IMF Working Papers

Fiscal Impacts of Climate Disasters in Emerging Markets and Developing Economies

By Habtamu Fuje, Jiaxiong Yao, Seung Mo Choi, Hamza Mighri

December 15, 2023

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Habtamu Fuje, Jiaxiong Yao, Seung Mo Choi, and Hamza Mighri. Fiscal Impacts of Climate Disasters in Emerging Markets and Developing Economies, (USA: International Monetary Fund, 2023) accessed December 7, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Climate-induced disasters are causing increasingly frequent and intense economic damages, disproportionally affecting emerging markets and developing economies (EMDEs) relative to advanced economies (AEs). However, the impact of various types of climate shocks on output growth and fiscal positions of EMDEs is not fully understood. This research analyzes the macro-fiscal implications of three common climate disasters (droughts, storms, and floods) using a combination of macroeconomic data and comprehensive ground and satellite disaster indicators spanning the past three decades across 164 countries. Across EMDEs, where agriculture tends to be the principal sector, a drought reduces output growth by 1.4 percentage points and government revenue by 0.7 percent of GDP as it erodes the tax bases of affected countries. Meanwhile, likely reflecting limited fiscal space to respond to a disaster, fiscal expenditure does not increase following a drought. A storm drags output growth in EMDEs, albeit with negligible impact on fiscal revenue, but government expenditure increases due to reconstruction and clean-up efforts. We find only limited impact of localized floods on growth and fiscal positions. In contrast, AEs tend to experience negligible growth and fiscal consequences from climate-induced shocks. As these shocks have much more detrimental effects in EMDEs, international support for disaster preparedness and climate change adaptation play a crucial role for these countries to confront climate change.

Subject: Environment, Expenditure, Fiscal policy, Fiscal space, Fiscal stance, Natural disasters, Public debt

Keywords: Climate change, Climate change adaptation, Climate disaster, Climate-induced disaster, Climate-related shocks, Droughts, Emerging markets and developing economies, Fiscal space, Fiscal stance, Floods, Global, Macro-fiscal, Natural disasters, Satellite data, Storms, Sub-Saharan Africa

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/261

  • Stock No:

    WPIEA2023261

  • ISBN:

    9798400262913

  • ISSN:

    1018-5941