ADB's new disaster funding: What to know

MANILA — The Asian Development Bank’s board of directors approved a new multibillion-dollar financing mechanism early this month that’s designed to help member countries both prepare for and respond to disasters. The contingent disaster financing, which will have as much as $4 billion in available financing from the bank’s different funding windows, is meant to cover disasters brought about by natural phenomena such as earthquakes, droughts, flooding, typhoons, and tsunami. It can be a quick resource for countries, “likely within days,” when a disaster hits, said Tomoyuki Kimura, ADB director-general of the strategy, policy, and review department. Contingent disaster financing, or CDF, he said, supports the bank’s “Strategy 2030” operational priorities of tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability. It is also in line with the bank’s commitment to support the Sendai Framework for Disaster Risk Reduction by integrating disaster risk management into its member countries’ development plans and budgets, he added. CDF builds on the bank’s three previous operations on contingent financing for natural disasters, which were focused on the Pacific region. This includes the Pacific Disaster Resilience Program approved in 2017 that covered the islands of Tonga, Samoa, and Tuvalu. But how does CDF differ from other ADB disaster-focused funds, what are the criteria that countries need to satisfy to access it, and what are the funds they can avail from this new financing mechanism? Devex asked ADB’s Kimura. Here’s what he said in an emailed response. This interview has been edited for length and clarity. How does CDF differ from other ADB disaster funds, for example, the Asia Pacific Disaster Response Fund? The key difference with other ADB disaster fund such as the Asia Pacific Disaster Response Fund is that the CDF is not a fund, but a financing option under ADB’s Policy Based Lending modality. As with other PBL financing, the CDF provides support against the satisfactory achievement of policy actions. The key feature of the CDF is that these policy actions focus on disaster resilience. Another important feature of the CDF is its contingent nature. The conditions for disbursement are designated as prior actions, and funding is made available contingent to the event of a disaster triggered by a natural hazard. The CDF can be supported by a loan or a grant, while the APDRF is a special fund to provide incremental grant resources to finance activities to meet immediate financing needs in [developing member countries] impacted by a major natural disaster. How much funding is currently available under CDF? An ADB-wide ceiling of $3 billion in regular Ordinary Capital Resource financed CDF and $1 billion in Concessional OCR Loan and Asian Development Fund-financed CDF will initially be applied, subject to review 3 years after the Board of Directors’ approval. What are the criteria for countries to access CDF? All of ADB’s DMCs are eligible upon meeting approval criteria, which include: - Sound macroeconomic management and other policies (including an IMF assessment letter); and confirmation of debt sustainability. - Satisfactory completion of a set of substantive legal, institutional, and policy reforms to improve disaster preparedness and disaster risk management (captured in a policy matrix). - Strong commitment from the government to continue implementing policy actions to enhance resilience to natural hazards. [Meanwhile], disbursement is available if pre-specified condition(s) are linked to a disaster caused by natural hazard—for example, the DMC’s declaration of a state of emergency, or its equivalent as agreed — have been met. Additional disbursement conditions are mutually agreed at the time of negotiation and reflected in legal agreements. What is the amount that can countries ask for under the CDF? Each DMC can mobilize an amount equal to 0.50% of GDP, up to a maximum of $500 million if financed by regular OCR or a maximum of $250 million if financed by concessional OCR loans or ADF. Small DMCs whose 0.50% of GDP is less than $20 million may avail of up to $20 million, subject to their available resources. Can local government units also directly apply for funding from the CDF? The CDF is financed through ADB’s sovereign operations. Sovereign financing is extended to DMC governments and public sector entities, such as state-owned enterprises. Local government units can be the borrower of the CDF operation. However, they would require a sovereign guarantee. Local governments can also play an important role in designing and implementing the disaster resilience reforms required for CDF. Which countries are currently seeking approval to access CDF? There are several ongoing discussions with countries in the Pacific region.