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- Permanent Link:
- http://dpanther.fiu.edu/dpService/dpPurlService/purl/FI13010978/00001
Notes
- Summary:
- This document presents various financial strategies available to developing countries following disasters. It promotes the complementary use of risk transfer mechanisms to address risks that cannot be adequately eliminated through disaster risk reduction (DRR) strategies. While in absolute terms the costliest disasters are in wealthy societies, the fiscal and budgetary processes of developing countries are particularly impacted by disasters because damage as a proportion of GDP tends to be much higher in these nations. According to the authors, many developing countries simply cannot afford to be risk neutral. Many are too small to take on risk diversification strategies, others are too indebted to access post-disaster credit, and many have budgetary processes that are not conducive to the rapid reallocation of budgets to effectively respond to crisis. They identify two types of emergency financing: ex-post, or after-disaster financing, a reactive strategy that includes budget reallocation, domestic and external credit, tax increases, and donor assistance; and ex-ante, or before-disaster financing, a proactive strategy that includes the use reserve calamity funds, budget contingencies, and risk transfer mechanisms. They discuss the costs and benefits of each instrument in terms of timeliness, reliability, cost, and fungibility. The authors also outline legal and administrative aspects of the risk financing process, and how they can hinder the effective mobilization and dissemination of resources following disaster. They discuss the use of financial exposure and funding gap analyses to determine where needs would exceed available resources and how this information contributes to the development of an effective risk financing strategy. In a following section they present a framework to guide risk-financing strategies. In discussing complementary ways to combine financial instruments and policies, the authors call for a ‘bottom-up’ approach whereby the cheapest sources of financing, such as budget contingencies and reserves, are used first for reoccurring disasters, while more expensive instruments are reserved for less probable but highly disastrous occurrences. They also argue that administrative and legal dimensions of risk financing should be at the core of any risk financing strategy, which means questions regarding who declares an emergency, who appropriates the budget, how funds are transferred, who coordinates the use of funds, who is held responsible, how will funds be tracked, etc., be answered prior to disaster to identify potential bottlenecks and weaknesses in the process. ( English,English,English )
- Subject:
- Disasters and Financial Mechanisms
- Scope and Content:
- Introduction p. 2; Why should countries develop risk financing strategies? p. 3; Financial protection and disaster risk management p. 5; The different dimensions of a financial protection framework p. 6; Financial exposure and funding gap analysis p. 13; Bringing it all together p. 16; Recent experience using traditional property catastrophe insurance p. 20; Conclusion p. 22; References p. 24; Figures: Figure 1. Direct losses from natural disasters, worldwide p. 3; Figure 2. Average annual direct losses from natural disasters as a share of GDP p. 5; Figure 3. Comprehensive disaster risk management strategy p. 6; Figure 4. Sources of post‐disaster financing p. 7; Figure 5. Main phases of post disaster funding needs p. 8; Figure 6. Evaluation of financial exposure based on an analysis of historical needs p. 13; Figure 7. Catastrophe risk layering p. 17; Figure 8. Combining financial instrument to cover various layers of risks p. 20; Tables: Table 1. Major disasters in the last 40 years p. 4; Table 2. The cost of financial instruments p. 9; Boxes: Box 1. Reducing the moral Hazard of post‐disaster assistance p. 10; Box 2. The catastrophe load and the cost of transferring risk p. 11; Box 3. Legal and administrative aspects of sovereign disaster risk financing p. 12; Box 4. Government contingent liability and fiscal instability p. 14; Box 5. Probabilistic catastrophe risk modeling p. 15; Box 6. IADB’s Disaster Deficit Index p. 16; Box 7. The Caribbean Catastrophe Risk Insurance Facility p. 18; Box 8. Catastrophe bonds p. 18; Box 9. The Turkish Catastrophe Insurance Program p. 21; Box 10. Insuring Public Assets in Costa Rica p. 22
- Citation/Reference:
- Ghesquiere, F., Mahul, O. (2010). Financial protection of the state against natural disasters: a primer. 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:
- FI13010978
778847527 ( oclc )
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