Uruguay has been granted an unprecedented US$ 350 million loan by the World Bank (WB). Although there is nothing new with borrowing, the so-called Programmatic Loan for Development Policies and Reform Implementation will entail a reduction of the interest rate whenever certain environmental goals are met, it was explained in Montevideo.
In a joint statement by the Ministries of Economy, Environment, and Livestock, the Uruguayan authorities mentioned a reduction of up to US$ 12.5 million in interest in exchange for a verifiable reduction in the intensity of methane gas emissions. These savings may even be higher with the contribution of resources from developed countries.
Beginning in 2028, during the repayment period of the loan, an annual assessment will be carried out to monitor the target of reducing the intensity of methane emissions in Uruguay's livestock sector, it was explained. A reduction of at least 33% in methane emission intensity per unit of product is targeted between 2028 and 2032, and at least 36% between 2033 and 2037. These targets are 1% more ambitious than the Nationally Determined Contribution (NDC) target already adopted by Uruguay to reduce greenhouse gas emissions under the Paris Agreement. If this target is met, the World Bank will improve the loan repayment terms for that year by reducing the interest rate.
Uruguay is once again demonstrating global leadership through institutional and financial innovation, as it has done before in areas such as smart agriculture, reducing carbon emissions, and promoting renewable energy, which serve as a reference for other developing countries, said Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean.
Uruguayan Economy and Finance Minister Azucena Arbeleche underlined that the approval of this loan instrument is another innovative step by the country in the search for better conditions for access to international financing. Just as important, it seeks to strengthen Uruguay's position in agricultural export markets, which increasingly value sustainable production.
The loan will reward with a significant reduction in the interest rate the fulfillment of climate objectives associated with sustainable livestock farming, for which the Government will scale up a successful program that achieved synergies between environmental conservation and livestock productivity and profitability, the statement also reads.
This innovative loan is part of a sustainable sovereign financing strategy promoted by the Government, which had as a previous milestone the issuance in October 2022 of the Sovereign Bond Indexed to Climate Change Indicators. Through this bond and now this loan, Uruguay is promoting new financial instruments that incorporate positive economic incentives for those countries that fulfill their environmental commitments and contribute to the conservation of global public goods, the document adds.