## Fiscal Risks and Fiscal Management

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### Context and exposure to natural hazards
- Presentation by Ken Kashiwase, IMF, Regional Office for Asia and the Pacific, February 2, 2017, Tokyo.
- Hazard risk is expected to increase with climate change (Source: Hirabayashi et al (2013)).
- The occurrence of flood and storm has been more frequent and on the rise in Asia (Source: D. Guha-Sapir, R. Below, Ph. Hoyois - EM-DAT: International Disaster Database – www.emdat.be – Université Catholique de Louvain–Brussels–Belgium).

### Evidence on disaster frequency and regional patterns
- Flood and Storm: By Region (Number of times of occurrence) — Asia shows increasing frequency across decades (1960s,1970s,1980s,1990s,2000s) with regional comparisons including Sub-Sahara Africa, N. Africa, Asia, PICs, L.A. and the Caribbean, N. America, Europe.
- All Types: By Region (Number of times of occurrence) — Asia shows the largest counts in recent decades relative to other regions.

### Economic loss from natural disasters
- Average (Percent of GDP) by region and decade (as presented):
  - East Asia & Pacific: 0.30.52.83.10.5
  - Europe & Central Asia: 0.30.30.40.60.5
  - Latin America & Caribbean: 4.55.54.33.92.9
  - Middle East & North Africa: 1.20.21.51.00.7
  - North America: 0.10.10.20.10.2
  - South Asia: 0.41.21.11.01.3
  - Sub-Saharan Africa: 3.12.53.00.80.8
  - Total: 2.12.02.42.01.0
- Max (Percent of GDP) by region (as presented):
  - East Asia & Pacific: 2.07.1139.9221.330.7
  - Europe & Central Asia: 2.72.14.217.616.3
  - Latin America & Caribbean: 200.2100.866.0109.6148.4
  - Middle East & North Africa: 7.80.812.37.59.3
  - North America: 0.21.43.90.57.2
  - South Asia: 2.810.512.612.339.1
  - Sub-Saharan Africa: 17.614.820.612.28.4
  - Total: 200.2100.8139.9221.3148.4
- Source for frequency and loss data: D. Guha-Sapir, R. Below, Ph. Hoyois - EM-DAT: International Disaster Database – www.emdat.be – Université Catholique de Louvain–Brussels–Belgium.

### Macroeconomic consequences of disasters
- Greater exposure to disasters has important macroeconomic effects:
  - Lower investment
  - Lower GDP per capita
  - Higher poverty
  - More volatile revenue base
- Due to these consequences, risk mitigation efforts are important.

### Question 1 — What should authorities do about fiscal risks from natural disasters?
- Emphasize risk reduction and preparedness in addition to better disaster response.
- Specific measures listed:
  - Directly reducing exposure in high-risk areas (introducing tax premia in high-risk areas to discourage concentration of activity in those areas).
  - Specifying building codes to strengthen infrastructure.
  - Transferring risks to international capital markets through traditional insurance (catastrophe bonds which forgive interest and principal in the event of specified catastrophes; mandating private insurance).
  - Government to set aside a contingency provision in the annual budget (establish natural disaster funds).

### Question 2 — What can development partners (including the IMF) do?
- Capacity building support from development partners remains critical. Recommended actions:
  - Fund analysis to make specific allowance of natural disaster risks (eg. the macro framework, debt sustainability analysis, and external imbalances).
  - Develop macro baselines over the medium- to long-term to factor in the economic impact of future natural disasters.
  - Provide advice on policy implications of adverse scenarios which calibrate to reflect a “tail risk” and/or “average risk” of natural disaster. Evaluating the adequacy of fiscal and external buffers is critical.
  - Assess financial risks and reserve adequacy.

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_Source: https://www.imf.org/-/media/files/news/seminars/1a_discussant_kashiwase.pdf_