House Passes Legislation to Establish National Natural Disaster Reserve Fund

Legislation to establish a National Natural Disaster Reserve Fund (NNDRF) was passed in the House of Representatives on Tuesday (June 4).

The Bill, the Financial Administration and Audit (Amendment) (No. 3) Act, 2023, was piloted by Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke.

He said the Bill, amongst other things, identifies the sources of funding for the NNDRF and the conditions under which withdrawals may be made from it.

“The establishment of the NNDRF seeks to buttress and strengthen the Government’s disaster risk management framework, given the vulnerabilities that Jamaica faces,” the Minister said.

Dr. Clarke stated that small island Caribbean states such as Jamaica are especially vulnerable to natural disasters, adding that even without the direct hit of a hurricane, the fiscal impact can exceed two per cent of gross domestic product (GDP).

He noted that the financial management of such disaster risks is a priority of the Government, especially as Jamaica faces the increased prospect of more frequent and intense natural disasters.

“Notwithstanding the reference to natural disasters in the name of the Fund, the Government is… concerned with non-natural disasters as well. So, disasters, such as a severe economic contraction, is contemplated by the amendments to the Bill,” Dr. Clarke indicated.

He said the NNDRF’s fiscal resources are intended to treat with disasters that severely affect the economy and lead to a fiscal impact of 1.5 per cent or more of GDP, whether through revenue loss, increased expenditure or both.

“It is important to note that the NNDRF is not meant to replace or displace the role of the National Disaster Fund, established under the Disaster Risk Management Act, which has an entirely different purpose, which is mitigation preparedness, rapid early response and recovery,” Dr. Clarke informed.

He explained that the NNDRF is a financial risk management tool that forms part of Jamaica’s multi-layered suite of instruments to provide fiscal resources that enable the Government to respond to the major impact of disasters or to the impact of major disasters.

“It is for these reasons that the provisions established in the NNDRF are linked to section 48c, Subsection Two of the Financial Administration and Audit Act, as it is this section that allows for the suspension of the fiscal rules under certain circumstances,” Dr. Clarke outlined.

“So, the construct of the Section is that, if there is a natural disaster or economic contraction that is projected to have or has had a fiscal impact that exceeds one and a half per cent of GDP, the fiscal rules are suspended and the Government of the day also has access to the NNDRF,” he added.

The Minister pointed out that currently, the fiscal rules are suspended and the Government must fend on its own.

“What we hope to have is a stabilisation mechanism, a counter-cyclical buffer to which the Government of the day can turn in the event of such natural or non-natural disaster,” Dr. Clarke said.

The Minister further explained that the Bill defines ‘disaster’ as any occurrence set out in Section 48c (2) of the Financial Administration and Audit Act.

This includes public disasters, circumstances of severe economic crisis and periods of public emergency, among others.

“These are the circumstances that allow for the suspension of the fiscal rules, and this Bill is an important step in enhancing the fiscal buffers of the country. One of the central economic lessons from our history is that we have to always be creating, maintaining, and improving and increasing fiscal buffers that allow us to endure and recover from economic shocks,” Dr. Clarke said.