BSP okays $500-M WB disaster risk loan

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has given the green light to the National Government to negotiate the terms of a $500-million disaster risk management development loan from the unit of the World Bank.

BSP Governor Amando M. Tetangco Jr. said the central bank has approved in principle the proposed loan that would be funded by the World Bank’s International Bank for Reconstruction and Development (IBRD).

Tetangco said proceeds of the loan could be used by the National Government to cover its disaster risk reduction efforts and its unexpected post disaster costs.

“The loan could be used to fund the government’s post disaster reconstruction and development efforts,” he said.

To avail of the loan in case of a disaster, he explained that the Philippine government should declare a state of natural calamity. The disbursement of the loan would depend on the magnitude of the calamity.

The WB-IBRD operates the Catastrophe Risk deferred drawdown option that enables borrowing countries to access an immediate source of funding to respond rapidly in the aftermath of a natural disaster. It is meant to serve as bridge financing, while other sources of financing are mobilized following a natural disaster.

It is part of a broad spectrum of World Bank Group catastrophe financing instruments available to assist borrowers in planning efficient responses to catastrophic events.

Borrowing countries are expected to implement a disaster risk management program that the World Bank would monitor on a periodic basis.

Under the program, funds could be drawn down after a natural disaster and upon declaration of a state of emergency unless the borrower has received prior notification from the World Bank that the disaster risk management program is not being implemented in accordance with the agreed framework.

In disaster-prone countries like the Philippines, natural disasters are a development issue, and not simply an issue of humanitarian assistance. Disasters directly impact the social and economic infrastructure of society. For developing countries, disasters hit the poor hardest.

The Philippines is the second largest archipelago in the world with over 7,100 islands but is situated in the Pacific Ring of Fire that encircles the Pacific Ocean where there is frequent earthquakes and volcanic eruptions. There are also about 20 to 25 typhoons that hit the Philippines every year.

Tetangco said the loan would be payable in 25 years inclusive of a 10-year grace period and carries a front end fee of 0.50 percent of the loan value.

He added that the loan disbursements would be priced at the prevailing spread over LIBOR for IBRD loans – comprised of the contractual spread, funding cost, maturity premium, and market risk premium- at the time of drawdown.