The Inter-American Development Bank (IDB) has approved a $400 million contingent loan to help buffer the impact of eventual natural disasters and severe or catastrophic public health emergencies on Honduras’s public finances.
The operation was approved under the Contingent Credit Facility for Natural Disaster and Public Health Emergencies (CCF), an innovative instrument intended to promote a greater degree of financial resilience for countries. The CCF also increases the Bank’s climate change financing for Latin America and the Caribbean. Funds will only be disbursed to the country in case of an emergency event and will be used to finance extraordinary public expenditures.
Honduras is exposed to multiple natural hazards such as earthquakes, floods, hurricanes, and droughts, whose frequency and intensity are expected to increase as the impact of climate change intensifies. The country is also vulnerable to pandemics, such as COVID-19, and epidemics, including dengue fever, chikungunya, and zika.
The program aims to improve financial management of natural disaster and public health event risks by increasing stable, cost-efficient, and rapid-access contingent financing. These funds would pay for extraordinary public spending to meet the needs of populations affected by this type of emergencies.
The operation is structured under two CCF modalities: The $300 million Modality I will provide parametric coverage in the event of earthquakes, hurricanes, and excess rainfall associated with cyclonic systems; and the $100 million Modality II will cover future epidemics and pandemics. This coverage will enhance the country’s ability to deploy a rapid and effective response to emergencies, including humanitarian assistance, restoration of public services, and other rapid-response measures.
The IDB and Honduras seek to improve the latter’s integrated disaster risk management by fostering improvements to the five pillars of the Integrated Natural Disaster Risk Management Plan (INDRMP): Governability and development of the guiding framework; risk identification and awareness; disaster risk reduction; emergency preparedness; and financial risk management.
Natural disasters have a disproportionate impact on vulnerable populations less prepared to deal with these events. In light of this scenario, the program seeks to incorporate a perspective that is mindful of gender equality and vulnerable groups, such as indigenous populations and people with disabilities, to disaster risk management. This would be implemented through activities included in the INDRMP as well as the gender action plan to tackle major gender gaps.
The contingent loan’s potential beneficiaries include the Honduran population at large, especially those affected by emergencies, who will receive urgent assistance under the proposed coverage.
This operation is aligned with the crosscutting themes of climate change and gender inclusion of the IDB’s Vision 2025 – Reinvesting in the Americas: A Decade of Opportunities, aimed at bringing economic recovery and inclusive growth to Latin America and the Caribbean.
The IDB’s $400 million lending consists of $140 million in concessional financing with a repayment term and grace period of 40 years and 0.25 interest; and a $120 million loan with a 25-year term, a 5.5-year grace period and interest rate based on LIBOR.
The Inter-American Development Bank is devoted to improving lives. Established in 1959, the IDB is a leading source of long-term financing for economic, social and institutional development in Latin America and the Caribbean. The IDB also conducts cutting-edge research and provides policy advice, technical assistance and training to public and private sector clients throughout the region.