Pakistan needs to enhance the disaster risk financial capacity to make up for the losses due to frequent floods and earthquakes, according to ADB report available with WealthPK.

The report titled "Narrowing the Disaster Risk Protection Gap in Central Asia" says the private insurance solutions to the natural disasters' risks have achieved only minimal market penetration.

“These challenges are compounded by external financing context at the sovereign level, making it difficult to access debt quickly and cheaply after a disaster, and low levels of financial inclusion that exacerbate the vulnerability to disaster events of many in Pakistan,” it adds.

The past disasters illustrate the challenges that Pakistan faces. For example, floods in 2010 and 2015 caused an estimated Rs32.6 billion ($326 million) losses to farmers in Punjab. The government provided Rs6.7billion ($67 million), amounting to only 18.5pc of the required amount, the report says.

There would appear to be a need to increase the coverage and depth of the existing risk retention instruments for high frequency events, through enhanced functioning of the national and provincial disaster management funds. This can be complemented with the use of risk transfer instruments that might support either the emergency response cost and/or support the reconstruction of assets damaged or destroyed by lower frequency, higher intensity events.

These actions are consistent with the identified work plan of the Disaster Risk Financing Unit of the National Disaster Risk Management Fund, according to the report.

It says the National Disaster Management Act of 2010 established a National Disaster Management Fund and the funds are to be administered by each provincial government. These are intended to cover spending on items such as shelter, food, drinking water, medical cover, etc.

However, ADB reports that “significant work remains to be accomplished in operationalisation of the funds, adequate provision of financing mechanisms and standardization of procedures across provinces.”

It reports that the federal government typically only has limited contingency funding of around $15 million-$20 million to respond to national emergencies while a 2019 World Bank paper reports that the federal fund has $10.6 million. With support from ADB, says the report, a disaster risk financing unit has been established under the National Disaster Risk Management Fund (the one different from the aforementioned fund). This unit is responsible for the improved management of natural hazard risks and has set itself three targets.

The AAL (direct losses only) from flood events is estimated at $1.5 billion and from earthquakes at $614 million. In terms of the extent to which insurance might cover these losses, the analysis assumes that 1pc of the losses from floods may be covered by insurance in line with the ADB analysis.

A higher proportion of the losses from earthquakes might be covered by insurance based on market reports that 70pc of property insurance policies cover earthquakes.

Credit : Independent News Pakistan-WealthPk