Natural disasters are a source of economic risks in many countries, especially in smaller and lower-income states, and ex-ante preparedness is needed to manage the risks. The paper discusses sovereign experience with disaster insurance as a key instrument to mitigate the risks; proposes ways to judge the adequacy of insurance; and considers ways to enhance its use by vulnerable countries. The paper especially aims to inform policy decisions on disaster insurance. Through simulations of natural disasters and various insurance options, we find that sovereign decisions on optimal risk transfer involve balancing trade-offs between growth and debt, based on government risk preferences and country risk exposure. The choice of optimal insurance for smaller countries turns out to be more constrained by cost considerations due to their higher exposure, likely resulting in underinsurance; donor grants could help them achieve a more optimal protection. We also find that optimal insurance packages are those that are least costly relative to expected payouts (i.e. have the lowest insurance multiple), which are also the packages that insure less severe (more frequent) disasters.
International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.
This paper reviews the Fund’s policy on multiple currency practices (MCPs). There remain strong economic and legal reasons to retain a policy on MCPs. The over-arching aim of the review is to make the policy and its application more effective. Based on this review, the paper proposes initial considerations for reforming features of the policy that have created challenges.
• Clarifying the concept of “official action” to focus on measures that segment FX markets.
• Eliminating potentiality.
• Updating the threshold for permissible FX spreads.
• Adjusting approval policies.
• Reviewing links with capital transactions.
• Considering merits of a remedial framework.
Mr. Ved P. Gandhi, Mr. Liam P. Ebrill, Mr. Parthasarathi Shome, Mr. Luis A. Manas Anton, Jitendra R. Modi, Mr. Fernando J. Sanchez-Ugarte, and Mr. George A Mackenzie
Written by Ved P. Gandhi, Liam P. Ebrill, George A. Mackenzie, Luis Mañas-Antón, Jitendra R. Modi, Somchai Richupan, Fernando Sanchez-Ugarte, and Parthasarathi Shome, this book contains 12 articles. It examines the relevance to developing countries of the tax policy recommendations of supply-side economists and attempts to delineate policy guidelines to ensure that fiscal management enhances rather than inhibits growth and efficiency in the wider economy.