Despite being the most susceptible to the damaging effects of climate change, the poorest and most vulnerable countries are not reaping sufficient benefits from pre-arranged financing (PAF) designed to address natural disasters, according to the London-based Centre for Disaster Protection’s Thursday statement.
Pre-arranged financing involves funds borrowed from capital markets through contingent credit, regional risk pools, and catastrophe bonds, specifically earmarked for use in the event of a predefined occurrence.
While PAF has seen growth over the past two years as a mechanism to mitigate losses linked to weather conditions, a report from the center issued a warning that it constitutes only a minor portion of global crisis funding and is economically impractical for heavily indebted nations. The report emphasized that “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.”
From 2017 to 2021, a mere $200.8 million, equivalent to just 3.7 percent of global development funding for PAF, reached low-income nations, the report highlighted. The complexities of repaying accumulated debt further complicate access to PAF for these countries.
The center revealed that approximately 60 percent of the beneficiaries of the International Monetary Fund and World Bank’s Debt Sustainability Framework for Low-Income Countries face a high risk of debt distress or are already in such a situation. The disparity in access to pre-arranged financing raises concerns about the ability of the most vulnerable nations to cope with the increasing challenges posed by climate-related disasters.
