Sovereign guarantees are given by host governments to assure project lenders that the government will take certain actions or refrain from taking certain actions affecting the project. Although a blanket sovereign guarantee of all project risks is impossible to obtain in any project finance transaction, many of the legal and political risk categories typically encountered in an infrastructure project will be well within the host government's ability to control and may therefore be fairly allocated to such host government.
In theory, the government is forced to accept risks such as exchange rate and political risk because it is better able to manage it through sound economic policies. In practice, however, the heavy debt burden under which many a developing country is laboring may be compounded when, during a period of economic difficulties in the host country, the beneficiaries of a guarantee ask the sovereign to make good on its promise.
Krystal is associated with several international bank who finance host government for their country projects against sovereign guarantee.