The Roles of The Roles of Government and The Government and The

World BankWorld Bank

Rodney LesterRodney Lester

World BankWorld Bank

IstanbulIstanbul

December 8, 2005December 8, 2005

Risk is increasingRisk is increasing

The frequency and economic The frequency and economic severity of losses has been severity of losses has been

increasingincreasing

Direct Losses India $US millions

Country Strategies that Should Country Strategies that Should Plan for Disasters Do NotPlan for Disasters Do Not

Number of disaster projects in a country

No. of countries with this Count

Number of their CASs with no discussion

on disasters (%)

More than 8 disaster projects 16 5 31%

4 to 7 disaster projects 24 8 33%

2 to 3 disaster projects 33 15 45%

1 disaster project 24 15 62%

Total 97 43 44%

Source: OED data.

But extremes relative to expected But extremes relative to expected losses can invalidate this approachlosses can invalidate this approach

Average annual loss summary

StateStateAll perilsAll perils$US mill.$US mill.

Andhra Andhra PradeshPradesh

82.982.9

GujaratGujarat 64.964.9

MaharasthraMaharasthra 2.82.8

OrissaOrissa 43.243.2

Probable Maximum Loss Summary (US$ Million )

StateState PerilPeril Combined Combined assets assets

Andhra Andhra PradeshPradesh

All PerilsAll Perils 921921

GujaratGujarat All PerilsAll Perils 1,0091,009

MaharasthraMaharasthra EarthquakeEarthquake 5959

OrissaOrissa All PerilsAll Perils 479479

Particularly where the loss is Particularly where the loss is large relative to the economylarge relative to the economy

South West Pacific Loss Exceedance

Maldives after the tsunami Maldives after the tsunami - ex post financing- 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

2004 2005 pre tsunami

2005 post tsunami

2006

SolutionsSolutions

Building the country risk Building the country risk management modelmanagement model

Building the ex ante funding Building the ex ante funding modelmodel

DonorsGovernment Private Reinsurance/ Cat

Bond Markets

Cat. Pool

Insurers, Property Lenders

Small business

Post-disaster Subsidized Loan and Grant Facility

Lifeline infrastructure, the poor and disadvantaged

Response Capacity, Mitigation Incentives

Risk

Management Agency

Donors

Middle class housing

Public Responsibility

Private Responsibility

$2.6 $3.2 $3.3 $4.4 $6.0 $6.2 $6.8

$15.5$19.5 $20.3

$50.0

$0

$10

$20

$30

$40

$50

$60

$ B

illi

ons

The extreme case – Florida – 5 of the ten worst US property losses in hisory

- and exposure is increasing rapidly

Outcome (to date)Outcome (to date)

►No State commitment – FHFC can call No State commitment – FHFC can call on insurerson insurers

►FHFC offers $15 billion XS of $4.5 FHFC offers $15 billion XS of $4.5 billionbillion

►Citizen’s has 34% of marketCitizen’s has 34% of market

plusplus► Increasing hurricane proofing of new Increasing hurricane proofing of new

constructionconstruction

The World Bank RoleThe World Bank Role

Creating awareness Creating awareness Hotspots ReportHotspots Report

Developing its own liquidity instrument – Developing its own liquidity instrument – Contingent Hazard Recovery & Management Loan Contingent Hazard Recovery & Management Loan

(CHaRM)(CHaRM)

► Adjustment characteristicsAdjustment characteristics► Rapidly disbursingRapidly disbursing► Conditionalities based on risk management capacity being Conditionalities based on risk management capacity being

builtbuilt► Response capacity in placeResponse capacity in place► Post disaster national accounting system in placePost disaster national accounting system in place► Risk management institution in place and activeRisk management institution in place and active► EtcEtc

► Not in CAS envelope – but post disaster adjustment Not in CAS envelope – but post disaster adjustment capacitycapacity

► Deferred front end feeDeferred front end fee► Low commitment feeLow commitment fee► Link to risk management TALink to risk management TA► Long repayment and grace periodsLong repayment and grace periods

Fostering PPPs and acting as Fostering PPPs and acting as mediatormediator

► Appropriate legal and political environment Appropriate legal and political environment – needs leadership– needs leadership

► Appropriate organization – private sector Appropriate organization – private sector needs sufficient freedom to do jobneeds sufficient freedom to do job

► Enforceable contracts and clear Enforceable contracts and clear performance metricsperformance metrics

► Revenues priced at economic levelsRevenues priced at economic levels► Support of participants, including end usersSupport of participants, including end users► The right partners – technical and financial The right partners – technical and financial

capacitycapacity

Source; Council for Public Private Partnerships

Being there when the disaster Being there when the disaster occursoccurs

► Immediate loss assessmentsImmediate loss assessments►Coordinating donorsCoordinating donors►Designing rehabilitation and Designing rehabilitation and

reconstruction program with partner reconstruction program with partner countrycountry

►RebuildingRebuilding►Trauma counsellingTrauma counselling►Building response capacityBuilding response capacity►Developing future financing planDeveloping future financing plan►Developing and implementing mitigation strategiesDeveloping and implementing mitigation strategies

To do nothing is a policy To do nothing is a policy decisiondecision