TABLE OF CONTENTS Acknowledgments 06 Abbreviations 07 Executive summary 08 1 Assessment of climate risk and the impact of past disasters 14 1.1 Overview of disasters 14 1.2 Droughts 18 1.3 Floods 23 1.4 Impact of disasters on household poverty 26 1.5 Impact of disasters on MSMEs 27 1.6 Macroeconomic and fiscal impacts of disasters 28 2 Legal and institutional framework for DRF 32 2.1 Overview of the legal framework for DRF 32 2.2 Overview of the institutional framework for disaster risk finance 36 2.3 Early warning system 38 3 Status of disaster risk financing instruments and mechanisms 39 3.1 Ex ante funding 40 3.2 Ex post funding 42 3.3 Social safety nets and existing distribution mechanisms 49 4 Review of financial markets 52 4.1 Insurance market 52 4.2 Financial inclusion and financial protection 58 4.3 Capital markets 62 5 Funding gap analysis and risk financing strategies 66 5.1 Fiscal cost analysis 66 5.2 Funding gap and comparison with risk-layered strategy 67 6 Recommended options to strengthen financial resilience 71 6.1 Improve the policy framework, public financial management, and risk-informed 71 decision-making 6.2 Strengthen the financial sector and enhance the use of insurance 72 6.3 Strengthen existing instruments and adopt new risk financing instruments 73 BOXES Box 1: Kenyan Hunger Safety Net Program 51 Box 2: The Philippines’ development and implementation of national public asset insurance program 56 Box 3: Building resilience through financial inclusion 59 Box 4: Risk layering: Key trade-offs and considerations when establishing a disaster risk finance 69 strategy FIGURES Figure 1: Status of risk financing instruments in Zimbabwe 11 Figure 2: Funding gap at various return periods assuming pre-arranged funds of US$32 million 11 Figure 3: Zimbabwe’s scores on World Risk Index 2022 (normalized score ranging from 0 to 100) 14 16 Figure 4: Disaster risk profile of Zimbabwe, 1975–2022 (left) and population affected by drought (right) Figure 5: Cross-country comparison of vulnerability and readiness to improve climate resilience 17 Figure 6: Provincial distribution of main crops in Zimbabwe 20 Figure 7: Value of major crops grown in Zimbabwe over time (2016 constant US dollars) 20 Figure 8: Provincial-level data on average drought intensity (left), duration (center), and return period 21 (right) Figure 9: Provincial losses by crop and year 22 Figure 10: On-grid electricity generation in Zimbabwe 23 Figure 11: Average losses from flood at different return periods 24 Figure 12: Residential and commercial property values at risk of flood damage (left) and loss and damage 24 ratios (right) Figure 13: Annual number of recorded storms in East Africa 25 Figure 14: Relationship between agricultural value added and overall GDP growth 29 Figure 15: Annual inflation rate, 2010–2022 30 Figure 16: Composition of budget revenue, 2017–2021 30 Figure 17: Development partners’ contribution to the 2020/21 budget (estimated) 31 Figure 18: Disaster risk management institutional set-up 37 Figure 19: Status of risk financing instruments in Zimbabwe 39 Figure 20: Reallocations between votes following the drought of 2016 43 Figure 21: Proposed use of SDR allocation in 2021 46 Figure 22: Humanitarian aid as part of Zimbabwe’s budget, 2012–2020 47 Figure 23: Trends in official development assistance, 1990–2022 (left) and humanitarian funding gap, 47 2019–2022 (right) Figure 24: Total insurance written premium, 2009–2021 52 Figure 25: Cross-country comparison of insurance penetration and density 53 FIGURES Figure 26: Trends in property insurance (left) and natural hazards insurance (right) 54 Figure 27: Total agriculture insurance, 2009–2021 (left) and weather index insurance, 2019–2022 (right) 55 Figure 28: Percentage of MSMEs that use insurance in Zimbabwe (left) and barriers to insurance uptake 58 (right) Figure 29: Emerging evidence on building resilience through financial inclusion 59 Figure 30: Proportion of adults with an account at a financial institution (left) and capacity to raise 60 emergency funds (right) Figure 31: Dynamics of MSMEs’ access to credit, insurance, and savings 62 Figure 32: Zimbabwe Stock Exchange trends 63 Figure 33: VFEX comparison of Q3 2021 and Q3 2022 turnover (left) and trend in number of trades 64 (right) Figure 34: Simulated average annual costs of disaster response due to drought and flood in Zimbabwe 65 over the next year for different return periods Figure 35: Funds under each financing strategy 67 Figure 36: Funding gap at various return periods assuming pre-arranged funds of approximately US$33 68 million Figure 37: Effect of risk-layered financing approach on cost of covering losses 69 Figure 38: Framework for approaching disaster-related budget reallocations 70 TABLES Table 1: Recommendations to strengthen financial resilience in Zimbabwe 12 Table 2: Impact of disasters in Zimbabwe by type of peril, 1975–2022 15 Table 3: Summary of laws relevant to financial and operational preparedness 32 Table 4: Funds with contingency mandates 41 Table 5: Drought insurance from ARC for Government of Zimbabwe and Replica partners, 2019–2023 44 Table 6: Summary of the main social protection programs in Zimbabwe 49 Table 7: RecomWmendations for strengthening financial resilience in Zimbabwe 74 Zimbabwe Disaster Risk Finance Diagnostic 6 ACKNOWLEDGMENTS This disaster risk finance report was prepared by a World Bank team led by Qhelile Ndlovu (Financial Sector Specialist) consisting of Michal Krzysztof Pietrkiewicz (Consultant) and Tawanda Chituku (Consultant) with operational assistance from Crispen Mawadza (Consultant). The World Bank team would like to thank the Government of Zimbabwe, and especially the Ministry of Finance and Economic Development and the Civil Protection Department, for their support of this study. The team would also like to thank the many other public institutions that assisted in the study as well as the many development partners that provided useful input. The team is also grateful to Marko Kwaramba (Country Economist) for macroeconomic input and guidance as well as the following World Bank colleagues who peer-reviewed the report, namely Isaku Endo (Senior Financial Sector Specialist), Ronald Rateiwa (Regional Economist, Southern Africa), Tatiana Skalon (Financial Sector Specialist) and Samantha Cook (Senior Financial Sector Specialist). The diagnostic was financed through the Financial Resilience Program, a trust fund managed by the Crisis and Disaster Risk Finance team in the Finance, Competitiveness, and Innovation Global Practice. The program aims to enhance the capacity of policy makers to improve vulnerable households’ and businesses’ financial resilience to climate shocks and natural disasters and is kindly funded by the United States Agency for International Development (USAID). Zimbabwe Disaster Risk Finance Diagnostic 7 ABBREVIATIONS ARC African Risk Capacity BEAM Basic Education Assistance Module Cat DDO Catastrophe Deferred Drawdown Option DCP Department of Civil Protection DRF Disaster Risk Finance DRM Disaster Risk Management DRM Bill Disaster Risk Management and Civil Protection Bill FDM Food Deficit Mitigation GCF Global Climate Fund GDP Gross Domestic Product HDI Human Development Index HSCT Harmonized Social Cash Transfers HSNP Hunger Safety Net Program (Kenya) ICZ Insurance Council of Zimbabwe IDA International Development Association IMF International Monetary Fund IPEC Insurance and Pensions Commission MoFED Ministry of Finance and Economic Development MoPSLSW Ministry of Public Service, Labor, and Social Welfare MSMEs Micro, Small, and Medium Enterprises ND-GAIN Notre Dame Global Adaptation Initiative NFIS National Financial Inclusion Strategy PEFA Public Expenditure and Financial Accountability PFM Act Public Financial Management Act SDR Special Drawing Rights SECZ Securities and Exchange Commission of Zimbabwe SMEs Small and Medium Enterprises SPI Standardized Precipitation Index VAT Value Added Tax VFEX Victoria Falls Stock Exchange ZSE Zimbabwe Stock Exchange Zimbabwe Disaster Risk Finance Diagnostic 8 EXECUTIVE SUMMARY PHOTO CREDIT: MAGNIFICAL PRODUCTIONS, ISTOCK This disaster risk finance (DFR) diagnostic was prepared by the World Bank Finance, Competitiveness and Innovation Global Practice in response to a request from the Government of Zimbabwe (GoZ) for a study to assess the institutional, legal, and financial planning for financing of disaster risk in Zimbabwe. The GoZ intends to use the diagnostic to inform the development of a comprehensive national DRF strategy. The diagnostic will also inform the Zimbabwe Country Climate and Development Report, which is a joint analytical product of the World Bank and the GoZ and will complement the ongoing Zimbabwe Country Private Sector Diagnostic. The objective of this DRF diagnostic is to assess recommendations is complementary to other GoZ Zimbabwe’s financial preparedness to disasters and policies and initiatives, such as the National Financial crises. Zimbabwe is ranked a medium- to low-climate- Inclusion Strategy, and to tools like Guideline No. 01- risk country but faces high impacts due to high levels of socioeconomic vulnerability and a significant lack 2023/BSD: Climate Risk Management. of coping and adaptive capacity. Between 1975 and 2022, disasters in Zimbabwe led to total economic Zimbabwe is in a polycrisis, facing the impacts of losses of at least US$7.5 billion, most of which were frequent and increasing climate-related disasters, uninsured. 1 The increasing frequency and severity the COVID-19 pandemic, and a growing macro- of climatic disasters exacerbates the challenge of improving resilience. This assessment entails analysis fiscal and food crisis. Zimbabwe is a lower middle- of (i) the economic and fiscal impact of disasters income country with a gross domestic product (GDP) (chapter 1); (ii) the legal and institutional arrangements per capita of US$1,267 a year and a macroeconomic for DRF (chapter 2); (iii) pre-arranged funding available context characterized by instability; GDP growth is to the government for response (chapter 3); (iv) the domestic insurance and capital markets (chapter highly volatile and declined for the entire first decade 4); and (v) the potential funding gap—that is, the of the 2000s.3 This was a result of the challenges of difference between the amount of pre-arranged land reform and consecutive droughts that began in funding available to government and the estimated 1999 and that by 2001 had led to deepening economic cost of response to disasters (chapter 5).2 Based on this depression, correlating with hyperinflation and foreign analysis, the diagnostic presents recommendations to strengthen the financial preparedness of Zimbabwe currency shortages. Consequently, poverty rose from to disasters and crises (chapter 6). The broad set of 32.2 percent in 2001 to 38.3 percent in 2019.4 1 - EM-DAT database 1975–2022, EM-DAT, CRED/UCLouvain, Brussels, Belgium, www.emdat.be; government reports; academic articles. 2 - The analysis combines desktop research and expert interviews in line with the good practice methodology developed by the World Bank and development partners; see World Bank and Asian Development Bank, “Assessing Financial Protection against Disasters: A Guidance Note on Conducting a Disaster Risk Finance Diagnostic,” 2017, https://documents1.worldbank. org/curated/en/102981499799989765/pdf/117370-REVISED-PUBLIC-DRFIFinanceProtectionHighRes.pdf 3 - https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=ZW 4 - https://data.worldbank.org/indicator/SI.POV.NAHC?locations=ZW Zimbabwe Disaster Risk Finance Diagnostic 9 In recent years, the GDP has entered a modest growth of housing infrastructure. Despite widespread poverty, phase, increasing an average of 2.4 percent a year over Zimbabwe spends only 0.4 percent of its GDP on social 2012 to 20225. After years of relative stability, inflation protection, less than a third of the Sub-Saharan average.8 has been at levels well above 100 percent a year since Targeting of disaster response interventions has been 2018, making budgetary planning, including for response weak—for example, there was no significant difference efforts, extremely difficult. Achieving macroeconomic in the coverage rate of COVID pandemic emergency and price stability is crucial for improving the financial assistance between households that experienced and resilience of the country, including households and did not experience shocks.9 However, the Zimbabwe businesses. Social Registry (ZISO), for which coverage is expected to significantly increase in the next one to two years, holds Climate shocks, of which drought and storms are the the promise of enabling robust and rapid targeting for most serious in Zimbabwe, have a significant impact beneficiaries of crisis response programs. on economic growth, food security, and the fiscal balance. GDP growth shrank by about 16 percent The institutional framework for disaster risk following the 2002/03 drought. On average, drought management in the country is well developed and affected 27 percent of the population between 1981 centrally coordinated by the Department of Civil and 2021; however, during severe drought years nearly Protection (DCP). Some roles are decentralized to the half the population is affected. Based on available public village level, but funds do not always follow. The Cabinet data, droughts occur in one of every six years, and each Committee on Environment, Disaster Prevention, and occurrence results in economic loss of US$790 million Management, which includes representatives from all on average. Floods occur in one of every four years and 17 ministries, oversees disaster risk management (DRM). result in economic loss of US$94 million on average.6 The National Civil Protection Coordination Committee Data on the impact of storms are scarcer, but losses coordinates ministries with development partners. The appear to vary significantly, with total losses caused by DCP coordinates strategic planning for emergencies at all Cyclone Idai in 2019 estimated at US$1.152 billion.7 government levels and ensures emergency preparedness and disaster prevention. DCP also manages the early Disasters disproportionately affect the poorest and warning system, working with both public and private vulnerable, and Zimbabwe’s micro, small and medium institutions, including development partners. District- enterprise (MSME) sector, which is a source of level DRM is coordinated by territorial commanders, and livelihood for about 90 percent of the population, is a policy has been approved to include village structures extremely vulnerable to climate variability. The strong in DRM. link between poverty and vulnerability to drought and floods relates to sources of livelihoods and quality of While the legal framework is relatively well developed housing infrastructure. Approximately 80 percent and has decentralized numerous disaster response of rural households in Zimbabwe depend on rain-fed functions, the framework is inadequate for financial agriculture. A majority are subsistence farmers who lack and operational preparedness, and some supporting access to markets and financial products, which means regulations are still missing, which slows down that shocks to agricultural production push a large part of response. The Civil Protection Act of 1989 sets out the the population into food insecurity. Globally, Zimbabwe roles at the national, provincial, and metropolitan levels is one of six countries where the poor are much more and details how to declare a state of emergency. It does exposed to flooding than nonpoor peers. Losses due to not provide for specific ex ante financing or allocation flood in Matabeleland North and Matabeleland South, of resources to lower tiers of government and does not the two poorest provinces, are over 42 percent higher specify a disbursement mechanism for disaster response than the national average loss, likely due to lower quality and recovery. 5 - https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=ZW 6 - World Bank analysis based on data from data from EM-DAT database 1975–2022, EM-DAT, CRED/UCLouvain, Brussels, Belgium, www.emdat.be; government reports; academic articles. 7 - Insurance Council of Zimbabwe, 2019. Cyclone Idai Impact Study Report. 8 - Sharma,Dhiraj; Alwang,Jeffrey Roger; Chingozha,Tawanda; Hoy,Christopher Alexander; Kurasha,Flora Marvellous Nyasha; Paez Rodas,Ananda. Reversing the Tide : Reducing Poverty and Boosting Resilience in Zimbabwe - Overview (English). Washington, D.C. : World Bank Group. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099925110032237739 9 - Ibid. Zimbabwe Disaster Risk Finance Diagnostic 10 The Disaster Risk Management and Civil Protection Finance and Economic Development (figure 1). Bill (DRM Bill) is under preparation to address these gaps and replace the Civil Protection Act. The Use of domestic insurance is limited and severely principles of the DRM Bill were adopted by the Cabinet constrained by macroeconomic volatility. 12 in 2022, but it is unclear when the bill will be finalized. Zimbabwe’s non-life insurance market is smaller than the markets of regional peers but comparable GoZ’s risk financing instruments are inadequate to other middle-income countries, and it has proved for the scale of losses and range of perils Zimbabwe resilient to macroeconomic and regulatory shocks faces. While Zimbabwe has been using sovereign such as hyperinflation and exchange rate and currency parametric drought insurance from the African Risk volatility. Cover against climate risk is included in Capacity (ARC) since 2019/20, the amount of cover property insurance, but available policies do not pay purchased is very small, and reallocations are the out when a state of disaster is declared. Agriculture main source of funding. In 2020, Zimbabwe received insurance covers about 3.5 percent of agriculture a payout of US$1.4 million from its drought policy, GDP value added. Weather index insurance has been benefiting over 155,000 people through direct cash available since 2015 but has failed to reach scale transfers. In comparison, following the drought in without public support.13 Through its subsidiary, AFC 2016, reallocations amounted to US$600 million (12 insurance, GoZ has been piloting macro-level area percent of the budget), mostly from public services, yield index insurance cover for farmers under the labor, and social welfare, as well as education. GoZ also Pfumvudza input scheme over the period December uses several ex ante budget lines (often referred to as 2022 to July 2023. The design and cost efficiency of funds10), statutory funds that are financed through the pilot should be reviewed before it is scaled up. In dedicated levies, the National Civil Protection Fund, addition, the Victoria Falls Stock Exchange (VFEX) and a general contingency budget for unforeseen could enhance the resilience of the insurance market expenditures.11 These risk retention instruments are through investments to preserve the value of policies complemented by the National Disaster Fund, a donor- and rebuild trust.14 funded multi-currency account under the Ministry of 10 - These include a drought mitigation fund, and Ministry of Finance officials interviewed by the World Bank team indicated that there is also a flood mitigation fund, but the funding amounts were not provided and the specific line item in the budget could not be verified. 11 - The general contingency reserve is used for any unforeseen expenditures, including those from climate shocks, but it has mostly been used for the public service wage bill. 12 - Only 3 percent of adults have an insurance policy, excluding funeral cover, and only 4 percent of MSMEs have business insurance. 13 - On the non-technical side, insurers have noted four main issues: (i) premium affordability, (ii) farmer trust in the insurance provider, (iii) financial literacy, and (iv) the degree of correlation between the index and farmer outcomes (i.e., basis risk). 14 - The VFEX was launched in 2020 to attract foreign investors, and its market capitalization stood at US$341 million in Q3 2022. It was established and is regulated by an act of Parliament, and funds through the exchange are accorded “free funds” status, which allows remittance out of Zimbabwe automatically. Zimbabwe Disaster Risk Finance Diagnostic 11 FIGURE 1: STATUS OF RISK FINANCING INSTRUMENTS IN ZIMBABWE Low frequency / high severity Risk transfer Sovereign insurance Agricultural insurance Property insurance ARC policy Indemnity insurance for Public asset insurance UN CERF (US$258 million in 2020) National Disaster Fund (US$7 million since 2018) Donor funding (government: US$1.6 commercial farmers; WII not available; limited million; Replica: very low uptake (13,000 penetration for US$16.9 million) farmers); AYII (at pilot household & business stage); no livestock index insurance insurance Contingency credit National Civil Protection Fund Not in use due to High frequency / low severity US$15 million in 2023 arrears Risk retention Budget appropriation and Contingency budget reallocations (unallocated reserve) Drought mitigation (US$32 million About 2.5% of the in 2023) budget, US$35 Reallocation (e.g., US$600 million, million per year 12% of budget in 2016) Source: World Bank analysis. Note: ARC = African Risk Capacity; AYII = area yield index insurance; CERF = Central Emergency Response Fund; WII = weather index insurance. There is a substantial gap between available pre- 1-in-50-year events. With only US$33 million pre- arranged funds and the average annual cost of arranged to finance disaster response, GoZ faces an disaster response. Findings from the funding gap annual funding gap of US$48 million. The funding analysis undertaken by the World Bank team estimate gap increases as the losses increase, given that the the average annual cost of disaster response is US$81 availability of finance remains constant (figure 2). million; the cost could reach US$540 million for FIGURE 2: FUNDING GAP AT VARIOUS RETURN PERIODS ASSUMING PRE-ARRANGED FUNDS OF US$33 MILLION Source: World Bank analysis. Zimbabwe Disaster Risk Finance Diagnostic 12 Strengthening the use of available instruments and insurance with a maximum payout of US$360 million expanding the range of risk finance instruments and 50 percent cession. A more in-depth financial could increase efficiency in the use of limited public modeling and technical analysis should be carried out financial resources. Such efforts could generate to rightsize the potential financial instruments that the savings of about US$37 million for moderate loss GoZ could consider. events and up to US$146 million for severe shock events, based on indicative analysis carried out by GoZ recognizes that strengthening financial resilience the World Bank. Under this analysis, the current risk- is a key part of DRM, one that is complementary layering strategy—which consists of reserve funds of to physical resilience and critical to achieving the US$33 million and budget reallocations—is compared country’s long-term development goals. Overall, against two more robust risk-layering strategies. The creating a stable macroeconomic environment is a first (Strategy B) consists of a reserve fund of US$60 necessary condition for Zimbabwe’s strengthening million, contingent credit or grant of US$142 million, of financial resilience at all levels of society. A and sovereign multi-peril insurance with a maximum strategic approach to risk financing for climate-related payout of US$338 million and a ceding share of 50 disasters could help Zimbabwe emerge from the percent. In addition to protecting human capital against current polycrisis and prepare for other crises, such the impact of food insecurity, such a policy would be as economic shocks due to pandemics like COVID-19. designed to protect the budget against the impact of Recommended options to strengthen financial physical risk on public assets. The second strategy resilience in Zimbabwe are summarized in table 1 and (Strategy C) similarly consists of a reserve fund of further described in chapter 6. The options are not US$60 million to cover mild events, reallocation of up mutually exclusive and can be implemented in parallel. to US$120 million for moderate events, and sovereign PHOTO CREDIT: TIRY NELSON GONO, UNSPLASH Zimbabwe Disaster Risk Finance Diagnostic 13 Table 1: Recommendations to strengthen financial resilience in Zimbabwe Strengthen existing Improve the policy framework, Strengthen the financial instruments and adopt Time frame public financial management, and sector and enhance the new risk financing risk-informed decision-making use of insurance instruments Short term • Develop a comprehensive disaster risk • Scale up agriculture • Conduct a feasibility study finance strategy insurance review the AYII on public asset insurance • Fast track the adoption of the DRM pilot design and cost- and review the national Bill and address gaps in regulations on benefit ratio public asset registry emergency procurement • Consider PPP approach • Strengthen the technical capacity of the to invest in key public MoFED on disaster risk finance through goods like data, insurance a dedicated capacity-building program awareness, and local insurance market’s technical capacity for index agriculture insurance Medium term • Develop a public expenditure tracking • Craft a capital market • Establish a dedicated system for disaster and crisis response development strategy multiyear disaster reserve • Within the budgeting framework, to grow and deepen the fund for moderate-risk develop a system for proactive market by facilitating events in line with global planning for reallocations to minimize contingency and climate good practice; this could be unintended negative consequences finance done by strengthening the from delayed or canceled expenditures • Support insurance National Disaster Fund and • Develop a public asset management awareness creation among graduating it from donor policy that addresses insurance of farmers and MSMEs dependence public assets and critical infrastructure • Conduct a review of • Develop and implement the impact of aggregate a PPP-based public asset exclusion due to national insurance program to declaration of disaster protect the budget against on the insurance sector, flood and tropical cyclone households, and businesses; identify appropriate structural or regulatory interventions Long term • Develop a national database on the • Strengthen the occurrence and impact of natural institutional capacity and disasters shock responsiveness of the social protection system • Consider risk transfer solutions to limit impact of drought on electricity and protect the national budget Source: World Bank. Note: short term = six months to one year; medium term = one to three years; long term = three to five years. AYII = area yield index insurance; MoFED = Ministry of Finance and Economic Development; MSMEs = micro, small, and medium enterprises; PPP = public-private partnership. Zimbabwe Disaster Risk Finance Diagnostic 14 1. ASSESSMENT OF CLIMATE RISK AND THE IM- PACT OF PAST DISASTERS 1.1 Overview of disasters exposure levels.16 What drives the disaster risk score of Zimbabwe is the country’s vulnerability, and in Zimbabwe’s climate risk is ranked low by the particular its lack of adaptive capacities. While the World Risk Index (See figure 3) and medium by the exposure of Zimbabwe is driven by largely exogenous Inform Risk Index.15 Zimbabwe’s relatively low risk factors, such as physical characteristics, almost all the score is largely due to its low level of exposure to components of its vulnerability are endogenous and natural hazards; 151 countries have higher general can be positively influenced through policy. FIGURE 3: ZIMBABWE’S SCORES ON WORLD RISK INDEX 2022 Source: Bündnis Entwicklung Hilft and Ruhr University Bochum–Institute for International Law of Peace and Armed Conflict (IFHV), “WorldRiskReport 2022—Focus: Digitalization,” 2022, https://reliefweb.int/report/world/worldriskreport-2022-focus-digitalization Note: Before calculating the World Risk Index, all indicators are normalized to the value range of 0 to 100, with higher values representing worse circumstances or initial conditions. Numbers in brackets refer to the ranking of the category relative to 193 countries. The higher the ranking the better it is for the country. The index is a function of exposure and vulnerability; vulnerability is a geometric mean of susceptibility, lack of coping capacities, and lack of adaptive capacities. 15 - Zimbabwe ranks 136th out of 193 countries in the 2022 World Risk Report; see Bündnis Entwicklung Hilft and Ruhr University Bochum–Institute for International Law of Peace and Armed Conflict (IFHV), “WorldRiskReport 2022—Focus: Digitalization,” 2022, https://weltrisikobericht.de/wp-content/uploads/2022/09/WorldRiskReport-2022_Online.pdf). On the Inform Risk Index for mid-2023, Zimbabwe ranks as “medium” and is 52nd out of 191 countries (83rd out of 191 in terms of hazard exposure). See European Commission, “INFORM Risk Index Mid 2023,” https://drmkc.jrc.ec.europa.eu/inform-index/ INFORM-Risk/Results-and-data/moduleId/1782/id/453/controller/Admin/action/Results 16 - Bündnis Entwicklung Hilft and Ruhr University Bochum–IFHV, “WorldRiskReport 2022—Focus: Digitalization.” Zimbabwe Disaster Risk Finance Diagnostic 15 From the policy perspective, it is more important to and food security. Storms account for a fifth of understand the absolute impact of different shocks total damage but affect only 1 percent of people; (rather than how Zimbabwe compares to other their impact is largely through damage to physical countries). Overall, about 57 disaster events occurred assets and infrastructure17. Flood events occur more in Zimbabwe between 1975 and 2022, with estimated frequently than storms, but their impact tends to be total economic losses of at least US$7.5 billion, the localized, and damage is thus comparatively lower. bulk of which were uninsured. Among the hazards Nearly half of all disaster events in Zimbabwe were that Zimbabwe is exposed to, drought is especially significant: of people affected by any disasters in localized epidemic outbreaks of cholera and typhoid. the country, 95 percent were affected by drought, These are probably the deadliest perils; however, and drought has caused the most damage and losses the number of deaths from drought is difficult to due to extensive impact on productivity, livelihoods, estimate, given its mostly indirect nature (table 2). Table 2: Impact of disasters in Zimbabwe by type of peril, 1975–2022 Total damage Peril Number of events Number affected Number of deaths (US$, millions) Drought 9 28,835,118 NA 5,532 Epidemic 24 635,680 7,164 74 Flood 15 344,022 325 564 Storm 9 391,084 942 1,411 Total 57 30,205,904 8,431 7,581 Sources: EM-DAT database 1975–2022, EM-DAT, CRED/UCLouvain, Brussels, Belgium, www.emdat.be; government reports; academic articles. Note: The table presents aggregate impacts across different disaster events. NA = not available. 17 - EM-DAT database 1975–2022, EM-DAT, CRED/UCLouvain, Brussels, Belgium, www.emdat.be; government reports; academic articles. PHOTO CREDIT: GFED, ISTOCK Zimbabwe Disaster Risk Finance Diagnostic 16 Drought, storms, and floods are the most serious from Cyclone Idai were estimated at US$1.2 billion. perils in Zimbabwe (figure 4). Droughts are of high Floods occur in one of every four years and result in severity and medium frequency, while storms are of economic losses of US$94 million on average, though medium severity and medium frequency. As shown in again, the impact of a specific event can be more figure 4 droughts occur in one of every six years, and severe. For example, losses from the 2003 flood are each occurrence results in economic loss of US$790 estimated at US$295 million. It is also important to million on average. However, these figures mask great consider the concentration of losses; floods and storms variability. Losses and damage from the 2021/22 have a localized impact with much higher per capita drought are estimated at US$2.5 billion. Storms occur losses, while drought is more broadly distributed over in one of every six years, and losses vary widely; losses space and population. FIGURE 4: DISASTER RISK PROFILE OF ZIMBABWE, 1975–2022 (LEFT) AND POPULATION AFFECTED BY DROUGHT (RIGHT) Sources: World Bank analysis based on EM-DAT database, EM-DAT, CRED/UCLouvain, Brussels, Belgium, www.emdat.be; government reports; academic articles; others. Note: This empirical analysis provides average estimates based on historical occurrence. The share of the population affected by drought is Despite Zimbabwe’s currently low exposure to staggeringly high. On average, drought has affected hazards, climate change is rapidly increasing the risks 27 percent of the population annually, but during faced by the country. Climate change is increasing the severe drought years nearly half the population is frequency and severity of disasters in Zimbabwe. The affected. Notably severe droughts in 1991/92, 2001, number of disaster events has doubled over the last 10 and 2017 affected 47 percent, 50 percent and 49 years (figure 5). By the end of the century, the average percent of the population respectively (figure 4, right side). Floods and storms have affected 0.3 percent temperature in Zimbabwe is projected to increase by of the population on average, although an extremely 3°C, with a reduction in rainfall of up to 18 percent. severe flood in 2000 affected 2.2 percent and a storm Droughts and floods are also expected to increase in in 2019 affected 1.8 percent. frequency and intensity in the next decades.18 18 - Anna Brazier, Climate Change in Zimbabwe (Harare: Konrad-Adenauer-Stiftung, 2015), https://www.kas.de/c/document_library/get_file?uuid=6dfce726-fdd1-4f7b-72e7-e6c1ca9c9a95&groupId=252038 Zimbabwe Disaster Risk Finance Diagnostic 17 Under a no-adaptation strategy, the cost of climate lack of coping mechanisms (figure 5). Zimbabwe’s change to the Zimbabwean economy could reach 2.3 readiness to improve resilience to disasters remains percent of gross domestic product (GDP) by 2030.19 low according to the Notre Dame Global Adaptation Given the existing vulnerabilities of the country, Initiative (ND-GAIN) Country Index.20 Zimbabwe is climate change is likely to rapidly increase the cost in the top left quadrant, which represents countries of shocks to the economy and will disproportionally that have the greatest challenges and urgently need to affect the rural poor. improve resilience. Zimbabwe’s readiness to improve resilience is lower than that of regional peers, and of The high impact of climate-related disasters is driven more at-risk countries like Mozambique and Somalia, by high levels of socioeconomic vulnerability and ranked 7th and 14th most risky globally. FIGURE 5: CROSS-COUNTRY COMPARISON OF VULNERABILITY AND READINESS TO IMPROVE CLIMATE RESILIENCE Sources: ND-GAIN, “Matrix,” https://gain.nd.edu/our-work/country-index/matrix/ 19 - Pablo Benitez, et al., “Assessment of the Potential Impacts of Climate Variability and Shocks on Zimbabwe’s Agricultural Sector: A Computable General Equilibrium (CGE) Analysis,” World Bank, December 15, 2018, https://documents1.worldbank.org/curated/en/525691552672839736/pdf/125979-REVISED-Final-Climate-AgReport-CGE- modeling-Dec-15-2018.pdf 20 - The ND-GAIN Country Index summarizes a country’s vulnerability to climate change in combination with its readiness to improve resilience. Countries are ranked from 1 (lower risk) to 184 (higher risk). Readiness is measured in three components— economic readiness, governance readiness, and social readiness. Out of 192 countries, Zimbabwe ranked 174 overall, with its vulnerability ranked 159 and readiness (which measures a country’s ability to leverage investments and convert them to adaptation actions) ranked 187 Zimbabwe Disaster Risk Finance Diagnostic 18 Social vulnerability is primarily underpinned condition, 27 making them vulnerable to shocks by general poverty and inequality as well as the such as floods. Houses in Zimbabwe are also highly prevalence of infectious diseases. The general vulnerable, especially in rural areas, where 80 percent inequality in Zimbabwe is the 15th worst in the of houses are built with traditional materials that world. 21 Zimbabwe ranks 146th in terms of its have low resilience. 28 However, the Government Human Development Index (HDI) score; after years of Zimbabwe (GoZ) is making significant efforts to of improvement, its HDI score decreased over the improve building standards—for example, it approved past three years. 22 Furthermore, the population of a Zimbabwe National Human Settlements Policy in Zimbabwe is highly affected by HIV (in 2020 it had the 2020.29 fifth highest HIV/AIDS adult prevalence rate globally, with approximately 11.9 percent of the population HIV-positive).23 This high HIV/AIDS prevalence rate 1.2 Droughts increases the impact of shocks on individuals and also increases the cost of response for the health care Droughts impact Zimbabwe’s economy and the system. Finally, a large proportion of the population in livelihoods of people primarily through their impact Zimbabwe is constantly food insecure and easily slips on agricultural productivity and to a lesser extent into hunger following shocks that affect disposable through the impact on electricity generation. 30 income of households or induce inflation.24 Agriculture contributes approximately 11 of Zimbabwe’s GDP and supports the livelihoods of about Weak physical infrastructure further undermines 67 percent of people. The country’s losses, primarily resilience. In 2021, only 49 percent of the population drought-induced agricultural losses, stand at an had access to electricity25; in 2019, improved water average of 0.4 percent of GDP annually (7.3 percent was available to only 77 26 percent of people. Only of agricultural GDP), but in catastrophic years losses 25 percent of roads in the country are in good can reach up to 1.8 percent.31 21 - World Bank, “Gini Index,” https://data.worldbank.org/indicator/SI.POV.GINI?most_recent_value_desc=true 22 - United Nations Development Programme, “Human Development Reports: Zimbabwe,” September 8, 2022, https://hdr.undp.org/data-center/specific-country-data#/countries/ZWE 23 - CIA World Factbook, “HIV/AIDS–Adult Prevalence Rate,” https://www.cia.gov/the-world-factbook/about/archives/2021/ field/hiv-aids-adult-prevalence-rate/country-comparison 24 - Concern Worldwide and Welthungerhilfe, “2022 Global Hunger Index: Food Systems Transformation and Local Governance,” 2022, https://www.globalhungerindex.org/pdf/en/2022.pdf 25 - World Bank. “Access to Electricity (% of Population).” World Development Indicators, The World Bank Group, 2020, data. worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=ZW. Accessed 2 Aug. 2023 26 - Zimbabwe National Statistics Agency (ZIMSTAT) and UNICEF. (2019). Zimbabwe Multiple Indicator Cluster Survey 2019, Survey Findings Report. Harare, Zimbabwe: ZIMSTAT and UNICEF 27 - United Nations Economic Commission for Europe, “Casualties on Zimbabwe’s Roads Call for Stronger Political Commitment, According t o UN Road Safety Review,” January 12, 2022, https://unece.org/sustainable-development/press/ casualties-zimbabwes-roads-call-stronger-political-commitment 28 - Tonderayi Mukeredzi, “New Construction Standards Push Zimbabweans to Swap Traditional Materials for Cement Bricks to Protect Homes from Extreme Weather, Curb Deforestation and Conserve Wetlands,” Reuters Foundation News, May 10, 2022, https://news.trust.org/item/20220510065821-jvslu/ 29 - Government of Zimbabwe Ministry of National Housing and Social Amenities, “Zimbabwe National Human Settlements Policy (ZNHSP),” September 16, 2021, https://ucaz.org.zw/wp-content/uploads/2019/08/Final-Zimbabwe-National-Human- Settlements-Policy-2020.pdf 30 - Puja Daya, “Addressing Drought in Zimbabwe: Applying Nuclear Science to Understand Groundwater and River Dynamics,” International Atomic Energy Agency, October 11, 2021, https://www.iaea.org/newscenter/news/addressing- drought-in-zimbabwe-applying-nuclear-science-to-understand-groundwater-and-river-dynamics 31 - Global Facility for Disaster Reduction and Recovery, “Zimbabwe: Agriculture Sector Disaster Risk Assessment,” March 2019, https://www.gfdrr.org/sites/default/files/publication/Zimbabwe%20Agriculture%20Sector%20Disaster%20Risk%20 Assessment%20Report.pdf Zimbabwe Disaster Risk Finance Diagnostic 19 The negative impact of droughts on electricity GDP, and in 2016 was responsible for over 50 percent generation is mainly due to the grid’s heavy reliance of agricultural exports. Cotton is also strategically on the one hydropower plant that supplies most of important, contributing 12.6 percent to agricultural Zimbabwe’s electricity and that in drought years GDP 35. Furthermore, as the nonagricultural and operates well under its capacity. For example, the 2022 agricultural sectors are often closely linked, Zimbabwe drought lowered the plant’s capacity to approximately sees a significant level of correlation between 30 percent percent. 32 As Zimbabwe is constantly agricultural output and GDP growth. undersupplied, and as it mainly relies on diesel generators in the face of shortages, the undersupply in 2022 would have led to an additional minimum of 570 million liters of diesel consumption.33 1.2.1 National-level impact of droughts on crop production Average annual losses in the agricultural sector, which are primarily due to droughts, amount to about US$126 million a year. Droughts take a massive toll on the livelihoods of people; for instance, the 2015/16 El Niño–induced drought pushed 4 million people into food insecurity. Moreover, increasingly frequent and severe droughts are making regions in southern and western Zimbabwe increasingly unsuitable for rain-fed maize cultivation, the main source of nutrition for the poorest households.34 Risks to the agricultural sector not only have a dramatic impact on the livelihoods of poor households but can have a significant impact on the macroeconomic situation of the country. Zimbabwe grows over 20 types of crops, which are unevenly distributed across the country (See figure 6). Key staple food grains that are central to food security are maize, wheat, millet, sorghum, groundnuts, and beans. The export crops, a significant source of foreign currency, are tobacco, cotton, and sugarcane. Tobacco PHOTO CREDIT: GERRIT RAUTENBACH, ISTOCK contributes on average 36.1 percent of the agricultural 32 - The Herald. (2022, December 5). “National effort needed to fix power supply”. The Herald, www.herald.co.zw/editorial-comment-national-effort-needed-to-fix-power-supply/ 33 - This estimation assumes that the capacity is proportionate to output and takes a small generator as the alternative. 34 - Global Facility for Disaster Reduction and Recovery, “Zimbabwe: Agriculture Sector Disaster Risk Assessment,” March 2019, https://www.gfdrr.org/sites/default/files/publication/Zimbabwe%20Agriculture%20Sector%20Disaster%20Risk%20 Assessment%20Report.pdf 35 - World Bank. (2016). Zimbabwe Agriculture Sector Disaster Risk Assessment. World Bank, Washington, DC. https://documents1.worldbank.org/curated/en/667021584421611242/pdf/Zimbabwe-Agriculture-Sector-Disaster-Risk- Assessment.pdf Zimbabwe Disaster Risk Finance Diagnostic 20 FIGURE 6: PROVINCIAL PRODUCTION OFMAIN CROPS IN ZIMBABWE Source: World Bank analysis supported by RTLAB based on data from FAO and EM-DAT Crops grown in Zimbabwe differ in their resilience to 1990s and mid-2000s. At the same time, maize values droughts and in the time it takes for the impacted crop have fallen dramatically following almost all droughts. to recover. These differences may be due to plants’ From the disaster risk finance (DRF) perspective, it is inherent characteristics, locations where they are important to recognize that the recovery period for grown, and linkages to market, which enable a speedy crops like maize can differ substantially and can be and high-quality response. For example, tobacco, sped up with appropriate intervention. In the 1980s, which is of strategic importance for the national maize values recovered quickly; but between 2008 and budget, is often not negatively affected following 2018, following prolonged periods of drought, maize prolonged droughts such as the ones in the early remained persistently below average (See figure 7). FIGURE 7: VALUE OF MAJOR CROPS GROWN IN ZIMBABWE OVER TIME (2016 CONSTANT US DOLLARS) Source: World Bank analysis supported by RTLAB based on data from FAO and EM-DAT Note: SPI = Standardized Precipitation Index. Zimbabwe Disaster Risk Finance Diagnostic 21 1.2.2 Subnational impact of droughts on crop Manicaland have spent more time under drought production conditions than the former provinces—approximately 30 percent of the previous 42 years. Matabeleland Management of drought programs in Zimbabwe is North experienced twice as many droughts (12) as Mashonaland Central and Mashonaland West (6). largely conducted at the provincial level, 36 which Mashonaland East experiences droughts every six is a desirable setup given the heterogeneity of years, but during drought years its Standardized drought patterns and the resulting impact on local Precipitation Index (SPI) values are the lowest on jurisdictions. Droughts tend to be most severe in average among provinces, at -1.48. This contrasts Matabeleland South, Manicaland, and Masvingo. with Matabeleland North, which is at the high end for However, those areas are not necessarily the most drought onset and duration but which, on average, drought prone. Matabeleland North, Midlands, and does not see extremely low levels of SPI (figure 8). FIGURE 8: PROVINCIAL-LEVEL DATA ON AVERAGE DROUGHT INTENSITY (LEFT), AND RETURN PERIOD (RIGHT) Source: World Bank analysis supported by RTLAB based on data from FAO, EM-DAT and NASA Note: The maps above depict drought hazard via three metrics: intensity, duration, and frequency based on the SPI (Standardized Precipitation Index). The SPI values are calculated for every three months from 1981 to 2022 at the provincial level using CHIRPS rainfall data. See C. Funk et al., “The Climate Hazards Infrared Precipitation with Stations: A New Environmental Record for Monitoring Extremes,” Scientific Data 2, 150066, https://doi.org/10.1038/sdata.2015.66). SPI values can be interpreted as follows: mildly dry (0 > SPI > -0.5), moderately dry (-0.5 > SPI > -1), severely dry (-1 > SPI > -1.5), and extremely dry conditions (SPI less than -1.5). A drought is defined as a continuous period of negative SPI values reaching -1 or less and continuing until the SPI value becomes positive again. See T. B. McKee, N. J. Doesken, and J. Kleist, “The Relationship of Drought Frequency and Duration to Time Scales,” Proceedings of the 8th Conference on Applied Climatology 17, no. 22 (January 1993): 179–83. In the case of maize, the northwest is the main source Manicaland, where wheat is commonly grown but at of yield; but depending on the spatial profile of the a lesser concentration than maize. Losses in tobacco drought, the impact varies from year to year (figure 9). are comparatively evenly distributed and low, even in In some years, Matabeleland North drives 25 percent 1992, the year with the highest drought-related losses of total losses, while in other years, Mashonaland in the last five decades, which suggests resilience in the West contributes a larger proportion. For wheat, the value chain. Underlying factors of resilience could be highest contributor to loss is often the province of explored for adoption in other value chains. 36 - United Nations Convention to Combat Desertification, “National Drought Plan for Zimbabwe,” 2020, https://www.unccd.int/sites/default/files/country_profile_documents/1%2520FINAL_NDP_Zimbabwe.pdf Zimbabwe Disaster Risk Finance Diagnostic 22 FIGURE 9: PROVINCIAL LOSSES BY CROP AND YEAR Source: World Bank analysis supported by RTLAB based on data from FAO and EM-DAT Note: Loss is the difference from the historical mean. 1.2.3 Impact of droughts on electricity production droughts leading to diminished water levels in the Kariba Dam, coal shortages, high fuel costs, and poor maintenance of power stations. The power deficit Zimbabwe faces a persistent power supply deficit, is counterbalanced through expensive electricity as the actual power capacity, which ranges between imports from Zambia and Mozambique (See figure 10) 1,300 MW and 1,500 MW, remains well below the and through private generation with backup units.37 installed capacity of approximately 2,470 MW. The However, the high price of sourcing electricity this way gap is primarily due to the following factors: persistent results in power outages.38 37 - Florence Tan, “Zimbabwe to Start Operating New Coal Power Unit by March,” Reuters, February 8, 2023, https://www.reuters.com/markets/commodities/zimbabwe-start-operating-new-coal-power-unit-by-march-2023-02-08/ 38 - Jon Lane et al., “Mini-Grid Market Opportunity Assessment: Zimbabwe,” Sustainable Energy for All Africa Hub, African Development Bank, Carbon Trust, and SNV, December 2018, https://greenminigrid.afdb.org/sites/default/files/gmg_ zimbabwe-2.pdf Zimbabwe Disaster Risk Finance Diagnostic 23 FIGURE 10: ON-GRID ELECTRICITY GENERATION IN ZIMBABWE Source: Energypedia, “Zimbabwe Energy Situation,” https://energypedia.info/wiki/Zimbabwe_Energy_Situation 1.3 Floods those that are rarer but potentially catastrophic in scale (figure 11). Although sourcing funds for response to less costly and frequent events may be relatively Floods are among the most damaging perils in Zimbabwe: on average, every five years a flood event easier, it is important to have transfer mechanisms causes losses estimated at US$54 million. Zimbabwe that allow swift support to local governments and has experienced three major floods in the last decade.39 communities. A different approach is required for The risk of flooding is increased by the occurrence of large flooding events, like those caused by cyclones tropical cyclones that form over the Indian Ocean. Mass or unusual precipitation that follows a drought. For floods were among the main reasons why Cyclone Idai those rare, twice-a-century events, the cost of damage in 2019 caused such widespread damage and loss.40 can exceed US$0.7 billion, creating a liability for the Floods affect between 15,000 and 38,000 people a government that cannot be addressed through the year and range from frequent but localized events to budget. 39 - Over the past 10 years, Zimbabwe has experienced three major flooding events. In February 2022, heavy rains caused flooding across six provinces in Zimbabwe, with an especially severe impact in Manicaland, where over 1,000 people were affected. A much larger-scale event occurred between December 2016 and March 2017 in Matabeleland North and Masvingo. This flooding resulted in 250 fatalities and over 100 injuries, and caused 2,000 people to lose their houses. Property damage was estimated at over US$100 million. Finally, in January 2015, the six most exposed provinces experienced floods due to precipitation that exceeded the average by 150 percent, causing at least 10 deaths and hundreds of damaged houses (JBA Risk Management, 2023). 40 - Zimbabwe receives most of its rainfall between November and April, with average annual precipitation ranging from 380 mm in the drier regions to 730 mm in the wetter regions. Zimbabwe Disaster Risk Finance Diagnostic 24 FIGURE 11: AVERAGE LOSSES FROM FLOOD AT DIFFERENT RETURN PERIODS Source: JBA Risk Management, 2023. Zimbabwe Flood Risk Profile Note: Occurrence Exceedance Probability (OEP), which considers the loss for the most damaging event per year. The value of residential and commercial buildings and Harare (at about US$10 million each). Meanwhile, and contents exposed to flood is concentrated in despite the relatively low value of their infrastructure, Mashonaland East and Manicaland and estimated at Matabeleland South and North Provinces have the US$97 billion, of which residential property accounts highest loss ratios at 0.11 percent and 0.10 percent for 93 percent. The total expected cost of flooding is respectively (figure 12). River flood depths in US$74.3 million, with a loss ratio of approximately Matabeleland South appear to be greater than for 0.08 percent. 41 Manicaland has the highest loss other provinces, which may explain the greater amount (US$12.7 million) followed by Masvingo, Midlands, of damage when flooding occurs. FIGURE 12: RESIDENTIAL AND COMMERCIAL PROPERTY VALUES AT RISK OF FLOOD DAMAGE (LEFT) AND LOSS AND DAMAGE RATIOS (RIGHT) Source: JBA Risk Management, 2023. Note: AAL = average annual loss; TIV = total insured value. AAL is the expected cost of flooding on average per year. This is calculated by averaging losses over each year of the simulation, in this case 10,000 years. TIV represents the total insured value or replacement value of assets or required exposure in the database to be modeled in US dollars. It can include buildings, contents, and business interruption values. 41 - This is calculated by averaging losses over 10,000 years of simulation. Zimbabwe Disaster Risk Finance Diagnostic 25 In Zimbabwe, the link between poverty and in 2000, Japhet in 2003, Dineo in 2017, Idai in 2019, vulnerability to floods is strong. The two poorest Chalane in 2020, and Eloise in 2021. 44 While the provinces, Matabeleland North and Matabeleland relative exposure of landlocked Zimbabwe to tropical South, 42 experience the highest percentage of cyclones remains relatively low, the absolute impact infrastructure lost to floods (figure 12). On the one the country experiences is likely to greatly increase hand, floods hinder development and exacerbate over the next decades. This is because there is a direct poverty by displacing populations, damaging link between the intensity and frequency of tropical infrastructure, and negatively affecting education storms and climate change. Therefore, Zimbabwe must and livelihoods. On the other, poverty acts as a prepare for increasingly frequent and more extreme vulnerability amplifier, as poor families searching cyclones like Idai.45 for sustainable livelihoods settle in flood-prone areas and build vulnerable structures. 43 Addressing Cyclone Idai, which hit Zimbabwe and neighboring post-shock costs of a flood, including the response, in a sustainable way requires breaking the cycle of countries in 2019, was one of the most catastrophic poverty and flooding. weather-related disasters in the modern history of Africa. 46 Among countries experiencing a climate 1.3.1 Storms shock in 2019, Zimbabwe was the second most affected due to Idai’s extreme impact.47 Idai was also Over the past 20 years, Zimbabwe experienced at one of the deadliest and costliest tropical cyclones in least six significant tropical cyclones, including Eline the Southwest Indian Ocean. FIGURE 13: ANNUAL NUMBER OF RECORDED STORMS IN EAST AFRICA Source: EM-DAT database, EM-DAT, CRED/UCLouvain, Brussels, Belgium, www.emdat.be 42 - Zimbabwe National Statistics Agency, “Zimbabwe Poverty Atlas,” August 2015, https://www.zimstat.co.zw/wp-content/ uploads/publications/Income/Finance/Poverty-Atlas-2015.pdf 43 - Ernest Dube, Oliver Mtapuri, and Jephias Matunhu, “Flooding and Poverty: Two Interrelated Social Problems Impacting Rural Development in Tsholotsho District of Matabeleland North Province in Zimbabwe,” Jamba: Journal of Disaster Risk Studies 10, no. 1 (2018), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6014082/ 44 - Solomon Mukwenha et al., “Health Emergency and Disaster Risk Management: A Case of Zimbabwe’s Preparedness and Response to Cyclones and Tropical Storms: We Are Not There Yet!,” Public Health in Practice 2 (November 2021), https://www.sciencedirect.com/science/article/pii/S2666535221000562 45 - Matthew Taylor, “Climate Change Making Storms Like Idai More Severe, Say Experts,” The Guardian, March 19, 2019, https://www.theguardian.com/world/2019/mar/19/climate-change-making-storms-like-idai-more-severe-say-experts 46 - World Meteorological Organization, “WMO Atlas of Mortality and Economic Losses from Weather, Climate and Water Extremes (1970–2019),” https://library.wmo.int/doc_num.php?explnum_id=10989 47 - David Eckstein, Vera Künzel, and Laura Schäfer, “Global Climate Risk Index 2021: Who Suffers Most from Extreme Weather Events? Weather-Related Loss Events in 2019 and 2000-2019,” Germanwatch, January 2021, https://www.germanwatch.org/ sites/default/files/Global%20Climate%20Risk%20Index%202021_2.pdf Zimbabwe Disaster Risk Finance Diagnostic 26 The cyclone impacted approximately 270,000 people in Zimbabwe, displaced 51,000, and caused more than 1.4 Impact of disasters on 600 fatalities. Significant agricultural losses adversely household poverty affected livelihoods and the entire economy, 1.4 million hectares of arable land were rendered unusable; Approximately 80 percent of rural households in and crop and livestock losses were estimated at US$135.5 million, excluding stored grain. Damages Zimbabwe depend on rain-fed agriculture. 50 Most to critical infrastructure and assets were severe and households lack access to markets and to financial extensive; approximately 1,500 km of roads, 140 products, making them very vulnerable to the schools, and many health facilities were rendered productivity fluctuations that are becoming more unusable for several months, thereby disrupting common due to climate change. The high exposure basic services and market accessibility. Damages to to climatic variability and drought means that shocks nearly 17,000 houses were estimated at US$205.3 million and damages to agricultural infrastructure, to agricultural production almost immediately push a including irrigation systems were estimated at US$4.9 large part of the population into food insecurity. For million. 48 The GoZ recognized that the fragility of example, the drought of 2018/19 pushed 30 percent infrastructure was among the main drivers of impact of the country into a food crisis or emergency. 51 and is working on policies to increase resilience.49 The number of extremely poor is estimated to have These include construction standards in rural areas, where traditional building methods relying on timber increased from 3 million in 2012 to around 4.4 million and soil—used in some 80 percent of rural homes— in 2018 due to the compound impact of drought, heighten vulnerability. inflation, and shortage in foreign currency.52 PHOTO CREDIT: JOHN HOGG, WORLD BANK 48 - In Buhera, Chimanimani, Chipinge, Mutasa, Makoni, and Mutare. ICZ, 2019. Cyclone Idai Impact Study Report. 49 - Kudzai Chatiza, “Cyclone Idai in Zimbabwe: An Analysis of Policy Implications for Post-Disaster Institutional Development to Strengthen Disaster Risk Management,” Oxfam, July 11, 2019, https://policy-practice.oxfam.org/resources/cyclone-idai-in- zimbabwe-an-analysis-of-policy-620892/ 50 - Johnson Siamachira, “Climate-Smart Farming Offers Hope to Zimbabwe’s Smallholders and Livestock Keepers,” ILRI News, March 23, 2022, https://www.ilri.org/news/climate-smart-farming-offers-hope-zimbabwe%E2%80%99s-smallholders- and-livestock-keepers 51 - Integrated Food Security Phase Classification, “Zimbabwe: Acute Food Insecurity Situation February–May 2019,” February 28, 2019, https://www.ipcinfo.org/ipc-country-analysis/details-map/en/c/1151984/?iso3=ZWE 52 - World Bank, Government of Zimbabwe, and Global Facility for Disaster Reduction and Recovery, “Zimbabwe– Rapid Impact and Needs Assessment (RINA),” May 2019, https://reliefweb.int/report/zimbabwe/zimbabwe-rapid-impact-and-needs- assessment-rina-may-2019 Zimbabwe Disaster Risk Finance Diagnostic 27 1.5 Impact of disasters on over the last decade, the former has been shrinking and the latter growing, the impact of disasters on the MSMEs operations of many MSMEs remains significant.55 There are close to 2 million micro, small, and medium Electricity is among the key inputs to production enterprises (MSMEs) in Zimbabwe, which add for many MSMEs, and its low reliability, which is US$14.2 billion to the economy, equal to around 50 partially due to droughts and partially due to poor percent of GDP.53 The sector hires over 60 percent of infrastructure, undermines the MSME sector in all employed. Because shocks that affect the sector Zimbabwe. Only 30 percent of businesses have have a tremendous impact on both the economy and access to electricity, and many rely on relatively livelihoods, strengthening the resilience of the sector expensive small solar systems. 56 The grid that is of strategic importance to the country. MSMEs are supplies a vast majority of MSMEs is heavily impacted often heavily exposed to shocks and present low by droughts. As of 2023, 53 percent of Zimbabwe’s levels of resilience.54 electricity generation capacity is at the Kariba South hydropower station, 57 which in times of drought Three characteristics of the MSME sector drive reduces or even fully shuts down production. 58 The its vulnerability: small size, informality, and dated thermal units are insufficiently maintained concentration in shock-prone sectors. The MSME and are unable to make up for the shortages. 59 While sector in Zimbabwe is dominated by individual Zimbabwe can import additional electricity, lack of entrepreneurs and micro-businesses with one to foreign currency and limited fiscal space—required five employees. Individual entrepreneurs and micro- to subsidize prices —make such purchases difficult. businesses are jointly responsible for 96 percent of the ecosystem. The mean annual turnover of At times of crisis, Zimbabwe struggles to finance agricultural and wholesale/retail businesses is only electricity imports, so blackouts prevail. US$7,500 and US$8,000, respectively. Furthermore, most businesses are informal, mainly individual In 2023, blackouts driven by drought lasted for up entrepreneurs and micro-businesses (90 percent and to 20 hours per day; such occurrences undermine 71 percent respectively); only businesses that hire businesses’ productivity and force many to shut over 31 staff operate formally, as most businesses down, reduce production, work at night, or invest currently perceive registering as too complicated in backup capacity.60 The companies that can afford or too costly. Finally, the MSME sector is dominated backup generation face substantial investments in by businesses in the agricultural sector (39 percent) solar panels and storage or else need to rely on diesel and wholesale and retail sector (37 percent). While generators. 53 - Finscope, “Micro, Small and Medium Enterprises (MSME) Survey Highlights: Zimbabwe,” 2022, https://finmark.org.za/ Publications/FinScope_MSME_Survey_Zimbabwe2022_Pocket_Guide.pdf. MSMEs are defined by the number of employees (according to the Small Enterprises Development Corporation Amendment of 2011), including individual entrepreneurs (0 employees), micro-businesses (1 to 5 employees), small businesses (6 to 30–40 employees, depending on the sector), and medium-size businesses (31 - 41 to 75 employees). MSMEs also include agricultural activities if 50 percent or more of the produced goods are sold. 54 - B. Dlamini and D. P. Schutte, “An Overview of the Historical Development of Small and Medium Enterprises in Zimbabwe,” Small Enterprise Research 27, no. 3 (2020): 306–22, doi:10.1080/13215906.2020.1835. 55 - J. T. Chipika, “Financial Inclusion Strategy in Zimbabwe: Where From and Where To?” (slide presentation, NFIS II, 2022–2026 Launch, October 31, 2022), https://www.rbz.co.zw/documents/BLSS/FinancialInclusion/NFIS_II_LAUNCH_ PRESENTATION_311022_-_DG_CHIPIKA.pdf 56 - Finscope, “Micro, Small and Medium Enterprises (MSME) Survey Highlights: Zimbabwe.” 57 - Zimbabwe Power Company, “Kariba South Power Station,” 2023, https://www.zpc.co.zw/powerstations/2/kariba-south- power-station 58 - Nyasha Chingono, “Zimbabwe Power Shortage to Worsen as Hydro Plant Halts Generation,” Reuters, November 28, 2022, https://www.reuters.com/business/energy/zimbabwe-power-shortage-worsen-hydro-plant-halts-generation-2022-11-28/ 59 - Nyasha Chingono, “Zimbabwe’s New 300 MW Coal-Fired Plant Starts Feed into Grid,” Reuters, March 21, 2023, https://www.reuters.com/world/africa/zimbabwes-new-300-mw-coal-fired-plant-starts-feeding-into-grid-2023-03-21/ 60 - Andrew Mambondiyani, “In Zimbabwe, Drought Is Driving a Hydropower Crisis—and a Search for Alternatives,” Science, March 8, 2023, https://www.science.org/content/article/zimbabwe-drought-driving-hydropower-crisis-and-search-alternatives Zimbabwe Disaster Risk Finance Diagnostic 28 The inflationary pressure created by the need to of the 2000s. Both the challenges of the land reform provide backup power affects inputs to production for and consecutive prolonged droughts—first in 1999 the entire economy. For example, the mobile network in parts of the country and then from 2001 to 2003 operator Netone reports using 450,000 liters of diesel across the entire country—have contributed to this a month, at a cost of US$700,000, to sustain power.61 instability (See figure 14). Another severe drought Such expenses partially explain the fall in the number in parts of the country from 2007 to 2009 deepened of MSMEs active in high-input businesses such as the depression, which correlated with hyperinflation manufacturing, which between 2012 and 2022 went and cash shortages that hindered trade and economic from 9 percent of the total to just 5 percent.62 activity. During the first decade of the 2000s, inflation spiraled out of control, with prices doubling from one day to the other between 2007 and 2008 (See 1.6 Macroeconomic and fiscal figure 15).63 During that period, the Reserve Bank of impacts of disasters Zimbabwe stopped producing macroeconomic data, making it difficult to study or isolate the impact of The macroeconomic context of Zimbabwe is natural disasters from macroeconomic drivers.64 In extremely unstable, and climatic shocks, particularly recent years, the GDP has been in a growth phase, but drought, exacerbate the already precarious in 2022 growth was relatively low, at 3 percent, down conditions. The GDP growth in the country is highly from 8.5 percent growth a year earlier. The average volatile, and output declined for the entire first decade in the past decade stood a low of 2.3 percent a year.65 FIGURE 14: RELATIONSHIP BETWEEN AGRICULTURAL VALUE ADDED AND OVERALL GDP GROWTH Source: Global Facility for Disaster Reduction and Recovery, “Zimbabwe: Agriculture Sector Disaster Risk Assessment,” March 2019, https://www.gfdrr.org/sites/default/files/publication/Zimbabwe%20Agriculture%20Sector%20Disaster%20 Risk%20Assessment%20Report.pdf 61 - Farai Shawn Matiashe, “Zimbabwe: Telcos Econet, Netone Walk a Tightrope amid Power Crisis,” Africa Report, January 24, 2023, https://www.theafricareport.com/276774/zimbabwe-telcos-walk-a-tightrope-amid-power-crisis/ 62 - Chipika, “Financial Inclusion Strategy in Zimbabwe.” 63 - Cato Institute, “The Hanke-Krus Hyperinflation Table,” May 2013, https://www.cato.org/sites/cato.org/files/pubs/pdf/hanke-krus-hyperinflation-table-may-2013.pdf 64 - Steve H. Hanke and Alex K. F. Kwok, “On the Measurement of Zimbabwe’s Hyperinflation,” Cato Journal 29, no. 2 (Spring 2009): 353–64, https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2009/5/cj29n2-8.pdf 65 - World Bank, Zimbabwe Country Economic Memorandum: Boosting Productivity and Quality Jobs (Washington, DC: World Bank, 2022), https://documents1.worldbank.org/curated/en/099515010132227870/pdf/P1776070fe5e0c073087e00e3c04ec11f6e.pdf Zimbabwe Disaster Risk Finance Diagnostic 29 Zimbabwe’s economy has been adversely affected Since 2018, inflation has once again reached levels by volatile exchange rate policies. In 2000–2008 and well above 100 percent a year,67 making budgetary again in 2018–2021, the exchange system changed planning, including for the purpose of disaster multiple times, including a ban on the use of US response, extremely difficult. During the current dollars. This volatility was not only disruptive but period of hyperinflation, prices have been particularly also led to the creation of a parallel exchange system. high for items relevant to response efforts, such as food The resulting market uncertainty, coupled with weak and communication equipment (figure 15), creating economic fundamentals, has worsened productivity a risk of substantial underbudgeting for response and further fueled inflation. The instability of the activities. Achieving macroeconomic stability, and exchange rate has had a profound impact on the especially price stability, is crucial for improving the ability to respond to shocks, as sourcing of goods and country’s financial resilience and capacity for long- services required for efficient response is difficult term financial planning. when importers and exporters cannot easily enter contracts with foreign agents.66 PHOTO CREDIT: 2630BEN, ISTOCK 66 - World Bank, Zimbabwe Country Economic Memorandum: Boosting Productivity and Quality Jobs (Washington, DC: World Bank, 2022), https://documents1.worldbank.org/curated/en/099515010132227870/pdf/ P1776070fe5e0c073087e00e3c04ec11f6e.pdf 67 - World Bank, “Inflation, Consumer Prices (Annual %) – Zimbabwe,” 2023, https://data.worldbank.org/indicator/FP.CPI. TOTL.ZG?locations=ZW Zimbabwe Disaster Risk Finance Diagnostic 30 FIGURE 15: ANNUAL INFLATION RATE, 2010–2022 Source: Zimbabwe National Statistics Agency, https://www.zimstat.co.zw/ Shocks severely impact the fiscal base through tax (13 percent) (figure 16). The share of informal reduced tax revenue. The ratio of budget revenue employment, currently estimated at 76 percent, tends to GDP changed significantly between 2018, when it to expand during shocks, as the quality of jobs declines was 14.9 percent, and 2021, when it was an estimated and the workforce shifts to the informal sector.69 As 17.2 percent.68 The top-four sources of tax revenue are value added tax (VAT; 25 percent), excise duty key sectors are affected by disasters, the revenue from (20 percent), corporate tax (13 percent), and income VAT and excise duty can fall very quickly. FIGURE 16: COMPOSITION OF BUDGET REVENUE, 2017–2021 Source: UNICEF, “Zimbabwe: 2021 National Budget Brief,” July 2021, https://www.unicef.org/esa/media/10201/file/UNICEF-Zimbabwe-2021-National-Budget-Brief.pdf Note: VAT = value added tax. 68 - International Monetary Fund, “Zimbabwe: Staff Report for the 2022 Article IV Consultation,” March 2, 2022, https://www.imf.org/en/Publications/CR/Issues/2022/04/08/Zimbabwe-2022-Article-IV-Consultation-Press-Release-Staff- Report-and-Statement-by-the-516378 69 - Afrobarometer. (2021). COVID-19 Lockdown a Crisis for Informal Traders Disadvantaged by Government Inaction. Afrobarometer, www.afrobarometer.org/publication/ad385-covid-19-lockdown-crisis-informal-traders-disadvantaged- government-inaction/ Zimbabwe Disaster Risk Finance Diagnostic 31 Zimbabwe is largely dependent on international the budget, but the current geopolitical situation— donors to finance its budget, especially in response specifically, increasing humanitarian needs in Europe to shocks. In 2019, 26 percent of the budget was and the worsening economic situation in all the donor funded; the share was 15 percent in 2020 main bilateral partners—may make it difficult for and 9 percent in 2021. Most aid comes from four Zimbabwe to continue financing its budget deficit bilateral arrangements—with the US (37 percent), UK (17 percent), the European Union (11 percent), through aid. Significant dependence on international and China (7 percent), as presented in figure 17. aid in financing response, such as to Cyclone Idai and Humanitarian aid provides a cheap way to supplement COVID-19, comes with risks that must be mitigated. FIGURE 17: DEVELOPMENT PARTNERS’ CONTRIBUTION TO THE 2020/21 BUDGET (ESTIMATED) Source: Government of Zimbabwe, “The 2020 National Budget Statement: Gearing for Higher Productivity, Growth and Job Creation,” November 14, 2019, https://www.veritaszim.net/sites/veritas_d/files/2020%20NATIONAL%20BUDGET%20FINAL.pdf The overall reliability of the budget in Zimbabwe the drought. Unfortunately, the budget data remain in normal years is relatively good, but disasters incomplete and prone to errors, as some spending, lead to significant overspending. In 2016 the actual such as the contingency budget expenditure, is not expenditure was 23 percent above the approved fully disclosed, and budget entry data are inputted budget, largely because of a major drought. 70 More manually. The limited ability to increase the budget, critically, however, the budget composition varies a low quality of budget data, and exogenous shocks all lot, with reallocations by administrative classification result in significant, sometimes ad hoc, reallocations of 30.2 percent in 2016, once again largely because of that undermine the efficiency of spending. 70 - Government of Zimbabwe, “Report on the Evaluation of the Public Financial Management System of Zimbabwe: Public Expenditure and Financial Accountability (PEFA) Assessment 2017,” August 2018, https://www.pefa.org/sites/pefa/files/ assessments/reports/ZW-Aug18-PFMPR-Public-with-PEFA-Check.pdf Zimbabwe Disaster Risk Finance Diagnostic 32 2. Legal and institutional framework for disaster risk financing This section presents the current legal and institutional Zimbabwe. In addition, several other laws (shown frameworks most relevant for disaster risk financing, in table 3) support operational and financial and the DRF instruments currently in place. The preparedness. The Public Financial Management discussion below is based on a series of interviews with (PFM) Act of 2009 establishes legal and operational representatives from several government institutions and on relevant laws and presidential decrees.71 frameworks to mobilize funds for disaster response and makes reallocations relatively easy. An annual 2.1 Overview of the legal Appropriation Act allows the finance minister to make decisions on how to allocate the Consolidated Revenue framework for DRF Fund. The Public Procurement and Disposal of Public The Constitution and the Civil Protection Act are Assets Act of 2017 lacks clear emergency procurement the main anchoring laws for disaster response in regulations, which may slow down response. Table 3: Summary of laws relevant to financial and operational preparedness Act Operational relevancet Financial relevance Constitution of Sets up three government levels—national, Provides rules for budget adjustments, oversees 2013 provincial, and metropolitan—and details how changes to spending between votes or added to declare a state of emergency. funds, and ensures state responsibility for food reserves, basic health care, social welfare, and housing. Civil Sets up a main Civil Protection Committee, Endows protection officers with significant Protection Act of organizes disaster management units by authority, such as the ability to confiscate land 1989 province and area, assigns the director or property; sets up the National Civil Protection of civil protection to coordinate disaster Fund. response with the relevant minister, allows the president to declare a state of emergency alone, and permits the minister to add regulations supporting the act. PFM Act of 2009 Designates the finance and economic Establishes legal and operational frameworks to development minister as the only authority mobilize funds for disaster response; empowers who can approve public sector debt, loans, and the National Treasury to make decisions guarantees. regarding virements; stipulates that the House of Assembly must approve any reallocation of funds between votes, or if additional funds require appropriation. Further grants the president the authority to approve previously unauthorized expenditures, up to 5 percent of the last year's budget; also dictates that 30 percent of the previous year’s total revenue can be earmarked for domestic borrowing without explicit authorization from the Assembly. 71 - The World Bank team held interviews with officials in the Ministry of Finance and Economic Development (in departments related to budget, debt management, macro-fiscal, and treasury). Zimbabwe Disaster Risk Finance Diagnostic 33 Act Operational relevancet Financial relevance Private Designates the minister of finance and Outlines the rules for issuing public debt; places Dept economic development as the sole authority a cap on maximum public debt at 70 percent of Management for authorizing public sector debt, borrowings, GDP. Act of 2015 and guarantees. Appropriation Act Tasks the minister of finance and economic Explains how money from the Consolidated (annual) development with making the decision to Revenue Fund is divided; allows money be moved distribute the “Unallocated Reserve Vote.” between votes if a service’s responsibility shifts. Includes a special “Unallocated Reserve Vote” that can be used for anything. Public Sets up the Procurement Regulatory Procurement and Authority of Zimbabwe. However, the absence Disposal of Public of distinct emergency procedures could Assets Act 2017 potentially lead to a lack of transparency in the decision-making process. The Procurement Regulatory Authority can permit direct procurement or simplify the bidding process. Source: Government of Zimbabwe, “The 2020 National Budget Statement: Gearing for Higher Productivity, Growth and Job Creation,” November 14, 2019, https://www.veritaszim.net/sites/veritas_d/files/2020%20NATIONAL%20BUDGET%20FINAL.pdf The Constitution of 2013 includes provisions that The Civil Protection Act was implemented in 1989 are important from the perspective of disaster and most recently revised in 2001. It is a high-level risk management (DRM) and DRF. It establishes document that pertains to high-level concepts relevant three tiers of the government—national, provincial, to DRM and DRF. The act set up the Civil Protection and metropolitan (local)—which are governed by Committee at the central level and established the relevant councils. It also explains the process for the notion of a civil protection province and civil protection establishment of the state of emergency, which is initiated by the president but needs to be approved area as organizational units for the purpose of DRM. by the Parliament. Further, and importantly from the These units sometimes correspond to administrative perspective of GoZ’s liabilities in relation to DRF, units but need not do so. Their responsibility relates the constitution obliges the state to maintain food to preparedness and response coordination. The main reserves. In a less binding manner, the Constitution person responsible for the coordination of disaster obliges the state to take all reasonable and feasible response in Zimbabwe other than the minister of measures to ensure access to basic health care, social local government, rural and urban development is the welfare, and shelter. director of civil protection. This person oversees the work of civil protection officers and ensures that they The Constitution also provides high-level guidance on the process of budgetary changes. It requires fulfill their extensive duties. The act is brief on the roles a parliamentary vote for modification of the of various stakeholders in disaster risk management expenditure structures between votes or for additional and response. appropriations. Zimbabwe Disaster Risk Finance Diagnostic 34 The Civil Protection Act gives the president the power cases includes an overview of the planned activities, to unilaterally establish a state of emergency; there designates the entity (such as a specific ministry or is no requirement to consult with the Parliament but department) charged with response, and may authorize only to inform it. Despite the apparent simplicity of the use of funds from the National Civil Protection the declaration process, however, the process has Fund and other instruments, such as borrowing on the seen significant delays in the past.72 The declaration market in lieu of expected future revenue.73 of a state of emergency is usually brief, but in some PHOTO CREDIT: JADD ELLIOT DIB , ISTOCK 72 - Emmanuel Mavhura, “Disaster Legislation: A Critical Review of the Civil Protection Act of Zimbabwe,” Natural Hazards 80 (2015): 605–21, https://link.springer.com/article/10.1007/s11069-015-1986-1 73 - “Civil Protection (Declaration of State of Disaster: Rural and Urban Areas of Zimbabwe) (Road Infrastructure Network) Notice, 2021,” Zimbabwean Government Gazette Extraordinary (Supplement), February 23, 2021, https://www.veritaszim. net/sites/veritas_d/files/SI%202021-047%20Civil%20Protection%20%28Declaration%20of%20State%20of%20Disaster%20 -%20Rural%20and%20Urban%20Areas%20of%20Zimbabwe%29%20%28Road%20Infrastructure%20Network%29%20 Notice%2C%202021.pdf Zimbabwe Disaster Risk Finance Diagnostic 35 The Civil Protection Act leaves out crucial expenditures of up to 5 percent of the previous year’s components commonly found in similar documents, budget in case of unforeseen circumstances. The and a Disaster Risk Management and Civil act creates a cap of 30 percent of the total previous Protection Bill (DRM Bill) is under preparation to years’ revenue for domestic borrowing. If additional replace the Civil Protection Act. The act does not domestic debt issuance is required, it needs to be reference disaster risk reduction or early warning authorized by the Assembly. systems, and does not thoroughly discuss disaster preparedness beyond aspects like equipment The Appropriation Act is published annually and stocking and preparedness funding. Furthermore, provides information on the allocation of funds response and recovery provisions are not covered. from the Consolidated Revenue Fund. It allows the The act only minimally addresses financing of disaster transfer of money between votes if responsibility response beyond the establishment of the dedicated for the provision of service is transferred to another funds for financing, and it neglects alternative vote. It also specifies a special vote, the Unallocated sources. For example, it omits the significant role Reserve Vote. This reserve vote can be used for any of international assistance in disaster response. 74 purpose, and the decision on the disbursement is Furthermore, the act does not thoroughly address made by the minister of finance. While the fund can be the necessity of decentralizing power and resources used to finance disaster response, it is not ring-fenced to local levels. It refers to the formulation of “civil and might be depleted by the time a shock occurs, protection plans” for specific regions, but the term especially one that takes place later in the financial is not defined. Lastly, by offering legal immunity to year. In the budget for the financial year 2021, the the responsible minister and civil protection officers, allocation to the Consolidated Revenue Fund was 2.2 the act could inadvertently encourage resource percent of the budget (US$25 million),76 and in 2020 misappropriation, inefficiencies, and malpractice it stood at 2.4 percent of the budget.77 during disaster response. The principles of the DRM Bill were adopted by the Cabinet in 2022, but it is unclear when the bill will be finalized. The Public Procurement and Disposal of Public Assets Act 2016 establishes the Procurement The PFM Act of 2009 creates legal and operational Regulatory Authority of Zimbabwe. While the act frameworks that apply to the mobilization of funds does not specify any special emergency procedures, for disaster response. Notably, it gives extensive the Procurement Regulatory Authority has the power powers to the National Treasury to make decisions to grant procurement rules exemptions.78 Specifically, regarding virements. While the virements are only it can allow direct procurement or reduce the bidding allowed within one vote, the amount is not specified in process. This flexibility may be necessary during the the act or in the amendment of 2021, 75 and therefore response to a disaster, but the lack of special emergency is considered uncapped. Whenever money is to be procedures creates a risk of low transparency in the reallocated between votes or additional funds need decision-making process. Following the outbreak to be appropriated, the act requires approval from of COVID-19, the lack of emergency procurement the House of Assembly. The act also authorizes regulations resulted in significant irregularities and the president to approve previously unauthorized inefficiencies.79 74 - IFRC, “Zimbabwe Civil Protection Act [Chapter 10:06],” July 2021, https://disasterlaw.ifrc.org/dmi/dmi_country/20 75 - “Public Finance Management Amendment Bill, 2021,” March 31, 2021, https://www.veritaszim.net/sites/veritas_d/files/ Public%20Finance%20Management%20Amendment%20Bill%2C%202021%20%28H.B.%204%2C%202021%29.pdf 76 - “Appropriation (2021) Act,” 2020, https://www.veritaszim.net/sites/veritas_d/files/Appropriation%20%282021%29%20 Act%20No.%2011%20of%202020.pdf 77 - “Appropriation (2020) Act,” 2019, https://www.veritaszim.net/sites/veritas_d/files/Appropriation%20Bill%202019%20 No.%2022.pdf 78 - Procurement Regulatory Authority of Zimbabwe, “Annual Report 2018,” 2018, https://www.praz.org.zw/wp-content/ uploads/2022/01/Praz-2018-Annual-Report-Final.pdf 79 - Economic Governance Watch, “Government Expenditure on COVID-19: Was There Looting?,” June 15, 2022, https://www.veritaszim.net/node/6026 Zimbabwe Disaster Risk Finance Diagnostic 36 It is crucial that the Procurement Regulatory Authority to ensure emergency preparedness and disaster have strong guidelines on the use of its power, prevention. It is also responsible for managing the early especially in the event of a shock. For example, only warning system and for response and rehabilitation the most urgently needed goods and services should in affected areas. However, according to the DCP, its be single-sourced; framework agreements, which are number-one priority is lifesaving assistance in the currently not in use, should be adopted; and rules for aftermath of disasters. This approach is representative the emergency procurement of goods and services in of the broader DRM approach in Zimbabwe, which foreign currency should be considered. focuses on instantaneous relief such as through the provision of medical care, food, water, and shelter. The Public Debt Management Act of 2015 specifies In their work, the DCP and line ministries cooperate the rules for the issuance of public debt. The act with both public and private institutions to strengthen designates the minister of finance and economic preparedness mechanisms in the country. Relevant development as the sole authority for authorizing development partners include the United Nations debt, borrowings, and guarantees in the public sector. Office for Disaster Risk Reduction, United Nations It caps public debt at 70 percent of the GDP but allows Development Programme, International Organization for Migration, and Zimbabwe Red Cross Society, for exceeding this cap in the event of a shock, provided among others. The DCP is further responsible for the National Assembly approves. policy making and for supervision and coordination of national DRM efforts. In these endeavors it 2.2 Overview of the institutional is supported by the National Civil Protection Coordination Committee. framework for DRF Some of the DRM activities in Zimbabwe are The oversight of response activities is conducted by decentralized, even though the central government the Cabinet Committee on Environment, Disaster maintains overall control and governs most of the Prevention, and Management. The body meets resources (See figure 18) . District-level DRM is weekly, and all 17 ministries are represented at the coordinated by territorial commanders. All local panel. The committee is chaired by the vice president, authorities are expected to have structures for disaster highlighting the importance of the body’s mandate response and to develop laws and regulations for the as well as ensuring a high level of actionability. While use of first response resources, such as fire engines this committee is a high-level body that coordinates and ambulances. These laws are supposed to be aligned policy makers internally, the National Civil Protection with central-level laws and policies. Coordination Committee, currently chaired by the head of the Department of Civil Protection (DCP), is The most localized DRM structure in Zimbabwe is a body that coordinates ministries with development at the village level. Following and building on the partners. Indonesian example, the Parliament has approved a policy that mandates inclusion of village structures in Zimbabwe established the DCP under the Ministry DRM.80 Traditional leadership and village assemblies of Local Government, Public Works and National do not have access to sustainable finance, though Housing. It coordinates strategic planning for creation of a village fund has been discussed. emergencies at all levels of government and is expected 80 - DRF Training and Knowledge Exchange Workshop Program, Bulawayo, Zimbabwe (2022) . Organized by the World Bank and the African Development Bank Zimbabwe Disaster Risk Finance Diagnostic 37 FIGURE 18: DISASTER RISK MANAGEMENT INSTITUTIONAL SET-UP International and Cabinet Regional Support Cabinet Committee on Environment, Disaster Prevention Multisectoral representation of government, donor partners. NGOs and and Management private sector Civil Protection Organizations Ministry of Local Goverment Public Works and National National Civil Zimbabwe Housing Department of National Food and Protection Vulnerability Civil Protection Nutrition Council Coordination Assessment (DCP) (NENC) Committee Committee (NCPCC) (ZimVAC) Administrators Office (provincial- level civil protection unit) District Administrators office (district-level civil protection unit) Traditional leaders and village structures Source: Government of Zimbabwe, MoPSLSW presentation in DRF Training and Knowledge Exchange Workshop held in Bulawayo, Zimbabwe (2022) . The institutional weakness of the country International’s Corruption Perception Index.81 While significantly reduces the efficiency of response most governance indicators have improved over mechanisms as well as the willingness of donors the past decade, the country’s quality of regulation and creditors to provide the funding required to and rule of law place it in the bottom 10 percent of finance response. Institutional weakness is driven countries, and its voice and accountability place it in by high levels of actual or perceived corruption; the bottom 20 percent. The country also scores low in Zimbabwe is 157th of 180 countries on Transparency political stability.82 81 - Transparency International, “Corruptions Perception Index,” 2021, https://www.transparency.org/en/cpi/2021 82 - World Bank, “Worldwide Governance Indicators,” https://info.worldbank.org/governance/wgi/Home/Reports Zimbabwe Disaster Risk Finance Diagnostic 38 2.3 Early warning system it suffers from very significant staffing and resource scarcities that significantly undermine its ability to fulfill its mandate.84 This limitation is arguably one of The Meteorological Services Department is responsible for monitoring, forecasting, and the reasons why even though communication channels providing warnings regarding natural hazards. It between the Meteorological Services Department provides warnings using the internet, social media, and and the DCP exist they are not effectively used. The traditional media. It collaborates with the Department collaboration with other units of the government of Civil Protection, using its information to trigger or with local governments is also largely missing. 85 response and to disseminate warnings via mobile The country currently depends on many warning phones and warning sirens. It also communicates systems maintained by development partners, such directly with the population with updates on slow- as the Famine Early Warning Systems Network. The onset disasters like droughts, and it plays an important Zimbabwe Flood and Drought Monitor is an example role in advising farmers about planting and in warning of a promising flood-focused early warning system, but the population of flood and cyclone risks.83 However, it stopped being updated in late 2021.86 83 - Zimbabwe Situation, “MSD Advises Farmers to Delay Planting,” November 8, 2022, https://www.zimbabwesituation.com/ news/msd-advises-farmers-to-delay-planting/ 84 - World Bank, Government of Zimbabwe, and Global Facility for Disaster Reduction and Recovery, “Zimbabwe–Rapid Impact and Needs Assessment (RINA).” 85 - Lynn Mafofo, Joseph Olanyo, and Tinashe P. Kanosvamhira, “Media Discourses on Natural Disasters and Management: A Case of Cyclones Idai and Kenneth and Floods in Four Southern African Countries,” in Cyclones in Southern Africa—Volume 2: Foundational and Fundamental Topics, ed. Godwell Nhamo and Kaitano Dube (Cham: Springer, 2021), 243–57, https://link.springer.com/chapter/10.1007/978-3-030-74262-1_16 86 - Princeton Climate Institute, “Zimbabwe Flood and Drought Monitor,” December 6, 2021, http://stream.princeton.edu/zim_app/ Zimbabwe Disaster Risk Finance Diagnostic 39 3. Status of disaster risk financing instruments and mechanisms The main funding mechanisms for post-disaster macroeconomic situation, centralization of funding interventions are ex post budgetary reallocations at the national level that leaves communities with and supplementations. The country has several limited capacity as first responders, unpredictable and budget lines for disaster response, mainly for drought untimely humanitarian funding, lack of clear objective mitigation;87 it also has a general contingency budget for unforeseen expenditures, including those related rules on release of funds, and lack of financing options to climate shocks (See figure 19). The main gaps for hazards like floods and cyclones that are becoming include limited public funds due to the prevailing more frequent. FIGURE 19: STATUS OF RISK FINANCING INSTRUMENTS IN ZIMBABWE Low frequency / high severity Risk transfer Sovereign insurance Agricultural insurance Property insurance ARC policy Indemnity insurance for Public asset insurance UN CERF (US$258 million in 2020) National Disaster Fund (US$7 million since 2018) Donor funding (government: US$1.6 commercial farmers; WII not available; limited million; Replica: very low uptake (13,000 penetration for US$16.9 million) farmers); AYII (at pilot household & business stage); no livestock index insurance insurance Contingency credit National Civil Protection Fund Not in use due to High frequency / low severity US$15 million in 2023 arrears Risk retention Budget appropriation and Contingency budget reallocations (unallocated reserve) Drought mitigation (US$32 million About 2.5% of the in 2023) budget, US$35 Reallocation (e.g., US$600 million, million per year 12% of budget in 2016) Source: World Bank analysis. Notes: ARC = African Risk Capacity; AYII = area yield index insurance; CERF = Central Emergency Response Fund; WII = weather index insurance. 87 - Ministry of Finance and Economic Development officials interviewed by the World Bank team indicated that there is also budget for flood mitigation, but the funding amounts were not provided, and the specific line item in the budget could not be verified. Zimbabwe Disaster Risk Finance Diagnostic 40 3.1 Ex ante funding reliance instruments, as delays in disbursing money from the Consolidated Revenue Fund lowered the quality of basic services provided by the government.88 Zimbabwe has many versatile funds that either Although such localized special funds potentially explicitly serve as contingency reserves or are create silos and result in inefficiencies, they could also routinely used for such purposes. Most of the funds are hosted at line ministries or within departments and have a significant positive impact on the timeliness of are used as backup funds for specific contingencies response to shocks, as funds from both the government that affect them. In addition to the specific-purpose and development partners are often delayed. funds, one fund, the National Disaster Fund, is hosted by the Ministry of Finance and Economic Development The Government of Zimbabwe is aware that a (MoFED). Funds vary in the type of legislation that myriad of decentralized and often poorly regulated established them and in the level and strength of the funds is a challenge for efficient public financial additional regulation that governs them. The sources management (See table 4). One type of buffer fund of funding are also diverse: some funds rely entirely that was discontinued in 2021 was retention funds, on development partners, some rely on budget which allowed government departments to retain up capitalization, and some are financed with a dedicated to 100 percent of the funds they collected instead of levy that host ministries collect. returning them to the Consolidated Revenue Fund. The retention funds were not strictly regulated; There is little oversight of many of the funds, which in accordance with the PFM Act, their existence in some cases lack centralized accounts, reporting was mandated by the minister of finance. 89 The procedures, or even regulations (sometimes referred discontinuation of retention funds removes funds from to as constitutions) to guide their use. The localized silos and is a positive sign that shows the government’s funds were created as a form of buffer funding or self- work toward transparency and efficiency. Table 4: Funds with contingency mandates • Funds both response and preparedness National Civil • Used for development and promotion of civil protection activities throughout the Protection country Fund • Managed by DCP • Funded by donors National • Retains funds Disaster Fund • Managed by the auditor general, but disburses at the request of DCP • Used only for response Statutory • Funded by dedicated levies funds • Attached to specific departments Contingency • Acts as general purpose budgetary reserve Reserve • Represents about 2.5% of the budget Retention • Mostly discontinued funds Source: World Bank. Note: DCP = Department of Civil Protection. 88- Pindula, “Retention Funds in Zimbabwe,” https://www.pindula.co.zw/Retention_Funds_in_Zimbabwe 89 - Parliament Budget Office, “Analysis of Retention Funds,” August 6, 2021, https://parlzim.gov.zw/download/analysis-of- retention-funds-parliament-budget-office/ Zimbabwe Disaster Risk Finance Diagnostic 41 3.1.1 Statutory funds Ministry of Health and for response. Another such fund is the AIDS Levy Fund, which was established in 1999. Statutory funds are established by specific acts passed This fund is financed by a three percent income tax for by the Parliament—unlike the retention funds, which individuals and a three percent tax on profits of employers depend on an announcement from a minister. From the and trusts.90 The Environment Fund, established in perspective of DRF, one of the most important funds 2019, is also funded through a special levy. Neither of in operation is the Health Levy Fund, which is financed these funds is specifically dedicated to response or even through a dedicated levy imposed on airtime. This fund broader DRF. However, both are considered by the DCP is used both for financing the normal operations of the as a potential source of funds, sometimes referred to as a coffer, that the directorate may use for response. PHOTO CREDIT: VV SHOTS, ISTOCK 90 - Nisha Bhat et al., “Zimbabwe’s National AIDS Levy: A Case Study,” SAHARA-J: Journal of Social Aspects of HIV/AIDS 13, no. 1 (2016): 1–7, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4762022/ Zimbabwe Disaster Risk Finance Diagnostic 42 3.1.2 The National Disaster Fund (PEFA) report of 2019, the incomplete disclosure of the contingency vote in the financial statement The National Disaster Fund is a deposit account makes it difficult to know what the contingency vote managed by the MoFED with some important is used for, as the receiving vote is recorded only as an governance and accountability features in place. expense rather than a program or line item.92 Once the The fund was established in 2018, following a cholera allocation has taken place it is not possible to establish outbreak. It is exclusively financed by international what it was used for. partners and private donors. Following the Cabinet’s decision, it is hosted by the MoFED, which is expected to be best able to provide supervision and ensure 3.2 Ex post funding transparency. Most of the external contributions to 3.2.1 Reallocations the fund were donated during the cholera outbreak and then following Cyclone Idai, with more limited Driven by the very high number of nonperforming transfers during COVID-19. Every time DCP needs projects, and the resulting availability of unutilized money from the fund, it must request it through a funds, reallocations are currently the go-to source of letter to the MoFED. There seems to be a lack of funding for response. The decision on where to source clarity even within the government about the role of the funds is made using the database of capital projects the MoFED and DCP in managing the fund and about maintained by the National Treasury. The database the regulations that should govern it, with the DCP in includes up-to-date information on the performance favor of more flexibility and MoFED advocating for a of projects, which is sustained by the monitoring more formal approach. Department at the National Treasury. 3.1.3 Contingency Reserve Reallocations within votes are easy to make and can be mandated by the relevant minister. While a The Contingency Reserve is annually allocated to government is justified in reallocating money from the MoFED. The minister of finance and economic underperforming projects toward response, there are development has discretion over its immediate both moral hazards and efficiency risks associated with transfer and frequently uses it for emergencies, but such a flexible approach. The general understanding it is not specifically designated for climate shocks or that the money from underperforming projects will disasters. The allocation varies annually but remains eventually be used for some unexpected events close to around 2.5 percent of the budget. The undermines the perceived need for rigor during minister of finance and economic development has full the budgeting process. In fact, overbudgeting for discretion to decide on the immediate transfer from projects is in some cases considered a way to create an the reserve vote to any other vote. The minister is also emergency reserve, the management of which is at the in charge of monitoring if the money allocated from full discretion of the ministry in charge. Unfortunately, the reserve is spent in accordance with the purpose little information is available on the exact amount or agreed upon.91 This budgetary reserve is frequently purpose of the virements. used to address emergencies. However, it is not ring- fenced for climate-related shocks, and may be used for Reallocations between votes require a parliamentary all originally unbudgeted spending. or presidential approval and therefore take time to conduct, yet they are also regularly used to finance Unfortunately, the data on the use of resources from response. For example, according to the PEFA report, the contingency vote remains incomplete. According in 2016 the expenditure composition variance by to the Public Expenditure and Financial Accountability administrative classification was 30.2 percent.93 91 - “Appropriation (2021) Act,” 2020, https://www.veritaszim.net/sites/veritas_d/files/Appropriation%20%282021%29%20 Act%20No.%2011%20of%202020.pdf 92 - Government of Zimbabwe, “Report on the Evaluation of the Public Financial Management System of Zimbabwe: Public Expenditure and Financial Accountability (PEFA) Assessment 2017,” August 2018, https://www.pefa.org/sites/pefa/files/assessments/reports/ZW-Aug18-PFMPR-Public-with-PEFA-Check.pdf 93 - Ibid. Zimbabwe Disaster Risk Finance Diagnostic 43 While the exact use of money that has been reallocated The database also has time tags and can refer transfers between votes is difficult to determine, the example to specific documents requesting the reallocation, from 2016, when significant reallocations to the including the lengthy explanation of the need. It is Ministry of Agriculture took place following a major therefore possible to vastly improve the traceability drought (figure 20), indicates that financing response of reallocations, build an effective database to model is a key driver of the budget’s low reliability. future needs, and improve efficiency and transparency of reallocation. The GoZ has taken initial steps toward While it is currently difficult to track reallocations, building a more comprehensive database for such the data that would allow for it exist, and efforts purposes by engaging a data consultant. Once the data to improve procedures began in the aftermath are compiled, they will form a very valuable asset for of COVID-19. 94 The National Treasury maintains the government’s budget planning process and will a database in Excel format that includes money open the possibility of significant improvements in movements, sources of funds, and their destination. allocation following shocks. FIGURE 20: REALLOCATIONS BETWEEN VOTES FOLLOWING THE DROUGHT OF 2016 Source: PEFA. (2018). Zimbabwe: Public Financial Management Performance Assessment. 3.2.2 Sovereign insurance premium results in a very small cession. As shown in table 5, the cession rate has yet to exceed 10 percent, Zimbabwe has been a member of the African having increased from about 2 percent in 2019 to 9 Risk Capacity (ARC) since 2015; due to financial percent in 2021, then dropping to 1.7 percent (enough constraints, however, the government did not to cover only 42,000 people) in 2022.95 In 2019, GoZ take out a policy until 2019, and it continues to paid 100 percent of the premium, while donors have purchase inadequate cover for the scale of need. contributed 67–80 percent of the premium in the last The drought insurance policy is designed to trigger three years. At the end of 2020, Zimbabwe received a at a 1-in-4-year loss and exit at about a 1-in-15-year payout of US$1.4 million, which is estimated to have loss, corresponding to a total cover of about US$130 enabled support for over 155,000 people through million, but the limited availability of funding for direct cash transfers .96 94 - In the aftermath of the COVID-19 pandemic, GoZ recognized the need for a structured approach to reallocations that minimized the opportunity cost. While the initial sources for reallocations were easy to identify, and included mainly travel- related spending, the scale of required funding led to the development of regulations to guide reallocation. However, the World Bank team was unable to verify these guidelines. 95 - Consequently, the number of people covered increased from 133,642 (2019) to 337,075 (2020), to 323,266 (2021), and then fell to 42,000 (2022). 96 - Information and data on ARC policy obtained from the Ministry of Finance and Economic Development Zimbabwe Disaster Risk Finance Diagnostic 44 Humanitarian partners are increasingly extending the also below 10 percent, the decline in 2022/23 was amount of drought cover through purchase of ARC’s modest compared to GoZ’s cover. Replica has covered Replica policy, but resources for premium continue a cumulative total of more than 1.2 million people since to be a constraint. The World Food Programme 2019. In 2020, the World Food Programme received began purchasing Replica in 2019/20, and the Start a payout of US$0.3 million, which was used to provide Network, a group of humanitarian organizations, unconditional food assistance to 40,300 people in began in 2021/22. Although the levels of cession are prioritized wards. Table 5: Drought insurance from ARC for Government of Zimbabwe and Replica partners, 2019–2023 2019/20 2020/21 2021/22a 2022/23 GoZ policy Total policy limit (US$) 258,244,840 141,479,538 146,934,525 97,147,342 Ceding percentage 2.07% 9.53% 8.95% 1.74% Amount of cover purchased (US$) 5,345,668 13,483,000 13,150,640 1,688,421 Number of people covered 133,642 337,075 323,266 42,211 Premium (US$) 1,003,571 2,500,000 2,500,000 300,000 KfW n.a 2,000,000 900,000 n.a SDC n.a n.a 1,000,000 200,000 GoZ 1,003,571 500,000 600,000 100,000 World Food Programme Replica Total policy limit (US$) 258,244,840 141,479,538 146,934,525 97,147,342 Ceding percentage 0.41% 7.62% 5.37% 11.59% Amount of cover purchased (US$) 1,065,329 10,780,741 7,890,384 11,256,285 Number of people covered 26,633 269,519 197,260 281,407 Premium (US$) 200,000 2,000,000 1,500,000 2,000,026 Start Network Replica Total policy limit (US$) n.a n.a 146,934,525 97,147,342 Ceding percentage n.a n.a 8.95% 5.79% Amount of cover purchased (US$) n.a n.a 13,150,640 5,624,831 Number of people covered n.a n.a 323,266 140,702 Premium (US$) n.a n.a 2,500,000 1,000,000 Total premium (US$) 1,203,571 4,500,000 6,500,000 3,300,026 Total payout (US$) 1,755,000 - - - Source: Ministry of Finance and Economic Development. Note: n.a. = applicable; ARC = African Risk Capacity; GoZ = Government of Zimbabwe; KfW = Kreditanstalt für Wiederaufbau SDC = The Swiss Agency for Development and Cooperation. a. By 2021/22, the total insured amount for all countries participating in ARC reached the historical high of US$182 million, with Zimbabwe accounting for 19 percent of the entire pool. However, unlike in peer countries, most of the coverage has been purchased by the international community. Zimbabwe Disaster Risk Finance Diagnostic 45 3.2.3 Credit options like the World Bank’s Catastrophe Deferred Drawdown Option (Cat DDO). However, with Paris Public sector debt in Zimbabwe stood at 64 percent Club lenders and international financial institutions in 2021, down from over 100 percent the year still imposing lending restrictions on Zimbabwe, China before. This fluctuation can be largely explained by remains the only significant lender the country can rely the changes to the exchange rate that impact the on.100 Access to the capital markets is very restricted, nominal GDP. The majority of the public debt is held as Zimbabwe does not have a credit rating from any of by international lenders. Zimbabwe is currently in debt the major rating agencies. distress, as about 50 percent of the country’s debt is in arrears .97 The GoZ has not adequately assessed or monitored climate- and disaster-related contingent liabilities The Government of Zimbabwe has recently taken arising from debt issued to parastatals or otherwise significant steps toward repaying the debt that guaranteed.101 The amount of guarantees provided remains in arrears. These steps may allow the country to parastatals is not clear, and thus neither is the to resume borrowing from multilateral organizations, exposure of the government, but there are estimates which have restricted lending to Zimbabwe for over that cumulative official and unreported exposure to 20 years. In February 2023 the president committed China alone may amount to 21 percent of GDP.102 In to clearing over US$6 billion of arrears.98 The country recent years, China has faced several challenges with had already started making small payment to all of its the performance of its loans under the Belt and Road Paris Club lenders and is planning on issuing bonds to Initiative, followed by a significant reduction in its repay much of its outstanding commitments.99 Many of the lenders are currently optimistic about the prospect lending.103 As a result, it has become more cautious of lifting restrictions, which would greatly improve when assessing the risks posed by its development Zimbabwe’s ability to access liquidity and allow it projects, especially in debt-distressed countries. to leverage concessional borrowing in response to In some cases, existing infrastructural lending is shocks. heavily collateralized. Natural disasters affect the performance of many parastatals and can negatively When the country’s arrears have been cleared, impact their solvency. To ensure the availability of one of the credit instruments it could consider is bilateral finance in the future and to ensure that the a contingency credit line. MoFED emphasized the performance of existing loans is not at risk, it would government’s determination to identify the cheapest be prudent for Zimbabwe to assess the climate risk of possible sources of response finance, including indebted parastatals. 97 - International Monetary Fund. (2022, April 8). 2022 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Zimbabwe. 98 - Nyasha Chingono, “Zimbabwe Committed to $6 Bln Debt Arrears Clearance, President Says,” Reuters, February 23, 2023, https://www.reuters.com/world/africa/zimbabwe-committed-debt-arrears-clearance-president-says-2023-02-23/. 99 - Ibid 100 - Deborah Brautigam, Yufan Huang, and Kevin Acker, “Risky Business: New Data on Chinese Loans and Africa’s Debt Problem,” HKTDC Research, March 18, 2021, https://research.hktdc.com/en/article/Njk1Nzc1NTQz 101 - Economic Governance Watch, “Parliamentary Approval of Government Debt,” May 17, 2023, https://www.veritaszim.net/node/6318 102 - A. Malik et al., “Banking on the Belt and Road: Insights from a New Global Dataset of 13,427 Chinese Development Projects,” AidData at William & Mary, Williamsburg, VA, 2021, https://docs.aiddata.org/ad4/pdfs/Banking_on_the_Belt_and_ Road__Insights_from_a_new_global_dataset_of_13427_Chinese_development_projects.pdf 103 - James Kynge et al., “China Reckons with Its First Overseas Debt Crisis,” Financial Times, July 21, 2022, https://www.ft.com/content/ccbe2b80-0c3e-4d58-a182-8728b443df9a Zimbabwe Disaster Risk Finance Diagnostic 46 3.2.4 Special drawing rights IMF to finance future responses until it reestablishes its holdings at the IMF. Like all member countries of the International Monetary Fund (IMF), Zimbabwe is allocated special Overall, a large proportion of the special drawing drawing rights. Following COVID-19, in August 2021 rights funding was dedicated to disaster response the IMF allocated Zimbabwe an additional SDR 677.4 (figure 21). Zimbabwe used the allocation to finance million (US$960 million). As of February 2023, the its COVID-19 vaccination program and improve its total allocation to the country stood at over SDR health facilities. It further committed to channeling 8.4 1.01 billion (US$1.4 billion). Given its weak ability to percent of funds towards a social protection scheme to affordably finance itself from debt and its low foreign improve the productivity of households dependent on reserves, Zimbabwe has depleted 97 percent of the agriculture. About 15 percent was committed toward allocation, on which it now pays interest. The record- infrastructure, in particular emergency road repairs. breaking allocation is unlikely to be repeated unless Notably, GoZ planned for a third of the allocation to the world sees another major crisis. Zimbabwe is not remain unused but has now almost exhausted the SDR going to be able to access further resources from the allocation. FIGURE 21: PROPOSED USE OF SDR ALLOCATION IN 2021 Agriculture Support to Productive social COVID-19 protection scheme vaccination programs Construction of health infrastructure in regions with extreme poverty Industry (by NMS) support International Reserves Contingency fund Infrastructure Agriculture development support Other Source: International Monetary Fund, “Zimbabwe: Staff Report for the 2022 Article IV Consultation,” March 2, 2022, https://www.imf.org/en/Publications/CR/Issues/2022/04/08/Zimbabwe-2022-Article-IV-Consultation-Press-Release-Staff- Report-and-Statement-by-the-516378 3.2.5 Humanitarian funding Commission, and individual European countries are responsible for 88 percent of total humanitarian Zimbabwe is heavily dependent on international funding. The Russian invasion of Ukraine has had a aid, especially to respond to its persistent food significant impact on donor countries’ economies and insecurity problem. On average humanitarian support constitutes 0.7 percent of GDP; the share was as high led to the reprioritization of aid toward Ukraine, which as 1.4 percent in 2019.104 The United States, European means support to Zimbabwe is likely to decrease. 104 - United Nations Office for the Coordination of Humanitarian Affairs (OCHA). “Financial Tracking Service (FTS), View this on Financial Tracking Service; data on GDP are from the World Bank. Zimbabwe Disaster Risk Finance Diagnostic 47 FIGURE 22: HUMANITARIAN AID AS PART OF ZIMBABWE’S BUDGET, 2013–2020 Source: Financial Tracking Service, United Nations Office for the Coordination of Humanitarian Affairs (FTS, UN OCHA). Sanctions imposed on Zimbabwe in the early 2000s through the UN system. The only element led by the initially reduced and changed the modality of aid government was post-disaster needs assessments, available, and to date a significant humanitarian with the involvement of the UN and World Bank, aimed funding gap persists (figure 22). 105 While most of at informing the recovery and reconstruction efforts. the sanction-imposing states allow for emergency While humanitarian funds can still be mobilized humanitarian aid to continue, the list of potential following shocks, donor countries and institutions recipients is often restricted. For example, the impose restrictions on the government’s access to the current involvement of the World Bank in Zimbabwe remains impacted by sanctions. The GoZ cannot be funds and the type of investments that are allowed. the recipient of funds. Instead, eight UN agencies have These restrictions have in turn reduced the ability been responsible for the implementation process. All of the government to rely on humanitarian aid as a the project financings were granted to Zimbabwe disaster response instrument. FIGURE 23: TRENDS IN OFFICIAL DEVELOPMENT ASSISTANCE, 1990–2022 (LEFT) AND HUMANITARIAN FUNDING GAP, 2019–2022 (RIGHT) Sources: Left figure: Organisation for Economic Cooperation and Development, https://www.oecd.org/dac/financing-sustainable-development/development-finance-data/; right figure: humanitarian funding from Ministry of Finance and Economic Development. Cost of relief based on data from Ministry of Public Service, Labour & Social Welfare on population in IPC3+ and cost of US$40 per person 105 - Cynthia Chipanga and Torque Mude, “An Analysis of the Effectiveness of Sanctions as a Law Enforcement Tool in International Law: A Case Study of Zimbabwe from 2001 to 2013,” Open Journal of Political Science 5 (2015): 291–310, https://www.scirp.org/pdf/OJPS_2015102114012116.pdf Zimbabwe Disaster Risk Finance Diagnostic 48 To continue providing support to Zimbabwe, the a n d r e h a b i l i t a t i o n . T h e immediate recovery World Bank has created multiple dedicated trust phase focused on providing essential services and funds, such as the Zimbabwe Reconstruction support to communities affected by the cyclone Fund (ZIMREF) and the Global Environmental through conditional cash transfers, food assistance, F a c i l i t y Tr u s t Fu n d . I n r e s p o n s e t o t h e unconditional transfers, and crop and livestock unprecedented scale of Cyclone Idai, the World production support, among other interventions. Bank also provided International Development The rehabilitation and construction phase focused Association (IDA) funding of US$72 million on critical community infrastructure and irrigation through the IDA Crisis Response Window. The networks and aimed at restoring the livelihoods of project had two components, immediate recovery affected populations. PHOTO CREDIT: TATENDA MAPIGOTI, UNSPLASH Zimbabwe Disaster Risk Finance Diagnostic 49 3.3 Social safety nets responsive programs exist, there are gaps in the coverage of current social assistance programs and and existing distribution limited coordination between disaster response and social protection. The government has managed to mechanisms provide significant disaster response support through Food Deficit Mitigation (FDM) program to households Despite widespread poverty, in 2020 and 2021 affected by the El Nino-related drought, for which Zimbabwe spent only 0.3 percent of its GDP on a state of emergency was declared in April 2024. social protection, less than a third of the Sub- Still, adaptive social protection programs that go Saharan average. The administrative units under beyond short-term disaster response efforts have low the Ministry of Public Service, Labor, and Social coverage and, in some cases, lack the ability to scale Welfare (MoPSLSW) are chronically underfunded up to respond to crises. Table 6 presents a summary and unable to provide adequate service to the core of the main social protection programs in Zimbabwe, caseload of poor households. 106 Although shock- some of which can be leveraged for shock response. Table 6: Summary of the main social protection programs in Zimbabwe Program Summary Basic Education Purpose: Educational subsidy for vulnerable children Assistance Module Target: Primary and secondary education (BEAM) Coverage: 1.5 million children (2024) Assisted Medical Purpose: Health subsidy for vulnerable individuals Treatment Order Target: Direct payment of medical bills from hospitals and health centers (AMTO) Coverage: 9,540 in the first quarter of 2022 Purpose: Unconditional cash transfer Harmonized Social Target: Labor-constrained food-poor households Cash Transfer (HSCT) Coverage: 60,000 households enrolled in 23 districts Note: The program was paused in 2024 pending a redesign and relaunch Purpose: Discretionary grant for individuals lacking subsistence means Target: individuals lacking means of subsistence Monthly Maintenance Coverage: 8,551 beneficiaries in 48 districts (2020) Allowance (MMA) Note: The program will be merged with HSCT and relaunched as a combined program Purpose: Food distribution during peak lean season/drought Food Deficit Mitigation Target: Labor-constrained food-insecure households (FDM) program Coverage: 9.2 million (2024) Purpose: In-kind food rations to households and children at school Target: School Feeding Primary and secondary level students Program Coverage: 2.5 million children (2024) Source: MoPSLSW, Zimbabwe Red Cross Society, “Shock Responsive Social Protection in Zimbabwe: Strengthening the Existing Social Protection System in Zimbabwe,” https://cash-hub.org/wp-content/uploads/sites/3/2022/03/Shock-Responsive-Social-Protection_Zimbabwe_Report.pdf. 106 - UNICEF, “2021 Social Protection Budget Brief,” July 2021, https://www.unicef.org/esa/media/10216/file/UNICEF-Zimbabwe-2021-Social-protection-Budget-Brief.pdf Zimbabwe Disaster Risk Finance Diagnostic 50 3.3.1 Food Deficit Mitigation of the population to reduce their reliance on risky coping behavior and improve their socioeconomic Food insecurity in the country is primarily addressed status. The identified households receive a monthly through two programs led by different ministries: cash allowance calculated based on the number of Food Deficit Mitigation (FDM), led by MoPSLSW; and dependents within the household which is capped the school feeding program, led by the Ministry of at four members in a household. While this program Primary and Secondary Education (MoPSE). Jointly, would be a natural candidate for an emergency scale- these programs consumed 30 percent of the budget up, it has suffered from structural challenges, most allocated in 2021. While the allocations to these notably targeting, financing, and lack of defined funds have been rising, they remain underfunded. approaches for vertical and/or horizontal expansion Both programs focus on in-kind support and due for crisis response. As of late 2024, Government to complex logistics require collaboration across has paused the implementation of HSCT pending a spheres of government. The school feeding program, resegign of the program which would see it merged the smaller of the two, suffers from administrative with the Monthly Maintenance Allowance Program, challenges, and continuity between years is not always established in 1981 to support the chronically poor, or those people who, by reason of age, infirmity, maintained. 107 While it does not have a dedicated disability and lack of family support, are permanently scale up component, a total of 665,075 pupils from destitute. 3,085 schools are receiving food under the Emergency School Feeding Program, in response to the effects of 3.3.3 Basic Education Assistance Module the El Nino induced drought in 2024/2025. In terms of coverage and budget, the Basic The FDM program was developed following the food Education Assistance Module (BEAM) is one of the crisis of 2009/10 and is guided by the Food Deficit largest social protection programs in Zimbabwe. It Mitigation Strategy, which describes the targeting focuses on vulnerable children across the country model for the distribution of food in response to and provides them with tuition fee waivers. shocks. As FDM is funded from the Drought Relief Fund The BEAM program aims to reduce the number and the allocation is based on the anticipated severity of children dropping out due to their economic of a drought, it can be considered a shock-responsive situation. In its effort to address this negative coping safety net. The FDM program is the government’s mechanism, it has a significant potential role in largest response to the ongoing El Nino-related mitigating the long-term economic effects of shocks. drought. As of November 2024, the government Many studies have shown that taking children out of was providing in-kind food assistance to 9.2 million school is a common coping mechanism in response beneficiaries receiving 7.5 kg of grain per person in to shocks, especially among poor families. Girls rural areas and 660,000 people were receiving cash are affected more than boys. 108 The system BEAM transfers of US$8 per person in urban areas. uses for collecting information on eligible children, which is largely decentralized and gender-inclusive, 3.3.2 Harmonized Social Cash Transfers is reportedly fair and robust. Assistance under the program is based on clearly defined criteria that The Harmonized Social Cash Transfers (HSCT) is target children who have never attended school, who the third largest social protection program in the have dropped out of school for economic reasons, country. The program, implemented by MoPSLSW, or who face challenges such as a history of failing was introduced in 2011 with a focus on food poor and to pay fees and levies. BEAM also considers the labor constrained households. The primary objective employment status of the head of household, the of the unconditional HSCT program is to increase the health status of the head of household, children’s purchasing power and thus the food consumption of orphaned status, and the assets owned by the the most food poor and labor-constrained members household. 107 - “School Feeding to Resume,” New Ziana, February 17, 2022, https://newziana.co.zw/2022/02/17/school-feeding-to-resume/ 108 - Keiko Inoue et al., “Why Do Sub-Saharan African Youth Drop Out of School?,” chapter 2 in Out-of-School Youth in Sub- Saharan Africa: A Policy Perspective (Washington, DC: World Bank, 2015), https://elibrary.worldbank.org/doi/epdf/10.1596/978-1-4648-0505-9_ch2 Zimbabwe Disaster Risk Finance Diagnostic 51 Several challenges undermine BEAM’s potential as has the foundations of a social registry system; the a successful response program, including delays in Zimbabwe Social Registry (ZISO) 110 is functional and disbursing payments and the lack of financing to houses data on approximately 70,000 households. support all students in need. The number of selected These include households from districts that were children under the BEAM program in most cases affected by Cyclone Idai (Chikomba, Chipinge, exceeds the allocated budget, thus partners also Chimanimani, Mutare, Masvingo, Zaka, Chiredzi, complement Government efforts through assisting Gutu, and Buhera) as well as Kwekwe. To reach its those not covered by BEAM. 109 As the program potential, enumeration of households to cover a constitutes a potential mechanism for reaching significant share of the population is required. With disaster-affected populations, the GoZ could consider development partner support, the government plans strengthening the monitoring system, speeding up to reach coverage of approximately 20 percent of the disbursement of funds, improving targeting, and the population in the next two years, with priority linking the program to pre-arranged risk finance to on districts with the highest levels of poverty and allow for a rapid scale-up following shocks. vulnerability to shocks. To promote buy-in from ministries and development partners, a harmonized 3.3.4 Zimbabwe Social Registry (ZISO) questionnaire for the social registry is expected to be finalized by April 2025. Once coverage is A well-functioning social registry with adequate expanded, ZISO is expected to be a crucial resource household coverage is essential both in normal and in enabling rapid and well-targeted household level crisis periods for accurate targeting and the rapid disaster response. rollout of key social programs. Zimbabwe currently 109 - All Africa, “Zimbabwe: Beam Essential to Leave No Child Behind,” December 1, 2021, https://allafrica.com/stories/202112010195.html 110 - Formerly known as the Integrated Social Protection Management Information System (ISPMIS) Zimbabwe Disaster Risk Finance Diagnostic 52 4. Review of financial markets This chapter reviews the state of the financial markets 4.1 Insurance market and relevant legal and regulatory frameworks, given the sector’s importance for financial resilience. The The insurance sector in Zimbabwe is small, with use of insurance by businesses, farmers, households, a total gross premium of US$330 million (or 1.5 and government entities can help reduce government’s percent of GDP) in 2021, and insurance penetration disaster-related contingent liability by transferring remains low (under 1 percent). The insurance disaster-related risk to insurance markets through sector in Zimbabwe registered promising growth property and agricultural insurance as well as from 2010 to 2019 but fell dramatically from 2020 onward. Historically the life insurance sector microinsurance. In addition, provision of more has dominated the market, but currency reforms diverse and long-term finance to MSMEs by financial of 2019, which devalued the Zimbabwean dollar, institutions can enable investments in mitigation and reduced confidence in life insurance products. adaptation, thereby strengthening the resilience of The impact on the non-life sector was less severe this key economic sector. This chapter also discusses because of mandatory insurance, for example motor constraints on and opportunities for climate finance. third party (figure 24). FIGURE 24: TOTAL INSURANCE WRITTEN PREMIUM, 2009–2021 Source: AXCO data, 2023. Note: The year 2019 is excluded as an outlier due to currency distortion PHOTO CREDIT: GAVIND, ISTOCK Zimbabwe Disaster Risk Finance Diagnostic 53 The insurance market is regulated by the Insurance also administers special risk insurance pools on and Pensions Commission (IPEC) and is dominated behalf of the industry. 112 by a few large players, with limited competition among them. IPEC has a statutory mandate to 4.1.1 Non-life insurance register, regulate, monitor, and supervise insurance entities (insurers, reinsurers, funeral assurers, Despite demonstrating strong resilience to shocks insurance brokers) and pension funds. As of (related to hyperinflation and foreign exchange), December 31, 2021, there were 2,522 participants the non-life insurance sector lags regional peers in the insurance industry, representing a 17 percent as measured by insurance spending per capita rise from the 2,156 reported at the end of 2020. and insurance penetration (figure 25). Insurance Participants include 17 non-life insurers, five micro penetration shrank from 1 percent of GDP in 2010 insurers, two composite insurers, five reinsurers including two government-owned insurers (ZB to 0.63 percent in 2021. The insurance expenditure Insurance and the new agricultural insurer AFC per capita is only US$10 annually, significantly Insurance). 111 All non-life insurance companies are below the minimum needed to provide meaningful members of the Insurance Council of Zimbabwe coverage. Total non-life sector assets stood at (ICZ), a representative and advocacy body that US$218 million (almost a 1-to-1 ratio with the formulates and implements laws and policies that premium) at the end of 2021, which indicates provide a conducive operating environment. ICZ capacity to underwrite more risk. FIGURE 25: CROSS-COUNTRY COMPARISON OF INSURANCE PENETRATION AND DENSITY Source: AXCO data, 2023. 4.1.1.1 Property insurance includes fire, lightning, thunder, explosion, non- political riot and strike113, malicious damage, storm, Property insurance in Zimbabwe accounts for a flood, earthquake, theft, impact, aircraft, falling trees, quarter of the non-life insurance sector by premiums and accidental collapse of aerials and masts. and typically covers climate related perils. Cover 111 - AXCO, 2023 112 - http://icz.co.zw/insurance-pools/ 113 - It is important to note that property insurance policies in Zimbabwe have specific exclusions or limits to coverage regarding strikes, riots, civil commotion, and terrorism. Zimbabwe Disaster Risk Finance Diagnostic 54 The cost of property insurance varies depending on premium income in 2019. Farming and hail premiums various factors, such as the value of the property, the increase property insurance premiums’ total share to location of the property, and the level of coverage 30.55 percent. The bulk of premiums in this class of required. Property business continues to be the business are either from commercial property risks second largest class of business in Zimbabwe after or from mandatory insurance required by banks and motor, representing nearly 24 percent of gross written building societies for individual mortgages FIGURE 26: TRENDS IN PROPERTY INSURANCE (LEFT) AND NATURAL HAZARDS INSURANCE (RIGHT) Source: Axco data, 2023 4.1.1.2 Agricultural insurance insured are sugar, maize, tobacco, cotton, and wheat. Coverage against the perils of fire, storm, and malicious Agricultural insurance provides coverage for damage applies from the time of harvesting to the point risks faced by farmers, agribusinesses, and other of sale. entities engaged in agriculture. In Zimbabwe it is dominated by tobacco hail insurance, due to its Several insurance players have piloted index strategic importance as a foreign currency earner. insurance over the last nine years; some have exited Tobacco is also largely produced under contract the market. Zimnat Insurance piloted weather index farming, which provides smallholder farmers inputs insurance between 2014 and 2015. In 2018 Econet bundled with insurance. The common risks covered Wireless Insurance wrote microinsurance covers for by agricultural insurance policies in Zimbabwe include small-scale farmers that paid out 10 times the amount crop losses due to weather events, pest infestations, of the premium if rainfall was below 2.5 mm (1 inch) and diseases, as well as losses due to theft or damage for 24 consecutive days during the rainy season. to agricultural equipment and infrastructure. Commercial agricultural/farming covers tend to be Old Mutual currently provides weather-based index written on dedicated package policies. These policies insurance against drought and excess rainfall. Figure have sections covering fire and perils, livestock, crops 27 (right) shows the performance of weather index (field to floor), burglary, money, business all risks, insurance in Zimbabwe over the last four years. goods in transit, public liability, personal accident, and The program is supported by Blue Marble, which is motor. Political riot, natural disasters, and strikes are responsible for index design, product pricing, index no longer covered by local policies. The main crops monitoring, and calculation of end of season payouts. Zimbabwe Disaster Risk Finance Diagnostic 55 FIGURE 27: TOTAL AGRICULTURE INSURANCE, 2009–2021 (LEFT) AND WEATHER INDEX INSURANCE, 2019– 2022 (RIGHT) Sources: AXCO, 2023; World Bank interviews with industry, 2023. Insurance providers indicated several key The state-owned agricultural insurer, AFC Insurance, challenges in scaling up agriculture index insurance. is implementing a pilot macro-level area yield index Market-level support for data provision, technical insurance on the back of GoZ’s successful Pfumvudza product design, and ongoing product review are input scheme. The pilot covers four districts—Chivi, needed to improve the index and product, based on Bulilima, Makonde, and Nkayi—from December 2022 wide consultation with farmers and consideration to July 2023. Government has paid 100 percent of the of changing weather patterns. Some possible premium for a sum insured of US$4 million, which is interventions at the policy level include the use of equivalent to the cost of inputs provided. The index ground weather data for independent verification of used was 60 percent of historical crop yields. Key losses. This would require investment in agricultural lessons emerging from the pilot include the need to and weather data, and at aggregate or national level address the high cost of crop cutting experiments, would require the use of agricultural extension which could affect sustainability, and the need to services to increase insurance awareness and review the design, which does not include direct establish regular communication about the cover payout to farmers and thus limits the ex ante benefits on an ongoing basis. of insurance and delays payment. 4.1.1.3 Public asset insurance public asset insurance guidelines/policy), technical gaps (lack of up-to-date asset registry or database Although there is currently no insurance for public to define insurable risk and quantify exposure), and assets and critical infrastructure, in 2022 the operational constraints (the need to raise premium ICZ proposed a national public asset insurance finance). The accountant general is the main custodian program based on a public-private partnership. of the national asset registry; however, the status The Insurance Council of Zimbabwe proposed to of the registry is unclear. Line ministries and other underwrite the risk and manage the program. 114 The government entities (ministries, departments, and proposed structure involves layering conventional agencies) are responsible for maintaining up-to-date insurance with alternative risk transfer and would information on assets under their management and for require a capital injection from the government and obtaining insurance on these assets. The proportion possibly development partners. To implement such a of assets insured is reported to be insignificant. Box 2 program, the GoZ would need to address policy gaps presents the experience of the Philippines, which could (lack of asset registry and management policy, lack of inform an action plan for the GoZ to take forward. 114 - One of the strategic goals of the ICZ is to “co-operate with government on national development efforts. This includes disasters/pandemics responsiveness.” Zimbabwe Disaster Risk Finance Diagnostic 56 Box 2: The Philippines’ development and implementation of national public asset insurance program Post disaster annual spending in the Philippines currently takes up nearly 0.7% of GDP with significant contingent liability to the Government. A Public Expenditure Review estimated the post-disaster spending of the government was approx. 60% of the total cost of reconstruction. Due to the rising frequency and severity of extreme events, large disaster losses are expected going forward. The government being a steward of public assets and responsible for public service delivery, including after disasters has employed several strategies to better prepare for responding to the needs of post disaster financial needs. The government of the Philippines mandated the state insurance company of the Philippines, the Government Service Insurance System (GSIS) to develop the National Indemnity Insurance Program (NIIP) for critical public assets to manage the large contingent liabilities GoPH faces due to disasters and to enhance transparency in disaster related expenditures. GSIS was created by law as a social insurance institution and is also the administrator of Philipplines’ General Insurance Fund by virtue of RA 656 (Property Insurance Law), which provides insurance coverage to government assets and properties that have government insurable interests. Under the NIIP, insurance cover for the public is placed through GSIS to international reinsurance markets with the premium being funded from the national budget with US$34 million budgeted for 2023/24. The NIIP has received significant technical assistance from development partners. The list below highlights key features of the NIIP: • A national asset registry system (NARS) was established under the Bureau of Treasury in 2018 for comprehensive asset management; it currently has over 400,000 assets valued at US$10 billion and is used for insurance underwriting. This initial phase of the NARS targeted key sectors including education, health, water as well as roads and bridges. The second phase is expected to cover trains, major ports (air and sea), power plants and transmission lines as well as governmental agencies’ science and technology equipment • A comprehensive Philippines Government Asset Management Policy which was adopted in 2020 to improve financial risk management and enhance service delivery. The policy requires local government units to set aside 5% of their revenues for relief and recovery programs • Indemnity insurance directly protects the affected asset as claims paid are clearly identifiable and earmarked for reconstruction of a specified asset. This prevents challenges of macro-level parametric insurance where (i) there may be basis risk (payout based on an index may not equal the underlying loss) and (ii) proceeds paid to the national treasury do not necessarily prioritize the affected assets • GoPH plans to scale up NIIP to cover more assets and ensure the NIIP is mainstreamed into a regular government undertaking • The World Bank has provided technical assistance and support on policy and institutional development over multiple years with funding from UK FCDO (Disaster Protection Program) and Switzerland (SECO) Source: Authors Zimbabwe Disaster Risk Finance Diagnostic 57 4.1.1.4 Micro small and medium enterprise insurance Although the use of formal insurance by MSMEs has increased significantly over the last 10 years, only Medium small and medium enterprise (MSME) four percent of MSMEs have business insurance, and insurance policies in Zimbabwe typically cover a range of risks, including property damage, liability, 74 percent of these policies are compulsory cover. In theft, and business interruption. Liability insurance is 2022 about one in four MSME businesses in Zimbabwe an important component of insurance in Zimbabwe, as was formally insured, compared to 1 in 20 in 2012. it provides coverage for legal liability arising from (for However, this coverage is dominated by business example) bodily injury or property damage caused to third parties, as well as other liabilities that may arise owners’ personal funeral and medical cover. The main from the insured’s operations. Business interruption barriers to business insurance for MSMEs are lack of insurance is another type of MSME insurance product affordability, lack of information on types of insurance in Zimbabwe and provides coverage for loss of income relevant to the MSMEs, and lack of information on how due to natural disasters, power outages, or other events that may cause a temporary shutdown of the to purchase insurance (figure 28). business. PHOTO CREDIT: DMBAKER, ISTOCK Zimbabwe Disaster Risk Finance Diagnostic 58 FIGURE 28: PERCENTAGE OF MSMES THAT USE INSURANCE IN ZIMBABWE (LEFT) AND BARRIERS TO INSURANCE UPTAKE (RIGHT) Source: World Bank, Global Findex Database, https://www.worldbank.org/en/publication/globalfindex 4.2 Financial inclusion and 8.5 percent of adults held an account at a financial institution—a much lower share than the Sub-Saharan financial protection African average of almost 40 percent. Only 12 percent of the poorest in Zimbabwe had an account, compared Evidence shows that financial inclusion contributes to over 20 percent of the poorest in Sub-Saharan Africa to financial resilience by enabling households and as a whole. In addition, a higher proportion of women communities to build assets and cope with shocks (box 3). than men are unable to raise emergency funds. Overall, The level of financial inclusion in Zimbabwe remains compared to the average adult in the region, more lower than the Sub-Saharan African average, and a Zimbabweans struggle to come up with emergency gender as well as a wealth gap persists. In 2021, about funding (figure 30). PHOTO CREDIT: VV SHOTS, ISTOCK Zimbabwe Disaster Risk Finance Diagnostic 59 Box 3: Building resilience through financial inclusion Low-income households are particularly vulnerable to shocks, but also the least prepared to cope with and recover from the impact of shocks. The effects of climate change exacerbate vulnerability. Financial inclusion can enable households to manage risk before a shock and to recover after a shock occurs. It thus helps to build resilience—the ability to mitigate, cope with, and recover from shocks and stresses without compromising future welfare. Evidence suggests well-designed financial products and services can play a role in increasing low-income families’ resilience by helping them prepare for risks, reduce risks, increase investment in the face of risks, and respond when a shock occurs (figure 29). FIGURE 29: EMERGING EVIDENCE ON BUILDING RESILIENCE THROUGH FINANCIAL INCLUSION Before a shock After a shock Risk Risk Investment in the Response to shocks preparedness reduction face of risk Liquid accounts, Lower barriers to Insurance can lead Digitization can lower costs of savings groups, credit and goal- to more productive informal risk sharing and social and behavioral based savings investments. protection to help households nudges may may encourage affordably access funds when enable households adoption of shocks occur. to build risk-mitigating precautionary technology and savings to smooth reduce exposure consumption after to shocks. a shock. Source: D. Moore et al., “Building Resilience through Financial Inclusion: A Review of Existing Evidence and Knowledge Gaps,” Innovations for Poverty Action, 2019, https://www.poverty-action.org/publication/building- resilience-through-financial-inclusion-review-existing-evidence-and-knowledge Financial inclusion remains a key priority for (2016–2020). The overarching objective under NFIS promoting sustainable livelihoods, creating wealth I was to increase the overall level of access to formal and employment, and facilitating gender equality— financial services from 69 percent in 2014 to at least goals that are in line with the Vision 2030 goal 90 percent by 2020, and to increase the proportion of of becoming an upper-middle-income economy. Zimbabwe has already developed and implemented banked adults from 30 percent in 2014 to at least 60 its first National Financial Inclusion Strategy (NFIS I) percent by 2020. Zimbabwe Disaster Risk Finance Diagnostic 60 Zimbabwe registered significant progress in increasing increased from 70 percent to 85 percent on the back access to formal financial services; 83 percent of of increased access to mobile banking products. The adults as of 2020 are formally served and 95 percent financial exclusion gap narrowed from 23 percent in of MSMEs are formally served (up from 18 percent in 2014 to 12 percent in 2022. Source: Financial Inclusion 2012), despite the disruptive effects of the COVID-19 pandemic. Women’s financial inclusion increased from Strategy in Zimbabwe: where from and where to?, 68 percent in 2014 to 83 percent in 2022, and men’s Reserve Bank of Zimbabwe, October 2022.115 FIGURE 30: PROPORTION OF ADULTS WITH AN ACCOUNT AT A FINANCIAL INSTITUTION AND CAPACITY TO RAISE EMERGENCY FUNDS Source: World Bank, Global Findex Database (accessed 2022), https://www.worldbank.org/en/publication/globalfindex Note: SSA = Sub-Saharan Africa; Emergency repones capacity= The percentage of respondents who say it is possible – whether “difficult,” “somewhat difficult,” or “not very difficult” – for them to come up with the emergency funds (1/20 of GNI per capita in local currency units) in 30 days; FI= Financial institutions; Financial institutions accounts= The percentage of respondents who report having an account (by themselves or together with someone else) at a bank or another type of financial institution. Despite notable progress in increasing access to with insurance companies, has introduced various finance and expanding digital financial services under initiatives aimed at expanding access to insurance NFIS I, challenges were noted in implementing the products and services. One such initiative, strategy.116 Zimbabwe developed and is implementing the Zimbabwe Microinsurance Trust (Zimnat NFIS II to incorporate strategies and stakeholder Microinsurance), provides low-cost insurance partnerships that address and mitigate these products to low-income individuals and families. challenges. While the effort to increase access to The products offered by Zimnat Microinsurance finance will continue, NFIS II focuses on usage, quality include funeral insurance, health insurance, and of financial services, and financial innovation.117 micro savings plans and are designed to meet the Insurance utilization in Zimbabwe is low, but specific needs of low-income households. Insurance efforts are being made to promote insurance companies in Zimbabwe have also adopted various uptake, particularly for low-income households technologies to increase access to insurance and individuals. The government, in collaboration products and services, particularly in rural areas. 115 - Reserve Bank of Zimbabwe, October 2022. Financial Inclusion Strategy in Zimbabwe: where from and where to? 116 - These challenges were structural (related to financial infrastructure, internet connectivity, informal nature of the economy), regulatory (value chain finance), and operational (high cost of last-mile delivery, low financial literacy and capability). 117 - Reserve Bank of Zimbabwe, “Zimbabwe National Financial Inclusion Strategy II (2022–2026),” https://www.afi-global. org/wp-content/uploads/2022/11/Zimbabwe_National_Financial_Inclusion_Strategy_II_2022-2026.pdf Zimbabwe Disaster Risk Finance Diagnostic 61 Mobile-based insurance products, for example, allow where under 30 percent of MSMEs are banked. This individuals to purchase insurance policies and make low level of inclusion puts the country behind peers premium payments using their mobile phones. such as Eswatini or Lesotho and well below South Africa.120 With over 70 percent of MSMEs reporting Overall, Zimbabwe’s effort to increase access to fragility, lack of finance is by far the main challenge. insurance products and promote financial inclusion more generally is important for reducing the Saving and insurance have the potential to boost vulnerability of low-income households to various resilience, but unfortunately only a small fraction of risks and improving their financial resilience. Efforts businesses use them. Among MSMEs in Zimbabwe, to expand access to insurance products and services 60 percent do not have any savings, a dramatic through microinsurance, simplified policies, and the increase from 28 percent a decade earlier. Of those use of technology are key steps in this regard. that save, virtually all rely on informal and often unregulated mechanisms. Between 2012 and 2022 The level of financial inclusion among MSMEs has the percentage of MSMEs that trust banks with their greatly improved over the past decade, and as at 2022 savings dropped from 13 percent to zero, primarily are fully excluded, down from 43 percent in 2012. The due to lack of disposable cash. The insurance uptake depth of inclusion is low, however. explanation for this marginally improved over the decade 2012–2022; situation is that nearly all accounts (97 percent) are registered in the name of the owner rather than the at its end, 24 percent of MSMEs had some form of business,118 so businesses do not have their own credit insurance, an increase of four percentage points. A scores. While informal sources of credit or borrowing switch from informal insurance mechanisms to use of from friends and family are available to a larger formal insurers also occurred during this time. Despite number of businesses, these MSMES too have limited this positive trend, however, most insurance covers reach. Among smaller MSMEs, 62 percent of individual only the owner of the business, with products such as entrepreneurs and 43 percent of micro-businesses are medical insurance or a funeral plan. Business insurance not able to borrow from any source.119 Sectors with is bought by only 4 percent of the sector (see Figure lowest levels of inclusion are natural resources and 31), as the majority of MSMEs cannot afford it.121 mining, business services, and wholesale and retail, 118 - Finscope, “Micro, Small and Medium Enterprises (MSME) Survey Highlights: Zimbabwe.” 119 - Chipika, “Financial Inclusion Strategy in Zimbabwe.” 120 - Finscope, “Micro, Small and Medium Enterprises (MSME) Survey Highlights: Zimbabwe.” 121 - Ibid. PHOTO CREDIT: RUTENDO PETROS, UNSPLASH Zimbabwe Disaster Risk Finance Diagnostic 62 FIGURE 31: DYNAMICS OF MSMES’ ACCESS TO CREDIT, INSURANCE, AND SAVINGS Source: Finscope, “Micro, Small and Medium Enterprises (MSME) Survey Highlights: Zimbabwe,” 2022, https://finmark.org.za/Publications/FinScope_MSME_Survey_Zimbabwe2022_Pocket_Guide.pdf 4.3 Capital markets 4.3.1 Overview of the capital markets In Zimbabwe, the capital market consists of a This section provides an overview of the status sophisticated but small stock market and a small of capital markets and assesses climate-related bond market. The Zimbabwe Stock Exchange (ZSE), opportunities to grow and deepen the market, which which was founded in 1894, is the main platform for will benefit the insurance sector while also stimulating trading stocks and other securities, and has been climate finance. The section also assesses investment expanding and modernizing. The ZSE is regulated options to strengthen the resilience of the domestic by the Securities and Exchange Commission of insurance market to multiple shocks, including climate- Zimbabwe (SECZ) and has 65 listed companies, related, currency-related, and inflation-related shocks. including financial institutions, mining companies, and Robust capital markets allow insurers to recapitalize telecommunications companies. The ZSE also provides should a disaster severely affect insurers’ capital. a regulated platform for secondary market buying and Capital markets tend to be deeper than corresponding selling of securities; regulates stockbrokers, market insurance markets for the same risk, and the investors makers, and security issuers; and facilitates the raising on many exchanges have higher risk appetites than of long-term capital for companies, government, and insurance companies. semigovernmental institutions. Zimbabwe Disaster Risk Finance Diagnostic 63 FIGURE 32: COMPARISON OF STOCK MARKET CAPITALIZATION TO GDP FOR ZIMBABWE AND SELECTED COUNTRIES Source: https://www.zimrates.com/category/historical-rates/; Zimbabwe Stock Exchange website, and annual reports122, Botswana Stock Exchange annual reports123, Ghana Stock Exchange reports on Equity124, Namibia Stock Exchange annual reports125, Capital Markets Quarterly Bulletin (CMA, 2022)126, World Bank development indicators, https://databank.worldbank.org/source/world-development-indicators?Series=PA.NUS.FCRF, https://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS, Ghana Central bank - Inter-Bank Exchange Rate127, CEIC data, https:// www.ceicdata.com/en/indicator/kenya/market-capitalization--nominal-gdp Note: All figures are calculated and estimated for the end of the year, Market rate figures have used market rate for the exchange rate in calculating the market cap in $US, Official rate figures have used “Willing Buyer Willing Seller Official Mid Rate” for exchange rates The ZSE is extremely volatile and concentrated 2022. Foreign investor participation accounted for and declined significantly in the estimated real 19 percent of 2022 trades and 12 percent of 2021 market capitalization in 2022 (see figure 33). Market trades. The total turnover for the top-five companies capitalization ended at US$2.2 billion in Q4 of 2022, contributed 78 percent of the total turnover for Q3 with a total turnover of Z$ 132 billion for the year 2022. PHOTO CREDIT: IMAGE SOURCE, ISTOCK 122 - https://www.zse.co.zw/annual-reports/ 123 - https://use.or.ug/content/market-performance 124 - https://gse.com.gh/market-reports/ 125 - https://nsx.com.na/index.php/data/annual-reports-for-the-nsx 126 - https://cmauganda.co.ug/wp-content/uploads/2022/08/Capital-Markets-Quarterly-Bulletin-4Q.2022.pdf 127 - https://www.bog.gov.gh/economic-data/exchange-rate/ Zimbabwe Disaster Risk Finance Diagnostic 64 FIGURE 33: ZSE MARKET CAPITALIZATION GROWTH IN COMPARISON TO VFEX MARKET CAPITALIZATION GROWTH Source: Victoria falls newsletters: https://www.vfex.exchange/wp-content/uploads/2022/10/VFEX-Newsletter-Q3-2022.pdf; https://www.vfex.exchange/wp-content/uploads/2022/07/VICTORIA-FALLS-STOCK-EXCHANGE-NEWSLETTER-Q2-2022.pdf; https://www.vfex.exchange/wp-content/uploads/2021/05/VFEX-Newsletter-May-2021.pdf; https://www.vfex.exchange/; https:// www.chronicle.co.zw/new-listings-boost-vfex-market-capitalisation/#:~:text=NEW%20listings%20on%20the%20Victoria,a%20 202%2C51%20percent%20increase.; Zimbabwe Stock Exchange website, and annual reports128 Note: VFEX = Victoria Falls Stock Exchange, Exchange rates taken for the end of the year as 1 $US to $Z equals 22.7, 111, 113, 930 from 2019 to 2022, respectively. A new securities exchange, the Victoria Falls Stock million. It has increased foreign investment, Exchange (VFEX), was launched in 2020 to attract provided local companies with increased access to foreign investors. VFEX currently has seven listed capital, stimulated improvements in the regulatory companies and offers a platform for companies framework, and provided investment diversification to list their shares and bonds. Established and opportunities for households and businesses. regulated by an act of Parliament, the VFEX operates VFEX offers a range of investment opportunities, as a subsidiary of the ZSE and provides a secure including stocks, bonds, and exchange-traded funds platform for US dollar transactions. Once funds are (ETFs). The VFEX market had a high growth rate, remitted through the exchange, they are accorded probably because it was more attractive to hedge “free funds” status, and remittance out of Zimbabwe and protect investors from inflation and exchange is automatically approved under exchange control rate fluctuations. However, in sum, the equity approval from the Reserve Bank of Zimbabwe. market size relative to its GDP is small, and the Key incentives applicable to VFEX include lower equity financing capacity can be further developed trading fees, hard currency trading, no capital gains to address the need for access to capital. On the withholding tax, and lower dividend withholding tax debt financing side, bond issuance has grown by 21% for foreign investors. in CAGR from 2013 to 2020, highlighting it as a desired means to finance required capital for businesses. The launch of VFEX has had a significant Zimbabwean corporate bond issuance relative to impact on capital markets in Zimbabwe. Market its GDP is higher or comparable to its peers except capitalization increased tremendously with a Zambia, which is an outlier among the benchmarked CAGR of 428% between Q2 2021 and Q4 2023 countries (See figure 34). (See figure 34 above), when it reached US$1,201 128 - https://www.zse.co.zw/annual-reports/ Zimbabwe Disaster Risk Finance Diagnostic 65 FIGURE 34: CORPORATE BOND ISSUANCE (TOP) CORPORATE BOND ISSUANCE TO GDP (BOTTOM) Source: Capital markets in sub-Saharan Africa (Githinji Njenga 2022); https://www.wider.unu.edu/sites/default/files/Publications/ Working-paper/PDF/wp2022-112-capital-markets-sub-Saharan-Africa.pdf Note: CAGR= Compound annual growth rate, *CAGR calculated from 2014 not 2013 Source: World Bank development indicators, https://databank.worldbank.org/source/world-development-indicators; Capital markets in sub-Saharan Africa (Githinji Njenga 2022), https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2022-112-capital-markets-sub-Saharan-Africa.pdf Note: CAGR = Compound annual growth rate, *For Ghana, the CAGR was calculated from 2014 to 2020. The government and regulator could increase efforts and address currency shortages, are commendable. to promote the development of the capital markets The ZSE recently introduced circuit breakers that help and stimulate climate risk finance solutions like to cool down the market once the daily movement is catastrophe (cat) bonds. Desktop research shows more than 10 percent. The government also recently that there have been efforts in the past to introduce introduced a punitive capital gains tax of 40 percent for cat bonds—e.g., the Grande Re bond that was issued traders who use fictitious devices, such as speculative by IMARA in 2020. Ongoing efforts, including the trading to manipulate the markets. The government introduction of new policies and regulations aimed could take a more sustained and systematic approach at promoting transparency and accountability in the through a capital market development strategy. markets, as well as efforts to stabilize the economy Zimbabwe Disaster Risk Finance Diagnostic 66 5. Funding gap analysis and risk financing strategies Statistical analysis was conducted to estimate the costs 2012 and 2021 was multiplied by an average cost of of disaster relief to the Government of Zimbabwe. The relief per person.129 For floods, the uninsured economic analysis excluded costs of recovery and reconstruction loss value was multiplied by an emergency relief factor. as governments tend to have more time to plan for The uninsured loss was based on the results of a flood these later phases. It estimated the historical cost of catastrophe model.130 The relief factors were based relief and then conducted statistical analysis to derive on international reinsurance practice. The analysis indicative expected future costs of relief. These were assessed a range of different statistical distributions compared to the available funding to determine the and selected the one that best fit the empirical funding gap. data. Monte Carlo simulation was then carried out to simulate 15,000 years of losses from the fitted 5.1 Fiscal cost analysis distribution. These simulated relief costs indicate the frequency and severity of future relief costs. For In the first step of the analysis, two distinct estimation GoZ to make decisions, the analysis would need to methods were used to derive relief costs from the be refined, particularly with better information on economic losses: one for the impact of droughts historical costs going forward. the GoZ could develop through food insecurity, and the other for the impact a national database on economic and fiscal impact and of flood through physical damage to property and expenditure related to disasters to strengthen the assets. For droughts, the number of people in need of evidence base on disaster risk financing and disaster emergency food relief or affected by drought between risk management more broadly. STOCK PHOTO 129 - The number of people was as reported through the Integrated Food Insecurity Phase Classification (IPC) Acute Food Insecurity analysis. The cost of relief per person was assumed to be US$40. 130 - The catastrophe model covers residential and industrial property and excludes public assets and infrastructure due to lack of a public asset and infrastructure database. Zimbabwe Disaster Risk Finance Diagnostic 67 The fiscal cost of emergency disaster response in very large relief costs. Damage to public assets Zimbabwe is conservatively estimated at US$81 and infrastructure is excluded; hence costs are million per year and could reach US$540 million in expected to increase once damage to public assets a year with a 1-in-50-year event. As shown in figure and infrastructure are accounted for. This analysis 35, the distribution is highly positively skewed, is indicative due to the limited availability of data on which suggests a substantial likelihood of having economic losses and fiscal costs of disasters. FIGURE 35: SIMULATED AVERAGE ANNUAL COSTS OF DISASTER RESPONSE DUE TO DROUGHT AND FLOOD IN ZIMBABWE OVER THE NEXT YEAR FOR DIFFERENT RETURN PERIODS Source: World Bank analysis. Note: The return period is the duration over which a loss of the same or greater magnitude should be expected. A 1-in-5-year return period is the estimated annual loss expected to be exceeded once every five years on average; in other words, in any given year there is a 20 percent probability of a loss at least as great as this. Similarly, a 1-in-10-year return period is the annual loss expected to be exceeded once every 10 years on average, i.e., with a 10 percent probability. The estimates do not mean these disasters will occur only once every 5 (or 10) years. 5.2 Funding gap and comparison a risk financing strategy consisting of multiple financial instruments that balance risk retention with risk-layered strategy and risk transfer (risk layering) and compares this strategy to the current financing approach (base To assess the funding gap at various return periods, strategy). The total available funding under each the indicative distribution of fiscal costs of relief strategy is presented in figure 36. GoZ would presented in the preceding section is compared need to consider key trade-offs (box 4), its risk to the funding currently available to the GoZ. appetite, and overall macroeconomic context when The analysis also compares potential coverage developing its strategy. provided by alternative risk financing strategies that the GoZ could consider. The analysis therefore demonstrates how the government could develop Zimbabwe Disaster Risk Finance Diagnostic 68 FIGURE 36: FUNDS UNDER EACH FINANCING STRATEGY Base strategy • Reserve fund of US$33 million (drought mitigation 2023) • Budget reallocation of US$600 million (reallocation in 2016) • Sovereign insurance (ARC drought insurance with a maximum payout of US$1.7 million; cession of about 2 percent; protects only human capital assets) Strategy B • Reserve fund of US$60 million to cover mild events • Contingent credit or grant of US$142 million for moderate to severe events • Sovereign insurance (multi-peril) with a maximum payout of US$338 million and cession of 50 percent to protect human capital and physical assets Strategy C • Reserve fund of US$60 million to cover mild events • Reallocation of up to US$120 million for moderate events • Sovereign insurance with a maximum payout of US$360 million and 50 percent cession All strategies include unlimited ex post borrowing for residual risk. Note: ARC = African Risk Capacity. The instruments in Strategies B and C are layered to cover 1-in-50-year and less severe events. The analysis assumes that the reserve fund is exclusively for disaster relief and incurs small administrative costs. The contingent credit used for illustrative purposes is a World Bank Cat DDO. The sovereign insurance is assumed to cover all perils and has a 100 percent ceding share, which means all losses in the sovereign insurance layer are protected. The attachment is set such that insurance pays out when costs of relief exceed US$232 million, which is the cost of a 1-in-10-year loss event. Insurance would cover losses above those covered by the other two funding instruments (reserve fund and contingent credit). Any losses beyond the insurance exhaustion point, which has been set at a 1-in-50-year loss of nearly US$630 million, would not be covered by the insurance. In such a rare event, GoZ would raise additional funds through borrowing. Zimbabwe Disaster Risk Finance Diagnostic 69 Box 4: Risk layering: Key trade-offs and considerations when establishing a disaster risk finance strategy In developing a national DRF strategy, it is important to decide on the level of risk that the national balance sheet can retain and the level to transfer to private financial markets, which will be limited by the costs of the various instruments. GoZ would need to consider the following trade-offs and considerations: 1. Different risk financing instruments have different costs and differ in cash flows—for example, reserves incur a delayed opportunity cost while insurance has an up-front cost of premiums. 2. Holding large reserves entails an opportunity cost; but if a major event occurs in the absence of reserves, mobilizing funding through budget reallocation and borrowing can result in avoidably high response costs. 3. Budget reallocations carry a high opportunity cost, as resources are channeled away from planned high-yielding social and capital investments. 4. Ex post borrowing is especially time-consuming, and many countries face challenges raising debt after a shock which results in high time costs. Furthermore, a disaster event can result in a credit downgrade and trigger a debt crisis. 5. Insurance is suited for relatively extreme events—that is, events occurring less frequently than every 5–10 years, on average. With the current pre-arranged funding of US$33 gap increases as the losses increase (with higher event million, the annual funding gap is estimated to exceed return periods) because the pre-arranged funds and US$48 million on average. The funding gap is the amount of cover from the sovereign insurance are difference between the available government budget constant (figure 37). and the probable loss for a given event size. The funding FIGURE 37: FUNDING GAP AT VARIOUS RETURN PERIODS ASSUMING PRE-ARRANGED FUNDS OF APPROXIMATELY US$33 MILLION Source: World Bank analysis. Zimbabwe Disaster Risk Finance Diagnostic 70 A risk-layered financing strategy would be more and unpredictable, and divert resources away from cost-efficient, for both moderate shocks and higher-yielding social and physical investments. These more extreme events, than Zimbabwe’s current financing instruments are used less frequently under approach. As shown in figure 38, compared with the Strategies B and C, which creates significant savings base strategy, a risk-layered approach could create compared to using the base strategy. In addition, the modest savings for regular 1-in-5-year loss events; significant savings generated for severe to extreme for moderate 1-in-10-year events, severe 1-in-50- events demonstrate the ability of insurance to year events, and extreme 1-in-100-year events, it mitigate the financial impact of larger costs as the could generate savings of US$37 million, US$146 premium leverages additional capital. Under Strategy million, and US$122 million, respectively. Strategies B and C are more cost-effective than the base strategy B, the GoZ would have a wider range of risk financing for funding moderate to extreme loss events, which options, including multi-peril insurance, that could be demonstrates the effectiveness of an expanded risk- triggered after disasters to protect the budget against layering approach. Budget reallocations and ex post severe events and significantly reduce the likelihood borrowing carry high opportunity costs, may be slow of emergency borrowing. FIGURE 38: EFFECT OF RISK-LAYERED FINANCING APPROACH ON COST OF COVERING LOSSES Source: World Bank analysis. Considering that the GoZ currently does not have may be less feasible given tighter fiscal space arising access to contingent lines of credit from multilateral from the prevailing macroeconomic challenges and lenders, Strategy C is designed to mimic the costs polycrisis context following COVID-19 and the of Strategy B while using reallocation, which is not Russia-Ukraine war. Further cost efficiencies could ideal but is unavoidable in the case of Zimbabwe. be generated by optimizing use of reallocations. More Historically, Zimbabwe has had a large capacity for in-depth financial modeling and technical analysis reallocation (up to US$600 million could finance should be carried out to rightsize potential financial a severe 1-in–50-year loss), but large reallocations instruments for Zimbabwe. Zimbabwe Disaster Risk Finance Diagnostic 71 6. Recommended options to strengthen financial resilience This chapter provides options for strengthening Consider proactive planning for reallocations in financial resilience against crises and disasters in the budgeting framework to minimize unintended Zimbabwe. Options are grouped into three areas: the negative consequences from delayed or canceled policy framework and public financial management, expenditures. The first step would be to conduct the financial sector and use of insurance, and the set of an in-depth study to understand sectors or projects risk financing instruments. For each area, an indicative that generally underperform or are cut, as well as to timeline is given to support the Government of quantify the opportunity cost of reallocation, which Zimbabwe with prioritization over the next five years seems large but is unknown. Such a study would inform (table 7). These options are not mutually exclusive and development of a tiered framework for approaching can be pursued in parallel. Overall, creating a stable disaster-related budget reallocations based on the macroeconomic environment is a necessary condition potential costs (See figure 39 for an example). This for Zimbabwe to strengthen financial resilience at all framework should be implemented jointly by the levels of society. MoFED and line ministries; the former should set guidelines and grant final approval of which spending to reallocate under each tier of the framework, and the 6.1 Improve the policy latter should propose spending to be cut or protected, framework, public financial in line with the guidelines and based on staff’s technical expertise and understanding of implementation. To management, and risk- ensure the greatest returns, this proactive reallocation informed decision-making strategy should be embedded within the broader DRF strategy. Develop a comprehensive DRF strategy under the leadership of MoFED in collaboration with DCP. A comprehensive strategy would help avoid fragmentation and ensure the different mechanisms complement each other and support other relevant policy initiatives. It would also strengthen the government’s ability to carry out planning and financial preparation for both social and climate-related disasters by determining (ex ante) the priorities and the optimal risk-layering approach for addressing disasters and crises of different severities and frequencies. Develop a public expenditure tracking system for disaster and crisis response. This effort could be led by MoFED and should include integrated tracking of spending (disaggregated by response, recovery, and reconstruction) into a government financial system. Tracking could cover spending from budget appropriations, the contingency budget reserve, and budget reallocations as well as disaster expenditures that usually remain embedded in the budget, such as operations and maintenance. Given the extent of the COVID-19 impact and budget spending on the response and recovery, the GoZ could also consider reviewing how much was spent and how financing decisions were made. This step would help clarify gaps PHOTO CREDIT: VV SHOTS, ISTOCK to improve the DRF process in the future. Zimbabwe Disaster Risk Finance Diagnostic 72 FIGURE 39: FRAMEWORK FOR APPROACHING DISASTER-RELATED BUDGET REALLOCATIONS Nonviable Spending 01 - What: Cut spending that is no longer NEGLIGIBLE COST feasible post-disaster - How: Maintain a catalogue of nonviable spending by disaster type Underexecution 02 - What: Cut spending in areas of weak LOW/NEGLIGIBLE COST execution - How: Identify program execution below historical levels; consult with LMAS Lower-Priority Spending 03 - What: Cut discretionary spending that has lower LOW/HIGH COST priority - How: Consider expected returns, sufficiency of spending & resilience budgeting Source: World Bank, Albania: The Impact of COVID-19-Related Budget Reallocations (Washington, DC: World Bank, 2021), https://documents1.worldbank.org/curated/en/099505006202299116/pdf/P17481105fbb4f03f0a5400e6abe9e0952a.pdf Note: LMA = line ministries and agencies. Strengthen the technical capacity of the MoFED Review the area yield index insurance design and on disaster risk finance through a dedicated analyze the cost-to-benefit ratio before scaling it capacity-building program. This could also include up. The current design, in which a payout is made to key stakeholders in the implementation of GoZ’s the government rather than directly to farmers, limits DRF strategy, including the DCP, the Ministry of ex ante benefits of insurance and delays payment to Agriculture, and Ministry of Public Service, Labor, and farmers. Furthermore, the high cost of crop cutting Social Welfare. experiments potentially compromises sustainability. To increase ex ante benefits, the program could require 6.2 Strengthen the financial a contribution from farmers for the cost of the package of inputs and insurance. sector and enhance the use of insurance Craft a capital markets development strategy to grow and deepen the market by facilitating disaster risk Scale up agriculture insurance. This option could entail and climate finance. The development of the capital creation of a technical working group at industry level markets in Zimbabwe is essential for the growth and to invest in public goods such as data and to address resilience of the insurance sector. The government a range of common issues affecting the growth of the could work with the industry to create a strategy that industry, notably the tax on transfers of premium addressed macro-fiscal constraints and also facilitated and payout, which affects affordability; issues with development of risk and climate finance products ID documents, which affect use of mobile money– for MSMEs and investment options for insurance based products; and limited awareness of insurance companies to improve their financial resilience. among farmers, which affects trust. A robust insurance Insurance regulations could allow insurance entities to awareness campaign as part of the National Financial issue contingent capital such as cat bonds, which could Inclusion Strategy II could be led by and implemented be sold to the international market through the VFEX. with the insurance regulator and involve partnership The SECZ could lead on such an initiative, working between insurers and agriculture extension services. closely with IPEC and the Reserve Bank of Zimbabwe. Zimbabwe Disaster Risk Finance Diagnostic 73 6.3 S t r e n g t h e n ex i s t i n g government could assess the technical, operational, and financial feasibility of designing and implementing instruments and adopt new a public asset insurance program and carry out a detailed review of the public asset registry. An asset risk financing instruments registry would empower asset owners with relevant and accurate underwriting information to inform Establish a multiyear disaster reserve fund that competitive terms and conditions, particularly cost- draws funds from internal sources (budgetary effective premiums. The feasibility study would map allocation, levies, etc.) and external sources what type of data exist and what data are missing (multilateral and bilateral assistance, etc.). This (for insurance purposes); it would identify priority could be done by strengthening the National Disaster assets to begin with as well as potential financial Fund and graduating it from donor dependence to sources for premium costs. The proposal presented more effectively finance response to high-frequency by the Insurance Council of Zimbabwe presents a shocks that have low to moderate impact. However, good basis for assessing viable operational models the value of such a fund for risk financing could be for risk transfer and risk sharing between the public undermined by a very broad mandate if it includes and private sector. IPEC and ICZ could work closely funding of state-owned enterprises and non-disaster on this under the oversight of the accountant general, events. The fund would need to be underpinned whose mandate includes management of public by a legal provision and would require a robust assets. governance framework and operational regulations and guidelines. Regulations would need to define Strengthen the institutional capacity and the end use of funds, establish clear triggers and adaptiveness of the social protection system to guidelines for accessing the fund, and establish rules allow for timely disbursement of funds to affected for immediate recapitalization of the fund following household. Evidence shows that social protection disbursement, or purchase of catastrophe insurance can be used effectively to channel funds quickly and to protect the fund. Establishment of such a fund securely to poor households affected by shocks. would be subject to appropriate safeguards, such Such shock-responsive systems require setting out as appointment of a fiduciary manager for financial operation procedures in advance. A shock-responsive management or a third party to oversee the fund’s safety net would support people at risk of falling into day-to-day operations. Indeed, such safeguards poverty and provide additional assistance to poor and would be consistent with donors’ cautious approach vulnerable people affected by disasters. Further, GoZ to supporting the GoZ. could consider linking risk financing to anticipatory- action mechanisms to allow for interventions in Develop a risk-based asset management system anticipation of a hazard. This approach would help and implement a public-private partnership for minimize the impact on lives and livelihoods and insurance of public assets and critical infrastructure reduce the humanitarian caseload and associated in the medium to long term. In the short term, the cost. Zimbabwe Disaster Risk Finance Diagnostic 74 Table 7: Recommendations for strengthening financial resilience in Zimbabwe Improve the policy Strengthen existing Strengthen the financial framework, public financial instruments and adopt Time frame sector and enhance the use management, and risk- new risk financing of insurance informed decision-making instruments Short term • Develop a comprehensive • Scale up agriculture insurance • Conduct a feasibility study disaster risk finance strategy review the AYII pilot design on public asset insurance • Fast track the adoption of the and cost-benefit ratio and a review of national DRM Bill and address gaps • Consider PPP approach to public asset registry in regulations on emergency invest in key public goods like procurement data, insurance awareness, • Strengthen the technical and local insurance market’s capacity of the MoFED on technical capacity for index disaster risk finance through agriculture insurance a dedicated capacity-building program Medium term • Develop a public expenditure • Craft a capital market • Establish a dedicated tracking system for disaster and development strategy to grow multiyear disaster reserve crisis response and deepen the market by fund for moderate-risk • Within the budgeting framework, facilitating contingency and events in line with global develop a system for proactive climate finance good practice; this could be planning for reallocations to • Support insurance awareness done by strengthening the minimize unintended negative creation among farmers and National Disaster Fund and consequences from delayed or MSMEs graduating it from donor canceled expenditures • Conduct a review of the dependence • Develop a public asset impact of aggregate exclusion • Develop and implement management policy that due to national declaration a PPP-based public asset addresses insurance of public of disaster on the insurance insurance program to assets and critical infrastructure sector, households, and protect the budget against businesses; identify flood and tropical cyclone appropriate structural or regulatory interventions Long term • Develop a national database on • Strengthen the institutional the occurrence and impact of capacity and shock natural disasters responsiveness of the social protection system • Consider risk transfer solutions to limit impact of drought on electricity and protect the national budget Source: World Bank. Note: short term = six months to one year; medium term = one to three years; long term = three to five years. AYII= area yield index insurance; MoFED = Ministry of Finance and Economic Development; MSMEs = micro, small, and medium enterprises; PPP = public-private partnership.