Govt can tap CAT bonds for Taal eruption
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Mon, 13 Jan 2020 16:20:52 +0000
The government can tap the country’s catastrophe-linked or CAT bonds once it accounts the full impact of Taal Volcano effect on the economy, Finance Secretary Carlos Dominguez 3rd assured.
“We have in place a CAT bond that can be triggered by a 1-in-19 year earthquake that may be an aftermath of the Taal eruption,” he told reporters in a message on Monday.
Dominguez explained that a 1-in-19 year event corresponds to a modeled loss of P11 billion, which would be similar to the losses during the 1990 Luzon earthquake in Nueva Ecija.
The Finance chief is referring to the CAT bonds issued by the World Bank for the Philippines in November last year as part of the disaster risk financing strategy of the government. The $225-million bond can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets.
According to the World Bank, payouts will be triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms, it added.
In line with this, Dominguez emphasized that the government is now taking into account the impact of the Taal Volcano eruption on the Philippine economy.
“Following the immediate human security responses, which are the priority, we will of course need to take stock of the full economic costs of this natural disaster, quick estimates of which are still being generated by relevant national agencies and local governments. The impact would depend on the type of eruption,” he said.
“Based on our estimates, our country loses 1 to 2 percent of our gross domestic product (GDP) due to natural disasters, especially from typhoons, every year,” Dominguez added.
For example, he highlighted that two of the biggest affected regions by the volcanic activity accounted for 53 percent of the country’s GDP in 2018.
In a breakdown, Dominguez said Region 4A (Calabarzon) accounted for 17 percent, while the National Capital Region (Metro Manila) retained a share of 36 percent to total output.
Region 3’s (Central Luzon) share, on the other hand, is also sizable at 9 percent.
“The Southern and Central Luzon as well as National Capital regions are some of the heftier pistons of our country’s economic engine, and we will do what is necessary to get areas are affected by this natural disaster up and running as fast as possible,” he stressed.
Meanwhile, Dominguez mentioned that the government “is responding urgently to the immediate needs of those directly affected by the volcanic explosion and some accompanying tremors.”
“Our number one priority is the safety and security of the families and communities that are directly vulnerable to this natural disaster,” he said.