Indonesia is one of the most disaster-prone countries in the world. Perched on the Pacific “Ring of Fire,” it is home to 76 active volcanoes. An archipelago of tens of thousands of islands spanning 5,100 km from one end to the other, in recent years, tsunamis have pounded the shores of North Sumatra, Sulawesi and West Java. Volcanic eruptions, flooding, and landslides, infrequent events elsewhere, are regular occurrences in Indonesia.
In addition to the cost to human life and property, Indonesia has borne a heavy financial burden in responding to and recovering from natural disasters. Between 2014 and 2018, the central government spent between US$90 million and US$500 million annually on disaster response and recovery, while subnational governments spent an estimated additional $250 million, a recent analysis found. This means that between 1.4 percent and 1.9 percent of total central government spending over this period was related to natural disasters, two to four times more than the government had expected.
Support to protect Indonesia’s budget and assets
During the Annual Meetings of the World Bank Group and International Monetary Fund in Bali in 2018, Indonesia hosted a high-level international dialogue on disaster risk finance.
Related to the National Disaster Risk Finance and Insurance (DRFI) Strategy, Sri Mulyani Indrawati, Indonesia Finance Minister stated at the time, “Throughout the years, the government has relied solely on the state budget to cover the cost of disasters. It poses a risk to the budget allocated for other priority sectors such as education, health, and to programs of subnational governments.” The Minister further conveyed in the preface to a publication on the DRFI published in December 2018, “This strategy will allow the Government to seek financial solutions and innovation for alternative funding to complement the State Budget for disaster financing.”