The World Bank has given the Philippines a $500-million credit line for use in efforts to manage risks posed by natural disasters.
The Washington-based lender on Wednesday said its Board of Executive Directors had approved the grant of the Second Disaster Risk Management Development Policy Loan with a Catastrophe-Deferred Drawdown Option (CAT-DDO 2).
The Philippines can access the new credit line after a “state of calamity” is declared by the President, the World Bank said in a statement.
The credit facility provides the country with the flexibility to use funds as needed. The drawdown period is three years, renewable up to four times for a total of 15 years. Amounts repaid during the drawdown period are available for subsequent withdrawal.
The Philippines, in 2011, was the first country in the Asia and Pacific region to use this type of financing option with the CAT-DDO.
The World Bank said second CAT-DDO would provide the government with a platform to sustain reforms and effectively implement a disaster risk reduction and management program.
World Bank Country Director Motoo Konishi said the grant signified the the multilateral’s recognition of the Philippines’ comprehensive efforts to strengthen its capacity for managing disaster risks.
The lender noted that after Tropical Storm Ondoy (Ketsana) and Typhoon Pepeng (Parma) in 2009, legislators passed Republic Act 10121 or the Philippine Disaster Risk Reduction and Management (DRRM) Act, which mandated a shift from disaster response to disaster risk reduction and preparedness.
“If not managed well, disasters can roll back years of development gains and plunge millions of people into poverty,” Konishi said.
“Disasters can induce and exacerbate poverty through the loss of lives, destruction of assets, disruption of economic activities and trade, and indirect impacts on health, mobility, gender equality, and access to education,” he added.
According to the World Bank, over 1,000 lives on average are lost every year in the Philippines, with typhoons accounting for 74 percent of fatalities, 62 percent of total damage, and 70 percent of agricultural damage.
It also noted that the country is highly exposed to geologic hazards such as earthquakes and volcanic eruptions.
In 2013, Super Typhoon Yolanda (Haiyan) devastated parts of the Visayas, causing over 6,000 fatalities and creating extensive damage to property, infrastructure, businesses and livelihoods.
Total losses reached P571.1 billion or $12.9 billion, cutting economic growth by about 0.9 percent in 2013 and another 0.3 percent in 2014. As a result, about 2.3 million people fell below the poverty line.
Finance Secretary Cesar Purisima agreed that the Philippines was among the most vulnerable countries in the world.
“Together, the 20 most vulnerable countries face escalating losses of $44.9 billion due to climate-related natural disasters alone. Inaction is set to cost us even more. With the number set to multiply almost ten-fold by 2030, amounting to $418 billion, we turn to innovative financing mechanisms to boost our resilience,” he said.
Purisima noted that financial shocks caused by natural disasters would undermine economic growth and poverty reduction efforts, which he described as the environmental equivalent of the middle-income trap.
“Governments need to be agile in mobilizing resources if we are to break free from disaster-traps that knock back the poorest and most vulnerable,” he said.
He noted that the Finance department developed the Disaster Risk Financing and Insurance Strategy in 2015 to ensure financial resilience at the national, local, and individual levels.
At the national level, the government will combine various financial instruments to protect the country, including reserves such as the national and local disaster risk reduction funds and contingent credit such as the CAT-DDO 2.
At the local and individual levels, the Finance department is working with the World Bank to set up a sub-national insurance pool, which will provide local governments with immediate liquidity following disasters, and design a property catastrophe risk insurance pool for homeowners and businesses.
The Finance department is also collaborating with Social Welfare department to set up a system of emergency income support utilizing the payment infrastructure of Pantawid Pamilya, the country’s conditional cash transfer program. This will help strengthen post-disaster assistance to the poorest and most vulnerable.