The mandate of the Caribbean Development Bank (CDB) is to reduce poverty and transform lives by contributing to the sustainable, resilient, and inclusive development of its borrowing member countries (BMCs). Policy-based operations (PBOs) are financing instruments1
used to incentivize the implementation of country-owned policy reforms and institutional changes aimed at advancing sustainable development goals. The policy-based lending (PBL) instrument, while helping to strengthen the effectiveness of public policy frameworks, provides fast-disbursing budget support to finance priority expenditures, and is disbursed following compliance with agreed policy actions. In a broad sense, therefore, the PBL product is a lending modality that supports the process of good policy making and governance, while reducing transaction costs and providing timely resources to national budgets. PBL is complementary to investment lending as it helps to establish an appropriate enabling environment for enhancing resilience, achieving economic growth, and reducing poverty. It is an important component of CDB’s intervention modalities to enhance development effectiveness and responsiveness to the changing needs of members.
CDB offers four types of PBL:
- macroeconomic,
- sector,
- exogenous shock response, and
- regional public goods.
Macroeconomic PBOs address external and/or internal economic imbalances. Sector PBOs support reforms that help address critical sector issues and strengthen the progress toward overall economic development. Exogenous shock response PBOs provide resources in crisis situations to assist with the fallout from a shock and they can be used to support reforms to enhance resilience. Regional public goods PBOs help to embed the policy and institutional frameworks necessary to advance regional cooperation and integration. PBO guarantees may be used to guarantee a portion of debt service on a borrowing or bond issue by a BMC in support of country-owned policy reforms.
PBL can form an important component of country financing strategies. At the country level, the size of the loan is related to development financing requirements defined in terms of balance of payments, fiscal, sector, or other economic funding needs.
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Inclusive of loans, grants and guarantees