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The World Bank executed a US$1 billion currency swap transaction for Morocco to manage its exposure to the US dollar from a recent bond issuance. This transaction supports Morocco’s currency risk management strategy by hedging against fluctuations between the US dollar, in which bond payments will be made, and the Euro.
"This transaction is part of the strategy the Ministry of Economy and Finance has adopted to actively reduce the exposure of the Treasury’s debt portfolio to financial risks like interest and exchange rate risks,” says Nizar Baraka, Minister of Economy and Finance of the Kingdom of Morocco. “Swapping the currency of the bond issuance from US dollar to Euro allows the Treasury to improve the currency allocation in the external debt portfolio with the aim of aligning its structure with the benchmark.”
Morocco has been working with the World Bank over the years to reduce the risk on its debt portfolio by aligning the interest rate and currency of its World Bank loan portfolio within prescribed targets.
“The World Bank has been witnessing a strong change in the culture of sovereign risk management, with many governments taking an active role in managing risks before they materialize, as opposed to reacting to shocks after they happen,” says Madelyn Antoncic, Vice-President and Treasurer of the World Bank.
This is the first transaction in which Morocco has partnered with the World Bank to manage its risk on liabilities owed to creditors other than the Bank by executing a currency swap under a Master Derivatives Agreement. Morocco was among the first countries to sign such an agreement with the World Bank based on the standard International Swaps and Derivatives Association (ISDA) Master Agreement, enabling it to access hedging instruments for managing financial risks.
“The World Bank’s ability to offer our member countries practical solutions to deal with financial issues is key,” says Inger Andersen, World Bank Vice President for the Middle East and North Africa region. “This transaction helps Morocco shield its investment and development programs from unforeseen currency shocks.”
The World Bank regularly interacts with financial markets to manage the risks on its own balance sheet and on behalf of clients. The World Bank’s financial products can help clients fund their programs and access risk management products to reduce their vulnerability to financial, commodity price, and natural disaster risks.