Building Resilience to Natural Disasters: An Application to Small Developing States
IMF Working Papers, October 30, 2017
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- Building Resilience to Natural Disasters: An Application to Small Developing States
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Bibliographic details
- Authors: Ricardo Marto, Chris Papageorgiou, Vladimir Klyuev
- Published: October 30, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484324745.001
Model and approach
- Dynamic small open economy model introduced to explore the macroeconomic impact of natural disasters.
- Disaster effects modeled to include:
- permanent damages to public and private capital,
- temporary losses of productivity,
- inefficiencies during the reconstruction process,
- damages to the sovereign's creditworthiness.
- Model used to study debt sustainability concerns arising from the need to rebuild public infrastructure over the medium term.
- Analysis contrasts ex ante policies (building adaptation infrastructure and fiscal buffers) with post-disaster donor support.
Key findings
- Investing in resilient infrastructure can be useful, particularly when viewed as complementary to standard infrastructure, because it:
- raises the marginal product of private capital,
- crowds in private investment,
- helps withstand the impact of the natural disaster.
- Debt sustainability is jeopardized by the medium-term need to rebuild public infrastructure and by sovereign creditworthiness damages.
Application to Vanuatu
- In the Vanuatu application, the model finds:
- donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam.
- Helping the government build resilience reduces the risk of debt distress and does so at lower cost for donors compared with large post-disaster grants.
Policy implications and recommendations
- Ex ante investments in adaptation infrastructure can be more cost-effective than relying solely on post-disaster donor grants.
- Building resilient infrastructure that complements standard infrastructure can stimulate private investment through higher marginal product of private capital.
- Fiscal buffers and adaptation investment should be evaluated alongside donor support strategies to manage debt sustainability and sovereign creditworthiness impacts after disasters.
IMF Working Paper summary: Building Resilience to Natural Disasters: An Application to Small Developing States