Natural disasters could cost VN US$6.7 billion

At a conference on Vietnam’s disaster risk finance held on November 15, the World Bank evaluated that Vietnam is exposed to many natural hazards, including typhoons, tornadoes and floods. As estimated, about 60% of its total land area and 71% of its population are at risk of cyclones and floods.

The average economic loss from floods and typhoons is estimated at about 0.8 % of the country’s gross domestic product (GDP).

Sebastian Eckardt, lead economist for the World Bank in Vietnam said that the WB, together with the Government of Switzerland, supported the country in improving disaster risk finance and insurance solutions through the building of its catastrophe risk model.

The model will help the Government and other organisations evaluate potential losses and better prepare for financial response to the impact of disasters before they occur, he said.

Measures should be chalked out to protect the State budget against natural disasters and develop insurance markets over domestic catastrophe risk.

Olivier Mahul, programme manager of disaster risk financing solutions, said that Vietnam will likely face an average damage to private and public assets of up to VND30.2 trillion (US$1.4 billion) per year.

Of which, residential and public assets such as buildings and infrastructure accounted for 65 percent and 11% of total damage, respectively.

Floods, typhoons and earthquakes would remove US$6.7 billion from the country over the next 50 years, he said. The average damage of some certain vulnerable localities could be more than VND1.7 trillion (US$76 million) annually. Localities in the north-central region, with a high poverty rate, would be more vulnerable to natural disasters.

Olivier said that the Vietnamese Government has funding sources such as contingency budgets at central and grassroots-levels, State reserves, financial reserve funds, disaster prevention and control funds, and donor grants.

However, the State budget seems to be the main fund for the job. Other sources such as the disaster prevention and control funds have not been fully put into operation across provinces due to some restrictions.

Risk transfer instruments such as insurance are quite new and remain unpopular, he added.

Le Thi Thuy Van, head of the Ministry of Finance’s Market Research Committee, said that the State budget could only support a part of the total annual loss.

It could only provide for post-disaster relief and recovery policies. The budget for post-disaster for development capital expenditure remains insufficient.

In the case of more frequent and larger disasters, the State budget could face financial distress both for emergency relief and infrastructure recovery investment, she said.

Van said among financial measures for disaster mitigation, insurance is an effective method to reduce the burden on the State budget. However, the development of natural calamity insurance in the country requires short and long-term roadmaps.

At the conference, Olivier Mahul concluded that a specific financial assessment will increase the effectiveness of financial management.

The catastrophe risk model will help inform national financial protection strategy and poverty reduction and social protection strategies, develop the catastrophe risk market and urban planning.

He also noted that the building of a financial protection strategy should be part of a disaster risk management and climate change plan and should complement investment in prevention and risk mitigation.