World Bank approves $500m loan to manage disasters

THE World Bank on Wednesday approved a new contingent line of credit support worth $500 million to help the Philippines manage risks posed by natural disasters.

The World Bank said its board of executive directors approved the Second Disaster Risk Management Development Policy Loan with a catastrophe-deferred drawdown option to provide $500 million to strengthen investment planning and regulations to reduce disaster risks and help manage the financial impacts when they strike.

World Bank country director for the Philippines Motoo Konishi said the Disaster Risk Financing and Insurance Strategy would strengthen the country’s capacity to manage disaster risks.
“If not managed well, disasters can roll back years of development gains and plunge millions of people into poverty,” said Konishi.

The Philippines can access the new credit line following “a state of calamity” declared by the president.
“The Philippines is among the most vulnerable countries in the world. Together, the 20 most vulnerable countries face escalating losses of $44.9 billion due to climate-related natural disasters alone. Inaction is set to cost us even more. With the number set to multiply almost ten-fold by 2030, amounting to $418 billion, we turn to innovative financing mechanisms to boost our resilience,” said Finance Secretary Cesar Purisima.

More than 1,000 lives are lost every year in the Philippines, with typhoons accounting for 74 percent of the fatalities, 62 percent of the total damage and 70 percent of agricultural damage. The country is also highly exposed to geologic hazards including earthquakes and volcanic eruptions.

CAT-DDO 2 gives the Philippines flexibility to use the funds as needed. The drawdown period is three years and renewable up to four times for a total of 15 years. Amounts repaid during the drawdown period are available for subsequent withdrawal.

The national government would have to pay 0.50 percent of the total loan amount as a frond-end fee and a 0.25 percent of the undisbursed balance for each extension of the closing date is needed as renewal fee.

The World Bank said the second CAT-DDO would provide the government with a platform for sustaining reforms and effectively implementing the country’s disaster risk reduction and management program.

The Finance Department earlier developed the Disaster Risk Financing and Insurance Strategy to ensure financial resilience at the national, local and individual levels.

The government will combine different financial instruments to protect the country against major events, including reserves such as the national and local disaster risk reduction fund and contingent credit such as CAT-DDO 2.

The Finance Department said it was also working with the World Bank to set up a subnational insurance pool to provide local government units with immediate liquidity following disasters and design a property catastrophe risk insurance pool for homeowners and businesses.