Ezequiel Cabezon, Ms. Leni Hunter, Ms. Patrizia Tumbarello, Kazuaki Washimi, and Mr. Yiqun Wu
Natural disasters and climate change are interrelated macro-critical issues affecting all
Pacific small states to varying degrees. In addition to their devastating human costs, these
events damage growth prospects and worsen countries’ fiscal positions. This is the first
cross-country IMF study assessing the impact of natural disasters on growth in the Pacific
islands as a group. A panel VAR analysis suggests that, for damage and losses equivalent to
1 percent of GDP, growth drops by 0.7 percentage point in the year of the disaster. We also
find that, during 1980-2014, trend growth was 0.7 percentage point lower than it would have
been without natural disasters. The paper also discusses a multi-pillar framework to enhance
resilience to natural disasters at the national, regional, and multilateral levels and the
importance of enhancing countries’ risk-management capacities. It highlights how this
approach can provide a more strategic and less ad hoc framework for strengthening both ex
ante and ex post resilience and what role the IMF can play.
This paper reviews the literature on the macroeconomic impact of natural disasters and presents the IMF’s role in assisting countries coping with natural catastrophes. Focusing on seven country cases, the paper describes the emergency financing, policy support, and technical assistance provided by the Fund to help governments put together a policy response or build a macro framework to lay the foundation for recovery and/or unlock other external financing. The literature and experience suggests there are ways to strengthen policy frameworks to increase resilience to natural disaster shocks, including identifying the risks and probability of natural disasters and integrating them more explicitly into macro frame-works, increasing flexibility within fiscal frameworks, and improving coordination amongst international partners ex post and ex ante.