World Bank Economic Reform Loans Explained | Generated by AI
A Structural Adjustment Loan (SAL) is a type of financing provided mainly by international financial institutions like the World Bank to countries that are facing severe balance-of-payments problems or economic crises. It’s less about traditional commercial banking and more about development and policy lending.
Here’s a breakdown:
Purpose
The main goal of an SAL is not just to provide money but to support a country’s economic reform program. The funds are intended to stabilize the economy, restore growth, and ensure that the country can meet its international financial obligations.
Conditions
Unlike a normal bank loan, a structural adjustment loan comes with policy conditionalities. The borrowing government agrees to implement certain reforms such as:
- Fiscal discipline: reducing government deficits and subsidies.
- Trade liberalization: lowering tariffs and removing import restrictions.
- Monetary reforms: controlling inflation, interest rate adjustments.
- Privatization: selling off inefficient state-owned enterprises.
- Structural changes: improving governance, deregulation, and encouraging private sector growth.
These conditions are meant to “adjust” the structure of the economy, hence the name.
Repayment
- SALs are usually medium- to long-term loans with concessional interest rates (lower than market rates).
- Repayment schedules are structured to give the country breathing space while reforms take hold.
Criticism
SALs have been controversial:
- Supporters argue they help countries modernize and re-enter global markets.
- Critics say the reforms can be harsh on citizens (e.g., cutting subsidies on food, healthcare, education), leading to social unrest and inequality.
✅ In short: A structural adjustment loan is a policy-based loan from international lenders, tied to economic reform conditions, designed to help a country stabilize its economy and return to sustainable growth.
Would you like me to also explain how SALs differ from a regular project loan (which finances a specific dam, road, or factory), so you can see the distinction more clearly?