Country Note: Vanuatu - Disaster Risk Financing and Insurance (February 2015)

Executive Summary

Vanuatu is susceptible to a variety of both hydrometeorological and geophysical disasters due to its location in the South Pacific tropical cyclone basin and the Pacific Ring of Fire. Hydrometeorological hazards include tropical cyclones, floods, and droughts, whereas geophysical hazards include volcanoes, earthquakes, and resulting tsunamis and landslides.

Sixty-three percent of recorded disasters in Vanuatu have occurred in the provinces of Malampa and Torba, where over a quarter of the population resides (SPC-SOPAC 2011). The rural population is largely dependent on subsistence agriculture, which is adversely affected by natural disasters. According to the latest national census, the population of Vanuatu is estimated to be 234,023, with 80 percent of residents living in rural areas that are spread across 80 islands in six provinces—Malampa, Penama, Sanma, Shefa, Tafea, and Torba (Vanuatu NSO 2009).

In 2010 the government of Vanuatu established a budgetary provision of US$265,000 for natural and financial disasters. This continues to be appropriated annually, but does not accrue and becomes expendable at the end of the financial year. The provision is held by the Department of Finance and Treasury (DoFT) and is released upon the approval of the National Disaster Council and a subsequent request from the National Disaster Management Office (NDMO) for immediate disbursement.

In 2010 Tropical Cyclone Vania, a category 1 cyclone, quickly depleted Vanuatu’s disaster provision, and supplementary finance of VT 95 million (US$1 million) was required. There has been some discussion within DoFT about converting the disaster provision into a fund that would accrue over time, but doing so would require analysis to establish an optimal level of reserves and potentially an amendment to the Public Finance and Economic Management Act. While this change might take some time to implement, it could provide a muchneeded boost to the current limited response funds.

Vanuatu has a maximum of VT 1.6 billion (US$16.6 million) available in ex-ante instruments for financing disaster-related losses. This is equivalent to more than five times the supplementary budget. There is a 21.5 percent chance that disaster losses will exceed this amount in any given year. In comparison, there is a 91 percent chance that disaster losses will exceed the disaster provision of VT 25 million (US$260,000) in any given year.

Vanuatu uses a variety of disaster risk financing and insurance (DRFI) tools, but its available funds are limited. The ex-ante instruments provide access to limited amounts of cash, and the ex-post tools can take several weeks to mobilize. Some procedures, such as the waiving of normal tendering procedures, are not embedded within the financial legislature, an omission that could significantly delay future response efforts. A number of options to improve DRFI in the future are presented for consideration in this note:

(a) develop an integrated disaster risk financing and insurance strategy;

(b) develop a post-disaster budget execution manual to minimize the loss of institutional knowledge should personnel leave DoFT; and

(c) explore the use of contingent credit to access additional liquidity post-disaster.