A one-year catastrophe bond, or cat bond, underwritten by the World Bank and which provides Jamaica with US$185 million in insurance coverage in the event of a natural disaster, comes up for review in December, and already the multilateral institution is saying it’s open to a roll-over of the facility with the possibility of increased coverage.
The cat bond is for named storms.
The facility may also become a Caribbean region-wide financing instrument, based on its success, a World Bank official has said.
“It has been, so far, a very successful model that has been hailed as an innovative financial instrument and was just selected for an award as one of the most innovative financing instruments. I can see that it could be extended for instance, because it finishes December 23,” Dr Mari Pangestu, the World Bank’s managing director of development policy and partnerships, told the Financial Gleaner in an interview on Thursday.
“One thing would be to extend it and maybe increase the amount, and there is some talk about making it a Caribbean cat bond because it seems that this has been a very successful model,” she said.
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The multilateral is also looking to expand and improve on other disaster risk financing instruments, including its catastrophe draw down options. These are contingent financing lines that provide immediate liquidity to countries to address shocks related to natural disasters and/or health-related events. They often serve as early or first call financing in emergencies even as funds from other sources, such as bilateral aid or reconstruction loans, are being mobilised.
The Government of Jamaica was the first in the Caribbean region, and the first of any small island state, to independently sponsor a catastrophe bond.
The World Bank official said disaster risk financing was an important part of the bank’s development policies that encourage and promote resilience-building in countries. This, she said, has become even more of an imperative given the increased challenges that developing countries, in particular, have faced over the past two years, starting with the COVID-19 pandemic and exacerbated by the Russia-Ukraine conflict and the climate crisis.
“Especially for small island developing states like Jamaica, natural disasters and risks coming out of climate and the frequency of climate-related disasters have increased. That is a big concern. How you deal with shocks and build resilience must become part of the development story,” Pangestu said.
She expressed the view of the institution that Jamaica has done “pretty well” in the area of resilience-building through fiscal sustainability over the past several years.
“Jamaica has been developing a very good fiscal sustainability model, reduced your debt and put on track a very good trajectory for managing debt,” she remarked.
Pointing out that there has been an important policy shift at the World Bank, in that climate crisis has become much more integrated in the way the institution looks at economic growth and development, Pangestu observed that Jamaica has been one of the first countries to report its national determined contributions that are part of the climate action plan to cut emissions and adapt to climate impacts as part of the Paris Agreement on climate change.
The World Bank is currently in the process of reviewing its programmes with Jamaica and is completing what it terms the strategic country dialogue with stakeholders, including the Government and private sector, to settle on the country partnership programme that will make up the next round of development projects for financing, and priorities on which the Bank will work with the country.
This, Pangestu said, will include green resilience, strengthening innovation and competitiveness, an inclusive development pathway, diversification of the sources of growth and strengthening and harnessing human capital through health, education and social protection. The consultation process is expected to be completed by June this year.
The World Bank is also working with the Government on financing for the North Coast Highway, the Kingston waterfront development and building out broadband internet coverage across the country. A whole-of-government digital economy strategy is also being developed for Jamaica with World Bank assistance, according to the institution’s managing director.
“We are also talking about urban renewal. This is going to be important to be able to develop Kingston and maybe other areas. Urban renewal will create new opportunities for work and is part of the further development of business process outsourcing hubs in these urban areas,” Pangestu said.
The World Bank’s active portfolio in Jamaica comprises seven projects valued at US$173 million.
Pangestu is in Jamaica for working meetings, May 5-6. Martin Spicer, director for Latin America and the Caribbean for the World Bank affiliate, International Finance Corporation, is also visiting Jamaica for today’s, May 6, launch of a country private sector diagnostic programme.