Sri Lanka’s budget proposals for 2018 explicitly identify that the changing weather patterns and the increased frequency and severity of natural disasters (droughts, floods and landslides) have posed a substantial challenge to the country’s economic performance in 2017. The cost of such disasters is calculated to be one percent of gross domestic product (GDP) in 2017. The 2018 budget proposals take a pioneering nature, as they pay due attention to enhancing climate resilience of the country through short, medium and long-term interventions.
The proposals mainly focus on increasing resilience in rural agricultural areas, mitigating urban floods and bolstering the technical and human resource capacities of the Meteorology Department. Among those, the proposal to design an index-based insurance scheme to enhance farmers’ resilience towards weather shocks is a commendable step.
Why is index-based insurance important?
A weather-indexed insurance scheme is proposed in the budget, as a partially subsidized insurance, with a premium contribution from the farmers. The crop insurance programmes provided by the government in the past have been indemnity-based by nature. It requires farm-level assessments of crop damages before making the payouts to the farmers. As such, there are many inefficiencies associated with indemnity-based insurance.
The need for an index-based insurance programme and its technical feasibility was assessed by an Institute of Policy Studies of Sri Lanka (IPS) study, with financial and technical support from the Global Development Network (GDN). The study findings, which were presented to major stakeholders in January 2017, mainly highlighted the necessity for improved data availability of the weather index – rainfall.
At present, the number of rain gauge stations in Sri Lanka is not adequate to carry out an index-based insurance programme. In the case of index-based insurance, the payouts to the farmers are calculated based on the rainfall levels. Therefore, the accuracy and the timely availability of rainfall data are a must for processing the payouts in an efficient manner. This also helps in maintaining the farmers’ trust.
One of the major obstacles to popularizing insurance among the vulnerable farmers is the lack of knowledge and understanding about crop insurance. Index-based insurance is a further novel concept for the majority of the farmer population in Sri Lanka – except in the case of a small number of farmers, who were targeted by the previous index-based insurance scheme, carried out by a private insurance company. Therefore, the proposed index-based insurance should certainly have a component to provide education and awareness programmes to all stakeholders involved, especially to the farmers.
Experience from other countries reveals that insurance should bring in tangible benefits to the farmers to ensure the viability and popularity of such insurance schemes. It is vital to consult the farmers to identify the specific needs that should be covered through the insurance scheme. Further, studies in other countries’ experience suggest that the insurance has to be integrated with other climate resilience programmes or developmental programmes. Close coordination with the agencies providing rainfall data is also much important in this regard.
The budget proposals for improving the technical and human resource capacities of the Meteorology Department are a significant step forward when it comes to achieving climate resilience. Improved climate information is an essential requirement for improved climate resilience of any country. It will undoubtedly help the successful implementation of the proposed index-based insurance, as the availability of data is likely to be enhanced, with the capacity development of the Meteorology Department. This will also boost the Met Department’s ability to provide climate and weather forecasts with improved accuracy to all users, including the vulnerable communities. Improved climate data are also vital in other development planning activities.
The IPS’ action research study, funded by the Think Tank Initiative (TTI) of the International Development Research Centre, which aims at overcoming the information and communication gaps in providing climate information to farmers, will make a useful contribution towards the budget proposal objectives.
This project aims at assessing the farmers’ climate information needs and bridging the existing information communication gap with the support of the Meteorology Department, thereby ensuring improved availability of climate information, including short to medium-term weather forecasts and seasonal climate outlooks.
The index-based insurance programmes in Sri Lanka will undoubtedly benefit through this initiative. The proposed budget also has allocations to scale up the existing climate resilience programme in the Kelani river basin, with the aim of mitigating urban floods, as well as extending such programmes to other important river basins.
In addition, under the Urban Rehabilitation Project (URP), a specific component is included for an integrated flood mitigation mechanism within the Colombo city limits and its suburbs. This is expected to extend to other important cities in the country in the future. Allocations are proposed to rehabilitate the roads, which were affected by floods and landslides.
There are several other budget proposals which can address issues such as water scarcity in Sri Lanka. Support to develop rural irrigation, drip irrigation and rainwater harvesting can help farmers find solutions for the increasing water scarcity in dry areas. The budget proposals also aim at continuing the initiative to desilt small and medium tanks in a systematic manner for rainwater harvesting.
It is commendable that climate resilience is given considerable attention in several budget proposals. However, climate resilience can only be achieved if the proposals are strategically translated into programmes and actions in a timely manner.
(Kanchana Wickramasinghe is a Research Economist at the Institute of Policy Studies of Sri Lanka (IPS). To share your comments with the author, please write to firstname.lastname@example.org. For more articles, visit our blog http://www.ips.lk/talkingeconomics/)