Increasing fiscal resilience to disasters in the Pacific

Abstract

Pacific Island countries are among the list of countries that face the highest disaster risk globally—in per capita terms. In recent years, governments in the region have been confronted by a rise in damages from extreme catastrophic events, many increasingly linked to climate change. These events pose significant challenges to Pacific governments in terms of maintaining fiscal stability and the operation of their limited and under-diversified economies and shallow financial sectors. Governments in the region generally play a leading role in domestic economies and are responsible for leading disaster prevention, mitigation, and recovery efforts. Accordingly, measures to improve financial sustainability and the public sector’s ability to provide public services in the aftermath of major disasters must be prioritized. This paper examines the literature on fiscal resilience to disasters, the estimated impacts of major events in the Pacific, and analyses the applicability of available financial instruments to facilitate both ex ante and ex post disaster fiscal risk management in the region. The paper also discusses policies that can improve resilience against fiscal risks.