The World Bank helped the Philippines protect $11.13 billion against interest rate increases by using the conversion feature of the IBRD Flexible Loan (IFL). At the request of the Philippines' government, the World Bank executed more than $11 billion of interest rate swaps with the market to fix the rate of its USD loan portfolio. Such a sizeable transaction was carried out in a few days, eliminating most global interest rate uncertainty in their IBRD debt portfolio. The World Bank Treasury provided the cost-effective execution without the need for the country to face market counterparts directly, avoiding the need for them to negotiate documentation, use credit lines, or post collateral with market counterparts. From an economic standpoint, this transaction has significant relevance. The Philippines is embarking on a multiyear fiscal consolidation effort, and IBRD loans represent the third largest source of international debt for the country (see Figure 1).

Moreover, the Government of the Philippines is bound by a regulatory ceiling of 7 percent interest rate for loans to qualify as Official Development Assistance (ODA) from International Financial Institutions (IFIs), Thus the need to act to avoid breaching such ceiling. […]