Disaster Risk Financing and Contingent Credit : A Dynamic Analysis
This paper aims to assist policy makers interested in establishing or strengthening financial strategies to increase the financial response capacity of developing country governments in the aftermath of natural disasters, while protecting their lon...
| Main Authors: | , |
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| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110620100433 http://hdl.handle.net/10986/3457 |
| Summary: | This paper aims to assist policy makers
interested in establishing or strengthening financial
strategies to increase the financial response capacity of
developing country governments in the aftermath of natural
disasters, while protecting their long-term fiscal balance.
Contingent credit is shown to increase the ability of
governments to self-insure by relaxing their short-term
liquidity constraints. In many situations, contingent credit
is most effectively used to facilitate risk retention for
middle layers, with reserves used for bottom layers and risk
transfer (for example, reinsurance) for top layers.
Discussions with governments on the optimal use of
contingent credit instruments as part of a sovereign
catastrophe risk financing strategy can be guided by the
output of a dynamic financial analysis model specifically
developed to allow for the provision of contingent credit,
in addition to reserves and/or reinsurance. This model is
illustrated with three country case studies: agricultural
production risks in India; tropical cyclone risk in Fiji;
and earthquake risk in Costa Rica. |
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