The Jamaican government continues to discuss disaster risk financing instruments including catastrophe bonds with bilateral and multi-lateral partners and is developing a Public Financial Management Policy for Natural Disaster Risk.
Jamaica has benefitted from a borrowing agreement with the IMF, but that expires later this year leaving a gap in the financial provisions the Caribbean country would have in the event of a major natural disaster.
As a result, Jamaica has been engaging with entities ranging from the World Bank to the Inter-American Development Bank, with insurance, reinsurance and capital markets backed sources of protection all under consideration.
Speaking at a media briefing to launch Jamaica’s 2019-20 budget, Minister for Finance and Public Service Nigel Clarke said, “Jamaica has done too much work and made too many sacrifices to leave us completely exposed, in a post IMF-program environment, to the potential fiscal impact of natural disaster.
“The pursuit of Economic Independence, requires an institutional response to the financial risk of natural disaster.”
He explained that the new policy for financial management of natural disaster risk is under development and will be submitted to the Jamaican Cabinet for approval and if passed will be laid before Parliament, likely this year.
Jamaica is pursuing a layered strategy that will feature a contingency fund, specifically for natural disasters, contingent credit that can be made available after disasters strike, its participating in the parametric insurance facility CCRIF SPC and also catastrophe bonds or other catastrophe insurance and reinsurance linked instruments, Clarke explained.
He laid out exactly why Jamaica needs to have a robust disaster risk financing plan in place, highlighting the important role that insurance, reinsurance and also ILS capacity could play for the country in delivering its new plan.
“Natural disasters result in unplanned public expenditure or the reallocation of already committed financial resources for reconstruction, rehabilitation and repair. Budgetary revenues also fall in natural disasters, central bank reserves come under pressure, and the need to borrow increases.
“The pursuit of Economic Independence, requires an institutional response to the financial risk of natural disaster,” he explained.
Speaking at a media briefing Clarke further explained, “We are working with our multi-lateral and bilateral partners towards the goal of having a catastrophe-linked instrument, for which we would pay premiums and that would pay out in the event of a severe storm or hurricane.”
Robust mechanisms to secure funding and then distribute financing after catastrophes strike is vital to protecting the economic development of countries such as Jamaica that face major catastrophe perils.
This places catastrophe bonds, parametric insurance, reinsurance and other solutions front and centre in efforts to increase climate resilience and with Jamaica progressing on a path to having greater financial protection in place it seems cat bonds could become a key part of the solution.