Hurricane Dorian’s devastation of parts of the Bahamas is again a sad reminder of the Caribbean’s vulnerability to natural disasters. The frequency and severity of disasters, and the human and economic toll in their wake, has been increasing over time—a trend likely to intensify as climate change continues (see Figure 1). The sad truth is that disasters disproportionately affect the poor, who have limited ability to cope with the impact.
Given this clear and present danger, in a recent IMF policy paper, we make the case for vulnerable countries to develop nationally owned Disaster Resilience Strategies (DRS), with inputs from development partners and other stakeholders, to better address the challenges posed by natural disasters.
What is a disaster resilience strategy?
A disaster resilience strategy (DRS) is an umbrella framework for building resilience to natural disasters that rests on three complementary pillars: (i) structural resilience, aimed at “hard” measures such as building resilient infrastructure, and “soft” measures such as installing early warning systems, and enforcing zoning and building codes; (ii) financial resilience, which involves lining up the resources needed for recovery and reconstruction before a disaster strikes, including risk transfer instruments, recognizing that building structural resilience is expensive and will take time; and (iii) post-disaster/social resilience, which entails instituting detailed emergency response plans in order to contain disruptions to critical public services, knowing that despite countries’ best efforts disasters will occur. These three pillars complement each other because each is needed for building disaster resilience. Furthermore, properly executing any one could also reduce the cost of the others.
Countries in the Caribbean have found it difficult to pay equal attention to all three pillars because of capacity and funding constraints, as well as inherent trade-offs from limited spending room in the budget. For instance, while a country investing in structural resilience, such as building resilient roads, bridges and other infrastructure, may require less financial protection against disasters, a key obstacle is the high up-front cost of such investment with benefits only realized in the longer term.
Our studies on Belize, Grenada, and St. Lucia estimate that investments of about two to three per cent of GDP per year for ten years would be required to achieve adequate structural protection. But with already high public debt levels in many of these countries, compounded by the typically short-term horizons of policymakers, these investments end up taking a back seat to other urgent social and development needs.
This is where developing a disaster resilience strategy comes in. We see the strategy as a country-owned document that is grounded on a clear diagnostic of disaster vulnerabilities and which is built on existing long-term national strategies. The strategy could assess holistically the trade-offs and complementarities between the three pillars and integrate the benefits and costs of building resilience in a credible macroeconomic framework that is fiscally sustainable. We believe that such an approach would, in turn, help coordinate the work of development partners, catalyze donor support, and avoid duplication.
International institutions and development partners already offer various forms of support to build resilience; however, many countries—while making significant efforts to address disaster vulnerabilities—have limited resources and expertise to take full advantage of such support. For the resilience strategy to work, all stakeholders—the country, international financial institutions, bilateral and development partners, private and regional insurers, and climate funds—need to assist with financial and capacity-building support.
For example, resilience building should begin with countries making a concerted effort to raise additional domestic revenues, re-prioritize spending, and strengthen public financial management. Multilateral and other development partners, including official insurers (like the Caribbean Catastrophe Risk Insurance Facility, CCRIF), should help the country identify and diagnose disaster vulnerabilities and prioritize investments to develop the three pillars.
The IMF could help develop a macroeconomic framework consistent with the costs and benefits of resilience investment. Bilateral partners could provide technical assistance for building social resilience, and climate funds could consider this strategy as a screening device to simplify administrative criteria for qualifying for financing.
The disaster resilience strategy, thus, could provide an anchor to catalyze external donors to complement home-grown efforts by providing concessional financing to alleviate the costs of building disaster resilience without placing an excessive burden on the budget.
Building on their existing strategies, the IMF and World Bank are currently helping Dominica and Grenada design a holistic disaster resilience strategy which would pave the way for engaging all other stakeholders toward building a resilient economy. The experience of these two countries could provide a prototype for other disaster vulnerable countries in the region.
Krishna Srinivasan is a Deputy Director and Uma Ramakrishnan is an Assistant Director at the International Monetary Fund’s Western Hemisphere Department.