Disaster Risk Financing in Bangladesh

Abstract

Disasters pose considerable challenges not only to livelihoods but also to economy. Financial protection from disasters, i.e., disaster risk financing, has increasingly been applied in developed countries. However, the application of ex ante disaster risk financing is very scarce in developing countries including Bangladesh. Bangladesh is disaster-prone, with floods and cyclones being the most frequent and severe danger. Based on historical data, natural hazard events in Bangladesh cost more than $10 billion economic losses from 2000 to 2013, but the total funding available for relief, rehabilitation, and reconstruction for the same period was $2 billion only. It is estimated that Bangladesh will incur a financial impact of about $3.2 billion on average per year due to cyclone and flood, or about 2.2% of gross domestic product. Bangladesh urgently needs to develop ex ante disaster risk financing solutions to minimize economic impacts of catastrophes. Currently, three disaster risk finance solutions are considered effective in Bangladesh: sovereign disaster risk contingent credit, parametric sovereign risk insurance, and disaster risk microfinance portfolio insurance.