Place for private sector investment in strengthening the region’s resilience
The Natural Disaster Clauses and the Growth and Resilience Bonds are two of the proposals the Caribbean Community (CARICOM) is called upon to consider as leaders in the region seek to build resilience to natural disasters.
The CARICOM Commission Report on the Economy highlights the need for the region to accelerate private sector investments in resilience by creating new demands on households and enabling the issuance of a new asset class to ‘bonds that would finance it.
Speaking on this recommendation at a recent online discussion forum hosted by the UWI Cave Hill Campus and the Sagicor Cave Hill School of Business and Management, CARICOM Economics Commission Chair Avinash Persaud , said this was essential to safeguard the region’s gross domestic product (GDP) during such disasters.
Recalling the massive loss of GDP in several islands due to hurricanes over the years, Persaud said it was proposed that every debt accepted by the public and private sectors contain natural disaster clauses.
“What they do is make sure that when you have a natural disaster of a certain magnitude, automatically without you having to ask, that two years of interest payment and debt repayment move. at the end of the loan agreement. So you have two years of free interest and principal repayments to essentially give you space to deal with the crisis, ”Persaud explained.
As part of its debt restructuring two years ago, Barbados included a natural disaster clause in the restructuring deal with bondholders, currently making the island the largest sovereign debt issuer with such clause.
This is expected to free up some 7% of GDP if the island were to face a natural disaster and need to suspend debt repayment.
Persaud said that effort was still underway as Barbados sought to include it in all debt contracts around the world.
He said that with climate change being an uninsurable event, it was essential for the region to build more resiliently, adding that this didn’t always mean building more expensive but building smarter.
It is for this reason that the CARICOM Economics Commission proposes to focus on accelerating private sector investments in building resilience.
“The commission estimates that for this amount of buildings, we need a minimum of 20 billion US dollars. Governments cannot afford it.
We are the most indebted region in the world, ”said Persaud.
“For example, let’s say we support all utilities, so when a hurricane hits we don’t need to spend a lot of the GDP to rewire the country. Grounding is really expensive, but maybe if we support the electric cables with the telephone cables, separately next to in parallel conduits, water, gas and all these other things and rebuilding the gas in same time, maybe we can make it cheaper, save cost.
Therefore, the private sector will be ready to invest in this area and get a return, and this is how we can spend maybe US $ 20 billion, making us the first climate resilient region in the world ”, he explained.
On Growth and Resilience Bonds, Persaud said it was high time the region’s more than US $ 50 billion banking system was leveraged to help build resilience.
“We are trying to plan for a new asset class, the first in the world, called Growth and Resilience Bonds. These Growth and Resilience Bonds will be fund managers who will sign up to invest only in things that will advance resilience and we will have independent assessors to determine if this is truly sustainable and resilient and they will sign up to do so. and we, as savers, can put our money into those funds, ”he explained.
“Fund managers will find good investment opportunities that undermine resilience, put their money to work and we will get more than what we are currently getting in the banking industry because of the returns to be made from building resilience, which either returns over cost savings or returns by generating more income, ”he added.
He further stressed that the plan was to ensure that funds from bonds issued were spent only on approved projects that make the region more resilient to climate change and other natural disasters.
Persaud suggested that a rating agency could be created to assess the sustainability of projects, adding that this would allow fund managers to invest in projects with a certain rating, which could attract new investment.
It is also proposed that the CARICOM Public Procurement Law be put in place as a matter of urgency to enable a Member State to open competitive bidding to businesses across the region.
“We also need to make sure that the private sector doesn’t have to live on good government contracts. So we need to minimize some of these government contracts, minimize the rate of return, and thus push the private sector to focus again on making money by being competitive rather than putting pressure on governments ”, Persaud added. (MM)