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FEATURE STORY

A Landmark First for Africa: Seychelles Uses Contingent Credit for Disasters

October 21, 2014


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Seychelles is often impacted by cyclones, flooding and mudslides. 


STORY HIGHLIGHTS
  • A new, $7 million reserve for disaster recovery takes effect in Seychelles, making it the first African country to gain access to contingency financing
  • The reserve will help the country respond to natural disasters such as cyclones or landslides immediately, without the need for fundraising
  • Contingency financing strengthens the country’s comprehensive approach to disaster risk management and helps to build resilience to catastrophes

WASHINGTON, October 21, 2014  ̶  Seychelles has become the first nation in Africa to gain access to a World Bank contingency financing facility aimed at building resilience to the effects of catastrophic events impacting its citizens and economy. This is the ultimate rainy-day fund as it means a reserve of US$7 million becomes available to the Ministry of Finance in the event of a disaster. 



" The reason the DPL with Cat DDO is so significant is because it provides immediate liquidity when medium-sized or cumulative disasters hit Seychelles. As a result, we can avoid diverting funds originally set aside for development projects and attend to the needs of our country's poorest. "

Pierre Laporte

Minister of finance, trade and investment for Seychelles

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Seychelles Minister of Finance Pierre Laporte (center) with World Bank Country Director Mark Lundell (right) and Senior Director Ede Jorge Ijjasz-Vasquez (left) sign the contingent financing loan agreement in October, at the World Bank Headquarters in Washington, DC. 


Such immediate liquidity supports the government’s current efforts for improved disaster response and reconstruction.  The facility is known as a Catastrophe Deferred Drawdown Option which is part of the country’s larger Development Policy Loan. The drawdown options acts as a contingent line of credit that enables Seychelles to “draw down” funds in the immediate aftermath of any natural disaster, such as a cyclone or landslide, which is declared a national emergency by the government. Why is this significant? Pierre Laporte, minister of finance, trade and investment for the island country, explains:

“The reason the DPL with Cat DDO is so significant is because it provides immediate liquidity when medium-sized or cumulative disasters hit Seychelles. As a result, we can avoid diverting funds originally set aside for development projects and attend to the needs of our country's poorest.”

The facility is available for three years, and can be renewed for up to 15 years. It enables Seychelles to be better prepared to respond quickly to natural disasters which frequently occur in the region.  Because of its location, topography and landscape, Seychelles is often impacted by cyclones, flooding and mudslides. The most recent event occurred in January 2013 when Tropical Cyclone Felleng hit the country. While no deaths were reported, the cyclone caused US$8.4 million in damages (equivalent to 0.77 percent of the 2012 country’s GDP) and losses in key sectors, such as transport and tourism.

For countries to be eligible for the loan, they must already have a functioning hazard risk management program in place. The facility, therefore, goes beyond financing. It includes post-disaster recovery to further support the strengthening of the legal framework for disaster risk management and the integration of disaster risk reduction into development planning and decision-making. In the case of Seychelles, the Government has spent the last two decades ramping up its efforts to improve resilience from disasters.

“The Government has shown its commitment to strengthening disaster risk management, which is illustrated by recently approving a Disaster Risk Management Act, a disaster risk management policy and by establishing a risk information database,” said Doekle Wielinga, the Bank’s task team leader for the DPL with Cat DDO.

The Catastrophe Deferred Drawdown Option also complements other Bank support for private sector development, social protection and fisheries development. Such support includes the Southwest Indian Ocean Risk Assessment and Financing Initiative, financed by the Global Facility for Disaster Reduction and Recovery through the European Union (EU) - funded “Africa Caribbean Pacific - EU Natural Disaster Risk Reduction Program”. The aim of this program is to improve the understanding of disaster risks and risk financing solutions of five Indian Ocean island states. There is also support from a third, World Bank financed Seychelles Sustainability and Development Competitiveness Loan which supports reforms through improving the business climate, enhancing fiscal transparency and increasing fiscal oversight and controls over public enterprises.

“By efficiently responding to disasters and strengthening its disaster risk management plan, we hope there will be significant improvements in the lives of Seychelles’ most vulnerable citizens,” said Ede Ijjasz-Vasquez, the Bank’s senior director for the social, urban, rural and resilience global practice. “The DPL with Cat DDO adds yet another vital component to the country’s risk reduction policies.” 


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