Launch of OECD Methodological Framework
Remarks by Angel Gurría
4 November 2012
Mexico City, Mexico
Ladies and Gentlemen,
• Major disaster events in recent years, for instance in Australia, Chile, China, Haiti, Japan, New Zealand, Thailand, and the US, have shown that disasters can have widespread impacts, causing not only harm and damage to lives, buildings and infrastructure, but also impairing economic activity: in the context of a tightly integrated global economy, disasters can have strong spill-over effects, disrupting global supply chains and featuring cascading and global effects . The Fukushima Tohuku earthquake has shown just that –highlighting the vulnerability of the automotive industry global supply chain.
• Given the potentially high costs of disasters for individuals, businesses and even governments, achieving financial and economic resilience is a critical component of effective disaster risk managemen t . International cooperation in this area is very important given the increasing frequency and scale of disasters and their potentially important spill-over effects. This is therefore very relevant to the G20 agenda.
• In this context, I am pleased to offer the framework prepared by the OECD, and supported by the contributions of the World Bank and the UN, to this meeting of G20 Finance Ministers and Central Bank Governors. This framework attests to the priority given by G20 Leaders to disaster risk management and disaster risk assessment and risk financing in particular. It complements a G20 publication released by the Government of Mexico and World Bank last June in Los Cabos on country experiences with disaster risk management.
• The framework has benefited from contributions from many experts around the world, including members of the G20 Country Steering Group on disaster risk management, several OECD Committees and fora as well as from the World Bank and the United Nations.
• The framework is designed to help Finance Ministries and other authorities to develop financial strategies for disaster risk management, building on strengthened risk assessment and risk financing. Based on country examples and best practices, the framework offers a series of concrete steps to develop risk assessment as a key step for promoting risk financing strategies.
• The framework is intended to be voluntary, flexible, and non-prescriptive, serving as a reference point for the development of specific country approaches and helping practitioners. It can also be leveraged for the development of future work within the G20 on disaster risk management.
• Let me highlight some key conclusions:
1. Risk assessment is a critical foundation for disaster risk management and will benefit both developed and developing countries as it enables a clear, comprehensive review of country risks and a proper evaluation of disaster risk reduction measures.
> As I said in my introduction, there is great opportunity for international cooperation in this area which concerns us all since disasters now have worldwide economic impacts: there is scope for sharing data and techniques - so-called “best practices” - and countries can mutually help to close capacity gaps.
2. Risk financing, by promoting financial resilience against disasters, helps to ensure that economies can rebuild and resume their activities after a disaster. Risk financing is thus a key element in effective disaster risk management.
The government plays a key role in assessing the extent of financial coverage and developing a comprehensive financial strategy that leverages both private and public resources to help ensure financial resilience against disasters.
• These conclusions only underline the important role that Finance Ministries have to play in disaster risk management and the development of sound fiscal and financial management to strengthen economic and financial resilience In particular, Ministries of Finance can help by:
> By working together with relevant government ministries, promoting a better assessment of the financial and economic impacts of disasters;
> Many OECD countries assign a high governmental authority to take the lead in country risk assessment, a process that should be supported and promoted by Ministries of Finance Ensuring that individuals, businesses and governments have the financial capacity to meet disaster costs, for instance through the development of insurance markets, government assistance schemes and other policy tools;
> Some countries can rely on insurance markets to promote financial protection but resource-constrained countries need to develop alternative, innovative solutions such as micro-insurance.
> Ensuring effective fiscal management of disasters, for instance by anticipating budgetary impacts and planning ahead to ensure adequate financial capacity and rapid release of funds;
> Ensuring that clear rules regarding post-disaster financial compensation are established to enable rapid compensation, to demonstrate solidarity and to clarify the allocation of costs;
> A number of countries have financial assistance arrangements that provide for a well-organised framework of rules decided in advance for the disbursement of federal funds following a disaster. For example, in Australia, these rules proved to be effective in ensuring that disaster aid was prompt and met the needs of recovery and rebuilding.
> Ensuring the soundness and resilience of the financial sector to absorb disaster risks, for instance through adequate capital, business continuity planning and stress testing and, finally ;
> Ensuring the optimal overall allocation of resources for disaster risk management, such as assessing the cost-effectiveness of major public investments in disaster risk reduction projects.
• Looking forward, I hope that this framework will be a key instrument in supporting both international and country efforts toward more effective disaster risk management strategies. I look forward to continuing collaborative efforts with countries, our friends from the World Bank and other international organisations in this key policy area. Future work would include:
> Developing a further understanding of budgeting for disasters, including better identifying and pricing of contingent liabilities and developing necessary budgeting mechanisms to ensure effective public responses
> Considering mechanisms to enable sustained prevention and mitigation investments (e.g., mitigation funds), complementing the focus of the framework on the financial management of disaster losses
> Examining the potential impacts of disasters on financial infrastructure and systems, focussing on their sustainability and business continuity
> Developing guidance and case studies for developing countries operating in extremely resource-scarce environments where people may be highly vulnerable to disasters and lack access to resources to mitigate impacts.