Central Asia is highly exposed to natural hazards, including earthquakes, floods and landslides that can place significant pressure on public finances. Following a major disaster, governments often face the challenge of securing rapid funding for emergency response and early recovery while managing competing fiscal demands.
Working with the Asian Development Bank (ADB) and national stakeholders across the Central Asia Regional Economic Cooperation (CAREC) Program region, JBA supported the development of the CAREC Climate and Disaster Risk Financing Initiative, including the design of a regional catastrophe risk bond programme for participating countries. The programme aims to provide governments with rapid access to pre-arranged finance following severe disasters, reducing reliance on post-event budget reallocations or external assistance.
Governments can use a range of financial instruments to prepare for the costs of disasters, from contingency funds and insurance to more specialised solutions that transfer risk to financial markets. Catastrophe bonds, or ‘cat bonds’, are one such risk-transfer mechanism. They are typically designed to provide pre-arranged funding for severe but relatively infrequent events, complementing other sources of disaster finance that may be better suited to smaller or more frequent impacts.
Rather than relying on an insurer to take on the risk, a cat bond transfers it to investors in the capital markets. Investors provide capital which is held in reserve throughout the coverage period. If a predefined disaster event occurs and agreed trigger conditions are met, some or all of this capital is released to the affected government, providing fast and predictable financial support when it is needed most. If the trigger is not met, the capital is returned to investors at the end of the bond term, alongside the return they receive for taking on the disaster risk.
By securing access to funding before disasters occur, cat bonds enable governments to strengthen financial preparedness, improve contingency planning and support a more effective response to major events. Because the financing arrangements and payout conditions are agreed in advance, funds can also be made available quickly after a qualifying event.
Developing a cat bond requires a trigger mechanism that is objective, transparent and able to provide rapid financing following severe events. For the Kyrgyz Republic and Tajikistan disaster relief bonds, JBA led the development of an extreme precipitation index designed to identify rainfall events with the greatest potential humanitarian impacts. The bonds use parametric triggers based on observed meteorological conditions, enabling payouts without the need for post-disaster loss assessments.
Working with ADB and project partners, JBA developed an index using ERA5 rainfall and meteorological data from the European Centre for Medium-Range Weather Forecasts (ECMWF). The methodology tracks rolling 21-day rainfall accumulations, accounts for seasonal snowmelt conditions, and combines rainfall severity with indicators of vulnerability, including the distribution of at-risk populations and steep terrain that may be more susceptible to flooding and landslides. The resulting trigger focuses not only on where extreme rainfall occurs, but where it is most likely to impact vulnerable communities. JBA also acts as the Extreme Precipitation Event Calculation Agent, responsible for monitoring the index and determining whether a qualifying event has occurred.
The resulting structure provides a transparent mechanism for transferring disaster risk to international capital markets while helping ensure rapid access to funding when severe rainfall events occur.
Delivering innovative disaster risk financing solutions requires close collaboration between governments, development partners and technical specialists.
Throughout the programme, JBA worked alongside ADB and national stakeholders in the Kyrgyz Republic and Tajikistan to ensure the extreme precipitation trigger reflected local hazards, vulnerabilities and response needs. This included supporting trigger design and calibration, communicating the methodology to stakeholders, and helping translate complex technical concepts into a practical risk financing solution.
By combining environmental data, exposure-informed trigger design and innovative financial instruments, the CAREC cat bond programme helps strengthen financial resilience and provides governments with rapid access to funding following severe rainfall events.
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