WASHINGTON, June 18, 2014 – The World Bank (WB) Board of Executive Directors approved two credits today totaling US$24 million to facilitate the entrance of Honduras and Nicaragua into the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which provides immediate funding to address emergencies caused by adverse natural events such as hurricanes, earthquakes or excess rains.
The loans, worth US$12 million each and contributed by the International Development Association (IDA), the WB fund for the poorest countries, will finance both countries’ entrance fee to the CCRIF, as well as seven years of insurance premiums for Honduras and four years for Nicaragua.
“Large-scale disasters caused by adverse natural phenomena can endanger government efforts to reduce poverty and promote shared prosperity, while threatening to undo the development gains made to date,” said Maryanne Sharp, World Bank Interim Director for Central America.
Honduras and Nicaragua are highly vulnerable to the adverse effects associated to earthquakes, hurricanes, tropical storms, floods, landslides and excess rains. Between 1990 and 2012, annual economic losses due to these phenomena equaled 2.8 percent of GDP in Honduras and 1.8 percent of GDP in Nicaragua.
The CCRIF is comprised of 17 member states and was created in 2007 to help Caribbean counties recover more quickly following an emergency, providing liquidity at affordable rates and covering any possible shortfall resulting from having to deal with a disaster. The CCRIF functions as a joint reserve facility and improves the fiscal resiliency of member countries undergoing emergency situations. As well as Nicaragua and Honduras, other Central American countries have expressed an interest in joining the CCRIF.
Since its creation, the CCRIF has disbursed eight payments totaling US$32 million to address natural-disaster related emergencies. Given the number of member countries, and the contributions from donor countries, the mechanism has been able to diversify its portfolio and take out insurance at more favorable rates, resulting in an average saving of 50 percent compared to the price countries would obtain if they had taken out insurance individually in international markets.
The US$12 million loan for the Disaster Risk Insurance Project for Honduras has a 25-year maturity period and a 5-year grace period. The US$12 million loan for Nicaragua has a 40-year maturity period and a 10-year grace period.