Hurricane Clauses in the Caribbean

Many developing countries are subject to various natural disasters such as tropical storms, earthquakes and tornadoes. Global warming has also accentuated the frequency and intensity of other natural climatic events such as droughts and flooding. The impact of these events can be worsened by the need to not only accumulate debt to rebuild after the disaster but also service existing debt stocks. These climatic shocks can therefore lead to the non-repayment of debt and in some instances disorderly defaults. Countries such as Barbados and Grenada have pioneered the concept of hurricane clauses as a means of providing much-needed fiscal relief by temporarily postponing debt repayments in the wake of a severe hurricane or natural disaster. The objective of these clauses is to provide countries with a much-needed pause to debt repayments, with the liquidity space provided now being used to support the rebuilding and reconstruction effort. This allows the country to hopefully bounce back after a natural disaster and return to their long-run growth path and hence avoid a disorderly debt default.