$100 million contingent loan facility to enhance The Bahamas disaster risk financing strategy and not have any impact on the nation’s public debt level
The Bahamas will strengthen its natural disaster risk management by contributing to building resilience of its public finances against the impacts of climate change with a $100 million contingent loan facility from the Inter-American Development Bank (IDB). This loan facility will provide the country with quick access to liquid resources to timely finance extraordinary public expenses that could arise in the future during emergencies caused by severe or catastrophic natural disasters.
This proactive effort to strengthen The Bahamas’ natural disaster risk management strategy will not impact the national debt. Furthermore, this cross-sector institutional approach promotes good governance practice towards building and advancing environmental resilience in the country, providing timely and coordinated institutional responses, and most importantly, saving lives during emergencies.
The contingent financing is funded from the IDB’s ordinary capital and includes a mechanism that allows The Bahamas the flexibility to draw funds from the existing IDB portfolio of current investment loans that have balances available for disbursement. The IDB support through this instrument is in line with the latest IMF’s Article IV recommendations that the country continues efforts to develop natural disaster ex ante financial protection instruments to mitigate the impa ct of these events in the country’s public finances.
By providing ex-ante financing, this facility will help The Bahamas to broaden and deepen its financial strategy to address and recover from natural disasters that may occur in the future, supporting the government’s immediate response capacity and protecting its fiscal balance. This loan facility is just one of a range of financial protection and risk transfer instruments that countries optimally seek to secure as part of an appropriate risk layering strategy to cover probable losses from future hazard events of varying magnitudes.
The Bahamas is highly exposed to natural hazards, particularly hurricanes. Within the past 50 years, 18 hurricanes have hit its territory. Between 2015 and 2017, three category four or higher storms in successive years caused cumulative damage and losses of approximately US$680 million. This contingent financing was not available at the time, thus limiting the response options of Government. As the effects of climate change intensify, extreme weather events are expected to become more frequent and intense, resulting in greater impacts on the environment, economy and population. Standard & Poor’s lists the country as one of the most vulnerable when it comes to the credit implications of climate change.
The executing agency will be the Ministry of Finance, through which the use of loan resources will be carried out by the public-sector institutions responsible for budget execution during emergencies. Additionally, a specific condition of the country’s ability to continue to maintain access to the facility is the maintenance of a comprehensive disaster management program (CDRMP) in which the country self-identifies the targets and improvements it seeks to achieve in five main policy areas: (i) disaster risk management governance; (ii) risk identification; (iii) risk reduction; (iv) preparation for emergency and response; and (v) financial protection and risk transfer. The Government, through the efforts of a multi-sectoral committee co-chaired by the National Emergency Management Agency and the Ministry of Finance, has already identified initial year 1 CDRMP priorities for The Bahamas.