DRR experiences in Latin America and the Caribbean
The RAR24 analyzes five countries in the Latin America and Caribbean (LAC) region to assess the inclusion of financial resources for Disaster Risk Reduction (DRR) in national budgets over a 10-year period, from 2014 to 2023.
Brazil
The Multiannual Plan (PPA) developed by the Executive Branch includes Disaster Risk Management (DRM) as a goal and identifies actions for prevention, preparedness, reconstruction, and disaster response. According to the RAR 2024, in the period from 2014 to 2023, the federal government of Brazil's average annual spending on DRR represented 0.06% of the total budget, with more than 70% allocated to compensatory management actions.
To address DRR in the country, the primary risk retention instrument is budgetary resources and budget reallocations in the event of occurrences that lead to disasters, along with contingent credits. As risk transfer instruments, Brazil has government programs for the agricultural sector and a subsidy program for private agricultural insurance. In 2021, a groundbreaking parametric insurance was launched in the country to protect both large and small livestock farmers from losses caused by adverse conditions. Additionally, there are government programs that subsidize insurance premiums.
Guatemala
In response to frequent natural disasters and the resulting damages, Guatemala decided that public institutions should incorporate the disaster risk variable into their development processes. In the analyzed period from 2014 to 2023, DRR management represented an average of 2% of the total budget execution, with 98% focused on compensatory risk management. The primary source of financing was internal credit placements, followed by current revenue.
The RAR24 highlights that Guatemala has a Disaster Risk Financial Strategy, approved in 2018, and an Operational Plan from 2022. For risk retention instruments, the country has the Permanent National Fund for Disaster Reduction, created in 1996 for emergencies, and the Emergency Fund, established in 2012 to mitigate severe damage. Additionally, it has contingent credits granted by the World Bank and the Inter-American Development Bank (IDB). As a risk transfer instrument, the government acquired a parametric excess rainfall insurance policy in 2019 under the Caribbean Catastrophe Risk Insurance Facility.
Jamaica
Jamaica has made significant efforts in developing prospective management actions, primarily focused on issuing standards, regulations, and mechanisms for climate adaptation and risk reduction, such as the 2015 Disaster Risk Management Act. For the period from 2014 to 2023, resources allocated to DRR represented an average of 0.7% of the government's total annual budget. Jamaica also developed a National Disaster Risk Financing Policy for the period 2021–2025.
As a risk retention instrument, the country has a Contingency Fund as its main budgetary tool, which includes mitigation and prevention actions, in addition to emergency response. For risk transfer, Jamaica became the first Caribbean country to use catastrophe bonds in 2021 and implements parametric insurance against excess rainfall risks.
Mexico
Following the 1985 earthquake, the Mexican government implemented various DRR actions, including the enactment of regulations, allocation of financial resources in public budgets, and the use of financial instruments. According to the RAR24, the financial resources allocated to DRR in Mexico represent an average of 0.23% of total budget execution, which is recorded as the sole source of DRR financing in the country. Mexico has a DRR Financial Strategy.
Mexico’s budgetary programs include prospective, corrective, and compensatory actions, such as the Natural Disaster Fund (FONDEN), created in 1996, and the Natural Disaster Prevention Fund (FOPREDEN), which aims to build capacity for risk prevention. These funds act as risk retention instruments. Additionally, there are subnational funds to assist affected populations and conduct prevention and mitigation activities. In 2015 and 2017, studies and research were approved to anticipate hazards and their impacts.
For risk transfer instruments, Mexico implemented catastrophic insurance in 2011 for national and subnational infrastructure, and since 2006, the government has issued catastrophe bonds with parametric coverage, participating in the Pacific Alliance bond in 2018. Green bonds have also been implemented since 2023.
Peru
Peru established a Strategic Budget Program for Disaster Vulnerability Reduction and Emergency Response in 2010, incorporating DRR into the design, formulation, and implementation of public investment projects that include prospective, corrective, and compensatory actions. The execution of these actions represented an average of 1.28% of total budget execution, primarily allocated to corrective and compensatory management actions.
In 2011, Peru approved the Disaster Risk Financial Management Strategy to ensure adequate financial capacity for DRR processes. For risk retention instruments, Peru has the Natural Disaster Intervention Fund (FONDES), created in 2016, and has access to contingent credits from the IDB and the World Bank, in addition to benefiting from donations and funding from multilateral cooperation. For risk transfer instruments, Peru has secured catastrophic insurance to cover earthquake-related losses and participated in the Pacific Alliance catastrophe bond.
Key findings
The five countries presented as case studies in the RAR 2024 developed regulations related to DRR, with significant progress observed in the implementation of classifiers or tags to specifically identify budgets allocated to DRR. However, challenges were identified in tagging projects that are not classified as DRR but still contribute to it.
Additionally, the RAR24 found that the highest levels of spending in these countries are concentrated in compensatory management activities (except in Peru, where corrective actions carry greater budget weight), with prospective and corrective actions representing less than 35% of total DRR spending.