ISLAMABAD: Pakistan urgently needs to enhance the current disaster risk finance approach as risk retention mechanisms are insufficient to cover the losses associated with even the most frequent of flood and earthquake events, the Asian Development Bank (ADB) said in a report on Tuesday.
The report titled “Narrowing the Disaster Risk Protection Gap in Central Asia” said the private insurance solutions for the natural disasters’ risks have achieved only minimal market penetration.
“These challenges are compounded by a challenging external financing context at the sovereign level, making it difficult to access debt quickly and cheaply after a disaster, and low levels of financial inclusion that exacerbate the vulnerability to disaster events of many in Pakistan,” it added.
Previous disaster events illustrate the challenges that Pakistan faces, for example, floods in 2010 and 2015 caused an estimated Rs32.6 billion ($326 million) losses to farmers in Punjab.
To support the affected farmers, the government of Pakistan provided Rs6.7 billion ($67 million) — amounting to only 18.5% of the required amount, the report added, stressing that there is a need to increase the coverage and depth of the existing risk retention instruments for high frequency events, through enhanced functioning of the national and provincial disaster management funds.
This could be complemented with the use of risk transfer instruments that might support either the emergency response cost and/or the support the reconstruction of assets damaged or destroyed by lower frequency, higher intensity events.
These actions are consistent with the identified work plan of the Disaster Risk Financing Unit of the National Disaster Risk Management Fund, the report concluded.