The Philippines has built one of Southeast Asia’s most sophisticated financial frameworks for managing natural catastrophes, yet the system remains hampered by fragmented fiscal structures and a reliance on reactive spending rather than prevention, according to the Organization for Economic Cooperation and Development (OECD).

In its report titled “Economic Outlook for Southeast Asia, China and India 2025,” released Dec. 24, the OECD recognized the Philippines as a regional leader in disaster risk financing.

The Paris-based organization noted that Manila utilizes a multi-layered strategy that integrates national contingency funds, World Bank catastrophe-deferred drawdown options, and international risk pools.

A notable success cited was the 2019 sovereign catastrophe bond, which triggered a payout of ₱2.9 billion ($52.5 million) following the devastation of Typhoon Rai, known locally as Odette.

Despite these institutional strengths, the Philippines continues to grapple with significant protection gaps.

The OECD pointed out that while the nation is ranked as the most disaster-vulnerable out of 193 countries—a vulnerability underscored by the catastrophic impact of Typhoon Yolanda in 2013—insurance penetration among the general population remains low.

While some domestic insurers have developed parametric products tied to specific weather triggers, these market-based solutions have yet to achieve wide-scale implementation.

The report highlighted a persistent imbalance in how disaster funds are deployed at the subnational level.

Under current laws, the National and Local Disaster Risk Reduction and Management Funds require local government units to earmark five percent of their annual budgets for resilience. However, the OECD found that these resources are overwhelmingly exhausted by emergency response and post-disaster rehabilitation.

This “reactive” cycle often comes at the expense of long-term risk prevention and mitigation projects.

Technical expertise also remains uneven across the country's provinces. Capacity constraints and competing local political priorities frequently stall investments in “ex-ante” measures—investments made before a disaster strikes to lessen its eventual impact.

To address this, the OECD recommended that the Philippine government better integrate disaster risk financing into the primary national budgeting system and leverage green finance to bolster infrastructure.

The organization concluded that while recent reforms have improved inter-agency coordination and technical support for local leaders, the next phase of development must focus on monitoring preventive spending.

By connecting local financing more tightly to national planning frameworks, the Philippines can transition from a system that survives disasters to one that actively reduces their fiscal and human toll.