Advancing Disaster Risk Finance in Saint Vincent and the Grenadines URBAN, DISASTER RISK MANAGEMENT, RESILIENCE AND LAND GLOBAL PRACTICE LATIN AMERICA AND THE CARIBBEAN UNIT © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Publication Design: Blue Robin Designs, LLC Photo Credit: Saint Vincent and the Grenadines Regional Disaster Vulnerability Reduction Project Front Cover: San Souci, Saint Vincent and the Grenadines Back Cover: Belle Isle, Saint Vincent and the Grenadines 2 Advancing Disaster Risk Finance Table of Contents Acknowledgments��������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 4 Abbreviations and Acronyms���������������������������������������������������������������������������������������������������������������������������������������������������� 5 Executive Summary �������������������������������������������������������������������������������������������������������������������������������������������������������������������������7 Chapter 1. Introduction�����������������������������������������������������������������������������������������������������������������������������������������������������������������10 Brief Presentation of the Theoretical Framework of Disaster Risk Finance ����������������������������������������������������10 Brief Introduction of the Case for a DRF Strategy in Saint Vincent and the Grenadines �������������������������13 Chapter 2. Public Financial Management of Disaster Risk ��������������������������������������������������������������������������������������� 16 The Legal and Regulatory Framework �����������������������������������������������������������������������������������������������������������������������16 Further Limitations of Existing PFM for DRF ����������������������������������������������������������������������������������������������������������������21 Budgetary Framework for Post-Disaster Finance �������������������������������������������������������������������������������������������������22 Budgetary Analysis of Fiscal Impact of Disasters in SVG����������������������������������������������������������������������������������� 24 External Aid Flows ������������������������������������������������������������������������������������������������������������������������������������������������������������ 25 Chapter 3. Fiscal Disaster Risk Assessment �������������������������������������������������������������������������������������������������������������������� 28 Fiscal Disaster Risk Modeling����������������������������������������������������������������������������������������������������������������������������������������� 29 Analysis of Historical Disasters in Saint Vincent and the Grenadines�������������������������������������������������������������31 Financing Adaptive Social Protection: A Mechanism to Mitigate Social Impacts from Disasters �������33 Quantification of Social Risk from Disasters ����������������������������������������������������������������������������������������������������������� 36 Chapter 4. Review of the Catastrophe Insurance Market in Saint Vincent and the Grenadines ���������� 39 Market Overview �������������������������������������������������������������������������������������������������������������������������������������������������������������� 39 Supervision and Regulation ����������������������������������������������������������������������������������������������������������������������������������������� 42 Demand for and Supply of Insurance  ����������������������������������������������������������������������������������������������������������������������� 42 Agriculture Sector ������������������������������������������������������������������������������������������������������������������������������������������������������������ 45 Chapter 5. Recommendations for National Disaster Risk Finance Strategy in Saint Vincent and the Grenadines �����������������������������������������������������������������������������������������������������������������������������������49 Recommendations����������������������������������������������������������������������������������������������������������������������������������������������������������� 49 Discussion �������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 50 Annex 1. Operational Disaster Risk Financing and Insurance Framework �������������������������������������������������������59 Annex 2. Saint Vincent and the Grenadines Country Disaster Risk Profile ������������������������������������������������������� 61 Annex 3. DRFTA Project Methodology of Quantifying Contingent Liability�������������������������������������������������������63 Annex 4. Analysis of Historical Disasters in Saint Vincent and the Grenadines��������������������������������������������65 Annex 5. DRF Instruments and Policy Framework in Select Caribbean Countries ��������������������������������������69 Saint Vincent and the Grenadines 3 Acknowledgments This report was produced by a team led by Mary Boyer (Disaster Risk Management) and Rashmin Gunasekera (Senior Disaster Risk Management) and comprising Decima Corea (National Consultant), Mahlet Girma Tsigie (Disaster Risk Management Consultant), Thibaut Humbert (Disaster Risk Management Consultant), Ivelisse Justiniano (Urban and Disaster Risk Management Consultant), Kristal Peters (Urban Resilience Consultant), Sophia Whyte- Givans (Senior Public Financial Management Consultant), and Peter Wrede (Senior Insurance Consultant). The report greatly benefited from the data and information provided by the Ministry of Finance, Economic Planning, and Information Technology of the Government of Saint Vincent and the Grenadines, the Ministry of Agriculture, Forestry, Fisheries, Rural Transformation, Industry and Labour; Ministry of Education and National Reconciliation, Ministry of Foreign Affairs, National Security, Legal Affairs, and Information; Ministry of National Mobilisation, Social Development, Family, Gender, Youth, Housing, and Informal Human Settlement; Ministry of Transport, Works, Lands, and Physical Planning, National Emergency Management Office (NEMO); Physical Planning Unit (PPU); Financial Services Authority (FSA); Central Water and Sewerage Authority (CWSA); Argyle International Airport (AIA); St. Vincent Electricity Services Limited (VINLEC); St. Vincent and the Grenadines Port Authority (SVGPA); National Insurance Services (NIS); Chamber of Industry and Commerce, Insurance brokers and individual insurance companies; and the Statistical Office. The team is grateful to peer reviewers Luis Alton (Senior Financial Sector Specialist), Evie Calcutt (Financial Sector Specialist), Urska Zrinkski (Financial Sector Specialist), and Oscar Ishizawa (Senior Disaster Risk Management Specialist). The report was prepared using the operational framework that was developed and promoted by the World Bank Disaster Risk Financing and Insurance Program (DRFIP). The team gratefully acknowledges funding support from United Kingdom Foreign, Commonwealth & Development Office (FCDO). The team also gratefully acknowledges the contributions in data and information from the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC). 4 Advancing Disaster Risk Finance Abbreviations and Acronyms AAL Average Annual Loss DRF Disaster Risk Finance AAL Appropriation Act DRFTA Disaster Risk Finance Technical CAPEX Capital Expenditure Assistance CARD MBA Center for Agriculture and Rural DRM Disaster Risk Management Development Mutual Benefit DRR Disaster Risk Reduction Association ECCU Eastern Caribbean Currency Union Cat DDO Catastrophe Deferred Drawdown FAA Financial Administration Act Option FONDEN Natural Disasters Fund CCRIF SPC Caribbean Catastrophe Risk FRF Fiscal Responsibility Framework Insurance Facility Segregated FRM Fiscal Responsibility Mechanism Portfolio Company FSA Financial Services Authority CDM Comprehensive Disaster GDP Gross Domestic Product Management GFDRR Global Facility for Disaster CDEMA EAF Caribbean Disaster Emergency Reduction and Recovery Management Agency Emergency GoSVG Government of Saint Vincent and Assistance Fund the Grenadines CDRP Country Disaster Risk Profile HHI Herfindahl-Hirschman Index CERC Contingent Emergency Response HTERP Hurricane Tomas Emergency Component Recovery Project COA Chart of Accounts IAIS International Association of COAST Caribbean Ocean and Aquaculture Insurance Supervisors Sustainability Facility ICP Insurance Core Principles CRFM Caribbean Regional Fisheries IMF International Monetary Fund Mechanism IMF RCF International Monetary Fund Rapid CWSA Central Water and Sewerage Credit Facility Authority JERC Japan Earthquake Reinsurance DaLA Damage and Loss Assessment Company DANA Damage Assessment and Needs MiCRO Microinsurance Catastrophe Risk Analysis Organization DDSA Detailed Damage Sectoral MoFEP Ministry of Finance, Economic Assessment Planning, and Information Technology Saint Vincent and the Grenadines 5 Abbreviations and Acronyms continued NDRP National Disaster Response Plan SVGPA Saint Vincent and the Grenadines NEDMA National Emergency and Disaster Port Authority Management Act TCIP Turkish Catastrophe Insurance NEEC National Emergency Executive Pool Committee TREIF Taipei, the Residential Earthquake NEC National Emergency Council Insurance Fund NEMO National Emergency Management VAT Value Added Tax Organization VFM Value for Money NESDP National Economic and Social VINLEC Saint Vincent Electricity Services Development Plan Limited OECD Organisation for Economic WHO World Health Organization Co-operation and Development OECS Organisation of Eastern Caribbean States PD-PFM Post-Disaster Public Financial Management PDNA Post-Disaster Need Assessment PFM Public Financial Management PML Probable Maximum Loss PPP Public-Private Partnership PPA Public Procurement Act PSIP Public Sector Investment Programme PSNP Productive Safety Net Programme RDVRP Regional Disaster Vulnerability Reduction Project R-FONDEN Loss Estimation for Federal Risk System SIDS Small Island Developing States SOC Standard Object Code SOP Standard Operating Procedure SVG Saint Vincent and the Grenadines 6 Advancing Disaster Risk Finance Executive Summary The objective of this report is to make recommendations to the Government of Saint Vincent and the Grenadines (GoSVG) for the formulation of a country-specific comprehensive disaster risk finance (DRF) strategy, based on the assessment of the legislative, financial management, fiscal, and insurance market environment in Saint Vincent and the Grenadines (SVG). This report is envisioned to be used as a planning tool for the potential development of a comprehensive DRF strategy that would equip the Ministry of Finance, Economic Planning, and Information Technology (MoFEP) with information and instruments to manage contingent liabilities posed by disasters. On average, in the long term, the GoSVG would need to cover losses of approximately US$11 million (EC$29.7 million) annually—1.3 percent of SVG’s 2019 gross domestic product (GDP)—to address its contingent liabilities related to floods and hurricanes (Table 1). This amount is equivalent to 5.9 percent of the GoSVG’s total expenditure for 2019. Hurricane damage to public and private building infrastructure alone will amount to US$9 million (EC$24.3 million), on average, each year over the long run. For any given year, SVG has about a 1 percent probability of government losses exceeding US$101 million (EC$273 million), that is, 12.2 percent of GDP in realized contingent liabilities due to damages, which could take the form of relief expenditures, lost revenue, road and bridge reconstruction, public school and hospital reconstruction, or any other relief or reconstruction expenditure that the government is responsible for after a disaster. Table 1. Key Return Periods for Windstorm and Flood Losses Indicative Risk Metrics Total Direct and Total Direct Total Government Indirect Impact Damages Contingent Liability (US$, millions) (US$, millions) (US$, millions) Average annual loss (AAL) 22 17 11 10-year return period (10%) 60 48 30 100-year return period (1%) 180 138 101 250-year return period (0.4%) 244 184 145 Source: Author’s analysis. In addition to predictable losses related to hydrometeorological events and AALs of US$1.7 million from earthquakes, SVG also faces much less predictable but still catastrophic risks from volcanic impacts, tsunamis, health emergencies, and other exogenous shocks (Annex 4). This requires any financial response strategy to be flexible and responsive and build on the existing robust data systems and financial processes. During the preparation of this report, SVG experienced two shocks—the COVID-19 pandemic and an explosive eruption of the La Soufrière Volcano. As of September 2021, the pandemic has resulted in 30 deaths in SVG, triggered a fall in government revenues, and increased the demand for health care and social support, thus putting pressure on social services and health systems and increasing the vulnerability of at-risk groups. The eruption has further exacerbated these impacts and estimated gross financing needs for responding to direct and indirect damage are US$174 million (23 percent of GDP). Saint Vincent and the Grenadines 7 The GoSVG has made substantial progress in developing ex ante financing arrangements, but SVG can adjust its approach to disaster financing to be more timely, flexible, equitable, and cost- effective (Annex 5). Following a disaster, the GoSVG can access immediate liquidity for emergency expenses through its well-legislated Contingencies Fund. Beyond the Contingencies Fund, the government reallocates resources within the domains of ministries to meet pressing costs, which may stall other investment priorities. Financing costs for medium to severe events are further covered by a contingent financing arrangement and modest parametric insurance coverage from wind, rainfall, and earthquake events. However, ex ante insurance mechanisms for implicit contingent liabilities such as vulnerable populations and sectors, as well as private assets, is lacking. Critical utilities responsible for public goods, whether privately or publicly owned, have historically been limited in financial protection options due to cost and availability. Additionally, dated disaster response and hazard risk management plans can delay the time it takes to make needs-based decisions on prioritizing recovery and reconstruction spending. This report presents recommendations for a cost-effective DRF strategy in SVG, drawing heavily on international experience, country-specific information, and similar conditions in Small Island Developing States (SIDS). These complementary resources for a national DRF strategy are based on a preliminary fiscal risk analysis and a review of the current budget management of natural disasters in SVG. The report benefits from the international experience of the World Bank and the approach outlined in its operational disaster risk financing and insurance framework1 (Annex 1), which has assisted several countries (Belize, Colombia, Grenada, Fiji, Indonesia, Jamaica, Mexico, Pakistan, the Philippines, Saint Lucia, Samoa, the Solomon Islands, Sri Lanka, Tonga, Vanuatu, and Vietnam) in the design and implementation of sovereign catastrophe risk financing strategies. This report tailors the approach to the institutional, social, and economic characteristics of SVG. Figure 1. Recommended Risk Layering Strategy for the GoSVG; Source: Author’s analysis. 1 Mahul, Olivier, et al. 2014. Financial Protection against Natural Disasters: From Products to Comprehensive Strategies - an Operational Framework for Disaster Risk Financing and Insurance. Washington, DC: World Bank. http://documents.worldbank.org/curated/en/523011468129274796/ Financial-protection-against-natural-disasters-from-products-to-comprehensive-strategies-an-operational-framework-for-disaster-risk- financing-and-insurance. 8 Advancing Disaster Risk Finance This study presents options for a combination of new, existing, and refurbished risk retention and risk transfer instruments that could help the GoSVG increase its immediate financial response capacity and better protect its fiscal balance. Building on the three-tier risk layering approach for low-, medium-, and high-frequency events promoted by the World Bank; fiscal constraints of the GoSVG; the existing legislative environment; the capacity of the insurance sector of SVG; and a cost-benefit analysis tailored to SVG’s natural disaster risk profile. Figure 1 represents the recommended organization of instruments for a comprehensive risk financing strategy. Table 2 further elaborates on recommended instruments and policy actions. Table 2. Recommended Instruments and Policy Actions Time Frame Instruments and Strategy Recommendations for DRF Sovereign Protection Short Term 1 Streamline and institutionalize loss and damage data collection and reporting (< 1 year) system for all severities of events. 2 Explicitly address contingent liabilities/fiscal risks arising from natural disasters in the fiscal legislation and regulations of the GoSVG, including NEDMA and FAA. 3 Detail standard operating procedures (SOPs) for the process of estimating economic losses from direct damages. 4 Consider earmarking a provision of the contingencies fund for natural hazard response - consistent with AAL of hydrometeorological events (US$11 million). 5 Continue seeking access to a contingent line of credit that covers contingent liabilities of prominent events of at least a 10-year return period (US$30 million). 6 Optimize sovereign parametric insurance (CCRIF SPC) coverage to cover existing immediate liquidity gaps. 7 Adopt a National Strategy for DRF and subsequent implementation plan. 8 Develop and institutionalize disaster-responsive Post-Disaster Budget Execution Guidelines Medium 9 Develop a risk-based asset management system, based on a comprehensive Term inventory of public fixed assets. (1–3 years) 10 Institutionalize guidelines for public procurement of indemnity insurance. 11 Develop an adaptive social protection program with dedicated financing arm. 12 Improve the COA by integrating disaster management and climate change considerations to enable and improve tracking of disaster-related expenditure. 13 Develop or subscribe to a livelihood protection mechanism for vulnerable populations like fisherfolk, farmers, and tourism workers. Commercial Insurance Short Term 14 Strengthen transparency and consumer protection: greater transparency about (< 1 year) providers. Medium 14.1 Strengthen transparency and consumer protection: key facts statements. Term (1–3 years) 14.2 Strengthen transparency and consumer protection: consumer protection diagnostic. 15 Government support to better understanding and appreciation of insurance by the public 16 Assess compliance with the insurance core principles (ICP). 17 Assess the barriers to and potential of inclusive and other sector-specific insurance. Note: CCRIF-SPC = Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company; COA = Chart of Accounts; NEDMA = National Emergency and Disaster Management Act. Saint Vincent and the Grenadines 9 Chapter 1. Introduction Brief Presentation of the Theoretical Framework of Disaster Risk Finance Financial management of disaster risk is an element of Priority 3 of the Sendai Framework (2015–2030) and is part of the Strategic Framework for Comprehensive Risk Management of Disasters developed by the World Bank. This report defines the five pillars of a Disaster Risk Management (DRM) strategy (Figure 2). It assumes that while a country cannot escape the risk of natural hazards, it can significantly and efficiently reduce its vulnerability and its exposure to risks. Thus, to reverse the current trend of increasing impacts from natural disasters, it is necessary to integrate risk management into development plans and in public and private investment, both locally and nationally. Figure 2. Strategic Pillars of DRM Developed by the World Bank; Source: World Bank and Global Facility for Disaster Reduction and Recovery (GFDRR), Sendai Framework. It is important to note that the Disaster Risk Finance Technical Assistance (DRFTA) Project, on which this report is based, focuses solely on the financial protection pillar. However, it does not lessen the need to strengthen the other dimensions of integrated risk management, including the preparedness component that is crucial for Saint Vincent and the Grenadines (SVG). The Government of Saint Vincent and the Grenadines (GoSVG) updated the National Comprehensive Disaster Management (CDM) Policy in 2020 to improve alignment with the changing hazard landscape and national, regional, and international frameworks. The new CDM Strategy (2014–2024)2 includes emerging priority areas such as physical and environmental planning, finance, and economic development. It also focuses on the strengthening of public- private partnerships (PPPs) within all sector groups, enhanced results-oriented programming, monitoring, and evaluation, and a more strategically aligned integrated risk management approach where climate change considerations are integrated into priority sectors.3 The DRFTA Project is part of the broader partnership with the GoSVG on DRM and climate change adaptation. SVG is currently implementing a World Bank-funded Regional Disaster Vulnerability Reduction Project (RDVRP) (P117871), which aims to measurably reduce 2 GoSVG. “(Draft) Comprehensive Disaster Management Policy.” 3 Comprehensive Disaster Management Policy and Strategic Implementation Plan for Saint Vincent and the Grenadines, September 2020. 10 Advancing Disaster Risk Finance vulnerability to natural hazards and climate change impacts in SVG and in the Eastern Caribbean subregion, through a combination of infrastructure works, procurement of critical goods, and technical assistance activities that improve capacity to identify and manage climate and disaster risks. The primary objective of a Disaster Risk Finance (DRF) strategy is to contribute to the reduction of the economic and fiscal impact caused by disasters based on the concept of cost-effectiveness, that is, to develop instruments which are differentiated according to the types of risks identified (Figure 3).4 In this regard, a DRF strategy combines instruments for the retention and transfer of risk and administrative and legal mechanisms to increase the capacity to respond effectively and reduce the associated financial burden, and ultimately, to ensure the sustainability of public finances. From a macroeconomic point of view, the various instruments forming the strategy play the role of automatic stabilizers and help manage budgetary volatility caused by disasters. Within these tools are the ex-ante instruments put in place by the GoSVG before a disaster and the ex-post measures operationalized after a disaster. Figure 3. Most Cost-Effective Financial Instruments for Different Types of Risk; Source: World Bank.5 A temporal dimension is the second key factor to be taken into account in forming a cost-effective DRF strategy. While a government might not use all the funds needed for relief and recovery in the days following a disaster (Figure 4), immediate resources are necessary to carry out emergency operations. Ensuring that these resources are available and that operations can be carried out quickly is crucial to stabilizing the human, social, or even economic impacts of a disaster. However, it is only after a few months, sometimes even a few years, that the financial needs will be maximized to address reconstruction works, which could become a protracted process that should incorporate efforts to increase resiliency by building back better. 4 Ghesquiere, Francis, and Olivier Mahul. 2010. “Financial Protection of the State against Natural Disasters: A Primer.” Policy Research Working Paper 5429, World Bank, Washington, DC. 5 Ibid. Saint Vincent and the Grenadines 11 Figure 4. Temporal Dimension of Post-Disaster Finance Needs; Source: World Bank.6 The third factor concerns the legal and administrative aspects, which advocate for the allocation of funds, strengthening of financing mechanisms, and payments to be made at the optimal times. This step is vital for the financial strategy to effectively meet the GoSVG’s needs. In many cases, efforts to secure funds quickly after a disaster are hampered by the multiple administrative steps required for the responsible institutions to appropriate resources and execute operations. In other cases, oversight of the use of public resources is suspended and the lack of transparency gives rise to losses when resources are already low. Similarly, some governments take out parametric disaster insurance not realizing that, once triggered, the payments are treated as nontax revenues and transferred to the treasury, thus generating delays in the execution of emergency and recovery operations. It is imperative to meticulously address this often-overlooked legal and administrative dimension so that the risk financing strategy is not only sound and effective but also time- sensitive. To address these three key factors, the analysis captured in this report employs a country-specific operational framework informed by the experience of the World Bank in similar countries.7 To specifically address the needs of the GoSVG related to disasters, this approach focuses on three activities: quantifying the implicit contingent liabilities of the GoSVG to estimate the fiscal risk of disasters, reviewing the current public financial management (PFM) of disasters in SVG and the legal environment for addressing shocks on public finances, and evaluating the domestic non-life insurance industry to assess its capacity to build a strong financial sector for public and private risk transfer. 6 Ghesquiere and Mahul 2010. 7 Mahul, Olivier, Laura Boudreau, Benedikt Signer, Sevara Atamuratova, Hannah Yi, Emily White, and Daniel Clarke. 2014. Financial Protection against Natural Disasters: From Products to Comprehensive Strategies - An Operational Framework for Disaster Risk Financing and Insurance. Washington, DC: World Bank. http://documents.worldbank.org/curated/en/523011468129274796/Financial-protection-against-natural- disasters-from-products-to-comprehensive-strategies-an-operational-framework-for-disaster-risk-financing-and-insurance. 12 Advancing Disaster Risk Finance Brief Introduction of the Case for a DRF Strategy in Saint Vincent and the Grenadines SVG is exposed to high levels of risk to hydrometeorological and geophysical hazards,8 which have had significant negative impacts on its economic and fiscal stability, as well as on the safety and well-being of the population. In addition to the large hydrometeorological events that are named (Figure 5), there are many smaller, localized events which have smaller impact, but which nonetheless cause economic and livelihood disruption and put a strain on the country’s resources. In the past several years, although it has been spared catastrophic hurricanes, SVG occasionally experienced heavy rains, which led to flash flooding and landslides. Geophysical hazards have always been on the country’s radar because of the active La Soufrière Volcano and the existential threat of volcanic eruptions. The impacts of the 2021 series of eruptions reached beyond the shores of SVG and are still being quantified. This event has brought to the attention of neighboring islands the need to prepare for this kind of hazard. And finally, although much attention has been given to hydrometeorological and geophysical hazards, recently, biological hazards have come to the fore. Public health-related outbreaks of dengue fever, zika, chikungunya, and, more recently, the COVID-19 pandemic is another type of external shock that the country has had to grapple with. These natural hazards are exacerbated by the adverse impacts of climate change, unregulated land use, and unplanned urban growth that place increased stress on infrastructure, water security, agricultural production, and livelihoods. While all citizens are adversely affected, the poor and vulnerable are disproportionately affected. The average economic impact of hydrometeorological disasters was 1.2 percent of gross domestic product (GDP) or US$11.3 million9 per year over 1998–2017. Since 2010, 15 percent of SVG’s accumulated debt is attributable to post-storm reconstruction, as well as attempts to ‘future-proof’ the country and people, through forward-looking adaptation and resilience-building efforts.10 8 Hydrometeorological - high wind, excess rainfall, hurricanes and drought; geophysical - seismic, volcanic, tsunami. 9 Eckstein, David, Hutfils, Marie-Lena, and Maik Winges. 2019. “Global Climate Risk Index 2019.” Bonn: Germanwatch. https://www.germanwatch. org/sites/germanwatch.org/files/Global%20Climate%20Risk%20Index%202019_2.pdf. 10 Gonsalves, Camillo. 2018. “Saint Vincent and the Grenadines 2018 Budget Address.” February 5, 2018. http://finance.gov.vc/finance/images/ PDF/budgetaddress/2018-budget-address.pdf. Saint Vincent and the Grenadines 13 60 50 Total dmage as % of GDP 40 30 20 10 0 Volcano HU Allen Floods HU HU HU Lily HU Ivan HU HU Floods Floods Floods Volcano Emily Lenny Emily Thomas 1979 1980 1987 1987 1999 2002 2004 2005 2010 2011 2013 2016 2021 Figure 5. Historical Damage from Major Disasters in SVG since 1979, as a Percentage of GDP To protect development gains and a positive growth trajectory, minimizing economic impact from exogenous shocks is paramount. In 2019, the International Monetary Fund (IMF) noted that the growth outlook for SVG was positive. Citing increases in tourist arrivals from the new airport, tourism-related activities (including investment in hotels and resorts), and related local production, it was estimated that economic growth would hover around 2.3 percent assuming steady tourism and investment growth;11 however, the impact of COVID-19 has partially stifled that growth, resulting in a 2.7 percent decline in GDP in 2020.12 Before the volcanic eruption, it was expected that growth would be relatively flat at 0.2 percent in 2021 largely because of increased activities in the tourism sector in late 2021 along with strong performance in agriculture. As a consequence of the volcanic eruptions, growth is now expected to be –6.1 percent in 2021,13 though performance could be worse given the evolution of the volcanic event and its duration. This could be mainly due to projected losses of at least 60 percent in the agriculture sector. Though agriculture accounts for less than 10 percent of total GDP, it accounts for 15 percent or more of total employment.14 11 IMF. 2019. St. Vincent and the Grenadines: 2018 Article IV Consultation-Press Release; Staff Report and Statement by the Executive Director for St. Vincent and the Grenadines. Country Report No. 19/66. Washington, DC, February 25, 2019. https://www.imf.org/en/Publications/CR/ Issues/2019/02/25/St-Vincent-and-the-Grenadines-2018-Article-IV-Consultation-Press-Release-Staff-Report-and-46628. 12 https://www.eccb-centralbank.org/statistics/gdp-datas/comparative-report/2. Accessed June 2021 13 IMF. 2021. St. Vincent And the Grenadines: Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; And Statement by The Executive Director for St. Vincent And the Grenadines. Country Report No. 21/157. 14 GRADE Damage Assessment (World Bank 2021) estimates cannabis losses at roughly US$20 million (2.5 percent of GDP), but potentially as high as US$60 million (7.6 percent of GDP). This includes losses to both legal and illegal cannabis cultivation. However, this is subject to considerable uncertainty as exact production numbers are not well-established or identified. The projected GDP contraction of –6.5 percent in 2021 reflects a –2.0 percent contribution to growth from lost cannabis production but could be higher depending on exact cannabis losses and its respective share of GDP. 14 Advancing Disaster Risk Finance Disasters are one of the main risks to SVG’s macroeconomic outlook, alongside increases in external financing costs and increases in oil prices.15 Based on the IMF’s models, annual fiscal costs of disaster are forecast to be 1.4 percent of GDP,16 in line with the World Bank models discussed in Chapter 3. SVG’s external position has not yet weakened to a point where a clear balance of payments need has arisen, but this eventuality could arise should the eruption be prolonged and economic activity remain subdued. Gross public financing needs have increased, and additional sources of financing are needed. In additional recovery planning measures, the government is committed to strategically planning for financing of future hazard impacts. The quantification of fiscal risks linked to disasters is the first step in devising a cost-effective DRF strategy. SVG’s Country Disaster Risk Profile (CDRP) presents country- and department-level earthquake and hurricane risk profiles by estimating the potential economic losses to public and private building infrastructure. According to the CDRP, hurricanes cause an average annual loss (AAL) of US$9 million (EC$24.3 billion) and, annually, earthquakes cause US$1.7 million (EC$4.6 million) in losses, which is 0.5 percent and 0.2 percent of the national GDP, respectively. Additionally, there is a 0.4 percent chance in any given year (or 250-year return period) that these losses are expected to exceed US$265 million (EC$716 million), or 33.4 percent of GDP. Bilateral and multilateral aid flows are not sufficient to support SVG in its disaster recovery and reconstruction efforts. SVG has received only about US$$35.97 million (EC$96.03 million) in grants and loans to support DRM and emergency response between 2000 and 2014,17 despite experiencing a total economic impact of US$326 million over the same period. Additionally, donor assistance in the form of budget support to SVG is unpredictable and has not been properly accounted for in planning the financing of medium- to long-term recovery and reconstruction needs. Inclusion of data regarding extra-budgetary operations in the budget and financial reports is necessary to provide a complete picture of central government operations and to show the full impact of a disaster on fiscal outcomes. This report contains the main findings and recommendations of this technical assistance, including how to use risk assessments, such as the AAL, in a fiscal protection strategy. This report contains five chapters. After this introductory chapter, Chapter 2 presents an overview of the budgetary framework for disaster response and the legislation and policies that support it, before evaluating its effectiveness and cost- efficiency. Chapter 3 provides a preliminary financial disaster risk assessment for SVG, focusing particularly on the fiscal impact of disasters. Chapter 4 presents an overview of the private catastrophe insurance market, and Chapter 5 presents recommendations for future financing of disaster recovery and reconstruction expenditures. The report is complemented by technical annexes. 15 IMF. 2018. Article IV Consultations. 16 Ibid. 17 AidData. “AidData | AidData Core Research Release, Version 3.1.” https://www.aiddata.org/data/aiddata-core-research-release-level-1-3-1#/ advanced/analytic-dashboard. Saint Vincent and the Grenadines 15 Chapter 2. Public Financial Management of Disaster Risk The Legal and Regulatory Framework While several pieces of PFM and DRM legislation mention various financing mechanisms for disaster response, there are no explicit provisions in any piece of legislation to provide an overarching framework for disaster risk financing. The following pieces of legislation govern DRM in SVG: • The Financial Administration Act (FAA) provides for the Consolidated Fund and, since 2019, it has operationalized the Contingencies Fund. The scope of the fiscal response to disasters is circumscribed by the budget, the Consolidated Fund and, more recently, the capitalized Contingencies Fund. • The National Emergency and Disaster Management Act (NEDMA) outlines the governance mechanism and processes for operationalizing DRM in SVG and refers to the Contingencies Fund, in S.41(2) as the source of funding. • The Fiscal Responsibility Framework (FRF) identifies disaster risk though S.5(2)(a) as one of the conditions that can trigger a suspension of the fiscal rules. • The Public Procurement Act (PPA) of 2018 does not provide for emergency procurement as an exempt activity but does provide for Regulations to treat with insurance procurement. The Financial Administration Act The FAA makes allowance for funding in times of a disaster. The aim of the FAA is to provide for the management and control of public money; operation and control of the Consolidated Fund; establishment of a Contingencies Fund; authorization of expenditures; establishment of special funds and deposit accounts; management and control of the public debt; and the giving of guarantees, for investment of public money, among others.18 The FAA was promulgated in 2004 and is out of date for a modern PFM legislation. The government, with the assistance of Supporting Economic Management in the Caribbean (SEMCAR), drafted the PFM legislation in 2014, but it has never been tabled in Parliament. The IMF worked with the government to include some sections of the draft act into various regulations, which have been promulgated since. However, SVG should redraft its PFM legislation to bring it up to date. It would be important to complete the new legislation to assist with the implementation of their Fiscal Responsibility Resolution. The resolution is a good first step but should also be migrated to legislation. 18 Saint Vincent and the Grenadines Finance Administration Act, 2004, Pub. L. No. 28 of 2004. http://oas.org/juridico/english/mesicic3_svg_ adm.pdf. 16 Advancing Disaster Risk Finance Consolidated Fund Before 2019, the Consolidated Fund was the GoSVG’s only risk retention mechanism. The Consolidated Fund is provided for in Section 68 of the Constitution of Saint Vincent and the Grenadines and is established in Section 13 of the Finance Administration Act as the main source of public finances. All public funds should be paid into the Consolidated Fund, except for several exceptions. These include monies to be paid into a special fund or any other Fund (S.14(f)) and any monies not required to be paid into the fund under any other Act (S.14(g)), including acts or provisions which may be specific to international development partners. Project accounts are usually requested by donors. These exceptions provide a loophole for donor funds to be diverted from the Consolidated Fund. This technicality impacts capacity to fully estimate the fiscal response to disasters. Only resources that pass directly through the Consolidated Fund and, by extension, the national budget can be captured in this analysis. Projects, programs, and external technical support captured in the estimates may have funds which do not pass through the Consolidated Fund; however, there is a provision in place to account for expenditure when these funds are utilized using the journalization process. Notwithstanding, the responsibility to account for the funds lies within individual ministries and it not centralized. Contingencies Fund The Contingencies Fund, operationalized in 2019,19 is a mechanism from which the government can access immediate liquidity post disaster, and which aims to minimize disaster-related financial losses. The Contingencies Fund can be used to provide financial resources for (a) relief, recovery, and reconstruction costs from a disaster; (b) facilitating of a countercyclical fiscal policy in the event of an economic recession or crisis; (c) the prepayment of debt; and (d) investment in climate-resilient infrastructure and adaptation measures.20 Fund is capitalized from the proceeds of the Climate Resilience Levy Act of 2018 and from 1 percent of the proceeds from the value added tax (VAT). At present, the Contingencies Fund is capitalized through the capital budget, for example, with an US$4.9 contribution in the 2021 budget.21 In 2020, US$3.7 million was withdrawn to cover expenditures related to COVID-19. As of March 2021, US$12.9 million was in the fund. Contingencies Fund operations are outlines in the Finance Administration Regulations of 2019 as follows: • Once the Minister of Finance is satisfied that any of the conditions of the Regulations is met, s/he can sign a Contingencies Fund Warrant to withdraw a sum from the Contingencies fund. The amount to be withdrawn, in the case of a disaster, is determined by the Damage and Needs Assessment report sent to the Prime Minister from the Damage and Needs Assessment Subcommittee.  • The sum withdrawn is deposited into the Consolidated Fund from which rehabilitation and reconstruction expenditures are met. For these expenses to be made and accounted for, a Special (Supplementary) Warrant is issued to allow the expenditures to be undertaken and accounted for in the payment system. 22 19 Saint Vincent and the Grenadines, Finance Administration (Contingencies Fund) Regulations, Statutory Rules & Orders, No. 21 of 2019. 20 GoSVG. Saint Vincent and the Grenadines Finance Administration Act (Contingencies Fund), Act 21 of 2019. Section 5 of the Finance Administration (Contingencies Fund) Regulations, 2019 states that the fund should not be less than 20 percent of the average of the actual current revenue for the last three years. Uses ( c) ad (d) can only be accessed if only if the fund exceeds the amount prescribed by the regulations and the debt-to-GDP ratio exceeds 60 percent 21 GoSVG. 2021. “Saint Vincent and the Grenadines Estimates of Revenue and Expenditure for the Year 2021.” http://finance.gov.vc/finance/images/ PDF/Estimates_2021_updated0001.pdf. 22 GoSVG. Constitution of Saint Vincent and the Grenadines, 1979. Statutory Instruments 1979 No. 916. https://www.oas.org/juridico/PDFs/ mesicic4_svg_const.pdf. Saint Vincent and the Grenadines Finance Administration Act, 2004, Pub. L. No. 28 of 2004. http://oas.org/juridico/english/mesicic3_svg_adm.pdf. Saint Vincent and the Grenadines 17 • Expedited procurement methods are usually used, where required, to ensure quick approvals and to authorize spending.23 A key limitation of the Contingencies Fund is that it does not ring-fence an amount exclusively for disaster response. By the time peak hurricane season arrives, there is a risk the fund may be depleted. The Contingencies Fund contributions are also tied to government revenue. In times of slow economic activity, it could prove to be insufficient to meet the disaster response needs of the country, given the past fiscal accommodation relative to damage estimates. However, recent experience shows the fund has been used judiciously as US$12.9 million remained in the Contingencies Fund for potential volcano/hurricane expenses in 2021, following a US$3.7 million disbursement for COVID-19 expenses in 2020. Another key limitation is the lack of clarity on a threshold for access—this would be a key consideration for how the Contingencies Fund is used strategically with other instruments. DRM Legal and Regulatory Framework SVG established its legal and regulatory framework for DRM through the passage of the NEDMA in 2005. Before this, disasters were managed under the 1945 Emergency Powers Act, 1970 Natural Disaster (Relief) Act, and Constitution. The early acts outlined a response role, with little emphasis on mitigation and preparedness. Figure 6. Legal and Regulatory Framework for DRM National Emergency and Disaster Management Act NEDMA (2005) seeks “to provide for prevention, preparedness, response, mitigation and recovery in relation to hazards, disasters and emergencies,”24 replacing earlier acts that focus on operationalizing response. Further, the act lays out the role of the National Emergency Management Organization (NEMO) as the central agency for coordinating disaster management. NEMO consists of the National Emergency Council (NEC), the National Emergency Executive Committee (NEEC), and the district disaster management committees. The Prime Minister is the chairperson of the NEC which comprises other members of the Cabinet, state agencies, civil society organizations, and the private sector. Additionally, the NEC has the power to establish subcommittees, which are responsible for, but not limited to, damage and needs assessment and transport and clearance. The NEEC reports to the NEC and is responsible for monitoring the operations of the subcommittees and carries out the policies and plan of the NEC.25 23 GoSVG. Saint Vincent and the Grenadines Finance Administration (Contingencies Fund) Regulations 2019. http://oas.org/juridico/english/mesicic3_ svg_adm.pdf. 24 GoSVG. “Saint Vincent and the Grenadines National Emergency and Disaster Management Act 2006.” http://extwprlegs1.fao.org/docs/pdf/ stv137162.pdf. 25 GoSVG. “Saint Vincent and the Grenadines National Emergency and Disaster Management Act 2006.”. http://extwprlegs1.fao.org/docs/pdf/ stv137162.pdf. 18 Advancing Disaster Risk Finance The Minister responsible for disaster management is empowered to declare an emergency under S.32 of NEDMA, provided that “a disaster has happened, is happening or is likely to happen in the State; and that it is necessary for the National Emergency Management Organisation or a person authorised under this Act to exercise disaster management powers, to prevent or minimise loss of human life, illness or injury to humans, property loss or damage or damage to the environment.” Part IX of NEDMA establishes that a disaster might require resources that were not previously programmed in the budget; however, it does not directly make provision for ensuring that NEMO is appropriately supported relative to the impact of the event. Under S.41(2), the minister responsible for Finance may, by a contingencies warrant, make advances out of the Contingencies Fund if satisfied that there has arisen an urgent and unforeseen need for expenditures for which no other provision or no other sufficient provision exists for the relief of persons in the state for the purposes of disaster management. However, no specific provision of NEDMA determines how and for what purposes NEMO will be financially supported after an event, as well as other government entities with disaster response roles. NEDMA is a comprehensive piece of legislation from an operational standpoint. It defines a number of key DRM terms and institutional responsibilities, and it is more comprehensive than similar legislations in the region. However, it can go further to align with regionally promoted Comprehensive Disaster Management (CDM) developed by the Caribbean Disaster Emergency Agency (CDEMA) which focuses on reduction risk and loss associated with natural hazards and the impacts of climate change26. NEDMA could also be improved to explicitly refer to DRF, including the fiscal risk associated with disasters, and responsibilities to manage fiscal risk. National Disaster Response Plan (2005) The National Disaster Response Plan (NDRP) aims “to enhance the capacity of the government to prepare for, respond to, and recover from, disasters.”27 According to the NDRP, NEMO is responsible for disaster coordination including planning, mitigation, and response functions at the national level and through the 22 district emergency committees, of which 15 are functioning. These district committees are responsible for preparing their communities to better respond to disasters and minimizing loss of life and property through coordinating efforts before, during, and after a disaster. The NDRP outlines procedures for an Initial Damage Assessment to be conducted within 12 hours of an event. This initial assessment will provide a quick snapshot of information on the most severely affected areas, status of the population, utilities, and immediate needs. An interim report is completed in 72 hours after the event, followed by a detailed report one to two weeks later. Once the reports are received from the subcommittees, they are collated and passed on to the NEEC and finally the Cabinet. The Cabinet will then make decisions on which response investments should be undertaken. The recommendation for investments is then conveyed to the Ministry of Finance and Economic Planning and Information Technology 26 SVG has prepared a draft CDM policy in 2020 with assistance from the World Bank which advocates for an integrated approach to DRM to includes all types of hazards and all phases, is people centered, and focuses on risk management. While the CDM Policy is limited in that while reference is made to the need for DRF, it is not detailed in the document. In combination with the CDM Policy, a DRF strategy will strengthen the DRM framework in SVG. 27 GoSVG. “Saint Vincent and the Grenadines National Disaster Plan.” http://nemo.gov.vc.nemo/index.php/plans-policies/bils-and0acts/255-national- disaster-plan Saint Vincent and the Grenadines 19 (MoFEP), which is tasked with the responsibility of raising funds for public investments.28 While the NDRP lays out the roles and responsibilities of the various agencies, it is limited in that it does not detail standard operating procedures (SOPs) for the process of estimating losses to access post-disaster financing. Similarly, responsibility for data collection is clearly stated in the NDRP and NEMO Act, but these documents do not detail processes for data collection and cataloging. While all damage assessments are carried out using internationally accepted standards and are contained in Situation Reports, Damage and Loss Assessments (DaLAs), and Post-Disaster Needs Assessments (PDNA), there is no centralized database or repository of loss and damage information. The NDRP also does not dictate a threshold for which damage and loss data collection is undertaken, leaving the damages of many localized or less severe events unaccounted for in an official way. Fiscal Responsibility Framework The FRF resolution of January 2020 is the government’s commitment to both fiscal and debt sustainability. It provides for, among other things, a properly functioning PFM system and fiscal rules. The Minister of Finance is also tasked with determining when they should be suspended under the following scenarios: (a) A ‘natural disaster’ has been declared pursuant to Section 32 of the National Emergency Management Act29 (b) A public health epidemic has been declared (c) Real GDP experiences a decline of 2 percent or more in a given fiscal year or a cumulative decline equal to or greater than three percent over two consecutive fiscal years (d) The minister, after consultation with the Governor of the Eastern Caribbean Central Bank, certifies in writing that a financial sector crisis has occurred, or is imminent, and the minister estimates that the fiscal costs of such crisis, including the costs of any related recapitalization of banks by the government after all possible private sector solutions have been explored, is likely to disturb appreciably the fiscal balance, if the minister determines that implementation of the fiscal rules, quantitative fiscal objectives, and fiscal measures would be unduly harmful to public finances, financial stability, or the economy.30 While many of the commitments are being acted upon, the FRF is a resolution and not a binding law. Such a provision that suspends fiscal rules in the event of a ‘natural disaster’ to allow the government to deviate from fiscal targets and meet short-term disaster financing needs should be enshrined in law through amendments to the FAA. 28 GoSVG 2005. “Saint Vincent and the Grenadines National Disaster Plan.” http://nemo.gov.vc.nemo/index.php/plans-policies/bils-and0acts/255- national-disaster-plan. 29 National Emergency Management Act is the language in the legislation and is interpreted as to NEDMA 30 Gonsalves, Camillo. 2020. “Saint Vincent and the Grenadines 2020 Budget Address.” February 3, 2020. http://finance.gov.vc/finance/images/PDF/ budgetaddress/Budget2020_SVG.pdf. 20 Advancing Disaster Risk Finance Public Procurement Act (No. 34 of 2018) Efficient public procurement is important to disaster risk financing, especially in the aftermath of a disaster but also as an ex-ante resilience building measure. Public procurement is defined as the purchase, lease, and rental of goods, works, or services by a procuring entity.31 In the immediate aftermath of a disaster, the procurement of supplies and other necessities requires an agile procurement system that not only facilitates expedience but also has clear rules of engagement. Provisions exist for limited competitive bidding (S.45) and single source procurement (S.47),32 and Part 5 - Procurement Procedures and Processes and Award of Contracts, Section 47 (1c) of the Procurement Act speaks to unforeseen events. These sections could form the basis to elaborate on a wider range of emergency procurement. The PPA can also play a role in the procurement of insurance as an ex-ante, resilience-building DRF tool. The PPA 2018 specifies that “services” includes, among other things, “the supply of insurance coverage and other similar services” (S.2(g)). By definition, the purchase of insurance is public procurement, and the act provides for regulations to be promulgated. Action could be taken to create Insurance Regulations or guidance on insurance of public assets. The GoSVG can use either Section 18 or Section 50 of the act where either ‘procurements under co-operative and pooled procurement agreements’ or ‘framework agreements’ are authorized. There is no central oversight of public procurement in SVG, which prevents the government from having comprehensive data on public procurement. Beyond the MoFEP approving insurance premium expenditure, there is no inventory of all government entities that procure insurance, disaggregated by type of insurance, insurer, annual premium, and the extent to which procuring entities receive payouts under the policies they purchase. Similarly, there is no repository or database of historical information on public procurement of insurance for the government to undertake its own routine analyses. Audits of public procurement are not routine. The last such audit was in 2004 when the Audit Department conducted a Value for Money (VFM) audit of the Ministry of Transport and Works. There is need to provide comprehensive guidance on how public entities are to go about procuring insurance and selecting coverage levels (See Chapter 4: Catastrophe Public Insurance). There may be issues with underinsurance, or opportunities for cost-saving by consolidating, to achieve greater economies of scale. By looking at what is being purchased and for what purpose, the government can use this information to develop a policy or strategy around the procurement of insurance. Currently, each ministry is procuring insurance on its own, limiting, and fragmenting opportunities to develop policies that best fit the needs of the public sector. 31 GoSVG. 2018. Public Procurement Act (PPA) No. 34 of 2018, Section 2; page 239. 32 Sections 45 and 47, Public Procurement Act, 2018. Saint Vincent and the Grenadines 21 Further Limitations of Existing PFM for DRF Presently, SVG does not have a comprehensive understanding of the country’s public sector risk at the asset level. Having such information at hand can support budgetary planning for climate and disaster risk reduction, making investment decisions on risk reduction, or decision-making on financial protection instruments—most importantly moving away from a reactive approach to disaster impacts and toward strategic risk reduction. Projects and programs in the Public Sector Investment Programme (PSIP) do not generally undergo rigorous screening for DRR and climate change considerations; the exception may be if it is a requirement for external funders. At present, there is a nascent approach in the assessment of projects/ programs, but this needs to be enhanced to have the desired impact. While some efforts are being employed to include DRR and climate change adaptation considerations in investment decisions, there need to be regulations or legislation to formalize the process.33 This shortcoming could largely be attributed to limited or dated information on hazards and climate change impacts and the need for institutional strengthening in various departments. While various ministries have information on assets under their responsibility, this information is not standardized and lacks key inputs such as geolocation, valuation, and vulnerability. A full inventory of public bodies, statutory authorities, or public enterprises as well as the assets they are responsible for is one step toward that goal. Public asset management requires legislative or regulatory status, institutional leadership, and an operational framework to deliver the inventory of assets, if even only for fixed assets initially. Without the inventory, it is not possible to effectively estimate public asset risk and exposure to natural hazards and explore other important elements of public asset management such as valuation, replacement value, disposal, and insurance. Budgetary Framework for Post-Disaster Finance The World Bank PD-PFM Review of SVG (2020) recommended the development of Post-Disaster Budget Execution Guidelines to institutionalize post-disaster budgeting and financial management practices and streamline the application across the government. The objective is to have physical documentation of the various processes and make them both available and accessible across the GoSVG. The development and dissemination of this document should  be a short-term goal to ensure that the Post-Disaster Budget Execution Guidelines  define the various processes, mechanisms, relevant financial management system, and sources of financing that directly inform post-disaster budget execution. Chart of Accounts SVG has been using the revised chart of accounts (COA) standard object codes (SOCs) since 2016. This change is consistent with the transition to a more program-based budgeting where budgeting is organized around the government’s programs and the services delivered under these programs. The objective is to achieve greater efficiency and effectiveness in public finances by incorporating performance targets or expectations. The COA helps deliver these outcomes by assigning SOCs to expenditures. 33 Saint Vincent and the Grenadines PD-PFM Review, Final Report, 2020. 22 Advancing Disaster Risk Finance The COA provides the framework for identifying, aggregating, and reporting financial transactions for planning, resource allocation, management control, accounting, reporting, and evaluation purposes and could enhance tracking disaster-related expenditure. A comprehensive COA provides a normative framework for both policy decision-making and accountability for use of public resources.34 For example, contingencies are normally accounted for under the MoFEP. This transition has led to a greater level of detail and accountability in the allocations to expenditure line items. Within the revised COA, there is a clearly defined code for the Contingencies Fund. The GoSVG’s COA, though well-defined, only allows for partial tracking and reporting on disaster-related expenditures. This is because the COA does not have disaggregated line items for disaster-related expenditure. Notwithstanding, some tracking can be done through long-term reconstruction projects, which could be tedious, and non-project expenditures or expenditures at the activity level, within the recurrent budget, may be missed. 35 NEMO Case Study NEMO’s budget has grown at an average rate of 6.1 percent between 2008 and 2019. The majority of spending has gone to personal emoluments (41.1 percent), operating expenses (13.5 percent), social assistance (9.6 percent), and utilities (7.2 percent). Contributions have resulted in a net flow and, on average, 7.7 percent of the expenditure has been given to other organizations—domestic (0.4 percent) and foreign organizations (7.3 percent). Despite the improvements in program budgeting and the COA, there are areas that can improve. NEMO spent 3.4 percent of its budget during the period studied on insurance. It is not clear, based on the generalized nature of the COA SOC, what type of insurance was purchased. Sub-codes to distinguish the types of insurance or program item narratives can support disaggregation of insurance premiums. Additionally, social protection transfers are not disaggregated to capture the type of social assistance given by NEMO in the aftermath of a disaster. Social Assistance Benefits are code 272 and split into Social Assistance Benefits in Cash (2721) and Social Assistance Benefits in Kind (2722). The COA defines Social Assistance Benefits in Kind to include “transfers payable in kind to citizens/residents to meet the same needs as social insurance benefits but that are not made under a social insurance scheme.”36 NEMO’s role in the provision of relief has, in the past, extended to rental assistance to displaced persons. In collaboration with the Ministry of National Mobilization, NEMO provides rental assistance for three to six months to help those with minor damages. In the COA, it is not possible to track this relief expenditure without codes that identify how social assistance benefits are apportioned.37 A review of the estimates for the GoSVG, particularly NEMO’s budget, provides evidence of the need to integrate disaster management and climate change considerations to enable and improve tracking of disaster-related expenditure in the COA. Disaster management expenditure cannot be comprehensively tracked by the ministry. Codes are needed to track disaster-related expenditure across the recurrent and capital budgets. All ministries engage in disaster-related expenditure, especially when there is a disaster 34 Saint Vincent and the Grenadines Chart of Accounts, 2021. 35 Saint Vincent and the Grenadines PD-PFM Review, Final Report, 2020. 36 GoSVG. “Chart of Accounts.” Government of Saint Vincent and the Grenadines, 2019. p. 58. 37 GoSVG. “Chart of Accounts.” Government of Saint Vincent and the Grenadines, 2019. p. 59. There is a subcode for disaster recovery (code 2523) but not for relief. Saint Vincent and the Grenadines 23 event. In addition to specific DRM-related project codes for capital expenditure (CAPEX), an activity number can identify the disaster-related activity by type of event. This would allow for drilling down by type of hazard while cross-tabulating with either recurrent or capital expenditure. The inclusion of more detailed narratives also assists in tracking disaster expenditure so that the numbers can be explained. Budgetary Analysis of Fiscal Impact of Disasters in SVG The average nominal financial loss (in US$ millions) for nine of the eleven events between 2000 and 2019 has amounted to approximately US$275.3 million or 35 percent of 2020 GDP.38 After some events, GDP rebounded quickly with reconstruction activities, which reduced total GDP fallout and offset the previous negative real GDP. When the various GDP fallouts and financial losses are averaged, the resultant outcome is better than when each incident is looked at in isolation. The data suggest that GDP fallout is lowest when the country is already undergoing a recession and is implementing a program of recovery. Such activities could serve as enablers to mitigate the impact of a disaster. The different starting points affect the severity of the GDP fallout and the financial loss. The pace of the recovery also affects both indicators. Combined data from the EM-DAT39 and DesInventar databases show that the fiscal response40 has not previously covered the estimated cost of a disaster. However, for comparability with the budget estimates, only five events for which there were actual and/or imputed budgetary data were used. The average damage estimate for these five events was US$125.4 million (2010 Tomas, 2011 and 2013 floods, 2016 Matthew, and 2017 Maria). The estimates reveal average fiscal response of US$8.1 million,41 or, on average, 6.4 percent of damage estimates. This is in the absence of more comprehensive information42 on the budgetary response through more detailed budgets and supplementaries. In the absence of detailed supplementaries, the fiscal response and accommodation of disasters are underestimated. During the review period 2007 to 2019, the budget, accommodated post-disaster financing of approximately US$53.3 million, or 6.8 percent of the 2020 projected GDP. A review of the recurrent, capital, and total expenditure for the six events during the period shows that CAPEX has been a significant part of the response (see Figures 7 and 8 which provide the expenditure for the entire period and total and average expenditure in disaster and non-disaster years, respectively). The total recurrent expenditure amounted to 0.5 percent of the projected 2020 GDP and, on average, 0.1 percent of the 2020 projected GDP. The impact of CAPEX on total post-disaster expenditure is 6.3 percent of the 2020 GDP and, on average, 1.0 percent of the 2020 GDP. With the exception of 2010 and 2013, CAPEX has been much higher than recurrent expenditure. Figure 6 represents how CAPEX is spent, over time. Even when it is not a disaster event year, CAPEX for disaster response is still significant. 38 Cumulative financial loss (denominated in nominal terms for each year, as a percent of annual nominal GDP, would amount to 244 percent of projected 2020 GDP or about US$1.9 billion. 39 EM-DAT: The Emergency Events Database - Université catholique de Louvain (UCL) - CRED, D. Guha-Sapir - www.emdat.be, Brussels, Belgium. 40 The fiscal response uses official damage and loss estimates as the parameter for measuring the government’s response, using the budget. It is the amount of post-disaster expenditure recorded in the budget as a ratio of total damage and loss events also observed in the budget. Fiscal response looks at comparability among the two data sets. 41 This includes supplementary estimates data related to the 2013 December rains, which were extracted from the 2014 supplementary estimates. 42 The supplementaries would accommodate relief and recovery expenditure mainly. The estimates are skewed toward reconstruction and, to a lesser extent, recovery. This is why the detailed estimates, aligned with a DRM-sensitive COA, would enhance disaster-related expenditure tracking. 24 Advancing Disaster Risk Finance US$ MILLIONS 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Recurrent $0.26 $0.26 $0.26 $1.48 $0.37 $0.24 $0.25 $0.24 $0.29 $0.59 $0.55 $0.35 $0.43 CAPEX $- $- $- $- $2.07 $1.88 $14.8 $1.26 $8.96 $11.1 $9.13 $13.9 $12.4 Total Exp $0.26 $0.26 $0.26 $1.48 $2.44 $2.13 $15.0 $1.50 $9.25 $11.7 $9.68 $14.2 $12.9 Recurrent CAPEX Total Exp Figure 7. Recurrent, Capital, and Total Expenditure, Inclusive of Supplementary Expenditure, FY2007– FY2019; Source: Author’s calculations and GoSVG Estimates of Revenue and Expenditure, FY2011–FY2021. $53.3 $49.6 US$ MILLIONS $27.9 $26.0 $8.9 $8.3 $4.0 $3.7 $3.7 $1.9 $0.6 $0.3 TOTAL EXP TOTAL E XP IN AVG EXP AVG E XP IN DISASTE R YR S DISASTE R YR S Recurrent CAPEX Total Exp Figure 8. Total and Average Expenditure for FY2007–FY2019 in Disaster and Non-Disaster Years Disaggregated by Recurrent, Capital, and Total Expenditure; Source: Author’s calculations and GoSVG estimates of expenditure, FY2011–FY2021. External Aid Flows The GoSVG disaster management expenditure is a combination of local resources (own revenues and loans) and external resources (loans and grants). Over FY2009–FY2019, the GoSVG has borrowed US$78.2 million (EC$211.1 million) to finance post-disaster-related expenditure. Of this amount, US$65.6 million (EC$177.1 million) has come through international development partners as loans. The GoSVG has financed recovery and reconstruction using US$10.5 million (EC$28.3 million) of its own resources (local revenues), US$12.6 million (EC$34.0 million) has been from local loans raised in the domestic market, and it has received US$13.3 million (EC$35.8 million) in grant resources. Saint Vincent and the Grenadines 25 $65.58 US$ MILLIONS $12.61 $13.27 $10.46 LOCAL LOCAL LOANS EXTERNAL GRANTS REVENUES LOANS DRM FINANCING SOURCES Figure 9. Sources of DRM Expenditure, FY2009–FY2019; Source: Author’s calculations and GoSVG Estimates of Expenditure, FY2011–FY2021. The GoSVG CAPEX data for 2009–2019 establish the importance placed on DRM. The total approved disaster management CAPEX over 2009–2019 amounted to US$101.93 million. The approved disaster management budget can be disaggregated between disaster response expenditure (US$63.48 million) and disaster mitigation expenditure (US$38.45 million). Figure 10 shows how the allocations have trended over the period. $120.00 $101.93 $100.00 $80.00 US$ Millions $63.48 $60.00 $38.45 $40.00 $20.00 $- Total Disaster Total Disaster Total Disaster Management CAPEX Mitigation CAPEX Response CAPEX Figure 10. Total Approved Disaster Management CAPEX Disaggregated by Total Disaster Response and Total Disaster Mitigation, FY2009–FY2019; Source: Author’s calculations and GoSVG Estimates of Expenditure, FY2011–FY2021. While budgetary data on historical DRM expenditure exist, its quality does not lend itself to fulsome and accurate tracking of the information for the reference period. Total project costs vary from one year to the next and the adjustments to the budget are not always elucidated with a narrative as to what caused a reduction or an increase or no expenditure in a particular year. What is most clear is that the CAPEX estimates that are approved in the AA are usually inflated above what can actually be implemented during the life of the project or in a given year. The average implementation rate for FY2009–FY2018 was 49 26 Advancing Disaster Risk Finance percent: this means that only 49 percent of what was approved, on average, was ‘actually spent’. The total approved CAPEX for 2009–2018 was US$937.79 million, but only US$414.14 million was spent. It is unclear how much of the total approved disaster management budget was spent over the period. Implementation capacity is an issue that can hamper not only disaster management-related investments, but all investments financed through CAPEX. Analysis of the external sources of DRM in SVG reveals that external aid—whether loans or grants—is limited to two to three main sources. (Figures 11 and 12). The Caribbean Development Bank (CDB) provided nearly half (47 percent) of all external loans for disaster management over 2011–2019, or approximately US$31 million of the total external loan receipts of approximately US$66 million while the Climate Investment Fund (CIF) and IDA provided 38 percent of total disaster management loans or US$24.7 million. In contrast, the CDB comprised only 3 percent of grants, or US$0.4 million of a total envelope of US$13.3 million over the same period. In contrast, the CIF and European Union provided 48 percent (US$6.3 million) and 37 percent (US$4.9 million), respectively, of total grants provided for disaster management over the period. In terms of cumulative impact, the CIF and IDA provided 45.6 percent of the total external loans and grants (US$35.9 million of the US$78.9 million in total external loans and grants) compared with the CDB, which provided 39.4 percent (US$31.1 million). KFW Japan CDB 4% 5% 3% FAO 3% CIF EU 48% 37% Figure 11. Total External Grants from Main Donors, FY2011–FY2019 (US$, millions) Other Petrocaribe 7% 8% CDB 47% CIF + IDA 38% Figure 12. Total External Loans, FY2009–FY2019 (US$, millions) Source: Author’s calculations and GoSVG Estimates of Expenditure, FY2011–FY2021. Saint Vincent and the Grenadines 27 Chapter 3. Fiscal Disaster Risk Assessment The quantification of fiscal risks linked to disasters, including the government’s contingent liabilities, is the first step in devising a cost-effective DRF strategy. Ideally, such an assessment requires a merge between historical loss data analysis and modeled losses derived from catastrophe risk models. The objective of this assessment is to inform the GoSVG of the levels of risk it faces and to facilitate discussions on how it can become more resilient to both current and future risk based on systematic collation and analysis of key baseline data.43 Building Exposure (in percentage of total) n < 1.3 n 1.3 - 3.9 n 4.0 - 5.5 n 5.6 - 17.2 n 17.3 - 22.6 Northern Grenadines Southern Grenadines Figure 13. Building Exposure by Parish; Source: World Bank CDRP. An initial assessment of the government’s contingent liability associated with disasters indicates that it faces a major financing challenge. Hydrometeorological events—storms, hurricanes, and floods— are a major driver of risk, causing an estimated total annual economic impact of US$21.7 million (EC$58.7 million), equivalent to 2.63 percent of 2019 GDP. However, simulations show that a major hurricane event with a return period of 100 years could cause losses in excess of US$180 million (EC$486 million) (from both direct and indirect impacts), which equals about 21.8 percent of the national GDP.44 43 Any modeled results provided are the expression of a view on possible loss experience, and they should not be taken as predictive of specific future losses or annual experience. 44 US dollar, East Caribbean dollar, and GDP figures are in 2019 values. 28 Advancing Disaster Risk Finance Fiscal Disaster Risk Modeling The CDRP, developed by the World Bank in 2020, presents country- and province-level probabilistic disaster risk profiles to provide risk assessments and estimates of potential damage to buildings caused by hurricanes45 and earthquakes.46 Traditionally, sophisticated global building inventory exposure models for use in natural hazard risk assessments are held within the private sector, usually the reinsurance industry and catastrophe risk modeling agencies; these models, databases, and methods are proprietary and not freely or openly available to the public sector. They also concentrate on building stock and do not explicitly address the fiscal exposure of a government, which is important for the public sector to quantify its sovereign disaster risk. A critical component of a CDRP is the development of a consistent and robust exposure model to complement the existing hazard and vulnerability models. Exposure is an integral part of any risk assessment model, capturing the attributes of all exposed elements grouped by classes of vulnerability to different hazards and analyzed in terms of value, location, and relative importance. Sandy Bay Chateaubelair Georgetown Barrouallie Colonaire Layou Bridgetown Suburbs os Kingstown Calliaqua Northern Grenadines n < 1.3 n 1.3 - 3.9 Southern Grenadines n 4.0 - 5.5 n 5.6 - 17.2 n 17.3 - 22.6 Figure 14. Earthquake AAL by Census Tract as a Percentage of Total AAL The CDRP captures the spatial and construction attributes of the total building stock in SVG, such as geographical location, urban/rural classification, type of occupancy, building typology (for example, wood, concrete, or masonry), and replacement value. The total modeled replacement value of the building stock in SVG was estimated at US$2.9 billion (EC$7.8 billion) (updated to 2019 values). 45 The losses associated with hurricanes account for wind damage only, not damage from flooding or storm surge. 46 The development of the CDRP corresponds to increased impacts of natural hazards in recent years and increasing demand from the public sector for openly available disaster risk profiles. These profiles are intended to outline a holistic view of financial risk due to natural hazards, assisting governments in long-term planning and preparedness. Saint Vincent and the Grenadines 29 When the final combined asset replacement and infrastructure density is integrated with existing hazard and vulnerability models, the main result is loss exceedance probability curves, which represent the likelihood that a specific economic loss will be exceeded. This was done for both earthquakes and hurricanes using building exposure. Combining the exposure model with hazard and vulnerability models indicates that the AAL to the building stock due to earthquake risks is approximately US$1.7 million (EC$4.6 million), or 0.2 percent of the national GDP. Additionally, there is a 0.4 percent chance in any given year that these losses are expected to exceed US$109 million (EC$295 million), or 13.8 percent of GDP. The loss exceedance curve shows the potential earthquake losses for key return periods. Aggregated results at a parish level underscore that Calliaqua Census District accounts for 22  percent of the AAL. Moreover, concrete frame with sheet metal roof buildings is most vulnerable to earthquakes: in the long term, annually, this type of building will see AAL of US$927,000 (see Annex 2 for more detailed results). Two representations of hurricane risk AAL (in millions US$) 0.8-3.0 0.41-0.7 0-0.4 Provinces by ratio (AAL/Province Exposure) lowest ratio nnnnn highest ratio Absolute Risk: The larger the circle, Northern Grenadines the higher the Annual Average Losses that the census division could potentially incur over the long term. Relative Risk: The darker the color, the higher the ratio of AAL/Census Division Exposure. The darkest color represents the census division of Sandy Bay which has a higher proportion of vulnerable structures due to construction types and/or potentially higher hurricane intensity. Southern Grenadines Figure 15. Hurricane AAL by Census Tract Regarding hurricane risks, the most prominent hazard in SVG, the AAL to the building stock is approximately US$9.0 million (EC$24.3 million), or 1.1 percent of GDP. Additionally, there is a 0.4  percent chance in any given year (or 250-year return period) that these losses are expected to exceed US$265 million (EC$716 million), or 33.4 percent of GDP. The loss exceedance curve shows the potential hurricane losses for key return periods. The analysis also suggests that single-family, concrete frame buildings with sheet metal roofs are incurring the largest losses in the long term, accounting for approximately 69.3 percent of AAL (see Annex 2 for more detailed results). 30 Advancing Disaster Risk Finance Table 3. Building Exposure Losses from Hurricane Risk for Key Return Periods Return Period US$, Millions As % of Total Building Exposed Value AAL 9.0 0.31 Probable Maximum Loss (PML) 10-year return period 12.8 0.45 50-year return period 114.8 4.0 100-year return period 176.7 6.1 250-year return period 265.0 9.2 500-year return period 343.9 12.0 Source: World Bank CDRP. Analysis of Historical Disasters in Saint Vincent and the Grenadines Disaster risk modeling can assist SVG’s MoFEP in identifying the fiscal impacts of major disasters. However, while probabilistic risk modeling techniques are efficient for low-frequency events and large losses, this approach tends to not accurately capture the most recurrent losses usually caused by small-scale floods or tropical storms. Recurrent small-scale losses must be taken into account because their accumulation can create significant additional losses and therefore poses a non-negligible risk for the government. Therefore, as a first step to capture losses from high-frequency events, a historical database of disasters affecting SVG in the last 4 decades—from 1980 to 2020—was compiled. Due to data availability, and because hydrometeorological events (floods, hurricanes, storms, and so on) constitute the major risk in SVG, actuarial analysis on the historical losses was conducted for all hydrometeorological events combined and did not include earthquakes or volcanoes (Annex 3). Statistical analysis was performed to meet two objectives: to adjust the results of the estimated hurricane risk profile for recurrent losses, that is, low return periods and extrapolate the risks on the building stock of the country quantified in the CDRP to determine the public losses that the GoSVG is facing. The annual public fiscal disaster losses from hydrometeorological events are approximately US$11.1 million (EC$30 million), that is, 1.34 percent of the national GDP. Additionally, there is a 1.0 percent probability in any given year that a loss exceeding US$101 million (EC$273 million) will occur, that is, 12.2 percent of GDP. This means that the GoSVG will be facing US$101 million (EC$273 million) in realized contingent liabilities due to damages, which could take the form of relief expenditures, lost revenue, road reconstruction, public school and hospital reconstruction, or any other relief or reconstruction expenditure that the government is responsible for after a disaster. Figure 16 shows the indicative loss exceedance curve for the estimated total economic losses, direct losses, and total government’s losses. Saint Vincent and the Grenadines 31 Figure 16. National Floods and Wind-Related Events Risk Profile - Indicative Exceedance Probability Curves; Source: World Bank Table 4. Key Return Periods for Windstorm and Flood Losses Indicative Risk Metrics Total Direct and Total Direct Total Government Indirect Impact Damages Contingent Liability (US$, millions) (US$, millions) (US$, millions) AAL 22 17 11 10-year return period (10%) 60 48 30 100-year return period (1%) 180 138 101 250-year return period (0.4%) 244 184 145 Source: Authors’ analysis In summary, this fiscal disaster risk assessment provides the GoSVG with an order-of-magnitude estimate of its possible public spending needs for post-disaster operations. Due to the lack of historical recorded losses from earthquakes, it was not possible to perform an actuarial of the possible fiscal costs of this type of catastrophe. The results of this assessment are used as an input for a series of recommendations that the GoSVG may wish to consider in the development of a national DRF strategy, further discussed in Chapter 1. The Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) products, as well as a contingent credit line, such as a World Bank Catastrophe Deferred Drawdown Option (Cat DDO), are financial instruments with a common particularity: they provide fast disbursements of liquidities in the aftermath of a disaster. The CCRIF SPC trigger is parametric, assuming that the calculated index value is high enough to trigger a payout, the payout is to be made within 14 business days47 of the index calculation.48 The trigger of a Cat DDO is soft: funds become available for disbursement after the declaration of a state of emergency due to a disaster. The Cat DDO is an add-on feature of a World Bank Development Policy Loan, which has a predefined policy matrix and largely funds policy reform, often through rapidly disbursed budgetary support. To go further, a baseline to develop DRF when immediate liquidities are needed can be conducted by combining these two types of instruments, with contingent reserves alongside. 47 Business days are defined as days on which banks in the Cayman Islands are open for regular business. 48 More specifically, the CCRIF SPC has the discretion to delay payment to not more than 90 days following receipt of the insured’s claim. 32 Advancing Disaster Risk Finance A dilemma commonly found in finance when optimizing portfolios is the tradeoff between minimizing the yearly average government spending given a strategy and the uncertainty of that strategy. A mix of risk retention and risk transfer instruments is recommended to devise an optimal multiyear DRF strategy, the optimality depending on the risk aversion of the decision-makers. Indeed, ex ante risk retention instruments have a higher global impact on reducing the average overall cost, and ex ante risk transfer instruments have a higher global impact on the uncertainty or variance of this cost. In addition, there is a need to define longer-term objectives for sovereign instruments, such as capitalized reserves in a fund, and to strategize the multiyear uses of other instruments to integrate these aspirations to efficiently devise such a tailored strategy in the long run. More details can be found at collaboration.worldbank.org/groups/cdrp. Financing Adaptive Social Protection: A Mechanism to Mitigate Social Impacts from Disasters Introduction Disaster- and climate-related shocks often affect the poorest and most vulnerable disproportionately, keeping them in poverty or pushing the near poor into poverty. People living in low-income communities tend to be in areas that are highly exposed to natural hazards. Compounding these tenuous living conditions, the poor also lack savings and have limited or no access to finance or insurance. In addition, SVG is socially and economically highly dependent on tourism for trade, income, and employment. Those who depend on this sector for their livelihoods will lose earnings and struggle to recover. An economic shock such as the global financial crises of 2008 led to a sharp decline in tourism, with visitor arrivals falling by 6 percent.49 The COVID-19 crisis has also jeopardized the livelihoods of a large part of the population dependent on tourism activities. In SVG, NEDMA mandates the development of support schemes to the most vulnerable populations, delineating vulnerable areas and developing DRR and mitigation plans for these areas. Disaster impacts on the population often require the government to intervene and support the most vulnerable and affected population, often leading to unbudgeted spending. The potential impact of a disaster on vulnerable populations is considered as an explicit contingent liability when the government is formally obliged by law or regulation to meet these spending, even if it does not have the dedicated resources. Meanwhile, implicit contingent liabilities do not arise from a legal or contractual source but are recognized after a condition or event is realized. This fiscal responsibility, defined by the contingent liabilities, can pose a significant risk to the government, to be evaluated for assessing a comprehensive stability analysis of public finances. 49 Caribbean Tourism Organization. Saint Vincent and the Grenadines 33 Social protection systems have an important role in helping poor and vulnerable populations cope with the impacts of shocks and building long-term resilience. Social protection programs should be responsive and adaptive to be rapidly scaled up and should be capable of increasing support to the existing beneficiaries and other affected non-beneficiaries after a shock. For Caribbean countries, social protection spending is mostly financed from the government’s recurring budgets, providing predictable and reliable social protection benefits to households and individuals in need. However, traditional social protection systems often cannot cover the economic and social costs brought on by shocks. This is largely due to limited available resources and a lack of dedicated mechanisms, experience, and expertise to effectively allocate, disburse, and monitor recovery and reconstruction funds after disasters. The following section describes how financing for adaptive social protection (ASP) can be strategized before an event, connecting several blocks to ensure delivery of an adequate, sustainable, and cost-effective response in the aftermath of a disaster to the impacted population. Elements Composing an Adaptive Social Protection System Figure 17. The Five Interconnected Pillars of an ASP System Several social protection mechanisms are already operational in SVG, upon which the government can piggyback to develop adaptive components to be triggered in case of the occurrence of a disaster. Historically, this process has been applied following the global financial crisis of 2008. The Poor Relief Programme covers 4.3 percent (4,700 individuals) of the population.50 To counter the negative impact of the crisis, vertical expansion of the assistance provided through the programme was delivered: a larger ‘cost of living’ payment was made to persons already enrolled in the Programme. In addition, SVG created a subsidy for electricity and provided fertilizer subsidies to 1,776 farmers (reducing cost by 50 percent) through support provided by Venezuela to mitigate the inflationary effects of the crisis. 50 Barca V., Hebbar M., Malik M., Le Quesne F., Ciardi F., (2019) ‘Shock-Responsive Social Protection in the Caribbean: Literature Review’, Oxford Policy Management and World Food Programme. 34 Advancing Disaster Risk Finance However, these adaptive components have had limited reach, covering a small share of the population, and cannot be easily scaled up in the event of a high-severity adverse event. Consequently, planning the financing of ASP in advance is of utmost importance. To ensure adequate deployment in times of need, ample liquidities need to be accessed quickly to finance cash or commodities for the vulnerable population. The financing element is not to be developed in silo but to serve as the financing arm of the delivery mechanisms comprising the ASP system. To ensure efficiency and sustainability, an ASP mechanism comprises five interconnected elements: (a) Information system. This usually consists of vulnerability elements in a social registry. In SVG, recent assessments of social protection system have stressed the importance of having this. (b) Targeting system. This is based on the information system. The targeting mechanism analyzes the vulnerability factors to elaborate a decision tree to classify the population to be supported through the ASP system. (c) Delivery mechanism. As the operational arm of the overall system, the delivery mechanisms are the systems get the benefits to the targeted population. In SVG, the cash assistance approach is common, and the delivery method can vary in terms of the processes. On the one hand for the Poor Relief Programme, manual payments are observed: payment is transferred by the Treasury to the constituency offices, and the officers from the Ministry of National Mobilization make payments to clients in cash in the districts on set days every month. On the other hand, electronic payments are made by the National Insurance Services through monthly direct transfers to the bank/credit union accounts of the beneficiaries.51 (d) Financing. As stated above, the financing pillar is part of the operational arm of the ASP system in place. In that regard, its objective is to combine different instruments and financing mechanisms tailored to finance the delivery systems, as described above in subsection (c). Two dimensions define the constraints of the financing strategy for ASP: time and money; adequate financing is attained when decision-makers can access enough liquidities on time. (e) Coordination mechanism. It is the system set in place to ensure coordination among the different delivery mechanisms, associated targeting, and among the several actors. Aligning and streamlining efforts are key to maximize the global efficiency of the response. 51 Arreola, A. G. 2020. “St. Vincent and the Grenadines - Process Evaluation for Post-Disaster Social Protection and Labour Support.” (unpublished). Saint Vincent and the Grenadines 35 Population By Social Vulnerability Group 2.78% 27.83% 51.55% 17.85% Extremely Poor Poor but Not Extremely Poor Not Poor but Vulnerable Not Poor and Not Vulnerable Figure 18. Structural and Socioeconomic Characteristics Defining the Vulnerability Groups The five pillars of an ASP system underline that financing is directly being informed by the delivery mechanisms, depending on predefined liquidity amounts to access to be operational in the wake of a disaster. The scale of assistance provided by the delivery mechanisms is informed by the targeting system, which is derived from a deep understanding of social vulnerabilities toward disasters. The next section further elaborates on quantifying those social vulnerabilities. Quantification of Social Risk from Disasters Four social groups can be distinguished according to the 2007–2008 Country Poverty Assessment/Livelihood Condition Survey: extremely poor, poor but not extremely poor, not poor but vulnerable, and not poor-and not vulnerable. Combined with the built exposure of SVG outlined above, a total of 23 vulnerability groups are defined. The socioeconomic group disaggregation losses underline that the poorest are disproportionally affected by hurricanes. Figure 19. Population Distribution by Social Figure 20. Estimated Proportional Losses from Vulnerability Group Hurricanes per Social Vulnerability Group 36 Advancing Disaster Risk Finance Financing for Adaptive Social Protection Financing needs for ASP arise from the number of households to be supported through the delivery mechanisms and the level of assistance provided. The amount of financing needed can be estimated in advance after defining the targeting mechanism and selecting the vulnerable population eligible for governmental assistance. For example, if ASP is intended to support the ‘extremely poor’ category of population in the aftermath of a hurricane proportionally to the damages incurred on their homes, then the financing strategy has the objective to secure liquidities comparative to AAL and with the below exceedance probability distribution in Figure 21. Figure 21. Hurricane Loss Curves by Income and Vulnerability Class; Source: Authors. The financing strategy can resort to several instruments and mechanisms to secure adequate financing. A similar risk layering approach as in the overarching DRF strategy remains cost-effective—bottom layers: reserves, middle layers: contingent credit lines, and top layers: dedicated insurance products. However, the main difference is that the financing outflows need to be earmarked and aligned to finance the delivery programs. In that regard, a coordinating financial vehicle can serve as a catalyzer and strengthen the alignment of the different financial flows. Saint Vincent and the Grenadines 37 Figure 22. Illustrative Coordinating Financial Vehicle for the ASP System Such a financing framework enables better coordination, transparency, and efficiency in the use of limited financial resources available for an optimized response plan defined by the ASP system (Figure 23). Furthermore, it also creates an environment where different financial protection initiatives, such as the development of microinsurance programs related to homes, can be brought together, and optimized under a single financial protection strategy. Photo Credit: SVG Regional Disaster Vulnerability Reduction Project Location: Longline Road, SVG 38 Advancing Disaster Risk Finance Chapter 4. Review of the Catastrophe Insurance Market in Saint Vincent and the Grenadines Catastrophe insurance is an ex-ante risk financing instrument through which part of a country’s financial risk, as well as that of its citizens and businesses, can be transferred. This chapter aims at presenting an overview of the current insurance market in SVG, providing specific insights on its capacity to play a key role in SVG’s DRF strategy. Market Overview The insurance market in SVG shows signs of being fair, safe, and stable. It looks safe: there have not been any disorderly market exits of insurance companies headquartered in SVG in this century. The absence of major disasters until recently may have helped. Insurers have relatively low capital requirements of US$0.37 million (EC$1 million) for local non-life companies, or US$0.93 million (EC$2.5 million) for foreign companies, or 20 percent of net premium if greater. Reinsurance arrangements are thus vital, and in excess of 85 percent of property business is ceded to reinsurers. Neither capital nor reinsurance had been put under serious stress from disasters before the eruptions of the La Soufrière Volcano in 2021. While the stability of SVG’s insurance market should contribute to consumer’s trust, the prominent insolvency of the Colonial Life Insurance Company Conglomerate in 2009 elsewhere in the Caribbean may not have gone unnoticed given its sheer size and many subsidiaries in finance, real estate, and other sectors. Its affiliate, British American Insurance Company, had policyholders in SVG. Most insurance companies in the Caribbean operate in multiple countries, so insolvencies carry a higher risk of contagion than elsewhere. This episode provides a cautionary tale for insurance supervisors in the region and prompted the Monetary Council of the Eastern Caribbean Central Bank to commission a project for the establishment of a single insurance market and regulator within the Eastern Caribbean Currency Union (ECCU), including harmonized insurance legislation and a single insurance regulator. The insurance industry is a substantial and cautious institutional investor. In 2019, the excess of insurance company assets over liabilities continued to grow, and insurance assets amounted to 12 percent of GDP, which is more than in most of the Organisation for Economic Co-operation and Development (OECD) countries. Assets of US$41.9 million (EC$113 million) for non-life insurance correspond to liabilities of US$21.5 million (EC$58 million), largely unearned premium provision. In life insurance, assets of US$62.2 million (EC$168 million) equally exceed liabilities of US$46.7 million (EC$126 million). Insurers’ investments are conservative, with only a modest share in real estate and related parties, often the source of insolvency risks. In 2019, investment yields were 5.6 percent for life insurers and 1.9 percent for non-life insurers. Disaggregated Saint Vincent and the Grenadines 39 figures are not available, so these market-wide numbers may hide considerable variance among insurers nor is information published to show how well individual insurers meet their capital requirements. The insurance market in SVG is also stable. The number of non-life insurance companies grew from 13 to currently 14 in 2016, and the number of life insurance companies has increased to 10 with two recent entries. The number of brokers (8) and insurance agents (16) has also changed little, while the number of insurance sales representatives grew from 96 in 2016 to 127 in 2019. Insurers are mostly subsidiaries of regional companies whose head offices are domiciled in other countries, mostly outside the Eastern Caribbean. They operate in several Caribbean countries. This makes groupwide supervision and cooperation between supervisors vital. Year-on-year growth of premium volumes has been unsteady, but the overall compound annual growth rate between 2010 and 2019 has been 4.2 percent for non-life excluding accident and health—well above GDP growth overall though not in every year—and 12.8 percent for life. Table 5. Growth of Premium Volumes Source: AXCO Insurance Intelligence Services, annual reports of the Financial Services Authority (FSA). It is less clear if the market is fair to consumers. Market power is more fragmented than concentrated in SVG. In 2014, the top five non-life insurance companies had a combined market share of just under 60 percent. The Herfindahl-Hirschman Index (HHI), a common indicator of competition between firms calculated by adding their squared market share, was 994. By 2019, the combined market share of the top five had fallen to 52 percent. Four of the 2014 top five were still in this league in 2019, and there had been no abrupt changes in market share. The HHI fell to 817 in 2019, moving further away from the value of 1,327, which is considered natural for non-life insurance markets. Low HHI values are often indicative of markets so fragmented that excessive premium competition squeezes the margins that would be necessary to invest in innovation (possibly even threatening the financial stability of some insurers and hence of the entire market). 40 Advancing Disaster Risk Finance Common indicators to judge if an insurance market is fair to consumers include claims and expense ratios, and in SVG both raise questions as to the value for money. If insurers keep an inordinate proportion of premiums to pay for (inefficient) operations and in the form of profits, consumers may find it in their own best interest to abstain from buying any voluntary insurance. In aggregate, the expense ratio of SVG’s insurance industry is not unusual, and profitability is reasonable, but aggregate figures can easily hide relevant differences between companies that consumers deserve to know. Data from AXCO and the Financial Services Authority (FSA) show that expense ratios for the non-life market in aggregate are comparable to other Eastern Caribbean markets. Management expenses amounted to 30 percent of the net written premium in 2019, up from 26 percent in 2018. The commission for property insurance is 15 percent. Based on the information that is published, consumers have no way to find out if there are substantial differences between insurers nor which insurers operate more efficiently. The same source shows that the net income after tax was 7 percent of net earned non-life premium in 2019, down from 10 percent in 2018. Comparative figures for neighboring countries are more difficult to come by, but from an international perspective these are reasonable levels of profitability. Again, aggregation may conceal considerable variance among companies. Data on loss ratios, which the FSA collects but does not divulge, confirm the importance that greater disclosure would have for consumers. The data show considerable variance between insurers with respect to non-life insurance. In 2019, loss ratios ranged from 0 percent to 67 percent, with a market share weighted average of 26.4 percent. But these figures were driven by motor insurance, which made up 30 percent of non-life premium and whose loss ratio varied between 5 percent and 163 percent. In contrast, 2019 loss ratios for property insurance range from –1.3 percent to 1.67 percent, which is extremely low even in markets with significant exposure to disasters. It is understandable that disasters do not lead to major payouts every year, but a return of US$1 for every US$100 that consumers pay may explain their lackluster embrace of property insurance to manage their catastrophe risks. If the corresponding data could be obtained, a multiyear analysis could throw light on the hypothesis that consumers rightly complain that property insurance is overpriced. Corporate tax rates on insurance company profits are comparatively high at 30 percent (compared, for example, with Antigua and Dominica: 25 percent or Grenada: 28 percent). Non-life insurers paid over EC$4 million in 2019, a 73 percent increase from 2018. Taxes on insurance profits amount to a profit share to the GoSVG and act like a rebate on the premium that it pays for insurance. This is a great advantage that the government has over other buyers of insurance and should encourage increasing the use of insurance for public assets and toward contingent liabilities. To be of value, this advantage requires that insurers make adequate taxable profits. Safeguarding this tends to be among the objectives of insurance supervisors, who should have insights into administrational inefficiencies and disadvantageous reinsurance arrangements that are detrimental to profitability. Saint Vincent and the Grenadines 41 Supervision and Regulation Insurance is supervised by a small team in a larger agency. Following its creation in 2012, the independent FSA supervises the international financial services industry and domestic nonbank institutions, including the 24 insurance companies. Within the FSA, a team of three examiners led by a manager supervise insurers and pension funds. To use the limited resources most effectively, a system of risk-based supervision based on early warning indicators, such as changes in capital base and adequacy, has been implemented. It provides annual risk assessments that include input from external auditors and actuaries and informs off-site supervision and on-site inspections. The number of on-site inspections varies between 3 and 10 per year. Stress testing of insurance companies is in preparation and should be implemented soon. The results of regular (for example, annual) stress tests will provide important insights to complement the FSA’s risk-based supervision. The FSA has not completed an external or self-assessment of how well regulation and supervision in SVG conforms to the Insurance Core Principles (ICP) of the International Association of Insurance Supervisors (IAIS); hence, robustness of supervision is difficult to assess. Insurance regulation dates back some time, and the uncertain outlook for a regional harmonization discourages major reforms in SVG like elsewhere in the Eastern Caribbean. SVG’s Insurance Act dates back to 2003, for locally incorporated and majority-owned companies, and to 1998 for international insurers. But major updates are unlikely until the long-standing discussion of a single regional insurance regulator with harmonized legislation and a uniform supervisory environment for the ECCU is resolved. Fortunately, the Insurance Act presents no obstacles to parametric insurance, one of the most powerful innovations to address natural hazards such as storms, earthquakes, and droughts. In the absence of major regulatory change, subordinate regulation is used to adapt the regulatory framework. Where necessary, the FSA issues subordinate regulation, for example, the 2020 Guidelines on Reinsurance Arrangements and Sound Practices, which articulate what is expected from insurers. They reflect on the vital importance of sound reinsurance arrangements for an insurance industry exposed to substantial natural hazards. Among others, the guidelines require insurers to have a written reinsurance risk management policy approved by the insurer’s board and specifies what it should contain and how it should be implemented. Reinsurance contracts do not need to be authorized by the FSA nor notified immediately. Instead, annual submission of reinsurance details is demanded. The guidelines limit retention to 5 percent of capital and prohibit fronting. Other than that, it follows the preferred principles-based approach. Demand for and Supply of Insurance Data are lacking to better understand why consumers prefer to retain so much insurable risk. Non-life insurance premium to GDP and per capita look comparable to neighboring countries, but interviews with practitioners revealed that consumers in SVG generally buy insurance only when required by law or to obtain a loan. It is estimated that perhaps 40 percent of households have property insurance, usually required to obtain a mortgage, and are often cancelled when that is paid off. The reasons suggested by local 42 Advancing Disaster Risk Finance stakeholders include (a) the universal behavioral bias that underestimates risk and overvalues the opportunity cost of insurance premium; (b) an overreliance on the SVG building codes and resulting stability of buildings that underestimates the risks to contents; (c) perceived unaffordability; (d) the expectation of post-disaster government support, which would obviate the need for insurance; and (e) the absence of public initiatives to promote understanding, appreciation, and use of insurance (such as conducted elsewhere in the National Financial Inclusion Strategies). Systematic research into the reasons that prevent consumers from buying more insurance and to quantify the insurance coverage gap is outstanding. Unlike elsewhere, underinsurance has not come up as a source of consumer discontent. Underinsurance refers to the possibility that property is intentionally or unintentionally insured for less than its real current value, thus in fact underpaying the insurance. As a consequence, insurers reduce payouts accordingly in case of a claim, generally leading to disappointed customers and reduced demand for future insurance. It is therefore positive that underinsurance has not been pointed out as an issue in SVG, but that is possibly because of the little utilization of property insurance, given the absence of major disasters until recently. Some insurers expressed concern that underinsurance could become a source of considerable discontent during the next major disaster. At that point, mandatory deductibles could also antagonize consumers, who so far do not appear to be deterred by this feature of property catastrophe insurance that can go unnoticed until a claim is made. Lack of supply is not thought to explain much of the lower-than-possible demand. Insurance brokers can purportedly provide suitable insurance for almost every need from SVG’s insurance companies. They all offer catastrophe property insurance, albeit with varying appetite for different building materials. Insurers also enjoy stable reinsurance conditions and rates are generally under 6 per 1,000. However, brokers intermediate just 10 percent of non-life insurance, and it is likely that they focus on larger accounts, which are often corporate. That would leave many households to deal with insurance agents who intermediate 70 percent of business or directly with insurers, with little publicly available information to guide their decisions. There are no signs of inclusive or microinsurance in SVG, a term summarizing effort to adjust the supply of insurance more specifically to segments of the population excluded from the existing insurance markets. The most common reasons for this exclusion are their low and/or irregular incomes, informal occupation, geographic particularities, or specific insurance needs, and they may well apply to many in SVG. Substandard wooden buildings, for example, are often considered uninsurable in SVG. Inclusive insurance is key to make insurance work for the majority of population in countries with vast geographies and widespread poverty. In the Philippines, for example, the number of people with insurance increased from 3 million in 2008 to 31 million in 2014, following the country’s wholehearted embrace of microinsurance, and an estimated 73 million in 2020. A similar approach in Ghana increased the number of people with insurance from 1.7 million in 2011 to 7.6 million in 2014. The increase has been largest in India, but there are many examples from smaller countries such as Guatemala or Togo. Additional research could indicate what impact inclusive insurance could have in SVG and the barriers to overcome. Saint Vincent and the Grenadines 43 The use of insurance among businesses is thought to be higher than among households, but evidence is not available. Larger businesses are thought to include insurance routinely in their risk management toolkit, but experience from elsewhere suggests that the same is not true for smaller and especially for informal businesses. A quantification of the insurance coverage gap among businesses has not been undertaken. Catastrophe Public Insurance In contrast, there are data documenting the little use of insurance by the GoSVG. The government’s use of insurance is modest and does not seem to follow a systematic strategy, with the possible exception of sovereign insurance provided by the CCRIF SPC. SVG has been a long-standing member of the CCRIF and regularly purchases sovereign protection policies for tropical cyclone, excess rainfall, and earthquake impacts. However, within these policies, SVG has historically chosen to only cede a small percentage of its risk to international markets, leaving them with a potential maximum payout of less than US$5.5 million for tropical cyclones, US$1.2 million for excess rainfall, and US$4.3 million for earthquakes. With the understanding that the risk of hydrometeorological events is ever present, and a 10 percent chance each year that SVG will experience an event or events with losses of US$60 million, SVG might consider purchasing higher levels of coverage to augment access to immediate liquidity beyond the Contingencies Fund. There is no overall operational framework to guide the public procurement of insurance nor is there any repository or database of government assets insured at present or in the past. Insurance for embassies and consulates aside, premium makes up an average of 0.2 percent of annual government expenditure. And where, in hindsight, a ministry’s actual expenditure on insurance premium differs substantially from the corresponding estimates, subsequent estimates do not reflect that. Ministries who buy insurance procure it on their own by asking for three quotations and opting for the lowest cost. Hence, there is only anecdotal evidence suggesting that most are not insured. There is a perception in the market that the government prefers to spend on the CCRIF premium rather than insure with the country’s own insurance industry, when in fact these are two distinct instruments of disaster risk financing that complement each other. State-owned enterprises and statutory bodies such as the Central Water and Sewerage Authority (CWSA), St. Vincent Electricity Services (VINLEC), and St. Vincent and the Grenadines Port Authority (SVGPA) are autonomous in their (self) insurance decisions. This is despite the fact that prolonged disruption of their services could seriously affect life and the economy of SVG. Such disruptions can be caused by delays in financial compensation due to insurance that, in hindsight, guaranteed less cover than was expected. So far, such a situation has not occurred, and the insurance purchase decisions of these entities seem well informed. They are guided by the support of insurance brokers but rely primarily on the experience of executives at the helm of the companies, who benefit from dialogue with similar entities across the region who meet in associations. But retirement is nearing for some executives, and the insurance strategies that so far have proved to be robust are rarely institutionalized and may well be uprooted by changes in management. The MoFEP is on the board of these entities and provides the link to the government, but a more proactive approach in the future may deserve consideration and would allow to incorporate 44 Advancing Disaster Risk Finance parastatal entities in a national insurance strategy for government assets and contingent liabilities. Such a strategy should consider that part of the premium they pay to local insurers comes back in the form of taxes. Agriculture Sector The GoSVG has described agriculture as being “at the core of the Vincentian identity.” Further, according to the World Bank, “GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture.” Notwithstanding, the import of services to the development of the country, the National Economic and Social Development Plan (2013–2025) states that the agriculture sector is a significant contributor: to the improvement in food and nutrition security; poverty reduction, especially in the rural communities; employment; foreign exchange earnings; and overall economic growth. The viability of the sector continues to be challenged by a myriad of factors, including, but not limited to, the country’s small size and mountainous terrain, which restrict large-scale agricultural practices; land and tenure arrangements; finance and investment capital; quality inputs; market information systems; and technology. In addition, the sector is vulnerable to risks such as floods, strong winds, heavy rains, drought, landslides, pests and diseases, stray animals, volcanic eruptions, and praedial larceny. In spite of these challenges, the sector’s real contribution to GDP has ranged from 5.9 percent to 14.4 percent between 1977 and 2020 (Figure 23). GDP by Select Economic Activities in Constant Prices 1977- 2020 300.00 250.00 200.00 USD Million 150.00 100.00 50.00 0.00 1977 1979 1984 1988 1990 1994 1999 2004 2008 2012 2016 2018 2019 2020 Agriculture, Livestock and Forestry Fishing Manufacturing Construction Wholesale & Retail Trade Hotels & Restaurants Figure 23. Percentage Contribution to GDP by Select Industries; Source: Statistical Office and Eastern Caribbean Central Bank. The sector’s importance to the Vincentian economy could be attributed to the slower take-off of mass tourism; limited air access; the viability of the banana subsector due to the preferential treatment in Europe; the fertile soil, which makes it conducive for agriculture; the relatively large fishing area ; and the existence of traditional regional export markets, among others. The sector, though largely artisanal, has been responsible for generating export earnings ranging from 14 percent to 39.1 percent of all exports Saint Vincent and the Grenadines 45 (Figure 24) between 2009 and 2020, mainly from root crops, bananas, plantains, arrowroot, lobsters, snappers, conch, and recently sea moss. Agriculture and fisheries have been significant employers of labor in SVG, especially in the rural communities, and a driver for poverty reduction. The percentage of labor force in the agriculture and fisheries sectors has averaged around 12.4 percent between 2001 and 2017, with about 80 percent being males.The fisheries subsector is challenged by a number of issues such as climate change impacts, overfishing, pollution of marine environment from land-based activities, unsustainable methods of harvesting, volcanic eruptions, and weak institutional arrangements to protect the marine environment. Further, there is a constant quest to maintain the safety and quality assurance as required by the export markets, and the need to strengthen policy and legal frameworks of the sector.52 Notwithstanding, the fisheries subsector tends to be one of the most resilient following a disaster, as fishers are able to resume their livelihood as soon as the situation permits. Figure 24. Agricultural Exports Compared to Total Exports (Goods); Source: Statistical Office, SVG. The government has responded with some interventions to address the constraints. The Farmers’ Support Company provides small loans to farmers at low interest rate, and the National Agriculture Marketing Information System aims to provide information on production, prices, and climatic conditions. But producers have no instruments to manage the risks. The only agriculture insurance available in the past to a limited number of growers against a limited number of hazards has been the banana cover provided by Windward Islands Crop Insurance (WINCROP), a Dominican company that is not subject to the same insurance supervision as other insurers. In the meantime, the government is effective in compensating producers’ losses, but this creates contingent liabilities and possibly discourages demand for agriculture insurance. The Ministry of Agriculture has a well-established procedure for assessing losses and damage following disasters. It is able to survey all farmers within 72 hours from the event and prepare a detailed report to the Cabinet within two weeks. The government has often provided compensation/support to farmers from the Consolidated Fund 52 Burke, Lauretta, and Jon Maidens, and contributing authors: Mark Spalding. Reefs at Risk in the Caribbean, 2004. https://www.wri.org/ research/reefs-risk-caribbean; CCRIF and World Bank Group. 2019. Caribbean Oceans and Aquaculture Sustainability Facility (COAST): Making the Fisheries Sector in the Caribbean Resilient to Climate Events. https://www.ccrif.org/sites/default/files/publications/CCRIFSPC_ COAST_Brochure_July2019.pdf. 46 Advancing Disaster Risk Finance or through projects. The assistance has tended to be in cash or as inputs to support farmers’ livelihoods, which adds to the government’s contingent liability and may obviate producers’ motivation for more proactive risk management. Renewed efforts are advisable to strengthen agriculture risk management with insurance. It is increasingly common and good practice for governments to include the agriculture sector in their disaster risk financing strategies, and there are numerous examples of how to stimulate the offer and use of agriculture insurance.53 Other than premium subsidies and tax exemptions, there are several other ways governments can contribute to the supply and demand of agriculture insurance, including providing data on crop yields and climate free of charge, allowing the use of government infrastructure for distribution and underwriting, conducting awareness campaigns, making insurance part of efforts for increased access to credit, improving risk mitigating infrastructure such as livestock registries and quality-guaranteed seeds, and acting as reinsurer for certain levels of risk. Developing agriculture insurance products requires considerable effort and geographic customization, especially for small-scale producers. Given that many insurers operating in SVG have head offices elsewhere and may have limited local resources and autonomy to embrace agriculture insurance, a regional approach could be explored. If successful, insurers could amortize the development cost over larger client numbers and benefit from economies of scale for more affordable premiums. Like property insurance, agriculture insurance is highly correlated to disasters: there are either no claims in a geography or a lot, so even much larger countries cannot diversify this risk within their own insurance markets and need international reinsurance to diversify globally. Hence, any initiative to catalyze agriculture insurance in SVG needs to bring international reinsurers to the table at an early stage. This has also been a weakness for WINCROP. Even though it pools risk from four different countries in the Eastern Caribbean, this has proved to be insufficient geographic diversification due to the correlation of climatic disasters. Still, WINCROP is an asset that SVG may want to help flourish if developing a national agriculture insurance market from scratch proves too cumbersome—or to complement a nascent national agriculture insurance market. Another asset is the CCRIF SPC, as it is offering a growing suite of products aimed at agriculture and fishing, including COAST. Economies of scale do not favor SVG. Agriculture insurance for small-scale farmers will have to be inclusive insurance. Inclusive insurance relies on a business model of low margins but high volumes, and needs large volumes for economies of scale, to make premiums affordable, reduce uncertainty when pricing novel products, and amortize their development cost. SVG’s modest population size is detrimental to that. 53 In the Dominican Republic, for example, the government initiated the creation of a public-private agriculture insurance company, Aseguradora Agropecuaria Dominicana (AGRODOSA), and subsidizes the insurance premium for farmers for selected crops, an approach used by an increasing number of countries to overcome affordability issues. Saint Vincent and the Grenadines 47 Box 1. Parametric Insurance in the Fisheries Sector To help realize food security, safeguard livelihoods, and promote the resilience of the fisheries sector against extreme weather and volcanic eruptions, the GoSVG could consider acquiring parametric insurance from the CCRIF SPC through COAST geared to benefit the fisheries sector. The use of this facility could help the GoSVG reduce its contingent liability arising from natural disasters that negatively affect food security and livelihoods. In addition, a facility such as COAST could help advance the GoSVG’s sustainable development policy objectives in the fisheries sector through plans for harmonizing efforts aimed at DRR/DRM, managing the ecosystem, providing incentives for climate-smart fisheries best practices, and ensuring that fishers meet minimum levels of shared governance as a prerequisite for coverage as a beneficiary of insurance. COAST is an innovative climate risk insurance mechanism to promote food security, livelihoods of fisherfolk, resilient fisheries, sustainable management of coastal infrastructure, and DRR in the Caribbean. COAST is a partnership among the US Department of State, World Bank, CCRIF SPC, and Caribbean Regional Fisheries Mechanism (CRFM). The facility—that will drive sustainable finance for Caribbean fisheries—was envisioned as a parametric insurance product at a scale relevant to vulnerable fishing communities. Leveraging the existing models for tropical cyclone and excess rainfall, the COAST insurance product supports the government’s efforts to rapidly put money into the hands of those directly affected by extreme weather by providing immediate economic relief and promoting a culture of building-back-better after a disaster to enhance coastal community resilience after an extreme weather event. 48 Advancing Disaster Risk Finance Chapter 5. Recommendations for National Disaster Risk Finance Strategy in Saint Vincent and the Grenadines A comprehensive national DRF strategy for SVG should improve the capacity of the government to access immediate financial resources in the event of a national disaster and be flexible to allow for a proportional response based on magnitude of loss while minimizing reallocations from existing programs and maintaining fiscal balance. A total of 18 recommendations for a comprehensive DRF strategy in SVG are presented in Table 6 followed by a discussion of each of the recommendations. These recommendations follow the operational framework of first quantifying and assessing risk or the contingent liability of the government, preparing the environment for financial solutions to operate efficiently, and then arranging the solutions. Recommendations Table 6. Strategy Recommendations for DRF in SVG Time Frame Instruments and Strategy Recommendations for DRF Sovereign Protection Short Term 1 Streamline and institutionalize loss and damage data collection and reporting system for all (< 1 year) severities of events. 2 Explicitly address contingent liabilities/fiscal risks arising from natural disasters in the fiscal legislation and regulations of the GoSVG, including NEDMA and FAA. 3 Detail standard operating procedures (SOPs) for the process of estimating economic losses from direct damages. 4 Consider earmarking a provision of the contingencies fund for natural hazard response - consistent with AAL of hydrometeorological events (US$11 million). 5 Continue seeking access to a contingent line of credit that covers contingent liabilities of prominent events of at least a 10-year return period (US$30 million). 6 Optimize sovereign parametric insurance (CCRIF SPC) coverage to cover existing immediate liquidity gaps. 7 Adopt a National Strategy for DRF and subsequent implementation plan. 8 Develop and institutionalize disaster-responsive Post-Disaster Budget Execution Guidelines Medium Term 9 Develop a risk-based asset management system, based on a comprehensive inventory of (1–3 years) public fixed assets. 10 Institutionalize guidelines for public procurement of indemnity insurance. 11 Develop an adaptive social protection program with dedicated financing arm. 12 Improve the COA by integrating disaster management and climate change considerations to enable and improve tracking of disaster-related expenditure. 13 Develop or subscribe to a livelihood protection mechanism for vulnerable populations like fisherfolk, farmers, and tourism workers. Commercial Insurance Short Term 14 Strengthen transparency and consumer protection: greater transparency about providers. (< 1 year) Medium Term 14.1 Strengthen transparency and consumer protection: key facts statements. (1–3 years) 14.2 Strengthen transparency and consumer protection: consumer protection diagnostic. 15 Government support to better understanding and appreciation of insurance by the public 16 Assess compliance with the insurance core principles (ICP). 17 Assess the barriers to and potential of inclusive and other sector-specific insurance. Saint Vincent and the Grenadines 49 Discussion 1. Streamline and institutionalize loss and damage data collection and reporting system across ministries for all severities of events. Historical damage and loss data are crucial for accurate disaster risk analysis. Historical data are important components of disaster risk assessment and actuarial analysis, and thus play a significant role in the development of DRM strategies and financing instruments. SVG has a rudimentary and paper-based system of collecting and reporting information related to the damage and losses sustained by different sectors for low-frequency, high-intensity events. However, information on damage and loss from high-frequency, low- intensity events is not reported in detail across ministries, especially when it comes to flooding, which is acute in certain parishes. NEMO and the MoFEP has noted that there is room to improve on capturing data associated with low-intensity, high-frequency events and creating a database to house this information. A database in line with the standard DaLA methodology across ministries is recommended, along with guidelines on how and when to enter information. This would allow line agencies at national and subnational levels, as well as local authorities, to report damage and losses easily. It would also enable the MoFEP and other line ministries to access critical information for recovery planning and appeal to donors. Although this initiative could be launched in the short term, it might take time to fully implement a comprehensive database. The World Bank recommends developing this database in consultation with NEMO and the Ministry of MoFEP to see how it can be improved and how it can capture information on high-frequency disasters. If this database can be linked to budgetary expenditures, it has the potential to be a powerful tool. 2. Explicitly address contingent liabilities/fiscal risks arising from natural disasters in the fiscal legislation and regulations of the GoSVG, including NEDMA and FAA. While NEDMA is already quite robust, it can be further augmented to ensure that the financial implications of hazard response are captured and aligned with the FAA and other legislations. This would include defining explicit and implicit contingent liabilities associated with natural hazards, both of which pose a fiscal risk but have varying associated funds and tools for response, as well as various financially responsible agents. This could be remedied by a schedule that specifies what are considered either implicit or explicit liabilities and the financial mechanisms to address both, as well as the responsible agency for quantifying impacts. Contingent liabilities are a fiscal policy imperative that has implications for debt management, expenditure management, and revenue performance. NEDMA does not speak to the fiscal impact of disasters but does include a disaster risk financing provision, which is the Contingencies Fund. This suggests some layering of risk but reliance, primarily, on one reserve fund. Given the lack of clarity on thresholds for accessing the Contingencies Fund, this is another dimension to the complexity of the Fund and the numerous applications for its use. As part of the DRF strategy, there is a need to clearly rationalize the various financing instruments and justify when and why the respective resources are to be used. Within a comprehensive DRF strategy, the GoSVG would need to clearly quantify a notional budget for relief and response. 50 Advancing Disaster Risk Finance 3. Detail SOPs for the process of estimating economic losses from direct damages. The GoSVG has a strong interest, on behalf of taxpayers, in accurate and comprehensive direct loss data. The government covers a substantial portion of disaster-induced losses that are suffered by municipalities, as well as by individuals and businesses, which are otherwise privately uninsured. Although extreme events cannot be avoided, their impacts can be reduced by government policies, or risk reduction activities, such as infrastructure retrofitting, land use planning to decrease structural exposures to natural hazards, and other measures. Because mitigation can be costly, it is important for policy makers to be aware of the total losses of disasters and the extent to which those losses can be reduced by various mitigation strategies, so that cost- effective mitigation strategies can be designed and implemented. The same is also true for the private sector, where cost-effective mitigation measures can and should be used to reduce losses in future disasters. 4. Consider earmarking a provision of the Contingencies Fund for natural hazard response - consistent with AAL of hydrometeorological events (US$11 million). The Contingencies Fund, with a fast-disbursement mechanism, could be further capitalized and regulated as a vehicle for the rapid financing of public post-disaster reconstruction operations. This estimate is based on the estimated AAL for public contingent liabilities described in Chapter 3. These funds should be safeguarded and accessible for immediate post-disaster relief. Safeguards can prevent funds from being used for expenses other than disaster response. The GoSVG can also present to donors and creditors a more welcoming environment for international assistance by showcasing a well-managed, transparent fund set aside specifically for disasters. 5. Continue seeking access to a contingent line of credit that covers contingent liabilities of prominent events of at least a 10-year return period (US$30 million). Engaging international development partners to continue accessing contingent credit instruments addresses not only reconstruction but also relief and recovery at a time when liquidity constraints are usually highest. The GoSVG has already demonstrated the usefulness of such a facility that allows rapid disbursement of funds with an adaptable soft trigger for medium- to high-intensity natural disasters, after the Contingencies Fund has been depleted. This estimate of a 10-year return period is based on a range of PMLs for public contingent liabilities in a range of moderate to severe events, as described in Chapter 3. A percentage of this PML is extrapolated as ‘recovery’ funding, which such contingent financing arrangement would cover. While taking on contingent financing does increase public debt, there is an argument for increasing spending in times of a temporary economic shock such as a natural disaster. Basic economic theory notes that a country should adjust to a negative permanent shock and cut spending, but if the shock is temporary, it can be financed and paid back later. In practice, however, policy makers face the extraordinarily difficult situation of needing to assess permanency of a shock in real time. Saint Vincent and the Grenadines 51 Box 2. Countercyclical Argument for Increasing Spending after a Temporary Shock “By definition, a prudent policymaker will tend to put more weight on a positive shock being temporary and a negative shock being permanent. As a result, the prudent policymaker may, on average, save too much in good times and dis-save (or borrow) too little in bad times. This ‘excessive’ saving could be viewed as the cost of self-insurance, and hence a price that needs to be paid for living in shock-prone or more volatile external environments. Interestingly enough, in bad times a prudent policy maker may mimic, to some extent at least, a procyclical policy maker. But, if anything, this should be viewed as an additional argument to seek the blessings of countercyclical fiscal policies since market-based insurance (which would clearly be the first-best scenario) should be more readily available to countries with higher credit ratings.” Source: Vegh, Carlos, Daniel Lederman, and Federico R. Bennett, 2017. Leaning Against the Wind: Fiscal Policy in Latin America and the Caribbean in a Historical Perspective. LAC Semiannual Report. Washington, DC: World Bank. Available at https://openknowledge.worldbank.org/ handle/10986/26364 License: CC BY 3.0 IGO. 6. Optimize sovereign parametric insurance (CCRIF SPC) coverage to cover existing immediate liquidity gaps. The series of recommendations would allow GoSVG to finance its contingent liabilities from a hydrometeorological event with a 30-year return period with CCRIF SPC and its own funds without excessive reallocation or further indebtedness, other than drawing down on a contingent financing mechanism (based on fiscal analysis discussed in Chapter 3). The combination of reserves, emergency financing from a contingent line of credit, parametric insurance, and indemnity insurance offers a cost-effective strategy. Lines of contingent credit such as the World Bank Catastrophe Deferred Drawdown Option (Cat DDO) or the International Monetary Fund (IMF) Rapid Credit Facility (RCF) are more cost-effective than risk transfer solutions for the intermediate layers of risk like tropical storms and low-intensity hurricanes. Catastrophe risk transfer solutions like parametric insurance have proven to be cost-efficient against high-risk layers like major hurricanes and earthquakes. However, the percentage of risk ceded at this level should remain relatively high in order to experience cost-savings in the long run. 7. Adopt a National Strategy for DRF and subsequent implementation plan. This study recommends the development of an ex-ante plan for managing the fiscal impacts of natural disasters, considering the potential contribution of budget reallocations, debt financing, contingency reserves, insurance, and capital market instruments and taking into account financial capacity and desired risk retention and transfer levels, as well as the cost, timing, and availability of the various financing options. The plan or appropriate portions of the plan should be publicly disclosed, where permissible, with the aim of building confidence in the government’s capacity to manage the financial impacts of disasters and should be tied to a time-bound implementation plan. 8. Develop and institutionalize disaster-responsive Post-Disaster Budget Execution Guidelines. The GoSVG public officials have experienced a number of disasters in recent history, which has tested their capacity to respond. Over the years, public officials have built up knowledge, capacity, and expertise in various areas of post-disaster budgeting and financial management. As with other Caribbean islands, SVG is faced with an aging public service. The competencies that have been built up have not necessarily been 52 Advancing Disaster Risk Finance documented. This presents a challenge for sustainability and business continuity, especially in the aftermath of a disaster where public officers may be new to the responsibilities, not as experienced, or in the transitional stage as they move from other positions to fill more senior gaps in the public service. 9. Develop a risk-based asset management system, based on a comprehensive inventory of public fixed assets. An improved asset registry and asset management system might be the answer to maximizing effectiveness of risk transfer instruments. Along with the uniform loss and damage reporting system (Recommendation 1), this system could be implemented through coordination with NEMO and other stakeholders but reside within the MoFEP. Both the asset management system and the loss reporting system could inform efforts to prioritize the reconstruction of public works damaged by natural disasters. Rehabilitation and retrofitting of the existing currently uninhabited buildings could reduce government costs by decreasing rental payments, building resiliency in a pool of government assets, and increasing insurance coverage for public assets. An inventory of public assets is also the first step in accounting for the GoSVG’s contingent liabilities in budgetary planning. A georeferenced inventory of public assets at risk and their attributes (for example, exact location, construction type, and number of stories) is also a key component in building an exposure database, which is integrated with hazard and vulnerability models to establish a fiscal disaster risk profile.54 Generally, the more accurate the inventory is, the more accurate the fiscal risk assessment. Data to construct the inventory can be collected from various sources, such as government agencies, universities, research centers, international organizations, and statistics institutions. As the exposure database identifies what assets need to be protected, the unit within the MoFEP responsible for purchasing insurance could be best suited to maintain the database. To better understand the collected information, the GoSVG may choose to standardize and house the information on an open source, web-based platform and make it accessible to all stakeholders. While in large countries such detailed risk assessments of all public assets and covering the entire territory are costly and challenging—due to the number of assets and the shared responsibility between national and subnational entities—in Small Island Developing States (SIDS), the number of assets is comparably small. Moreover, in most SIDS, including SVG, all public assets are managed at the national level. In addition, for small islands it is crucial to have a full overview understanding of all public assets’ risks because a single event such as a hurricane threatens the entire infrastructure portfolio. Such an initiative would also necessitate structured and intensive capacity building to ensure that the system is used and well-maintained. 10. Institutionalize guidelines for public procurement of insurance. Most of the public assets, including critical assets such as utilities and ports have varying levels of financial protection. This program would aim to offer technical assistance to the public entities in the design of their catastrophe insurance coverage of public assets. Standardized terms and conditions for the property insurance policies would be developed, which would assist public managers in identifying their risk exposure and their insurance needs. The program could also structure a national insurance portfolio of public assets 54 World Bank. 2013. “Quantify Contingent Liabilities Associated with Natural Disasters.” GFDRR Short Note 1. Saint Vincent and the Grenadines 53 that could be placed on the private (re)insurance market. A national property catastrophe insurance program for public assets would create economies of scale and diversification benefits and thus lower reinsurance premiums. Public procurement in the GoSVG has no specific oversight entity. The only oversight that occurs is where, within the central government, the MoFEP has to approve the expenditure item for insurance procurement within the annual budget submission of any ministry. Due to the lack of centralized oversight, there is no inventory of all government entities that procure insurance, disaggregated by type of insurance, insurer, annual premium, and the extent to which procuring entities receive payouts under the policies they purchase. Similarly, there is no repository or database of historical information on public procurement of insurance for the government to undertake its own routine analyses. Audits of public procurement are not routine. The last such audit was in 2004 when the Audit Department conducted a VFM audit of the Ministry of Transport and Works. There is a need to establish centralized public procurement oversight to make insurance procurement more cost-effective for the whole of government and to achieve VFM imperatives. 11. Develop an ASP program with dedicated financing arm. Flexible social protection systems that are disaster triggered and linked to DRM systems and contingent financing have the potential to reduce the administrative and financial burden of governments when responding to disasters. Post-disaster transfer mechanisms can be administratively and logistically cumbersome; identifying affected people is time-consuming and often inefficient, particularly in the aftermath of a disaster; and funds can take too long to reach those with immediate needs. Scalable programs with built- in risk mitigation and risk financing mechanisms can respond quickly to beneficiary needs within existing systems. These programs provide immediate assistance to poor people; protect development gains by preventing people from falling back into poverty after a disaster; and promote shared prosperity through better targeting, focusing on underlying factors affecting inequality, such as gender. To this end, these programs use census and survey data, as well as geospatial platforms, to locate vulnerable people. 12. Improve the COA by integrating disaster management and climate change considerations to enable and improve tracking of disaster-related expenditure. Any amendments to the COA should be used uniformly and consistently across the government to ensure that all post-disaster expenditures are coded and trackable. The Estimates of Revenue and Expenditures and the supplementaries need to summarize disaster management and drought mitigation measures, as well as post-disaster spending on relief, recovery, and reconstruction. This can be done by conducting trainings on using the revised COA to make the information more readily available and publicly searchable. A future review on its effectiveness and application can be conducted in the medium term. 13. Develop or subscribe to a livelihood protection mechanism for vulnerable populations like fisherfolk, farmers, and tourism workers. It is important that the government and the insurance industry together tackle the issues of expanding penetration of property insurance against natural disasters and making insurance accessible to vulnerable 54 Advancing Disaster Risk Finance populations. Acting alone, the insurance industry may focus on short-term profitability and shield itself from hard-to-address risks in vulnerable populations. On the other hand, if the public sector worked alone, products might not be as efficient, and protection could be costly. The GoSVG also faces the risk of implementing policies that compete with or reduce the incentives to purchase insurance. A partnership between the domestic insurance sector and the government can reduce and manage ex ante risks, adapt to the needs of different sectors of society, and lead to sound policy making and DRF decisions.55 Commercial Insurance 14. Strengthen transparency and consumer protection, the preconditions for increased demand. Insurance is a credence good that defies the evaluation of even the most sophisticated buyer before a claim is settled. That explains why trust is the most important precondition for insurance demand and why the main task of insurance regulation and supervision is to safeguard that trust. Currently, insurance companies in SVG offer suitable covers that can transfer consumers’ disaster risks, and they appear appropriately supervised to guarantee that they honor their commitments. But the terms and conditions of the products on offer vary and, most likely, also their value for money. Transparency in respect of insurance companies also offers room for improvement. There are tested systematic methodologies to diagnose the level of financial consumer protection to identify weaknesses to be addressed. Three activities are suggested: • Help consumers buy insurance by facilitating product comparisons with key facts statements. To stimulate demand from all those who cannot count on the guidance of a broker, more transparency about insurance products can come in the form of key facts statements.56 These are short, easy-to-read documents of typically two to four pages where all the facts that characterize and distinguish an insurance product are presented in a prescribed template and format. Key facts statements have to be provided to consumers before they buy insurance. They facilitate comparisons that help consumers choose which product is suitable for them, and also point out what their obligations are, thus preventing unintentional underinsurance. Help consumers buy insurance through greater transparency about providers. The FSA already publishes aggregated market statistics and has plans to publish more detailed information, for example, on claims ratios by insurer. If brought to the attention of consumers, suitably accessible publication of such detailed data supports informed purchasing decisions that direct consumers toward better performing providers— rewarding their efforts—and away from insurers that perform poorly—motivating them to improve. Information published by supervisors in other jurisdictions include expense ratios, solvency indicators, insurance premium rates for standard products, or complaints statistics. Insurers’ quarterly returns already provide the FSA with a wealth of data in a standardized template, so the incremental effort to make it public to consumers in an appropriate way (and track utilization) seems justified. 55 Ramm, G. 2011. “Public-Private Partnerships in Microinsurance.” Discussion Paper No. 001, Microinsurance Network, Luxembourg. 56 See for example, https://treasury.gov.au/sites/default/files/2019-03/Consultation_Explanantoy_Statement_-KFS_Regulation.rtf; Middle East Insurance Review. 2019. Zambia: Key Fact Statements to Be Mandatory for Insurers. Middle East Insurance Review, September 23, 2019. https:// www.meinsurancereview.com/News/View-NewsLetter-Article?id=48472&Type=Africa; IAZ (Insurers Association of Zambia). 2020 “Enhancing the Role of Insurance for Economic Growth.” Zambian Insurance Journal 12. http://www.iaz.org.zm/wp-content/uploads/Insurance-Journal-Vol-12. pdf. Saint Vincent and the Grenadines 55 • Assess the effectiveness of insurance consumer protection in SVG. The World Bank has developed a methodology for in-depth assessment of consumer protection in financial markets,57 discussing, for example, the role of independent consumer protection agencies. 15. Explore opportunities for public sector support to better understanding and appreciation of insurance by the public. Campaigns that promote the understanding and awareness of insurance are costly, and their long-term impact can be disappointing. However, if the transparency enhancing measures suggested above are introduced, consumers will have to learn about them, and that will be a good opportunity to raise awareness of insurance, its benefits, and its role in disaster risk financing for households and businesses. Any measure implemented by the FSA to strengthen insurance regulation and supervision is an opportunity to inform the public that SVG has a strong and competent arbiter defending the justified interests of both consumers and insurers, while even the most ambitious measures to strengthen consumer protection will fail to impact demand if the public takes no notice. The same is true for policies regarding, for example, financial inclusion. Fully funded and well-designed insurance awareness campaigns are good but not always affordable. But there are other ways of keeping a positive connotation of insurance in the public’s mind, for example, by regularly working on the proper understanding of the media’s grasp of insurance. Some countries’ supervisors hold annual meetings with newspaper representatives to ensure that they know what they are writing about. 16. If a harmonized regional insurance regulation remains a distant outlook, seek formal assessment of SVG’s compliance with the ICP. In larger and systemically important markets, this is usually done by teams of the World Bank and IMF during a Financial Sector Assessment. That may not happen anytime soon in SVG. The IAIS has been working on alternatives. In the past, they included several rounds of expert-reviewed self-assessments, for example. To benefit from such support and expertise, SVG may consider becoming a member of the IAIS; 2018 annual member fees were below CHF 20,000 for the smallest markets. Some supervisors have had excellent results with systematic and candid internal self-assessments, even without any review or other direct support of the IAIS. That is also an exercise in capacity building for the staff conducting the assessments, familiarizing them with international best practices. An assessment of ICP compliance that considers the particularities of SVG in respect of market size and sophistication, as well as supervisory resources, will uncover possible weaknesses of the current regime that could translate into insurance failures or other events detrimental to insurance demand and market stability. 57 World Bank Group. 2017. “Good Practices for Financial Consumer Protection, 2017 Edition. Washington, DC: World Bank. https:// openknowledge.worldbank.org/handle/10986/28996;Chien, Jennifer, and Ligia Lopes. “Financial Consumer Protection.” Presented at the Developing and Operationalizing National Financial Inclusion Strategies for the Digital Economy, Washington, DC, December 10–12, 2018. https://docplayer.net/141236752-Session-10-financial-consumer-protection.html. 56 Advancing Disaster Risk Finance 17. Assess the barriers to and potential of inclusive and other sector-specific insurance. Over the last 15 years, an impressive body of evidence has been accumulated on microinsurance and inclusive insurance. It includes some tools to help regulators identify regulatory obstacles, for example, a self- assessment58 that can identify issues even without peer review. Other preliminary steps on the way to thriving inclusive insurance markets include the assessment of supply and demand. It seems safe to say that there is no supply whatsoever in SVG at present. Assessing demand tends to require more resources and time, and there is also guidance on how it ought to be done.59 The International Conference for Inclusive Insurance will take place in Jamaica in October 2021,60 providing a unique opportunity for the Caribbean countries to meet experts in the field, exchange experiences with peers, and learn about the latest developments in the region and the world. This year’s motto ‘Reaching scale in small countries’ is highly relevant to SVG. Likewise, there is considerably documented knowledge of agriculture insurance for a wide range of geographies, crops, production models, and hazards. The same is true for livestock insurance or for the protection of fisheries.61 Many products have been developed for these and other insurable interests, some specific to the Caribbean, such as a hurricane insurance covering damages to coral reefs that translate into losses for the tourism sector. 58 Access to Insurance Initiative. 2013. “Technical Note 3: Self-Assessment and Peer Review on Regulation and Supervision Supporting Inclusive Insurance Markets | Access to Insurance Initiative.” https://a2ii.org/en/knowledge-center/toolkits/technical-note-3-selfassessment-and- peer-review-on-regulation-and-supervision-supporting-inclusive-insurance-markets. 59 Access to Insurance Initiative. 2014. “Toolkit 1: Country Diagnostic Studies: Analytical Framework and Methodology | Access to Insurance Initiative.” https://a2ii.org/en/knowledge-center/toolkit-1-country-diagnostic-studies-analytical-framework-and-methodology; Access to Insurance Initiative. 2014. “Toolkit 2: Country Process Guidelines for Microinsurance Market Development.” https://a2ii.org/en/knowledge- center/toolkit-2-country-process-guidelines-for-microinsurance-market-development. 60 Munich Re Foundation. 2021.“International Conference on Inclusive Insurance 2021 - Digital Edition.” https://www.munichre-foundation. org/en/Inclusive_insurance/International_Conference_on_Inclusive_Insurance/ICII2021.html. 61 For example, CCRIF and World Bank Group. 2019. Caribbean Oceans and Aquaculture Sustainability Facility (COAST): Making the Fisheries Sector in the Caribbean Resilient to Climate Events. https://www.ccrif.org/sites/default/files/publications/CCRIFSPC_COAST_Brochure_ July2019.pdf. Saint Vincent and the Grenadines 57 Glossary The Average Annual Loss is the expected loss per year associated with the occurrence of future perils assuming a long observation time frame. It considers the damage caused on the exposed elements by small, moderate, and extreme events and results, a useful and robust metric for risk ranking and comparisons. The Probable Maximum Loss (PML) is a risk metric that represents the maximum loss that could be expected, on average, within a given number of years. PML is widely used to establish limits related to the size of reserves that, for example, insurance companies or a government should have available to buffer losses: the higher the return period, the higher the expected loss. PML always has an associated mean return period. Contingent Emergency Response Components (CERCs) can be triggered or added to existing projects for an imminent or actual emergency. Many World Bank-financed projects already have a CERC, which allows funds to be redirected from other parts of the project to cover emergency response needs. Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) limits the financial impact of catastrophic hurricanes, earthquakes, and excess rainfall events to Caribbean and Central American governments by quickly providing short-term liquidity when a parametric insurance policy is triggered. Caribbean Disaster Emergency Management Agency Emergency Assistance Fund (CDEMA EAF) was established to facilitate receipt of donations on behalf of any of the CDEMA’s 18 participating states affected by a disaster. The monetary contributions are used to provide humanitarian support to the affected population, purchase emergency relief supplies, conduct needs and damage assessments, and facilitate early recovery and rebuilding efforts. Caribbean Oceans and Aquaculture Sustainability Facility (COAST). This product is a parametric insurance for the fisheries sector, which is designed to enhance resilience against the impacts of climate- related disasters. Cat Bonds are insurance-linked securities whose value is tied to non-financial risks, such as the probability of natural disasters. Catastrophe Deferred Drawdown Option (Cat DDO) is a contingent financing line that provides immediate liquidity to countries to address shocks related to natural disasters and/or health-related events. The International Monetary Fund Rapid Credit Facility (IMF RCF) provides rapid concessional financial assistance with limited conditionality to low-income countries facing an urgent balance of payments need. 58 Advancing Disaster Risk Finance Annex 1. Operational Disaster Risk Financing and Insurance Framework Table 7. Actions Taken by Governments for Financial Protection Beneficiaries Government - National and Homeowners and Small Agricultural Producers Low-Income Population (Social Subnational (Sovereign DRF Insurance) and Medium Enterprises and Herders (Agricultural Protection) (Property Catastrophe Insurance) Risk Insurance) Assess Risks The Government of Colombia included In Chinese Taipei, the India has developed India has developed detailed the assessment of contingent liabilities Residential Earthquake detailed agricultural risk agricultural risk assessment tools to from disasters in the government’s Insurance Fund (TREIF) assessment tools to help help policy makers to fiscal risk management strategy. has developed an policy makers to better understand the economic earthquake risk model better understand the consequences of drought, quantify In Mexico, the Loss Estimation for to strengthen the economic consequences such impacts, and investigate the Federal Risk System (R-FONDEN), a independence and of drought, quantify such impacts of risk coping strategies, at probabilistic catastrophe risk modeling professionalism of impacts, and investigate both the farm and state levels. tool, creates probabilistic simulations its earthquake risk the impacts of risk coping of potential material and human assessments. strategies, at both the losses from disasters. farm and state levels. The preparation of the Morocco has developed a probabilistic Southeast In Mongolia, livestock catastrophe risk modeling tool to Europe and Caucasus census/surveys are used assist the government in prioritizing Regional Catastrophe to inform the government their risk mitigation investments. Risk Insurance Facility about the economic and includes extensive fiscal impact of adverse The Philippines is developing a multi-hazard country risk weather events and in catastrophe risk model to evaluate assessments for climate the design and pricing options for risk transfers and insurance and geological hazards. of index-based livestock to reduce the fiscal burden of insurance policies. disasters. The Pacific Risk Information System, under the Pacific Catastrophe Risk Assessment and Financing Initiative, includes a database of over 3.5 million georeferenced buildings and infrastructure in 15 Pacific Island Countries. It was used to develop the Pacific catastrophe risk insurance pilot. Beneficiaries Government - National and Homeowners and Small Agricultural Producers Low-Income Population (Social Subnational (Sovereign DRF Insurance) and Medium Enterprises and Herders (Agricultural Protection) (Property Catastrophe Insurance) Risk Insurance) Arrange Contingent lines of credit provide The Turkish Catastrophe The Index-Based The Productive Safety Net Programme Financial developing countries with funds Insurance Pool Livestock Insurance Pilot (PSNP) in Ethiopia is aimed at enabling Solutions immediately following disasters. (TCIP), a PPP with the in Mongolia protects the rural poor facing chronic food Products are offered by the World domestic insurance the livelihoods of 11,000 insecurity to resist shocks, create Bank, Inter-American Development industry, provides herders or 22 percent in assets, and become food self- Bank (IDB) and Japan International compulsory, affordable piloted provinces in 2012. sufficient. Cooperation Agency. earthquake insurance to homeowners, increasing India’s weather-based In 2011, reinsurance company the The first multi-country risk pool, the catastrophe insurance crop insurance has been Microinsurance Catastrophe Risk CCRIF, established in 2007, offers 16 coverage from less than in place since 2007 for Organization (MiCRO) was established small island states countries over 3 percent to over 40 11 growing seasons, with to provide insurance coverage to US$150 million in hurricane and percent of residential 11.6 million farmers and women-owned microenterprises in earthquake coverage. buildings in urban areas. US$370 million covered in Haiti. the most recent season, In 2006, Mexico transferred US$450 The Japanese public- while the national crop Insurance products of the Center for million of earthquake risk to financial private earthquake insurance program, since Agriculture and Rural Development markets by combining the world’s insurance program for 2010, offers more than 1.1 Mutual Benefit Association (CARD first government catastrophe (cat) homeowners relies on million farmers a total of MBA) in the Philippines are mandatory bond (Cat MEX – US$160 million) and the Japan Earthquake US$67 million coverage in for members of a network of parametric reinsurance (US$290 Reinsurance Company yield crop insurance. institutions, including CARD NGO million). (JERC), an earthquake and CARD Bank, providing scale and reinsurance pool backed In Morocco, the preventing adverse In Colombia, the government uses by the government. government and the selection. standardized terms and conditions agricultural mutual informed by international best insurance company practices to purchase catastrophe have established a crop insurance for its public buildings. insurance program for cereals, which currently covers 700,000 ha and will soon be extended to fruit trees. Saint Vincent and the Grenadines 59 Beneficiaries Government - National and Homeowners and Small Agricultural Producers Low-Income Population (Social Subnational (Sovereign DRF Insurance) and Medium Enterprises and Herders (Agricultural Protection) (Property Catastrophe Insurance) Risk Insurance) Deliver Funds to The Government of Mexico established As a PPP, the Turkish Distribution in the Horn of Africa Risk Transfer for Beneficiaries a post-disaster loss reporting Catastrophe Moroccan multi-peril Adaptation (HARITA) was launched mechanism managed by the Natural Insurance Pool relies crop insurance program in Ethiopia in 2007 as a pilot program Disaster Fund (FONDEN). Affected on the domestic takes place either by to address the needs of small-scale states can therefore access timely insurance market for linking to loans made farmers through drought insurance, payments from FONDEN, reducing the distribution and by Crédit Agricole or credit, and risk reduction, allowing time-consuming coordination settlement of claims. by direct marketing farmers to pay for insurance through problems. of Mutuelle Agricole labor, an idea based on ‘food-for- Marocaine d ’Assurance work’ programs. In the Cook Islands, the establishment (MAMDA), the sole of the Disaster Emergency Trust provider of agriculture MiCRO’s coverage in Haiti is bundled Fund has served to reduce delays in insurance in the country, with loans from Fonkoze, the country’s emergency response. structured as a mutual largest microfinance institution. fund. The national crop insurance program in India uses GPS-enabled mobile phones and video recording technology to enhance crop cutting experiments, improving the accuracy of claims assessments, while reducing fraudulent claims. Claims settlement takes place through direct payment to bank accounts. 60 Advancing Disaster Risk Finance Annex 2. Saint Vincent and the Grenadines Country Disaster Risk Profile SAINT VINCENT & THE GRENADINES Hurricanes and Earthquakes Photo credit: Government of RISK PROFILE St. Vincent and the Grenadines What is a country disaster risk profile? Snapshot An estimation of the potential economic losses to property caused by adverse natural hazards.  The hurricane risk Inform disaster risk financing in Saint Vincent and the Country Disaster Develop key baseline data Risk Profile Grenadines is more Evaluate impact of disasters Applications significant than the Promote and inform risk reduction earthquake risk. Country At-A-Glance Annual Average Loss (AAL) GDP US$ Population Total Building Exposure US$ (Replacement Value) from hurricanes is US$ 792 million 110,600 2.9 billion 9.0M (1.1% of GDP) Population Gross Capital Stock and from earthquakes is Public 60% Rural 46% US$ 1.7M (0.2% of GDP). 1 1 2 2 Urban 54% Private 40% The Probable Maximum Loss for hurricanes Two representations of hurricane risk (250 year return period) is US$ 265M (33.4% AAL (in millions US$) 0.8-3.0 of GDP) and for 0.41-0.7 0-0.4 earthquakes (250 year return period) is US$ Provinces by ratio (AAL/Province Exposure) 109M (13.8% of lowest ratio nnnnn highest ratio GDP). Absolute Risk: The larger the circle, Northern Grenadines the higher the Annual Average Losses that the census division could potentially incur over the long term. Relative Risk: The darker the color, the higher the ratio of AAL/Census Division Exposure. The darkest color represents the census division of Sandy Bay which has a higher proportion of vulnerable structures due to construction types and/or potentially higher hurricane intensity. Southern Grenadines Saint Vincent and the Grenadines 61 SAINT VINCENT AND THE GRENADINES What is at risk? Chateaubelair Who is most vulnerable? Georgetown Economic assets such as residential and Expected loss due to hurricanes varies nonresidential buildings are at risk. These by (1) construction material, and (2) socio- assets that are exposed to natural hazards economic status: are referred to as a country’s Building 1. Both Wall and Roof material types have a strong Exposure. Kingstown influence on hurricane risk which is further compounded by quality of construction. The map provides the value of residential Variability in Risk Due to Construction Type and non-residential buildings in each 1.4% census division at risk from hurricanes and 1.2% Hurricane Average Annual Loss earthquakes. (Proportion of Total Exposed) 1.0% 0.8% 0.6% 0.4% Building Exposure 0.2% 0.0% (in percentage of total) Sheet Metal Roof Sheet Metal Roof Concrete Roof Wood Frame Concrete Frame n < 1.3 Northern Grenadines Poor n 1.3 - 3.9 2. Even within the same Wall-Roof material class, housing for n 4.0 - 5.5 the ‘Extremely Poor’ can be nearly 4 times more vulnerable n 5.6 - 17.2 than housing for those with “Not Poor and Not Vulnerable” n 17.3 - 22.6 status. This is due to variations in construction quality and maintenance. Variability in Risk by Socio-Economic Status 2.5% 2.50% Hurricane Average Annual Loss (Proportion of Total Exposed) 2.00% 2.0% Southern Grenadines 1.50% 1.5% 1.00% 1.0% 0.50% 0.5% 0.00% Wood Frame - Wood Frame - Wood Frame - Wood Frame - 0.0% Sheet Metal Sheet Metal Sheet Metal Sheet Metal Roof Extremely Poor Roof PoorPoor Roof Poor Not Notbut Not Poor Roof Not Poor, Not Vulnerable Vulnerable Extremely but Poor, Not Poor Wood Frame - SheetVulnerable Metal Roof Vulnerable What are the potential future losses? 450 400 600.00 The chart shows the estimated potential future losses in Saint Vincent and the Grenadines that could be caused by 350 500.00 hurricanes and earthquakes for a given return period. (US$) 300 400.00 Millions (US$) 250 Millions 200 300.00 150 200.00 This is the first step needed to quantify 100 100.00 contingent liability. Next steps include 50 determining its impact on budgetary - 0 25 Historical 50 50 100 100 250 Return period in years 250 500 500 1,000 1000 appropriation, which would directly inform the Return Estimated Losses due to HURRICANES period in years Estimated Losses due to EARTHQUAKES development of the disaster risk financing n Estimated Losses Due to HURRICANES n Estimated Losses Due to EARTHQUAKES strategy. 62 Advancing Disaster Risk Finance Annex 3. DRFTA Project Methodology of Quantifying Contingent Liability Box 3. Probabilistic Catastrophe Risk Modeling Fiscal disaster risk assessments for governments can be developed using inputs from probabilistic catastrophe risk models. Catastrophe modeling techniques were originally developed by the international (re)insurance industry to assess the risk on portfolios of underwritten assets (for example, buildings) and are increasingly being used by governments to analyze their exposure to adverse natural events. Typically, catastrophe risk models comprise the following components: • Exposure module. This is a georeferenced database of assets at risk, capturing important attributes such as geographical location; type of occupancy (for example, residential, commercial, industrial, and agricultural); and construction (for example, wood, steel, and masonry); age; and number of stories. • Hazard module. This module contains a catalog of thousands of potential natural catastrophe events that could occur in a region, each one defined by a specific frequency and severity of occurrence. Analyses are performed on the historical occurrence of catastrophic events to capture the extent of possible events, based on expert opinions. • Vulnerability module. This is a series of relationships which relate the damage to an asset to the level of intensity of a peril (for example, ground shaking for earthquakes and wind speed for tropical cyclones). The relationships will vary by peril and by the characteristics of each asset, for example, a small wooden house and a tall concrete building will respond in different ways to a ground shaking caused by an earthquake and, as such, they will be damaged in different ways and to different extents. On a larger scale, for instance, when analyzing an entire neighborhood or city, proxies may be used to capture the overall vulnerability of an area. • Loss module. This module combines the information in the other three components to calculate the overall losses expected for selected perils affecting a portfolio of assets of interest. Typically, there are two kinds of risk metrics produced: AALs and PMLs. The AAL is the expected loss, on average, every year for the risks being analyzed, while the PMLs describe the largest losses that might be expected to occur for a given return period (within a given time period), such as a 1-in-50-year loss or a 1-in-250-year loss. Risk metrics produced by probabilistic catastrophe risk models can be used to complement historical analyses and are particularly useful to policy makers in assessing the probability of losses and the maximum loss that could be generated by major events (for example, an earthquake affecting a major city or a cyclone affecting a major port). Saint Vincent and the Grenadines 63 Box 4. Loss Risk Estimation Data, Methodology, and Key Assumptions The technical results derive from an actuarial analysis of past floods and wind-related events in SVG. This analysis is based on empirical analysis of past losses and not on a probabilistic catastrophe model. Although basic cross-validation of the data was completed, any material errors in the underlying data could affect the results of this technical analysis. Methodology The methodology followed these steps: • Historical losses were compiled into a single table by event. Whenever the data were available, sectorial losses were recorded. • Proxies to extract direct economic losses and public losses out of the total losses were determined by sector and more globally by event. • Losses were then updated to 2019 US dollar values. • Theoretical and statistical analysis validated the use of the Extreme Value Theory, and Generalized Pareto Distributions are fitted for each of the three categories of evaluated historical losses: direct losses, public losses, and total economic losses. Occurrences of losses above an upstream defined threshold are simulated through a Poisson distribution. Assumptions The analysis uses the following key assumptions: • There are no material errors or omissions in the data underlying the disaster damage report. • The developed proxies to estimate the portions of direct losses and public losses are based on historical sectorial losses information drawn from DaLA reports and other sources of historical and sectorial losses. They are reasonable approximations. • The use of the GDP ratios to update the historical losses to 2019 US dollar value is legitimate. • The use of the Poisson distribution and the Extreme Value Theory is legitimate, and the fitted statistical distributions are reasonable approximations of the occurrence and loss impact of natural disasters. Source: World Bank DRFTA Project. 64 Advancing Disaster Risk Finance Annex 4. Analysis of Historical Disasters in Saint Vincent and the Grenadines Historical data indicate that in the Eastern Caribbean, the regional probability of a hurricane in any given year is about 18 percent.62 Such high probability and anticipated impact underscore the need for DRR and emergency preparedness. SVG’s vulnerability to natural hazards has been exacerbated by its deeply dissected topography, making the country prone to landslides and flash flooding. The increased frequency and magnitude of disaster events have constrained economic growth and thwarted development advancements. Significant expenditures are generally under-accounted for in the national budget. According to EmDAT, DesInventar and World Bank analysis, between 1967 and 2016, there were 35 flooding and landslide events. The disaster events of May 1974, December 1981, September–August 1996, December 2013, and September 2016 collectively incurred damages estimated at US$116 million (EC$314 million) and death of 25 people. In addition to these intermittent, larger-scale flood and landslide events, there were more frequent, smaller events which also contributed to damages, losses, and disruption to systems and livelihoods.63 Figure 25. Summary of Damages and Losses by Sector 2014 62 Organization of Eastern Caribbean States (OECS). “Organization of Eastern Caribbean States (OECS) - Regional Partnership Strategy for the Period 2010–2014.” Washington, DC: World Bank Group, July 1, 2010. https://documents.worldbank.org/en/publication/documents- reports/documentdetail/678721468291022786/Organization-of-Eastern-Caribbean-States-OECS-Regional-partnership-strategy- for-the-period-2010-2014; IMF. 2009. “Eastern Caribbean Currency Union: Selected Issues.” Washington, DC: International Monetary Fund. https://www.imf.org/en/Publications/CR/Issues/2016/12/31/Eastern-Caribbean-Currency-Union-Selected-Issues-22999. 63 GoSVG. 2014. Rapid Damage and Loss Assessment (DaLA) December 24–25, 2013 Floods. January 16, 2014. https://www.gfdrr.org/sites/default/ files/publication/SVG_Rapid_DaLA_Report_0_0.pdf. Saint Vincent and the Grenadines 65 Historical Disasters Hurricane Tomas. In 2010, Hurricane Tomas took a heavy toll on the country’s socioeconomic development, with significant damage to schools and community centers that are part of the national network of emergency shelters. Critical roads were made impassable by landslides or by the flooding of major rivers. During and after the hurricane, community residents in certain areas were isolated and shelter facilities were damaged or inaccessible for several days. As a consequence, the impact of the hurricane was even more severe on the most-vulnerable groups. The Hurricane Tomas Emergency Recovery Project (HTERP) scaled up rehabilitation of other critical vulnerable infrastructure to strengthen the government’s capacity to analyze disaster risk with more advanced analyses. Excessive rainfall and flooding. The December 2013 excessive rainfall event triggered flooding and landslides and resulted in 12 deaths and extensive physical damage and economic losses estimated at approximately US$108.4 million (15 percent of GDP). The transport sector was most severely affected, with damage and losses amounting to US$82.6 million, followed by the housing sector in which 662 homes were damaged or destroyed, amounting to US$4.6 million in damage and losses. Agricultural losses from the December 2013 event were estimated at US$1.4 million; while these losses represented only 1 percent of GDP, the impact was believed to be disproportionately felt by low-income families, whose agricultural production is primarily for personal consumption and local sales (that is, farmers markets). Following the 2013 flood, over 225 people who were rendered homeless were sheltered in two community centers rehabilitated by the HTERP.64 Hurricane Matthew. In 2016, Hurricane Matthew caused loss of housing, loss of productivity, and significant damage to road infrastructure, amounting to about US$36.3 million (5 percent of GDP). In the housing sector, 189 homes were damaged or destroyed, amounting to US$4.6 million (13 percent of total GDP). In the education sector, students and teachers lost up to four weeks of instructional time because some of the buildings were used as emergency shelters. In Sandy Bay, one of the poorest communities in the country, impacts were significant for families that participated in the school feeding program that provides students with a hot lunch daily. For some of these students, this is their one complete meal of the day, and so the loss of this meal for up to four weeks had implications on their learning, health, and welfare. Volcanic Eruption. The La Soufrière Volcano is the northernmost and youngest volcano on Saint Vincent Violent eruptions of the La Soufrière Volcano occurred in 1718, 1812, and 1902. There was also an effusive eruption from 1971 to 1972, followed by an explosive eruption in 1979. The 1979 eruption started with less than 24 hours of precursor activity, and the episode lasted about two weeks. It resulted in the destruction of 600 houses and a total loss of US$100 million. 64 World Bank. 2014. “After Hurricane Thomas, Saint Vincent and the Grenadines Strengthens Its Resilience.” September 25, 2014. https://www. worldbank.org/en/results/2014/09/25/hurricane-thomas-saint-vincent-grenadines-strengthen-reslience. 66 Advancing Disaster Risk Finance Table 8. Summary of the Eruption of La Soufrière, SVG, Adapted from Seismic Research Center65 Year Nature of Disaster (costs in 2000 US$) 1718 Major explosives eruption. Unknown number of casualities among the indigenous people. 1812 Major explosives eruption. About 80 deaths. Considerable damage to the sugar industry. Economic cost unknown. 1902 Major explosives eruption. About 1,600 deaths. Considerable damage to the sugar industry. Economic cost estimated at US$200 million. 1971 2,000 affected, 10,000 evacuated, 40% decline in agricultural output after eruption. 1979 Moderate explosives eruption. No casualites, 20,000 evacuated. Extensive agricultrual and overall economic losses of about US$100 million. An effusive eruption at the La Soufrière Volcano was first detected in late December 2020, following observed seismic activity in November 2020. On April, 9 2021, La Soufrière Volcano erupted explosively, resulting in devastating ash fall and a pyroclastic flow66 and forcing approximately 20,000 people in high-risk zones to evacuate. The pyroclastic flow significantly affected homes, livestock, and vegetation. The displaced persons were relocated to emergency shelters and private homes. The World Bank undertook a rapid post-disaster damage assessment.67 As the event is ongoing, there is significant uncertainty about the final impacts of the entire eruption sequence, but a ‘worst credible’ scenario estimates that the cost of direct damage could be US$210 million. Given that the value of key assets at risk in the most affected volcanic hazard zones is approximately US$383 million, a prolonged volcanic activity may double the direct damage. As part of the process of ascertaining the extent of impact resulting from the volcano, the GoSVG with support from CDEMA conducted a Detailed Damage Sectoral Assessment (DDSA)68 designed to provide an estimate of damage and loss aimed at providing guidance on estimating the cost of recovery for key sectors, including agriculture, health, water, electricity, social sector, and infrastructure. Damages and losses for the agriculture sector are estimated at US$64 million, estimated costs for continued social protection support are about US$27 million, and estimated cost of infrastructure damage and cleanup is US$28 million. Combined with other sectors and indirect costs, the estimated gross financing needs are US$174 million (24.4 percent of GDP). Historical Health Vulnerability SVG, together with the other Eastern Caribbean SIDS, ranks highly on global health indices with relatively high immunization levels and access to primary health care which contribute to low rates of communicable diseases. Several outbreaks of mosquito-borne viruses—dengue fever, chikungunya, and zika—have been experienced in the last decade. Additionally, SVG has not escaped the COVID-19 pandemic, which has afflicted the entire globe since 2019. With increased international tourism traffic and informal interisland movement by boats and small planes, the country faces the added risks of the spread of diseases originating in other parts of the globe. The dynamics of small populations clustered in coastal towns and villages present the potential for a disproportionately high degree of impact for any pandemic.69 65 The University of the West Indies Seismic Research Centre. 2011. “Volcanic Activity in the Eastern Caribbean.”. http://uwiseismic.com/ General.aspx?id=19. 66 Ibid. 67 The Global Rapid Post-Disaster Damage Estimation (GRADE) approach was developed at the World Bank and was conducted by the Urban, Disaster Risk Management, Resilience, and Land Global Practice (GPURL) Disaster-Resilience Analytics and Solutions (D-RAS) Knowledge Silo Breaker (KSB). The methodology aims to address specific damage information needs in the first weeks after a major disaster. For details of the methodology, see here. 68 Detailed Damage Sectoral Analysis Report on the Explosive Eruption of La Soufriere in SVG: May 2021. 69 IFRC (International Federation of Red Cross and Red Crescent Societies). 2017. “International Disaster Response Law (IDRL) in St. Vincent & The Grenadines: A Desk Review on Legal Preparedness for International Disaster Response.” Saint Vincent and the Grenadines 67 Zika.70 The World Health Organization (WHO) estimated that there will be up to 4 million infected people in Latin America and the Caribbean by early 2017.71 The cost of diagnosing the disease and treating symptomatic patients for 2015–2017 (in 2015 US dollars) for baseline zika (current rate of infection), medium zika (intermediate infection rate), and high zika (high infection rate) in SVG was US$968, US$260,211,and US$949,770, respectively.72 The report also shows lost productivity due to symptomatic individuals missing work in 2015–2017 in Latin America and the Caribbean amounts (in millions) to US$4.35, US$494.2, and US$1,803.7 for baseline zika, medium zika, and high zika, from which SVG contributes US$1,712, US$42,176, and US$153,944, respectively. Table 9. Cost of diagnostic and treating symptomatic patients Total for 2015–2017 (in 2015 US$) Baseline Zika Medium Zika High Zika (current rate (intermediate (high of infection) infection rate) infection rate) Cost of diagnostic and treating symptomatic 968.00 260,211.00 949,770.00 patients Loss of productivity Latin America and Caribbean 4.35 494.20 1,803.70 (in millions) Loss of productivity SVG 1,712.00 42,176.00 153,944.00 COVID-19. SVG has not escaped the reach of the COVID-19 pandemic and like its neighbors in the region, as well as the rest of the world, it had to quickly respond to this highly contagious and deadly virus. As of October ,2021, SVG has 4,096 positive cases and 38 related deaths. Vaccinations began in mid-March 2021 with 13,556 full vaccinated residents (12.2 % of population) by October 2021.73 The pandemic has triggered a fall in government revenues and an increased demand for health care and social support, thus putting pressure on social services and health systems and exacerbating inequalities in education and increasing vulnerability of at-risk groups. The GoSVG has received US$4.5 million from the World Bank to strengthen the capacity of the country’s health system in response to the COVID-19 pandemic. The financing was used to improve the ability to isolate patients; increase testing capacity; and purchase critical supplies, including personal protective equipment, mobile isolation units, testing equipment, reagents, gloves, and masks. It also supported preparedness and response capacity for other public health emergencies by increasing access to medical equipment and expanding the capacity of hospitals. The funds were mobilized under the Organisation of Eastern Caribbean States (OECS) Regional Health Project using the Contingent Emergency Response Component (CERC). Additionally, US$11.3 million was received from the Caribbean Development Bank through the institution’s Special Development Fund, which provided emergency loans to six other eligible countries.74 70 Zika is the first mosquito-borne pathogen with known teratogenic effects (causing developmental malformations in fetuses) and sexual transmission. 71 UNDP (United Nations Development Programme), and IFRC. 2017. A Socio-Economic Impact Assessment of the Zika Virus in Latin America and the Caribbean | United Nations Development Programme. https://www.undp.org/publications/socio-economic-impact-assessment-zika-virus-latin- america-and-caribbean. 72 Ibid. 73 GoSVG Ministry of Health, Wellness, and Environment. 2021. “COVID-19 Report As At May 5th 2021.” May 6, 2021. http://health.gov.vc/health/ index.php/c/1530-covid-19-report-as-at-may-5th-2021. 74 Cooke, Ernesto. 2021. “SVG Received EC $30 Million From CDB in 2020 For COVID Response.” NEWS784, February 28, 2021. https://news784. com/2021/02/28/svg-received-ec-30-million-from-cdb-in-2020-for-covid-response/. 68 Advancing Disaster Risk Finance Annex 5. DRF Instruments and Policy Framework in Select Caribbean Countries