or base rate options) but avoid leaving too many variables open.
  - CE legal structure must be specified upfront—ambiguity increases pricing.
- Information sharing during RfP:
  - Design Q&A and investor relations strategy to provide timely clarifications.
  - Prevent misunderstandings that could delay execution.
- Selection process:
  - Structured, typically two‑step: shortlist top 2‑3 bidders into a second round.
  - Process length: typically can be completed within approximately four weeks, end to end.
  - Offer validity: pricing and terms usually valid for 90 days.
- Offer evaluation:
  - Selection based on “all‑in” cost analysis to compare offers accurately.
  - Use spread compression relative to unguaranteed yield as a useful metric.
  - Include non‑price considerations: execution capability, transaction track record, jurisdiction experience.
- Contractual scrutiny and underwriting clarity:
  - Scrutinise clauses that allow investors to change price/terms post‑selection (e.g., “market flex” clauses).
  - Clarify banks’ underwriting strategy: percentage underwritten, hold levels, expected syndication strategy, whether pricing is “subject to syndication” or on “best efforts” basis.
- Execution mechanics:
  - New funds used to repay maturities or implement LMOs targeting bonds or loans.
  - Loan prepayment: operationally straightforward—notify creditor; amount includes outstanding balance, prepayment fees, accrued interest.
  - Bond buybacks or switches: reverse auctions or tender offers most common; standing offers or bookbuilding also used.
  - Reverse auctions: issuer announces intention to buy, sets target (amount, eligible bonds, price caps, single vs multiple price), market participants bid.
  - Market reaction: markets may move unfavorably after announcement; final buyback price may be at a premium to prevailing secondary market levels and depends on targeted amount.
- Reporting and transparency:
  - Required budget provisions and proper debt recording should ensure transparency and compliance with domestic and international accounting and reporting standards.
  - Any indemnity agreement signed as part of the CE should be reported publicly.
- Strategic caveat:
  - CE‑backed LMOs are powerful when well designed and anchored in a credible macroeconomic and debt management framework, but are not suitable in all cases—use selectively, transparently, and based on rigorous analysis.

### Annex 1 – Information sharing and dialogue with credit rating agencies (CRAs)
- CRAs and LMOs:
  - LMOs, with or without CE, can support CRAs’ ratings if conducted transparently within a credible strategy as part of active debt management.
  - CRAs typically deem an LMO or exchange “distressed” when it signals the sovereign cannot or would not meet its original obligations and when creditors receive reduced value compared to original terms.
  - Methodological differences exist across CRAs (see table referenced in source).
- Engagement best practices:
  - Proactive engagement can help clarify considerations and avoid distressed exchange classifications.
  - Early, transparent engagement with CRAs should include:
    - Clear articulation of policy rationale.
    - Evidence of continued market access or alternative financing.
    - Transaction design avoiding coercive features.
    - Timely cost‑risk analysis, DSA implications, and investor‑feedback to reinforce non‑emergency nature.
  - Treat CRAs as key stakeholders via regular updates and prompt responses to data requests to reduce risk of unexpected outcomes.

*Source: 041526-gsdr-lmo-manual - Section 1*

### Section 2

### CRA Core Criteria - Distressed Exchange

### Definitions and Key Indicators (CRAs)
- S&P
  - An exchange is distressed when , in the absence of such an exchange, the issuer is likely to default in a conventional manner. and
  - When investors receive less value than originally promised, including if coupons appear lower or maturities longer.
  - Evidence of financing pressure or lack of market access.
  - Exchange appears forced or motivated by upcoming maturities the sovereign cannot meet.
  - Economic loss to creditors.
  - Unclear alignment with market pricing.
  - Classified as a Selective Default (SD) until future payments normalize.
  - Local or Foreign Currency CY or FCY ratings may be temporarily set to SD.

- Moody’s
  - An exchange is distressed when it results in diminished value relative to the debt obligation’s original promise for creditors; and
  - has the effect of allowing the issuer to avoid a likely eventual default, for instance amid liquidity or solvency stress.
  - Sovereign faces heightened liquidity or solvency pressures, typically indicated by elevated yield levels or a low rating level.
  - Market access is limited or has deteriorated; high rollover risk.
  - Exchange part of a broader restructuring or undertaken near payment deadlines.
  - Typically classified as an event of default under Moody’s definitions once exchange is completed.

- Fitch
  - There is a material reduction in terms14; and
  - Material reduction in terms: principal, interest, maturity, currency, payment form, or coercive indenture amendments
  - Whether non-participating creditors continue to be serviced on original terms
  - Maturity profile, volume, and price of debt exchanged
  - Whether the sovereign could have met original obligations without the exchange
  - The exchange is designed to avoid a traditional payment default.
  - Leads to a Restricted Default (RD) rating. A forward-looking rating based on credit fundamentals is applied once the exchange is concluded.

- Footnote
  - 14 Unless it can be clearly shown that creditors would likely be indifferent between the old and new terms.

- Source note
  - Source: CRAs’ websites

### ANNEX 2 – Mapping of existing CEs by MDBs (Dimensions for Country Authorities to Check)
- Note: TO BE FURTHER COMPLETED BASED ON ADDITIONAL SURVEY RESULTS

- Dimension 1. Eligibility & Macroeconomic Conditions
  - What Should Country Authorities Check?
    - Does my country meet general eligibility requirements?
    - Does my country meet risk requirements?
  - ADB - Credit Enhancement Products
    - Developing member country (DMC) of ADB
    - Debt sustainability assessed during processing
  - AfDB – Partial Credit Guarantee
    - All regional member countries depending on DSA rating
  - AIIB – Partial Debt Guarantee
    - All AIIB members are eligible.
  - IDB – Policy Based Guarantee (PBG)
    - All borrowing IDB member countries are eligible,
  - WB – Policy-Based Guarantee (PBG)
    - Available to eligible IBRD/IDA borrowers.
    - Requires moderate risk rating under DSA

- Dimension 2. Opportunity Cost & Leverage
  - What Should Country Authorities Check?
    - Does the guarantee use country allocation or other scarce capacity?
    - Can allocation be leveraged (e.g., 1:4)?
  - ADB
    - Uses country allocation.
    - $1 of allocation can support up to $4 of guarantee for ADF.
  - AfDB
    - Uses country allocation.
    - $1 of allocation can support $1 of guarantee.
  - AIIB
    - Uses country allocation.
    - $1 of allocation can support up to $4 of guarantee.

- Dimension 3. Indemnity & Fiscal Implications
  - What Should Country Authorities Check?
    - Is a sovereign counter-guarantee or indemnity agreement required?
  - ADB
    - Optional sovereign indemnity agreement.
  - AfDB
    - Requires sovereign indemnity agreement.
  - AIIB
    - Requires sovereign indemnity agreement.
  - IDB
    - Requires sovereign indemnity agreement.
  - WB
    - Requires sovereign indemnity agreement.

- Dimension 4. Risk Coverage & Structure
  - What Should Country Authorities Check?
    - What risk is covered?
    - Is coverage partial or full?
  - ADB
    - Non-payment risk and political risks
    - Up to 100% coverage.
  - AfDB
    - Non-payment risk.
    - Partial coverage (no min or max).
  - AIIB
    - Non-payment risk.
    - Up to 100% coverage.
  - IDB
    - Covers non-payment risk.
    - Partial coverage (no min or max).
  - WB
    - Non-payment risk.
    - Partial coverage (40 - 60%).

- Dimension 5. Eligible Instruments & Currency
  - What Should Country Authorities Check?
    - Can the guarantee apply to FX bonds, loans, or local currency instruments?
  - ADB
    - Either local currency or FX-denominated loans or bonds.
  - AfDB
    - Either local currency or FX-denominated loans or bonds.
  - AIIB
    - Either local currency or FX-denominated loans or bonds.
  - IDB
    - Either local currency or FX-denominated loans or bonds.
  - WB
    - Typically FX-denominated instruments.

- Dimension 6. Pricing & Timeline
  - What Should Country Authorities Check?
    - How are fees determined (rating, tenor, size)?
    - What is the expected approval timeline?
  - ADB
    - With counter-indemnity: policy-based pricing. No counter- indemnity: based on credit risk.
    - Timeline varies.
  - AfDB
    - Guarantee Fee = Lending Margin for AfDB and Service Charge for ADF
    - Typically ~9 months.
  - AIIB
    - With sovereign indemnity: AIIB pricing policy and decision.
    - Typically ~6 months.
  - IDB
    - Flat fee.
    - On average, a range between 9-24 months (timelines vary widely)
  - WB
    - Fees based on IDA/IBRD pricing framework.
    - Typically ~6 months.

- Source note
  - Source: Credit enhancement survey carried out among IFIs and bilateral creditors in February-March 2026.

*041526-gsdr-lmo-manual - Section 2*

---


_Source: https://www.imf.org/-/media/files/about/faq/gsdr/041526-gsdr-lmo-manual.pdf_