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Strengthening Fiscal Frameworks in the Presence of Rising Risk of Natural Disasters
Author:
Olusegun Ayodele Akanbi https://isni.org/isni/0000000404811396 International Monetary Fund

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,
Jessie Kilembe
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Do Yeon Park
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Series:
IMF Working Papers
Volume/Issue:
Volume 2025: Issue 038
Language:
English
Publication Date:
07 Feb 2025
DOI:
https://doi.org/10.5089/9798400298851.001
ISBN:
9798400298851
ISSN:
1018-5941
Pages:
38
Keywords:
Fiscal Framework; Fiscal Rules; Natural Disasters; Fiscal sustainability; exposure risk index; natural disaster risk; risk of natural disasters; government climate investment profile; high-ERI country; Fiscal governance; Fiscal risks; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This study investigates the impact of rising risk of natural disasters on rule-based fiscal frameworks. It explores the extent to which countries adhere to their fiscal rules in the presence of rising risk of natural disasters. To ensure a consistent analysis, we construct an index measuring the strenghth of fiscal rules, utilizing principal component analysis for a panel of 104 countries. The study employs a panel two-stage least squares estimation method to assess the impact of natural disaster risks on fiscal rules. The results, which are robust across various country groupings, suggest that natural disaster risks play a significant role in the determination of rule-based fiscal framework. After controlling for other determinants, the results show that countries with established fiscal rules are strengthening these rules in response to rising natural disaster risks. Nonetheless, the results are mixed across different country groups, with varying magnitude of impact. This suggests that countries currently operating fiscal rules will need to enhance their efforts to more comprehensively integrate natural disaster risks into their fiscal frameworks.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund