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Developing local capital markets to fund domestic long-term financing needs

Ceyla Pazarbasioglu's picture
Also available in: العربية | Español | 中文 | Français



Finance fuels economic growth and development. Yet, it is also clear that traditional funding sources – public finances, development assistance or banks loans – will not be sufficient to finance the Sustainable Development Goals.

Both developed and developing countries are turning to capital markets to find new sources of funding and to attract private sector financing, investment and expertise.

A key priority for the international development community is to unlock adequate private sector financing so that emerging market countries can meet their financing needs to fund strategic objectives, such as improving infrastructure.

We estimate that the amount of infrastructure financing covered by the private sector could be more than doubled, if countries harness the full potential of local capital markets.

At the World Bank Group, we are committed to marshal our expertise to increase the use of capital markets for investment financing. Helping countries develop government debt markets is vital to our goals of eliminating extreme poverty and boosting shared prosperity.

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.