Pakistan urgently needs to enhance disaster risk finance: ADB

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, 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 natural disaster risks have achieved only minimal market penetration.Previous disaster events illustrate the challenges that Pakistan faces, for example, floods in 2010 and 2015 caused an estimated PRs32.6 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. The ADB said the National Disaster Management Act of 2010 established a National Disaster Management Fund and separate disaster management funds to be administered by each provincial government. However, ADB reports that “significant work remains to be accomplished in the operationalization of the funds.”

The bank reported that the federal government only has limited contingency funding of around $15 million–$20 million to respond to national emergencies while a 2019 World Bank paper reports that the federal fund has $10.6 million. With support from ADB, a disaster risk financing unit has been established under the National Disaster Risk Management Fund (note it is different from the National Disaster Management Fund discussed above).

This unit is responsible for the improved management of natural hazard risks and has set itself three targets. The AAL (direct losses only) from flood events is estimated at $1.5 billion and from earthquakes at $614 million. In terms of the extent to which insurance might cover these losses, the analysis assumes that 1% of the losses from flood events may be covered by insurance, in line with the ADB analysis.