Weathering the Storm: Options for Disaster Risk Financing in Vietnam

The purpose of this study is (i) to analyze how the Government of Vietnam (GoV) manages the fiscal impact of natural disasters and (ii) to identify financial options for improving the ability of the GoV to access immediate liquidity in the event of natural disasters while maintaining its fiscal balance. This study aims to build institutional capacity on catastrophe risk financing and to identify catastrophe risk financing options for the GoV which are affordable and effective, including both sovereign risk financing and private insurance instruments. It relies on a thorough understanding of the current risk transfer tools currently available in the country. To achieve these objectives, the study includes an assessment of existing government-funded relief, recovery and reconstruction efforts and the private insurance industry's capacity to cope with the adverse financial impacts of disasters. The study aims to present sovereign disaster risk financing options available to Vietnam and policy options on further enhancing the existing disaster risk financing framework. The study has four principal components: Financial Risk Assessment of the frequency and severity of natural hazards with an emphasis on flood and storm hazards and an analysis of the cost of disaster-related damage to private and public assets in Vietnam in order to quantify more clearly the GoV's fiscal liability (including some preliminary modeling of catastrophe losses which might be expected to occur in the future); review of Government budgetary process for financing natural disasters, including sources of funding and changes in funding levels over the past decade; Dynamic Government Funding Gap Analysis to assess the impact of natural disasters on the GoV's fiscal balance and to identify potential funding gaps during the main post-disaster phases of (i) emergency relief, (ii) recovery and (iii) medium-term reconstruction; and options for sovereign financial protection against natural disasters.