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Nicaragua improves ability to respond to natural disasters with IDB support

$186 million contingent loan will help country with earthquakes, floods, and hurricanes

The Inter-American Development Bank (IDB) has approved a $186 million contingent loan to help Nicaragua mitigate the impact that severe or catastrophic natural disasters could have on its public finances.

Due to its geographic location, the country is highly exposed to meteorological and geophysical threats such as earthquakes, floods, tropical storms, and volcanic eruptions. In fact, Nicaragua is the second most vulnerable country in the world to hurricanes and tropical storms, and ranks thirtieth in the world in its vulnerability to earthquakes. Historically, natural disasters have occurred with great frequency in Nicaragua and, in recent decades, their occurrence has been trending upwards. In the last 40 years alone, the country has experienced 53 natural disasters of different types, and has posted economic losses of approximately $2.728 billion, affecting more than 3.9 million people.

The loan will provide Nicaragua with rapid access to liquid resources so that it can deal, on a timely basis, with extraordinary expenditures that could arise in emergencies caused by severe or catastrophic natural disasters. This operation will help Nicaragua not only improve its financial planning but also promote the development of effective mechanisms for the comprehensive management of natural disaster risks through the Comprehensive Natural Disaster Risk Management Program (CNDRMP) required to access the proceeds of this loan. The CNDRMP promotes improvements in the identification, reduction, and financial management of risks, as well as in disaster management.

The IDB financing consists of a $93 million 30-year loan from the Bank’s ordinary capital with a 6-year grace period and fixed interest rate. An additional $93 million is from the Fund for Special Operations for a 40-year term, with a 40-year grace period and 0.25 percent interest rate.

The IDB is one of the leading multilateral lending institutions in the area of disaster financial risk management. The Bank is providing support to Latin American and the Caribbean countries in designing financial strategies to manage the fiscal impact of natural disasters; improving financial information systems and data collection; and structuring financial coverage through different instruments such as reserve funds, contingent loans, and risk transfer instruments.

At the end of the year, the Bank will be providing natural disaster coverage to seven countries in the region through contingent loans for nearly $1,000 million.