Fiscal Buffers for Natural Disasters in Pacific Island Countries

IMF Working Papers, July 12, 2019

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Examines vulnerability of Pacific island countries (PICs) to severe natural disasters, especially cyclones.
Estimates effects of severe natural disasters on fiscal revenues and expenditure in PICs.
Combines fiscal impact estimates with information on the frequency of large disasters to calculate the rate of budgetary savings needed to build appropriate fiscal buffers.
Emphasizes that estimates serve as a benchmark and should be adjusted for other financing sources and for budget risks from less severe or more frequent disasters.

Severe natural disasters in PICs inflict large losses on their economies.
In the aftermath of disasters, PIC governments face:
- revenue losses, and
- spending pressures to address post-disaster relief and recovery efforts.
Fiscal buffers provide:
- self-insurance against natural disaster shocks,
- facilitation of quick disbursement for recovery and relief efforts, and
- protection of spending on essential services and infrastructure.
The paper’s estimates can guide policymakers on the rate of budgetary savings required to build appropriate fiscal buffers.

Estimates effects on fiscal revenues and expenditure from severe natural disasters.
Combines these fiscal effect estimates with information on the frequency of large disasters to derive required budgetary savings rates for buffers.

Use estimated buffer benchmarks to inform budgetary saving rates for disaster self-insurance.
Adjust benchmark estimates to account for:
- other sources of financing, and
- budget risks from less severe as well as more frequent disasters.