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Ando Sakai, Mr. Francisco Roch, Ursula Wiriadinata, and Mr. Chenxu Fu

proceeds” clause stating that the funds would be utilized for green investments. A catastrophe bond is a debt instrument that allows the issuer to get funding from the capital market, if and only if catastrophic conditions, such as a hurricane, occur. Climate change is expected to increase the likelihood and severity of these extreme weather events. Although the two instruments are of different nature, this paper analyzes them together given that both of them can contribute to the resilience to climate risks and have been recently issued at the sovereign level. These

Mr. Sakai Ando, Mr. Francisco Roch, Ursula Wiriadinata, and Mr. Chenxu Fu
Financial markets will play a catalytic role in financing the adaptation and mitigation to climate change. Catastrophe and green bonds in the private sector have become the most prominent innovations in the field of sustainable finance in the last fifteen years. Yet, the issuances at the sovereign level have been relatively recent and not well documented in the literature. This Note discusses the benefits of issuing these instruments as well as practical implementation challenges impairing the scaling-up of these markets. The issuance of these instruments could provide an additional source of stable financing with more favorable market access conditions, mitigate the stress of climate risks on public finances and facilitate the transition to greener low-carbon economies. Emerging market and developing economies stand to benefit the most from these financial innovations.
Mr. Paolo Mauro, Mr. Torbjorn I. Becker, Mr. Jonathan David Ostry, Mr. Romain Ranciere, and Mr. Olivier D Jeanne

Abstract

This paper focuses on what countries can do on their own—that is, on the role of domestic policies—with respect to country insurance. Member countries are routinely faced with a range of shocks that can contribute to higher volatility in aggregate output and, in extreme cases, to economic crises. The presence of such risks underlies a potential demand for mechanisms to soften the blow from adverse economic shocks. For all countries, the first line of defense against adverse shocks is the pursuit of sound policies. In light of the large costs experienced by emerging markets and developing countries as a result of past debt crises, fiscal policies should seek to improve sustainability, taking into account that sustainable debt levels seem to be lower in emerging and developing countries than in advanced countries. Although much can be accomplished by individual countries through sound policies, risk management, and self-insurance through reserves, collective insurance arrangements are likely to continue playing a key role in cushioning countries from the impact of shocks.

Mr. Paolo Mauro, Mr. Torbjorn I. Becker, Mr. Jonathan David Ostry, Mr. Romain Ranciere, and Mr. Olivier D Jeanne

Abstract

This paper focuses on what countries can do on their own—that is, on the role of domestic policies—with respect to country insurance. Member countries are routinely faced with a range of shocks that can contribute to higher volatility in aggregate output and, in extreme cases, to economic crises. The presence of such risks underlies a potential demand for mechanisms to soften the blow from adverse economic shocks. For all countries, the first line of defense against adverse shocks is the pursuit of sound policies. In light of the large costs experienced by emerging markets and developing countries as a result of past debt crises, fiscal policies should seek to improve sustainability, taking into account that sustainable debt levels seem to be lower in emerging and developing countries than in advanced countries. Although much can be accomplished by individual countries through sound policies, risk management, and self-insurance through reserves, collective insurance arrangements are likely to continue playing a key role in cushioning countries from the impact of shocks.