Financing a safer future in an age of growing disaster risks - Türkiye

Türkiye is a land of deep history and economic dynamism, but it also sits at the crossroads of natural hazards. Earthquakes strike frequently and with force, and climate-related risks are intensifying as weather patterns shift. The question is no longer whether the next disaster will occur, but how prepared the country is to protect lives, livelihoods, and public finances when it does.
 

The unseen costs—and the funding gap we must close

Disasters don’t end when the shaking stops or floodwaters recede. Their impacts ripple for years through households, businesses, and national budgets. The February 2023 Kahramanmaraş earthquakes were a stark reminder: losses exceeded US$100 billion—around 9 percent of GDP—requiring extraordinary fiscal measures to support emergency response and reconstruction.

Looking ahead, the stakes remain high. A major 1-in-100-year earthquake could cause more than US$35 billion in direct damage (about 4.3 percent of GDP). More critically, such an event would expose a substantial funding gap—the difference between what is or can be made readily available to pay for emergency response and reconstruction and what is required. Modeling suggests that this gap could exceed US$20 billion for severe events. Closing that gap—smartly and affordably—is at the heart of disaster risk finance.
 

A strong foundation to build on

Türkiye is not starting from scratch. Financial resilience is one of three pillars of disaster preparedness, alongside physical resilience (safer buildings and infrastructure) and social resilience (prepared communities and effective safety nets). On the financial side, Türkiye has built innovative, private-sector led risk-transfer solutions that are widely regarded as global good practice (ref. Figure).

Following the 1999 Marmara earthquake, Türkiye established the Turkish Catastrophe Insurance Pool (TCIP), now one of the world’s largest catastrophe insurance programs. TCIP covers more than half of all dwellings against earthquakes and processed most claims from the 2023 earthquakes within eight months—providing rapid liquidity to households and easing pressure on public finances.

In agriculture, the Agricultural Insurance Pool of Türkiye (TARSIM) protects around 23 percent of registered agricultural land against climate-related shocks, offering an essential buffer for farmers facing growing climate volatility. Together, these schemes mobilize private capital, transfer risk away from the public balance sheet, and deliver faster payouts than ad hoc public compensation.

Complementing these programs are budget-based instruments, including those implemented by AFAD and the Ministry of Treasury and Finance (ref. Figure). Budget reallocations, targeted taxes, and borrowing have filled post-disaster financing needs when shocks have exceeded pre-arranged funds. While these tools can mobilize resources, they come at a cost—diverting funds from growth-enhancing investments, increasing debt burdens, and delaying recovery.

Yet important gaps remain. Insurance coverage outside dwellings and agriculture is limited, and historically only a small share of disaster losses was insured. As risks grow larger and more complex, existing instruments need to be further strengthened.

From strong to resilient: a roadmap to close the gap

Moving from strength to resilience requires a more systematic approach. A national DRF strategy would provide a clear framework for managing fiscal risks from disasters, aligning different instruments with different layers of risk—from frequent, low-impact events to rare but catastrophic shocks.

We are proposing a practical, four-step agenda to strengthen Türkiye’s financial shield against disasters: 

First, disaster risk needs to be embedded across the entire budget cycle. This includes identifying and quantifying explicit and implicit contingent liabilities, integrating disaster risk into fiscal planning and debt management, and strengthening monitoring during budget execution.

Second, Türkiye can further enhance and diversify its financial instruments. Simulations show that combining contingent credit with larger reserve buffers could significantly reduce post-disaster funding gaps and lower reliance on costly emergency borrowing.

Third, greater attention should be given to protecting public assets. Schools, hospitals, roads, and other critical infrastructure represent large contingent liabilities. Insurance or structured self-insurance mechanisms could help manage reconstruction costs while mobilizing private capital and strengthening incentives for better asset management.

Fourth, existing schemes can be strengthened. TCIP’s financial sustainability could be supported by investments in risk reduction measures such as retrofitting pre-2000 buildings, estimated to reduce expected annual earthquake losses by nearly 40 percent. At the same time, TCIP could offer incentives for such investments through differentiating policies for buildings that are retrofitted from those that are not while enhancing insurance penetration.
 

Why this matters now

Türkiye’s economy is dynamic. Its cities are engines of growth; its people are its greatest asset. Protecting that dynamism requires more than responding to the last disaster—it demands anticipating the next. A strong DRF framework offers clear benefits. It lowers the overall cost of disasters, protects households and businesses, and preserves fiscal stability.  The goal is not to eliminate risk—a practical impossibility—but to manage it: to make sure that when shocks strike, the country can act decisively, protect the vulnerable, keep services running, and rebuild better and faster.