Bangladesh’s vulnerability to natural disasters continues to pose significant economic challenges, with floods and tropical cyclones wreaking havoc on infrastructure, industries, and livelihoods. Between 2000 and 2023, disasters affected approximately 130 million people, inflicting an estimated US$13.6 billion in damages, hindering poverty reduction efforts and sustainable development. As climate change intensifies, experts warn that extreme weather events will become more frequent and severe, necessitating stronger financial preparedness.
The financial burden of disaster response in Bangladesh is substantial. Estimates suggest that a disaster occurring every two years would require around US$4.7 billion, equivalent to 1 percent of the country’s annual Gross Domestic Product (GDP).
This figure includes US$1.2 billion for immediate relief efforts and US$3.5 billion for rehabilitation and reconstruction. More severe disasters, such as those expected once in 50 years, would demand an estimated US$20 billion, or 4 percent of GDP, placing a significant strain on the national economy. Historical events, including the 2004 floods and the 2007 Cyclone Sidr, serve as stark reminders of the economic devastation disasters can bring.
Despite the government’s existing fiscal mechanisms, social protection initiatives, and financial instruments aimed at disaster response, a substantial financing gap remains for moderate to severe disasters. Currently, Bangladesh can mobilise approximately US$1.5 billion for immediate relief and early recovery. However, for more significant disasters occurring every five years, the short-term financing gap stands at US$0.9 billion, while reconstruction needs face a shortfall of US$4 billion. In the case of catastrophic events occurring once every 50 years, the gap widens dramatically, with a short-term deficit of US$3.5 billion and a reconstruction shortfall of US$11.8 billion.
To address these financial shortcomings, experts recommend strengthening Bangladesh’s fiscal policies and disaster risk financing strategies. Enhancing fiscal buffers would help bridge gaps in moderate disaster response, while contingent credit lines could provide additional support for severe disasters. The introduction of disaster insurance for public assets and critical infrastructure is also being considered to mitigate fiscal risks. Additionally, incorporating disaster risk financing into the country’s medium-term budget framework could offer long-term financial stability.
A crucial component of disaster resilience lies in Bangladesh’s social protection system. While the government allocates 2.7 percent of GDP to social assistance, only 3.4 percent of this budget is directed towards relief programs. Expanding social safety nets, improving targeting mechanisms, and digitising cash transfers could enhance efficiency and responsiveness during crises. Establishing a harmonised beneficiary database based on multi-hazard vulnerability mapping would further streamline relief efforts.
Bangladesh’s financial sector also plays a pivotal role in disaster risk management. The central bank has taken steps to promote financial inclusion and risk management, including the establishment of climate risk funds and credit guarantee schemes. However, challenges persist in the insurance sector, where limited penetration hinders financial resilience. Efforts to introduce compulsory insurance for high-rise buildings and pilot index-based agricultural insurance schemes are ongoing. Moving forward, expanding disaster-related insurance and enhancing post-disaster credit access for vulnerable populations will be key priorities.
The country’s legal and institutional framework for disaster risk financing provides a strong foundation, as outlined in the 2019 Standing Order on Disasters. However, experts suggest integrating the national disaster risk financing strategy into Bangladesh’s broader development plans. Establishing a comprehensive implementation and evaluation framework with periodic reviews could further strengthen the country’s preparedness and financial resilience against future disasters.
As Bangladesh continues to confront climate-related challenges, enhancing its disaster risk financing mechanisms will be critical in safeguarding economic stability and ensuring long-term development.
