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The Indonesian flag. Image © istock

The World Bank said such shocks “have become a constant threat to Indonesia’s development progress”, with the central government spending between $90m and $500m annually on disaster response and recovery, and local government spending a further $250m over the same period.

Climate risks are expected to increase in the coming years, and urban growth makes health crises more likely too, the bank said.

The World Bank said the need to improve Indonesia’s response is particularly acute now, due to the many harmful impacts Covid-19 is having on the country and its economy.

“Financial preparedness for disasters, climate shocks and health crises such as Covid-19 is increasingly important for Indonesia,” said Sri Mulyani Indrawati, the country’s finance minister.

“This [loan from the World Bank] will help the government deliver a more targeted and timely response, reducing the impact of disasters and helping to protect Indonesia’s development progress.”

The loan,  approved on Thursday, will support the government in creating a pooling fund for disasters, which will become the main way post-disaster financing can flow from different sources, similar to funds run by governments in Mexico and the Caribbean.

By reducing the impact of disasters on public finances, the World Bank hopes the project will help protect services and support for the poor and vulnerable, who often bear the brunt of disasters.

“The improved availability and flow of funds will ultimately support the population of Indonesia, who will benefit from faster and better-targeted response to disaster and health shocks,” said Satu Kahkonen, World Bank country director for Indonesia.