Despite the limited availability of pre-arranged financing, and the fact that it remains concentrated in wealthier regions, the Centre for Disaster Protection’s second annual benchmark report: The State of Pre-arranged Financing for Disasters 2024, reveals signs of progress.
London, UK: The Centre for Disaster Protection’s annual report The State of Pre-arranged Financing for Disasters 2024, published today, is a unique source of data and analysis on the level of effort of international development donors to support a shift towards arranging financing for disasters, before shocks happen, in low- and middle-income countries. The report includes data from the Global Shield Secretariat and the Centre’s own research on levels of coverage – that is, the potential financing in place that could be triggered if specified disasters occurred. The report also presents analysis on notable advances in the pre-arranged finance (PAF) toolkit and on the wider policy and operating environment.
Key findings on International Development Financing for PAF:
- International development financing for PAF from donors fell in absolute volume terms from USD1.9 billion in 2021, to USD852.2 million in 2022, amounting to just 1.1% of total crisis financing.
- Decreases in donor funds were partly down due to fewer qualifying disasters occurring in 2022, compared to 2020 and 2021, when Covid-19 triggered large volumes of payouts from contingent loans and grants from multilateral development banks.
- When contingent disaster loan and grant payouts – which form the majority of international development financing for PAF – are removed from the data, it fell to USD249.3 million in 2022, 11.5% lower than the five-year average.
- International development financing for PAF continues to be concentrated in middle-income countries, with just 3.1% (USD183.8 million) reaching low-income countries between 2018 and 2022.
- While aid data for 2023 is not yet available, indications are that 2023 will have seen some increase on 2022 levels of international development financing for PAF.
Key findings on overall PAF coverage in 2023 include:
- While international development financing support for PAF does not show any clear upward trend in recent years, there are signs that countries are putting in place more financial protection. Data from the Global Shield Secretariat shows that there was USD 9.8 billion in overall PAF financial protection in 2023, marking the third consecutive year of growth.
- The numbers of people protected by PAF instruments grew in 2023, with 232 million people protected under pre-arranged financing instruments, a 27% increase from 2022.
- Coverage remained concentrated in middle-income countries (USD7.8 billion in 2023); however, coverage in low-income countries grew substantially, from USD91.8 million in 2022 to USD308.9 million in 2023 – this was largely driven by increases in uptake of parametric insurance provided by the African Risk Capacity risk pool.
Key commentary from the report:
- The PAF instrument toolkit has seen continued improvement, including the addition of new climate resilient debt clauses, which have begun to enter the product offerings of multilateral development banks.
- The attractiveness and affordability of PAF remains a barrier to uptake and to achieving coverage and protection at scale in the most vulnerable places.
- Calls for reform of the international financial architecture have created an historic opportunity to shift the default in favour of pre-arranged financing. And yet, progress falls short of the transformation needed to shock proof economies and to reform the international financial architecture to be more crisis-responsive.
Lydia Poole, Associate Director – Policy and Evidence at the Centre for Disaster Protection and co-author of the report, said:
“This is a critical moment to push for meaningful reform of the international financial architecture, as current approaches are struggling to keep pace with the rising challenges of a multipolar world facing frequent and severe shocks. In this second edition of The State of Pre-arranged Financing for Disasters 2024, we see encouraging signs of progress, particularly with increased coverage in low- and lower-middle-income countries and innovations in the PAF toolkit. However, pre-arranged financing is still far from being the default mode for disaster response, and overall coverage remains low, especially in low-income countries. To create an effective PAF architecture, we must adapt to the unique political and technical constraints that impact a country’s ability to build fiscal resilience to disasters.”
Michèle Plichta, Senior Researcher at the Centre for Disaster Protection and co-author of the report, said:
“The research behind this influential report builds on a larger set of multi-year global data to compile the 2024 edition. Working with the best evidence available, the report shows that crisis response funding is still heavily reliant on legacy instruments, with most financing being mobilised only after disasters occur. While multilateral development banks lead in providing PAF for disasters, the uptake of these tools remains limited due to affordability challenges, including rising public debt. Although efforts are being made to reduce costs through premium support and more favourable loan terms, the demand for PAF in the most vulnerable areas remains low. It’s crucial that we intensify our efforts to make PAF more accessible and effective, ensuring that the most at-risk communities are adequately protected before disaster strikes.”