IMF calls on Caribbean to take climate change action

The IMF issued a call for Caribbean nations to bolster insurance protection and resilience infrastructure in the face of the rising risk of natural disasters with climate change.

"As global warming continues to increase sea-water temperatures, the Caribbean is becoming more vulnerable to increasingly frequent and damaging natural disasters," said IMF in a statement. "Policies that build resilience in Caribbean countries - such as strengthening physical infrastructure and putting in place insurance protection - can help minimize the human and economic costs of natural disasters and preserve the region's majestic beauty."

Recalling the impacts from Hurricanes Maria and Irma in September 2017, and noting that it would take Dominica's output "at least 5 years to recover to pre-hurricane levels," the entity urged countries to move quickly to enact collaborative climate-resilience strategies.

The subregion will have to overcome challenges. IMF said insurance uptake is currently low for both the public and private sectors with the average insurance gap at around 66% "reflecting high insurance costs and competing demands on scarce resources."

"Governments rely mainly on the regional insurance pool, the Caribbean Catastrophe Risk Insurance Facility, created in 2012 to provide quick payouts to limit the financial impact of devastation storms for Caribbean governments," said IMF. "But payouts are limited when compared to damages."

"Innovative risk-sharing tools such as catastrophe bonds (cat-bonds) have not been issued by Caribbean states, given their complexity and high setup costs," it added.

Comprehensive response

While calling for construction of resilient infrastructure, adequate land-use, zoning rules and building codes, IMF acknowledged, "building resilient infrastructure takes time and risks cannot always be averted."

Thus, said the fund, "Securing financial protection, for example, through insurance and provisioning for dealing with the aftermath of natural disasters will be needed to accompany building structural protection. As physical and social structures become more resilient, insurance needs and costs and the need for disaster relief should fall."

Identifying the Eastern Caribbean Currency Union (ECCU) as "a good example of how disaster-resilience strategy could have significant payoffs," IMF said its staff research shows that resilient public infrastructure could boost "potential output by 3-11% with an annual growth-dividend of 0.1-0.4%."

IMF encouraged countries to take the lead on their own local climate-resilience strategies, drawing support from multilateral development banks, donors, climate funds, and importantly, international financial institutions.

"International financial institutions would support countries in designing resilience strategies," said IMF. "These institutions could support capacity building to deepen insurance and financial markets, analyze risk-management strategies on public debt, and assess the net benefits of innovative risk-sharing tools, including contingent-debt instruments."

Such efforts should support Caribbean countries' ability to meet debt-service obligations following natural disasters, IMF noted.