​​Strengthening Disaster Resilience and Response in Latin America and the Caribbean​

​​​The World Bank is harnessing innovative financial and delivery mechanisms to help countries in Latin America and the Caribbean improve disaster risk management, reflecting those countries’ high priority of addressing elevated exposure to natural hazards in one of the most disaster-prone regions in the world.  The World Bank is increasing its focus on proactive approaches such as risk reduction, capacity building, improving resilience, and institutional strengthening to address potential disasters.

Challenge 

Some of the biggest development challenges in Latin America and the Caribbean relate to managing the risk of disasters, as well as macroeconomic shocks and subsequent secondary disasters. The annual number of disasters in Latin America and the Caribbean more than doubled from 1990 to 2022. Economic losses from disasters are substantial and are expected to increase: in 2022 alone, damages associated with disasters reached $9 billion. Such challenges impair national economies and can shrink the fiscal space for social protection to support poor and vulnerable households. One way to mitigate these challenges is to embed prevention and risk reduction activities in disaster risk financing strategies. Over the past decade, countries in Latin American countries have made strides in accessing a package of financing mechanisms to insure against disaster risks. However, while efforts to reduce disaster risk have tended to increase in a linear manner over time, risk is growing exponentially. Therefore, a whole systems approach is needed, with multifaceted and innovative actions to expand assistance and otherwise improve risk management, while also integrating more-adaptive social protection mechanisms 

Approach 

​The World Bank is addressing the ongoing increase in frequency and severity of disasters by working to integrate social protection with disaster risk management. This approach reduces the vulnerability of people and countries while improving their ability to react when adverse impacts materialize, and to build back stronger for the future when shocks and disasters occur. Thus, the World Bank focuses not only on measures that insure against risk and provide payouts when disasters unfold, but also on bundling such measures with policy reforms and strengthening institutional capacity to enhance resilience and disaster preparedness.  

​Development Policy Loans with Catastrophe Deferred Drawdowns (Cat DDOs) provide quick liquidity via fast-disbursing loans from a type of credit line that accelerates emergency responses. They also promote policies that increase governments’ disaster preparedness: by strengthening institutions, building technical capacity, and implementing reforms that advance resilience. Increasingly, CAT-DDO programs incorporate mechanisms to integrate social protection into the DRM sector, strengthening institutional arrangements to improve external coordination, avoid duplication of efforts, and expedite insurance payouts, loan disbursements, subsidies, and social opportunities. This includes investments in adaptive social protection for poor and vulnerable households to improve their resilience and ability to adapt to shocks.  

​Investments in resilience are often incorporated into projects that provide funding for immediate recovery while building back for a more resilient future.  They generally finance projects designed to advance adaptation or strengthen relevant policies and institutions (for example, to enable livelihoods to absorb shocks or make infrastructure more capable of surviving disasters). 

​Sovereign catastrophe risk pools allow individual countries to pool and stabilize their disaster risks in a single diversified risk portfolio, lowering capital requirements and reinsurance costs while creating incentives for countries to invest in risk reduction. One such pool is the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), which provides countries in the Caribbean and Central America regions with parametric insurance, a mechanism that pays a set amount for catastrophic events rather than the amounts of losses, lowering the cost of premiums and accelerating payouts when triggered. Contingent Emergency Response Components (CERCs) are embedded in investment projects to enable countries to access project funds quickly for emergency response and recovery.  

​Cat DDOs, CERCs, and other tools are brought together in the Crisis Preparedness and Responses Toolkit. This toolkit was expanded in early 2024 to include climate-resilient debt clauses, which cover all existing loans in eligible countries (small islands and other small states), expanding the amount of insurance and other pre-arranged financing available to borrowers, allowing them to defer principal and interest payments, and prioritizing recovery. Another component of the toolkit is the Rapid Response Option (RRO). The RRO allows countries to quickly repurpose and use up to 10 percent of their undisbursed World Bank financing across the investment portfolio and program-for-results to address disasters, including through mechanisms such as the Contingent Emergency Response Project (CERP) and Development Policy Financing (DPF) DDOs.      

Results

​Results from the World Bank’s active portfolio show that the World Bank’s approach to disaster risk management is effectively supporting countries both to reach people in immediate need of help in the aftermath of disasters and to strengthen institutions for resilience to future disasters. Investments in resilience have steadily increased over time. The World Bank Group Scorecard tracks more than 30 projects in the World Bank’s active portfolio in the region that have helped increase resilience for over 24 million people through modalities including resilient infrastructure and services, coverage by financial mechanisms, and support of livelihoods. These projects are improving DRM capacity, enhancing resilience and social protection.

​Protective financial mechanisms such as Cat DDOs are both providing immediate support and helping countries strengthen their preparedness through reforms and capacity building. For example, the Third Colombia Disaster Risk Management Development Policy Loan with a Cat DDO has financed strengthening of the government of Colombia’s management of risk related to natural hazards and public health disasters. This loan has improved the capacity of Colombia’s national, subnational, and sectoral entities; supported financial mechanisms for disaster response and recovery; mobilized financing for green projects; enhanced housing and territorial planning; and increased capacity to control, prevent, and respond to public health hazards. The project has helped to bring approximately 340,000 households with female recipients into Colombia’s Families in Action social protection program, making them eligible to receive cash transfers following a disaster. The project has also supported resilient infrastructure through the incorporation of risk management into new construction, renovation, or upgrading of nearly 2,000 kilometers of public roads.

​In Panama, a recently launched technical assistance is supporting Panamanian government agencies to strengthen their DRM capabilities, including through preparation of new multisectoral plans endorsed by the country’s DRM Cabinet; the creation of the National Meteorology and Hydrology Institute as an autonomous agency with the capacity to forecast, track, and assess risks of storms and other weather phenomena; and development of disaster risk management capacity in the National Civil Protection System.

​In the wake of Hurricanes Eta and Iota, which struck Central America in quick succession in November 2020, the World Bank implemented a project in Honduras to provide immediate support for recovery, and to increase resilience to future shocks. The World Bank helped the government of Honduras provide emergency support to 300,000 people immediately following the disaster. By October 2024, 150,000 people were benefiting from resilient public services, with the goal of helping them withstand future shocks, and the project expected to reach 800,000 people by 2026. Honduras also benefited from the Rapid Response Option under the crisis response toolkit, becoming the first country to activate the RRO after Tropical Storm Sara struck the country in November of 2024.

​The CCRIF SPC works with governments and other relevant entities to mitigate the risk of hurricanes, earthquakes, and excess rainfall in the Caribbean and Central America. Between 2015 and 2024, CCRIF SPC increased its insurance coverage from $741 million to $1.2 billion across its Caribbean and Central American member countries. As part of technical assistance provided by the World Bank directly to countries, all Central America countries have successfully been supported in the process of development and adoption of disaster risk financing strategies. The World Bank has also extended its technical assistance to advance preparedness and adaptive social protection in Central America through close cooperation between disaster risk management and social protection teams.

World Bank Group Contribution

In the last 15 years, the World Bank has provided $10.6 billion across 70 projects to promote resilience and enable emergency response, $2.2 billion across 19 Cat-DDOs, and $3.3 billion across five catastrophe bonds.   

Partnership

The World Bank manages the Global Shield Financing Facility, the primary financing vehicle for the Global Shield against Climate Risks, an international partnership between the G7 countries and the Vulnerable Twenty Group of countries to provide the latter with pre-arranged financial support to quickly respond to climate-related disasters and losses. This partnership aims to improve preparedness, resilience, and response mechanisms to mitigate the impacts of disasters. This partnership is currently active in Costa Rica and Peru.  

Looking ahead

​The World Bank will continue to promote preparedness through financial mechanisms, adaptive social protection, and investments in resilience.

​The World Bank’s Crisis Preparedness and Responses Toolkit will continue to be expanded as more countries avail themselves of toolkit elements. In Latin America and the Caribbean, several countries are using the expanded set of tools for crisis preparedness and response. So far, 16 countries have at least one instrument of the toolkit, including eight countries with a Cat DDO and nine countries with the Climate Resilience Debt World Clause. More countries are aiming to add elements from the toolkit. Moreover, the following countries: Barbados, Belize, Costa Rica, Dominica, Grenada, Guyana, El Salvador, Haiti, Honduras, St. Vincent and the Grenadines, and St. Lucia, have availed themselves of the Rapid Response Option, which allows them to use up to 10 percent of their undisbursed World Bank financing. With those instruments, countries have pre-arranged contingent resources and insurance via Cat Bonds, thereby allowing them to focus on disaster recovery.

​Projects across the region increasingly integrate resilience to shocks into their approaches. For example, a recently launched project to help Barbados recover from Hurricane Beryl, which impacted the island in July 2024, goes beyond immediate recovery to include a strong focus on building resilience. In Panama, with technical assistance from the World Bank, the Ministry of Finance and the DRM Cabinet are working to build a National Program for Contingent Liabilities for disasters. This program aims to reduce losses in priority sectors (transport, water, and housing), protect infrastructure, and ensure continuity of services, thereby contributing to fiscal and budget stability and savings.

​Moreover, the World Bank is working to advance adaptive social protection across the region. The CCRIF MDTF has supported analytical work, diagnostics, and stress tests to support planned Adaptive Social Protection projects in the Dominican Republic, Costa Rica, Guatemala, and Panama. Launched in 2023, the Integrated Social Protection Inclusion and Resilience (INSPIRE) project in Dominican Republic is building on lessons from the Supérate program, which has provided households with conditional cash transfers that help them to invest in health and education, helping them to develop job skills and establish connections to improve their integration into the labor market. Nearly 36,000 poor and vulnerable families were supported when Supérate’s Emergency Bonus was first distributed in the aftermath of Hurricane Fiona, which struck the Dominican Republic on September 19, 2022.   INSPIRE is working to increase adaptive social protection by improving the efficiency of cash transfers and service delivery, and boosting inclusion, and it also includes a contingent emergency response component. Moreover, the Central American Social Integration System and CEPREDENAC have agreed to develop a joint program of adaptive social protection as part of the Central American Comprehensive DRM Policy. Central American Social Integration System and CEPREDENAC have agreed to develop a joint program of adaptive social protection as part of the Central American Comprehensive DRM Policy.