## Fiscal Impacts of Climate Disasters in Emerging Markets and Developing Economies

_IMF Working Papers, December 15, 2023_

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**Canonical URL:** [Fiscal Impacts of Climate Disasters in Emerging Markets and Developing Economies](https://www.imf.org/en/publications/wp/issues/2023/12/15/fiscal-impacts-of-climate-disasters-in-emerging-markets-and-developing-economies-542408)

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## Bibliographic details
- Authors: Habtamu Fuje, Jiaxiong Yao, Seung Mo Choi, Hamza Mighri
- Published: December 15, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400262913.001

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### Overview
- Research analyzes macro-fiscal implications of three common climate disasters: droughts, storms, and floods.
- Study combines macroeconomic data with comprehensive ground and satellite disaster indicators spanning the past three decades across 164 countries.
- Focus on differential effects between emerging markets and developing economies (EMDEs) and advanced economies (AEs).

### Key empirical findings
- Droughts in EMDEs:
  - Reduce output growth by 1.4 percentage points.
  - Reduce government revenue by 0.7 percent of GDP.
  - Fiscal expenditure does not increase following a drought, likely reflecting limited fiscal space.
- Storms in EMDEs:
  - Drag output growth.
  - Have negligible impact on fiscal revenue.
  - Government expenditure increases due to reconstruction and clean-up efforts.
- Floods:
  - Localized floods show only limited impact on growth and fiscal positions in EMDEs.
- Advanced economies (AEs):
  - Tend to experience negligible growth and fiscal consequences from climate-induced shocks.

### Fiscal mechanisms and interpretation
- Droughts erode tax bases in EMDEs where agriculture tends to be the principal sector, translating into lower government revenue.
- Limited fiscal response after droughts suggests constrained fiscal space and weaker ability to increase spending in response to agricultural shocks.
- Storm-related increases in government expenditure reflect reconstruction and clean-up demands even when revenue effects are negligible.
- Differential impacts between EMDEs and AEs underscore structural and fiscal capacity differences.

### Policy implications and recommendations
- Strengthen disaster preparedness and climate change adaptation in EMDEs to mitigate disproportionate macro-fiscal damages.
- Increase international support targeted to disaster preparedness and climate change adaptation for EMDEs, given the more detrimental effects of climate shocks in these countries.
- Prioritize policies that protect tax bases and enhance fiscal space to enable effective post-disaster fiscal responses, particularly in agriculture-dependent EMDEs.

### Research scope and data notes
- Analysis covers droughts, storms, and floods over the past three decades across 164 countries using macroeconomic, ground, and satellite disaster indicators.
- Identified subject themes include Environment, Expenditure, Fiscal policy, Fiscal space, Fiscal stance, Natural disasters, Public debt.

*IMF Working Paper: Fiscal Impacts of Climate Disasters in Emerging Markets and Developing Economies*

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2023/12/15/fiscal-impacts-of-climate-disasters-in-emerging-markets-and-developing-economies-542408_