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Countries need debt repayment holidays after disasters, says new report

6 October 2016

Countries significantly impacted by extreme weather should have a repayment holiday on government loans and bonds, a Commonwealth report has recommended.

Countercyclical Financial Instruments: Building Fiscal Resilience to Exogenous Shocks’ examines the merits of these so-called countercyclical instruments which include provisions for natural disasters in loans and bonds.

The report examines Grenada’s recent debt restructuring agreement, which includes a hurricane clause. It argues that countries should be given time to recover from natural disasters without having to worry about servicing debt. 

“This week hurricane Matthew is wreaking havoc in the Caribbean, and we see the impact of the increase in frequency and intensity of these climatic events,” said Commonwealth economic expert Heidi Tavakoli.  “This highlights the need to support countries to create strong disaster risk management strategies, backed by sound financing.

“Financial instruments that build in repayment holidays and insurance policies can make all the difference to a country recovering from a disaster. It gives them much needed breathing space to focus on recovery and the reconstruction of their infrastructure.”

Today Commonwealth finance ministers at their annual summit in Washington will examine three important policy papers on the issue. They will also explore the possibility of expanding applications of these financial provisions to economic shocks, such as the recent global recession.

“We are hoping that ministers can learn from the examples we have provided and explore next steps for making this a reality for vulnerable countries across the Commonwealth.”

More information

The Secretariat is launching 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. Find out more