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Fiscal Resilience to Natural Disasters

Lessons from Country Experiences

image of Fiscal Resilience to Natural Disasters

Natural disasters continue to cause widespread damage and losses, with fast growing economies particularly exposed. Governments often shoulder a significant share of the costs of disaster recovery and reconstruction. This is true in OECD countries and even more so in developing economies, where private insurance markets are not as well developed. The fiscal impact of disasters on a government’s budget can be sizeable. Expenditures for the government arise from both explicit and implicit commitments to compensate for disaster losses. This report presents the results of a study that compares country practices in the management of the financial implications of disasters on government finances for a set of OECD member and partner countries particularly exposed to natural hazards.

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Mitigating disaster-related contingent liabilities and financing residual risks: Policy lessons

This chapter looks at how governments can reduce their expected disaster-related contingent liabilities through effective mitigating and financing strategies. It underlines the importance of setting clear and explicit disaster assistance rules, especially as they relate to the central governments’ financial support to subnational counterparts. It also emphasises the need to take moral hazard risk into account in determining rules for financial assistance to private stakeholders. This helps ensure that public disaster assistance does not undermine disaster risk reduction investments, but instead encourages them. The chapter concludes with a discussion of financing residual risks.

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