Debt Sustainability under Catastrophic Risk: The Case for Government Budget Insurance

Author/Editor:

Eduardo A. Cavallo ; Eduardo Borensztein ; Patricio A Valenzuela

Publication Date:

February 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Natural disasters are an important source of vulnerability in the Caribbean region. Despite being one of the more disaster-prone areas of the world, it has one of the lowest levels of insurance coverage. This paper examines the vulnerability of Belize's public finance to the occurrence of hurricanes and the potential impact of insurance instruments in reducing that vulnerability. The paper finds that catastrophic risk insurance significantly improves Belize's debt sustainability. In addition, the methodology employed makes it possible to estimate the appropriate level of insurance, which for the case of Belize is a maximum coverage of US$120 million per year.

Series:

Working Paper No. 2008/044

Subject:

Debt sustainability Debt sustainability analysis Insurance Moral hazard Natural disasters

English

Publication Date:

February 1, 2008

ISBN/ISSN:

9781451869064/1018-5941

Stock No:

WPIEA2008044

Pages:

26

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