The Dominican Republic has secured the first catastrophe contingent line of credit in the Caribbean, with a $150 million Catastrophe Deferred Drawdown Option (Cat DDO) supported by the World Bank, that provides immediate financing in the event of natural disasters or public health emergencies.
The World Bank explains that this is the first contingency line of credit in the Caribbean, enabling the Dominican Republic with access to $150 million of immediate financing post-event. Furthermore, the Cat DDO provides the Dominican Republic with financing without removing any resources from both social and development programmes.
The Cat DDO structure has been used by a number of nations which have a need to access financing post-disaster. In this way it can provide a similar source of post-loss liquidity as a sovereign insurance, reinsurance or catastrophe bond like arrangement.
President of the Dominican Republic, Danilo Medina, commented; “As the Dominican Republic and its Caribbean neighbors live through the direct consequences of climate change and will continue facing vulnerability to extreme weather events, our priority is to be better prepared to save lives, assist affected communities, and ensure that key infrastructures such as hospitals, schools, roads, bridges and houses are better built to withstand natural disasters.
“This financing from the World Bank will help us mitigate risks from climate shocks, natural disasters, as well as pandemics.”
A recent study by the World Bank and Ministry of Economy, Planning and Development, estimates that between 1961 and 2014, the region experienced an average of $420 million in economic losses every year from disasters.
Add to this the low level of insurance penetration in the country, which is typical in poorer, vulnerable parts of the world, and it’s clear how important the CCRIF SPC and the new Cat DDO is to the Dominican Republic’s efforts at improving the resilience and rebuilding efforts when disaster strikes.
World Bank Director for the Caribbean, Tahseen Sayed, said; “The most important lesson from our experience in disaster response across the world is to invest in prevention and preparedness to be able to respond speedily when disaster strikes.
“This is the first operation of its kind in the Caribbean, and focuses on a series of reform to strengthen the government’s capacity for disaster risk management, climate adaptation, and financial resilience.”
The Cat DDO acts as a flexible loan that has a final maturity of 19 years, and this includes a grace period of 12 years, explains the World Bank.
Under the Cat DDO, policy reforms will incorporate disasters and climate-related risks into both fiscal and debt management, while enforcing zoning regulations, building codes and also safety standards for public infrastructures, with a focus on schools and health facilities.
The World Bank explains that flood and drought risk reduction measures will also be strengthened, as part of a detailed and extensive water resource management national strategy, and the policy reforms under the Cat DDO will also further improve the resilience of public investments, via the integration of disaster and climate-related risk analysis.
The Dominican Republic could look to augment its protection with a World Bank supported catastrophe bond, or a much larger sovereign insurance arrangement in future, where it would benefit from the backing of the reinsurance market as well.
The Cat DDO has been seen as a first step in accessing the World Bank’s range of supported disaster risk transfer options, with the IBRD and MultiCat cat bond arrangements perhaps the next step in a nations journey to better disaster security.