(Barbados Today): Natural disaster clauses and growth and resilience bonds are two of the proposals the Caribbean Community (CARICOM) is being asked to consider as leaders in the region seek to build resilience against natural disasters. The CARICOM Commission on the Economy Report highlights the need for the region to accelerate private sector investment in resilience by creating new requirements for homes and enabling the issuance of a new asset class of bonds that would fund it.
Speaking on this recommendation during a recent online discussion forum hosted by UWI’s Cave Hill Campus and Sagicor Cave Hill School of Business and Management, Chair of the CARICOM Commission on the Economy, Avinash Persaud, said this is vital to gross domestic protection the region. output (GDP) during these disasters.
Recalling the huge loss of GDP in many islands due to hurricanes over the years, Persaud said it was proposed that all public and private sector debt agreed should have natural disaster clauses in them.
“What they do is they automatically make the fact that when you have a natural disaster of a certain size, without having to ask, two years of interest payment and debt payment move. to the end of the loan agreement. So you have two years of interest and free principal payments to basically give you a place to deal with the crisis, ”Persaud explained.
As part of its debt restructuring two years ago, Barbados had included a natural disaster clause in the restructuring agreement with bond holders, making the island currently the largest issuer of sovereign debt with such a clause. This is expected to release about seven percent of Gross Domestic Product should the island experience a natural disaster and need to prevent debt repayment.
Persaud said this effort continues as Barbados seeks to include this in all debt contracts worldwide.
He said with climate change being an irreversible event, it was vital for the region to build in a more resilient way, adding that this did not always mean more expensive construction but smarter construction.
For this reason the CARICOM Commission on the Economy proposes to focus on accelerating private sector investment in building resilience.
“The commission accounts for that amount of building we need at least US $ 20 billion. Governments can’t afford that. We are the most indebted region in the world, ”said Persaud.
“For example, let’s say we are underground for all utilities, so when a hurricane strikes, we don’t need to spend a large chunk of GDP rewinding the country. Undergrounding is very expensive, but maybe if we underground the electricity cables with the telephone cables, separate next door in parallel conduits, water, gas and all these other things and rebuild ‘ r gas at the same time, maybe we can do it cheaper, make cost savings.
So, the private sector will be prepared to invest in this and make a profit, and that’s the way we could spend US $ 20 billion, making ourselves the first climate-resilient region in the world, ”he explained.
In relation to the growth and resilience bonds, Persaud said it is high time that over $ 50 billion was used in the region’s banking system to help build resilience.
“We are trying to design a new, first-class asset class called growth and resilience bonds. These growth and resilience bonds will be fund managers registering to invest in things that will move the needle only on resilience and we will have independent assessors on whether this is truly sustainable and resilient and will sign up to do this and so that savers can put our money into these funds, ”he explained. “Fund managers will find good investment opportunities that hit resilience, put our money to work and we will get more than we currently get in the banking sector because of the returns gain from building more resilience, whether that be a cost gain. savings or gains from generating more revenue, ”he added.
He further highlighted that the plan was to ensure that the money raised from the bonds issued was only spent on approved projects that make the region more resilient to climate change and other natural disasters. Persaud suggested that a rating agency could be set up to rate the sustainability of projects, adding that this would allow fund managers to invest in projects with a specific rating and that this could attract further investment. It is also proposed that the CARICOM Procurement Act be designed as a matter of urgency to allow member states to open bids to companies throughout the region. “We must also ensure that the private sector is not expected to live off the great government contracts. So, we need to reduce some of those government contracts, reduce the rate of return, and so push the private sector back to focus on making money from being competitive rather than lobbying governments, ”added Persaud.