Highlights•••

For many IDA countries SDR credits create
extra currency risk and challenges inmanaging the liabilities.
In IDA 19, All IDA countries that receive IDA
concessional credits and non-concessionalloans are eligible for single-currency lending.
There is no separate process to request acredit in single currency. The borrowershould indicate the currency selected at loan
negotiation

IDA offers three main concessional financial instruments:
grants, credits, and guarantees. Terms such as charges andinterest rates, maturity structure, grace period and repayment
profile vary according to type of instrument and eligible
recipient. Before IDA18, IDA’s currency of commitment was theSpecial Drawing Rights (SDR), given that the currencycomposition of its primary source of funding (partnercontributions) closely reflects the composition of the SDRbasket. The SDR is not itself a currency that can be bought andsold in the financial markets. Its value is linked to that of abasket of currencies, currently US dollar, euro, pound sterling,Japanese yen and Chinese yuan. This means when IDA
recipients take IDA credits in SDR, they are effectively
borrowing in five different currencies.
While the SDR as a basket of currencies is less volatile than its
individual components, for many IDA countries SDR credits
create extra currency risk and challenges in managing theliabilities. This was supported by World Bank surveys oftreasury and debt management officials in IDA countries. In
response to client requests, IDA introduced the Single
Currency Lending pilot program in 2012 with the size of SDR 3billion. The program allowed IDA recipients to denominate
new credits in the four SDR constituent currencies, which were
US dollar, euro, pound sterling and Japanese yen. The program
was extended for three more years beginning April 2015 after
the expiry of the initial pilot period in December 2014. Startingfrom IDA18, IDA allows its clients to apply the concessionalborrowing in either SDR or the four SDR currencies (USD, EUR,JPY and GBP). The pilot program limit has been removed.

IDA Single Currency Concessional Lending Program

Eligibility
All IDA countries that receive IDA concessional credits and nonconcessional loans are eligible for single-currency lending.

Key Features
Single currency denominated concessional credits are similar
to SDR-denominated IDA concessional credits in almost all
aspects. The key differences are in the currency ofcommitment/repayment and the pricing.

Currency of Commitment/Repayment
For concessional credits denominated in a single currency,
when IDA borrowers choose the SDR constituent currency theywant to denominate their credit in (commitment currency),
they will automatically be obligated to repay IDA in the same
currency (payment currency). This is a change from the pastpractice in which recipients choose a payment currency duringnegotiation, and are informed by the Bank of the payment due(depending on prevailing exchange rates) on each billing date.

Pricing
Pricing of single currency denominated concessional credits is
set on a financial equivalence basis; i.e., at the time of thesetting of pricing, the recipient of the credit and IDA would be
financially indifferent to the denomination of the credit in
SDR or the single currency options. As a result, the nominal
level of service charges (and interest charges for countries on
blend terms) for a single currency denominated credit may
differ from a traditional SDR credit, and may also differ
between currencies. The difference between the traditional
SDR credit service charge and a service charge denominatedin single currency is called the basis adjustment. The basis
adjustment will vary depending on prevailing foreignexchange, interest rates, and type of credit. All theconcessional credits offered by IDA have fixed coupon.
The basis adjustments and the resulting service and interest
charges for each currency in the Single-Currency Lending
program are calculated and published every quarter (see IDA
lending rates). The service and fixed interest charges are fixed
for the life of each credit based on the prevailing publishedfigures at the time of credit approval by the Board of
Executive Directors.

Updated as of April 2021

Benefits
Borrowing in a single currency as opposed to a basket ofcurrencies can:a) Reduce currency exposure (particularly for countries withrevenues in one foreign currency or countries with local
currencies pegged to one of the SDR compositecurrencies);b) Provide an opportunity to better match the currency ofrevenues with debt;c) Offer the opportunity to benefit from currency
diversification;d) Create opportunities to hedge currency exposure (theliability stream of credit repayments on SDR credits isdifficult to hedge to a single currency because the SDR
composition is reset every five years by the IMF);e) Provide better matching of credit terms with project
expenditures (for SDR credits, project costs in

disbursement currencies may exceed the IDA-approved
SDR credit volume due to fluctuations in exchange rates
over the up to 10-year disbursement horizon on IDAcredits); andf) Simplify and strengthen the financial management ofdebt portfolios.

Process
There is no separate process to request a credit in single
currency. The borrower should indicate the currency selected
at loan negotiation.
The introduction of single-currency lending makes IDA
products more flexible and customer oriented, providing risk
mitigation benefits and contributing to the building of a client
country toolkit of instruments and options.

Contact: Miguel Navarro-Martin, Manager, Financial Products & Client Solutions, The World Bank Treasury
 mnavarromartin@worldbank.org  +1 (202) 458 4722
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.

IDA Single Currency Concessional Lending Program

Updated as of April 2021