KATHMANDU, Oct 15: Nepal has partnered with the World Bank (WB) to explore the issuance of a catastrophe bond that could strengthen the country’s financial preparedness for major earthquakes.
The proposed bond aims to help Nepal access funds quickly after a predefined disaster event, enabling a faster emergency response and supporting post-earthquake recovery.
A catastrophe bond is a specialized financial instrument designed to transfer the financial risks associated with natural disasters, such as earthquakes and storms, to investors in international capital markets. It functions much like insurance.
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Following a disaster, governments typically have to use their own budgetary resources or incur additional debt to finance recovery and reconstruction. Catastrophe bonds, however, can provide rapid access to funds without adding to a country's debt burden, offering immediate liquidity in the aftermath of a disaster.
The World Bank issues these bonds in international markets under its Capital-at-Risk Notes program. Institutional investors and insurance-linked securities funds worldwide purchase the bonds, providing fully collateralized capital.
Under the agreement, the World Bank Group’s Treasury will work with the Government of Nepal and potential investors to assess the bond’s financial feasibility and possible structure.
The initiative will examine how capital markets can complement Nepal’s existing disaster risk management efforts by providing additional financial protection against natural disasters.
The partnership is part of the World Bank Group’s global Catastrophe Bonds Program, which helps countries transfer disaster risks to capital markets and secure funding to manage the financial impact of major natural disasters.
