Sri Lanka yesterday became the first South Asian country to access an innovative form of World Bank financing that provides immediate payouts after a major catastrophe such as a tsunami, cyclone or flood.
Approved by the World Bank’s Board of Executive Directors, the $102 million Development Policy Loan with a Catastrophe Deferred Drawdown Option (DPL with a CAT DDO) is a line of credit that can be drawn on partially or in full if a country declares a state of emergency after a natural disaster. The facility was approved by the Board along with a $110 million Climate Resilience Improvement Project (CRIP), which will finance both short and long term interventions to reduce climate and disaster risk.
“Poor people are usually the first to suffer in natural disasters and they do not have the resources to cope with the losses in income or property,” said Francoise Clottes, World Bank Country Director for Sri Lanka. “The package of financial support, including a first of its kind facility for South Asia, will help the government of Sri Lanka to respond more effectively to help people suffering from a natural disaster while ensuring that financial support remains intact for the country’s programs to overcome poverty and increase shared prosperity.”
The DPL with a CAT DDO facility was first launched by the World Bank in 2008, with the first users being middle-income countries in Latin America and the Caribbean. The Board has since approved DPL with a CAT-DDO in the Philippines, Costa Rica, Colombia, El Salvador, Guatemala, Panama and Peru. Countries accessing the facility after a major disaster found it to be a flexible and prompt financial tool that enabled governments to focus on emergency response measures rather than spend valuable time and resources trying to raise funds. Sri Lanka’s status as the first country in South Asia to access the facility reflects its rise as a middle-income country and increasingly sophisticated development needs.
“This operation is part of a broader strategy to help the government of Sri Lanka shift to a more comprehensive approach to the management of disaster risks.” said Marc Forni, Task Team Leader of the project. “It will also help improve institutional mechanisms for disaster risk management and financial protection, increase capacity to ensure climate resilient development, and improve understanding of disaster risk,” he added.
Sri Lanka’s vulnerability to natural disaster was brought into sharp focus with the Indian Ocean tsunami in 2004, which killed more than 35,000 people in the country. Despite the enormity of this event, it is regular floods and droughts that present the most significant natural disaster threat to growth and development in Sri Lanka over the long term. This is particularly true for northern and eastern provinces. But most of the country suffers significant exposure to multiple hazards. During the period 2000-10, floods cumulatively affected more than 8.5 million people, while droughts have affected more than 5 million. In addition, landslides and high winds frequently destroy or damage thousands of houses every year. Though less frequent, cyclones have significant impacts. A cyclone in 1978 devastated the low-lying district of Batticaloa, killing more than 1,000 people and displacing nearly one million. More recently, in 2000 a cyclone damaged 83,000 houses.
The DPL with a CAT DDO can be disbursed over a period of three years and may be renewed up to four times for a total of 15 years.
The World Bank’s current total net commitments in Sri Lanka stand at $1.38 billion, distributed across 20 activities. Urban and transport infrastructure account for 45 percent of the portfolio, followed by human development at 24 percent, livelihoods and rural development at 21 percent and finance and private sector at 5 percent. World Bank’s private sector development arm IFC has a total committed portfolio of $288 million, with the financial sector accounting for 54 percent. IFC has 16 active advisory projects, with around 70 percent of its portfolio assisting Small and Medium-sized Enterprises.