Fiscal Resilience to Natural Disasters: Lessons from Country Experiences
Natural disasters cause widespread damage and losses and fast growing economies are particularly exposed. Rapid and unplanned economic development increase vulnerability and exposure to natural disasters, while climate change could exacerbate the intensity and frequency of major meteorological disasters.
Governments shoulder a significant share of the costs of disasters. This is true in OECD economies and even more so in developing economies, where private insurance markets are not as well developed.
The fiscal impact of disasters on a government’s budget can be sizeable. Major disasters, or a number of smaller events in a short timeframe, can result in significant government expenditure with potentially negative impacts on revenues. This can cause deviations from previously forecast fiscal outcomes leading (for example) to an increase in public debt. Depending on the level of these impacts, this can create a fiscal risk to government finances.
Expenditures for governments arise from both explicit and implicit commitments to compensate for disaster losses. Explicit commitments (or explicit contingent liabilities) are payment obligations based on contracts, laws, or clear policies. Implicit contingent liabilities, by contrast, are expenditures governments make in response to a disaster due to moral expectations, political pressure or in an attempt to speed up recovery. Implicit contingent liabilities are harder to identify and quantify, and hence harder to manage.
This report presents the results of a study that compares governments’ practices in the management of the financial implications of disasters for a set of OECD member and partner economies.
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