The Caribbean region faces significant exposure to the impact of various natural hazards, regularly experiencing strong hurricanes, flooding, earthquakes, and droughts. Typically, when such extreme events occur, governments become responsible for most response and recovery costs, although conditions may vary from one country to another.

Given this scenario, it is crucial that Caribbean governments have access to a comprehensive range of disaster risk finance (DRF) options. These options must be designed proactively before disasters strike, integrated into core public finance systems, and represent a combination of risk transfer instruments.

The Global Facility for Disaster Reduction and Recovery (GFDRR) plays a leading role in advancing a comprehensive DRF agenda in the Caribbean. Beyond support for the development of specific DRF instruments, GFDRR's approach encompasses strategy development, analytics for tailored solutions, and innovative approaches to capacity building. This strategy is complemented by physical disaster risk reduction (DRR) mechanisms that cover both the public and private sectors.

GFDRR support for a DRF technical assistance program in the Caribbean began in four core countries: Belize, Grenada, Jamaica, and Saint Lucia. It then expanded to cover neighboring sovereign countries and several overseas countries and territories (OCTs).  

The European Union shares the commitment to helping Caribbean countries build resilience through disaster risk financing. Over the years, the partnership between the European Union, and GFDRR and the World Bank on disaster resilience, including specifically on DRF, has facilitated activities that strengthen Caribbean countries’ abilities to financially prepare for and respond to disaster events. 

Recently concluded programs include the Caribbean Regional Resilience Building Facility (CRRBF), funded by the EU, and the Technical Assistance Program for Disaster Risk Financing in Caribbean OCTs, funded by the EU and the United Kingdom’s Foreign, Commonwealth, and Development Office. In addition, regional DRF objectives have also been supported by Canada through the Canada-Caribbean Resilience Facility. 

Theory and practice

GFDRR and the World Bank's engagement in the Caribbean has underscored the significance of proactive financing and the establishment of comprehensive national-level DRF strategies. With this goal in mind, the World Bank has provided roadmaps for the development of tailored DRF strategies that emphasize an understanding of fiscal risks, public financial management processes, and the insurance market's role in building resilient financial systems.

Involvement across the region differs in each country but entails this general systematic approach, beginning with the quantification of national contingent liabilities to better estimate the fiscal risk of natural hazards. It further involves a thorough review of existing systems for the public financial management of disasters and an assessment of the legal frameworks in place to address shocks. Additionally, the World Bank evaluates the domestic non-life insurance market in each country to determine its capacity for supporting a financial sector capable of facilitating public and private risk transfer. 

Bridging physical and financial protection

Over the past few years, the ongoing DRF work of the GFDRR and World Bank across the region has focused on the critical need to bridge the gap between physical risk reduction and financial protection measures, aiming for a more comprehensive and sustainable approach to resilience. 

One significant initiative that emerged in this context was the Caribbean Physical and Financial Resilience Building Program which operated across several Caribbean countries. The project's aim was to increase financial resilience and incentivize physical resilience in the housing sector, to the extent that risk financing and physical risk reduction became more mutually reinforcing in the region.

For example, in Dominica, this was followed by development of a curriculum for a Training of Trainers (ToT) program that would best enable instructors to train participants on issues of code compliance and enforcement.  The final curriculum was informed by a cost-benefit analysis of hurricane retrofitting solutions performed by a World Bank team for the main housing categories found in Dominica. It found that retrofitting typically saves more than it costs, regardless of housing type. The important implication here is that capacity building for code compliance directly impacts a country’s DRF agenda by reducing the financial impacts of disasters on personal and governmental budgets. The ToT program was designed around the Organization of Eastern Caribbean States building code and enhanced practitioners’ capacities to interpret and then implement the code.

Under the same program, in Saint Lucia, the World Bank conducted an assessment of the Climate Adaptation Financing Facility (CAFF), itself established under the Saint Lucia Disaster Vulnerability Reduction Project, to identify how it could better bridge the gap between physical and financial resilience. The Saint Lucia CAFF component introduced a $5 million line of credit to provide concessional climate change adaptation loans to individual households and businesses, offering financial support for proactive disaster vulnerability reduction measures. The assessment explored how this approach could be scaled up to other small island developing states, laying the foundations for future efforts in the region.

Learning from experience

In the aftermath of the devastating Hurricanes Irma and Maria in 2017, the appreciation of DRF rapidly expanded across the Caribbean. Multiple countries found themselves grappling with the urgent need to secure funds for response and reconstruction efforts. In response to this pressing challenge, multilateral development banks and development partners played a key role by extending assistance to the affected nations.

Saint Lucia became the first country in the region to develop and start implementing a DRF strategy. The Saint Lucia Risk-Based Asset Management Systems, a key component of this strategy, focused on comprehensive asset risk management across various levels. By establishing objective standards and making use of the latest tools and methodologies, this initiative supported government agencies in identifying, assessing, and managing public assets through a risk-based lens. The result being that the government could efficiently allocate its investments to areas with the highest vulnerabilities and where financial resources could be used most effectively. This approach should lead to decreased costs for critical infrastructure in the wake of an extreme event.

Support for unexpected shocks

GFDRR and World Bank support to the region has consistently evolved based on countries’ needs and demands. This was exhibited most clearly in the response to the unexpected shock of COVID-19. A case in point is Bonaire, where the closure of borders resulted in a significant decline in tourism, causing a substantial contraction in local GDP. Faced with this unprecedented challenge, the Government of Bonaire sought assistance from the World Bank, specifically through the Technical Assistance Program for DRF in Caribbean OCTs, to guide their COVID-19 response and recovery efforts.

The COVID-19 Post-Disaster Needs Assessment conducted by the World Bank yielded crucial recommendations. These included the continued provision of financial assistance to businesses, the redesign and expansion of social benefits to protect livelihoods, and the establishment of a comprehensive asset management database. These recommendations informed the support from the Netherlands for this OCT and underscored the importance of a DRF strategy that not only responds to immediate crises but also lays the foundations for sustained recovery and enhanced resilience.

Innovative capacity building

Throughout this interaction with the region, capacity building has been a priority for the GFDRR and World Bank, and activities have focused on developing creative, engaging ways to share the core tenets of DRF. This involved government representatives and other stakeholders, including development partners and academia.

A particularly impactful example is ‘Hurricane Hurry,’ a simulation game designed to immerse practitioners in essential disaster risk management principles and the dynamics and decision-making behind the financial response to a crisis. Players, organized into teams, must make critical decisions to address the needs of the population while maintaining strategic investments in DRF and climate resilience. In this way, it emphasizes the constant risk of losing development gains to extreme weather events. The simulation has been played in workshops across ministries, educational institutions, and global disaster risk conferences, serving as both an enjoyable and educational tool and proving effective in conveying the key concepts of DRF to diverse audiences.

Such initiatives highlight GFDRR and the World Bank’s commitment to fostering the understanding and implementation of DRF principles. It also emphasizes the variety of ways that DRF can and has been implemented across the Caribbean, enacted alongside other innovative initiatives that have significantly reinforced the region’s physical and financial resilience to disaster and climate risk.