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- Permanent Link:
- http://dpanther.fiu.edu/dpService/dpPurlService/purl/FI13010977/00001
Notes
- Summary:
- This document analyzes financial vulnerability to climate-related hazards in developing countries, offering a number of potential risk financing options available to close resource gaps. Many developing countries simply do not have the capacity to withstand the negative impact of disaster on their efforts to spur development and reduce poverty. Already facing limitations in the form of exhausted tax bases, high levels of indebtedness, and limited donor assistance, these countries often find themselves in a situation where disaster losses are greater than their abilities to finance recovery. This is particularly true for many of the most disaster prone countries, such as the Small Island Development States (SIDS) of the Caribbean and Pacific, along with the highly indebted countries of Central America, Africa, and Asia. Many are not financially positioned to face even high probability small to medium-sized disaster events. The authors outline a number of traditional after-disaster financing sources and their negative consequences for long-term economic recovery and sustainable development. Budget diversions funnel money away from critical development investments, while taxes increases deplete the private savings of an already economically vulnerable population. Deficit financing produces inflation. Domestic and foreign borrowing is also problematic, considering that many of these countries are already highly indebted, and assistance from the international community is often marked by uncertainty in terms of the amount and timing of aid. The authors of this document outline three pro-active measures that are necessary to address these financial vulnerabilities. The first recommendation is that developing countries invest in disaster risk reduction (DRR). They argue that risk reduction is most cost-effective when concentrated on high probability disaster events with low to medium-sized losses. The second is that risk aversion efforts include pre-disaster financing of losses and relief expenditures, which means investing in calamity funds, regional insurance pools, contingent credit arrangements, and other risk financing mechanisms that transfer private and public sector risks from the local and national level to the international level where risk can be pooled. These risk transfer mechanisms are particularly useful for low probability, high consequence events that cannot be adequately or cost-effectively prevented. And finally, the third suggestion is that the international community provide technical and financial assistance to these countries because many of them do not have the capacity to implement such financial reforms on their own. ( English,English,English,,,, )
- Subject:
- Disasters and Financial Vulnerabiltiy
- Scope and Content:
- 1. Introduction p. 2; 2. Disasters and development: The financial dimension p. 3; 3. Methodology for determining financial vulnerability p. 8; 3.1 Step 1: Assessment of public sector liabilities p. 10; 3.2 Step 2: Estimation of the public sector’s financial resilience p. 14; 3.3 Step 3: Assessment of financial vulnerability and the “resource gap” p. 18; 3.4 Step 4: Illustrating the developmental consequences of a resource gap p. 19; 3.5 Step 5: Reducing financial vulnerability and building resilience p. 20; 3.6 The data sample p. 21; References p. 29; Appendix A: Calculating the resource gap (Hochrainer, 2006) p. 31; Appendix B: Additional tables p. 32; Boxes: Box 1: Novel mechanisms for sharing extreme event risks in developing countries p. 4; Box 2: The MCII proposal p. 5; Box 3: Calculating the resource gap for Grenada p. 20; Figures: Fig. 1: Efficiency of risk management instruments and occurrence probability p. 6; Fig. 2: IPCC’s definition of vulnerability to climate change p. 8; Fig. 3: Illustration for calculating financial vulnerability p. 10; Fig. 4: Sources of government disaster risk p. 12; Fig. 5: Insurance and government assistance for selected disasters as a percentage of direct losses (Source: Linnerooth-Bayer and Mechler, 2007) p. 13; Fig. 6: Risk of losses as measured by a cumulative loss-frequency distribution p. 14; Fig. 7: Illustration for calculating the disaster resource gap p. 19; Fig. 8: Number of countries experiencing a resource gap for some return periods p. 23; Fig. 9: Risk vs. financial vulnerability p. 23; Fig. 10: Global map exhibiting calculations of the resource gap year p. 24; Fig. 11: 50 year resource gap estimates p. 25; Fig. 12: 100 year resource gap estimates p. 25; Fig. 12: 100 year resource gap estimates p. 25; Fig. 13: 250 year resource gap estimates p. 26; Fig. 14: Funding requirements to cover resource gaps for different layers of return periods p. 27; Tables: Table 1: Government liabilities and disaster risk p. 11; Table 2: Ex Post and ex-ante financing sources for relief and reconstruction p. 15; Table 3: Ex-post vs. ex ante financing instruments. p. 18; Table 4: Data used in the assessment p. 22
- Citation/Reference:
- Mechler, R., Hochrainer, S., Pflug, G., Lotsch, A., Williges, K. (2010). Assessing the financial vulnerability to climate-related natural hazards. The World Bank.
Record Information
- Source Institution:
- Florida International University
- Rights Management:
- This publication is released under the Creative Commons Attribution 3.0 license. For full details of the license, please refer to the following: http://creative-commons.org/licenses/by/3.0/legalcode
- Resource Identifier:
- FI13010977
778847237 ( oclc )
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