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OPINION December 8, 2021

Progress in Post-Earthquake Recovery in Albania

An Interview with Emanuel Salinas, World Bank Country Manager for Albania.

Monitor Magazine: We are now two years from the earthquake of November 26, 2019, which caused extraordinarily devastating impacts What is your opinion on the progress of the reconstruction process trying to minimize these impacts?

ES: Immediately after the earthquake, the Government of Albania, with the support of the EU, international financial institutions, and bilateral partners, was able to mobilize unprecedented financial support to overcome the impacts. The reconstruction process is ongoing, despite restrictions imposed by the pandemic, and the principles of Build Back Better have been implemented to the extent possible, supported by an improved legal framework.

Prior to the earthquake, in the summer of 2019, the Government passed the Law 45/2019 on Civil Protection, which pursues a revamped and modern approach to disaster risk management. Following the earthquake, several decrees and orders were issued to support rapid reconstruction and recovery. More recently, a series of decrees that operationalize the 2019 law have been issued, for example mandating risk assessments and development of a new national strategy for disaster risk reduction. This demonstrates serious policy commitments to minimize the future impacts of natural hazards.

Monitor: In what form is the World Bank assisting Albania’s recovery efforts? What has been done so far in this regard?

ES: Within three weeks after the earthquake, the World Bank produced a Global Rapid Post-Disaster Damage Estimation (GRADE), which made significant contributions to the subsequent Post Disaster Needs Assessment (PDNA), published in February 2020.

Together with the Government we reviewed the ongoing projects to consider the potential reallocation of resources to address immediate demands. Under the existing Health System Improvement Project (HSIP) we are supporting the reconstruction of Laci Hospital (around Euro 3.0 million) and part of the Pediatric Hospital under the Mother Theresa National Referral Hospital in Tirana known as QSUT,which was damaged by the earthquake (around Euro 1.5 million). Also, under the Results-based Road Maintenance and Safety Project, the Bank provided support for the rehabilitation of the national road segment Tirane – Ndroq – Plepa to improve access to the area designated for new residential buildings/facilities for the families that lost their homes.

We have also been working with the Government to produce several analytical documents and guidance to support policy and decision making with regard to risk resilience and disaster risk financing, including:

  • A Disaster Risk Finance Diagnostic;
  • Assessment of emergency preparedness and response capacity and an investment plan to fill the identified gaps;
  • Assessment of impacts of pandemic and disasters on firms;
  • Assessment of fiscal impacts of disasters;
  • Guidance on improving disaster damage and loss assessment, and making disaster risk information more accessible;
  • Guidance and training for municipalities to access, use and manage disaster risk information; and
  • Assessment of scalability of social protection programs in Albania.

In addition, 500 students aged 6-18 from 48 schools in the areas most affected by the earthquake received tablets as part of a program through the Ministry of Education, funded by World Bank staff donations and supported by UNICEF.

Monitor: What are some of your institution’s future commitments related to either the reconstruction process or the preparation for coping with similar situations?

ES: The Additional Financing of Health System Improvement Project (approved by the World Bank Group’s Board of Executive Directors on December 1, 2021), has overseen the rehabilitation of 6 hospitals, including medical equipment refurbishing for some of them, as follows:

  1. Rehabilitation of the Hospital of Kruja;
  2. Rehabilitation of the Hospital of Lezha;
  3. Rehabilitation of the Angiology and Cardio Surgery Department (under the QSUT), supplying 112 beds;
  4. Rehabilitation of the Psychiatric Hospital (under the QSUT);
  5. Rehabilitation of the Burn and Plastic Surgery Department (under the QSUT), with 35 beds;
  6. Additional civil works and equipment for the General Pediatric Hospital (under the QSUT) to address the damages and complete the rehabilitation; and
  7. Equipment for the Hospital of Laci (the parent Project – Health System Improvement Project finances civil works).

Total financing of the above civil works (including the designs) and equipment is Euro 16.8 million.

In addition, the World Bank will be consolidating all of the various assessments performed by the Government, the World Bank and other development partners in order to provide guidance on investment prioritization for disaster risk management. Depending on what the Government identifies as investment priorities, we stand ready to perform a deeper assessment of these potential activities. We will also develop a good practice guide for municipalities to pursue disaster risk management.

Currently, the Government does not have a comprehensive disaster risk finance program in place; it must rely on ex-post financing (e.g. budget cuts and borrowing) to cover post-disaster costs. On average, over $130 million may need to be covered annually through ex-post financing, with half of these costs in the residential sector. For major disasters, the funding gap —the difference between financing available and needed —could reach $2 billion (about 13% of Albania’s GDP). The COVID-19 pandemic has exposed the country to another type of external costly event. Financing the government’s response necessitated substantial borrowing and budget cuts (Report: The impact of COVID19-related budget reallocation). Introducing a more comprehensive program that relies on diversified sources of funding will enable cost-effective and timely financial management of major shocks. The Government could generate savings of almost 25% in case of major disasters by introducing such a program. We stay committed to supporting the Government in preparing and implementing such program.

Also, the Bank is supporting the Public Procurement Agency to prepare a set of detailed rules on how to plan and conduct procurement procedures in case of emergency including natural disasters. The scope of this support would need to include  the technical specifications for goods and works as well as climate related disaster resilience standards in order to strengthen the quality of investments and prevent future disaster damages.

Monitor: The World Bank placed a special emphasis in the report "Disaster Risk Finance Diagnostic" on floods and earthquakes, describing them as the biggest risks facing Albania. Do you see advancement in terms of building technical capacity or the adoption of the necessary legal framework aimed at minimizing the impacts in these cases? What can be done better?

ES: Earthquakes and floods in Albania can be devastating, but these are two quite different hazards in terms of their management. Earthquakes are rarer events that can cause extreme loss and destruction, like the 2019 earthquake. Floods, on the other hand, happen more frequently and while the impact of every single one of them is less severe, when added up, the loss becomes substantial. Beyond direct costs, these two perils have a series of indirect impacts, and can result in hardships for households and businesses — especially the most vulnerable ones.

To address disaster resilience comprehensively, several factors need to be addressed simultaneously: physical resilience —which includes, for instance, seismic reinforcement; social resilience —which includes better early warning and emergency preparedness; and financial resilience —which includes preparedness to manage financial and fiscal impacts of disasters.

The Government is working on addressing earthquake and flood risk through disaster risk reduction. An important step will be for the government to take steps towards the implementation of the EU Flood Directive.

The Government’s current approach to financial management of major disasters centers on the government budget – this includes using budget reallocations and borrowing, and donor assistance. While these are both important sources of financing, they can have high opportunity cost of revenues foregone and in some cases, funding might be delayed. It is important to address financial resilience comprehensively, and in advance, through a governmental program that mobilizes private sector capital, targets the effectiveness of using public finance and its transparency, and ensures there is enough funding to respond to and mitigate post-disaster impacts.

It is also important to safeguard the most vulnerable people in Albania and those who can fall into poverty because of disasters, allowing them access to scalable social protection programs that are quick enough to prevent poverty traps.

Monitor: There was a wide-ranging discussion regarding compulsory earthquake-related insurance, but so far it has remained as a draft, never finalized. In your opinion and based on similar experiences, which model is best suited to Albania? How can the introduction of such a scheme be encouraged?

ES: Albania is highly vulnerable to natural disasters and climate change. Yet, the insurance coverage for natural hazards among homeowners and small and mid-size businesses is very low—  only 2-3 houses out of 100 currently have private catastrophe insurance coverage.  In case of a major event these businesses would have to appeal for government assistance. Ensuring the financial protection of homeowners from natural disasters becomes even more important in light of a limited financial capacity of the Government to respond to natural disasters. As part of the Financial Sector Assessment Program (FSAP) in 2014, we have recommended to the Government the introduction of a sound national catastrophe insurance program in Albania in line with successful experiences of other countries. Following the November 2019 Earthquake, we have re-emphasized the need for such a national insurance program, starting with earthquake risk coverage. Catastrophe insurance programs exist in many countries with high exposure to natural catastrophes, such as New Zealand, Turkey, Switzerland, France, Spain, USA, Romania, Japan – just to name a few. It is important to learn from their different features when designing Albania’s catastrophe insurance program.

There is a wide variety of options to structure a catastrophe insurance program. This is driven by many features that are addressed differently based on government priorities. For example, a decision has to be made on how the insurance premium will be assessed: New Zealand’s Earthquake Commission (EQC) charges a solidarity / flat premium, while the California Earthquake Authority (CEA) charges based on risk. The Turkish Catastrophe Insurance Pool (TCIP) combines these two approaches.

There are major differences in governance structures — such programs are sometimes managed by a public body (as in the case of EQC) or the private sector (CEA), but often they are public-private partnerships.

Another key feature is if the policy is voluntary or compulsory. For example, in the case of California, the insurance policy is voluntary. In France, catastrophe insurance is a mandatory extension. In Turkey, catastrophe insurance is mandatory. In general, in developing countries with high exposure to natural risks like earthquake, insurance against these risks is of mandatory nature, to ensure coverage of more households, thus potentially reducing premiums for all and ensuring fairness (where the government does not feel compelled to support the uninsured).

The World Bank has provided advice in the past to the Albanian authorities in designing the concept of a national catastrophe insurance program, taking into account best international practices and the specific circumstances of the country. We stand ready to continue our support for further calibrating the concept and its subsequent implementation.

We have no doubt that such programs help achieving stronger financial resilience of both people and governments.

This interview was originally published in Albanian by Monitor.