From: The President October 25, 2021 Memorandum Subject: IBRD Lending Rates and Spreads Applicable on or after October 1, 2021 Rate Update Summary This memorandum provides the quarterly update of IBRD’s lending rates and spreads pursuant to the standard loan pricing as defined in the Bank Policy and Directive “Financial Terms and Conditions of Bank Financing”. 1 The Variable Spreads applicable to the IBRD Flexible Loan (IFL) effective between October 1, 2021 and December 31, 2021 remain at the same level as the previous quarter (See Table 1). I. Background IBRD promotes poverty reduction and supports sustainable economic and institutional development of member countries by providing financing and related operational assistance through its three main financing instruments – Investment Project Financing (IPF), Development Policy Financing (DPF), and Program-for- Results (PfR). IBRD offers financing of these instruments through one loan product, the IFL, to eligible members. 2,3 With the suspension of the offering of the IFL Fixed Spread and related spread-fixing conversion feature, effective from April 1, 2021, IFL is currently only available in the form of the IFL Variable Spread, featuring variable spreads over the Reference Rate with a considerable choice of financial terms. 4 The Reference Rate varies by currency and currently is 6-month LIBOR for USD, JPY and GBP and 6- month EURIBOR for EUR, subject to a replacement in certain circumstances, including the current Interbank Offered Rates (IBOR) reform. 5,6 1 Policy “Financial Terms and Conditions of Bank Financing,” July 1, 2021, and Directive “Financial Terms and Conditions of Bank Financing,” July 1, 2021. 2 Aside from IFLs, there are a few historic currency pool-based products, which have been discontinued but require rate resetting in IBRD’s portfolio. The only outstanding currency pool loans (CPL) with variable rate terms are the loans to Zimbabwe, which are currently in non-accrual status. There are also IFL and CPL loans whose rates are fixed for the life of the loan through conversion and hedging. 3 In addition, IBRD offers other financial products, including conversions and hedging products, guarantees, and disaster risk financing. 4 R2020-0243/2: “Proposal to Suspend the Offering of Fixed Spread Loans and Spread-Fixing Conversions in the Context of LIBOR Transition”, December 21, 2020. 5 “Proposed Modifications to the IBRD and IDA General Conditions to add flexibility in reference rate replacement provisions,” R2018-0235, October 18, 2018. 6 “Proposal to Manage IBOR Transition Risks in IBRD Loan and IDA Non-concessional financing Agreements Governed by General Conditions Prior to December 2018,” R2020-0029/1, March 3, 2020. 2 In preparation for the global markets’ transition away from LIBOR, on July 22, 2021, the Executive Directors approved the following modifications to the IBRD and IDA new loan offers and timeline for existing loans’ switch-over to new market reference rates 7, 8: • New Loans: new reference rates for new IFLs effective from January 1, 2022; • Existing Loans o Variable Spread Loans: replacement of the LIBOR rates with the new reference rates for existing variable-spread loans in USD, EUR, GBP and JPY effective from January 1, 2022; o Fixed Spread Loans: replacement of the LIBOR rates with the new reference rates for existing fixed-spread loans for GBP, JPY and EUR effective from January 1, 2022, and for USD effective from July 1, 2023. This memorandum summarizes the lending rates and spreads currently applicable to IBRD loans with rate setting between October 1, 2021 and December 31, 2021. 9,10 II. IBRD Flexible Loan Rates and Spreads Maturity Premium: IBRD differentiates its loan pricing based on national income and other factors of each Borrower (see Annex 2) through the maturity premium. 11 Borrowers are classified into four pricing groups, whose applicable maturity premium is differentiated by exemptions, discounts or surcharges specific to each pricing group. The classification of the member countries by pricing group is updated annually and becomes effective on July 1 of each year (see Annex 2 for FY22 Country Groups for IBRD Pricing). The maturity premium schedule offers Borrowers the flexibility to choose a desired maturity at the differentiated pricing level. Table 1 provides the details of the pricing group-specific maturity premium schedule. The details of rate structure and current pricing of the IFL Variable Spread is provided below in this section. Single Borrower Limit: Since FY21, IBRD’s Single Borrower limit (SBL) framework applies the SBL surcharge on the basis of two surcharge thresholds, for countries above and below Graduation Discussion 7 “Proposed Modifications to IBRD and IDA New Loan Offers and Proposed Timeline for the Existing Loans Switch- over to New Market Reference Rates in the Context of LIBOR Transition”, R2021-0129, June 23, 2021. 8 The reference rates replacing LIBOR rates: 1) USD: Secured Overnight Financing Rate (SOFR); 2) GBP: Sterling Overnight Index Average (SONIA); 3) JPY: Tokyo Overnight Average Rate (TONA); 4) EUR: Euro Interbank Offered Rate (EURIBOR). 9 For financing provided under the World Bank COVID-19 Response, there is no change to regular loan terms, except for (1) certain waivers of the commitment and standby fees and reduction of the front-end fees for certain DDOs and (2) waivers of the standard IBRD commitment fees for certain Additional Financing projects, which are not within the scope of this memorandum. “Proposal for a World Bank COVID-19 Response under the Fast Track COVID-19 Facility,” R2020-0068, IDA/R2020-0087, March 12, 2020; “COVID-19 Strategic Preparedness and Response Program (SPRP) Utilizing the Multiphase Programmatic Approach”, R2020-0079, IDA/R2020-0098, March 27, 2020; “Proposed Additional Financing (AF) to the COVID-19 Strategic Preparedness and Response Program (SPRP) using the Multiphase Programmatic Approach (MPA),” R2020-0193 IDA/R2020-0352, October 2, 2020. 10 Under the Financial Sustainability Framework decisions for FY22, the Board approved the continued application of the 12-year average repayment maturity limit for “fast-disbursing operations”. FY22 fast-disbursing operations for IBRD small states (either approved in FY22; or approved on or after June 16, 2021 and signed in FY22) are exempt from this limit and will be subject to regularly applicable maturity terms. See “IBRD Financial Terms for Fast- Disbursing Operations in FY22”, June 28, 2021: https://worldbankgroup.sharepoint.com/sites/news/Announcement/Pages/IBRD-Financial-Terms-for- FastDisbursing-Operations-in-FY22-28062021-115324.aspx 11 “Implementation of IBRD Pricing Measures included in 2018 Capital Package,” R2018-0128, May 31, 2018. 3 Income (GDI), each defined as $2.5 billion below the SBL for that income group. 12, 13 The SBL surcharge of 50 bp is applicable to all countries whose exposure exceeds the surcharge threshold of their income group, on the incremental exposure in excess of the surcharge threshold, with a temporary exception of the projects whose financing is approved between May 20, 2021 and June 30, 2022 14. FSL Suspension: As noted in Section I above, IBRD suspended the offering of the IFL Fixed Spread effective April 1, 2021. Fixed Spreads are presented in Annex 3 and are applicable only to operations that meet both of the following requirements: (i) the Invitation to Negotiate was issued on or before the date the suspension was approved by the Executive Directors (January 26, 2021); and (ii) the Executive Directors approve the loan on or before June 30, 2021. IFL Variable Spread The pricing principle of the IFL Variable Spread is to pass through changes in IBRD’s funding cost to Borrowers. The IFL Variable Spread consists of the following components: = + �� � + � � ��� +� �� where rr = Reference Rate, which varies by currency choice; afs = average funding spread relative to the Reference Rate (rr), which is calculated every January 1, April 1, July 1 and October 1, based on the actual average funding cost incurred during the preceding six-month period 15; cls = contractual lending spread, approved by the Executive Directors and reviewed annually; and mp = maturity premium charged on loans based on average maturities, Borrower’s income and other factors, approved by the Executive Directors and reviewed annually. Among these components, the contractual lending spread (cls) and the maturity premium (mp) are determined at loan signing 16 and remain constant over the life of the loan; the Reference Rate (rr) and the average funding spread (afs) are determined on each interest rate reset date and are applicable for the following six months. The afs component is recalculated and announced on a quarterly basis. 17 The calculation frequency of afs does not affect the schedule of loan interest rate resets which for most loans occur on repayment dates twice a year. 12 “Review of IBRD's Single Borrower Limit (SBL),” R2020-0183, September 9, 2020. 13 For FY22, SBL levels are $24.9b for below-GDI countries and $21.2b for above-GDI countries. 14 “Temporary Relief from SBL Surcharge”, R2021-0096/1, June 9, 2021. 15 On July 22, 2021, the Board of the Executive Directors approved that AFS will be separately calculated for EUR denominated debt and applied only to loans denominated in EUR. For debt denominated in USD and other currencies, the AFS will be calculated jointly; “Proposed Modifications to IBRD and IDA New Loan Offers and Proposed Timeline for the Existing Loans Switch-over to New Market Reference Rates in the Context of LIBOR Transition”, R2021-0129, June 23, 2021. 16 In case of loans with a Deferred Drawdown Option (DDO), the components of the Variable Spread are determined and applied as of the date of the withdrawal. Applicable maturity premium on a withdrawal under DDO is based on the average repayment maturity of the withdrawal calculated from the date of effectiveness of the loan. 17 “Increasing the Frequency of Variable Spread Reset for IBRD IFLs”, R2017-034/1, March 8, 2017. 4 Table 1 summarizes the Variable Spreads currently available for new commitments as of October 1, 2021.18 The Variable Spread effective between October 1, 2021 and December 31, 2021 remains the same as the previous quarter for all maturity buckets and pricing groups. These spreads will be used for the rate setting dates between October 1, 2021 and December 31, 2021. See Figure A1-1 (Annex 1) for the historical spread analysis of IFL. Table 1. IFL Variable Spread Applicable as of October 1, 2021 (in basis points) Greater than Greater than Greater than Greater than Greater than 8 years and Average Maturity 8 and up to 10 and up to 12 and up to 15 and up to 18 and up to below 10 years 12 years 15 years 18 years 20 years Average Funding Spread 3 3 3 3 3 3 Contractual Lending Spread 50 50 50 50 50 50 Maturity Premium (Group C)1 0 10 30 50 70 90 Adjustment to Maturity Premium Group A (Exemption) 0 0 -10 -20 -30 -40 Group B (Discount) 0 0 -5 -10 -15 -20 Group D (Surcharge) 5 5 10 15 20 25 Total Spread - Current Quarter2,3,4 Group A 53 63 73 83 93 103 Group B 53 63 78 93 108 123 Group C 53 63 83 103 123 143 Group D 58 68 93 118 143 168 Total Spread - Prior Quarter2,4 Group A 53 63 73 83 93 103 Group B 53 63 78 93 108 123 Group C 53 63 83 103 123 143 Group D 58 68 93 118 143 168 Notes: 1. The maturity premium and its associated adjustments are applicable to loans for which an Invitation to Negotiate was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018, and which have been approved on or after October 1, 2018. 2. The total spread is applicable to the loans meeting the criteria described under Note 1. The total spread does not include the SBL surcharge applicable for exposure beyond the SBL surcharge threshold of IBRD applicable to below and above-GDI country groups. 3. See Table A1-1 (Annex 1) for the complete set of spreads applicable to all active variable spread loans effective October 1, 2021. 4. The lending rate of a loan is determined based on the Reference Rate and the total spread effective on the rate setting date, subject to a floor of zero percent on the overall rate. See Figure A1-1 (Annex 1) for historical variable spreads and Figure A1-2 (Annex 1) for historical variable rates inclusive of Reference Rates and the total spread. 18 See Table A1-1 (Annex 1) for the complete listing of the variable spreads applicable to IFLs and VSLs for rate resetting dates between October 1, 2021 and December 31, 2021. 5 III. Use of IBRD Spreads for IDA18 Non-Concessional Financing The terms of IDA’s non-concessional financing are aligned with the terms of IBRD IFLs. 19 Accordingly, the above described IBRD IFL rates and spreads for the pricing group A are applicable to all IDA non- concessional financing. 20,21 IV. Notification to Borrowers IBRD will notify current Borrowers, as required, of the rates and spreads (both inclusive of waivers for eligible Borrowers) applicable for the interest periods beginning on or after October 1, 2021. David Malpass World Bank Group President by Anshula Kant Managing Director and WBG Chief Financial Officer 19 For financing provided under the World Bank COVID-19 Response, there are no changes to regular loan terms, except for (1) certain waivers of the commitment and standby fees and reduction of the front-end fees for certain DDOs and (2) waivers of the standard IBRD commitment fees for certain Additional Financing projects, which are not within the scope of this memorandum. “Proposal for a World Bank COVID-19 Response under the Fast Track COVID-19 Facility,” R2020-0068, IDA/R2020-0087, March 12, 2020; “COVID-19 Strategic Preparedness and Response Program (SPRP) Utilizing the Multiphase Programmatic Approach”, R2020-0079, IDA/R2020-0098, March 27, 2020; “Proposed Additional Financing (AF) to the COVID-19 Strategic Preparedness and Response Program (SPRP) using the Multiphase Programmatic Approach (MPA),” R2020-0193 IDA/R2020-0352, October 2, 2020. 20 “Implementation of IDA’s Hybrid Financial Model,” IDA/R2017-0077, March 23, 2017. 21 Annex 2 of Bank Directive, “Financial Terms and Conditions of Bank Financing,” effective July 1, 2021. 6 Annex 1 Figure A1-1. Historical Trend of Variable Spreads Notes: 1. On June 26, 2018, IBRD’s Executive Directors approved the implementation of the pricing measures as part of the 2018 Capital Package. The maturity premium was increased for loans with average maturities longer than 10 years but exemptions, discounts, or surcharges to the maturity premium would apply to eligible countries based on income and other factors. This change came into effect on July 1, 2018. 2. The spreads after July 1, 2018 represent the spreads applicable for loans to Group C countries, which are not eligible for Exemptions, Discounts, or Surcharges to the maturity premium. 4. The spread chart excludes the SBL surcharge. 7 Figure A1-2. Historical Trend of IFL Rates applied to USD Variable Spread Loans with Average Maturity of 18 to 20 years Notes: 1. The rates after July 1, 2018 represent the rates applicable for loans to Group C countries, which are not eligible for Exemptions, Discounts, or Surcharges to the maturity premium. 2. The average maturity of 18 to 20 years indicates the maximum rates applied for each rate setting period. The rates do not include the SBL surcharge. 3. IFL Variable Spread rates are the rates applied to all rate-resetting IFLs Variable Spread subject to note #1. 4. USD 6-month LIBOR refers to the London interbank offered rate for six months USD deposits, published two London banking days prior to the first and fifteenth day of each month. 8 Table A1-1. Variable spreads applicable to IFLs and VSLs for rate resetting between October 1, 2021 and December 31, 2021. (All spreads are in basis points.) Table A-1 (All spreads are in basis points.) Funding Contractual Loan Pricing Maturity Total Eligibility Criteria Cost/Cost of Lending Product Group Premium Spread/Rate* Borrowing Spread Loans for which Invitation to Negotiate A 0 53 was issued (i) on or after July 1, 2018; or B 0 53 IFL VS (ii) prior to July 1, 2018 and which were 3 50 approved after September 30, 2018 with C 0 53 average maturity of 8 years or less D 5 58 Loans for which Invitation to Negotiate A 10 63 was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018 and which were B 10 63 IFL VS 3 50 approved after September 30, 2018 with C 10 63 average maturity greater than 8 years and up to 10 years D 15 68 Loans for which Invitation to Negotiate A 20 73 was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018 and which were B 25 78 IFL VS 3 50 approved after September 30, 2018 with C 30 83 average maturity greater than 10 years and up to 12 years D 40 93 Loans for which Invitation to Negotiate A 30 83 was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018 and which were B 40 93 IFL VS 3 50 approved after September 30, 2018 with C 50 103 average maturity greater than 12 years and up to 15 years D 65 118 Loans for which Invitation to Negotiate A 40 93 was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018 and which were B 55 108 IFL VS 3 50 approved after September 30, 2018 with C 70 123 average maturity greater than 15 years and up to 18 years D 90 143 Loans for which Invitation to Negotiate A 50 103 was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018 and which were B 70 123 IFL VS 3 50 approved after September 30, 2018 with C 90 143 average maturity greater than 18 years and up to 20 years D 115 168 Loans for which Invitation to Negotiate was issued prior to July 1, 2018; and which IFL VS were approved between July 1, 2014 and ALL 3 50 0 53 September 30, 2018 with average maturity of 8 years or less Loans for which Invitation to Negotiate was issued prior to July 1, 2018; and which IFL VS were approved between July 1, 2014 and ALL 3 50 10 63 September 30, 2018 with average maturity greater than 8 years and up to 10 years Loans for which Invitation to Negotiate was issued prior to July 1, 2018; and which IFL VS were approved between July 1, 2014 and ALL 3 50 20 73 September 30, 2018 with average maturity greater than 10 years and up to 12 years 9 Loans for which Invitation to Negotiate was issued prior to July 1, 2018; and which IFL VS were approved between July 1, 2014 and ALL 3 50 30 83 September 30, 2018 with average maturity greater than 12 years and up to 15 years Loans for which Invitation to Negotiate was issued prior to July 1, 2018; and which IFL VS were approved between July 1, 2014 and ALL 3 50 40 93 September 30, 2018 with average maturity greater than 15 years and up to 18 years Loans for which Invitation to Negotiate was issued prior to July 1, 2018; and which IFL VS were approved between July 1, 2014 and ALL 3 50 50 103 September 30, 2018 with average maturity greater than 18 years and up to 20 years Loans approved between June 30, 2010 IFL VS** and June 30, 2014 with average maturity of ALL 3 50 0 53 12 years or less Loans approved between June 30, 2010 IFL VS** and June 30, 2014 with average maturity ALL 3 50 10 63 greater than 12 years and up to 15 years Loans approved between June 30, 2010 IFL VS** and June 30, 2014 with average maturity ALL 3 50 20 73 greater than 15 years and up to 18 years Loans for which Invitation to Negotiate was issued (i) on or after July 23, 2009; or IFL VS ALL 3 50 N/A 53 (ii) prior to July 23, 2009, and which were not approved by November 30, 2009 Loans for which Invitation to Negotiate was issued Prior to July 23, 2009, and IFL VS ALL 3 30 N/A 33 which were approved by November 30, 2009 Loans signed on or after September 28, VSL*** ALL 3 30 N/A 33 2007 Loans for which Invitation to Negotiate VSL*** was issued: On or after July 31, 1998 and ALL 3 74† N/A 77 signed before September 28, 2007 Loans for which Invitation to Negotiate VSL*** ALL 3 49† N/A 52 was issued: Prior to July 31, 1998 Notes: * Total spread does not include the SBL surcharge. ** Includes loans for which the invitation to negotiate was issued before June 30, 2014 and which have been approved by the Executive Directors on or before September 30, 2014. *** Rates do not take interest waivers into account for loans signed before September 28, 2007. Interest waivers do not apply on loans signed on or after September 28, 2007. † The contractual lending spread is adjusted to account for the different day count conventions between borrowing transactions and IBRD’s loans. Since July 1, 2008, as part of the migration into a unified loan product (IFL), all loans under the IFL, and VSLs signed on or after September 28, 2007, have a contractual lending spread that is not adjusted for day count (see “Proposal to Extend Maturity Limits for New IBRD Loans and Guarantees and to Simplify and Consolidate IBRD Loans into a Unified Single Product Line,” R2008-0007, January 18, 2008). 10 Annex 2 FY22 Country Groups for IBRD Pricing Group A: Blends, Small State Economies, Fragile and Conflict-Affected Situations, recent/new IDA graduates Angola (Recent IDA Graduate) Georgia (Recent IDA Graduate) Seychelles (Small State) Antigua and Barbuda (Small State) Grenada (Small State, Blend) Sri Lanka (Recent IDA Graduate) Armenia (Recent IDA Graduate, India (Recent IDA Graduate) St. Kitts and Nevis (Small State) FCS) Iraq (FCS) St. Lucia (Small State, Blend) Azerbaijan (FCS) Kenya (Blend) St. Vincent and the Grenadines Belize (Small State) Lebanon (FCS) (Small State, Blend) Bolivia (Recent IDA Graduate) Libya (FCS) Suriname (Small State) Bosnia and Herzegovina (Recent Mauritius (Small State) Timor-Leste (Small State, Blend, IDA Graduate) Moldova (Recent IDA Graduate) FCS) Cabo Verde (Blend, Small State) Mongolia (Recent IDA Graduate) Trinidad and Tobago (Small State) Cameroon (FCS, Blend) Montenegro (Small State) Uzbekistan (Blend) Congo, Republic (FCS, Blend) Nauru (Small State) Vietnam (Recent IDA Graduate) Dominica (Small State, Blend) Nigeria (FCS Blend) Venezuela, RB De (FCS) Equatorial Guinea (Small State) Pakistan (Blend) Zimbabwe (FCS, Blend) Eswatini (Small State) Palau (Small State) Fiji (Blend, Small State) Papua New Guinea (FCS, Blend) Group B: Countries below Graduation Discussion Income (GDI) Albania Guatemala Peru Algeria Indonesia Philippines Belarus Iran, Islamic Republic of Serbia Botswana Jamaica South Africa Colombia Jordan Thailand Ecuador Morocco Tunisia Egypt, Arab Republic of Namibia Turkmenistan El Salvador North Macedonia Ukraine Gabon Paraguay Group C: Countries above GDI and below High-Income Category Argentina Dominican Republic Romania Brazil Kazakhstan Russian Federation Bulgaria Malaysia Turkey China Mexico Costa Rica Panama Group D: Countries in the High-Income Category Chile Poland Uruguay Croatia Source: “Bank Directive, Financial Terms and Conditions of Bank Financing,” effective July 1, 2021. 11 Annex 3 Spreads available for new commitments1 of IFL Fixed Spread applicable as of October 1, 2021. Table 2. IFL Fixed Spread Applicable as of October 1, 2021 (for USD-denominated Loans) (in basis points) Greater than Greater than Greater than Greater than Greater than 8 years and Average Maturity 8 and up to 10 and up to 12 and up to 15 and up to 18 and up to below 10 years 12 years 15 years 18 years 20 years Projected Funding Spread (Prior) 20 25 25 30 35 35 Market Risk Premium 10 10 10 10 15 15 Contractual Lending Spread 50 50 50 50 50 50 Maturity Premium (Group C)2 0 10 30 50 70 90 Adjustment to Standard Maturity Premium Group A Exemption 0 0 -10 -20 -30 -40 Group B Discount 0 0 -5 -10 -15 -20 Group D Surcharge 5 5 10 15 20 25 Total Spread - Current Quarter3,4 Group A 80 95 105 120 140 150 Group B 80 95 110 130 155 170 Group C 80 95 115 140 170 190 Group D 85 100 125 155 190 215 Total Spread - Prior Quarter3,4,5 Group A 80 95 105 120 140 150 Group B 80 95 110 130 155 170 Group C 80 95 115 140 170 190 Group D 85 100 125 155 190 215 Notes: 1. Loans for which Invitation to Negotiate was issued on or before January 26, 2021 and which were approved on or before June 30, 2021. 2. The maturity premium and its associated adjustments are applicable to loans for which an Invitation to Negotiate was issued (i) on or after July 1, 2018; or (ii) prior to July 1, 2018, and which have been approved on or after October 1, 2018. 3. The total spread is applicable to USD-denominated loans signed on or after December 5, 2018. A basis swap adjustment of -0.15% is applicable to EUR-fixed spread, -0.35% is applicable to the JPY fixed spread, and -0.05% is applicable to GBP-fixed spread. The total spread does not include the SBL surcharge. 4. The lending rate of a loan is determined based on the Reference Rate and the total spread effective on the rate setting date, subject to an implicit floor of zero on the overall rate. 5. The total prior spread applicable as of July 1, 2021 to USD-denominated loans meeting the criteria described under Note 1.