World Bank gears up to launch debut debt-for-development swap, treasurer says

By Karin Strohecker

WASHINGTON (Reuters) – The World Bank will launch its first ever debt-for-development swap within weeks, its Vice President and Treasurer Jorge Familiar told Reuters, as the Washington-based lender expands its toolkit to help economies facing liquidity challenges.

World Bank President Ajay Banga announced in the run-up to the IMF and World Bank annual meetings underway in Washington that the lender was working with several countries on potential ways to re-profile debt to reduce servicing costs and help governments funnel funds into development, life and education projects.

“We are very close,” Familiar said on the sidelines of the annual meetings, declining to say which countries would benefit from the operation.

Debt swaps have become increasingly popular in recent years, especially those where funds saved are used for environmental projects, so-called debt-for-nature swaps. They generate those savings by buying up existing bonds or loans of a country which are then replaced with cheaper debt, usually with the help of a development bank.

While other development banks, such as the Inter-American Development Bank, have started getting involved in such transactions, the World Bank has so far stayed on the sidelines.

Familiar said the initiative was aimed at countries that faced a liquidity rather than a solvency crisis, and that had taken a series of measures towards debt sustainability but were still facing challenges.

“It can certainly be debt-for-nature, but it can also be debt-for-social-development, debt-for-education, debt for a series of relevant topics and relevant issues related to development,” he said.

The World Bank role is two-fold – facilitating raising financing at lower costs through guarantees, for example, but also keeping tabs on how the funds are being used.

“We will have an operation with World Bank supervision that will ensure that the savings are also going to that sector and are being used in the way intended,” he said.