Preparedness can pay off quickly: Disaster financing and COVID-19

Disasters triggered by natural hazards can strike at a moment’s notice, with devastating consequences on people, infrastructure, assets, and entire economies.  And the coronavirus pandemic (COVID-19) fits into this category.  Beyond its huge health impacts, there are significant economic losses to households, firms, and governments as well as large-scale disruptions to lives and livelihoods as a result of lockdowns, disruption of supply chains, and a steep drop-off in commercial activity. 

For decades, the World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR) have been helping national and local governments to prepare for and mitigate the impacts of naturally occurring events – floods, droughts, cyclones, earthquakes, tsunamis, and more – investing $5 billion in disaster risk management and urban resilience projects, on average, every year.

This is because we know that prevention and preparedness make economic sense, from strengthening infrastructure and other risk reduction efforts to developing policies and programs that help safeguard the poorest and most vulnerable against disaster impacts.  

We have learned that, after a disaster, quick access to predictable financing is critical for emergency response, as even small delays cost lives and livelihoods.  This is how the World Bank’s Cat DDO instrument – short for Development Policy Financing with Catastrophic Deferred Drawdown Option – came into being. 

When countries prepare and implement a Cat DDO program, they commit to ambitious policy reforms and actions designed to prepare for disasters and reduce their impact.   Then, should a disaster strike, and upon declaring a state of national emergency, countries can rapidly access the pre-approved funds to support emergency response and recovery efforts.  So, the financing is there already and quick to access – literally in less than 48 hours after receiving the government’s request.

Currently, 17 countries have Cat DDOs with a combined value of $2.4 billion; 13 more are preparing Cat DDOs. 

When the COVID-19 crisis started to unfold in January, the government authorities responsible for disaster response found themselves on the front line against the pandemic. Now, government agencies around the world are applying the skills, knowledge, and operational systems designed for catastrophes to containment and management of the outbreak.  Examples include the Department of Emergency Situations in Romania, Italy Civil Protection Agency, and Indonesia’s Disaster Management Agency.  

In some countries, other natural disasters may occur at the same time as COVID-19, creating a double shock. The largest earthquake to hit Zagreb, Croatia, in 140 years impacted health services, damaged buildings, and increased anxiety in a country already seeing a rise in COVID-19 cases. Kenya and other East African countries are being ravaged by locust swarms. And in the Caribbean, countries are preparing for hurricanes in the hope that the devastating 2017 season isn’t repeated while they are confronting the impacts of COVID-19. 

In January, government authorities and the World Bank began discussing ways to scale up and plan for COVID-19 response and crisis management.  Regardless of the country, the needs are remarkably similar – additional medical and personal protective equipment; rapidly scaled-up health services for detecting, isolating, and caring for COVID cases; special measures for vulnerable people and vulnerable places such as dense and underserved slums and informal settlements; continuity of learning as schools close; and a need to reduce the associated fiscal impacts.  

As of this writing, Cat DDOs have been triggered in 8 countries, providing over $1.2 billion in immediate financing for countries responding to COVID-19.  For example:

• In Romania, the Cat DDO has been triggered twice for a total of EUR400 million, first to scale up preparedness, and then as the crisis unfolded. Serbia followed, making EUR 20 million available.  In Latin America and the Caribbean, transfers have included $250 million to Colombia, $150 million to the Dominican Republic, and $41 million to Panama.   All payments were made in 48 hours, with resources available for immediate use.
• In Maldives, $10 million is now available for COVID-19 efforts. In Samoa, a country ravaged by the measles outbreak in 2019, a total of $6 million has been made available for measles and COVID-19.  In Morocco, $275 million will soon be available to strengthen the COVID response.  In the Philippines, a third Cat DDO is being prepared as the country manages a series of disasters alongside COVID-19, including the recent volcanic eruption. 
• In Sub-Saharan Africa, reported cases of COVID-19 are rising rapidly. The health sector has improved in some areas during recent Ebola responses, but overall there are still important needs. Discussions are underway for countries to access the $212 million available in Cat DDOs across the continent — including EUR 130 million in Kenya, $30 million in Malawi, $7 million in Seychelles, $35 million in Madagascar, and $10 million in Cabo Verde. The preparation of other Cat DDOs is being accelerated in Benin, Lesotho, Mauritius, Senegal, and Sierra Leone.  

While medical innovations are racing to bring the health crisis under control, we know that COVID-19’s disaster impacts will only keep growing. Fortunately, many decisions and actions taken today for COVID-19 response also strengthen disaster preparedness and response for the future. A family that has stocked up food, water, and medicine and reinforced their shelter’s roof today can also brace for next season’s cyclone. A hospital that has set up procedures to deal with rapidly increasing caseloads today can also apply them when an earthquake hits. A city that has taken actions to build resilience; to support vulnerable groups including the elderly, children and the disabled; and to ensure continuity of services in these difficult days is better prepared for a disaster tomorrow. 

Overall, national and local government planning, emergency preparedness, and service delivery systems are being tested around the world in an unprecedented way.  This reveals additional urgent actions that still must be taken to build resilience.  Overall, we all need to be ready for disasters, be they natural, technological, or biological.  And financing is a critical pillar for preparedness and response.  

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