How to Manage the Fiscal Costs of Natural Disasters

IMF How To Notes, June 11, 2018

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How to Manage the Fiscal Costs of Natural Disasters

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Bibliographic details

• Authors: Serhan Cevik, Guohua Huang
• Published: June 11, 2018
• Series: IMF How To Notes
• DOI: https://doi.org/10.5089/9781484359457.061

Overview

• Focus: management of the fiscal costs associated with natural disaster risks.
• Distinction: natural disasters differ from other fiscal risks (for example, unexpected macroeconomic changes or materialization of contingent liabilities) because of their exogenous nature and potentially overwhelming scale.
• Purpose: discuss how governments can build fiscal resilience against natural hazards and strengthen fiscal management after a disaster, including through budgeting frameworks and other fiscal policies.

Central questions addressed

• How large should fiscal buffers be?
• How should fiscal buffers be built up?
• How should fiscal buffers be used efficiently and transparently once a natural disaster has struck?
• These questions relate directly to fiscal policy, fiscal risk management, and the budget process.

Fiscal strategies for recovery financing and mitigation

• Financing recovery efforts:
  • Emphasizes fiscal strategies for financing recovery efforts following natural disasters.
• Mitigation approaches:
  • Considers approaches to mitigate disaster impact.
• Instruments and mechanisms discussed include:
  • Disaster risk financing strategies.
  • Risk transfer mechanisms, such as various insurance instruments.

Risk analysis, contingent liabilities, and budgeting

• Regular risk analyses:
  • Provides guidance on how to conduct regular risk analyses of natural disasters’ potential fiscal consequences.
• Contingent liabilities:
  • Outlines best practices for defining and accounting for the contingent liabilities associated with natural disasters in budgeting frameworks.
• Budgeting frameworks:
  • Discusses how budgeting frameworks and other fiscal policies can strengthen fiscal management before and after disasters.

Policy implications and practical focus

• Emphasis on building fiscal resilience through:
  • Appropriate sizing of fiscal buffers.
  • Transparent and efficient use of buffers when disasters occur.
  • Integration of disaster-related contingent liabilities into budget processes.
• Cross-cutting focus areas:
  • Fiscal policy.
  • Fiscal risk management.
  • Budget process and public financial management.

How to Manage the Fiscal Costs of Natural Disasters — By Serhan Cevik, Guohua Huang, June 11, 2018

Content in this bundle

• Fiscal Policy: How to Manage the Fiscal Costs of Natural Disasters, How-to Note 18/03, June 2018
  • Fiscal Policy: How to Manage the Fiscal Costs of Natural Disasters, How-to Note 18/03, June 2018 (Markdown version)
  • Fiscal Policy: How to Manage the Fiscal Costs of Natural Disasters, How-to Note 18/03, June 2018 (PDF)