Government Expenditures in Pre and Post-Disaster Risk Management1

Alejandro de la Fuente
The World Bank

Governments, donors and development agencies have acknowledged the need to shift
gears in disaster management planning and finance from relief and response towards
prevention (UNISDR, 2005). And yet, their interventions aimed at reducing social and
economic vulnerability and investing in long-term mitigation activities are often believed
to be few, poorly funded, and insignificant in comparison with money spent on
humanitarian assistance and relief, as well as on post-disaster reconstruction.

Intuitively, investing all public resources in disaster risk reduction measures would be
inefficient, for instance, if the effects of disasters are relatively small and can be coped
with ex post. But neither can society wait for until disasters –or at least certain types of
disasters- to strike and to have to deal with them ex post, especially when they can bring
about a large number of deaths and destruction. Take the Kashmir earthquake of October
2005 as an example. This calamity caused 73,276 deaths and an estimated $5 billion in
damage to Pakistan, roughly equivalent to the total official development assistance for
the preceding three years, and equivalent to the World Bank lending to the country over
the preceding 10 years (IEG, 2006).

Moreover, the rising economic cost of Table 1. Post disaster public expenditures
and estimated total damages (in million
disasters (IEG, 2007), and the USD)
acknowledgment that human losses are
Estimated post Cost damage
irrecoverable and physical losses are rarely Year
disaster expenditures estimates
fully compensated by governments (and 1998 328.3 1,044.4
donors) should spur the adoption of more 1999 670.6 1,221.6
preventive measures. In Mexico, for instance, 2000 206.4 230.9
the cost of disasters that occurred from 1998- 2001 185.6 265.1
2002 503.9 1,162.1
2007 was far greater than governmental
2003 277.8 646.2
outlays to cope with them (Table 1). Similarly, 2004 129.9 74.8
humanitarian funding often falls short of what 2005 1,330.6 4,171.3
is really needed. For instance, the OECD 2006 435.5 428.5
Development Aid Committee has reported that 2007 1,830.7 4,633.9
outside financing and donations usually offset
Source: Bitrán (2008)
less than 10 percent of a country’s disaster
losses (Linnerooth-Bayer and Amendola, 2000).

1
This note has benefited from comments by Praveen Pardeshi (UNISDR), Daniel Bitran (National Direction of Civil
Protection - Mexico) and Surya Shrestha (National Society for Earthquake Techology – Nepal). We would also like to
thank Niels B. Holm-Nielsen and Ahmad Zaki Fahmi for kindly sharing the data on disaster expenditures from
Colombia and Indonesia, respectively.
Full Reference: de la Fuente, Alejandro. “Government Expenditures in Pre and Post Disaster Risk Management.”
Background Note for World Bank–U.N. Assessment on the Economics of Disaster Risk Reduction. Natural Hazards,
Unnatural Disasters: The Economics of Effective Prevention. November 2010.

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Against this backdrop, the Economics of Disaster Risk Reduction team (EDRR) within
the Global Facility for Disaster Recovery and Reduction at the World Bank
commissioned background papers on Mexico and Nepal to estimate how much was spent
on pre-disaster risk management measures in contrast to post-disaster relief, recovery
and reconstruction measures over the period 1998-2008. This information was integrated
with similar existing data for Colombia and, to some extent, Indonesia. This note
analyzes the compiled data and presents the main findings.

Data and Methodology

The countries analyzed are low and middle income countries with high degrees of
exposure to multiple hazards, both in terms population and GDP in areas at risk (See
Table 2). Nepal is a lower income country which, according to the World Bank natural
disaster hotspot study, has 97.4 of its population residing at areas at risk of multiple
hazards. This makes it the second country at highest disaster mortality risk among
countries most exposed to multiple hazards.

Mexico is an upper middle income country lying within one of the world’s most active
seismic regions; prone to constant droughts in its northern cone and in the path of
hurricanes and tropical storms originating in the Caribbean Sea, Atlantic and Pacific
Oceans. This wide geographic exposure renders more than two thirds of the country’s
population and GDP at hazard risk.

Colombia is a lower middle income country heavily exposed to floods and landslides. It
has 85% of its population living at areas of risk from two or more hazards. The economic
exposure to hazards is also very high for this country (87% of its GDP lies in areas at
risk).

Finally, Table 2 displays information on the exposure to disaster risk of Indonesia −for
which we have limited information on disaster expenditures.

Table 2. Countries with >30% population and/or GDP

in areas at risk from two or more hazards

Country % of total % of population % of GDP in GDP in

area at risk in areas at risk areas at risk billions
Colombia (LMI) 21.2 84.7 86.6 97
Indonesia (LI) 11.5 67.4 62.3 258
Mexico (UMI) 15.9 68.2 71.1 676
Nepal (LI) 80.2 97.4 <30 7

Note: LI Low Income; LMI Lower Middle-Income; UMI Upper Middle-Income. World Bank Income
Classification (based on 2000 GDP in millions of current USD)
Source: Dilley et al., 2005; WDI 2004 for GDP estimates.

For the commissioned work, consultants assessed disaster-related expenditures based on

each own country’s disaster management framework and drawing on their knowledge of
reliable data sources. A blueprint was handed to consultants asking them to consider as

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pre-disaster expenditures those comprising risk identification (e.g. risk mapping and
hazard assessments), mitigation (physical/structural works to withstand damage), risk
transfer (e.g. insurance) and preparedness (e.g. early warning systems and public training
and awareness about risks and prevention) measures. Conversely, the post-disaster
expenses include emergency response (e.g. search and rescue operations, relief), and
rehabilitation and reconstruction (e.g. repairing and reconstructing houses, commercial
establishments, public buildings) (See Template in Annex 1).

This categorization has two limitations, both driven by data constraints. First, many
public initiatives that indirectly contribute to disaster risk reduction may not be easily
traceable. For instance, a seed protection study may not be conceived for disaster
preparedness or risk reduction purposes, but for agricultural promotion; however, such
investment indirectly contribute to disaster prevention. The findings presented in this note
are concerned only with direct expenditures. And second, the reconstruction of public
buildings, schools, health clinics and infrastructure may include disaster-resistant
technologies that could mitigate the impact of future disasters. However, country teams
faced practical limitations to determine the amounts of resources canalized for upgrading
destroyed or damaged facilities. All reconstruction activities are cataloged under post
disaster expenditures. Finally, some pre-disaster expenditures may not reflect in central
government budgets, and therefore have to be tracked down in municipal and local
investments, for instance, in local land use planning and enforcement of building
standards, protective embankments, and buildings which factor in higher wind speeds. In
the case studies presented this exercise was only carried out in Colombia.

Mindful of these limitations, this exercise gives some proximate indication on trends and
quantities in pre and post-disaster government spending in these countries.

Findings

Two main trends of expenditures stand out from the analysis. First, total post-disaster
expenditures exceed pre-disaster expenditures on average (and almost year by year). And
second, pre disaster investments remain stable over time or, if anything, display an
increasing trend; whereas post disaster investments are highly responsive to the
occurrence of major disasters every year −and therefore volatile.

In Mexico, more than two thirds of the disaster budgets were devoted to post-disaster
expenditures on average, while for Nepal these expenditures comprised 57% of total
resources allocated to disaster management.

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 Table 3. Pre and Post Disaster Government Expenditures during 1998-2008 (in million USD - 2008)
Country Total Average St. Dev. Average (as share of total) Average growth rate per year
Colombia
Pre 1,050.01 262.50 61.73 60.75 22.08
Post 757.51 189.38 95.42 39.25 65.26
Mexico
Pre 2,614.51 237.68 78.93 32.20 16.13
Post 7,788.94 708.09 568.40 67.80 118.41
Nepal
Pre 164.35 14.94 3.93 43.06 7.44
Post 237.21 21.56 8.78 56.94 18.42
Note: Colombia data covers 2004-07

In absolute terms, the differences are equally important. From 1998 to 2008, the Mexican
government committed 2.98 times more resources to cope with disasters ($US 7,778
million) than to prevent or mitigate them ($US 2,614 million). In fact, expenditures on
emergency responses, rehabilitation and reconstruction have always exceeded the
resources dedicated to risk management prior to disasters (See Figure 2 below). The only
exception was 2004, a mild year in terms of meteorological phenomena.

In Nepal, where disaster expenditure allocations appear more balanced at first sight (see
column 4 Table 3), total ex-post investments ($US 237 million) were 43% higher than
total ex-ante investments ($US 164 million). And the former were superior to the later in
all but three years.

Only in Colombia,
pre-disaster
expenditures at
municipal level
have consistently
outpaced the
amount of
resources devoted
to relief and
recovery as well.
Recovery and
reconstruction
financing has
fluctuated between
73 and 310 million
USD between
2004-07 while pre-disaster expenditures have never dropped below 183 million.

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 Proactive spending has been growing, but is still outpaced by reactive spending.

Disparities in total spending do not entail that pre-disaster expenditures have not been
growing over the period analyzed, only not at the pace of post-disaster expenditures. The
national budget allocation for disaster prevention and mitigation increased for all three
countries in the last ten years at annual average rates of 22.08% in Colombia, 16.13% in
Mexico and 7.44% in Nepal (Table 3). And the pre-disaster resources allocated in 2008
relative to 1998 grew close to 237% in Mexico, 90% in Nepal and 75% in Colombia.
This suggests that governmental authorities have lent greater importance to the
implementation of proactive measures over time.

For Indonesia, where data was only available for 2001-07, it appears that expenditures on
mitigation have also been growing recently (See Annex 2). Yet this is still significantly
less than the budget that was set aside for post-disaster rehabilitation and reconstruction,
especially during 2006-07 (US$ 1,354 million in 2006 and US$1,179 million in 2007).

According to Bitrán
(2008), disaster risk
management in Mexico
has increasingly
emphasized pre-disaster
measures intended to
develop preventive
activities. These
expenditures more than
tripled from 114.6 in
1998 to 387 million
dollars in 2008.
However, by the same
token, post-disaster
expenditures passed
from 428.5 to 1,891.7
million dollars in the
same period (growing at
118% per year on average). In evaluating these figures, one should bear in mind that a
portion of reconstruction expenditures may involve better building practices, thus leading
to overestimate the imbalance between preemptive and reactive measures.

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 Even in Nepal where
pre-disaster investments
increased at 7.4% per
year for the last decade,
post-disaster spending
grew more than twice as
fast per year at a rate of
18.4%. This later rate
masks wide imbalances
across years. For
instance, post-disaster
financing grew more
than two hundred
percent between 2001
and 2002, and remained
almost unaltered for the
following two years. In
contrast, the
incremental changes experienced by pre-disaster investments over time make at least
more predictable the amount of resources that could be earmarked for this purpose.

Reactive disaster spending is very volatile

The stark growth in post-disaster financing conceals the abrupt shifts that occurred in this
component from year-to-year for the three countries analyzed. A visual inspection of
figures 2 and 3 confirms this situation. In Mexico, post-disaster expenditures hit a record
low in 2004, only to register the second highest disbursement for the whole period a year
after. In fact, each peak in Figure 2 can be mapped to a severe disaster. For example,
record disbursements in 2007 are associated to the floods in the southern state of
Tabasco. These floods caused damages for a little more than 3.1 billion dollars, rendering
it the second most costly single disaster documented in the history of Mexico, after the
1985 earthquakes. In 2005 the cost of disasters proved also very significant, mainly as a
result of the hurricanes Emily, Stan and Wilma which caused more than 4 billion dollars
in economic losses (Bitrán, 2008). Finally, 1999 witnessed one of the worst droughts in
the past century for the country, and a tropical depression in October manifested in
extreme floods over various states of Central and Southern Mexico. This turbulent year
was followed by two calmed years in terms of disasters. This volatility explains why
post-disaster expenditures ($US 568 millions) were 7 times more spread on average than
pre-disaster expenditures ($US 79 millions) from their respective means.

In Colombia, post-disaster expenditures are less spread out relative to pre-disaster

expenditures than in Mexico. The standard deviation of 95.42 million dollars represents
only 1.5 times the average deviation of pre-disaster expenditures in the country.

And in Nepal, post-disaster expenses were moderate in 2007 after five consecutive years
of expenditures above-the-average. And yet, last year’s floods and landslides led to the

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highest outlay for the entire period analyzed. These drastic shifts are more formally
captured in the average deviation of post-disaster expenditures: 8.78 million dollars,
which is equivalent to 2.23 more times the average deviation from mean pre-disaster
expenditures.

Expenditures by hazard categories: the case of Mexico

In Mexico, hydro-meteorological hazards assume the highest proportion of post-disaster

expenditures in the period 1998-2008 (Table 4). All main disasters that have struck parts
of Mexico in the last decade (floods, torrential winds and rains and droughts) are
associated with this category of events. Only in 2005, rehabilitation- and reconstruction-
spending reached 1.46 billion dollars, mainly as a result of three very intensive cyclones
(“Emily”, “Wilma” and “Stan”). Costs related to these phenomena were followed by
those concerning flooding and heavy rains, as nearly 1 billion dollars were spent on
emergency and reconstruction, in the wake of the major flood in Tabasco in 2007. The
next category, in terms of relative expenditures, constitutes the impact of droughts, which
have required average spending around 30 million dollars annually. Extreme weather
events (snowstorm, hailstorm frost, cold wave, heat wave) and landslides come last in the
ranking of expenditures on climatic hazards.

Meanwhile, the proportion of ex-post expenditure due to geological hazards proved low
during this period, appearing only in 1999 (earthquakes in parts of Central Mexico and
the Coast) and in 2003 (earthquake in the state of Colima in the Pacific Coast).
Table 4. Mexico - Ex-Ante and Ex-Post expenditures by hazard category during 1998-2007 (in million USD - 2008)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Geological hazards 72.1 108.3 118.8 132.8 229.8 248.3 191.2 211.3 172.0 145.6 143.0
Climatological hazards 26.6 31.2 52.2 61.5 61.0 36.7 51.6 72.8 82.0 64.4 192.9
Other hazards 14.9 0.0 1.4 0.7 1.1 3.5 4.6 1.4 1.0 0.3 2.0
Vulnerability reduction and risk identification (all0.9
hazards) 0.8 1.1 1.4 1.1 1.0 4.4 2.1 2.6 4.4 31.2
Training and research (all hazards) 0.3 0.5 0.4 0.1 0.2 0.2 0.5 0.3 4.9 1.1 18.0
Total Ex-ante 114.6 140.6 173.8 196.6 293.3 289.7 252.3 287.9 262.6 215.9 387.1
Geological hazards 0.0 198.5 0.0 0.7 0.1 37.2 0.0 8.8 8.5 11.1 1.2
Climatological hazards 274.8 658.7 249.1 222.4 596.6 278.2 141.5 1,450.5 451.8 1,880.2 1,107.0
Other Hazards 153.8 0.0 6.8 0.4 4.1 6.4 4.8 0.9 1.4 0.5 33.0
Total Ex-post 428.5 857.3 255.9 223.4 600.8 321.9 146.4 1,460.1 461.6 1,891.7 1,141.2
Source: Bitran (2008)

With regard to pre-disaster expenditures, however, geological hazards occupy the first
place for the same period. Over 70% of these expenses accrue to earthquake insurance
premiums, which more than doubled during the period adding up to more than 1.2 billion
dollars.2 This emphasis on insurance is partly motivated by the human and economic
sequels of the 1985 earthquake in Mexico City, which sensitized authorities to the
benefits of pro-actively engaging in prevention and financial disaster risk management.
The following category of pre-disaster expenditures refers to meteorological hazards,
whose cost increases are also attributable to mounting crop insurances premiums. Finally,
the measures of vulnerability reduction, risk identification as well as training and
research have absorbed costs since the creation of the National Fund for Disaster

2
Most of the insured constructions are public and private buildings; there is very low penetration of insurance for
housing.

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Prevention (FOPREDEN for its Spanish acronym) in 2003; the amounts dedicated to
these objectives have oscillated around 4 million dollars per year.

There may be a direct correspondence between the emphasis on reactive expenditures in

hydro-meteorological hazards and on proactive expenditures in geological hazards (See
Figure 4). Since 1996 the Mexican government set aside a National Fund for Natural
Disasters (FONDEN) to hold reserves and provide last-resort funding for emergency
response and disaster relief. But the amount of resources allocated to the Fund has
increased or decreased in proportion to the exercise of the preceding year so the Fund
does not counts with a fix budget for each year. This has made its evolution quite erratic
and vulnerable as outlays often exceed budgeted funds (Cardenas et al., 2007). For
instance, after several years of negative annual growth rates of the budget, the Fund had
to grow more than ten times in 2006 relative to its previous assigned budget to cover the
damages caused by the hurricanes Emily, Stan and Wilma in 2005. This led to its
exhaustion.

This resource fatigue entails that while FONDEN continues to operate, risk financing
through insurance has gained prominence, especially given the permanent threat of
earthquakes in the country. A 3-year catastrophic bond designed to finance emergency
responses in case of earthquakes was issued in 2005, thereby transferring risk to the
international market. And a similar catastrophic bond has followed for multiple risk
coverage between 2009-11: earthquakes in three regions around Mexico City, Pacific
hurricanes in two areas on the west coast, and Atlantic hurricanes around Cancun in the
Mexican Caribbean. This risk layering strategy seems most plausible.

Figure 3. Mexico - Pre and Post-disaster Government Expenditures per Hazard Category

2,000

1,800

1,600

1,400

1,200
Million Dollars

1,000

800

600

400

200

0
Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Geological hazards Climatological hazards Other hazards
Source: Data retrieved from Bitran (2008)

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 Conclusion

Limited efforts have been carried out to analyze pre and post-disaster government-related
expenditures at the country level. This may reflect the difficulty of this task −or possibly
lack of interest given its futility in the eyes of some officers.

Yet an exercise of this nature –as imperfect as may be– for Colombia, Mexico, Nepal
and, to some extent, Indonesia proved illustrative in various respects. Governments
consistently spend less ahead of disasters than after their occurrence. And yet, judging by
the growth of pre-disaster investments in these countries over the past decade, there is an
increasing emphasis in preparing the population to face catastrophes.

It also appears that pre-disaster financing is more stable and therefore predictable than
post-disaster financing. Calamity funds like FONDEN are meant to operate as counter-
cyclical relief mechanisms, but their sustainability has been seriously tested in practice.
Unlike reactive expenditures, pre-disaster financing needs not be fiscally cyclical (i.e.,
expand when needs increase and contract when needs diminish).

It is beyond the scope of this note to establish what represents a balanced use of the
public budget allocated to disasters. In this sense, it remains hard to claim that countries
are not spending enough for achieving progress in risk reduction. Nevertheless, defining
how much is spent on pre and post-disaster management actions is a first step in the right
direction. Possible next steps to refine these estimates include accounting for the non-
disaster expenditures that have indirect effects on disaster risk prevention as well as for
the preventive component (percentage and levels) within reconstruction efforts and across
key development sectors, such as transport and social services infrastructure. Another
front for improvement is to track expenditures at sub-national level which may as well
contribute to reduce or mitigate disaster risks. All these improvements build into the
broader task of establishing whether increased pre-disaster financing reduces death and
destruction; or if it does so in a cost-effective way.

References:

Bitran, Daniel (2008) Ex Ante and Ex Post Investment Estimates in Disaster Risk
Reduction at the Country Level/Mexico. Background Paper for Natural Hazards,
UnNatural Disasters: The Economics of Effective Prevention. World Bank-United
Nations. November 2010.

Bellizia, Gloria Marcela. (2008) Análisis de las Inversiones en Gestión del Riesgo en
Colombia: Nacional (1998-2008) Banco Mundial.

Cardenas, Victor, Stefan Hochrainer, Reinhard Mechler, Georg Pflug and Joanne
Linnerooth-Bayer. (2007) Sovereign Financial Disaster Risk Management.
Environmental Hazards. pp. 40-53.

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Dilley, Maxx, Robert S. Chen , Uwe Deichmann , Arthur L. Lerner-Lam , and Margaret
Arnold. (2005) Natural Disaster Hotspots: A Global Risk Analysis The World Bank.
Washington, D.C.

Independent Evaluation Group (IEG) World Bank. (2006) Hazards of Nature, Risks of
Development. An IEG Evaluation of World Bank Assistance for Natural Disasters. The
World Bank. Washington, D.C.

_____. (2007) Development Actions and the Rising Incidence of Disasters. Evaluation
Brief # 4. The World Bank. Washington, D.C.

Linnerooth-Bayer, Joanne and Amendola, Aniello. (2000) Global Change, Natural

Disasters and Loss-sharing: Issues of Efficiency and Equity. The Geneva Papers on Risk
and Insurance - Issues and Practice, Vol. 25, Issue 2.
National Society for Earthquake Technology – Nepal (NSET). (2009) Ex Ante and Ex
Post Investment Estimates in Disaster Risk Reduction at the Country Level/Nepal
Background Paper for Natural Hazards, UnNatural Disasters: The Economics of
Effective Prevention. World Bank-United Nations. November 2010.

NSET. Global Assessment of Risk Nepal Country Report. (2008) Background Paper for
the ISDR Global Assessment Report on Poverty and Disaster Risk 2009.

UNISDR (2005) Hyogo Framework for Action 2005-2015: Building the resilience of
nations and communities to disasters (HFA). World Conference on Disaster Reduction
18-22 January 2005, Kobe, Hyogo, Japan.

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 Annex 1. COUNTRY TEMPLATE - DISASTER EXPENDITURES 1998-2008 (MILLION US$)

COMMENTS (Data Gaps, Limitations/Caveats, Data Validation Conducted,

HAZARD CATEGORY 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Process Followed, Unanswered Aspects)

risk prevention

GEOLOGICAL
emergency response
HAZARDS
rehabilitation and
reconstruction
risk prevention

CLIMATOLOGICAL emergency response

HAZARDS
rehabilitation and
reconstruction
risk prevention

OTHER HAZARDS emergency response

rehabilitation and
reconstruction
risk prevention

NON-HAZARD
emergency response
SPECIFIC
rehabilitation and
reconstruction
Notes:
Risk Prevention includes risk identification, mitigation, risk transfer and preparedness.
Risk Identification includes Hazard Assessments (location, frequency, and severity of hazards); Vulnerability Assessments (population and assets exposed); Risk assessments (probabilities of physical,, social and
economic losses from hazards); and Hazard monitoring and forecasting (GIS, mapping, and scenario building).
Mitigation includes physical/structural works (electrical power and transportation systems to withstand damage); land-use planning and building codes; economic incentives for pro-mitigation behaviour; education, public
training and awareness about risks and prevention.
Risk Transfer includes Insurance and reinsurance of public infrastructure and private assets; financial market Instruments (catastrophe bonds and weather-indexed hedge funds); privatization of public services with safety
regulation (energy, water, and transportation); and Calamity Funds (national or local level).
Preparedness Activities include training programs for response personnel, exercises and drills of emergency plans, education programs to inform citizens, hazard detection and warning systems, preparation of evacuation
plans and identification of shelter facilities, maintenance of emergency supplies and communications systems, establishment of procedures for notifying and mobilizing key personnel.
Emergency Response activities includes evacuation of threatened populations, shelter for victims, emergency medical care, search and rescue operations, security and protection of property, and family assistance;
construction of temporary levees, provision of emergency water or power supplies, and response to secondary hazards such as fire or the release of hazardous materials; clean-up, temporary repairs, and restoration of
services; Damage assessment.
Rehabilitation and Reconstruction includes repairing and reconstructing houses, commercial establishments, public buildings, lifelines, and critical infrastructure; restoring and coordinating vital community services;
macroeconomic and budget management (stabilization and protection of social expenditures); revitalization for affected sectors (exports, tourism, and agriculture).

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Annex 2.

Source: Data provided by World Bank staff.

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