Tuesday, April 27, 2010
Weathering the Storm: Options for Disaster Risk Financing in Vietnam
In the context of the National Strategy for Natural Disaster Prevention, Response and Mitigation approved by the Government of Vietnam, in 2009 the Ministry of Finance requested the World Bank to conduct a study on the financial protection of the state against natural disasters.
This study aims to build institutional capacity on catastrophe risk financing and to identify financial options which are affordable and effective to the Government of Vietnam, including both sovereign risk financing and private insurance instruments. The study relies on the following four components: (i) financial risk assessment; (ii) review of Government budgetary process for financing natural disasters; (iii) dynamic fiscal funding gap analysis; and (iv) options for the financial protection of the state against natural disasters.
Key Findings and Challenges
1. The annual average value of natural disaster losses, as reported by the public authorities, are estimated at one percent of GDP over the last 20 years, or US$ 900 million in 2008 GDP, and could exceed US$3.8 billion for a major disaster.
2. The official loss values may be under-estimated because the current post-disaster damage assessment and reporting system tends to under-report the financial value of the damages.
3. The Contingency Budgets are currently the main source of post-disaster financing of emergency relief and recovery expenditures by the Government of Vietnam.
4. The current Contingency Budgets have been able fund the post-disaster recovery needs in the period 2000-08, but they may be insufficient for more severe disasters.
5. Major reconstruction funding gaps have been identified between 2006 and 2008.
6. Disaster risk financing can provide financial incentives to prevention and preparedness activities and allow for rapid response once a disaster occurs.
7. A cost-effective disaster risk financing strategy should rely on an optimal combination of financial instruments including, but not only limited to, contingency budgets.
Options for Consideration
1. Government of Vietnam could formally allocate a portion of its contingency budget for natural disasters.
2. Government of Vietnam could also build up reserves dedicated to natural disasters from an annual budget allocation into the existing Financial Reserve Fund.
3. Contingency budgets and/or reserves could be complemented with a contingent credit.
4. Sovereign parametric disaster insurance could be further explored to protect against the fiscal impact of major events occurring every ten years or less frequently.
5. The Government of Vietnam could set up a dedicated reserve fund for natural disasters for the post-disaster reconstruction of public assets.
6. In the medium term, the Government of Vietnam could promote the development of the local property catastrophe insurance market, especially for private urban dwellings of middleand high-income households.
7. In the medium term, agricultural insurance could also be promoted through public privatepartnerships.
The full report can be downloaded here Vietnam Disaster Risk Financing Final report mar 2010
Worldbank