The Roles of Government and The World Bank

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The Roles of Government and The World Bank

• Rodney Lester
• World Bank
• Istanbul
• December 8, 2005

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Risk is increasing
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The frequency and economic severity of losses has
been increasing
Direct Losses India US millions
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Country Strategies that Should Plan for Disasters
Do Not
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But extremes relative to expected losses can
invalidate this approach
Probable Maximum Loss Summary (US Million )
Average annual loss summary
State All perils US mill.
Andhra Pradesh 82.9
Gujarat 64.9
Maharasthra 2.8
Orissa 43.2
State Peril Combined assets
Andhra Pradesh All Perils 921
Gujarat All Perils 1,009
Maharasthra Earthquake 59
Orissa All Perils 479
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Particularly where the loss is large relative to
the economy
South West Pacific Loss Exceedance
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Maldives after the tsunami - ex post financing
Public finances (in percent of GDP)              
Revenue (including grants)   35.2   38.0 42.5   37.9
Expenditure   38.0   42.0 57.6   52.1
For reconstruction   --   -- 13.3   10.5
Overall balance   -2.8   -4.0 -15.1   -14.2
Net domestic financing   -1.4   1.3 -0.0   0.0
Foreign financing   4.2   2.8 4.1   3.7
Additional external financing requirement   --   -- 11.0   10.5
2005 pre tsunami
2005 post tsunami
2006
2004
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Solutions
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Building the country risk management model
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Building the ex ante funding model
Public Responsibility
Private Responsibility
Government
Private Reinsurance/ Cat Bond Markets
Donors
Cat. Pool
Risk Management Agency
Donors
Response Capacity, Mitigation Incentives
Post-disaster Subsidized Loan and Grant Facility
Insurers, Property Lenders
Small business
Lifeline infrastructure, the poor and
disadvantaged
Middle class housing
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The extreme case Florida 5 of the ten worst
US property losses in hisory - and exposure is
increasing rapidly
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Outcome (to date)

• No State commitment FHFC can call on insurers
• FHFC offers 15 billion XS of 4.5 billion
• Citizens has 34 of market
• plus
• Increasing hurricane proofing of new construction

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The World Bank Role
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Creating awareness Hotspots Report
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Developing its own liquidity instrument
Contingent Hazard Recovery Management Loan
(CHaRM)

• Adjustment characteristics
• Rapidly disbursing
• Conditionalities based on risk management
  capacity being built
• Response capacity in place
• Post disaster national accounting system in place
• Risk management institution in place and active
• Etc
• Not in CAS envelope but post disaster
  adjustment capacity
• Deferred front end fee
• Low commitment fee
• Link to risk management TA
• Long repayment and grace periods

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Fostering PPPs and acting as mediator

• Appropriate legal and political environment
  needs leadership
• Appropriate organization private sector needs
  sufficient freedom to do job
• Enforceable contracts and clear performance
  metrics
• Revenues priced at economic levels
• Support of participants, including end users
• The right partners technical and financial
  capacity

Source Council for Public Private Partnerships
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Being there when the disaster occurs

• Immediate loss assessments
• Coordinating donors
• Designing rehabilitation and reconstruction
  program with partner country
• Rebuilding
• Trauma counselling
• Building response capacity
• Developing future financing plan
• Developing and implementing mitigation strategies

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To do nothing is a policy decision