The state of pre-arranged financing for disasters 2023
The state of pre-arranged financing 2023
Key Findings
By Michèle Plichta and Lydia Poole
Planning and preparing for shocks pays. 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. We know little, however, about how much pre-arranged financing is required to protect crisis-vulnerable people against risk and how far we are from achieving adequate coverage, targeted to the right places, for those people most at risk.
The Centre for Disaster Protection's report, The State of Pre-arranged Financing for Disasters 2023, collates the best available data to start an annual assessment and monitoring of the state of PAF supported with international development financing in low- and middle-income countries.
Pre-arranged financing is growing but remains a very small proportion of international crisis financing. Based on the latest available data, international development financing for PAF has grown steadily over the five-year period 2017–2021, from just USD177.2 million in 2017 to USD1.9 billion 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 the five-year period 2017–2021.
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% (USD200.8 million) 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 (USD2.3 billion) and lower-middle-income countries 38.2% (USD2.1 billion).
Across 2017–2021, high-income countries received the highest levels of international development financing for PAF per capita (USD12.4) and low-income countries the lowest (USD0.3). This contrasts with a much more pro-poor distribution of ODA overall, with levels of ODA per capita significantly higher for low-income countries (USD408.3) compared to lower-middle-income countries (USD116.2) and upper-middle-income countries (USD53.5).
The types of international development financing for PAF and instruments available do not meet the needs of the poorest and most vulnerable countries. The majority 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.
In addition, more than half of international development financing support for PAF (56.4%, USD3.1 billion) between 2017 and 2021 did not qualify as ODA but fell within the scope of other official flows (OOF).
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.
Anticipatory action, a subcategory of pre-arranged financing, is gaining momentum, but still accounted for just 0.2% of humanitarian funding in 2021, as reported to the OECD DAC.
Unlike most pre-arranged financing, anticipatory action strongly focuses on the poorest and most vulnerable regions. Around 78.6% of funding for anticipatory action is concentrated in fragile and conflict-affected settings (based on data from Anticipation Hub).
This approach has the potential to extend the benefits of pre-arranged financing to populations in some of the most complex regions, where governments may lack the capacity or ability to respond effectively.
Pre-arranged financing has entered a unique moment of possibility and this opportunity must be used to advocate for far greater use of pre-arranged financing that delivers for climate- and crisis-vulnerable people. At the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP) 27 meeting in November 2022, with the formal launch of the G7- and V20- backed Global Shield against Climate Risks, and the landmark agreement among the Parties to establish a fund to respond to Loss and Damage, pre-arranged financing has been elevated to a key focus of international climate policy. This increased attention is much needed to help drive an expansion of financial protection. However, supporters and providers of pre-arranged financing must navigate these new political landscapes with care. They must also confront the many areas in which pre-arranged financing is falling short of meeting the needs of vulnerable countries and people, in a warming climate where exposure to risk is growing, and where the affordability of financial protection is under pressure.
Monitoring international development financing investments in PAF provides a key tool to drive change towards better outcomes for climate- and crisis-vulnerable people. The Centre is committed to working closely with partners to advocate for and improve data quality and coverage over time. To learn more about this research project and discuss how you and your organisation can get involved get in touch at info@disasterprotection.org.
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