## Building Resilience in the Caribbean to Climate Change and Natural Disasters ## Source details **Canonical URL:** [Building Resilience in the Caribbean to Climate Change and Natural Disasters](https://www.imf.org/en/publications/fandd/issues/2018/03/otker) ## Other formats - [Markdown version](/en/publications/fandd/issues/2018/03/otker/index.md) - [Structured JSON version](/en/publications/fandd/issues/2018/03/otker/index.json) - [Bundle manifest](/en/publications/fandd/issues/2018/03/otker/bundle-manifest.json) ## Bibliographic details - Authors: INCI OTKER, KRISHNA SRINIVASAN - Published: March 1, 2018 --- ### High vulnerability and historical losses - Since 1950, 511 disasters worldwide have hit small states (developing economies with populations of less than 1.5 million); of these, 324 were in the Caribbean. - Human impact: 250,000 people killed and more than 24 million affected through injury and loss of homes and livelihoods. - Disaster-damage ratios: - Average estimated disaster damage as a ratio to GDP was 4.5 times greater for small states than for larger ones. - Six times higher for countries in the Caribbean (relative to larger states). - Likelihood of disasters: - The region is seven times more likely to be hit by natural disasters than larger states. - Twice as likely as other small states to be hit by natural disasters. - Aggregate economic cost for the Caribbean: exceeding $22 billion (in constant 2009 dollars) between 1950 and 2016, compared with $58 billion for similar disasters globally. - Country-level impacts: - Hurricane Maria estimated to have cost Dominica 225 percent of its GDP. - Hurricane damage for Grenada in 2004 was 200 percent of GDP. ### Economic channels and macroeconomic consequences - Disasters destroy physical and human capital, infrastructure, and property; rebuilding provides a temporary boost but indirect effects can undermine investment, growth, and macroeconomic performance. - Fiscal and external impacts (analysis of 12 Caribbean countries with the largest damage costs relative to GDP since 1950): - Most countries experienced reduced growth in the year of a disaster, with recovery in the subsequent year. - Fiscal deficits increased in 7 of 12 countries. - Current accounts deteriorated in affected episodes. - Debt-to-GDP ratios surged; in some countries debt continued to rise, interrupting efforts to sustain growth and improve public finances. - Climate change will likely increase frequency and severity of disasters, exacerbate threats to agriculture and coastal areas, and increase risks of water and food insecurity and migration. ### Prevention, preparedness, and risk management tools - Prevention and preparedness are generally more cost-effective than post-disaster response; recommended measures include: - Assess likelihood and potential impact of disaster and climate-change risks and integrate them into policy frameworks. - Initiate information campaigns and early warning systems. - Invest in disaster-resilient infrastructure and enforce land-use, zoning, and building standards. - Risk-financing instruments to reduce fiscal exposure and improve response capacity: - Self-insurance: build fiscal cushions and use fiscal rules to sustain buffers. - Insurance and hedging: pool risk for moderate disasters to protect public and private sectors and expand access to financing for resilience infrastructure. - Innovative risk-sharing: - Parametric insurance: payouts based on disaster nature to bypass on-site loss assessment and provide quick relief. - Risk pooling: share insurance costs regionally (example cited: Caribbean Catastrophe Risk Insurance Facility). - Catastrophe bonds (cat bonds): transfer risk to markets in exchange for regular coupon payments; allow issuer to forgo principal repayment after a major disaster. - Contingent lines of credit: prearranged financing (examples: World Bank Catastrophe Draw-Down Option) for immediate access after a state of emergency. ### Constraints and gaps in implementation - Chronic underinvestment in risk reduction and prevention due to: - Limited funds and complex eligibility and disbursement criteria. - Information gaps and low administrative capacity to design coherent access plans. - Low insurance coverage driven by high cost, shallow financial markets, limited competition, or contractual exclusions. - Example: In Belize and Grenada, insurance covered only 4.5 percent of the total damage in a recent large disaster. - Limited payouts from existing pooled instruments because countries cannot afford higher coverage. - Small and shallow cat bond market, making cat bonds expensive for single countries. - Low uptake of contingent credit lines in the Caribbean (cited reasons: cost and stigma associated with borrowing). - Middle- and high-income status of many Caribbean countries limits eligibility for concessional financing; financing facility limits are typically low relative to massive damages. ### Policy recommendations and international support - Priorities for national policymakers: - Explicitly assess and integrate disaster and climate-change risks into policy frameworks. - Invest in preparedness: early warning systems, resilient infrastructure, land-use and building standards. - Build fiscal buffers and adopt fiscal rules to support self-insurance. - Deepen and develop financial markets to enable risk pooling, insurance expansion, and access to infrastructure financing. - Regional and international measures: - Strengthen the Caribbean Catastrophe Risk Insurance Facility to broaden its capital base and membership and lower insurance premiums. - Link insurance premiums to preparedness actions (reward countries that invest in risk reduction). - Expand technical assistance to build capacity for risk assessment, market development for insurance and hedging, access to financing for preparation, and economic diversification. - Guiding principle: Disaster financing should reduce vulnerability and build resilience while rewarding efforts to prepare and reduce risk, avoiding exacerbation of the cycle of high debt and low growth. *Building Resilience in the Caribbean to Climate Change and Natural Disasters — F&D Magazine, March 2018. Authors: İnci Ötker and Krishna Srinivasan.* --- ## Content in this bundle - **الاستعداد للعاصفة** - [الاستعداد للعاصفة (Markdown version)](/-/media/files/publications/fandd/article/2018/march/ar/otker.pdf.md){rel="alternate" type="text/markdown"} - [الاستعداد للعاصفة (PDF)](/-/media/files/publications/fandd/article/2018/march/ar/otker.pdf){rel="external" type="application/pdf"} - **Preparándose para la tormenta ● Ejercicio de equilibrio ● Finanzas y Desarrollo ● Marzo de 2018** - [Preparándose para la tormenta ● Ejercicio de equilibrio ● Finanzas y Desarrollo ● Marzo de 2018 (Markdown version)](/-/media/files/publications/fandd/article/2018/march/es/otker.pdf.md){rel="alternate" type="text/markdown"} - [Preparándose para la tormenta ● Ejercicio de equilibrio ● Finanzas y Desarrollo ● Marzo de 2018 (PDF)](/-/media/files/publications/fandd/article/2018/march/es/otker.pdf){rel="external" type="application/pdf"} - **Braver la tempête** - [Braver la tempête (Markdown version)](/-/media/files/publications/fandd/article/2018/march/fr/otker.pdf.md){rel="alternate" type="text/markdown"} - [Braver la tempête (PDF)](/-/media/files/publications/fandd/article/2018/march/fr/otker.pdf){rel="external" type="application/pdf"} - **Building Resilience in the Caribbean to Climate Change and Natural Disasters - IMF F&D Magazine** - [Building Resilience in the Caribbean to Climate Change and Natural Disasters - IMF F&D Magazine (Markdown version)](/-/media/files/publications/fandd/article/2018/march/otker.pdf.md){rel="alternate" type="text/markdown"} - [Building Resilience in the Caribbean to Climate Change and Natural Disasters - IMF F&D Magazine (PDF)](/-/media/files/publications/fandd/article/2018/march/otker.pdf){rel="external" type="application/pdf"} - **В ожидании бури – Финансы и развитие – март 2018 года** - [В ожидании бури – Финансы и развитие – март 2018 года (Markdown version)](/-/media/files/publications/fandd/article/2018/march/ru/otker.pdf.md){rel="alternate" type="text/markdown"} - [В ожидании бури – Финансы и развитие – март 2018 года (PDF)](/-/media/files/publications/fandd/article/2018/march/ru/otker.pdf){rel="external" type="application/pdf"} - **迎接暴风雨 - <金融与发展>, 2018年3月号·第55卷·第1期, 国际货币基金组织季刊** - [迎接暴风雨 - <金融与发展>, 2018年3月号·第55卷·第1期, 国际货币基金组织季刊 (Markdown version)](/-/media/files/publications/fandd/article/2018/march/zh/otker.pdf.md){rel="alternate" type="text/markdown"} - [迎接暴风雨 - <金融与发展>, 2018年3月号·第55卷·第1期, 国际货币基金组织季刊 (PDF)](/-/media/files/publications/fandd/article/2018/march/zh/otker.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2018/03/otker_