The government will have to start from scratch rebuilding its contingency fund to offset the costs of any future catastrophic natural disasters, Deputy Prime Minister and Minister or Finance Peter Turnquest said yesterday.
While the 2019 Fiscal Strategy Report – released earlier this week – outlined the government’s financial projections in the near and medium term in the aftermath of Hurricane Dorian, there was no clearly outlined contingency plan in the event another major storm devastates any part of The Bahamas in the next five fiscal periods.
Listing natural disasters as a “severe” risk over the course of the next five years, the government’s risk and mitigation strategy outlined in the report is to further utilize the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) insurance policy; to continue building its disaster relief fund; to access the already granted Inter-American Development Bank (IDB) $100 million contingent credit line; to improve building standards; and to implement more comprehensive planning – however no details of the planning are listed.
“Of course this hurricane (Dorian) comes and wipes out everything that we’ve done, so we have to start again. We’re pretty much starting again,” Turnquest told Guardian Business yesterday.
“We will continue with the same focus and try to build in as much reserves as we can, so that we can hopefully in the future, if we have enough time to build up the fund we can avoid having to go out and borrow the significant sums that we borrowed as a result of private sector loss and all of the debris and other costs that come along with hurricane restoration.”
The fund Turnquest was referring to is the disaster relief fund.
The International Monetary Fund (IMF) placed the optimal size of a disaster relief fund for The Bahamas at between 2 and 4 percent of gross domestic product (GDP), according to the 2019 Fiscal Strategy Report.
The report stated, “The government committed to seeding the fund with an initial contribution of $40.1 million, representing extinguished dormant account funds. Over time, the fund, which will be fully established under the framework of the proposed disaster relief fund act, will benefit from further transfers of dormant proceeds, alongside budgetary contributions and insurance payouts under the Catastrophe Risk Insurance Facility Segregated Portfolio Company.”
The government allocated $1 million over the last two budget cycles for the fund.
“So, we had $2 million available to us from that fund. The idea was to continue to grow that every year and when we get to the point of fiscal consolidation in our plan, which would have been in 2024, we would have then allocated a percentage, 5 percent of our revenue, to this fund as a budget line item so that eventually we grow that fund to a point where the investment income would make itself perpetuating,” Turnquest said.
“It’s almost a self-insurance sort of a program in effect, with the primary focus to address issues with private sector shortfall. In other words, where we have these issues with homeowners who were underinsured or unable to be insured or indigent people, et cetera. When you look at it, the great of exposure the government has is because of this uninsured private sector loss, it puts pressure on government resources.”
Further mitigation measures include the government’s multi-year initiative to build resilience to coastal risks through sustainable coastal protection infrastructure and management through a $35 million loan from the IDB.