Pakistan to face $1.5bn losses from floods each year: ADB report

ISLAMABAD: Asian Development Bank (ADB) has warned that floods are expected to cause greater losses than earthquakes in Pakistan resulting in a substantial loss of lives.

The report titled “Narrowing the Disaster Risk Protection Gap in Central Asia” said The AAL (direct losses only) from flood events is estimated at $1.5 billion and from earthquakes at $614 million every year.

Earthquakes are expected to be associated with an average annual loss of life of 863 deaths, around seven times higher than the country with the next highest expected loss of life from this peril.

The number of people expected to be severely affected by earthquakes is just under 165,000, also the highest figure in the region.  Floods are expected to cause a further 234 deaths each year with more than 678,000 people expected to be severely affected by flooding.

It added that Pakistan urgently needs to enhance the current disaster risk finance approach as risk retention mechanisms are insufficient to cover the losses associated with even the most frequent flood and earthquake events.

In terms of the extent to which insurance might cover these losses, the analysis assumes that 1% of the losses from flood events may be covered by insurance. It is assumed that a higher proportion of the losses from earthquakes might be covered by insurance based on market reports that 70% of property insurance policies cover earthquakes.

The report said the private insurance solutions for natural disasters’ risks have achieved only minimal market penetration.

“These challenges are compounded by a challenging external financing context at the sovereign level, making it difficult to access debt quickly and cheaply after a disaster, and low levels of financial inclusion that exacerbate the vulnerability to disaster events of many in Pakistan”, it added.

Previous disaster events illustrate the challenges that Pakistan faces, for example, floods in 2010 and 2015 caused an estimated PRs32.6 billion ($326 million) losses to farmers in Punjab.

To support the affected farmers, the Government of Pakistan provided Rs6.7 billion ($67 million)—amounting to only 18.5% of the required amount, the report added.

The report said there would appear to be a need to increase the coverage and depth of the existing risk retention instruments for high-frequency events, through enhanced functioning of the national and provincial disaster management funds.

This could be complemented with the use of risk transfer instruments that might support either the emergency response cost and/or the support the reconstruction of assets damaged or destroyed by lower frequency, higher intensity events.

With support from ADB, a disaster risk financing unit has been established under the National Disaster Risk Management Fund responsible for the improved management of natural hazard risks.

However, ADB reports that “significant work remains to be accomplished in operationalization of the funds, adequate provision of financing mechanisms, and standardization of procedures across provinces.”

It reports that the federal government typically only has limited contingency funding of around $15 million–$20 million to respond to national emergencies while a 2019 World Bank paper reports that the federal fund has $10.6 million.

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