Tackling Trouble in Paradise: Indian Ocean Island States to Build Financial Resilience to Natural Disasters

A pristine beach and warm paradise come to mind when there is mention of tropical islands such as the Seychelles or Mauritius, located in the southwest Indian Ocean. However, trouble can occur rapidly due to the region’s extreme vulnerability to cyclones, floods, earthquakes and tsunamis.  In 2013, the impact of 15 tropical disturbances caused more than $250 million worth of damage to the Union of Comoros, Madagascar, Mauritius, Seychelles and Zanzibar collectively. In fact, the region’s largest island, Madagascar, remains one of the most economically and geographically impacted countries in the world from natural disasters.

To address the resulting impacts to livelihoods and disaster-related economic losses, innovative solutions to increase financial resilience and address exposure to natural disasters are being supported by the World Bank’s Disaster Risk Management Group through a regional risk assessment and financing initiative. This initiative aims to be a game changer for participating southwest Indian Ocean island states.  It includes input from across the Bank’s new global practices in order to ensure the technical assistance being offered is of the highest standard.

“Working together to promote a safe environment for the citizens of these five island states has never been more critical,” said Mr. Jean Razafindravonona, Minister of Finance and Budget for Madagascar. “In light of climate change and the number of disasters that may increase in future years, planning for the future is essential to reduce the potential damage resulting from these events.”

The initiative complements the advancing work of the Indian Ocean Commission (IOC) to reduce the vulnerability to natural disasters in conjunction with strategies of the Sustainable Development of Small Island Developing States (SIDS). It is being executed with financial support from the European Union in the framework of the African, Caribbean and Pacific Group of States Natural Disaster Risk Reduction Program, which is managed by the Global Facility for Disaster Reduction and Recovery (GFDRR). The GFDRR disaster risk financing and insurance experts also advise on increasing financial resilience to natural disasters.

“A project of this nature can be very strategic for the southwest Indian Ocean island states by exploring ways to protect against catastrophic events that have a high impact on their development, by identifying comprehensive national risk financing instruments and exploring regional instruments similar to those that have been established in the Caribbean and the Pacific,” said Rafael Munoz Moreno, World Bank country representative in Mauritius.

To identify the most suitable solutions, disaster-related data is currently being collected and shared. Once the data is analyzed, national catastrophe risk financing options will be assessed, a regional open data platform (data that is available to any individual, both private and public) will be established and preliminary national disaster risk financing strategies developed. The GFDRR labs team has been key in ensuring the data platform is operational.

By comparing the frequency of a disaster event with the severity of impact, different risk financing solutions become available to finance disaster losses. High frequency disasters that have a limited impact, such as localized flooding, might be addressed by a contingency budget or local reserve, while a catastrophic event, such as a major cyclone, could prompt the need for sovereign insurance.

“Implementing the SWIO RAFI will not only improve the understanding of the historic impact of natural disasters on these island states, but will also help understand the probable impact of  future risks,” said Doekle Wielinga, World Bank senior disaster risk management specialist.

SWIO-RAFI will ultimately improve the ability to measure and apply disaster risk data and establish stronger catastrophe risk identification among the island states along with preliminary national disaster risk financing strategies.  Such strategies increase a country’s response capacity following a disaster, increase the stability of their fiscal budget and prevent a reversion to expensive and sub-optimal financing sources following a disaster.