Global: International development financing for pre-arranged financing not in favour of the poorest
Source: Middle East Insurance Review | Dec 2023
Pre-arranged financing (PAF) for disasters has the potential to significantly increase the predictability, speed and effectiveness of responses to shocks, reducing the human and financial costs, according to The Centre for Disaster Protection’s recent report, “The State of Pre-arranged Financing for Disasters 2023.”
PAF is growing but remains a very small proportion of international crisis financing. International development financing for PAF has grown steadily over 2017–2021, from just $177.2m in 2017 to $1.9bn in 2021. Overall, this still represents a small proportion of financing for preventing, preparing for and responding to crises, accounting for 2.7% of total crisis financing flows in 2021 and 2.2% of crisis financing across 2017–2021.
The report added that international development financing for PAF is not reaching the poorest and most vulnerable, instead it is concentrated in middle-income countries, with just 3.7% ($200.8m) reaching low-income countries between 2017 and 2021. Meanwhile, high-income and upper-middle-income countries have received at least 42.6% of this financing ($2.3bn) and lower-middle-income countries 38.2% ($2.1bn).
Much of the international development financing for PAF was provided in the form of loans rather than grant financing, making it unattractive and unaffordable for countries who are struggling with high levels of debt and face many urgent demands on national budgets.
The affordability of pre-arranged financing presents a significant disincentive, especially for low-income countries grappling with high levels of debt. Additionally, rising reinsurance costs in the current market conditions increase the overall costs of insurance, making PAF increasingly challenging for governments to prioritise. Premium support and other grant financing mechanisms to support PAF adoption are growing but remain relatively small in volume and often short-term. M