VA NUAT U Country Note VANUATU 2015 February 2015 Disaster Risk Financing and Insurance PCRAFI © 2015 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. **Rights and Permissions** The material in this work is subject to copyright. 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The licenses used are indicated through icons showcased next to each image. b 2.0 Attribution License (http://creativecommons.org/licenses/by/2.0/legalcode) bd Attribution No-Derivatives License (http://creativecommons.org/licenses/by-nd/2.0/legalcode) ba Attribution Share Alike License (http://creativecommons.org/licenses/by-sa/2.0/legalcode) If not indicated otherwise, photos used in this publication have been sourced from the following locations with full rights: World Bank Flickr Website United Nations Flickr Website All non-Creative Commons images in this publication require permission for reuse. ///Cover Photo Credit///: Phillip Capper / Flickr b VANUATU PCRAFI I Table of Contents 01 Acknowledgments 02 Acronyms and Abbreviations 03 Executive Summary 04 Introduction 06 Economic Impact of Natural Disasters 09 Public Financial Management of Natural Disasters 10 Post-Disaster Budget Mobilization 16 Post-Disaster Budget Execution 17 Insurance of Public Assets 19 Options for Consideration 20 End Notes 21 References 22 About PCRAFI 23 Annex 1 30 Annex 2 II PCRAFI VANUATU Table of Contents 31 Annex 3 31 Executive Summary 32 Insurance Market Overview 39 Insurance of Public Assets 40 Options for Consideration 40 References 41 Glossary 42 Annex 4 VANUATU PCRAFI 01 Acknowledgments This note has been prepared by a team led (SPC) through its Applied Geoscience and by Olivier Mahul (Disaster Risk Financing and Technology Division (SOPAC), the World Bank, Insurance Program Manager, World Bank) and and the Asian Development Bank, with financial comprising Samantha Cook (Financial Sector support from the government of Japan and the Specialist) and Barry Bailey (Consultant). Global Facility for Disaster Reduction and Recovery (GFDRR). The team gratefully acknowledges the data, information, and other invaluable contributions The Disaster Risk Financing and Insurance Program made by the Pacific Island Countries. Without their is grateful for the financial support received from skills and expertise, the compilation of this note the government of Japan and the Global Facility would not have been possible. for Disaster Reduction and Recovery. This note benefitted greatly from the technical expertise of the following persons: Franz Drees- Gross (Country Director Timore-Leste, Papua New Guinea. and Pacific Islands, World Bank), Olivier Mahul (Disaster Risk Financing and Insurance Program Manager, World Bank), Denis Jordy (Senior Environmental Specialist, World Bank), Michael Bonte-Grapentin (Senior Disaster Risk Management Specialist, World Bank), Paula Holland (Secretariat of the Pacific Community), and David Abbott (Secretariat of the Pacific Community). Inputs and reviews from Robert Utz, David Knight, Kim Edwards, Oscar Ishizawa, Rashmin Gunasekera, Keren Charles, Francesca de Nicola and Susann Tischendorf greatly enhanced the final note. Design and layout developed by Bivee.co. Section The Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) is a joint initiative between the Secretariat of the Pacific Community 01 02 PCRAFI VANUATU Acronyms and Abbreviations DoFT Department of Finance and Treasury DRFI Disaster risk financing and insurance DRM Disaster risk management GDP Gross domestic product HFA Hyogo Framework for Action MFEM Ministry of Finance and Economic Management NAB National Advisory Board NAP National Action Plan NDMO National Disaster Management Office PAA Priorities and Action Agenda PCRAFI Pacific Catastrophe Risk Assessment and Financing Initiative PFEM Public Finance and Economic Management PIC Pacific Island Country RBV Reserve Bank of Vanuatu RFA Regional Framework for Action SOPAC Applied Geoscience and Technology Division of SPC SPC Secretariat of the Pacific Community TC Tropical Cyclone UNDP United Nations Development Programme UNISDR United Nations International Strategy for Disaster Risk Reduction URA Utilities Regulatory Authority VUI Vanuatu Utilities and Infrastructure Currency: Vanuatu vatu (VT) Average exchange rate: US$1 = VT 96 Section 01 VANUATU PCRAFI 03 Executive Summary ///Vanuatu is susceptible to a variety of both and potentially an amendment to the Public Finance and hydrometeorological and geophysical disasters due Economic Management Act. While this change might to its location in the South Pacific tropical cyclone take some time to implement, it could provide a much- basin and the Pacific Ring of Fire./// Hydrometeorological needed boost to the current limited response funds. hazards include tropical cyclones, floods, and droughts, whereas geophysical hazards include volcanoes, ///Vanuatu has a maximum of VT 1.6 billion (US$16.6 earthquakes, and resulting tsunamis and landslides. million) available in ex-ante instruments for financing disaster-related losses./// This is equivalent to ///Sixty-three percent of recorded disasters in Vanuatu more than five times the supplementary budget. There have occurred in the provinces of Malampa and is a 21.5 percent chance that disaster losses will exceed Torba, where over a quarter of the population this amount in any given year. In comparison, there is a resides (SPC-SOPAC 2011)./// The rural population is 91 percent chance that disaster losses will exceed the largely dependent on subsistence agriculture, which is disaster provision of VT 25 million (US$260,000) in any adversely affected by natural disasters. According to given year. the latest national census, the population of Vanuatu is estimated to be 234,023, with 80 percent of residents ///Vanuatu uses a variety of disaster risk financing living in rural areas that are spread across 80 islands in six and insurance (DRFI) tools, but its available funds provinces—Malampa, Penama, Sanma, Shefa, Tafea, and are limited./// The ex-ante instruments provide access Torba (Vanuatu NSO 2009). to limited amounts of cash, and the ex-post tools can take several weeks to mobilize. Some procedures, such ///In 2010 the government of Vanuatu established a budgetary provision of US$265,000 for natural and as the waiving of normal tendering procedures, are not financial disasters./// This continues to be appropriated embedded within the financial legislature, an omission annually, but does not accrue and becomes expendable that could significantly delay future response efforts. at the end of the financial year. The provision is held by the Department of Finance and Treasury (DoFT) and ///A number of options to improve DRFI in the future is released upon the approval of the National Disaster are presented for consideration in this note:/// Council and a subsequent request from the National (a) develop an integrated disaster risk financing and Disaster Management Office (NDMO) for immediate insurance strategy; disbursement. (b) develop a post-disaster budget execution manual to ///In 2010 Tropical Cyclone Vania, a category 1 cyclone, quickly depleted Vanuatu’s disaster provision, minimize the loss of institutional knowledge should and supplementary finance of VT 95 million (US$1 personnel leave DoFT; and million) was required./// There has been some discussion Section (c) explore the use of contingent credit to access within DoFT about converting the disaster provision into additional liquidity post-disaster. a fund that would accrue over time, but doing so would require analysis to establish an optimal level of reserves 01 04 PCRAFI VANUATU Introduction ///Vanuatu is susceptible to a variety of both several institutional frameworks on disaster risk hydrometeorological and geophysical management and climate change adaptation at disasters due to its location in the South the national, subregional, and international level, Pacific tropical cyclone basin and the Pacific including the following: Ring of Fire./// Hydrometeorological hazards • Hyogo Framework for Action (HFA) 2005– include tropical cyclones, floods, and droughts, 2015 whereas geophysical hazards include volcanoes, earthquakes, and resulting tsunamis and landslides. • Pacific Disaster Risk Reduction and Disaster Management Framework for Action (Regional ///Disaster risk