Options Paper for a Disaster Reserve Fund in Sint Maarten

This report has been prepared at the request of the Steering Committee of the Sint Maarten Single Donor Trust Fund (SXM TF) and the Ministry of Finance in the Government of Sint Maarten (GoSXM). It aims to provide information on the options available to the GoSXM to establish a Disaster Reserve Fund (DRF) and demonstrates the key design choices that the GoSXM will need to consider and how these choices will impact the amount of finance that would be available for disaster response. This report has been informed by looking at good practices in establishing and implementing DRFs worldwide, discussion with stakeholders in Sint Maarten and leveraging the analysis of a catastrophe risk model to understand the frequency with which the GoSXM may be impacted by a disaster, resulting in a need to withdraw funds from the DRF.

The GoSXM proposed that the DRF be capitalized by the expected reflows from the loans from the Government (understood to be US$80 million) to Princess Juliana International Airport (PJIA) that were provided for its reconstruction. The financial analysis presented in this paper uses a tool that has been developed for the benefit of GoSXM to understand how key choices on the terms of the loan reflows will impact the amount of finance in the DRF at various points in time. The outputs provided in this paper are based on a set of assumptions which can be varied within the tool. The tool also aims to assist GoSXM in understanding the potential cost savings that can be achieved by utilising a proportion of the proposed DRF to purchase disaster insurance from the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC).

Three options have been identified and considered for establishment of a DRF in Sint Maarten:

1. DRF established as a contingency allocation in the budget with specific rules for how funds will be used.

2. DRF set up as a dedicated government agency institution, with the fund managed by a state-owned enterprise (SOE) to be defined.

3. DRF established as a fully independent entity that specialises in fund management.

A fourth option was considered with the DRF operationalized through a project managed by the World Bank/SXM TF. However, this option was not found to be a viable choice and is not discussed in detail in the report.

The document was originally published on World Bank Website - Link here.