Working Paper Series: Special Edition of 2016 to 2018 Interns

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Contingency & Resilience Fund Governments are responsible for much of the major services and infrastructure upon which the population, and by extension, the economy of the country depend. To ensure that damage incurred during events can be quickly repaired, disaster financing should be arranged before a natural event strikes, through a combination of contingency 59 and resilience funds. In the ECCU, three countries have announced contingent financing plans, namely: Grenada, Saint Lucia, and St Vincent and the Grenadines. Grenada’s contingency fund has been established and is being financed by receipts from the Citizenship by Investment Programme. The IMF recommended that Saint Lucia establish a contingency fund, which would require immediate capitalization of US$5.0-7.0m and in the medium term create a savings fund with capitalization of 5.0 per cent of GDP. In the case of St Vincent and the Grenadines, a 1.0 per cent levy on consumption, hotel accommodation and other tourist related activities 60 is likely to be used to capitalise the contingency fund. In addition, a proposition has been made by the Eastern Caribbean Central Bank (ECCB) for the establishment of a regional growth and resilience fund. With the expected increase in natural disasters, there is an urgent need for these contingency funds to be operationalized. Low Insurance Penetration As mentioned above, the average insurance penetration rate for the four ECCU countries is very low at 0.0024 per cent, which implies that approximately zero percent of the region’s GDP includes premiums paid to the insurance sector. This low level of insurance penetration is partly due to the lack of economies of scale in the region which contributes to the high and volatile cost of insurance. These issues are particularly burdensome in these countries, as they are exceedingly prone to natural disasters. The low level in the ECCU is a reflection that majority of Eastern Caribbean nationals and their properties are not protected against risks. This implies that in the event of a disaster, they are exposed to major losses with no form of compensation. Apart from the high numbers of casualties, property losses after a

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59 A contingency fund is a reserve of money set aside to cover possible unexpected future expenses. 60 The standard rate of Value-Added-Tax increased from 15 per cent to 16 per cent and the rate for accommodation and other tourism related activities from 10 per cent to 11 per cent

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