Combating Natural Disasters: World Bank offers $250m soft loan

The World Bank has offered a low-cost loan of $250 million to Bangladesh for tackling natural disasters.

The loan is available from a new financing window, Catastrophe Deferred Drawdown Option (Cat DDO), of the global financial institution at an interest rate of 0.75 percent. It is repayable in 38 years, with a grace period of eight years.

The WB made the offer to the Economic Relations Division (ERD) early this month. It came at a time when the country's many northern and central districts have been witnessing flood.

Bangladesh is the sixth most climate-vulnerable country in the world, according to Global Climate Risk Index 2017.

A finance ministry official said Bangladesh for the first time received a financing proposal from the WB's new financing window.

According to the offer, the loan will be disbursed over three years. However, the tenure can be extended for another three years if the total amount is not drawn within this period.

An ERD official said they sent the WB proposal to the related ministries and the Finance Division. After getting opinion from the ministries, the ERD will convey to the global financier whether the government would take the loan.

The WB in a presentation at the ERD said Bangladesh was highly vulnerable to disasters and climate change as its people were exposed to cyclone, flood, earthquake and drought.

The country's annual average loss from floods and cyclones is around $3.2 billion, which is 2.2 percent of the GDP.

Natural disasters in Bangladesh between 2000 and 2013 caused losses of more than $10 billion, but the total funding available for relief, rehabilitation, and reconstruction works in the same period was only $2 billion, said the global financial institution.

DISASTER MANAGEMENT PLAN

The disaster management and relief ministry in March drew up the National Plan for Disaster Management 2016-20.

According to the plan, the national economy was at risk from natural disaster events and climate stresses. A large chunk of Gross Domestic Product (GDP) is lost each year to these events.

It said there were 17 high- and medium-impact natural disasters in Bangladesh from 2010 to 2015, which caused economic losses.

Over the recent decade of 2005-2014, economic losses due to disasters amounted to more than $285 million, between 0.8 and 1.1 percent of GDP each year on an average.

A finance ministry official said the country's economy might suffer a big loss this year due to flood and heavy rains. He said the ministries concerned would make a damage need assessment next month when the figures of actual losses would be known.

According to him, the WB loan was a budget support which was not tagged with tough conditions like those in traditional budget support. Bangladesh could not avail the traditional budget support from the WB for a long time due to tough conditions.

Zahid Hussain, lead economist at the WB Dhaka office, said the Catastrophe Deferred Drawdown Option is a contingent credit line that allows IDA member countries to access a source of immediate liquidity to quickly respond to a natural disaster and/or health-related emergency.”

He said as part of a broad range of risk financing instruments available from the World Bank, an instrument like this could ensure immediate availability of funds for short term relief and long term recovery efforts, thus helping protect development priorities.