CASE STUDY

Tanzania Leverages New IDA Financial Productto Maximize Savings
Tanzania secured the largest World Bank
policy loan in the country’s history to foster
inclusive and resilient growth. The $500
million financing leverages International
Development Association’s (IDA’s) new
highly concessional product – the Shorter
Maturity Loan – and blends it with a regular
IDA Scale-Up Window loan, which is onmarket-based terms. The blended package
will save Tanzania almost $1 in interest
cost 1 for every $3 it borrows.

$500 Million Financing Needed toSupport Tanzania’s Economic Recovery

Following a long stretch of high growth andmacroeconomic stability, Tanzania graduated fromlower-income to lower-middle-income country status
in July 2020.
In recent years, however, the country has been facingsome strong headwinds: stagnant poverty,
decelerating private investment, and vulnerability tofiscal shocks, which were further aggravated due tothe pandemic and the war in Ukraine.
To support Tanzania's efforts to put the country backon its rapid growth trajectory, the World Bank
prepared the $500 million Inclusive and Resilient
Growth Development Policy Operation. This was thefirst policy loan in eight years that Tanzania took on
from the World Bank. The loan will support Tanzania
in (i) improving the business environment; (ii)strengthening public sector transparency and fiscal
risk management; and (iii) boosting economic
resilience.

Country Limits Allow for $250 Million at
0 Percent Cost with New ProductWith a frontloaded ambitious reform program
Tanzania had already taken on, the country alreadyallocated regular IDA funding across various
investment projects. To avoid crowding out those1The estimated savings on interest costs is based on blending the $250 million SML and $250 million SUW instead of the original conceptof taking all $500 million as an SUW loan. The calculation is based onPhoto Credit by Paul Hampton Adobe StockPhotoprojects, the authorities opted to use additional
resources that come with the IDA Scale-Up Window.
Due to World Bank’s pre-defined country limits, the$250 million portion of the financing could be fully
concessional with 0 percent interest cost under theShorter Maturity Loan. For the remaining portion,Tanzania would utilize the regular Scale-Up Windowloan. This loan product, which has market-based
pricing and is semi-concessional, and had not beenused by Tanzania for a very long time.

Financial Objective: Smart Borrowing••Max out the full range of concessional financing
available from IDA
Minimize the cost of borrowing for Tanzania

Tanzania potentially saves $1 in interest
cost for every $3 it borrows

World Bank Treasury structured a $500 million
blended package, combining the new IDA Shorter
Maturity Loan (SML) with a regular IDA Scale-Up
Window (SUW) loan.
The blended package maximized the availableconcessional loans from the World Bank for Tanzania
in the form of the $250 million SML and, whencombined with the IDA SUW loan, allowed thegovernment to meet its $500 million externalfinancing goal. This blending minimized the all-in
market data in mid-November 2022 when the loan was negotiatedand assumes the SUW loan was a fixed rate with a variable spread.

CASE STUDY
cost, saving Tanzania $150 million over the life of theloan. Another benefit of this solution was to tailor theloans to fit Tanzania’s debt profile. As regular SUWloans can be customized, this solution pushed out
the principal repayments by extending the SUW
grace period to a point when the SML principal
repayments will be winding down, thus smoothingout these payments over a long period.

World Bank Treasury's Role

• Analyzed Tanzania's overall debt profile tounderstand its debt management constraints andobjectives and engaged extensively with theTanzania Debt Management Office on all IDA
financial terms and conditions.
• Provided financial scenarios for blending the SMLand SUW, engaging extensively with the debtmanagement office in Tanzania to ensure theblended financing package met the government's
fiscal and debt needs.
• Structured the $500 million blended financing
package from two different funding sources tosignificantly lower the overall cost.
• Customized the regular SUW loan terms toprovide for a long grace period (10 years) thatpushed out the principal repayments.
• Advised the Government and World Bank
project team throughout the loan negotiation cycle
to enable timely delivery of the project to the WorldBank Board and the client.

Summary of Financial Terms
SUW-SML

Regular SUW$250 mil.

$250 mil.

12 Y final maturity

25 Y final maturity

Grace period

6Y10 YAmortization

Level

Level

Interest Rate

06 Month SOFR + Variable
Spread 2Fees

00.25% Front-End Fee +0.25% Commitment Fee

AmountTerm

The new IDA20 Shorter Maturity Loan (SML)The SML is a new concessional IDA loan unique toIDA20. The SML is offered within the Performance
Based Allocation (PBA) and Scale-Up Window. It is
designed to help eligible IDA countries meetheightened external financing needs in theaftermath of COVID-19 by securing a highervolume of IDA concessional resources than aborrower would otherwise receive via thetraditional PBA system prior to IDA20.
The SML is specifically suited for short- andmedium-term financing to support countries forwhich debt distress is not high. The SML has a 12year final maturity and a 6-year grace period. Most
importantly, the SUW-SMLs are offered at zerointerest with no service charge, which makes themfully concessional. In the case of Tanzania, it had
already allocated its regular IDA allocation acrossvarious investment projects. Therefore, Tanzania
was able to max out the SML allocation, which was
USD 250 million, to use as a base to blend withother less concessional financing sources from IDA(e.g., regular SUW).

Regular IDA Scale-Up Window (SUW)The regular SUW is IBRD's market-based financial
product offered to only IDA-eligible countries withlow or medium risk of debt distress. Regular SUWs
have the same terms as IBRD Flexible Loans, withpricing based on the cost of funds the World Bank
secures through issuing bonds in international
capital markets. The terms are passed through toclients. SUW loans allow borrowers to customize
repayment terms (i.e., grace period, repayment
period, and amortization profile) to meet debt
management or project needs. The regular SUWs
are especially useful where core IDA allocations
are insufficient to support transformational
initiatives, such as in the case of the new DPO loanin Tanzania.

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.

2 At the time of loan negotiation on Nov. 14, 2022, 6 month average

SOFR was 2.02% and the variable spread was 0.96%.