What is a government guarantee?

Government guarantee is the assurance for creditors by the agency of the government or the main government body itself, that a financial obligation will be honored, even if the debtor is unable to repay the debt. In many cases, the government guarantee allows the debtor's approval for the loan. In other cases, without a government guarantee, interest charged on a loan would be much larger. This is because many debtors who receive the government guarantee support for loans, are high -risk debtors - debtors with limited financial resources, high debt loads or poor repayment history. This applies to individual debtors and corporations and even sovereign states looking for financial support.

Financial health of future borrowers with high flow income, low debt level and good record of their debts often enjoy easy soil approvalJsky and favorable interest rates. Less well borrowers, such as future low -income homeowners or poor credit scores, is often difficult to obtain mortgages. Agencies such as Federal Housing Administration of the United States (FHA) provide financial government guarantees in the US to ensure their loan repayment. FHA also provides incentives for banks and other creditors participating in their programs.

Government warranty is often associated with financing infrastructure projects. For example, the US Rural Electrification Administration, the predecessor of rural service service, provided financial support to the massive process of providing electricity to the very poor remote rural areas of the US in the early 20th century. Governments are still an important factor in the provision of financial support of infrastructure projects. In 2005, the US Department of Energy began to provide loan guarantees for PRo Pubjects to support the development of net energy sources.

Government guarantees are used worldwide. In 2009, the Energy Supplier in South African energy began ESKOM issue of bonds of 150 billion RAND (about $ 20 billion), which was covered by a government guarantee on the financing of the capital infrastructure project. In the next five years, the South African Treasury promised a guarantee of bonds for bonds of 176 billion Rand (about $ 23 billion).

After the opening of the international monetary crisis in 2007, many sovereign nations were looking for critical financial assistance and issued government guarantees to secure loans. A prominent example is the government of Iceland that faced the collapse of its economy when its banking system failed in 2008. Loans from Britain and the Netherlands, which prevent the collapse of its banking system, while the Icelandic government guarantees that funds will be paid to secure funding.