The Enabling Environment for Disaster Risk Financing in the Kyrgyz Republic: Country Diagnostics Assessment

Executive Summary

The Kyrgyz Republic is among the most disaster-prone countries in the world due to natural hazards that include earthquakes, floods, landslides, mudslides, avalanches, snowstorms, mountain lake spills, droughts, and epidemics. It experiences disasters every year that result in significant financial losses. The coronavirus disease (COVID-19) pandemic has had a longlasting and severe impact on the economy through medical costs, lockdowns that reduced productivity and created unemployment, and trade and supply chain interruptions. Each of these has put the country’s financing capacity to the test.

This country diagnostics assessment focuses on disaster risk financing (DRF) and how it is used in the Kyrgyz Republic. It examines whether it is making efficient and effective use of existing financing instruments and introducing new ones to enhance financial resilience to disasters, epidemics, and pandemics. The assessment covers risk retention and risk transfer instruments to the insurance, reinsurance, and capital markets.

An Asian Development Bank–World Bank methodology is applied to assess possible impediments to the effective functioning of self-insurance or risk retention financing instruments of the government. This methodology has been adapted to include pandemic and epidemic risk. The disaster risk retention instrument insights gained from the questionnaire responses are complemented by analyzing existing publicly available information, carrying out discussions with national and local government agencies, as well as exploring international best practice.

The modified version of the W&W Development Framework is used to accommodate international good practice and public and private sector stakeholders’ inputs. This allows insight into existing or perceived demand and supply barriers restricting the development of an enabling environment for disaster risk transfer instruments. Six areas relevant for developing insurance and capital market solutions for DRF are reviewed within this framework. These include government policy; social protection policy; unlicensed competition; economic conditions; credibility of the insurance, reinsurance, and capital markets providers; and product appeal.

A risk layered structure is proposed to stimulate, develop, and implement financially sustainable and scalable DRF strategies and solutions. The assessment makes recommendations to enhance the enabling environment for public sector DRF instruments, insurance, reinsurance, and capital markets solutions. Key recommendations are as follows: