Climate change is proceeding at an alarming and unprecedented rate, and natural disasters in the Caribbean, Pacific and elsewhere are rapidly mounting. It is therefore more important than ever for countries to consider the full range of preventative financial instruments that can be harnessed to consolidate their disaster risk management strategies.
The Commonwealth Secretariat’s Finance and Development Policy Section (FDP) has been examining the value of countercyclical financial instruments, which can assist Commonwealth nations in their efforts to better manage the financial impacts of environmental and economic shocks.
These instruments provide countries with temporary debt service holidays if they are hit by exogenous shocks. This gives governments critical breathing space to accelerate post-shock economic recovery through the prioritisation of reconstruction, infrastructure and social welfare investments. In doing so, these instruments mitigate the need for countries to acquire more debt, or to default on existing debt obligations in order to fund recovery efforts.
The Secretariat launched three policy research papers at its 2016 Commonwealth Finance Ministers’ Meeting (CFMM), which examine two real world examples of these instruments, and the scope for scaling-up the provision of ex-ante countercyclical functionality in the broader international shock financing architecture.