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Financial protection strategy would improve natural disaster resilience

Released at: 12:45, 16/11/2016

Financial protection strategy would improve natural disaster resilience

Photo: Duc Anh

Finance ministry and World Bank hold workshop on financial protection against natural disasters.

by Linh San

Vietnam should have financial protection strategy to better protect its population and budget against the cost incurred from natural disasters, a workshop on Disaster Risk Finance and Insurance held in Hanoi on November 15 by the Ministry of Finance and the World Bank in Vietnam heard.

Bringing together different financial instruments to fund response and reconstruction, such a strategy would be one component of a broader disaster risk management and climate change plan.

Developed for the first time in Vietnam, the model provides the government with a better assessment of the likelihood and severity of losses from natural disasters. It can also be used to plan for the financial impact before they occur. The final model will be delivered by December.

According to the catastrophe risk model presented at the workshop, Vietnam is likely to incur, on average, VND30.2 trillion ($1.4 billion) in physical damage every year due to floods, typhoons and earthquakes. Residential and public assets (buildings and infrastructure) would account for 65 per cent and 11 per cent of total damage, respectively.

It shows that in the next 50 years, Vietnam has a 40 per cent chance of experiencing damage exceeding VND141.2 trillion ($6.7 billion) from typhoons, floods or earthquakes. Provinces in the north-central region that experience higher poverty rates are more likely to face higher economic losses.

“Vietnam is one of the countries badly affected by natural hazards and climate change, resulting in heavy economic losses, mostly to the poor,” said Mr. Sebastian Eckardt, Lead Economist at the World Bank in Vietnam. “A strategic approach to improving the country’s resilience to such shocks will help safeguard livelihoods and sustain economic growth and development.”

He added that supporting the development of this strategy is part of the World Bank’s priorities in its engagement with the Government of Vietnam. Participants at the workshop also discussed disaster risk financing instruments currently in use by the government as well as international experience.

The government currently relies on a number of funding sources to finance disaster response and recovery, including contingency budgets at the central and local levels, specific budget allocations, in-kind State reserves, financial reserve funds, disaster prevention and control funds, risk transfer instruments such as insurance, and donor grants.

There is, however, a heavy reliance on State budgets at all levels to fund post-disaster costs. Disaster prevention and control funds established at the provincial level are still subject to a number of constraints that prevent them from being fully operationalized across provinces, while innovative risk transfer instruments are in their infancy.

“Establishing a financial system for risk management and disaster risk transfer is essential for Vietnam’s development,” said Mr. Nguyen Huu Chi, Deputy Minister of Finance. “Insurance in particular would be an effective solution, not only to ease the burden on the State budget and transfer risks to international markets but also to help raise awareness about the importance of planning to mitigate the effects of climate hazards and natural disasters.”

Participants also discussed a number of options for the government to strengthen financial resilience, including developing a cost-effective financial protection strategy, making disaster risk finance an integral part of a broader disaster risk management and climate change plan, reviewing the policy, legal, institutional and operational frameworks for the fund for natural disaster prevention and control to strengthen the financial resilience of the provinces, and recognizing that the private sector is an essential partner.

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