PublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorized

TABLEOFCONTENTS

Acknowledgments06

Abbreviations07

Executivesummary08

1

Assessmentofclimateriskandtheimpactofpastdisasters14

1.1Overviewofdisasters14

1.2Droughts18

1.3Floods23

1.4Impactofdisastersonhouseholdpoverty26

1.5ImpactofdisastersonMSMEs27

1.6Macroeconomicandfiscalimpactsofdisasters28

2

LegalandinstitutionalframeworkforDRF32

2.1OverviewofthelegalframeworkforDRF32

2.2Overviewoftheinstitutionalframeworkfordisasterriskfinance36

2.3Earlywarningsystem38

3

Statusofdisasterriskfinancinginstrumentsandmechanisms39

3.1Exantefunding40

3.2Expostfunding42

3.3Socialsafetynetsandexistingdistributionmechanisms49

4

Reviewoffinancialmarkets52

4.1Insurancemarket52

4.2Financialinclusionandfinancialprotection58

4.3Capitalmarkets62

5

Fundinggapanalysisandriskfinancingstrategies66

5.1Fiscalcostanalysis66

5.2Fundinggapandcomparisonwithrisk-layeredstrategy67

6

Recommendedoptionstostrengthenfinancialresilience71

6.1Improvethepolicyframework,publicfinancialmanagement,andrisk-informed71

decision-making

6.2Strengthenthefinancialsectorandenhancetheuseofinsurance72

6.3Strengthenexistinginstrumentsandadoptnewriskfinancinginstruments73

BOXES

Box1:KenyanHungerSafetyNetProgram51

Box2:ThePhilippines’developmentandimplementationofnationalpublicassetinsuranceprogram56

Box3:Buildingresiliencethroughfinancialinclusion59

Box4:Risklayering:Keytrade-offsandconsiderationswhenestablishingadisasterriskfinance69

strategy

FIGURES

Figure1:StatusofriskfinancinginstrumentsinZimbabwe11

Figure2:Fundinggapatvariousreturnperiodsassumingpre-arrangedfundsofUS$32million11

Figure3:Zimbabwe’sscoresonWorldRiskIndex2022(normalizedscorerangingfrom0to100)14

16

Figure4:DisasterriskprofileofZimbabwe,1975–2022(left)andpopulationaffectedbydrought(right)

21

Figure5:Cross-countrycomparisonofvulnerabilityandreadinesstoimproveclimateresilience17

Figure6:ProvincialdistributionofmaincropsinZimbabwe20

Figure7:ValueofmajorcropsgrowninZimbabweovertime(2016constantUSdollars)20

Figure8:Provincial-leveldataonaveragedroughtintensity(left),duration(center),andreturnperiod

(right)

24

Figure9:Provinciallossesbycropandyear22

Figure10:On-gridelectricitygenerationinZimbabwe23

Figure11:Averagelossesfromfloodatdifferentreturnperiods24

Figure12:Residentialandcommercialpropertyvaluesatriskofflooddamage(left)andlossanddamage

ratios(right)

47

Figure13:AnnualnumberofrecordedstormsinEastAfrica25

Figure14:RelationshipbetweenagriculturalvalueaddedandoverallGDPgrowth29

Figure15:Annualinflationrate,2010–202230

Figure16:Compositionofbudgetrevenue,2017–202130

Figure17:Developmentpartners’contributiontothe2020/21budget(estimated)31

Figure18:Disasterriskmanagementinstitutionalset-up37

Figure19:StatusofriskfinancinginstrumentsinZimbabwe39

Figure20:Reallocationsbetweenvotesfollowingthedroughtof201643

Figure21:ProposeduseofSDRallocationin202146

Figure22:HumanitarianaidaspartofZimbabwe’sbudget,2012–202047

Figure23:Trendsinofficialdevelopmentassistance,1990–2022(left)andhumanitarianfundinggap,

2019–2022(right)

Figure24:Totalinsurancewrittenpremium,2009–202152

Figure25:Cross-countrycomparisonofinsurancepenetrationanddensity53

FIGURES

58

Figure26:Trendsinpropertyinsurance(left)andnaturalhazardsinsurance(right)54

Figure27:Totalagricultureinsurance,2009–2021(left)andweatherindexinsurance,2019–2022(right)55

Figure28:PercentageofMSMEsthatuseinsuranceinZimbabwe(left)andbarrierstoinsuranceuptake

(right)

60

Figure29:Emergingevidenceonbuildingresiliencethroughfinancialinclusion59

Figure30:Proportionofadultswithanaccountatafinancialinstitution(left)andcapacitytoraise

emergencyfunds(right)

64

65

Figure31:DynamicsofMSMEs’accesstocredit,insurance,andsavings62

Figure32:ZimbabweStockExchangetrends63

Figure33:VFEXcomparisonofQ32021andQ32022turnover(left)andtrendinnumberoftrades

(right)

Figure34:SimulatedaverageannualcostsofdisasterresponseduetodroughtandfloodinZimbabwe

overthenextyearfordifferentreturnperiods

68

Figure35:Fundsundereachfinancingstrategy67

Figure36:Fundinggapatvariousreturnperiodsassumingpre-arrangedfundsofapproximatelyUS$33

million

Figure37:Effectofrisk-layeredfinancingapproachoncostofcoveringlosses69

Figure38:Frameworkforapproachingdisaster-relatedbudgetreallocations70

TABLES

Table1:RecommendationstostrengthenfinancialresilienceinZimbabwe12

Table2:ImpactofdisastersinZimbabwebytypeofperil,1975–202215

Table3:Summaryoflawsrelevanttofinancialandoperationalpreparedness32

Table4:Fundswithcontingencymandates41

Table5:DroughtinsurancefromARCforGovernmentofZimbabweandReplicapartners,2019–202344

Table6:SummaryofthemainsocialprotectionprogramsinZimbabwe49

Table7:RecomWmendationsforstrengtheningfinancialresilienceinZimbabwe74

ZimbabweDisasterRiskFinanceDiagnostic6

ACKNOWLEDGMENTS

ThisdisasterriskfinancereportwaspreparedbyaWorldBankteamledbyQhelileNdlovu(FinancialSectorSpecialist)consistingofMichalKrzysztofPietrkiewicz(Consultant)andTawandaChituku(Consultant)withoperationalassistancefromCrispenMawadza(Consultant).

TheWorldBankteamwouldliketothanktheGovernmentofZimbabwe,andespeciallytheMinistryofFinanceandEconomicDevelopmentandtheCivilProtectionDepartment,fortheirsupportofthisstudy.Theteamwouldalsoliketothankthemanyotherpublicinstitutionsthatassistedinthestudyaswellasthemanydevelopmentpartnersthatprovidedusefulinput.

TheteamisalsogratefultoMarkoKwaramba(CountryEconomist)formacroeconomicinputandguidanceaswellasthefollowingWorldBankcolleagueswhopeer-reviewedthereport,namelyIsakuEndo(SeniorFinancialSectorSpecialist),RonaldRateiwa(RegionalEconomist,SouthernAfrica),TatianaSkalon(FinancialSectorSpecialist)andSamanthaCook(SeniorFinancialSectorSpecialist).

ThediagnosticwasfinancedthroughtheFinancialResilienceProgram,atrustfundmanagedbytheCrisisandDisasterRiskFinanceteamintheFinance,Competitiveness,andInnovationGlobalPractice.Theprogramaimstoenhancethecapacityofpolicymakerstoimprovevulnerablehouseholds’andbusinesses’financialresiliencetoclimateshocksandnaturaldisastersandiskindlyfundedbytheUnitedStatesAgencyforInternationalDevelopment(USAID).

ZimbabweDisasterRiskFinanceDiagnostic7

ABBREVIATIONS

ARC

AfricanRiskCapacity

BEAM

BasicEducationAssistanceModule

CatDDO

CatastropheDeferredDrawdownOption

DCP

DepartmentofCivilProtection

DRF

DisasterRiskFinance

DRM

DisasterRiskManagement

DRMBill

DisasterRiskManagementandCivilProtectionBill

FDM

FoodDeficitMitigation

GCF

GlobalClimateFund

GDP

GrossDomesticProduct

HDI

HumanDevelopmentIndex

HSCT

HarmonizedSocialCashTransfers

HSNP

HungerSafetyNetProgram(Kenya)

ICZ

InsuranceCouncilofZimbabwe

IDA

InternationalDevelopmentAssociation

IMF

InternationalMonetaryFund

IPEC

InsuranceandPensionsCommission

MoFED

MinistryofFinanceandEconomicDevelopment

MoPSLSW

MinistryofPublicService,Labor,andSocialWelfare

MSMEs

Micro,Small,andMediumEnterprises

ND-GAIN

NotreDameGlobalAdaptationInitiative

NFIS

NationalFinancialInclusionStrategy

PEFA

PublicExpenditureandFinancialAccountability

PFMAct

PublicFinancialManagementAct

SDR

SpecialDrawingRights

SECZ

SecuritiesandExchangeCommissionofZimbabwe

SMEs

SmallandMediumEnterprises

SPI

StandardizedPrecipitationIndex

VAT

ValueAddedTax

VFEX

VictoriaFallsStockExchange

ZSE

ZimbabweStockExchange

ZimbabweDisasterRiskFinanceDiagnostic8

EXECUTIVESUMMARY

Thisdisasterriskfinance(DFR)diagnosticwaspreparedbytheWorIdBankFinance,CompetitivenessandInnovationGIobaIPracticeinresponsetoarequestfromtheGovernmentofZimbabwe(GoZ)forastudytoassesstheinstitutionaI,IegaI,andfinanciaIpIanningforfinancingofdisasterriskinZimbabwe.TheGoZintendstousethediagnostictoinformthedeveIopmentofacomprehensivenationaIDRFstrategy.ThediagnosticwiIIaIsoinformtheZimbabweCountryCIimateandDeveIopmentReport,whichisajointanaIyticaIproductoftheWorIdBankandtheGoZandwiIIcompIementtheongoingZimbabweCountryPrivateSectorDiagnostic.

TheobjectiveofthisDRFdiagnosticistoassessZimbabwe’sfinancialpreparednesstodisastersandcrises.Zimbabweisrankedamedium-tolow-climate-riskcountrybutfaceshighimpactsduetohighlevelsofsocioeconomicvulnerabilityandasignificantlackofcopingandadaptivecapacity.Between1975and2022,disastersinZimbabweIedtototaIeconomicIossesofatIeastUS$7.5biIIion,mostofwhichwereuninsured.1TheincreasingfrequencyandseverityofcIimaticdisastersexacerbatesthechaIIengeofimprovingresiIience.ThisassessmententaiIsanaIysisof(i)theeconomicandfiscaIimpactofdisasters(chapter1);(ii)theIegaIandinstitutionaIarrangementsforDRF(chapter2);(iii)pre-arrangedfundingavaiIabIetothegovernmentforresponse(chapter3);(iv)thedomesticinsuranceandcapitaImarkets(chapter4);and(v)thepotentiaIfundinggap—thatis,thedifferencebetweentheamountofpre-arrangedfundingavaiIabIetogovernmentandtheestimatedcostofresponsetodisasters(chapter5).2BasedonthisanaIysis,thediagnosticpresentsrecommendationstostrengthenthefinanciaIpreparednessofZimbabwetodisastersandcrises(chapter6).Thebroadsetof

PHOTOCREDIT:MAGNIFICALPRODUCTIONS,ISTOCK

recommendationsiscompIementarytootherGoZpoIiciesandinitiatives,suchastheNationaIFinanciaIIncIusionStrategy,andtotooIsIikeGuideIineNo.01-2023/BSD:CIimateRiskManagement.

Zimbabweisinapolycrisis,facingtheimpactsoffrequentandincreasingclimate-relateddisasters,theCOVID-19pandemic,andagrowingmacro-fiscalandfoodcrisis.ZimbabweisaIowermiddIe-incomecountrywithagrossdomesticproduct(GDP)percapitaofUS$1,267ayearandamacroeconomiccontextcharacterizedbyinstabiIity;GDPgrowthishighIyvoIatiIeanddecIinedfortheentirefirstdecadeofthe2000s.3ThiswasaresuItofthechaIIengesofIandreformandconsecutivedroughtsthatbeganin1999andthatby2001hadIedtodeepeningeconomicdepression,correIatingwithhyperinfIationandforeigncurrencyshortages.ConsequentIy,povertyrosefrom32.2percentin2001to38.3percentin2019.4

1-EM-DATdatabase1975-2022,EM-DAT,CRED/UCLouvain,BrusseIs,BeIgium,

www.emdat.be

;governmentreports;academicarticIes.

2-TheanaIysiscombinesdesktopresearchandexpertinterviewsinIinewiththegoodpracticemethodoIogydeveIopedbytheWorIdBankanddeveIopmentpartners;seeWorIdBankandAsianDeveIopmentBank,“AssessingFinanciaIProtectionagainstDisasters:AGuidanceNoteonConductingaDisasterRiskFinanceDiagnostic,”2017,

https://documents1.worIdbank.

org/curated/en/102981499799989765/pdf/117370-REVISED-PUBLIC-DRFIFinanceProtectionHighRes.pdf

3-

https://data.worI/indicator/NY.GDP.PCAP.CD?Iocations=ZW

4-

https://data.worI/indicator/SI.POV.NAHC?Iocations=ZW

ZimbabweDisasterRiskFinanceDiagnostic9

Inrecentyears,theGDPhasenteredamodestgrowthphase,increasinganaverageof2.4percentayearover2012to20225.AfteryearsofreIativestabiIity,inflationhasbeenatIeveIsweIIabove100percentayearsince2018,makingbudgetarypIanning,incIudingforresponseefforts,extremeIydifficuIt.AchievingmacroeconomicandpricestabiIityiscruciaIforimprovingthefinanciaIresiIienceofthecountry,incIudinghousehoIdsandbusinesses.

Climateshocks,ofwhichdroughtandstormsarethemostseriousinZimbabwe,haveasignificantimpactoneconomicgrowth,foodsecurity,andthefiscalbalance.GDPgrowthshrankbyabout16percentfoIIowingthe2002/03drought.Onaverage,droughtaffected27percentofthepopuIationbetween1981and2021;however,duringseveredroughtyearsnearIyhaIfthepopuIationisaffected.BasedonavaiIabIepubIicdata,droughtsoccurinoneofeverysixyears,andeachoccurrenceresuItsineconomicIossofUS$790miIIiononaverage.FIoodsoccurinoneofeveryfouryearsandresuItineconomicIossofUS$94miIIiononaverage.6Dataontheimpactofstormsarescarcer,butIossesappeartovarysignificantIy,withtotaIIossescausedbyCycIoneIdaiin2019estimatedatUS$1.152biIIion.7

Disastersdisproportionatelyaffectthepoorestandvulnerable,andZimbabwe’smicro,smallandmediumenterprise(MSME)sector,whichisasourceoflivelihoodforabout90percentofthepopulation,isextremelyvulnerabletoclimatevariability.ThestrongIinkbetweenpovertyandvuInerabiIitytodroughtandfloodsreIatestosourcesofIiveIihoodsandquaIityofhousinginfrastructure.ApproximateIy80percentofruraIhousehoIdsinZimbabwedependonrain-fedagricuIture.AmajorityaresubsistencefarmerswhoIackaccesstomarketsandfinanciaIproducts,whichmeansthatshockstoagricuIturaIproductionpushaIargepartofthepopuIationintofoodinsecurity.GIobaIIy,Zimbabweisoneofsixcountrieswherethepooraremuchmoreexposedtofloodingthannonpoorpeers.LossesduetofloodinMatabeIeIandNorthandMatabeIeIandSouth,thetwopoorestprovinces,areover42percenthigherthanthenationaIaverageIoss,IikeIyduetoIowerquaIity

ofhousinginfrastructure.Despitewidespreadpoverty,ZimbabwespendsonIy0.4percentofitsGDPonsociaIprotection,IessthanathirdoftheSub-Saharanaverage.8Targetingofdisasterresponseinterventionshasbeenweak—forexampIe,therewasnosignificantdifferenceinthecoveragerateofCOVIDpandemicemergencyassistancebetweenhousehoIdsthatexperiencedanddidnotexperienceshocks.9However,theZimbabweSociaIRegistry(ZISO),forwhichcoverageisexpectedtosignificantIyincreaseinthenextonetotwoyears,hoIdsthepromiseofenabIingrobustandrapidtargetingforbeneficiariesofcrisisresponseprograms.

TheinstitutionalframeworkfordisasterriskmanagementinthecountryiswelldevelopedandcentrallycoordinatedbytheDepartmentofCivilProtection(DCP).Somerolesaredecentralizedtothevillagelevel,butfundsdonotalwaysfollow.TheCabinetCommitteeonEnvironment,DisasterPrevention,andManagement,whichincIudesrepresentativesfromaII17ministries,overseesdisasterriskmanagement(DRM).TheNationaICiviIProtectionCoordinationCommitteecoordinatesministrieswithdeveIopmentpartners.TheDCPcoordinatesstrategicpIanningforemergenciesataIIgovernmentIeveIsandensuresemergencypreparednessanddisasterprevention.DCPaIsomanagestheearIywarningsystem,workingwithbothpubIicandprivateinstitutions,incIudingdeveIopmentpartners.District-IeveIDRMiscoordinatedbyterritoriaIcommanders,andapoIicyhasbeenapprovedtoincIudeviIIagestructuresinDRM.

Whilethelegalframeworkisrelativelywelldevelopedandhasdecentralizednumerousdisasterresponsefunctions,theframeworkisinadequateforfinancialandoperationalpreparedness,andsomesupportingregulationsarestillmissing,whichslowsdownresponse.TheCiviIProtectionActof1989setsouttheroIesatthenationaI,provinciaI,andmetropoIitanIeveIsanddetaiIshowtodecIareastateofemergency.ItdoesnotprovideforspecificexantefinancingoraIIocationofresourcestoIowertiersofgovernmentanddoesnotspecifyadisbursementmechanismfordisasterresponseandrecovery.

5-

https://data.worI/indicator/NY.GDP.MKTP.KD.ZG?Iocations=ZW

6-WorIdBankanaIysisbasedondatafromdatafromEM-DATdatabase1975-2022,EM-DAT,CRED/UCLouvain,BrusseIs,BeIgium,

www.emdat.be

;governmentreports;academicarticIes.

7-InsuranceCounciIofZimbabwe,2019.CycIoneIdaiImpactStudyReport.

8-Sharma,Dhiraj;AIwang,JeffreyRoger;Chingozha,Tawanda;Hoy,ChristopherAIexander;Kurasha,FIoraMarveIIousNyasha;PaezRodas,Ananda.ReversingtheTide:ReducingPovertyandBoostingResiIienceinZimbabwe-Overview(EngIish).Washington,D.C.:WorIdBankGroup.

https://documents.worI/en/pubIication/documents-reports/documentdetaiI/099925110032237739

9-Ibid.

ZimbabweDisasterRiskFinanceDiagnostic10

TheDisasterRiskManagementandCivilProtectionBill(DRMBill)isunderpreparationtoaddressthesegapsandreplacetheCivilProtectionAct.TheprinciplesoftheDRMBillwereadoptedbytheCabinetin2022,butitisunclearwhenthebillwillbefinalized.

GoZ’sriskfinancinginstrumentsareinadequateforthescaleoflossesandrangeofperilsZimbabwefaces.WhileZimbabwehasbeenusingsovereignparametricdroughtinsurancefromtheAfricanRiskCapacity(ARC)since2019/20,theamountofcoverpurchasedisverysmall,andreallocationsarethemainsourceoffunding.In2020,ZimbabwereceivedapayoutofUS$1.4millionfromitsdroughtpolicy,benefitingover155,000peoplethroughdirectcashtransfers.Incomparison,followingthedroughtin2016,reallocationsamountedtoUS$600million(12percentofthebudget),mostlyfrompublicservices,labor,andsocialwelfare,aswellaseducation.GoZalsousesseveralexantebudgetlines(oftenreferredtoasfunds10),statutoryfundsthatarefinancedthroughdedicatedlevies,theNationalCivilProtectionFund,andageneralcontingencybudgetforunforeseenexpenditures.11TheseriskretentioninstrumentsarecomplementedbytheNationalDisasterFund,adonor-fundedmulti-currencyaccountundertheMinistryof

FinanceandEconomicDevelopment(figure1).

Useofdomesticinsuranceislimitedandseverelyconstrainedbymacroeconomicvolatility.12

Zimbabwe’snon-lifeinsurancemarketissmallerthanthemarketsofregionalpeersbutcomparabletoothermiddle-incomecountries,andithasprovedresilienttomacroeconomicandregulatoryshockssuchashyperinflationandexchangerateandcurrencyvolatility.Coveragainstclimateriskisincludedinpropertyinsurance,butavailablepoliciesdonotpayoutwhenastateofdisasterisdeclared.Agricultureinsurancecoversabout3.5percentofagricultureGDPvalueadded.Weatherindexinsurancehasbeenavailablesince2015buthasfailedtoreachscalewithoutpublicsupport.13Throughitssubsidiary,AFCinsurance,GoZhasbeenpilotingmacro-levelareayieldindexinsurancecoverforfarmersunderthePfumvudzainputschemeovertheperiodDecember2022toJuly2023.Thedesignandcostefficiencyofthepilotshouldbereviewedbeforeitisscaledup.Inaddition,theVictoriaFallsStockExchange(VFEX)couldenhancetheresilienceoftheinsurancemarketthroughinvestmentstopreservethevalueofpoliciesandrebuildtrust.14

10-Theseincludeadroughtmitigationfund,andMinistryofFinanceofficialsinterviewedbytheWorldBankteamindicatedthatthereisalsoafloodmitigationfund,butthefundingamountswerenotprovidedandthespecificlineiteminthebudgetcouldnotbeverified.

11-Thegeneralcontingencyreserveisusedforanyunforeseenexpenditures,includingthosefromclimateshocks,butithasmostlybeenusedforthepublicservicewagebill.

12-Only3percentofadultshaveaninsurancepolicy,excludingfuneralcover,andonly4percentofMSMEshavebusinessinsurance.

13-Onthenon-technicalside,insurershavenotedfourmainissues:(i)premiumaffordability,(ii)farmertrustintheinsuranceprovider,(iii)financialliteracy,and(iv)thedegreeofcorrelationbetweentheindexandfarmeroutcomes(i.e.,basisrisk).

14-TheVFEXwaslaunchedin2020toattractforeigninvestors,anditsmarketcapitalizationstoodatUS$341millioninQ3

2022.ItwasestablishedandisregulatedbyanactofParliament,andfundsthroughtheexchangeareaccorded“freefunds”status,whichallowsremittanceoutofZimbabweautomatically.

ZimbabweDisasterRiskFinanceDiagnostic11

FIGURE1:STATUSOFRISKFINANCINGINSTRUMENTSINZIMBABWE

Highfrequency/lowseverityLowfrequency/highseverity

Risktransfer

Riskretention

Agriculturalinsurance

Indemnityinsuranceforcommercialfarmers;WIIverylowuptake(13,000farmers);AYII(atpilot

stage);nolivestockindexinsurance

Contingencycredit

Notinuseduetoarrears

Propertyinsurance

Publicassetinsurancenotavailable;limitedpenetrationfor

household&businessinsurance

Sovereigninsurance

ARCpolicy

(government:US$1.6million;Replica:

US$16.9million)

NationalCivilProtectionFund

US$15millionin2023

Contingencybudget

(unallocatedreserve)About2.5%ofthe

budget,US$35millionperyear

Budgetappropriationandreallocations

Droughtmitigation(US$32millionin2023)

Reallocation(e.g.,US$600million,12%ofbudgetin2016)

UNCERF(US$258millionin2020)

NationalDisasterFund(US$7millionsince2018)

Donorfunding

Source:WorldBankanalysis.

Note:ARC=AfricanRiskCapacity;AYII=areayieldindexinsurance;CERF=CentralEmergencyResponseFund;WII=weatherindexinsurance.

Thereisasubstantialgapbetweenavailablepre-arrangedfundsandtheaverageannualcostofdisasterresponse.FindingsfromthefundinggapanalysisundertakenbytheWorldBankteamestimatetheaverageannualcostofdisasterresponseisUS$81million;thecostcouldreachUS$540millionfor

1-in-50-yearevents.WithonlyUS$33millionpre-arrangedtofinancedisasterresponse,GoZfacesanannualfundinggapofUS$48million.Thefundinggapincreasesasthelossesincrease,giventhattheavailabilityoffinanceremainsconstant(figure2).

FIGURE2:FUNDINGGAPATVARI