Vietnam faces significant risks to multiple natural disasters such as floods, typhoons, droughts, and landslides. Approximately 60 percent of the total land area and 71 percent of the population are at risk of typhoons and floods. Vietnam’s average annual direct economic losses from floods and typhoons are estimated at 0.8 percent of its gross domestic product—the third-highest percentage among the member states of the Association of Southeast Asian Nations (ASEAN).
As part of the World Bank’s effort to support the Government of Vietnam in dealing with these challenges and strengthen financial risk management of public assets against natural and climate disasters, the Disaster Risk Financing and Insurance Program (DRFIP) organized a knowledge exchange and exposure visit to Japan. Between July 31 and August 4, 2017, leaders and practitioners from the Vietnamese Ministry of Finance, Office of the Government, National Assembly, visited Japan to share their knowledge and experiences with high-level Japanese officials and practitioners. Financial support for the visit came from the Program for Sovereign Disaster Risk Financing & Insurance in Middle Income Countries sponsored by the State Secretariat for Economic Affairs (SECO) of Switzerland and the Japan–World Bank Mainstreaming Disaster Risk Management Program.
Disaster Risk Finance and Insurance (DRFI) in Vietnam
The government of Vietnam has long recognized the substantial disaster risks faced by the country, and it has sought to move from an ex post, ad hoc approach to disaster response toward an ex ante approach that proactively manages disaster and climate risks. As part of its effort, Vietnam aims to strengthen long-term risk financing mechanisms to decrease the government’s fiscal exposure to natural hazards. The impact of natural disasters on public assets is one of the main sources of fiscal vulnerabilities for the country. In June 2017, Vietnam revised its Law on Public Asset Management, so that public assets that are highly exposed to natural disasters must now integrate financial risk management measures through a combination of financing instruments including insurance. In light of this revised Law, the Department of Public Asset Management of the Ministry of Finance is now upgrading the current public asset management database.
Knowledge Exchange between Vietnam and Japan on DRFI
The recent knowledge exchange between Vietnam and Japan aimed to support the development of decrees, regulations and the operationalization of financial risk management under the new Vietnamese Law. Specifically, it provided the Japanese and Vietnamese participants with the opportunity to
- Share experiences and good practices in DRFI policies and in financial risk management of public assets against natural disasters
- Discuss challenges and solutions in disaster risk finance and management, including management of databases of public assets such as roads, rivers, rails, and government buildings
- Learn lessons from experiences with reconstruction of public assets in disaster-affected areas
The Vietnamese delegation exchanged opinions with various Japanese national and local governments and private sector, including the Ministry of Finance (MOF) and two regional MOF bureaus, the Kanto Regional Bureau and the Tohoku Regional Bureau; the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) and MLIT Kinki Regional Bureau; the Ishinomaki City government; the General Insurance Association of Japan (GIAJ); and Tokyo Metro.
The Japanese MOF provided an overview of DRFI policies for public assets, emphasizing the importance of high-quality infrastructure that is resilient against natural disasters, as well as ex ante disaster financing mechanisms. The MOF also highlighted the legal and institutional framework for state asset management and a centralized asset database system. In addition, Japanese MOF introduced regional risk pooling initiatives including the Southeast Asia Disaster Risk Insurance Facility (SEADRIF), which was welcomed in the joint statement of the 20th ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting in Yokohama on May 5, 2017. Japanese MOF invited Vietnamese MOF to explore the potential of joining the SEADRIF as an option to complement the existing disaster risk financing instruments in the country and strengthen financial resilience.
MLIT focused on critical infrastructure asset management, including database management. The meetings with local offices of Japanese MOF and MLIT enabled the delegation to study the roles of the local offices in managing public assets. GIAJ shared its experiences in insuring infrastructure assets and advised the delegation on how Vietnam could develop an insurance mechanism for its own assets. Tokyo Metro highlighted the role of an efficient and resilient transportation system in urban areas such as Tokyo and Hanoi.