Contingent liabilities: the financial obligations that come after a disaster

When a disaster occurs, a country's financial obligations are triggered to repair the damage that has occurred. These obligations are called contingent liabilities. To understand more about the concept, read this interview with Roberto Ramirez, Vice Minister of Finance of Honduras.

How would you explain what a contingent liability is?

Well, in simple terms we could talk about an event that cannot be predicted to occur and that can generate an expense in the future, but we don't know when it will occur or if it will actually happen.

And why is this contingent liability management important for Honduras?

Well, at the country level, especially in Honduras, which is a country totally vulnerable to natural disasters, we have to measure year by year the contingent liabilities that may exist, both for maintenance, repair or even replacement of infrastructure at the national level.

This occurs in all the road sectors, education, health, even the agricultural sector and other sectors that are very important in the country's economy. Keeping control of these allows us to have a much more adequate financial management.

This means that, as a State, as a Government, I can prevent the occurrence of an event where I have to intervene, for example, a road or a bridge that falls down, and I can already have the funds available to be able to replace the bridge that fell down in the best, most efficient and quickest way.

And now, speaking of insurance funds, which is another tool that allows us to adequately manage disaster risk, what are the benefits for a country of being part of CCRIF, the Multi-Donor Fund for disaster risk management in Central America and the Caribbean?

Yes, well, apart from all the training and all the capacity building within public entities, not only in the Ministry of Finance but also in other entities related to risk management, it also allows us to design a macroeconomic model, especially in the fiscal area, much more reliable and much more stable and resilient.

This means that a natural disaster event can occur, and the CCRIF helps us and cooperates with us in providing assistance and financial replacement in the event of such an event.