Philippines Discussion Notes

The World Bank

• 
  Fast-track the completion of risk assessment to determine areas most at risk to natural disasters so that future interventions can be well targeted.
  
• 
  Review the capacity of and upgrade the weather forecasting and early warning systems for highly exposed cities.
  
• 
  Package efforts on Metro Manila and other economic centers to become more resilient to future disasters through measures such as flood control and the retrofitting of critical lifeline infrastructure - schools, transport, power, and hospitals.
  
• 
  Adopt a catastrophe risk finance strategy to facilitate ex-ante and ex-post funding for both the national and local governments to reduce fiscal exposure.
  
• 
  Empower and encourage LGUs to undertake priority disaster risk reduction investments by providing them with affordable, accessible financing options.
  

4. 
   The Philippines Today: Progress and Challenges
   

1. 
   The Philippines is considered one of the most disaster-prone countries in the world. Its location in the tropics and in the so called Pacific “ring of fire” makes it vulnerable to a variety of natural disasters, including typhoons and tropical storms, earthquakes, and volcanic eruptions and their associated risks of flooding, tsunami, storm surges, and landslides. With 268 recorded disaster events over the last three decades, the Philippines ranks 8th according to the World Bank’s Natural Disaster Hotspot list of countries most exposed to multiple hazards. Almost 30 percent of the disasters that occurred in Southeast Asia from 1990 to 2009 occurred in the Philippines.
   

2. 
   At least 60 percent of the total land area in the Philippines is exposed to multiple hazards, rendering 74 percent of the population vulnerable. The impact on human lives are staggering, with an average of 1,000 lives lost every year due to natural disasters. They also cause a huge loss to the economy by damaging agriculture, infrastructure, and private sector investments. It is estimated that, on average, the annual direct damages caused by disasters range between 0.7 percent (NDCC, 2009³⁶) to 1 percent of the country’s Gross Domestic Product (GDP) (NDCC, ADB and UNDP, 2008). Table 1 below presents an overview of where the Philippines stands in relation to other countries (as of 2009) in terms of number of reported disaster events, number of people killed by disasters, number of people affected, and as a percentage of GDP.
   

3. 
   Weather-related events – tropical storms, tropical depressions, typhoons and super typhoons, flooding, La Niña, and El Niño - are the most dangerous hazards faced by the Philippines. Climate change is likely to exacerbate these conditions over the medium and long term by increasing both their frequency and intensity. In the last 15 years alone, the country has recorded the most extreme typhoon events and has been witnessing longer episodes of drought or El Niño, causing a drop in the volume of agricultural production and sharp declines in GNP. Substantial rise in sea levels is expected, making 70 percent of the 1,500 municipalities, located along the coastlines, vulnerable to this phenomenon. Dasgupta et al (2009) lists four Philippine cities (Roxas, San Jose, Manila and Cotabato) among the top 10 East Asian cities likely to be affected by storm surge and sea level rise due to climate change. The same report indicates that 52 percent of coastal GDP could be at risk. See Annex 1 for a map that portrays disaster risks and indicative losses in the Philippines.
   

4. 
   While the magnitudes of natural hazards are exogenous, the scale and significance of disasters are largely caused by anthropogenic factors, such as unplanned urbanization, inadequate infrastructure, and environmental degradation. Rapid and unplanned urbanization in the country has resulted in the proliferation of informal settlements, especially in hazard-prone areas. They have likewise undermined the capacity of the government to provide basic urban services, which has led to inadequate infrastructures, such as solid waste facilities, flood control systems, and housing, and their chronic lack of maintenance. Efforts to address the problem, particularly of resettlement, have failed to deliver the intended outcomes. Resettlement programs, especially in Metro Manila, have poor track records, with their failure to consult communities and to link new settlement locations with the sources of livelihoods of affected communities.
   

5. 
   Environmental degradation also contributes to increasing impacts of natural disasters. Poor land use and the massive depletion of natural resources have increased the probability of flash floods, landslides, and drought. The unregulated development of settlements and economic activities has encroached upon environmentally fragile areas, such as riverways and forests.
   

6. 
   In the aftermath of Typhoons Ondoy and Pepeng, the Philippine legislature passed the Disaster Risk Reduction and Management (DRRM) Act, enacted by President Macapagal-Arroyo into law on 27 May 2010. The new DRRM Act or Republic Act No. 10121, supersedes Presidential Decree No. 1566, which in 1978 established the National Disaster Coordinating Council (NDCC) and the disaster risk management system in the country. The new law emphasizes the need for a coherent, comprehensive, integrated, and proactive approach to DRRM across levels and sectors of government, and among vulnerable communities in the Philippines.
   

7. 
   The DRRM Act seeks to address many of the fundamental weaknesses in the current DRRM system in the country. Setting in place the DRRM Act offers an excellent opportunity to reduce risks and potential losses by implementing the key institutional and operational reforms. In addition, the implementing regulations ensuing from the DRRM Act could address several endemic issues facing the Philippines, such as clarifying the functions of different government agencies, strengthening the link between development planning and financing and disaster risk reduction, etc.
   

8. 
   To complement the DRRM Act, the Philippine Government has also formalized its Strategic National Action Plan (SNAP) for Disaster Risk Reduction. The SNAP translates the country’s commitments to the Hyogo Framework for Action³⁷, in line with global good practice. The SNAP provides a basis for expanding government resources and for mobilizing support from development partners for accelerating and scaling up the implementation of a strategic DRRM program.
   

5. 
   Where the Philippines Could Be: Policy Options
   

9. 
   Gains on policy reforms will take time to materialize, as capacities and systems need to be established. However, immediate actions could be undertaken to reduce the vulnerability of the country to natural hazards. The Philippine Government should prioritize the following actions, as per the recommendations outlined in the PDNA.
   

10. 
    Successful disaster risk reduction measures require accurate and timely information that can be generated from a credible risk assessment exercise. The national government, with support from various donors, is undertaking a risk assessment for vulnerable provinces in the country. However, the process of producing the multi-hazard maps has been rather slow and protracted, consequently delaying actions and reforms. There is a need to fast-track the process; however, this would require additional financial and technical resources. Support from external and internal stakeholders could be mobilized to support these efforts, particularly to expand work on geographic information systems, satellite and aerial photography, and ground validation of assets and population at risk.
    

11. 
    Improve capacities of the technical government agencies involved in forecasting and predicting hazards, such as Pagasa. Additional training for Pagasa’s technical staff is also required; partnerships with World Meteorological Organization (WMO) and other development partners could support this effort. In addition to forecasting capabilities, the issuance of credible early warnings to affected communities and last-mile communication capacity of the warnings and evacuation plans should be reviewed and updated.
    

12. 
    The concentration of population and assets in Metro Manila warrants special attention and could serve as a starting point for the government’s risk reduction efforts across the board. If a massive disaster were to occur in this area, such as a magnitude 7.2 earthquake, it could result in the paralysis of political, economic and social services across the entire country. In more concrete terms, the following actions should be taken:
    

• 
  Update the flood masterplan for Metro Manila which has not been updated since 1990. Given its vulnerability to flooding, protecting Metro Manila requires institutional changes, comprehensive planning, and investments in both restoration and infrastructure for an effective flood management system. A risk assessment study for the entire basin is needed in the short term to update the existing master plan and to prepare a comprehensive development program.
  
• 
  Review the actions detailed in the Metro Manila Earthquake Impact Reduction Study prepared by JICA in 2004, such as strengthening building codes, standards, audits and enforcement.
  
• 
  Review existing LGU planning processes to see how disaster risks can be factored in upstream. For example, comprehensive land use plans (CLUPs) should be prepared in consideration of hazards faced on the ground. As a long-term planning tool, CLUPs should build LGU resilience to disasters through the adoption of appropriate settlement and infrastructure regulations. A timetable could be agreed between the national government and LGUs to have risk-sensitive CLUPs in place. The CLUPs could likewise be dovetailed with the second generation of City Development Strategy to better address natural hazard risks and climate change adaptation.
  

13. 
    Being one of the most disaster-prone countries in the world, the Philippines has developed an elaborate system of disaster risk financing institutions designed to provide sufficient post-disaster funding to different segments of the national economy affected by calamities. The key elements of the existing national disaster risk financing system include (i) the National Calamity Fund; (ii) Local Calamity Funds; and (iii) GSIS – a government-owned insurer providing catastrophe insurance coverage for government-owned assets. These mechanisms are further supplemented by private donations from charities and indemnity payments from private insurance companies.
    

14. 
    The situation on the ground points to an acute shortage of post-disaster funding experienced by virtually every segment of the national economy, including homeowners, LGUs, government agencies in charge of disaster relief and reconstruction, as well as centrally and locally owned utilities. As funds for DRRM largely come from the national government, allocation from the national calamity fund reveals the gross inadequacy to meet the cost of damages incurred from disasters, let alone, provide funds for disaster preparedness and mitigation. Between 1994 and 2009, it was only in one year (1996) when the budgetary appropriation to the NCF was adequate to cover actual damages from calamities. The average coverage in this period amounted to only 26 percent of actual damages.
    

15. 
    As shown below in Table 3, the overall allocations from the National Calamity Fund, the Contingency Fund, subsidies to the Philippine Crop Insurance Corporation (PCIC), LGUs Calamity Funds, and the private sector donations were Php3 billion, covering only 17 percent of annual average losses and 4.5 percent of economic damages from the most considerable catastrophic event over the last 40 years. However, if the LGUs Calamity Funds could become fungible, then the amount of overall available disaster risk financing could be increased from about Php3 billion to Php13.54 billion. When combined with indemnities from the government and private insurers, this would in principle come close to the Php17 – 19 billion average annual economic loss sustained by the country from natural disasters.
    

**the left estimate is from ADB and the right is from C. Benson (2009)

16. 
    The Philippine Government is in the process of formulating a risk finance strategy to identify policy options and feasible instruments that can reduce its fiscal exposure. Examples of instruments under discussion include catastrophe bonds, contingency financing, homeowner insurance schemes, and the development of a local level catastrophe pool for high risk LGUs. This strategy is being informed by global experience among developing countries that face equal levels of vulnerability, such as Turkey, Mexico, Colombia, and Caribbean countries. A few options under consideration are presented in Annex 2.
    

17. 
    A funding window that provides incentives to LGUs to invest in pre-disaster activities is an essential complement to the proposed local catastrophe pool. Investments related to DRRM are considered public goods. As such, there is a need to encourage LGUs to improve preparedness and invest in priority mitigation and prevention measures by providing access to additional and affordable financing. The Philippine Government has initiated the implementation of funding support to LGUs, as in the case of the Disaster Management Assistance Fund managed by MDFO, which offers concessional funding opportunities for local DRRM investments. There is a need to expand these resources, in light of improved mandates under the new DRRM Act and to cover as well investments related to climate change. At the same time, technical assistance to determine eligibility criteria, to design these investments, and to build implementation capacity will be needed to ensure the sustainability of local efforts.
    

1. 
   Consolidation of local disaster contingency funds. The current system of disaster risk financing in the Philippines may benefit from consolidating the emergency budgets of almost 46,000 separate administrative entities into one disaster risk financing pool. An LGU-level catastrophe pool, which could be established by a domestic institution such as the League of Cities and Provinces, would allow for the fungibility of budgetary resources and would provide for a considerably more effective way of budgeting and paying for the impacts of natural disasters.
   

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