Credit line

Philippines secures $ 500 million World Bank disaster line of credit

The Philippines received more disaster protection with help from the World Bank as its government signed another $ 500 million disaster line of credit under a new option agreement. deferred disaster withdrawal, known as CAT-DDO 4.

The Philippines has already benefited from these new disaster credit agreements, having already implemented two specific deferred disaster drawdown options.

They have also proven their worth, as the country withdrew from one of these agreements in 2018.

The Philippines received a disbursement of nearly $ 500 million to help them recover from Typhoon Mangkhut of 2018, after the World Bank’s Disaster Line of Credit (CAT DDO) was triggered.

The new CAT-DDO agreement is designed to “strengthen the institutional and financial capacity of the Philippines to manage the risks associated with climate change, natural disasters and epidemics,” the World Bank explained.

The Fourth Disaster Risk Management Development Policy Loan with Disaster Deferred Withdrawal Option (CAT-DDO 4), to give the arrangement its full name, will provide the Philippines with capital of $ 500 million. US dollars that they can activate when a state of emergency is declared. , helping it manage the financial impacts of natural and man-made disasters and epidemics.

“This conditional finance mechanism protects the fiscal health of the Philippines following natural disasters and epidemics, helps develop sustainable risk finance mechanisms for local government units, and protects poor and vulnerable households from the impact of disasters, ”explained Ndiamé Diop, Country Director of the World Bank. for Brunei, Malaysia, the Philippines and Thailand. “If not well managed, these shocks can exacerbate poverty through loss of human life, destruction of assets, disruption of economic activities and trade, and indirect impacts on health, mobility and access to education.

Disaster Capital may be taken from the declaration of a state of calamity by the Government of the Republic of the Philippines, due to an impending or ongoing natural disaster or a declaration of a state of emergency of public health.

This provides much-needed liquidity at the time of disaster, making these instruments akin to catastrophe bonds in the way they secure a line of disaster funding.

The line of credit is available for a start of three years and can be renewed for up to fifteen years.

CAT-DDO is associated with various insurance and reinsurance arrangements available to the Philippines, which largely protect them against natural disasters and severe weather events.

These include parametric insurance, microinsurance, reinsurance of state assets and infrastructure, as well as the Philippine Catastrophe Bond which was issued with the support of the World Bank. , the 2019 BIRD CAR 123-124 cat bond bond of $ 225 million.

Secured lines of credit, which can be triggered by specific disaster scenarios, are a valuable disaster risk management resource for many countries, with support from the World Bank and other agencies.

Ultimately, the ultimate goal would be to reduce the need for debt and encourage the payment of premiums to support risk transfer in the private market, insurance and reinsurance.

Over time, countries like the Philippines may seek to expand coverage of catastrophe bonds, so that they can reduce contingent credit facilities like this.

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