IDA19: a vital tool for managing crisis risk

Countries are increasingly vulnerable to natural hazards, and when disasters strike millions of people are driven deeper into poverty. Between 1998 and 2017, climate-related and geophysical disasters killed 1.3 million people and affected 4.4 billion more. Those living in the poorest countries are on average six times more likely than those in rich nations to be injured, lose their home, be displaced, or require emergency assistance.

Climate change threatens to push an additional 100 million people into extreme poverty by 2030, and 720 million more by 2050 unless something is done. Half of those most affected by natural hazards live in fragile and conflict-affected states.

The International Development Association (IDA) is playing a vital role in helping low-income countries manage the risk of crises. The forthcoming IDA replenishment (IDA19) is an opportunity to increase the impact and efficiency of IDA’s contribution to crisis risk financing and management. It could do this by taking the following steps:

• Reset the incentives for client governments to invest in prevention and preparedness. Specifically: Require IDA to report formally on how analysis of crisis risk informs its investment strategy and to account for its contribution to risk reduction and preparedness. Make finance for crisis prevention and preparedness available on the same terms or better as finance for crisis response. Scale investment in preparedness, focusing on building the delivery systems needed for a response when a crisis strikes. Meanwhile, increase the coverage of shock-responsive social protection systems and accelerate testing of shock-responsive basic services.
• Work with development insurers to deliver early and predictable finance to drive an early response. This would enable IDA to move away from its current approach, which relies largely on post-crisis budget reallocations, and towards one that finances risk more efficiently. IDA should focus on brokering ‘development insurance’—that is, institutions that are based on insurance principles, but are used to deliver specific development objectives and financed on a concessional basis. It should also seek to connect financing to prevention and preparedness measures and monitor risk financing arrangements to ensure they deliver the maximum development impact at the lowest cost.
• Reform the Crisis Response Window (CRW). The CRW is an important innovation, but it suffers from limitations in design and operation. Specifically: Increasingly reserve the CRW for responses to large crises and those that are inherently difficult to predict and use other instruments to finance more predictable crises. Improve transparency and operational performance. Review eligibility criteria to allow earlier responses to slow-onset crises such as drought and famine.
• Commission a review of IDA’s existing risk financing tools, drawing on independent expertise.

Such a review should examine the coherence and cost effectiveness of IDA’s approach to crisis risk management and financing. Particular attention should be paid to how existing approaches deliver for the poorest, and how the IDA risk financing architecture relates to the wider global architecture.