By Alessandro Parodi
(Reuters) – The poorest and most vulnerable countries do not benefit enough from pre-arranged financing to cope with disasters and are most exposed to the losses and damage caused by climate change, the London-based Centre for Disaster Protection said on Thursday.
Pre-arranged financing (PAF) represents money borrowed by the issuer from capital markets, in the form of contingent credit, regional risk pools and catastrophe bonds, to be used if a specific event has taken place.
While PAF has grown in the last two years as a tool to address weather related losses, the centre warned in a report that it forms only a small portion of international crisis financing and is unaffordable for highly-indebted countries.
“Many of the countries and communities bearing the brunt of impacts from climate change have done the least to cause it, and typically lack the technical and financial capacity to address loss and damage”, the report said.
It added that between 2017 and 2021 only $200.8 million, equivalent to 3.7% of international development financing for PAF, reached low-income countries.
Low-income nations’ access to PAF is complicated by difficulties in repaying the debt accumulated. The centre has assessed that about 60% of beneficiaries of the Debt Sustainability Framework for Low-Income Countries, introduced by the International Monetary Fund and the World Bank, are at high risk of debt distress or already in debt distress.
Small island developing states, the economies of which often depend on tourism and remittances, are “disproportionately and increasingly impacted by climate change, including being exposed to frequent climate disasters,” the report said.
Worldwide, PAF tools such as sovereign catastrophe bonds, paid out $1.8 billion for disease outbreaks, including Covid-19, $1.3 billion for tropical storms and $834 million for floods and landslides between 2009 and 2023, the data showed.
As nations across the world prepare for the global COP28 climate meeting which starts on Nov. 30 in Dubai, the centre advocated for “far greater use of PAF that delivers for climate- and crisis-vulnerable people”.
(Reporting by Alessandro Parodi, Editing by Aurora Ellis)
