strategic framework for the financial management of
TRANSCRIPT
Panama
Strategic Framework for the Financial Management
of Disaster Risk
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CAPRA ComprehensiveApproachtoProbabilisticRiskAssessment
CCRIF CaribbeanCatastropheRiskInsuranceFacility
CEPREDENAC CoordinationCenterforthePreventionofNaturalDisastersinCentralAmerica
DICRE StateDirectorateofInvestment,Concessions,andRisks
DPI DirectorateofInvestmentsProgramming
FAP PanamaSavingsFund
GDP grossdomesticproduct
GFDRR GlobalFacilityforDisasterReductionandRecovery
GoP governmentofPanama
IDB Inter-AmericanDevelopmentBank
MEF MinistryofEconomyandFinance
PML probablemaximumloss
PNGIRD NationalPolicyonIntegratedDisasterRiskManagement
PNGRD NationalDisasterRiskManagementPlan
SINAPROC NationalCivilProtectionSystem
SINIP NationalPublicInvestmentSystem
UNISDR UnitedNationsOfficeforDisasterRiskReduction
Abbreviations and Acronyms
Background
With promulgation of Executive Decree 578 of November 13, 2014, the government of Panama (GoP) formalized its guiding framework for the
management of fiscal risk in the event of disasters relat-ed to the impact of natural hazards. The decree approved theadoptionoftheStrategicFrameworkfortheFinancialManagementofDisasterRisk1,makingPanamathefirstcountryintheregiontoimplementsuchaframeworkun-deranexecutivedecree.
Adoption of the Strategic Framework represents the cul-mination of a series of public reforms, consultations, and studies undertaken by the GoP in recent years. These efforts have created a strong legal mandate in Panama for establishing a financial management strategy that addresses natural disasters. Oneofthemilestonesinthisprocesswasenactmentof Law7of February11, 2005,which reorganized the National Civil Protection System(SistemaNacionaldeProtecciónCivil,orSINAPROC),as-signing it responsibilities for theplanning, investigation,direction, supervision, and organization of policies andactions designed to prevent material and psychosocialrisks and to gauge the potential danger of natural andanthropogenic disasters in the country (Government ofPanama2012).
In2005, thePanamaNationalCommitteeof theCenterforthePreventionofNaturalDisasters inCentralAmer-ica (Centro de Coordinación para la Prevención de De-sastresNaturalesenAméricaCentral,orCEPREDENAC),which was established under Executive Decree 402 ofDecember12,2002,wasgivenresponsibilityfordevelop-ingtheNationalRiskManagementPlatform(PlataformaNacionaldeGestióndeRiesgos).Thisplatformbecameamulti-stakeholdermechanismthatfosteredabroadpar-ticipatoryprocessandledtheGoPtoadopttheNationalPolicyon IntegratedDisasterRiskManagement (PolíticaNacionaldeGestión IntegraldeRiesgodeDesastres,or
1 See text of Executive Decree 578 which approves adoptionof the Strategic Framework for the Financial Managementof Disaster Risk, at http://www.gacetaoficial.gob.pa/pdfTemp/27662_A/48878.pdf.
PNGIRD) in December 2010. The policy establishes theprinciplesofintegratedriskmanagementforthecountryandidentifiesfivepillarsforcoordinationwiththestake-holdersresponsibleforitsimplementation.2
ThePNGIRDassigns responsibility forfinancialmanage-mentofdisasterrisktotheMinistryofEconomyandFi-nance(MEF)throughtheStateDirectorateofInvestment,Concessions, and Risks (Dirección de Inversiones, Con-cesionesyRiesgosdelEstado,orDICRE).ThustheMEF,throughDICRE, is responsible for implementingafinan-cial protection strategy in coordinationwith theGener-alDirectorateofSINAPROC,aswellasforimplementingtheNationalRiskManagementPlatform.Toensurethatthesefunctionsareperformed,ExecutiveDecree479ofNovember22,2011,assignsadditionalresponsibilitiestoDICRE, specifically thedesign,development, and imple-mentationofinvestmentpoliciesforfinancialprotectionthroughriskmanagementprogramsapplicablethrough-outthestate,includingdisasterriskmanagement.
Pursuant to the terms of the PNGIRD, in 2011 SINAPROC approved the National Disaster Risk Management Plan 2011–2015(PlanNacionaldeGestióndeRiesgosdeDe-sastres2011–2015,orPNGRD),whichwaspreparedwiththesupportoftheNationalRiskManagementPlatform.Alongwith theNational EmergencyPlan, thePNGRD isthemain programmatic instrument for implementationofthePNGIRD.
2 The PNGIRD coordinating pillars are (i) investment in disasterriskreductionforsustainableeconomicdevelopment;(ii)socialdevelopment and compensation for reducing vulnerability; (iii)environment and climate change; (iv) territorial management,governability,andgovernance;and(v)disastermanagementandrecovery.
Strategic Framework for the Financial Management of Disaster Risk
3
Financial management of disaster risk is addressed in the National Disaster Risk Management Plan 2011–2015. Theplan’sfirstthematicpillarfocusesonincludingdisaster risk reduction in the processes of investmentplanning and financial protection. Its objectives include(i)incorporatingdisasterriskanalysisinpublicinvestmentplanningprocesses;(ii)developinginstrumentsandmea-sures for implementing a financial protection strategyin the event of disasters; (iii) systematizing informationonandappraisalsof investmentsindisasterprevention,mitigation,preparedness, response,and reconstruction;and(iv)promotingpublicandprivate investment inriskmanagement.Thesestrategicobjectiveswereaccompa-nied by creation of an expenditure classification in thegovernment’sManualofBudgetClassificationsforpublicinvestmentindisasterriskreductioninitiatives.
In negotiating credit facilities, Panama made certain policy commitments, and these have catalyzed efforts to strengthen the financial management of disaster risk.Certaincommitmentsassumedby theGoP—thosemadeinthecontextofprogrammaticloansfromtheIn-ter-AmericanDevelopmentBank(IDB)tosupportpolicyreforms for developing the Program to Reduce Vulner-ability toNaturalDisastersandClimateChange,aswellaspolicycommitmentsassumedinsigningacontingentcreditlinewiththeWorldBank3—havestimulatedmuchoftherelevantprogress.
3 ExpansionoftherolesandresponsibilitiesofDICREwasoneofthecommitmentsassumedbytheGoPforapprovaloftheWorldBank Development Policy Loan with a Catastrophe DeferredDrawdownOption(DPLwithaCatDDO).Similarly,theprogramseries negotiated with the IDB under the Program to ReduceVulnerability toNaturalDisasters andClimateChange includedcommitments related to the financial protection component,including the formulation of guidelines for a financial riskmanagement strategy,which later contributed todevelopmentoftheStrategicFramework.
Over the last four years, the GoP has implemented sev-eral financial tools for managing disasters’ negative im-pact on public finance.Theseincludedisasterset-asidesthroughthePanamaSavingsFund(FAP)andtwodisastercontingent credit lines, one eachwith the IDB and theWorldBank.
The GoP is moving forward with implementation of its strategy for financial management of disaster risk. The GoPunderstoodtheneedforaguidingframeworkbasedonPanama’snationaldisasterriskprofilewithinthecon-textofclimatechange,andadoptedtheStrategicFrame-workinNovember2014.Theframeworkemphasizesef-ficientmanagementof available instruments andoffersguidelinesfordevelopingnewriskretentionandtransferinstrumentsintheeventofdisasters.
As it continues to strengthen its financial management of disaster risk program, the GoP has the support of the Global Facility for Disaster Reduction and Recovery (GF-DRR),whichcontributedWorldBanktechnicalexpertiseforafinalreviewoftheStrategicFrameworkandprovid-edfundingfromitsownresourcesforitspublication.
In addition to the role it will serve in Panama, the Stra-tegic Framework will ideally serve as a reference for oth-er countries considering the development of a strategic document for financial management of disaster risk.
4StrategicFrameworkfortheFinancialManagementofDisasterRisk
Introduction
Disasters associated with the impact of natural hazards have had adverse social and fiscal effects on Panama over time, and the GoP is therefore
committed to strengthening the financial management of disaster risks. Recognizingtheimportanceofmitigatingthe consequences of disasters associated with naturalhazards,theGoPhasimplementedanumberofmeasuresto strengthen financial management of disaster risk initspoliciesandprograms.Thisapproachisevidencedintheinclusionofspecificguidelinesonthesubject inthePNGIRDandthePNGRD.
Actions taken by the GoP in financial management of disaster risk are consistent with Law 34 of June 5, 2008, the Law on Social Fiscal Responsibility. Thislawaims to establish norms, principles, andmethodologiesfor consolidating fiscal discipline in national financialmanagementofthepublicsector,anecessaryconditionforcontinuousandsustainableeconomicgrowth.Thelawstipulatesthatthegovernment’sstrategicplan(whichin-cludesaneconomicandsocialstrategy)shouldconsiderpossible contingent liabilities andother risks that couldaffectbudgetexecution.Italsostatesthatmedium-termmacroeconomicandmacro-fiscalassumptionsshouldin-cludeanassessmentofthemainfiscalrisksandthecon-tingentliabilitiesthatcouldaffectthefinancialsituation.
The management of expenditures stemming from di-saster situations should take the provisions of Law 34 of 2008 into account.The lawsetsaceilingon theabsolutenonfinancialpublic sectordeficit, calculated inrelation to the gross domesticproduct (GDP), but it al-lowsfortemporarysuspensionoftheceilingintheeventofnaturaldisasters.Inaddition,thelaw’sregulationsre-quirethat,startinginfiscalyear2011,theproposedGen-eralBudgetLaw includeabudgetallocation forgeneralcontingenciestocoveranycontingentliabilitiesthatariseduringthefiscalyear.
MEF Executive Decree 578 of November 13, 2014, is a guiding document for managing fiscal risk in the event of disasters, and it is consistent with both the PNGIRD and the PNGRD. TheStrategicFrameworkfortheFinan-cialManagementofDisasterRiskisaguidingdocumentdeveloped by the MEF for managing fiscal risk in theeventofdisastersassociatedwiththe impactofnaturalhazards.Thisdocumentwith its respectivestrategicpil-larsemergedinresponsetotheMEF’sinterestinhavingaguidingdocumentforfinancialmanagementofdisaster
risk,onethatwouldhelpitmeettheresponsibilitiesen-trustedtoitunderObjective1.2ofthePNGRD—namely,todevelop instrumentsandmeasuresfor implementinga financial protection strategy for disasters. The Strate-gic Framework is consistent with the objectives of thePNGIRD, which was adopted under Executive Decree1101ofDecember30,2010.ItestablishesStrategicArtic-ulatingPillarA,“DisasterRiskReductionforInvestmentsforAchievingSustainableEconomicDevelopment,”whichincludes financial investment protection as one of itsmeasures.
The Strategic Framework was developed with the sup-port of regional and international entities. The MEF draftedthisdocumentwithsupportfromvariousorgani-zations,includingtheCEPREDENACattheregionallevel,alongwiththeWorldBank,theIDB,andtheGFDRR.Thedocument incorporates a number of important lessonslearned from internationalexperience: (i) includedisas-terrisksaspartofanintegratedframeworkoffiscalriskmanagement; (ii) ensure that governmentshave accesstoimmediatefundsfollowingadisaster;(iii)considerthecreationofanationaldisaster fund;and(iv)reducethegovernment’s contingent liabilities against disasters as-sociatedwith the impactofnaturalhazardsby insuringcriticalpublicassetsandpromotingtheprivateinsurancemarketforcatastrophicrisksandagriculturalinsurance.4
The Strategic Framework has the following five stra-tegic pillars:(i)identification,quantification,andunder-standingoffiscal riskduetodisasters; (ii) incorporationofdisaster riskanalysis in theplanningofpublic invest-ment;(iii)formulationofcomponentsfordevelopingandimplementingriskretentionandtransferinstruments;(iv)developmentofthedomestic insurancemarket;and(v)strengtheningoftheDICREsoitcanfulfill itsroleinde-signingandimplementingfinancialprotectionstrategies.
Disasters associated with the impact of natural haz-ards pose a major challenge for social inclusion, pov-erty reduction, the regulation of public finance, and the prudent administration of Panama’s public debt and its assets. Panama’sgeographicallocationandgeo-tectoniccharacteristicsexposeittoavarietyofhydrome-teorologicalandgeophysicalhazards.Thesehazardswilllikelygenerateincreasingeconomiclossesasthecountry
4 Someof the lessonsmentionedaredescribed inCumminsandMahul(2009)andGhesquiereandMahul(2010).
StrategicFrameworkfortheFinancialManagementofDisasterRisk5
experienceseconomicgrowth,especiallygiventhesocialfactors related to growthand to the attendant concen-trationofpopulationandassets.Accordingly,theGoPiscommittedtodevelopingstrategiesformanagingthefis-calriskassociatedwithhazardeventsinordertomitigatenegativeimpactsonpoverty,inequality,andmalnutrition.
The steps taken by the GoP to manage fiscal risk due to events associated with the impact of hydrometeo-rological hazards will also play an important role in the country’s efforts to adapt to climate change.Agricul-ture,water resources, forests, coastal areas, andpublichealthareespeciallysusceptibletotheeffectsofclimatechangeinPanama.Hurricanes,floods,anddroughtsarelikelytogetworseintermsoftheirphysicalparameters.Theseeventsarealreadycausingmajoreconomiclossesandaffectingthelivelihoodofthepoorestandthemostmarginalizedsectorsofthepopulation(ANAM2013).
From 2015 onward, the hazards associated with cli-mate variability could well become the main cause of the increase in extreme events.Thissituationcouldcallforcomprehensiveriskassessmentsaswellasfordevel-opmentplanningthatmorecloselyincorporateddisasterrisk planning and adaptation to climate change (WorldBank 2012). In particular, transfer mechanisms for riskassociatedwithclimatechange inPanama’sagriculturalsectorareparticularlyimportant,giventhevulnerabilitiestoclimatechangethathavebeenidentifiedforthissectorinPanama.StudiessuchastheFirstNationalCommuni-cation(PrimeraComunicaciónNacional)havenotedthevulnerabilityoftheagriculturalsectortochangesinrain-fallpatternsinthecentralprovinces(ANAM2010).
6StrategicFrameworkfortheFinancialManagementofDisasterRisk
Panama’sgeographicallocationandgeotectonicchar-acteristicsexposeittoavarietyofhydrometeorolog-ical andgeophysicalhazards.Asa resultof its terri-
torialconfiguration, itranks14thamongcountriesoftheworldmostexposedtomultiplehazards;15percentofitstotalarea isexposed,and12.5percentof its totalpopu-lation is vulnerable to twoormorehazards (WorldBank2005).
Amongthehazardstowhichthecountryisexposedarein-tense, long-lasting rains; storms; strong electrical surges;floods; forest fires; waterspouts; earthquakes; tsunamis;andElNiño–LaNiñaepisodes.Globalclimatechangemod-elsindicatethatPanamawillundergoseverechangesinitsweatherpatterns,withheatwaves,droughts,heavierrain-fall,morefrequentstorms,andrisingaveragesealevels.
According to studies by the University of Panama, thecountrycanbedividedintofourhazardzonesbasedonthepresence and intensity of earthquakes, hurricane winds,floods,andlandslides(figureB1.1).
Overthelastdecade,floodshaveposedseriouschallengesfortheagriculturalsector inPanamaandfortheconcen-trationsofpoorpeoplelivinginruralareas.Morerecentlytheyhavebeguntocause increaseddamage inurbanar-eas.HeavyrainsinDecember2010causedseriousfloodsandlandslides,forcingatemporaryshutdownofthePana-maCanalandleavinglargesectorsofthePanamaCityMet-
ropolitanAreawithoutdrinkingwaterfollowingdamagetothecity’smaintreatmentplant.Accordingtocalculationsby official sources, the cost of repairing damaged infra-structureandrestoringeconomicactivityinaffectedareaswasUS$149.3million.Twoyearslater,inNovember2012,more heavy rains caused floods and landslides in ColónandthroughoutthewesternCaribbeanregionofPanama.InthiscasethedamagewasestimatedatUS$123million,leadingtheGoPtodeclareanationalemergencyandap-proveawaiverliftingrestrictionsonthedeficitceiling.
Thecountryalsositsonanactiveseismicarea,thePana-mamicroplate,and isexposedtoanumberofgeologicalfaults, themost importantofwhichare theTonosíFault,thePanamaFractureZone,theGatúnFault,andtheNorthPanama Deformed Belt. Technical studies conducted in2014bytheCaribbeanCatastropheRiskInsuranceFacility(CCRIF)5estimated that forPanama, theannualprobablemaximum loss (PMLa) produced by earthquakes with a200-yearreturnperiodwouldbeat least5.32percentofthe2013GDP.bForareturnperiodof500years,theannualPMLwouldreachapproximately12.88percentofthe2013GDP.In2012,inatechnicalassistanceprojectcarriedoutthroughtheComprehensiveApproachtoProbabilisticRiskAssessment (CAPRA)program,probablemaximum lossesandexpectedannual lossesdue toanearthquake inDa-vid,thecountry’surbanareaatgreatestseismicrisk,werecalculatedforthehousing,health,andeducationsectors.c The total expected annual losses come to approximatelyUS$46.3million for three sectors, which together corre-spondtoanexposurevalueofUS$3.842billion.
a.CumminsandMahul(2009)definePMLasthetotalan-nual lossesthatcouldequalorexceedaspecificprob-ability.Thus,areturnperiodof200yearsisequivalenttoanannualprobabilityof 0.5percent for a loss thatamountsto5.13percentormoreofGDP.
b.SeeCCRIF (2014).Percentageswere calculatedon thebasisofCCRIFestimatesatcurrent2013pricesandofGDP at current estimated purchasing prices for 2013,usingdatafromComptrollerGeneraloftheRepublicofPanama,NationalInstituteofStatisticsandCensus.
c.CAPRAisatoolforunderstandingdisasterriskthroughprobabilistic assessment. It originally focused on Cen-tralAmericabuthasnowbeenexpandedtootherLatinAmericancountries.
5 CCRIF(CaribbeanCatastropheRiskInsuranceFacility).2014.
Box. 1. Exposure to Disasters Associated with Natural Hazards
Source: UniversityofPanamaInstituteofNationalStudies1990.
Figure B1.1. Classification of Zones According to Hazards
Azuero Zone
•Droughts• Floods•Earthquakes•Hurricanewinds
Western Zone• Floods•Earthquakes•Hurricanewinds
Metropolitan Zone• Floods•Hurricanewinds•Earthquakes
Eastern Zone •Earthquakes• Floods
StrategicFrameworkfortheFinancialManagementofDisasterRisk7
The MEF defined five strategic pillars in its Strategic Framework for managing fiscal risk due to disasters asso-ciated with the impact of natural hazards. Theintentwastopresentapproachesforreducingfiscalriskwhendisastersoccur.Thestrategicpillarsrecognizefinancialmanagementofdisasterriskasacomponentofbothfiscal
managementpolicyandpoliciesonintegrateddisasterriskmanagement.Theyareasfollows:
1. Identification,quantification,andunderstandingoffiscalriskduetodisasters2. Incorporationofdisasterriskanalysisintheplanningofpublicinvestment3. Formulationofcomponentsfordevelopingandimplementingriskretentionandtransferinstruments4. Developmentofthedomesticinsurancemarket5. StrengtheningoftheDICREsoitcanfulfillitsroleindesigningandimplementingfinancialprotectionstrategies
Asactivitiesaredevelopedalongthesefivepillars,thegovernment’scapacitytorespondtodisasterswillimprove,andthelong-termfiscalandsocialimpactsoftheseeventswillbemitigated.
Strategic Pillars of the Strategic Framework
Strategic Pillars 1IDENTIFICATION, QUANTIFICATION, AND UNDERSTANDING OF FISCAL RISK DUE TO DISASTERS
The identification, quantification, and understanding of fiscal risk due to disasters constitute the critical first step toward managing disaster risk. This pillar cross-cuts all the other pillars in the Strategic Framework.
Panama has conducted studies to identify the natural hazards it faces, but further research is needed in order to improve knowledge about vulnerability and expo-sure. According to studiesby theUniversity of Panama(1990),thecountrycanbedividedintofourhazardzones,basedonthepresenceandintensityofearthquakes,hur-ricanewinds,floods,andlandslides(figureB1.1).Furtherresearchonvulnerabilityandexposurewillhelptopro-ducecompleteandaccurateinformationforrobuststud-iesofriskquantification.
Panama has already conducted studies on the quanti-fication of fiscal risk6. AccordingtoanIDBstudybasedon 2008 data, the Disaster Deficit Index shows that anextremeeventwithareturnperiodof100yearsormorewouldprobablyproducelossesforPanamaequivalenttobetween5.44percentand9.05percentofGDP.Insuchascenario,theGoPwouldnothavesufficientresourcesofitsowntocoversuchlossesandtoreplacetheaffectedcapitalstock.
MorerecentstudiesconductedbytheCCRIF(2014)esti-matedhowlossesduringtheperiodfrom1904to2003
6 “Indicadores de Riesgo de Desastre y de Gestión de Riesgo”,Panamá, 2010. Banco Interamericano de Desarrollo. NotasTécnicasNo.IDB-TN-169
wouldhavebeenaffectediftheGoPhadpossessedcat-astrophicinsuranceofthekindcurrentlyunderconsider-ationthroughCCRIF.Thefindingwasthatsuchinsurancewouldhavecoveredatleast48.4percentofthegovern-ment’slossesarisingfromthethreemajorseismiceventsofthatperiod.
To better understand the fiscal risk due to disasters, the GoP plans to do the following:
üImprove information. Improving information abouttheexposureofbuildingsandinfrastructure,aswellashistoricaldataondisasterlosses,willhelptoimproveunderstandingofthecountry’sfiscalriskprofile.
üUse complete and accurate information.Havingac-cesstocompleteandaccurateinformationabouttheexposureandriskstobemanagedwillhelptoimprovethe coverage and quality of insurance on the assetportfolio.Itwillalsosupportdecisionmakingwithre-gardtoinvestmentsindisasterriskmitigation.
üConduct probabilistic studies as part of disaster risk assessment. Thesestudieswillserveasabasisforfi-nancialdecisionmakingunderconditionsofuncertain-ty. Theywillmake it possible toestimate theextentofboththeexpectedannual lossandthePMLtobeassessed.Dynamicfinancialanalysisinturnwillmakeitpossibletodefinethestrategyforretentionandforrisktransfertothemarket.
8StrategicFrameworkfortheFinancialManagementofDisasterRisk
Strategic Pillar 3FORMULATION OF COMPONENTS FOR DEVELOPING AND IMPLEMENTING RISK RETENTION AND TRANSFER INSTRUMENTS
Having better information makes it possible to negoti-ate the best conditions with the (re)insurance sector. The less uncertainty there is about the risks to be cov-
ered,thebetterthetermsandconditions,includingcov-erageandrates,thattheinsuranceindustrycanoffer.
The Ministry of Economy and Finance, through its Direc-torate of Investment Programing (DPI), will incorporate disaster risk management among the tools for planning and monitoring of public investment.TheDPIwilldesigneconomic assessment methodologies that include riskmanagementintheprocessofpublicinvestmentapprov-alwithintheNationalPublicInvestmentSystem(SistemaNacionaldeInversionesPúblicas,orSINIP),anditwillin-corporate disaster risk criteria in the conceptualmodeltobedevelopedforthepurpose.Theideabehindthesestepsistoautomatetheplanning,monitoring,andeval-uation processes for projects related to SINIPmanage-ment.
Within this context, the GoP plans to do the following:
üInclude risk analysis in the pre-investment stage. TheDPIhasdevelopedbothadraftprotocolforevalu-atingpublicinvestmentprojectsandacomprehensivecatalogofrisks (which includestheriskofdisasters),with a view to incorporating disaster risk analysis inthepre-investmentstage.
üMake risk analysis a compulsory step in the public investment process.Aplannedchange to theSINIPregulationswillrequireallproposedpublicinvestmentprojectsto includeriskanalysissothattheirviabilityandtechnicalsustainabilitycanbedetermined.
üConsider amending the General Budget Law of Pan-ama. A plan has been proposed that would tie theallocation of budgetary funds for public investmentprojectstoSINIPstandardsandprocedures;doingsowouldcertifythetechnicalviabilityofallpublicinvest-mentprojectsbeforethefundswereallocated.
üEnact the Public Investment Law.Thedraftlawisin-tendedtoensurethatprogressinriskanalysis inthepublicinvestmentprocessisreflectedinanewnorma-tiveframework.
üProvide training in tools for including disaster risk in the public investment process. There is a plan to im-plementandprovidetraininginuseoftheBasicMeth-odologicalGuidelinesfortheInclusionofDisasterRiskManagementinthePublicInvestmentProjectsofPan-ama,whicharetobedevelopedbytheDPI.
This strategic pillar will be supplemented with a classi-fication of expenditure for risk management. The MEF has incorporated a classification of expenditure for riskmanagementwithinitscurrentversionoftheManualofBudget Classifications for public investment in disasterriskreductioninitiatives.Thisclassificationofexpenditurewillhelptoidentify,channelandmonitorresourcesallo-catedbythestatetoactivitiesfordisasterriskreduction.
Disasters associated with the impact of natural hazards create budget volatility for the GoP because they require sudden unexpected expenditures during and after the event. Thegovernmentshouldhavetimelyaccess tofi-nancialresourcessothatitcaneffectivelyrespondtodi-sasterswithoutaffectingitsfiscalstability.
The Ministry of Economy and Finance has made signifi-cant progress in designing and implementing a strategy for the financial management of disasters.Theministry’s
strategyinvolvesexanteandexpostinstruments,includ-ingfundsallottedforuseintheeventofmajordisasters(theFAP),contingentcreditlineswiththeWorldBankandthe IDB,andapublicasset coinsurance scheme,withaview to complementing the ex post financial resourcesthatshouldbeguaranteedfollowinganevent.TheMEFpromotestheexantedevelopmentofalayeredstrategyforfinancialmanagementofdisasterrisk,asillustratedinfigure1.
Strategic Pillar 2INCORPORATION OF DISASTER RISK ANALYSIS IN THE PLANNING OF PUBLIC INVESTMENT
StrategicFrameworkfortheFinancialManagementofDisasterRisk9
Although the MEF already has financial instruments for responding to disasters, these will be supplemented with additional instruments.TheMEFwillbeassessingadditionalfinancialprotectioninstrumentswithaviewtoestablishingastrategyforsolidandrobustfinancialman-agementofdisasterrisk.
The GoP’s selection of financial instruments will take into account the need for resources over time. In select-ingtheidealcombinationofinstrumentsforitsfinancialmanagementofdisasterriskstrategy,theGoPwillconsid-ertheneedsforresourcesovertime—fromthemomentthe fundsare required (first response), to recoveryandreconstruction,asshowninfigure2.
At all times, the GoP will respect the guidelines on use of the instruments pursuant to the Law on Social Fiscal Responsibility.Thislawdistinguishesthevariousinstru-ments for thefinancialmanagementof disaster-relatedexpenditurebasedonwhethertheyrequireawaiverornot(thelatterareinstrumentsthatcorrespondtofinanc-ingandfiscalincome,whichdonotimpactthedeficitandcanthereforebeimplementedwithoutawaiver).
The GoP has risk retention and transfer instruments for responding to both low- and high-severity events. For frequentlow-severityevents,itcanuseretentioninstru-
ments suchasbudget reallocations andgeneral contin-gencyfundsinthebudget,whichdonotrequireawaiverfortheiruse.Forlessfrequentandmoresevereevents,itcanusecontingentlinesofcredit,aswellasresourcesfromanemergency fundthatrequireawaiver for theiruse.7Forrareandveryseriousevents, thegovernmentcanuseother retentionand transfer resources, suchastheFAPandcatastrophic insurance.Itshouldbekeptinmindthatthefirstresponsephaserequiresshort-termre-sources,whereasthereconstructionphasecallsforme-dium-termresources,sinceitinvolvesaplanningprocessthatcantakeayearorlonger.
The following mechanisms and instruments are current-ly in place for use in response to a disaster:
■■ Budget reallocations and extraordinary credits. Ac-cordingtotheGeneralStandardsforBudgetManage-ment,whenadisasteroccurs,budgetedfundsmaybereallocatedandextraordinarycreditsmayberequest-ed.Thesearethebudgetarymechanismsavailableforimplementinganexpansionofthedeficitlimit.
■■ Panama Savings Fund.Thisfund,createdunderLaw38ofJune5,2012,establishesmechanismstoensure
7 Theemergencyfund isoneofthefinancial instrumentsthatthegovernmentintendstoevaluate.
Residual risk
Residual risk(e.g.,improvedpublicassetcoinsurance
scheme,catastrophicinsurance basedonjoiningCCRIF)
Agriculturalinsurance
Micro-insurance
Rete
ntion
Low
MInor Major
High
Freq
uency
Severity
Tran
sfer
Post-disaster creditPanama Savings Fund
Contingent credit lines
Emergency fund/budget reallocation or extraordinary credit
Figure 1. Layered Financing Strategy for Disasters Associated with the Impact of Natural Hazards (existing instruments and instruments yet to be assessed)
Note:Theinstrumentscurrentlyineffectincludethecoinsuranceschemeforpublicassets,agriculturalinsurance(managedbytheAgriculturalInsuranceInstitute[ISA]),andtheFAP,aswellaspost-disastercredit,contingencylinesofcredit,andbudgetaryreallocationorextraordinarycredit.Theinstru-mentsstilltobeevaluatedaretheimprovedcoinsuranceschemeforpublicassetsandcatastrophicinsurance,whichcouldbeobtainedthroughpartici-pationintheCCRIF;micro-insurance(tobeimplementedbytheSuperintendencyofInsuranceandReinsurance);andtheemergencyfund.
10StrategicFrameworkfortheFinancialManagementofDisasterRisk
long-termsavingsforPanamaandstabilizationintheeventofemergenciesandeconomicslowdowns; it isalsomeanttoreducetheneedtousedebtinstrumentsinresponsetosuchsituations.Accordingtotheregula-tionsonfinancinglimits,theGoPcanrequestpermis-siontoraisefinancinglimitsuptoamaximumof1.5percentofGDPintheeventofespecially largedisas-ters.According to thedrawdownrules, theGoPmayuseFAPresourceswhenastateofemergencyhasbeendeclaredbytheCabinetCouncilandarequesttoraisethedeficitceilingupto1percentofGDPhasbeenap-provedbytheNationalAssembly,aslongasthecostsassociatedwiththeeventexceed0.5percentofGDPand theFAPcontinues tohaveassetsgreater than2percentofthenominalGDPforthepreviousyear.
■■ Post-disaster credit. Afteradisasterhasoccurred,thegovernmentcannegotiateloansfromthemultilateralorcommercialbankingsystems.
■■ Coinsurance scheme.According to theprovisionsofCabinetDecree17ofJune12,1991,inordertotrans-fertheriskofpublicassets,allstateinstitutionsmusthave a risk management system that considers theGoP a single client. Thismeans that a standardized,collective,andcentralizedschemeexists,but itcouldbeimproved.Towardthatend,allpublicassetswillbeinventoried, risk assessment studieswill be conduct-ed,andproposalswillbesubmittedforimprovingthetermsandconditionsoftheinsurancepolicies.
■■ Contingent credit lines. Contingent credit lines aresigned for the purpose of ensuring liquidity in theeventofemergenciesduetodisastersassociatedwiththeimpactofnaturalhazards.TheGoPhasnegotiatedcreditfacilitieswiththeWorldBankandtheIDBthatguaranteethefinancialresourcesneededtodealwithdisaster-related contingencies. ADevelopment PolicyLoanwithaCatastropheDeferredDrawdownOption(DPLwithaCatDDO)intheamountofUS$66millionwas signed with the World Bank effective March 7,2012.Thisinstrumentisalineofcreditthatbecomesactivewhenanationalstateofemergencyisdeclared,theGovernmentdecideshowtospendit,i.e,emergen-cy,reconstruction,etc. Inaddition,aNaturalDisasterContingencyLoanforUS$100millionwassignedwiththeIDB,effectiveOctober3,2012.Thisloanisapara-metric instrument covering floods and earthquakeswithcharacteristicsspecifiedintheloanagreement.
To strengthen and supplement these instruments, the MEF will evaluate the following approaches:
■■ Contracting catastrophic insurance through par-ticipation as a member country in the Caribbean Catastrophe Risk Insurance Facility. The CCRIF is a platformthroughwhichmembercountriessharerisksandcapital toensuremoreeconomicalaccesstothereinsurance markets. This joint reserve mechanismgives Caribbean governments access to short-termliquidity during rare and severely destructive cata-
Source: GhesquiereandMahul(2010)
Figure 2. Financing Needs over Time
ReconstructionRelief Recovery
Time
Resourcere
quire
men
ts($
)
StrategicFrameworkfortheFinancialManagementofDisasterRisk11
strophicevents,specificallyhurricanewindsandearth-quakes—anarrangementthatprotectspublicfinanceand supports the government’s response capacity. AproductforexcessiverainshouldalsobeavailabletocurrentmembersofCCRIFatsometimeinthefuture.TheGoP isevaluatingwhether this regional initiativeshould supplement its current financial instruments.As part of the process, studies are being conductedthatwillmakeitpossibletoassesstheriskstobecov-ered.Inaddition,thecountry’saverageannuallosshasbeenestimated,aswellasitslossesaccordingtodiffer-entprobabilitiesofoccurrence. The resultswill formthebasis for settingprices on risk transfer products.In short term, coverageunder theCCRIF earthquakeparametricinsurancepolicywillbeevaluated.
AnyconsiderationofcatastrophicinsurancemustkeepinmindtheprovisionsofLaw38of2012,whichcreat-edtheFAP.Underthelaw,in2015theMEFmaycon-tract catastrophic insuranceasapreventivemeasuretoguardagainstpossibledisastersduetonaturalphe-nomena,anditmaymaintainthisinsuranceaslongastheassets intheFAPdonotexceed5percentoftheGDPforthepreviousyearandthecostofthepremi-umsisnogreaterthan0.3percentoffundassets.
■■ Strengthening the coinsurance scheme. Cabinet Decree17of1991,whichsetsthetermsfortheman-agement of state insurance, distinguishes betweenstandard and special insurable risks, as stipulated inthe InsuranceTariffManual.Thestate is regardedasa sole client, forwhichan insurablevalue is coveredbypaymentsonapropertyinsurancepolicy.Basically,theGoPhasastandardized,centralized,collectivein-suranceschemethatcoversitsstandardrisks.
The MEF seeks to improve the efficiency of contract-ing insurance for infrastructure buildings and public services. Accordingly,itplansto(i)conductaninven-tory of public property and information systems for
managingtheriskoftheseassets;(ii)carryoutstudiestoassesstherisksforpublicassets;(iii)strengthenthegovernment’sinsurancecontractingpolicybyupdatingtheInsuranceTariffManualandnegotiatingandupdat-ingnewtermsandconditionsfortheinsurancepolicies(consideringfirstlossinsurance)andbondscontractedforbythestate;(iv)conductstudiesonmaximizingthebenefitofhavingastandardized,centralized,andcol-lectiveinsurancesystem;and(v)developaRiskMan-agementPolicyforthegovernment.
■■ Creating an emergency fund. According to the IDB(2013), recurring events are partially covered withbudget reallocations. The cost of these events is es-timated to range between 0.18 and 0.22 percent ofGDP(US$63milliontoUS$77millionin2012)andmayreachashighas0.4percentofGDPinsomeyears.Toavoidimpactonprogrammedinvestments,theGoPisconsidering creation of an emergency fund to covereventsofthiskind.Thisinstrument,whichisprovidedforinthePNGIRD,wouldrequireclearidentificationofthemechanisms forallocatingresourcesandspecify-ingtheiruse,andwouldalsoneedtobetiedwiththeNationalEmergencyPlan.
Creationoftheemergencyfundwouldaffectanyplansfor obtaining catastrophic insurance through partic-ipation in the CCRIF, since holding resources in thisfundwouldbeconsideredaretentionmechanismthatwouldhavetobequantifiedasadeductibleamountinthecatastrophicinsurancescheme.
■■ Establishing standards for insuring concessions. The generationandmaintenanceofnationalinfrastructurethroughthemodalityofconcessionsareaveryimport-antactivityfortheGoP.ItisthereforeintheGoP’sbestinteresttohavetheseassetsinsuredaccordingtothebestinternationalstandards.TheMEF,throughDICRE,willanalyzeandrecommendpolicyimprovementsfortheconcession’sinsurance.
12StrategicFrameworkfortheFinancialManagementofDisasterRisk
Strategic Pillar 4DEVELOPMENT OF THE DOMESTIC INSURANCE MARKET
Panama’s average insurance penetration is high compared with the rest of Latin America’s, and the government is interested in increasing it. In 2012,Panama’s insurance penetration ratio (personal andgeneral lines of business) was 3.2 percent, comparedwith3.0percentforLatinAmericaasawhole.Panama’sratiothusrepresentsasizablepenetrationofthenationalinsurance market.8 Developing the domestic insurancemarketwouldincreaseaccesstoinsuranceforbothprivatecompaniesandthepopulation ingeneral.Thiswould inturnreducethedemandforstateresourcesintheeventof disasters andenable the government to concentrateits resources on restoring affected infrastructure andsupportingthemostvulnerablesectorsofthepopulation.
Within this context, the following steps will be taken:
üStrengthen regulation of the insurance sector. Law12 of April 3, 2012, restructured the regulation andsupervisionoftheinsurancemarket.ItrecognizestheSuperintendencyof InsuranceandReinsuranceasanautonomousagencyofthestate,oneresponsibleforregulating,controlling,andoverseeingthecompanies,entities,and individualssubject toapplicationof thelaw for thepurposeofguaranteeing the solvencyofinsurancecompaniesandtheadequateprotectionofinsuredparties.TheSuperintendencyofInsuranceandReinsurancehasestablishedapreliminaryworkplanfor the short,medium, and long term that includescontinuousconsumereducation,strengtheningofre-serves,regularadvisoryservicesfrominternationalor-ganizations,andotherinitiatives,allforthepurposeofattainingtheobjectivessetforthinthelaw.
8 SeeSigma(2013)andtheSigmawebsiteathttp://www.sigma-explorer.com/index.html.
üExpand agricultural insurance. Law 34 of April 29,1996, which created agricultural insurance and theAgricultural Insurance Institute (Instituto de SeguroAgropecuario,orISA),strengthenedregulationoftheagriculturalsectorbyensuringthatagriculturalentre-preneurswere indemnifiedfor fortuitous investmentlossesandbygrantingtheISA,amongitsfunctions,thepowertomanageandcreatenewinsurancebranchesforactivitiescarriedoutintheagriculturalsector.TheISAiscurrentlyworkingonadraftbilltoupdateLaw34of1996;theaimistoexpandthesupplyofagriculturalinsuranceproductsinordertoreducethefiscalburdenthat disasters associated with the impact of naturalhazardsplaceonthesector.
üDevelop new micro-insurance products. Law 12 of2012, which restructured the regulation and super-visionoftheinsurancemarket,definesthesupplyofmicro-insurance products. The GoP is interested inpromoting programs aimed at developing new mi-cro-insuranceproductsandexpandingpenetrationinthe productive sectors and the general population.Thesupervisorof InsuranceandReinsurance is look-ingtoexpandthiskindofinsuranceprogramthroughmarketchannels.
Implementation of this strategic pillar will be enhanced by fostering an insurance risk culture. Among thesuccessfuldriversofthispillarisanaggressiveeducationcampaign—carried out by the supervisory of Insuranceand Reinsurance—that seeks to educate consumersaboutinsuranceanditsbenefits.
StrategicFrameworkfortheFinancialManagementofDisasterRisk13
Strategic Pillar 5STRENGTHENING THE DICRE SO IT CAN FULFILL ITS ROLE IN DESIGNING AND IMPLEMENTING FINANCIAL PROTECTION STRATEGIES
DICRE is the unit of the MEF that is responsible for de-signing and implementing a financial strategy for man-aging fiscal risk due to disasters associated with the im-pact of natural hazards. TheMEFcreatedDICREunderExecutiveDecree110of2009andentrusteditwithfunc-tionsrelatedtotheoversightofmixedenterprises.Thesefunctions were subsequently modified under ExecutiveDecree479of2011,whichmadeDICRE responsible fordesigningandimplementingafinancialpolicyfordisasterriskmanagement.
The risk-related functions of DICRE include the follow-ing:
1. Setting standards and defining procedures thatwillguaranteetheestablishmentofamodernsystemofrisks, insurance, and bonds for assets that requirethem,includingtheconstructionofinformationsys-temstotrackassetsownedbythestate
2. Draftingpoliciesonstateriskmanagement,includingpolicieson risks, insurance,andbonds;anddesign-ing,developing,andimplementingriskmanagementprogramsapplicablethroughoutthecountrythatareconsistentwiththesepolicies
3. With technical assistance from SINAPROC and theNational Risk Management Platform, coordinatingstandardization of the information and criteria forquantifying and assessing damage caused by disas-ters
4. RepresentingtheMEFontheExecutiveCommitteeofthe ISA
In2013,DICREwasalsodesignated the focalpointandrepresentativeoftheMEFontheNationalRiskManage-mentPlatform.
For DICRE to fulfill these functions, its capacity must be strengthened. Accordingly, work in the following areas is under way:
1. EstablishmentoftheDepartmentofRisks,aspecial-izedunitthatwillberesponsibleforoverseeingcom-pliance with each of the functions assigned to theDICRE
2. Design and implementation of the State RiskMan-agementPolicy
3. CreationofasystemformonitoringandauditingtheStateRiskManagementPolicy
4. ReactivationoftheInsuranceTechnicalCommittee
DICRE will draw up a plan for each government admin-istration, both in order to set targets with respect to implementation and in order to monitor progress along the pillars of the Strategic Framework for the Financial Management of Disaster Risk.
14StrategicFrameworkfortheFinancialManagementofDisasterRisk
Disasters associated with the impact of natural haz-ards pose a major challenge to the effectiveness and sustainability of public policies related to social
inclusion, poverty reduction, the planning of public fi-nance, and the prudent administration of Panama’s pub-lic debt and its assets.Becauseofthecountry’sgeographi-callocationandgeotectoniccharacteristics,itisexposedtoavarietyofhydrometeorologicalandgeophysicalhazards.In addition to long-standing risk patterns in rural areas,Panamamustnowaddressgrowingurbanvulnerability—aproductofrapideconomicgrowththatplacespeopleandassetsincreasinglyatrisk.Oneoftheclearestexpressionsofthesenewriskpatternsistheincreaseinlossesassociat-edwiththeoccurrenceofnaturalhazardsthatthecountryhaswitnessedinrecentyears.Giventhiscontext,thegov-ernmentiscommittedtodevelopingstrategiestomanagefiscal risk inorder to strengthen theeconomic resilienceofthestateandensurethecontinuityandsustainabilityofdevelopmentprocesses.
Through Executive Decree 578 of November 13, 2014, the GoP created its guiding framework for managing fiscal risk in the event of disasters associated with the impact of natural hazards.TheStrategicFrameworkforthe Financial Management of Disaster Risk, which wasformally approved under the decree, includes the fol-lowingfive strategicpillars: (i) identification,quantifica-tion,andunderstandingoffiscalriskduetodisasters;(ii)incorporationofdisasterriskanalysis in theplanningofpublic investment; (iii) formulation of components fordevelopingandimplementingriskretentionandtransferinstruments;(iv)developmentofthedomesticinsurancemarket;and(v)strengtheningoftheDICREsoitcanfulfillits role indesigning and implementingfinancial protec-tionstrategies.
Adoption of the Strategic Framework was an important step within the GoP’s integrated approach to strength-ening disaster risk management.Havingtheframeworkin place represents significant progress toward accom-plishingtheactionsplannedalongoneofthearticulatingpillarsof theNationalPolicyon IntegratedDisasterRiskManagement. ItcanalsobeseenascontributingtotheMEF’sgoals,whichincludeinsertingriskanalysisinpublicinvestmentprocesses,adoptingmechanismstomonitorpublic expenditure on riskmanagement, and collectinginformationtoquantifytheexposureofstateassets.
Important lessons have been learned from the experi-ence of the GoP.Thegovernment’sprogressindesigning
andimplementingthestrategyforfiscalriskmanagementintheeventofdisastersassociatedwiththeimpactofnat-uralhazardssuggeststhevalueofincorporatingfinancialmanagementofdisasterriskwithintheframeworkoftheNationalPolicyonIntegratedDisasterRiskManagement.It also suggests thebenefitsof formalizing this strategythroughadecreethatreflectsthecountry’scommitmenttothedifferentinstrumentsthatitplanstoevaluateinor-dertosupplementtheexistinginstruments.Theprocessthat leduptotheadoptionofthisStrategicFrameworkhasproduced some lessons learned thatmaybeusefulforothercountriesengaging insimilarprocesses.Theselessonsincludethefollowing:
■■ Havinganationalpolicy inplacethatpromotescom-prehensive disaster risk management, including acomponent on financial riskmanagement, has beenfundamentalforsustainingthecountry’scommitmenttoformulatingandadoptingtheStrategicFramework.
■■ Similarly,theexplicitassignmentofresponsibilitiestotheMEFandparticularlytoDICREinconnectionwithboth the National Policy on Integrated Disaster RiskManagementandtheNationalDisasterRiskManage-mentPlan2011–2015hassupportedexpansionoftherolesandresponsibilitiesofDICREforaddressingtheissuesoffinancialprotection.
■■ Includingindicatorsortargetsrelatedtofinancialriskmanagement in contingent credit facilities and pro-grammaticandpolicyloansnegotiatedwiththeWorldBankandtheIDBhasservedtocatalyzethesefinancialriskmanagementprocessesandfueltheirmomentum.
■■ Moreover,theofficialactiveparticipationoftheMEFthroughDICREintheNationalRiskManagementPlat-form hasmade it possible to shield these processesandhasgraduallyempoweredtheMEFinallareasre-lated todisaster riskmanagement that fallwithin itscompetence.
■■ The incremental approach—defining guidelines forformulatingtheframework,includingtheconsultationprocesswithintheMEFandotherrelevantinstitutions,andincorporatinglessonslearnedandgoodpracticessuggested by the CEPREDENAC,World Bank, the In-ter-AmericanDevelopmentBank, theUnitedNationsOffice for Disaster Risk Reduction (UNISDR) and theGlobal Facility for Disaster Reduction and Recovery(GFDRR)—hasbeenakeyfactorinarrivingataStrate-gicFrameworkthatisbackedbythenecessaryconsen-sustoformalizeitasanexecutivedecree.
Summary and Conclusions
StrategicFrameworkfortheFinancialManagementofDisasterRisk15
■■ The retention and transfer instruments currently inplaceshowthefeasibilityofalegalframeworkthatal-lowsthestandardized,centralized,andcollectiveman-agementfortheinsuranceofpublicassets.
■■ Carrying out actions along the framework’s variousstrategicpillarshasshowntheneedforafive-yearop-eratingplantoguidetheframework’simplementation.
16StrategicFrameworkfortheFinancialManagementofDisasterRisk
Agricultural insurance: Toolformitigatingrisksthaten-ablesfarmerstotransfertothirdpartiesclimaterisksthatthreatentheirproductiveactivities.Throughagriculturalinsurance,producers can coverbiological risks andnat-ural risks such as excess or insufficient rainfall, strongwinds,floods,freezes,hail,andlandslidesoravalanchesofclimaticorigin.
Budget reallocation: Thereassignmentofresourcesbe-tweenonebudget lineandanother, changing thecom-positionofapprovedexpendituresinthebudgetwithoutaffectingthetotalexpenditure.
Contingent liabilities: DefinedunderArticle7ofLaw34ofJune2008asobligationsoriginatingfromspecificinde-pendenteventsthatmayormaynotoccurinthefuture.
Critical public assets: Public assets and infrastructurenecessaryforgovernabilityandemergencyresponse.
Disaster: A serious interruption in the functioning ofa community or society that causes a large number ofdeaths,aswellasmateriallosses,economicimpacts,andenvironmental impacts that cannot be adequately ad-dressed by the affected community’s own resources. Itistheresultofacombinationoffactors,includingexpo-suretoahazard,existingconditionsofvulnerability,andinsufficientcapacitytocontendwithorreducethepos-siblenegativeconsequences.Inadditiontodeath,disas-terscancauseinjury,disease,andotherharmtophysical,mental,andhumansocialwell-being,andcanalsocausedamagetoproperty,destructionofassets,lossofutilities,socialandeconomicupheaval,andenvironmentaldegra-dation.
Disaster risk: Potentialdamagesorlossesthatmayoccurduetohazardousnaturalphysicaleventswithinaspecifictimeperiod,determinedbythevulnerabilityoftheassetsexposed.Hence,disasterriskisderivedfromthecombi-nationofhazard,vulnerability,andexposure.
Disaster risk management: Thecapacityofasocietyandits public officers to transform or avoid conditions thatleadtodisastersbyactinguponthecausesthatproducethem.Itshouldbeunderstoodasanecessarycharacter-isticofdevelopmentmanagementratherthanaspecificseparateactivity—inotherwords,itsmaincharacteristicisthatitispresentatalllevelsofdevelopmentplanning.
Extensive risk: Riskassociatedwithfrequentlow-severityevents,suchasfloods,landslides,orhighwinds.
Financial management of disaster risk: The set of pol-icies, guidelines, and instruments for the managementofdisasterriskthatmakesitpossibletoaccesseconomicresourcesonatimelybasisinordertoimproveresponsecapacityatthetimeofadisasterwhilealsopreservingthefiscalbalanceofthestate.
Fiscal risk: Futureresourcepressureonanentity’sbud-get. The sources of fiscal risk include macroeconomicshocksandtherealizationofcontingentliabilities.
Geophysical hazard: Latentdangerfromaneventofgeo-physicalorigin,suchasanearthquake,volcaniceruption,tsunami,landslide,oravalanche,amongothers,thatoc-curswithsufficientseveritytocauselossoflife,injury,orotherimpactsonhealth,aswellaslossofordamagetoproperty,infrastructure,meansoflivelihood,deliveryofutilities,orenvironmentalresources.
Hydrometeorological hazards: Naturalatmospheric,hy-drologic,oroceanographicprocessesorphenomenathatcancauseinjuryorlossoflife,damagetoproperty,socialand economic upheaval, or environmental degradation.Examplesofhydrometeorologicalhazardsincludefloods,mudordebrisflows,tropicalcyclones,tidalwaves,tem-pests and hailstorms, heavy rainfall and wind, heavysnowfall, other severe storms, drought, desertification,forestfires,extremetemperatures,sandorduststorms,andseverefreezing.
Intensive risk: Risk associated with infrequent eventsofgreatintensitythattakeahightollonhumanlife.In-tensiveriskisconcentratedinafewlocations—generallylargeurbanareas—thatcombinehighexposuretopoten-tiallydestructivehazards(suchasearthquakes)withhighvulnerability.
Natural hazards: Allatmospheric,hydrologic,andgeolog-ic(especiallyseismicandvolcanic)phenomenaandfires,which, becauseof their location, severity, and frequen-cy,havethepotentialtoadverselyaffecthumanbeings,theirstructures,andtheiractivities.The“natural”qualifi-erexcludesallphenomenacausedexclusivelybyhumans,suchaswarsandpollution.Thetermalsoexcludeshaz-ardsthatarenotnecessarilyrelatedtothestructureandfunctionofecosystems—forexample,infections.
Nonfinancial public sector: The sector composedof alltheentitiesofthecentralgovernmentandallnonfinancialpublicenterprises.InPanama,itdoesnotincludepublicdeposit-taking financial institutions, the Panama Canal
Glossary
StrategicFrameworkfortheFinancialManagementofDisasterRisk17
Authority, Tocumen International Airport (AeropuertoInternacional de Tocumen, S.A.), the National HighwayEnterprise(EmpresaNacionaldeAutopistas,S.A.),ortheElectricPowerEnterprise(EmpresadeTrasmisionEléctri-ca,S.A.).
Public debt: A passive financial instrument issued by apublic entity (country, province, state, department, dis-trict, ormunicipality) that seeks to obtain funds in thelocalandinternationalmarketsagainstthepromiseoffu-turepaymentandincome;thedebtistobepaidatarateandoveratimeperiodspecifiedinsaidinstrument.
Risk assessment: Methodology fordetermining thena-tureanddegreeofriskbasedonananalysisofpossible
hazards andanevaluationof existing conditionsof vul-nerabilitywhich,consideredtogether,couldcausepoten-tialdamagetotheexposedpopulation,property,utilities,andmeansof livelihood,aswellastheenvironmentonwhichtheydepend.
Risk management system: Toolthatguaranteesthecor-rectidentification,evaluation,control,andmonitoringofriskstotheportfoliobeingcoveredagainstdisasterrisk.
Sudden expenditures: Unplanned expenditures thatariseunexpectedly.
18StrategicFrameworkfortheFinancialManagementofDisasterRisk
ANAM (National Environmental Authority. 2010. “FirstNational Communication to the United Nations Frame-workConventiononClimateControl” [PrimeraComuni-caciónNacional].
———. 2013. “Aumento de la resiliencia al cambioclimáticoy lavariabilidadclimáticaenelArcoSecoy laCuencadelCanaldePanamá:Notaconceptual.”ProposalpresentedtotheAdaptationFund.
CCRIF (Caribbean Catastrophe Risk Insurance Facility).2014.
CumminsandMahul (2009).CatastropheRiskFinancingin Developing Countries: Principles for Public Interven-tion.TheWorldBank.
GhesquiereandMahul(2010).FinancialProtectionoftheStateAgainstNaturalDisasters(Primer).TheWorldBank.PolicyResearchWorkingPaperNo.458
GovernmentofPanama.2012.“PlataformaNacionaldeReduccióndeRiesgodeDesastresdePanamá2012:pro-puestademovilizaciónderecursospara impulsar la im-plementacióndelPNGIRDydelPlanNacionaldeGestióndeRiesgos.”
IDB (Inter-American Development Band).2010. “Indica-doresdeRiesgodeDesastreyGestióndelRiesgo,Pana-má”.NotasTécnicasNo.IDB-TN-169
IDB (Inter-American Development Band). Propuesta deDimensionamientodeunFondodeReservasparaEmer-genciasporDesastresNaturales.DivisióndeMercadosyCapitales,BancoInteramericanodeDesarrollo.2013
Sigma. 2013. “World Insurance in 2012: Progressing ontheLongandWindingRoadtoRecovery.”Sigma3/2013,SwissReLimited,Zurich.http://media.swissre.com/docu-ments/sigma3_2013_en.pdf.
UniversityofPanamaInstituteofNationalStudies.1990.“DesastresnaturalesyzonasderiesgoenPanamá:Condi-cionantesyopcionesdeprevenciónymitigación.”
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