The World Bank has announced an expansion of its climate resilient debt clauses (CRDCs) at COP28, broadening the scope of these clauses which were first introduced in June 2023. This move is part of a larger initiative to establish a comprehensive Crisis Toolkit aimed at improving crisis preparedness and response.
The Crisis Toolkit includes several key components: pausing debt repayments through CRDCs, linking crisis preparedness with pre-arranged financing, supporting development projects with private sector involvement, and enhancing catastrophe insurance without incurring additional debt.
In its latest efforts, the World Bank has expanded CRDCs to encompass all existing loans in small islands and other small states. This allows borrowers to defer principal and interest payments while covering fees with concessional resources. Additionally, countries now have fast access to emergency financing through flexible resource reallocation. The Rapid Response Option enables nations to repurpose unused Bank financing for emergency needs during crises.
The World Bank has also increased access to pre-arranged financing for emergencies, allowing countries to quickly implement measures for resource access during crises. New financing options for budget support are available when disasters occur. Catastrophe insurance has been expanded as well, offering greater protection against large-scale disasters. Countries can embed catastrophe bonds and other risk management products into their Bank financing operations, making them eligible for payouts from insurance mechanisms without accruing more debt.
Currently, forty-five countries have implemented at least one element of the Crisis Toolkit, securing $3.7 billion in pre-arranged contingent resources and $1.4 billion in catastrophe bonds or insurance. Twenty-nine countries have established the Rapid Response Option within their Bank portfolio, with more expressing interest in similar arrangements.
Fourteen eligible small states have signed onto the CRDCs, enabling them to pause debt repayment during major disasters; one country has already activated this clause. Twenty-one countries are benefiting from expanded flexibilities under the Catastrophe Deferred Drawdown Option feature.
Looking ahead to COP29, the World Bank plans to further expand the Crisis Toolkit by extending CRDC coverage beyond earthquakes and tropical storms to include any natural disaster such as droughts, floods, and public health emergencies caused by biological events like pandemics in eligible countries.
"By significantly expanding the scope of CRDCs," stated a representative from the World Bank, "we are doing more to help vulnerable countries access early—and more meaningful—support."