Key Impact Points:
- First-Ever Activation: Grenada invokes hurricane clause in government bond, deferring debt payments post-Beryl.
- Massive Economic Impact: Beryl causes damage equal to one-third of Grenada’s annual economic output.
- New Path for Climate Resilience: Other nations eye Grenada’s pioneering use of natural disaster clauses as climate change intensifies.
Grenada has become the first country to activate a hurricane clause in a government bond, delaying debt payments after the destruction caused by Hurricane Beryl last month.
The decision marks a significant milestone in financial planning for climate-related disasters. Prime Minister Dickon Mitchell estimates the damage at nearly one-third of the country’s annual economic output.
The Grenadian finance ministry notified international bondholders of the decision, citing a $30 million “modelled loss” due to Beryl. The country will defer payments on its $112 million bond scheduled for November 2023 and May 2024, totaling over $12.5 million. The payments will be pushed to the end of the bond’s term in 2030.
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Grenada will also defer approximately $5 million in other loans, including bilateral loans from Taiwan. This move sets a precedent in global finance as the first activation of a natural disaster clause.
“Although no one wishes a hurricane on a country, it is good to see the natural disaster clauses that Grenada inserted into its bonds almost a decade ago doing exactly what they were designed to do,” said Sebastian Espinosa, a debt expert at White Oak Advisory who helped develop the clause for Grenada.
The clause was introduced after two debt restructurings caused by a previous hurricane. The IMF predicts that small nations like Grenada are at higher risk, with one in ten disasters causing damage equivalent to more than 30% of GDP.
As climate change increases the frequency and severity of storms, more nations may adopt similar clauses, ensuring fiscal stability in times of crisis.
