Road Map to Developing a Regional Risk Transfer Facility for CAREC

By Asian Development Bank

The Central Asia Regional Economic Cooperation (CAREC) region is highly exposed to natural hazards, particularly earthquakes and floods, and the adverse economic impacts of climate change. A regional disaster risk transfer facility could help CAREC countries diversify risk, reduce costs, increase access to international insurance and capital markets, and coordinate risk analysis and modeling. This report draws on lessons from other regions to explore opportunities and options for developing a CAREC Risk Facility. It suggests next steps in establishing a facility and considers the role of stakeholders including the Asian Development Bank.

• Language: English
• Publisher: Asian Development Bank
• Release date: Nov 1, 2023
• ISBN: 9789292704421

Book preview

1   Introduction

1.1 Technical Assistance Project

1.    This report is part of the technical assistance (TA) project of the Asian Development Bank (ADB) for Central Asia Regional Economic Cooperation (CAREC) member countries.¹ The project aims to strengthen their disaster risk management strategies and public sector budget resilience. The project has developed disaster risk profiles for each country by modeling losses from floods, earthquakes, and infectious disease outbreaks in each country. The design of a regional risk transfer program or facility to support the management of this disaster risk is now being assessed.

2.    Regional collaboration on risk transfer can provide efficiencies in the cost of financing. It can also support greater risk responsibility and ownership, producing services and solutions developed in consultation with member countries, reflecting their disaster risk financing and insurance (DRFI) priorities.

3.    Regional disaster risk transfer facilities for sovereigns across the world exemplify collaboration’s utility and benefits. Many of these facilities differ in characteristics and they specifically function to meet the identified needs of member governments. These indicate the possible role and function of the CAREC Risk Facility (CRF).

1.2 Structure

4.    This report considers the opportunities and options for developing a CRF to provide regional risk transfer for CAREC member countries. It includes a review of best practices and lessons from other regional facilities; points for consideration in the CRF’s creation and operations stages; and recommendations on the potential roles of various stakeholders, including ADB.

5.    Section 2 of this report shares the lessons learned from the existing regional risk facilities. Section 3 discusses options for a CRF, including its potential functions and other matters for consideration when planning for its creation and operations. Section 4 concludes with a proposed road map toward establishing the facility.

2   Lessons for CAREC from Regional Risk Facilities

6.    The existing regional risk facilities in Africa, the Caribbean and Central America, the Pacific islands, and Southeast Asia provide direct lessons for developing a CRF for the member countries of CAREC. In this report, key takeaways have been identified, explored further, and divided into two categories, both of which refer to factors contributing to the successes of the existing regional