Catastrophe Deferred Drawdown Option

The Development Policy Loan with a Catastrophe Deferred Drawdown Option (Cat DDO) is a contingent credit line that provides immediate liquidity to IBRD member countries in the aftermath of a natural disaster. It is part of a broad spectrum of risk financing instruments available from the World Bank Group to help borrowers plan efficient responses to natural disasters. The Cat DDO gives a government immediate access to funds after a natural disaster, a time when liquidity constraints are usually highest. This type of financing is typically used to finance losses caused by recurrent natural disasters. It is most effective as part of a broader risk management strategy in countries highly exposed to natural disasters. A disaster risk management strategy would involve complementing the Cat DDO with disaster risk transfer instruments (such as catastrophe risk insurance or catastrophe bonds) for high risk layers. Governments determine the mix of disaster risk financing instruments based on an assessment of risks, desired coverage, available budget, and cost efficiency.