Climate resilient debt clause or 'debt pause clause'
A pause clause is a provision in sovereign debt contracts that enables the borrower to temporarily stop repaying debt service (interest, principal or both) for a pre-agreed period when a predefined event occurs. These built-in debt deferrals can be designed to be Net Present Value (NPV) neutral and not extend the instrument’s original maturity date. Also known as Climate Resilient Debt Clause or Natural Disaster Clause (Centre for Disaster Protection).
A practical note on Debt Pause Clauses, the first of a series of documents designed to help governments and practitioners understand and compare financial instruments.
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This policy brief examines the first real-world use of debt pause clauses - contractual mechanisms that allow sovereign borrowers to temporarily defer debt payments in the wake of a disaster.
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This report offers an in-depth assessment of pre-arranged financing tools using seven key criteria for ensuring pre-arranged financing reduces the human and financial costs of disasters
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Analysing the level of effort of international development donors to support a shift towards arranging financing for disasters, before shocks happen.
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This insight paper provides an overview of the key features of debt pause clauses, also known as climate resilient debt clauses.
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A predefined threshold that activates payments or actions within risk financing mechanisms.
Parametric insurance
Insurance that pays when an agreed indicator reaches a set level, not actual losses.
Contingent liabilities
Possible financial obligations that only become real if specific future events occur.
Early warning system
Systems that monitor hazards and share information early, so people can act in time.
Pre-arranged financing
Financing approved before crises that is released automatically when agreed triggers are met.
Disaster risk management
Policies and actions to reduce disaster risks, manage impacts and strengthen resilience.
