STEP 2 Mobilizing resources
The challenge of post-disaster recovery is to mobilize additional resources. To the highest extent possible, recovery should not be at the expense of normal, ongoing development processes. Depending on the nature and scale of the extreme weather event, recovery funding can be obtained from domestic or external resources.
Box 19: Pacific Disaster Risk Finance and Insurance in Vanuatu (2015)
The Vanuatu example indicates the broad timeframes over which each financing instrument may be accessed and utilized for post-disaster financing. This provides an indication for the government to select the most suitable DRF mechanisms.
Ex ante financing measures
- PCRAFI insurance (based on event trigger) − access: short term.
- Traditional insurance (based on damage/losses) − access: medium/long term.
Ex ante financing measures
- Emergency Fund − access: short/medium term.
- Contingent-debt financing facility − access: short/medium term.
Ex post financing measures
- The Emergency drawdown from Public Fund PFEMA S34C − access: short/medium term.
- In-year budget reallocation (PFEMA S34B) − access: short/medium term.
- Development partner/international agency emergency assistance and relief − access: short/medium term.
- Domestic credit from banking system − access: medium/long term.
- External credit from international agencies − access: medium/long term.
- Capital budget realignment (domestic and external funds) − access: medium/long term.
- Development partner assistance (reconstruction) − access: medium/long term.
- Tax and other revenue measures − access: medium/long term.
Resources generated by disaster-affected governments are as follows:
- Budget redistribution: Limited funding as this mechanism diverts resources from other budgets, often incurs repercussions on development.
- Domestic and external credit: Loans from the capital market are a standard instrument, but potentially slow and expensive and often require credit rating.
- Tax increase: Applied for general population, but is politically sensitive and may delay economic recovery.
- International donor assistance: Experience has shown that the disbursement of funds received is flexible and effective with no cost; it is also unreliable with regards to delivery period.
- Concessional loans and grants: Provision of additional resources to, for instance, local governments in the form of concessional loans and grants to support priority recovery and reconstruction investments.
- Issuing sovereign reconstruction or development bonds: Investors support various sectors, e.g. agriculture, energy, transportation and water/sanitation.
- Most importantly, the majority of recovery funding is supported by the people themselves and those abroad (remittances). The public sector’s share in recovery can vary widely; it depends on the nature and scale of disaster damage and relative balance of public and private sector asset ownership in the affected areas (EU/UNEP/World Bank/GFDRR, 2015).
Tools and Guiding Questions
How can financial resources be mobilized without being at the expense of normal ongoing
development budgets and processes?
What are the main sources of funding, and at what costs and effects?
World Bank Group/ GFDRR (2014): Financial Protection Against Natural Disasters: From Products to Comprehensive Strategies − An Operational Framework for Disaster Risk Financing and Insurance
World Bank − GFDRR/International Bank for Reconstruction and Development (2015): Advancing Disaster Risk Financing & Insurance in the Pacific − Regional Summary Note & Options for Consideration. Disaster Risk Financing and Insurance
World Bank Group − GFDRR (2015): Pacific Disaster Risk Finance and Insurance in Vanuatu − Post-disaster budget execution guidelines. Secretariat of the Pacific Community
Could insurance have a positive impact on accessing external financial resources (e.g. better credit ratings by international rating agencies lead to faster loans at better conditions)?
Ministry of Finance statistics, loan documents, etc.
Semi-structured interviews with ministry of finance officials, international rating agencies and financial institutions.