Potential liability that may occur in the future depending on the disaster-related outcome of a hazard impact. In disaster risk evaluations, contingent liability refers to future projected damage and loss that must be paid for by the government, individuals, private sector, or others.
1. Liability can arise from the need for response, reconstruction and recovery funding, insurance contracts, social assistance needs, and international agreements for compensation.
2. The presence and adequate accounting of contingent liabilities can often be an incentive and justification for others to reduce, avoid or transfer the risk.
3. Estimation of contingent liabilities is critical to understanding the resources the government may require from public finances or other sources in the event of a disaster.
Contingent liabilities from disasters in Sri Lanka
The Democratic Socialist Republic of Sri Lanka faces a range of natural hazards, including droughts, floods, landslides, cyclones, and coastal erosion. From 2012 to 2016, the Sri Lankan government's expenditure on contingent liabilities following disasters increased by 49 percent, while total government spending remained stable. The government uses a portion of its expenditure to fund relief, recovery, and rehabilitation activities after a disaster. In 2017, the estimated post-disaster liability was approximately 1 percent of total government expenditure, about US$149 million. Contingent liabilities can be a legal obligation or a social expectation wherein the government acts as insurer of last resort. In 2017, following drought and flood events, 25 percent of Sri Lanka's post-disaster expenditure was addressed as contingent liabilities. The Government of Sri Lanka (GoSL's) post-disaster liabilities can be categorized into seven areas, including relief payments, resettlement, response efforts, economic recovery support, rehabilitation, disaster-linked insurance schemes, and transfers to Ceylon Electricity Board.
Source: World Bank Group - Disaster Risk Financing and Insurance Program. (2020). Contingent Liabilities from Natural Disasters: Sri Lanka (Rep.). GFDRR. Retrieved on December 20, 2022.