Building Resilience to Natural Disasters: An Application to Small Developing States

29 Pages Posted: 1 Dec 2017

See all articles by Ricardo Marto

Ricardo Marto

International Monetary Fund (IMF)

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Vladimir Klyuev

International Monetary Fund (IMF)

Date Written: October 2017

Abstract

We present a dynamic small open economy model to explore the macroeconomic impact ofnatural disasters. In addition to permanent damages to public and private capital, the disastercauses temporary losses of productivity, inefficiencies during the reconstruction process, anddamages to the sovereign's creditworthiness. We use the model to study the debt sustainabilityconcerns that arise from the need to rebuild public infrastructure over the medium term andanalyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscalbuffers, and contrast these policies with the post-disaster support provided by donors. Investingin resilient infrastructure may prove useful, in particular if it is viewed as complementary tostandard infrastructure, because it raises the marginal product of private capital, crowding inprivate investment, while helping withstand the impact of the natural disaster. In an applicationto Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grantsto be spent over the following 15 years to ensure public debt remains sustainable followingCyclone Pam. Helping the government build resilience on the other hand, reduces the risk ofdebt distress and at lower cost for donors.

Keywords: Debt sustainability, Disaster aid, Foreign aid, Natural Disastes, Resilience, Adaptation, Small States, International Lending and Debt Problems, Infrastructures, Fiscal and Monetary Policy in Development

JEL Classification: E22, E62, F34, F35, H54, H63, H84, O23, Q54

Suggested Citation

Marto, Ricardo and Papageorgiou, Chris and Klyuev, Vladimir, Building Resilience to Natural Disasters: An Application to Small Developing States (October 2017). IMF Working Paper No. 17/223. Available at SSRN: https://ssrn.com/abstract=3079547

Ricardo Marto (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Vladimir Klyuev

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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