## Fiscal Sustainability and Natural Disaster Risks in the ECCU

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**Canonical URL:** [Fiscal Sustainability and Natural Disaster Risks in the ECCU](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025068.pdf)

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### Key findings on vulnerability and losses
- ECCU countries are highly vulnerable to recurring and increasingly severe natural disasters (NDs).
- EM-DAT data (1980-2023) shows the region has sustained economic losses averaging 4 percent of GDP annually.
- ND losses for the entire Caribbean and the Pacific average 2 percent of GDP per year.
- Several extreme events since 1990 caused losses exceeding 5 percent of GDP; Hurricane Maria in Dominica caused losses of 225 percent of GDP.
- Initial reports estimate Hurricane Beryl (2024) caused damages of about 16 percent of GDP in Grenada and 20 percent of GDP in St. Vincent and the Grenadines.
- ECCU countries experience one of the highest frequencies of NDs relative to geographic size.

### Quantitative evidence on fiscal and macroeconomic impacts
- Two complementary approaches over 1990-2023: (i) unconditional event-case analysis of 18 severe ND years (severe defined as events affecting at least 3,000 people), and (ii) econometric analysis using local projections (Jordà, 2005) controlling for pre-ND fiscal and debt dynamics.
- Event-case analysis results:
  - Within three years of an ND, gross public debt increases by an average of 7 percentage points of GDP.
  - The primary balance deteriorates by 2 percentage points of GDP, or 2.6 percent of GDP excluding citizenship-by-investment (CBI) revenue.
  - No statistically significant change in average real GDP growth over the three-year window.
- Local projections results:
  - Gross public debt increases by 7 percentage points of GDP over a three-year period following the ND.
  - The primary balance response (with and without CBI revenue) is negative and significant, reaching a 5-percentage point drop in GDP after three years.
  - The output response to an ND shock is negative but lacks statistical significance; muted output response may reflect ND destruction offset by reconstruction.

### Interpretation and implications
- Severe NDs negatively impact fiscal balances, leading to higher public debt.
- The absence of a clear statistically significant output contraction in some estimates may reflect offsetting reconstruction activity that supports demand even as productive capacity is damaged.
- With projected increases in the frequency and intensity of severe tropical cyclones (Categories 4 and 5), coupled with costly recovery processes, NDs-related losses are likely to escalate.

### Recommended multilayered resilience strategy
- Structural resilience:
  - Targeted investments in resilient infrastructure.
  - Land-use planning and enforcement of building codes.
  - Robust targeted social safety nets to protect vulnerable populations before, during, and after NDs.
- Financial resilience:
  - Establish fiscal buffers (e.g., dedicated contingency funds).
  - Utilize parametric insurance (e.g., the Caribbean Catastrophe Risk Insurance Facility (CCRIF)).
  - Secure contingent financing options (e.g., catastrophe bonds and sovereign bonds with natural disaster clauses).
  - CCRIF example: CCRIF paid over 3 percent of GDP to Grenada following Hurricane Beryl.
- Regional coordination:
  - Policy coordination and information sharing via regional bodies (Organization of Eastern Caribbean States; Caribbean Disaster Emergency Management Agency).
  - Joint measures such as regional infrastructure standards for hurricane-resistant buildings, investment in microgrids and renewable energy, and improved early warning systems.

### Data, methods, and scope notes
- Sample period: 1990 to 2023 for event-case and local projection analyses.
- Severe ND definition: events affecting more than 3,000 people (EM-DAT).
- Local projection specification follows Jordà (2005), with controls for prior primary balance, gross public debt, real GDP, country fixed effects, and time fixed effects.
- Sources used: EM-DAT; ECCB; WEO; World Bank GRADE reports; IMF staff calculations.

*Prepared by Sophia Chen, Spencer Siegel, and Camilo E. Tovar; IMF Selected Issues Paper SIP/2025/068 (completed April 9, 2025).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025068.pdf_