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Disaster Risk: Using Capital Markets to Protect Against the Cost of Catastrophes

Michael Bennett's picture
Hurricane Sandy / NOAA
Hurricane Sandy / NOAA


In addition to their often devastating human toll, natural disasters can have an extremely adverse economic impact on countries. Disasters can be particularly calamitous for developing countries because of the low level of insurance penetration in those countries. Only about 1% of natural disaster-related losses between 1980 and 2004 in developing countries were insured, compared to approximately 30% in developed countries. This means the financial burden of natural disasters in developing countries falls primarily on governments, which are often forced to reallocate budget resources to finance disaster response and recovery. At the same time, their revenues are typically falling because of decreased economic activity following a disaster. The result is less money for government priorities like education or health, thereby magnifying the negative developmental impact of a disaster.

To address this problem, the World Bank Treasury has been helping our clients protect their public finances in the event of a natural disaster. The most recent innovation is our new Capital-at-Risk Notes program, which allows our clients to access the capital markets through the World Bank to hedge their natural disaster risk. Under the program, the World Bank issues a bond supported by the strength of our own balance sheet, and hedges it through a swap or similar contract with our client. The program allows us to transfer risks from our clients to the capital markets, where interest in catastrophe bonds is growing.

Translating the language of fisheries economists for global ocean health

Timothy Bouley's picture

Economists speak a secret language. Markets, management, supply, costs, returns, rents – words I think I know, until I see them on a PowerPoint slide with a graph and an equation that starts with a sigma. Suddenly, it becomes clear these markets aren’t only the ones where I buy my peaches and rent is something more than a monthly check.

This past week I attended the bi-annual conference for the International Institute of Fisheries Economics and Trade. The hottest topics in fisheries economics were presented – the global state and outlook of aquaculture, capture fishery models, artisanal fishing, governance, rights based management, individual transferrable quotas, the impact of climate change, and dozens of others. Mostly comprising academics, the talks were technical, pithy, and representative of latest. An honest opportunity for discourse amongst equals to share and vet their work on ocean economies.

As a non-economist, I was in the minority here (though not a complete outsider – ecologists, trade experts, and fishermen were also in the mix). In spite of this lack of ‘expertise’ it is clear that the issue of ocean health is an economic one. We lose billions of dollars every year from mismanaging our fisheries and degrading ocean habitats. That money comes out of everyone’s our pockets. From small-scale fishers to large industry fleets to average consumers, we all pay the price. Economics can indeed play a large role in solving our ocean health problems, how challenging it is to get economists to agree on these solutions is another matter…    

Should the World Bank Become A Remittance Center?

Dilip Ratha's picture

Last week the New York Times featured an editorial suggesting that the World Bank should become a remittance center. Remittances are the "largest and arguably most effective antipoverty effort in the world.....financed by the poor themselves...,” it stated. “But the cost to transfer those billions is likely to rise soon...[as] big banks are leaving the money-transfer business, including Bank of America, Citigroup and JPMorgan Chase."  

"If banks can’t profitably transmit remittances — and won’t do so as a low-margin courtesy — then other secure, low-cost options must be found. One solution would be for the World Bank to become a remittance center.” 

Why should Governments Spend on Sanitation?

Shanta Devarajan's picture

A puzzle:  Sanitation is one of the most productive investments a government can make.  There is now rigorous empirical evidence that improved sanitation systems reduce the incidence of diarrhea among children.  Diarrhea, in turn, harms children’s nutritional status  (by affecting their ability to retain nutrients).  And inadequate nutrition (stunting, etc.) affects children’s cognitive skills, lifetime health and earnings.  In short, the benefits of sanitation investment are huge.  Cost-benefit analyses show rates of return of 17-55 percent, or benefit/cost ratios between 2 and 8.

But if the benefits are so high (relative to costs), why aren’t we seeing massive investments in sanitation?  Why are there 470 million people in East Asia, 600 million in Africa and a billion people in South Asia lacking access to sanitation?  Why are there more cellphones than toilets in Africa?

The Longer World Waits to Address Climate Change, the Higher the Cost

Rachel Kyte's picture

Climate change ministerial, IMF/World Bank Spring Meetings 2014In September, the world’s top scientists said the human influence on climate was clear. Last month, they warned of increased risks of a rapidly warming planet to our economies, environment, food supply, and global security. Today, the latest report from the UN Intergovernmental Panel on Climate Change (IPCC) describes what we need to do about it.

The report, focused on mitigation, says that global greenhouse gas emissions were rising faster in the last decade than in the previously three, despite reduction efforts.  Without additional mitigation efforts, we could see a temperature rise of 3.7 to 4.8 degrees Celsius above pre-industrial times by the end of this century. The IPCC says we can still limit that increase to 2 degrees, but that will require substantial technological, economic, institutional, and behavioral change.

Let’s translate the numbers. For every degree rise, that equates to more risk, especially for the poor and most vulnerable.

More efficient ways to transfer remittances are emerging. Are migrants and their families ready to benefit from them?

Massimo Cirasino's picture

The price of sending international remittances has reached a new record low in the first quarter of 2014. The global average cost of sending money across borders was recorded at 8.36 percent. This figure is used as a reference point for measuring progress toward achieving the so-called “5x5” objective – a goal endorsed by the G8 and G20 countries – to reduce the cost of sending remittances by five percentage points, to 5 percent, by the end of 2014.

Most indexes of international remittance costs – published by the World Bank in the new, ninth issue of the Remittance Prices Worldwide report, which was released on March 31 – indicate good progress in the market for remittances.

The global average cost is significantly lower when weighted by the volume of money that flows in each of the report’s country-to-country pairs. The weighted average cost is now down to 5.91 percent, following a further decline in the last quarter. For the first time, the weighted average has fallen below 6 percent.

Nearly one-third of the remittance-sending countries included in Remittance Prices Worldwide have now achieved a reduction of at least 3 percentage points. Those countries include such major sources of remittances as Australia, Canada, Germany, Italy and Japan. This is also the case for 39 out of 89 of the remittance-receiving countries.

Better Disease Surveillance is part of the Great Lakes Peace Dividend

Kavita Watsa's picture



Beside the great Lake Kivu, beneath the shadow of an enormous volcano, the Rwanda-DRC border divides the neighboring cities of Gisenyi and Goma. As the day begins, the predominant impression is one of movement, as people walk in either direction through the customs checkpoint, carrying giant bunches of green banana, stacks of nesting plastic chairs, anything that is tradable. They form an unbroken stream of humanity crossing to and fro, the tall border signboards towering overhead.

Securing peace with development, saying goodbye to a great leader

Makhtar Diop's picture

As we reflect on the promise of the New Year in Africa, the irrefutable link between peace and development has never been clearer after my recent travels.

Earlier this month, I joined leaders from 53 African nations, the United Nations, and the African and European Unions at the Elysee Summit for Peace and Security  in Africa to talk candidly about how our countries can work together to maintain and enhance peace.

We talked about what this would mean in practice. For example, we must curb drug trafficking on the continent, increase financing for African peacekeeping operations, fight terrorism, manage borders more securely, include women fully in the political and economic decision-making process, and condemn the intolerable persistence of sexual violence when conflicts do occur. This last measure was strongly endorsed by the First Ladies of the Summit who also met to discuss issues of gender, development, and women’s rights.

The African leaders recognize that for many of these measures to work, economic development must be twinned with public and private investment in business, technology, agriculture, climate-smart policies, and in young people who are fast becoming Africa’s driving force and future. Africa is now the world’s youngest continent and how well we meet the skills needs of our young people will greatly determine the continent’s future.

Are Super Farms the Solution to the World’s Food Insecurity Challenge? Ten Questions You Need to Ask Yourself

José Cuesta's picture

Join me in a Twitter Chat on why global food prices remain high on Dec. 4 at 10 a.m. ET/15:00 GMT. I'll be tweeting from @worldbanklive with hashtag #foodpriceschat. Ask questions beforehand with hashtag #foodpriceschat. Looking forward to seeing you on Twitter.


Agriculture workers on a strawberry farm in Argentina. © Nahuel Berger/World Bank

Today there are 842 million who are hungry. As the global population approaches 9 billion by 2050, demand for food will keep increasing, requiring sustained improvement in agricultural productivity. Where will these productivity increases come from? For decades, small-scale family farming was widely thought to be more productive and more efficient in reducing poverty than large-scale farming. But now advocates of large-scale agriculture point to its advantages in leveraging huge investments and innovative technologies as well as its enormous export potential. Critics, however, highlight serious environmental, animal welfare, social and economic concerns, especially in the context of fragile institutions. The often outrageous conditions and devastating social impacts that “land grabs” bring about are well known, particularly in severely food-insecure countries.

So, is large-scale farming—particularly the popularly known “super farms”—the solution to food demand challenges? Or is it an obstacle? Here are the 10 key questions you need to ask yourself to better understand this issue. I have tried to address them in the latest issue of Food Price Watch.

Youth Video Contest Winners Offer Solutions to Poverty

Liviane Urquiza's picture

Youth Video Contest Winners Offer Solutions to Poverty

When you are young and still in school, it’s hard to think of ways you can change people’s thinking at the global level. But sometimes, all you need is a video camera and Internet access.

Today, the winners of the European Development Days video contest “Young voices against poverty,” are being recognized for their contributions to the dialogue on global poverty.


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