When a disaster occurs, a country's financial obligations are triggered to repair the damage that has occurred. These obligations are called contingent liabilities. To understand more about the concept, read this interview with Roberto Ramirez, Vice Minister of Finance of Honduras.
How would you explain what a contingent liability is?
Well, in simple terms we could talk about an event that cannot be predicted to occur and that can generate an expense in the future, but we don't know when it will occur or if it will actually happen.
And why is this contingent liability management important for Honduras?
Well, at the country level, especially in Honduras, which is a country totally vulnerable to disasters, we have to measure year by year the contingent liabilities that may exist, both for maintenance, repair or even replacement of infrastructure at the national level.
This occurs in all the road sectors, education, health, even the agricultural sector and other sectors that are very important in the country's economy. Keeping control of these allows us to have a much more adequate financial management.
This means that, as a State, as a Government, I can prevent the occurrence of an event where I have to intervene, for example, a road or a bridge that falls down, and I can already have the funds available to be able to replace the bridge that fell down in the best, most efficient and quickest way.
And now, speaking about insurances, another tool that allows to adequately manage disaster risk, what benefits does the CCRIF and the Central America and Caribbean Catastrophe Risk Insurance Program Multi-Donor Trust Fund bring to a country?
Yes, well, apart from all the training and all the capacity building within public entities, not only in the Ministry of Finance but also in other entities related to risk management, it also allows us to design a macroeconomic model, especially in the fiscal area, much more reliable and much more stable and resilient.
This means that a natural disaster event can occur, and the CCRIF helps us and cooperates with us in providing assistance and financial replacement in the event of such an event.
Interviewer: Alvaro G. De Pablo, Communications Associate at the World Bank
About the Central America and Caribbean Catastrophe Risk Insurance Program Multi-Donor Trust Fund
The Central America and Caribbean Catastrophe Risk Insurance Program Multi-Donor Trust Fund, created in 2014, has facilitated access to high-quality sovereign catastrophe risk transfers by supporting CCRIF SPC, the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company. In addition, it has provided technical assistance to vulnerable countries, enhancing their capacity to manage the financial impacts of disasters.
The success of the fund has been driven by the active leadership of the steering committee and the support of key donors, such as the Federal Republic of Germany, through the Federal Ministry for Economic Cooperation and Development (BMZ) and its Development Bank (KfW), the U.S. Department of the Treasury, the Government of Canada, and the European Union (EU).
