CASE STUDY

Kazakhstan Saves on Interest Cost and Improves
its Debt-Service Repayments
The World Bank Treasury customized an
IBRD loan for Kazakhstan that saved theclient on interest rate costs and bypassed
the peak periods in its other debt
obligations.
The Government of Kazakhstan (i) saved
approximately 18 percent on the interest rate
cost of the IBRD Development Policy
Financing (DPF) by selecting the below eightyear average repayment maturity (ARM)
category; (ii)customized
theloan's
repayment schedule to accommodate theredemption of two Eurobonds maturing in
the medium-term; and (iii) created short term
fiscal space with a 2.5-year grace period tomitigate the adverse economic effects of theCOVID-19 crisis.

Background
When the COVID-19 pandemic hit Kazakhstan in
2020, the authorities responded decisively tocontain the outbreak by introducing mobility andactivity restrictions. Combined with the drop in oil
prices and the global economic contraction, thesemeasures imposed a heavy toll on Kazakhstan'seconomy, with real GDP contracting by 2.5
percent.
The authorities implemented a sizeable fiscal
package to prevent a sharper economic
downturn. As a result, by the end of 2020, thebudget deficit widened to 7.1 percent of GDP,requiring the government to tap into moreresources from the National Fund (NFRK) andseek financing from the domestic andinternational capital markets as well as
multilateral institutions to finance the deficit.
Kazakh authorities also took important steps toadvance the economic transition to be morecompetitive and environmentally sustainable.

Photo Credit: kertu Adobe Stock PhotoTo support Kazakhstan, the World Bank approveda EUR 346 (USD 400) million DPF to boost a private
sector-led and sustainable economic recovery(DPF−P174367). The project objective was toprovide short-term fiscal relief and support policy
and institutional changes aimed at creating amore vibrant private sector, a more accountablepublic sector, and laying the foundations for amore sustainable economic transition.
Given the widening of the country’s budget deficit
and the significant redemption of two Eurobondsin the years 2025 and 2027, Kazakhstan needed
to reduce its borrowing costs and smooth out itsdebt repayment profile to avoid refinancing risk.
The World Bank Treasury designed a financial
solution that helped Kazakhstan meet both.

Financial Objectives•••

Achievemaximum
costsavings
forKazakhstan
Smooth out the peaks in Kazakhstan's debt
repayment profile in the medium-term
Create short-term fiscal space

CASE STUDY
Financial Solution and Outcomes

Keeping the cost savings to a maximum
Reviewing their existing debt profile and the needto reduce the overall cost of the loan, the Treasury
and the Kazakhstan authorities reviewed
different amortization profiles. Selecting the 7.9year average repayment maturity enabled theGovernment of Kazakhstan to remain below theeight-year ARM category of the IBRD Flexible
Loan. This category provides the maximum
pricing advantage and doesn't carry a maturity
premium.
For perspective, if Kazakhstan had chosen alonger repayment maturity, the loan pricing
would fall into the next pricing category (8 to 10year ARM). By staying below the 8-year ARM,Kazakhstan saved about 18 percent in additional
interest rate costs over the life of the loan.
Reducing costs was in line with Kazakhstan's longstanding discipline of keeping debt service levels
low. A significant constraint for the authorities, as
this loan aimed at budget support and was not
linked to future revenue inflows.
Smoothing out the peaks in medium-term
debt-service repayments
The customized repayment schedule allowed
Kazakhstan to adjust its amortization profile tomeet debt management needs (see Figure 1).
••

The 2.5-year grace period pushed theprincipal loan repayments to create the muchneeded fiscal space to mitigate the immediate
effects of the COVID-19 crisis.
The customized loan principal repayment
schedule bypassed the most acute debt
rollover cycle (2025, 2027), when the twoEurobonds are due to mature.

No Principal
Repayment
GraceperiodFigure 1. Illustration of the repayment schedule as defined in theloan agreement of the DPF project P174367. Source: World Bank.

World Bank Treasury's Role

The World Bank Treasury team worked with theKazakhstan government to:• Analyze the client's overall debt profile tounderstand the government’s most acutedebt rollover cycles.
• Provide a decision-making tool to help thegovernment to run different repayment
scenarios that meet Kazakhstan’s debt
management constraints and objectives.
• Customized the loan terms, i.e. grace period,
repayment period, and amortization profile,
to reduce the overall refinancing risk of thedebt portfolio.
• Advised the World Bank project teamthroughout the loan negotiation cycle toenable timely delivery to the World Bank
Board.
Summary of Financial Terms
Approval Date
AmountDecember 09, 2021
EUR 346 million (USD eq.400million)

Term

11.5 years

Grace period

2.5 years

Repayment

Customized

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.