The poorest and most vulnerable countries do not benefit enough from pre-arranged financing to cope with natural disasters, despite being the most exposed to climate change damage, London-based Centre for Disaster Protection said on Thursday.
Pre-arranged financing (PAF) is money borrowed from capital markets by the issuer in the form of contingent credit, regional risk pools, and catastrophe bonds to be used if a specific event occurs.
While PAF has expanded over the past two years as a mechanism to manage losses related to weather conditions, a report from the center cautioned that it represents only a minor part of global crisis funding and is not financially feasible 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”, according to the report.
It further stated that from 2017 to 2021, only $200.8 million, which is just 3.7 percent of the global development funding for the PAF, reached low-income nations. Access to PAF for low-income countries is complicated by difficulties in repaying accumulated debt.
According to the center, about 60 percent of beneficiaries of the International Monetary Fund and World Bank’s Debt Sustainability Framework for Low-Income Countries are either at a high risk of experiencing debt distress or are already in such a situation.
