Embedding Disaster Resilience in Public Finance: A Roadmap for Global Challenges

The World Bank report highlights the urgent need for disaster risk-based budgeting (DRBB) to proactively integrate disaster risk into public financial management systems, reducing fiscal vulnerabilities and enhancing resilience to climate-induced disasters. It advocates for innovative tools like budget tagging, cross-sectoral collaboration, and governance reforms to ensure preparedness, efficient response, and accountability.

The World Bank's report "Conceptualizing Disaster Risk-Based Budgeting and Exploring Practical Applications," authored by Tatiana Skalon, Richard Anthony Sutherland, Stephanie Allan, and Eleanor Bayley, emphasizes the urgent need to embed disaster risk considerations into public financial management (PFM) systems. Drawing on insights from the World Bank's Disaster Risk Financing and Insurance Program and Governance Global Practice, the report highlights the increasing fiscal vulnerabilities posed by disasters exacerbated by climate change. Traditionally treated as unpredictable events requiring reactive responses, disasters often strain government finances and delay recovery efforts. To address these challenges, the authors propose disaster risk-based budgeting (DRBB), a framework that integrates risk considerations into the entire budget cycle, ensuring governments are better equipped to manage disasters' financial and social impacts.

Addressing the Gaps in Current Systems

Existing PFM systems often neglect the proactive inclusion of disaster risk management, focusing instead on ad hoc responses. This gap is especially pronounced in low-income nations, where disasters can cause significant economic damage relative to GDP. The reactive approach delays recovery and increases costs due to inefficiencies in resource allocation. Governments often rely on ex-post measures like budget reallocations or external aid, which can exacerbate fiscal pressures and limit resources for critical areas such as health and education. The report identifies several barriers to proactive disaster risk management, including a lack of technical expertise, insufficient cross-sectoral coordination, and the perception of disasters as unforeseeable. Moreover, the fragmented nature of disaster-related expenditures complicates efforts to assess and address fiscal risks comprehensively.

Practical Tools for Risk Integration

The report offers practical entry points for integrating disaster risk into budgeting processes. A critical measure is the quantification of disaster-related contingent liabilities, which allows governments to forecast fiscal impacts and prioritize resources effectively. Another tool is disaster budget tagging, which categorizes expenditures related to disaster resilience and improves monitoring and strategic allocation. These approaches are already yielding results in countries like Ethiopia, where a dual tagging system for disaster and climate finance ensures integration into national budgets. Similarly, the Philippines has reformed disaster fund allocation and monitoring processes, reducing bottlenecks and improving accountability. Financial incentives for cross-sectoral collaboration are also highlighted as essential for fostering a cohesive approach to disaster management.

Governance and Institutional Leadership

Governance is a cornerstone of successful DRBB implementation. Central finance agencies are pivotal in anchoring disaster risk considerations in PFM systems and ensuring alignment with broader government priorities. The report stresses the importance of leadership and collaboration across sectors to overcome institutional silos. For example, New Zealand’s centralized approach to public asset management leverages collective insurance mechanisms, reducing fiscal vulnerabilities while enhancing preparedness. Establishing clear institutional roles, backed by robust strategic plans and legislative oversight, is essential for creating a sustainable and adaptive disaster resilience framework. The report also highlights the importance of building institutional capacity, fostering a culture of learning, and engaging legislators to ensure accountability in disaster-related expenditures.

Recommendations for a Resilient Future

To achieve the objectives of DRBB, the report outlines actionable recommendations tailored to different national contexts. Governments are encouraged to prioritize investments in disaster risk reduction, establish pre-arranged financial mechanisms, and enhance transparency in budget execution. Embedding DRF strategies into routine PFM systems ensures sustained attention to disaster risks, even beyond immediate political cycles. Policy review tools, such as disaster-focused Public Expenditure Reviews and DRF diagnostics, are recommended for identifying fiscal gaps and guiding reforms. The authors also call for further research into the political economy of disaster financing, subnational DRBB applications, and the integration of disaster resilience measures across public sector financial frameworks.

By embedding disaster risk considerations into financial systems, governments can mitigate the economic and social costs of disasters while building a sustainable fiscal foundation for the future. The report underscores that a proactive, well-integrated approach to disaster risk management not only reduces the impacts of disasters but also enhances economic stability and resilience. Governments worldwide are urged to adopt DRBB as a transformative strategy to safeguard public finances and protect vulnerable populations from the escalating challenges of climate change and other disasters. Through innovative financial instruments, institutional collaboration, and a commitment to proactive planning, DRBB offers a viable pathway to a more resilient future.