Nepal, World Bank Forge Partnership to Develop Disaster Bond for Earthquake Risk

Nepal and the World Bank Group have partnered to explore the development of a disaster bond aimed at mobilizing funds to reduce potential losses from earthquakes and provide immediate financing following a major disaster.

The Government of Nepal and the International Bank for Reconstruction and Development (IBRD), a member of the World Bank Group, signed a terms of reference agreement to study the development of the disaster bond.

The agreement, signed in Bangkok, will pave the way for an assessment of how Nepal can mobilize financial resources through the capital market to strengthen earthquake risk management.

Under the agreement, the World Bank Group’s Treasury will work with the Government of Nepal and capital market investors to assess the feasibility of issuing a disaster bond and determine an appropriate structure for the financial instrument.

A disaster bond is a financial instrument used to manage the economic risks associated with natural disasters. It allows disaster risks to be transferred to investors. Under the terms of such a bond, funds can be made available to the affected country when a specified disaster occurs, enabling the government to finance relief, rehabilitation and reconstruction efforts.

Nepal is highly vulnerable to natural disasters, particularly earthquakes. The proposed financial mechanism is expected to help the country secure funds more quickly in the event of a major earthquake and strengthen its capacity for post-disaster response and recovery.

The partnership with the World Bank is therefore expected to assess the potential for establishing a financing mechanism that could provide timely resources following a disaster and support more effective rehabilitation and reconstruction.