Natural Hazard Risk
Mexico is highly exposed to many natural hazards. Over 40 percent of the country’s territory and nearly a third of the population is exposed to hurricanes, storms, floods, earthquakes, and volcanic eruptions. In economic terms, this translates to 30 percent of the country’s GDP considered to be at-risk from three or more hazards and 71 percent at risk from two or more hazards.
Mexico’s coastlines are vulnerable to tropical cyclones and hurricanes from both the Atlantic and Pacific Oceans. In October 2015, Category 5 Hurricane Patricia, the strongest hurricane ever recorded at sea, caused flooding and severe damage to public infrastructure and housing.
Located in one of the world’s most seismologically active regions, the nation is also susceptible to earthquakes. In September 1985, a devastating earthquake hit Mexico City, causing 9,500 deaths and affecting over 2.1 million people. More recently, two high-magnitude earthquakes struck Mexico in September 2017, leading to significant damage of public infrastructure and buildings, more than 340 deaths, and economic losses amounting to approximately $2.5 billion.
Mexico has taken steps to manage its natural hazard risk and improve recovery after disaster events.
The National System for Civil Protection (SINAPROC) was established in 1986 following the devastating earthquake that hit Mexico City the previous year.
Under the framework of SINAPROC, the government established Mexico’s Fund for Natural Disasters (FONDEN) in 1996 to support the rapid reconstruction of federal and state infrastructure affected by natural hazard events. Originally a budgetary mechanism for reconstruction, FONDEN evolved in the mid-2000s to become the backbone of the Mexican federal government’s financial protection strategy against natural disasters. This led to Mexico's issuance of the world’s first sovereign catastrophe bond in 2006 under the MultiCat program, with additional catastrophe bonds issued in 2009 and 2012. Since 2011, the government has also purchased indemnity-based national catastrophe insurance to cover sovereign risks. In July 2017, the World Bank issued catastrophe bonds[SEL1] of up to $360 million that will help Mexico increase their financial protection against losses from earthquakes and cyclones.
SINAPROC’s initial focus was to strengthen the country’s planning, response, and recovery capacity. However, the focus has since shifted toward building a comprehensive disaster risk management (DRM) system that balances efforts in risk identification, prevention, reduction, financing, and post-disaster reconstruction.
To further advance its DRM agenda, Mexico is prioritizing:
- Further expansion of the country’s transition towards a comprehensive DRM strategy;
- Broader financial protection strategies at the subnational level; and,
- Strengthening the safer school program at the federal and subnational level.
Since 2008, GFDRR has financially supported World Bank engagements that strengthen Mexico’s DRM system. Activities have focused on the country’s financial protection strategy and ability to better manage the economic and financial impacts of disasters. GFDRR financed preliminary work by the World Bank Treasury in preparation for the issuance of Mexico’s first catastrophe bond in 2009, which covered hurricane and earthquake risk.
The Government of Mexico is a global leader in sovereign disaster risk finance. Since 2015, GFDRR has supported activities that help share with other countries, the best practices and lessons learned from Mexico’s experience in developing targeted and innovative risk finance mechanisms and solutions, as well as the effectiveness of flood protection measures taken after the 2007 Tabasco floods. GFDRR provided technical assistance to strengthen DRM systems, to create financial protection strategies at the sub-national level in Mexico, and to promote disaster risk reduction and resilience programs.
Looking ahead, GFDRR anticipates demand for support in Mexico for:
Implementation support for financial protection strategies at the subnational level to improve fiscal resilience to disasters;
- Support for school reconstruction with international best practices and improving school emergency plans;
- Quantitative evidence to promote the mainstreaming and implementation of disaster risk reduction and resilience programs; and,
- Stronger DRM systems at the subnational level.