World Bank expands lifeline to Small States hit by disasters

The World Bank Group has expanded its lifeline to countries struggling to rebuild from disasters, allowing small, vulnerable states to postpone loan and interest repayments after a catastrophic event, so governments can focus on recovery rather than paying off debt. 

A statement said that in response to feedback from countries, the World Bank’s Climate Resilient Debt Clause (CRDC) now covers all natural disasters, including droughts, floods and health emergencies like pandemics.  

Previously, two types of natural disasters, tropical cyclones and earthquakes, were eligible under the CRDC, which allows eligible countries to defer principal and/or interest repayments on IBRD and IDA loans for up to two years. 

“By significantly expanding the scope to cover all catastrophes, we are helping vulnerable countries to access more meaningful support quickly. In times of crisis, leaders need a reliable partner that has their back. The World Bank wants to be that partner,” said World Bank Group President Ajay Banga, who made the announcement during COP29 in Baku. 

So far, 14 countries out of 45 that are eligible for CRDCs, have included this clause in their loan agreements.  

One country, St Vincent and the Grenadines, exercised the deferral option after Hurricane Beryl. There is no cost to borrowers and any fees associated with offering the CRDC are recovered from concessional resources. 

Aside from making the clause more relevant for countries that face a multitude of natural hazards, the World Bank said it has also simplified the process for clients to apply to delay repayments in the event of a catastrophe. 

The CRDC is part of a broader suite of tools in the World Bank’s Crisis Preparedness Response Toolkit available to countries coping with the devastation wrought by natural disasters.  

This toolkit also includes measures to redirect financing for emergency operations.