Subject to Ongoing Internal Review & Update (last updated June 3, 2024)

1. What is the Climate Resilient Debt Clause (CRDC) and why is it important?
Supporting vulnerable countries against economic shocks, including fiscal crises due to natural disasters,
is an important objective for the World Bank. In June 2023, the World Bank announced a suite of new andexpanded actions – crisis response toolkit – to help countries respond swiftly and effectively to an evergrowing onslaught of crises. As part of the enhancements to the World Bank crisis toolkit, the World Bank
Board of Executive Directors approved the introduction of the Climate Resilient Debt Clause (CRDC).
The CRDC provides an option to eligible Borrowers (if the Borrower chooses to include the clause in their
new or existing loan/financing agreement), to defer principal and interest payments (and other loancharges) for up to two years in the face of a natural disaster.
The World Bank is therefore offering an additional crisis response tool for small islands and other small
states struck by earthquakes and tropical cyclones, which allows governments to focus on disasterrecovery instead of debt repayment.
2. Which countries are eligible to benefit from CRDC?
CRDC is available to IBRD and IDA Small State Economies, members of the Small States Forum, and Small
Island Developing States as defined by the UN (See the current list of CRDC-eligible countries) as natural
disasters and climate change-related extreme weather events have a disproportionately negative effects
on small economies. Subnational borrowers in eligible countries are also eligible for CRDC.
Borrowers must be current on their debt service to the World Bank at the time of requesting CRDC
inclusion in loan agreements. A CRDC will not be included in existing loans/credits if the the Borrower isundergoing a debt restructuring with its other lenders.
While Borrowers that are not eligible for CRDC are also exposed to natural disasters, other World Bank
tools in the Crisis Toolkit (such as Crisis Response Window, Catastrophe Deferred Drawdown (Cat DDOs), IPF
DDOs, CERCs, emergency operations, and disaster risk transfer products) are available.
3. Which loans and credits are eligible?
All new or existing IBRD loans and IDA credits of eligible countries with a remaining repayment period(final maturity) of at least five years are eligible for CRDC. Loans with a bullet maturity cannot benefit froma deferral of principal but are eligible for interest (and other loan charges) deferral. Borrowers will discuss
CRDC incorporation with the World Bank to select what loans (if any) will be eligible for payment deferrals.
4. Can a Borrower elect to include the CRDC in their loans at any time in the future?
As long as the CRDC eligibility requirements are met, the CRDC terms can be included in both new andexisting IBRD loans and IDA credits. Inclusion of CRDC in existing IBRD loans and IDA credits will require
amendments to the relevant existing loan and financing agreement. CRDC is not offered for existing loans
if the Borrower is undergoing a debt restructuring with other creditors.
5. Which disaster events are covered by CRDC?
Event coverage is limited to tropical cyclones/hurricanes and earthquakes. These events accounted formore than 90% of the damage over the last twenty years among the group of eligible countries.

Subject to Ongoing Internal Review & Update (last updated June 3, 2024)
6. What are the qualifying triggers for the eligible events?
There are two types of (pre-specified) event triggers that can activate a CRDC (See Figure 1 below):
1. Primary parametric triggers, which measure the intensity of the disaster event, such as the windspeed of hurricanes or the magnitude of earthquakes.
a) Earthquakes: Moment magnitude (Mw) 7.0 or above, with reported depth less than or equalto 175km with an epicenter within the covered area.
b) Tropical cyclones/hurricanes: Reported maximum sustained windspeed in the covered areaat 178km/hour or above if reported as 1-min average windspeed; or 160km/hour or above
if reported as 10-min average windspeed. 1
2. Secondary Trigger: If, upon verification by the World Bank, it is established that the Primary
Trigger has not been satisfied, the World Bank will determine whether estimated damages fromthe eligible event are greater than or equal to 10% of the country’s GDP, as last published by theWorld Bank, based on the World Bank’s Global Rapid Post-Disaster Damage Estimation (GRADE) 2approach (the “Secondary Trigger”).
Figure 1: CRDC deferral request by event triggers

7. Will the Bank consider lower intensities for the primary triggers?
Not at the moment. CRDC is built to complement the World Bank’s existing crisis preparedness andresponse tools by helping small and vulnerable states address a particular layer of risk and magnitude ofdamage/need. Typically, it is advisable that countries first develop a Climate and Disaster Risk Financestrategy to identify their financial protection gap and develop a mix of financial instrument to reduce thisgap, combining risk retention for frequent events and risk transfer for more severe events.
CRDC is expected to be triggered for low frequency/high severity events, thereby positioning it in the risk
layering above Catastrophe (CAT) DDOs that may trigger for relatively lower severity events, and below
CAT risk transfer instruments. Despite that, CRDC features a secondary trigger, whereby if the primary
triggers are not met—because the event magnitude is not sufficiently high— but the economic damage
as a percentage of GDP is of a considerable magnitude, the countries will still benefit from the CRDC.

1 Approximately, equivalent to a Category 3 Hurricane in the North Atlantic Basin.
2 GRADE methodology: https://www.gfdrr.org/en/publication/global-rapid-post-disaster-damage-estimation-grade-approachSubject to Ongoing Internal Review & Update (last updated June 3, 2024)
8.

Will the Bank consider extending coverage to other events like floods or draughts?

The event coverage is currently proposed to be limited to tropical cyclones/hurricanes and earthquakes.
These events are the most amenable to availability of parametric triggers, which, via avoidance ofdiscretion, provide an important mitigation against the risk of the deferrals being viewed as restructuring.
As reliable parametric triggers become available for other natural disasters such as floods and droughts,
the World Bank may consider the expansion of the event coverage during the review of the CRDC at theend of 2025.
9. How will the CRDC be activated?
A government declaration of national emergency following the occurrence of covered event is required
before a CRDC deferral request is submitted to the World Bank.
The World Bank will verify whether the natural disaster meets the thresholds of the pre-defined triggers.
If confirmed, the World Bank will accept the request for payment deferral, provided that the Borrower isalso not overdue in their debt service with the World Bank. A payment deferral is activated at the requestof the Borrower only once per loan life for up to 2 years. Borrowers cannot cancel or withdraw an
approved request for payment deferral.
10. Which payments can Borrowers defer?
Borrowers can elect at the time of submitting a deferral request (i) to defer principal or interest (and otherloan charges), or both, and (ii) the deferral period (up to 2 years). The World Bank will work with theBorrower to agree on the appropriate repayment terms following the deferral period, provided, however,that (i) the weighted average maturity of the loan is preserved, and (ii) the original final maturity of theloan is not extended.
If only principal is deferred, the World Bank will notify the Borrower of the revised amortization schedule.
The Borrower continues to service interest and other applicable charges under the loan during thedeferral period..
For interest (and other loan charges) payment deferrals of loans with a variable interest rate, the final
repayment schedule will similarly be agreed between the World Bank and the Borrower, but it will not beavailable until the end of the deferral period. Borrowers should also consider whether interest (and otherloan charges) deferrals will necessitate additional country-specific internal approvals as any interest (andother loan charges) deferred may be added to the loan balance, thereby possibly increasing the approved
original loan amount.
Early repayments of the deferred principal amount during the deferral period will be allowed, but will beconsidered a prepayment (i.e. may be subject to a prepayment premium for IBRD and IDA nonconcessional financing loans). This does not apply to deferred interest payments (and other loan charges),which can be paid early during the deferral period without incurring prepayment premium.
Loans with a bullet maturity are only eligible for interest payment deferrals.
11. Will there be any changes to a Borrower’s billing cycle during the deferral period?
There will be no change to the billing cycle or presentation during the deferral period. The World Bank
will continue to provide bills depending on the option selected (i.e., combination of principal, interest andother loan charges).
12. Can borrowers defer payments more than once?

Subject to Ongoing Internal Review & Update (last updated June 3, 2024)
CRDC (and the subsequent payment deferrals) can be activated only once over the life of a loan for up to2 years during the eligible window, which starts on the first loan repayment date and ends 5 years prior
to the final maturity of the loan. If an existing loan is amended after the first loan repayment date, thewindow for CRDC activation starts on the amendment effective date.
13. What happens after the deferral period?
After the deferral period, the Borrower will resume repayments of the deferred amounts (i.e.,combination of principal, interest and other loan charges) under the loan in accordance with the terms
notified by the World Bank to the Borrower.
In the case of interest (and other loan charges) payment deferrals, the World Bank will notify the Borrower
at the end of the deferral period the final amounts deferred. Deferred amounts of interest (and other loancharges) will typically be segregated within the original loan balance and will accrue regular interest(interest on interest) thus increasing the total loan amount following the deferral period. Figure 2 below
illustrates the impact of a payment deferral based on a $100 million loan with 5-year grace period, 20year final maturity, level amortization, and interest charge at 6%.
Figure 2: Illustrative Borrower Repayments with CRDC activatedIn this illustrative case, if the Borrower opts for including the CRDC in the loan and an eligible natural
disaster occurs that meets the trigger criterion and the principal and interest deferral is exercised for years
8 and 9, the Borrower could defer the $7 million principal repayment per the original amortization andthe $5 million interest payments p.a. scheduled per the outstanding balance. To maintain the loan’s
original weighted average maturity of about 13 years and not extend the original maturity, the loan
payments post the deferral period would be repaid over a shorter timeframe (by 18 years of the remaining
maturity instead of the original 20 due to the 2-year deferral period). As the second chart below
demonstrates, the loan’s outstanding balance once the deferral is exercised would increase not just by
the principal payments deferred, but also the $10 million interest payments over the 2 years, which are
added to the loan balance and will incur the 6% loan charge.

Subject to Ongoing Internal Review & Update (last updated June 3, 2024)

14. What does it cost to have a CRDC?
The CRDC is is offered to eligible borrowers at no cost to them.
15. How will the CRDC work with conversion options such as interest rate and currency
conversions?
Borrowers with CRDC in their loans will have access to the regular conversion options provided to WorldBank clients, such as interest rate and currency conversions, and interest rate caps/collars. Borrowers who
have already used these conversion options might have to pay additional costs when the CRDC isexercised, and the existing conversion is replaced or terminated. Any such conversion-related costs would
not be deferred. The World Bank and the Borrower will agree on whether the existing conversion would
have to be replaced with another conversion and/or terminated early, subject to the market availability
and terms for such conversion.
16. What should Borrowers consider before including the CRDC in the loan?
•Borrowers should consider the impact of the post-deferral loan payments, which will be increased
with a shorter period for repayments, in order to maintain the weighted average and final
maturity of the loan. Including and activating CRDC in the entire loan portfolio of a Borrower,
without assessing cons and pros of including the CRDC, may not be in its best interest.

•For existing IBRD loans and IDA financing agreements, an amendment will be needed. Borrowers
should consider their own internal procedures for loan amendments and processing time.

•Deferring interest (and other loan charges) would result in these deferred amounts accruing
regular loan interest (service charge for applicable IDA credits), which may increase the post
deferral debt burden of the Borrower. While the World Bank and the Borrower will agree at thetime of the deferral request whether interest (and other loan charges) will be deferred, if the loan
is a variable rate loan, the Borrower will not have the final payment amounts until the end of thedeferral period.

Subject to Ongoing Internal Review & Update (last updated June 3, 2024)•If the Borrower elects to only defer principal, it will continue servicing interest (and otherapplicable loan charges) at the contractual loan rate during the deferral period (no overduecharge would be imposed). If the Borrower elects to defer interest (and other loan charges),
additional interest will accrue on the deferred amounts until they are fully repaid.

17. How will the World Bank help Borrowers to make an informed decision about including a CRDC
in their loans?
To facilitate the understanding of the CRDC, the World Bank will contact each eligible Borrower and also
make supporting material available (i.e. on the World Bank Treasury website), and host a series of virtual
information-sharing sessions, along with this Q&A which will be updated as needed.
Eligible Borrowers who wish to consider a CRDC in their eligible loans can reach out to their World BankCountry Director, or to the following World Bank representatives:
Treasury
Ghislain Yanou (gyanou@worldbank.org),
Miguel Navarro-Martin (mnavarromartin@worldbank.org);
Finance & Accounting
Paty Hoyes (phoyes@worldbank.org)
David Tan (dtan@worldbank.org)