CASE STUDY

Botswana Halves its Total Estimated Interest
Payments by Customizing an IBRD Policy Loan
The World Bank Treasury supported theGovernment of Botswana in reducing thetotal amount of estimated interest by 47
percent on a new USD 250 million IBRD
Development Policy Financing (DPF).
By customizing the repayment profile to its debt
management strategy, the Government ofBotswana (i) reduced the average maturity bymore than 3 years to ensure a lower spread andalignment with the project financing needs, and (ii)released around USD 24 million of fiscal space tofoster economic recovery.

Background
Botswana is an upper-middle-income IBRD
country and not a frequent borrowing client of theWorld Bank. However, like other countries, theCOVID-19 pandemic hit Botswana very hard andincreased their financing needs. According to anApril 2021 World Bank assessment, Botswana’s
economy is estimated to have contracted by 7.9
percent in 2020 as the COVID-19 pandemic
affected vital sectors, notably diamonds andtourism. Unemployment edged up to 24.5 percent,and the poverty rate is estimated to have reached
16 percent in 2020 (USD 1.9 per day, 2011 PPP).
Recognizing the severity of the crisis, theGovernment responded with a relief program
valued at approximately 2 percent of GDP. TheEconomic Recovery and Transformation Program

includes measures to protect lives and limit thespread of virus, supporting livelihoods as well as
supporting firms and the banking sector.
In only six months, the World Bank prepared theBotswana Programmatic Economic Resilience andGreen Recovery DPF (P175934) to support
country’s swift recovery from the pandemic
through diversification and broadening of theeconomy.

Photo Credit: InnaFelker/iStockPhoto

Project and Financial Objectives•

Support the response to the COVID-19
pandemic while strengthening private sector
development and promoting a resilient, greenrecovery.

•Raise external financing from IBRD comparedto other financing sources to support thecountry’s immediate fiscal needs.

•Align the financing with Botswana’s debt
management goals that include longer-term
financing options.

Financial Solution and Outcomes
Unlike other comparable financial products, theIBRD Flexible Loan (IFL) allows borrowers tocustomize repayment terms (e.g., grace period,repayment period, and amortization profile) to
only pay for the terms the client really needs. The
selected repayment terms are the key elements
determining the maturity premium and theinterest rate attached to the loan. The shorter theaverage repayment maturity, the lower thematurity premium a client pays on the loan.
Therefore, decisions around the maturity
structure of the loan are central to project
financing considerations.

CASE STUDYReduced Total Estimated Interest Payments

A major benefit of this customized structuring of
the DPF is that it enabled the Government ofBotswana to move to the shortest average
repayment maturity (ARM) category of eight years
and below, which in turn provided for the lowest
spread option for borrowing. Moving from a loanof five years grace period with a 15-year final
maturity to three years grace period and 10-year
final maturity enabled the Government to reduce
the total amount of estimated interest to be paid
over the life of the loan by USD 24.5 million,
equivalent to a 47% reduction (data based on
Bloomberg as of June 2021).

relatively quickly, thus freeing up the IBRD lending
envelope for additional loans in the future.
The DPF for Botswana is the first-ever budget
support loan Botswana requested from the World
Bank, and it is planned to be the first in a
programmatic series of two lending operations.
Similar structuring of the subsequent loans cancontinue generating significant savings for theGovernment that can be applied towards otherpriority development spending projects.

World Bank Treasury’s Role•

Fiscal Space for Sustainable Development

The customized loan structure allowed for a
sufficient grace period to accommodate theplanned period of the DPF disbursement. It also
pushed the loan principle repayments further out
to 2024 when external debt is projected to be on adeclining trend, in line with Government’s debt
management strategy (see Figure 1). This, together
with the reduction in the total estimated interest,
helps create the fiscal space for the Government
to fund other essential sustainable development
projects and to respond to current crisis.

••

The World Bank Treasury team worked closelywith the Ministry of Finance and EconomicDevelopment (MOFED) to structure the DPF
currency, repayment profile, and maturity. Thiswork included explaining the full range ofterms, flexibilities, and risk management
features IBRD financing offers.
The Treasury team also provided numerous
financing scenarios to support MOFED’s
decision-making process.
Finally, the Treasury team supported theproject team throughout the cycle and playeda critical role in the loan negotiations to enable
timely delivery to the World Bank Board.

Customizing the financial terms of Botswana’s
DPF is one of the many ways the World Bank
Treasury helps clients use the flexibility of IBRD
loans to achieve better financial terms for theirprojects, and optimize cost and risk for their debt
portfolios.
Summary of Financial Terms

Figure 1. Composition of Public Debt by Currency (in % ofGDP). Source: Botswana, IMF 2021 Article IV Consultation,
Staff Report, June 2021.
Increased Room for Additional IBRD Financing

Finally, the DPF will enable Botswana to access
additional IBRD financing as needed by limiting thefinal maturity. It will be repaying the DPF off

Approval Date

June 11, 2021

AmountUSD 250 millionTerm

10 yearsGrace period

3 years

StructureAmortizing

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.