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With 60 percent of its population living in coastal areas and directly exposed to flooding and cyclone risk, the Government of Mozambique has prioritized disaster preparation and response since 1999, when it adopted its first disaster risk management resolution. Even though the country’s disaster risk management framework has been steadily strengthened in the ensuing years, mobilizing sufficient finance for disaster response has proved to be a continuing challenge. A 2017 World Bank diagnostic found that between 2013 and 2014, the country still had a financial shortfall for post-disaster reconstruction equivalent to 70 percent of its losses and damage. To support the government in increasing pre-arranged finance for disaster response, the World Bank approved a project with US$90 million in International Development Association (IDA) financing in 2018. This helped operationalize and capitalize Mozambique’s National Disaster Management Fund, supported the development of the country’s first Disaster Risk Finance (DRF) strategy, and also supported the development, financing, and placement of sovereign catastrophe insurance against tropical cyclone risk.

Using disaster risk financing to reduce emergency funding shortfalls

A Global Risk Financing Facility (GRiF, from which the Global Shield Financing Facility evolved) grant provided Mozambique with financing and expertise to place a new sovereign risk transfer product. The project team leveraged the nascent local insurance market and brought in international reinsurers to facilitate the country’s access to greater financial capacity. The grant covered the cost of developing a bespoke risk model underlying the insurance product as well as three years’ worth of insurance premiums. The World Bank team is also working with government counterparts to enhance overall public financial management of disaster response spending, so as to ensure the country benefits optimally from its new financial instruments. 

An immediate payoff and a blueprint for the future

Mozambique hired a consortium led by a local broker to structure the final sovereign risk insurance product (which protects against tropical cyclone wind and excess rainfall) and to place it with markets in time for the 2022–2023 season. The insurance paid out in its first season: Tropical Cyclone Freddy hit the country in February 2023 and again in March 2023, affecting more than 1.1 million people.

A ~US$1 million payout to Mozambique’s disaster fund helped replenish the fund’s capital, which was used to alleviate the impact on people who lost their homes or faced exposure to water-borne diseases such as cholera. Mozambique and the World Bank team will work together to renew the country’s insurance coverage for the upcoming season and will evaluate and recalibrate the risk model and insurance product, if needed.

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*The Global Risk Financing Facility's portfolio and programs have been transferred unto the Global Shield Financing Facility for continuation, in addition to new programing to be developed under the Global Shield initiative.