## pp051517-large-natural-disasters

## Source details

**Canonical URL:** [pp051517-large-natural-disasters](https://www.imf.org/-/media/files/publications/pp/pp051517-large-natural-disasters.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/pp/pp051517-large-natural-disasters.pdf.md)
- [Structured JSON version](/-/media/files/publications/pp/pp051517-large-natural-disasters.pdf.json)

---

### Executive summary — Overview and proposal
- The Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) provide urgent balance of payments financing and are designed to play a catalytic role in mobilizing other external financing for Fund members, especially developing countries.
- Proposal: establish a large natural disaster window within the RCF and RFI with higher annual access limits of 60 percent of quota for countries facing urgent balance of payments needs arising from natural disasters that meet a specified disaster damage threshold.
- Directors generally supported raising annual access limits to 60 percent of quota under the RCF and RFI for qualifying disaster-affected countries, consistent with a November 2016 staff paper on small states’ resilience.

### Proposed higher annual access and qualification threshold
- Proposal details:
  - Increase annual access limits under the RCF exogenous shocks window and under the RFI to 60 percent of quota where a natural disaster occasions damage assessed to be equivalent to or to exceed 20 percent of GDP, and the member’s existing and prospective policies are sufficiently strong to address the natural disaster shock.
- Threshold considerations:
  - November 2016 staff proposed 30 percent of GDP; most Directors regarded 30 percent of GDP as overly restrictive and suggested lowering the threshold to 20 percent of GDP or lower, provided PRGT self-sustainability is not jeopardized.
  - For a range of future disaster outcomes, a damage threshold of 20 percent of GDP could increase projected annual average PRGT loan demand in the 1-5 percent range over the next decade.
  - Cautious stewardship of PRGT resources argues against setting a threshold lower than 20 percent of GDP pending further experience.

### Role and design of the disaster damage threshold
- Functions of the threshold:
  - Help preserve the Fund’s lending capacity given that natural disaster-related financing needs are typically large relative to Fund quotas.
  - Ensure higher access is available only for countries facing a large urgent balance of payments need arising from a qualifying natural disaster.
  - Discourage facilities shopping by complementing existing safeguards (e.g., RCF repeat-use limits, requirement that a UCT-quality program not be feasible or appropriate).
- Design considerations:
  - Parametric measures (e.g., wind-speed, Richter intensity, cumulative rainfall) are often readily available but would require complex, disaster-specific thresholds and may be weakly related to actual damages because of basis risk.
  - Population-impacted metrics capture human impact but may not correspond to balance of payments needs.
  - Economic cost of disasters scaled to GDP is a standardized indicator and is more closely related to urgent balance of payments needs, although it tends to trigger more readily for small countries than larger ones.
- Qualification also requires that the member’s existing and prospective policies are sufficiently strong, consistent with current RCF exogenous shocks window requirements.

### Cumulative access limits and safeguards
- No changes proposed to current cumulative access limits for the RCF and RFI (currently 75 percent of quota for both).
- Rationale:
  - Cumulative access limits are important to constrain access without implementing a Fund-supported program with upper credit tranche (UCT) conditionality.
  - Any consideration of changes to cumulative access limits is deferred to the comprehensive review of LIC facilities scheduled for 2018.
- Selected existing RCF and RFI terms:
  - RCF:
    - Available to PRGT-eligible members with urgent BOP needs; qualification requires that a UCT-quality program not be feasible or appropriate.
    - Repeat use within a three-year period is limited except where (i) the BOP need is caused primarily by a sudden exogenous shock or (ii) the country has established a track record of adequate macroeconomic policies for about 6 months prior to the request.
    - No more than two disbursements may be made in any 12-month period.
    - Standard annual access up to 18.75 percent of quota; shocks window augmented annual access up to 37.5 percent of quota. Cumulative access limit of 75 percent of quota applies.
  - RFI:
    - Available to all members with urgent BOP needs; annual access limit 37.5 percent of quota and cumulative limit 75 percent of quota. Access under the RFI counts against RCF limits.
- Higher access through the large natural disaster window would be available only where other qualification criteria for the RCF/RFI are met.

### Factors influencing RCF/RFI impact on PRGT and GRA demand
- Frequency and size of future disasters:
  - Demand depends on the number of disasters that meet the damage threshold and observance of qualification requirements.
  - Historically, small disasters are more frequent than large ones (damage relative to GDP).
  - A lower damage threshold would accommodate more requests and increase likely financing demand.
  - Allowance should be made for the possibility that disasters become more frequent and damaging than in the past, including due to climate change.
- Balance of payments need and access limits:
  - Estimates assume that, where the damage threshold is met, urgent BOP needs will result in financing requests equivalent to maximum annual access under the RCF and/or RFI—an approach that likely overstates potential financing demand and contributes a safety margin.
  - Financing needs may shift to other facilities (e.g., a UCT-quality program) in some instances.
- Countries affected and blending:
  - Demand depends on which countries are impacted; country size is related to Fund quota.
  - Projections assume the distribution of disasters by country size is comparable to 2000-16.
  - For PRGT-eligible countries presumed to blend, one-third of access is assumed to come from the PRGT (see notes to table).

### Projected additional loan demand by damage-threshold scenarios (PRGT and GRA)
- PRGT additional loan demand (annual projections referenced to Table 4):
  - For a damage threshold of 30 percent of GDP: projected additional PRGT loan demand in the annual range of SDR 11-27 million.
  - For a damage threshold of 20 percent of GDP: projected additional PRGT loan demand in the annual range of SDR 16-41 million.
  - For a damage threshold of 10 percent of GDP: projected additional PRGT loan demand in the annual range of SDR 23-59 million.
- Risk of severe disasters in largest PRGT-eligible countries:
  - Severe disaster damages (>20 percent of GDP) occurred during 2000-2016 for just 10 PRGT-eligible countries; Haiti had the largest access to PRGT resources based on existing quotas and blending rules.
  - A single severe natural disaster in a larger PRGT-eligible country could multiply the loan demand estimates; example: additional PRGT loan demand of SDR 140-240 million for a severe disaster in the Democratic Republic of Congo, Ghana, Sudan, or Zimbabwe.
  - EM-DAT data for 1968-2016 show the largest disaster damages in these countries in the range 0.1-2.6 percent of GDP (DRC 0.1 percent of GDP, January 2002; Sudan 1.0 percent of GDP, July 2003; Zimbabwe 2.4 percent of GDP, February 2003; Ghana 2.6 percent of GDP, July 1968).
- Additional GRA financing demand:
  - Projected to be small. For a damage threshold of 20 percent of GDP, additional GRA demand is calculated at SDR 4-11 million.
  - Additional GRA demand is modest relative to PRGT demand because the RFI has been used much less actively than the RCF.

### PRGT self-sustainability and projected impact on lending capacity
- PRGT self-sustaining strategy pillars (approved September 2012):
  - (i) base average annual lending capacity of about SDR 1¼ billion;
  - (ii) contingent measures which can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period;
  - (iii) expectation that future modifications to LIC facilities be designed to maintain self-sustainability.
- Projected impact of a 20 percent damage threshold:
  - For disaster outcomes in line with recent historical experience, additional lending implied by the proposal could increase annual demand for PRGT resources by 1-2 percent relative to current demand projections over the next decade.
  - In the event of a significant rise in both disaster frequency and magnitude, the estimated demand impact rises to 4-5 percent of currently-projected loan demand.
  - These projections imply additional average annual subsidy requirements of about SDR 2-6 million over the next decade.
  - The proposal’s relatively modest projected impact would leave the PRGT’s self-sustained lending capacity target of SDR 1¼ billion intact.
- Monitoring and vigilance:
  - Future loan demand requires close monitoring to ensure prompt activation of the three-pillar strategy if needed.

### Quantitative projections (selected excerpts)
- Projected Additional PRGT Loan Demand, 2018–2027 — Baseline with damage threshold of 20 percent of GDP (percentage increase in PRGT demand):
  - Initial impact 2018-2027 1/: 15.9 18 21 24
  - Corresponding percentage increases: 2% 2% 1%
- Alternative scenario: more frequent and larger disasters (percentage increase in PRGT demand):
  - 40.6 45 48 58
  - Corresponding percentage increases: 5% 4% 4%
- Memo Item: PRGT baseline demand projection (2018-2027 average):
  - 885 1,244 1,603
- Notes:
  - 1/ Annual average additional PRGT loan demand taking into account projected loan demand growth over 2018-2027. The projections reflect the 50 percent increase in norms and limits approved in 2015, and for PRGT-eligible countries presumed to blend, one-third of access is assumed to come from the PRGT.
  - 2/ The baseline and alternative scenarios correspond to the baseline and Scenario 2 in Table 4 with a disaster damage threshold of 20 percent of GDP. The projections reflect additional PRGT loan demand for RCF requests and ECF augmentations.
  - 3/ PRGT baseline demand projections is based on Update on the Financing of the Fund's Concessional Assistance and Debt Relief to Low-Income Member Countries, see (IMF, 2017).

### Annex I — Measuring natural disaster damages: qualification and methodology
- Qualification threshold: natural disaster damage of at least 20 percent of GDP for higher access under RCF and RFI.
- Disaster damage definition:
  - (a) destruction of physical assets due to a natural disaster, and
  - (b) projected ongoing economic losses during the period of recovery (foregone economic production and incomes).
- Projected losses are based on gap analysis relative to pre-disaster potential growth; the projected period of foregone production and incomes may last several years until full recovery.
- Information sources and assessment tools:
  - Fund staff will draw on World Bank and other organizations’ assessments.
  - Established methodologies include ECLAC methodology (DaLA), sector methodologies from specialized UN agencies (FAO, UN Habitat), and the PDNA tool (World Bank, EU, UNDG).
  - PDNA reports are normally available within 3 to 6 weeks once approved by the government; Rapid Damage and Impact Assessments (RDIA) can be produced within one to two weeks but are subject to revision.
  - The World Bank is preparing a methodology note on RDIA to be available early 2018.
- Use of assessments and staff responsibilities:
  - Fund staff should explore whether a damage assessment is being prepared and encourage authorities to initiate assessments under established frameworks where necessary.
  - If no assessment is being prepared, Fund staff could take the lead in developing best estimates and, where possible, work with partners to validate estimates.
  - Fund staff would highlight key aspects and document estimated damage and ongoing economic losses in support of higher annual access requests.
- Selected historical examples of damage estimates and assessment types:
  - Haiti, Hurricane Matthew, Oct. 2016: 23 (% of GDP) — RDIA
  - Nepal, Earthquake, Apr. 2015: 33 (% of GDP) — PDNA
  - Dominica, Tropical Storm Erika, Aug. 2015: 96 (% of GDP) — RDIA
  - Vanuatu, Cyclone Pam, Mar. 2015: 60 (% of GDP) — PDNA
  - Sierra Leone, Ebola, 2014-2015: 22 (% of GDP) — JPAR
  - Samoa, Cyclone Evan, Dec. 2012: 30 (% of GDP) — PDNA
  - Haiti, Earthquake, Jan. 2010: 121 (% of GDP) — PDNA
  - Dominica, Hurricane Dean, Aug. 2007: 20 (% of GDP) — ECLAC

### Proposed amendments and decisions (summary)
- Decision I — Amendments to the Rapid Credit Facility:
  - Modify Section II, paragraph 2(b) to set:
    - Standard annual access subject to 18.75 percent of quota and cumulative limit of 75 percent of quota, net of scheduled repayments;
    - Annual and cumulative access limits of 37.5 percent of quota and 75 percent of quota, respectively, where assistance addresses an urgent BOP need resulting primarily from a sudden and exogenous shock and the member's existing and prospective policies are sufficiently strong;
    - Annual and cumulative access limits of 60 percent of quota and 75 percent of quota, respectively, where assistance addresses an urgent BOP need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of GDP and the member’s existing and prospective policies are sufficiently strong.
  - Outstanding credit under rapid-access ESF or RFI purchases under emergency post conflict/natural disaster assistance shall count towards annual and cumulative limits applicable to RCF.
  - With effect from July 1, 2015, any purchases from the GRA under the RFI shall count towards the annual and cumulative limits applicable to the RCF.
- Decision II — Amendments to the Rapid Financing Instrument:
  - Amend Paragraph 5 of the RFI Decision to:
    - Make assistance available in the form of outright purchases.
    - Subject access to an annual limit of 37.5 percent of quota and a cumulative limit of 75 percent of quota, net of scheduled repurchases, provided that the annual access limit shall be 60 percent of quota where the member requests assistance under the RFI to address an urgent BOP need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of GDP, and the member's existing and prospective policies are sufficiently strong.

*International Monetary Fund — pp051517-large-natural-disasters (selected sections).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Overview
- The Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) provide urgent balance of payments financing and are designed to play a catalytic role in mobilizing other external financing for Fund members, especially developing countries.
- This paper develops proposals to establish a large natural disaster window within the RCF and RFI with higher annual access limits for countries experiencing urgent balance of payments needs arising from severe natural disasters.
- Directors generally supported raising annual access limits to 60 percent of quota under the RCF and RFI for qualifying disaster-affected countries, consistent with a November 2016 staff paper on small states’ resilience.

### Proposed higher annual access and qualification threshold
- Proposal: increase annual access limits under the RCF exogenous shocks window and under the RFI to 60 percent of quota for countries facing urgent balance of payments needs arising from natural disasters that meet a specified disaster damage threshold.
- The focus of this paper is to specify the disaster damage threshold that would qualify a member for the higher annual access.
- In the November 2016 paper staff proposed a threshold of 30 percent of GDP. Most Directors regarded 30 percent of GDP as overly restrictive and suggested lowering the threshold to 20 percent of GDP or lower, provided PRGT self-sustainability is not jeopardized.
- For a range of future disaster outcomes, a damage threshold of 20 percent of GDP could increase projected annual average PRGT loan demand in the 1-5 percent range over the next decade.
- Cautious stewardship of PRGT resources argues against setting a threshold lower than 20 percent of GDP pending further experience with disaster trends and associated PRGT loan demand.

### Role and design of the disaster damage threshold
- Functions of the threshold:
  - Help preserve the Fund’s lending capacity given that natural disaster-related financing needs are typically large relative to Fund quotas.
  - Ensure higher access is available only for countries facing a large urgent balance of payments need arising from a qualifying natural disaster.
  - Discourage facilities shopping by complementing existing safeguards (e.g., RCF repeat-use limits, requirement that a UCT-quality program not be feasible or appropriate).
- Design considerations:
  - Parametric measures (e.g., wind-speed, Richter intensity, cumulative rainfall) are often readily available but would require complex, disaster-specific thresholds and may be weakly related to actual damages because of basis risk.
  - Population-impacted metrics capture human impact but may not correspond to balance of payments needs.
  - Economic cost of disasters scaled to GDP is a standardized indicator and is more closely related to urgent balance of payments needs, although it tends to trigger more readily for small countries than larger ones.
- Operational considerations in estimating natural disaster damages are discussed in Annex 1 (not reproduced here).
- Qualification requires that the member’s existing and prospective policies are sufficiently strong to address the natural disaster shock, consistent with current RCF exogenous shocks window requirements.

### Cumulative access limits
- The paper does not propose changes to current cumulative access limits for the RCF and RFI.
- Rationale:
  - Cumulative access limits (currently 75 percent of quota for both the RCF and RFI) are important to constrain access to Fund resources without implementing a Fund-supported program with upper credit tranche (UCT) conditionality.
  - Given their role in the Fund’s financing architecture, consideration of any change to cumulative access limits is deferred to the comprehensive review of LIC facilities scheduled for 2018.
- Table 1 (not reproduced here) presents overall access limits in the PRGT (and under the RFI) incorporating proposed modifications to annual limits.

### Existing RCF and RFI terms and safeguards (selected details)
- RCF:
  - Available to PRGT-eligible members with urgent balance of payments needs that, if unaddressed, would result in immediate and severe economic disruption; qualification requires that a UCT-quality program not be feasible or appropriate.
  - Repeat use within a three-year period is limited except where (i) the BOP need is caused primarily by a sudden exogenous shock or (ii) the country has established a track record of adequate macroeconomic policies for a period of normally about 6 months prior to the request.
  - No more than two disbursements may be made in any 12-month period.
  - Standard annual access up to 18.75 percent of quota; under the “shocks window” augmented annual access up to 37.5 percent of quota is available (subject to criteria). Cumulative access limit of 75 percent of quota applies.
- RFI:
  - Available to all member countries with urgent balance of payments needs; annual access limit 37.5 percent of quota and cumulative limit 75 percent of quota. Access under the RFI counts against RCF limits.
- Higher access through the new large natural disaster window would be available only where other qualification criteria for the RCF/RFI are met.

### Impact on PRGT and GRA resource demand
- The paper discusses implications of the proposed reforms for PRGT and General Resources Account (GRA) resources demand.
- Key estimate cited: a disaster damage threshold of 20 percent of GDP could raise projected annual average PRGT loan demand by the 1-5 percent range over the next decade.
- The assessment emphasizes the need to preserve PRGT self-sustainability given constrained subsidy resources.

### PRGT self-sustainability considerations
- Directors underlined that any proposal must safeguard the self-sustainability of the PRGT.
- Cautious stewardship and limited subsidy resources argue against lowering the disaster damage threshold below 20 percent of GDP until more experience is gained with disaster trends and PRGT lending demand.

### Conclusions and next steps
- Proposal: establish a large natural disaster window within the RCF and RFI with higher annual access limits of 60 percent of quota for disasters meeting a specified damage threshold.
- No changes are proposed to cumulative access limits at this time; the Board will review cumulative access limits in the context of the review of the Fund’s concessional lending facilities scheduled for 2018.
- The paper proceeds to quantify implications for PRGT and GRA demand and updates on PRGT lending capacity in subsequent sections (not reproduced here).

*International Monetary Fund — EXECUTIVE SUMMARY (pp051517-large-natural-disasters)*

### 12.      Several factors can be expected to play a role in influencing the impact of RCF and RFI

### pp051517-large-natural-disasters - 12.      Several factors can be expected to play a role in influencing the impact of RCF and RFI

### Factors influencing RCF and RFI impact on PRGT and GRA demand
- Frequency and size of future disasters:
  - Demand depends on the number of disasters that meet the damage threshold and observance of the qualification requirements to access the RCF and RFI.
  - Historically, small disasters have been much more frequent than large ones, measured by damage in relation to GDP.
  - A low damage threshold would accommodate more disaster-related requests, thereby increasing likely financing demand.
  - Data on historic frequency and size of disasters provides a baseline for demand projections, but allowance should be made for the possibility that disasters will become more frequent and damaging than in the past, including as a result of climate change.
- Balance of payments need and access limits:
  - Demand depends on the scale of the urgent balance of payments need arising from a natural disaster that would be eligible under the RCF and RFI, and the capacity to meet these needs within each country’s annual and cumulative access limits.
  - For simplicity, estimates assume that, where the damage threshold is met, urgent balance of payments needs will result in financing requests equivalent to maximum annual access under the RCF and/or RFI.
  - The approach likely overstates potential financing demand, contributing to a safety margin in the estimates.
  - There is the possibility that where a large natural disaster occurs, financing needs may shift to other facilities and instruments if a UCT-quality program supported under an arrangement is needed and can be formulated and implemented.
- Countries affected:
  - Demand will depend on which countries are impacted; country size is related to Fund quota. Projections assume the distribution of disasters by country size is comparable to 2000-16.
  - For countries seeking disaster-related financing, the balance between PRGT and GRA resources will depend on PRGT-eligibility and whether countries are presumed blenders. Past borrower patterns are used for projections.
- Augmentations of existing arrangements:
  - Changes to annual access limits under the RCF and RFI would not affect annual and cumulative access limits for requests for new arrangements or augmentations under existing arrangements.
  - A country with an existing Fund arrangement impacted by a large disaster might make a larger augmentation request informed by the increase in annual access under the RCF and RFI for other countries.
  - Application of the access policy to calibrate access amounts helps guard against unwarranted high access.
  - For prudence, demand calculations also assume that, for severe disasters, requests for disaster-related augmentations under PRGT arrangements increase, on average, by one half of the increase in annual access under the RCF and RFI.

### Projected additional loan demand by damage-threshold scenarios (PRGT and GRA)
- PRGT additional loan demand by disaster damage threshold (annual projections referenced to Table 4):
  - For a damage threshold of 30 percent of GDP: projected additional PRGT loan demand in the annual range of SDR 11-27 million.
  - For a damage threshold of 20 percent of GDP: projected additional PRGT loan demand in the annual range of SDR 16-41 million.
  - For a damage threshold of 10 percent of GDP: projected additional PRGT loan demand in the annual range of SDR 23-59 million.
- Risk of severe disasters in largest PRGT-eligible countries:
  - Severe disaster damages (>20 percent of GDP) occurred during 2000-2016 for just 10 PRGT-eligible countries; Haiti had the largest access to PRGT resources based on existing quotas and blending rules.
  - A single severe natural disaster in a larger PRGT-eligible country could multiply the loan demand estimates; for example, the proposed increase in RCF access limits could result in additional PRGT loan demand of SDR 140-240 million for a severe natural disaster in the Democratic Republic of Congo, Ghana, Sudan, or Zimbabwe.
  - EM-DAT data for 1968-2016 show the largest disaster damages in these countries in the range 0.1-2.6 percent of GDP (DRC 0.1 percent of GDP, January 2002; Sudan 1.0 percent of GDP, July 2003; Zimbabwe 2.4 percent of GDP, February 2003; Ghana 2.6 percent of GDP, July 1968).
- Recommended damage threshold:
  - A disaster damage threshold of 20 percent of GDP is proposed.
  - Staff do not recommend a lower threshold (such as 10 percent of GDP) because it would significantly increase the likelihood of additional demand from larger PRGT-eligible countries.
- Additional GRA financing demand:
  - Projected to be small. For a damage threshold of 20 percent of GDP, additional GRA demand is calculated at SDR 4-11 million (only marginally higher than for a 30 percent threshold).
  - Additional GRA demand is modest relative to corresponding PRGT demand because the RFI has been used much less actively than the RCF.

### PRGT sustainability and projected impact on lending capacity
- PRGT self-sustaining strategy pillars (approved September 2012):
  - (i) base average annual lending capacity of about SDR 1¼ billion;
  - (ii) contingent measures which can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period;
  - (iii) expectation that future modifications to LIC facilities be designed to maintain self-sustainability.
- Projected impact of a 20 percent damage threshold on PRGT sustainability:
  - For disaster outcomes in line with recent historical experience, additional lending implied by the proposal could increase annual demand for PRGT resources by 1-2 percent relative to current demand projections over the next decade.
  - In the event of a significant rise in both disaster frequency and magnitude, the estimated demand impact rises to 4-5 percent of currently-projected loan demand.
  - These projections imply additional average annual subsidy requirements of about SDR 2-6 million over the next decade.
  - The proposal’s relatively modest projected impact would leave the PRGT’s self-sustained lending capacity target of SDR 1¼ billion intact.
- Monitoring and vigilance:
  - Future loan demand requires close monitoring to ensure prompt activation of the three-pillar strategy if needed.
  - Monitoring will confirm the appropriateness of the enlarged RCF and RFI access windows relative to PRGT self-sustaining capacity and guide any necessary further reforms.

### Quantitative table excerpt: Projected Additional PRGT Loan Demand, 2018–2027 (Table 1)
- Initial impact 2018-2027 1/ — Baseline with disaster damage threshold of 20 percent of GDP 2/:
  - 15.9 18 21 24
  - (percentage increase in PRGT demand)
  - 2% 2% 1%
- Alternative scenario: more frequent and larger disasters 2/:
  - 40.6 45 48 58
  - (percentage increase in PRGT demand)
  - 5% 4% 4%
- Memo Item: PRGT baseline demand projection 3/ (2018-2027 average):
  - 885 1,244 1,603
- Notes from table:
  - Sources: IMF staff estimates.
  - 1/ Annual average additional PRGT loan demand taking into account projected loan demand growth over 2018-2027. The projections reflect the 50 percent increase in norms and limits approved in 2015, and for PRGT-eligible countries presumed to blend, one-third of access is assumed to come from the PRGT.
  - 2/ The baseline and alternative scenarios correspond to the baseline and Scenario 2 in Table 4 with a disaster damage threshold of 20 percent of GDP. The projections reflect additional PRGT loan demand for RCF requests and ECF augmentations.
  - 3/ PRGT baseline demand projections is based on Update on the Financing of the Fund's Concessional Assistance and Debt Relief to Low-Income Member Countries, see (IMF, 2017).

### Conclusions and policy proposal
- Purpose of the proposal:
  - To establish a large natural disaster window under the RCF and RFI to increase the current maximum annual access limit under these instruments from 37.5 to 60 percent of quota for countries facing urgent balance of payments needs arising from a natural disaster that gives rise to damages equivalent to at least 20 percent of GDP.
  - Qualification for access under the large natural disaster window will require that the member’s existing and prospective policies be sufficiently strong to address the natural disaster shock.
- Impact on Fund lending architecture:
  - No change is proposed to cumulative access limits under the RCF and RFI.
  - Qualification for the facilities will continue to be limited to cases where a UCT-quality arrangement is not feasible or appropriate.
  - Opportunity to discuss cumulative access limits in the comprehensive review of LIC facilities set for 2018.
- Expected impact on demand:
  - The policy change would have only a limited impact on PRGT loan demand: additional PRGT loan demand would be within 1-5 percent relative to current PRGT baseline demand projections over the next decade under a range of disaster projections.
  - Additional demand for GRA resources would be limited.

### Proposed Decisions (summary)
- Decision I — Amendments to the Rapid Credit Facility:
  - Modify Section II, paragraph 2(b) to:
    - Set access subject to an annual limit of 18.75 percent of quota and a cumulative limit of 75 percent of quota, net of scheduled repayments;
    - Provide that the annual and cumulative access limits shall be 37.5 percent of quota and 75 percent of quota, respectively, net of scheduled repayments, where the member requests assistance to address an urgent BOP need resulting primarily from a sudden and exogenous shock and the member's existing and prospective policies are sufficiently strong;
    - Provide that the annual and cumulative access limits shall be 60 percent of quota and 75 percent of quota, respectively, net of scheduled repayments, where the member requests assistance to address an urgent BOP need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of GDP and the member’s existing and prospective policies are sufficiently strong to address the natural disaster shock.
  - Outstanding credit under rapid-access ESF or RFI purchases under emergency post conflict/natural disaster assistance shall count towards annual and cumulative limits applicable to RCF.
  - With effect from July 1, 2015, any purchases from the GRA under the Rapid Financing Instrument shall count towards the annual and cumulative limits applicable to access under the RCF.
- Decision II — Amendments to the Rapid Financing Instrument:
  - Amend Paragraph 5 of the RFI Decision to:
    - Make assistance available in the form of outright purchases.
    - Subject access to an annual limit of 37.5 percent of quota and a cumulative limit of 75 percent of quota, net of scheduled repurchases, provided that the annual access limit shall be 60 percent of quota where the member requests assistance under the RFI to address an urgent BOP need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of GDP, and the member's existing and prospective policies are sufficiently strong to address the natural disaster shock.

*Source: pp051517-large-natural-disasters (selected section).*

### Section II, paragraph 2(b) shall be amended to read as follows:

### pp051517-large-natural-disasters - Section II, paragraph 2(b) shall be amended to read as follows:

### Amendments to Rapid Credit Facility (RCF) access limits
- Annual limit for each eligible member under the RCF: 18.75 percent of quota.
- Cumulative limit: 75 percent of quota, net of scheduled repayments.
- Exception (A): annual and cumulative access limits under the RCF shall be 37.5 percent of quota and 75 percent of quota, respectively, net of scheduled repayments, where:
  - (i) the member requests assistance under the RCF to address an urgent balance of payments need resulting primarily from a sudden and exogenous shock, and
  - (ii) the member's existing and prospective policies are sufficiently strong to address the shock.
- Exception (B): annual and cumulative access limits under the RCF shall be 60 percent of quota and 75 percent of quota, respectively, net of scheduled repayments, where:
  - (i) the member requests assistance under the RCF to address an urgent balance of payments need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of the member’s gross domestic product (GDP), and
  - (ii) the member’s existing and prospective policies are sufficiently strong to address the natural disaster shock.
- Outstanding credit under the rapid-access component of the ESF or outstanding purchases from the General Resources Account under emergency post conflict/natural disaster assistance covered by Decision No. 12341-(00/117) shall count towards the annual and cumulative limits applicable to access under the RCF.
- With effect from July 1, 2015, any purchases from the General Resources Account under the Rapid Financing Instrument shall count towards the annual and cumulative limits applicable to access under the RCF.

### Amendments to Rapid Financing Instrument (RFI) access limits
- Assistance under the RFI Decision shall be made available in the form of outright purchases.
- Access limits:
  - (a) annual limit of 37.5 percent of quota, and
  - (b) cumulative limit of 75 percent of quota, net of scheduled repurchases.
- Exception for natural disasters: the annual access limit shall be 60 percent of quota where:
  - (i) the member requests assistance under the RFI to address an urgent balance of payments need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of the member’s gross domestic product (GDP), and
  - (ii) the member's existing and prospective policies are sufficiently strong to address the natural disaster shock.

### Annex I — Measuring Natural Disaster Damages: qualification and methodology
- Qualification threshold for higher access under RCF and RFI: natural disaster damage of at least 20 percent of GDP.
- Disaster damage definition (two components):
  - (a) destruction of physical assets due to a natural disaster, and
  - (b) projected ongoing economic losses during the period of recovery from the natural disaster (foregone economic production and incomes as a result of damage to infrastructures and other economic assets).
- Projected losses are based on gap analysis relative to pre-disaster potential growth; the projected period of foregone production and incomes may last several years until full economic recovery is achieved.
- Note on RCF qualification: a member would normally only qualify for the RCF if either:
  - (i) has a balance of payments need that is expected to be resolved within one year with no major policy adjustments being necessary; or
  - (ii) lacks the capacity to implement a UCT-quality economic program owing to its limited policy implementation capacity or the urgent nature of its balance of payments need.

### Information sources, assessment tools, and timelines
- Fund staff will draw on assessments prepared by the World Bank and other organizations for estimating disaster damage.
- Established methodologies:
  - ECLAC methodology (initially developed in 1972) adopted by the World Bank for Damage and Loss Assessments (DaLA).
  - Sector methodologies informed by specialized UN agencies: agriculture by FAO, housing by UN Habitat.
- Integration into Post-Disaster Needs Assessment (PDNA) tool developed by the World Bank, European Union (EU), and United Nations Development Group (UNDG) in 2008.
  - PDNA is owned by national authorities and involves inputs from private sector, civil society, and international partners including the IMF.
  - Information includes surveys, satellite information, and inputs from climatic, metrological and geographical scientific institutions.
- Timing:
  - PDNA reports are normally available within 3 to 6 weeks and, once approved by the government, are published as official documents.
  - Rapid Damage and Impact Assessments (RDIA) by the World Bank can be produced within one to two weeks but are subject to revision as more information is obtained.
  - The World Bank is preparing a methodology note on RDIA to be available early 2018.

### Use of assessments, collaboration, and staff responsibilities
- Fund staff should explore with the World Bank, UNDG, or other relevant partners whether a disaster damage assessment is being prepared when a member requests higher access.
- Where necessary, staff should encourage authorities to initiate a disaster damage assessment under established frameworks.
- If no assessment is being prepared under established frameworks, Fund staff could take the lead in developing best estimates of disaster damage and ongoing economic losses, using information provided by the authorities and, where possible, working with World Bank and other partners to validate estimates.
- In reporting disaster damage estimates, Fund staff would highlight key aspects of the calculations and document the nature of estimated damage and ongoing economic losses in support of a higher annual access request.

### Examples of disaster damage estimates and assessment types (selected)
- Haiti, Hurricane Matthew, Oct. 2016: 23 (% of GDP) — RDIA
- Nepal, Earthquake, Apr. 2015: 33 (% of GDP) — PDNA
- Dominica, Tropical Storm Erika, Aug. 2015: 96 (% of GDP) — RDIA
- Vanuatu, Cyclone Pam, Mar. 2015: 60 (% of GDP) — PDNA
- Sierra Leone, Ebola, 2014-2015: 22 (% of GDP) — JPAR (Joint Preliminary Assessment Report)
- Samoa, Cyclone Evan, Dec. 2012: 30 (% of GDP) — PDNA
- Haiti, Earthquake, Jan. 2010: 121 (% of GDP) — PDNA
- Dominica, Hurricane Dean, Aug. 2007: 20 (% of GDP) — ECLAC

### Table 1 — Summary of norms, limits, and procedural safeguards (selected figures)
- PRGT cumulative limits:
  - Normal: 225
  - Exceptional: 300
- PRGT annual limits:
  - Normal: 75 (cumulative) / 225 (no direct annual figure listed in excerpt)
- RCF:
  - Normal annual limit: 18.75
  - Cumulative limit: 75
  - Exogenous shocks window annual limit: 37.5; cumulative: 75
  - Large natural disasters annual limit: 60; cumulative: 75
- RFI:
  - Normal annual limit: 37.5; cumulative: 75
  - Large natural disasters annual limit: 60; cumulative: 75
- SCF (precautionary):
  - Average annual: 37.5
  - At approval: 56.25
- Norms and access per arrangement highlights:
  - High access norm (3-year ECF): 90
  - Low access norm (3-year ECF): 56.25
- Procedural safeguards:
  - For total access of 60 percent of quota or more in any 24-month period: DSA update required.
  - For total access of 135 percent of quota or more in any 36-month period: Informal Board Meeting in advance of new PRGT request.

### Historical IMF financing to natural disaster-affected countries (selected observations)
- Table summaries report IMF financing to small and larger states hit by natural disasters between 2000–2016, indicating:
  - Multiple instances where RCF, RFI, ENDA, ESF, ECF-augmentations, and other instruments were used.
  - Damage estimates often exceed or approach the 20 percent of GDP qualification threshold for higher access in several cases (e.g., Dominica 96; Vanuatu 60; Haiti 121).
  - PRGT-eligibility noted for many small states and some larger states in tables.

### Analytical outputs and figures
- Figure 1 illustrates Potential RCF Access for Most Severe Disaster Damage, 2000–2016, showing:
  - Potential RCF access (in SDRs million) plotted against most severe disaster damage in percent of GDP for a broad set of countries.
  - Threshold defining severe disaster at 20 percent damage-to-GDP ratio.
- Note on calculation in Figure 1 footnote:
  - Potential RCF access for PRGT eligible countries is calculated as the difference between the current annual access limit (37.5 percent of quota) and the proposed limit for severe disasters (60 percent of quota).
  - For presumed blenders, two-thirds of this access is assumed to be met through GRA resources.

*International Monetary Fund — "Enhancing the Financial Safety Net" (selected sections and annexes as provided).*

---


_Source: https://www.imf.org/-/media/files/publications/pp/pp051517-large-natural-disasters.pdf_