Skip to main content

Assessment of Fiscal Risks Due to Disaster-induced Loss & Damages in CDRI Member Countries

Power lines and tower. Photo: Richard Nyberg
Assessment of Fiscal Risks Due to Disaster-induced Loss & Damages in CDRI Member Countries

Context and Motivation 
In recent decades, the world has witnessed a steep rise in direct economic losses due to disasters. Average annual direct economic losses which stood at US$89 billion in (2000-2009)1 have almost doubled to $169 billion in the last decade [2010-2019]. Recent catastrophic events like Cyclone Fani (2019 in Odisha India), Nepal Earthquake (2015), and Japan Earthquake and Tsunami (2011) have highlighted that the loss and damages experienced in critical infrastructure sectors - transport, power, telecommunication - could be more than 60 percent of the total direct economic losses2. Damage to infrastructure systems tend to have catastrophic impacts on lives and livelihoods, bringing society to a standstill whilst placing a significant fiscal burden on government(s) to fund post-disaster recovery and reconstruction. In the most vulnerable regions, infrastructure-related risks coupled with other expected climate impacts can lead to increased macroeconomic risks, and even effect sovereign credit rating.

This overwhelming increase could constitute a major fiscal problem for governments worldwide. Severe catastrophic events in recent years such as the tsunami in Japan, earthquakes in New Zealand and Nepal and multiple floods and cyclones in India have caused tremendous direct economic losses and highlighted the importance of developing a viable disaster risk financing (DRF) strategy for governments. This will help in mitigating post-disaster economic losses effectively and also create a buffer for absorbing the long-term fiscal impact of such events. 
 
CDRI’s Contribution
Financing Resilience and Adaptation is one of the core action portfolios of the Coalition for Disaster Resilient Infrastructure (CDRI). It is a priority for CDRI to build the financial resilience of its member countries. CDRI provides them with technical support to develop comprehensive DRF strategies and protect public finances from the fiscal shocks associated with disasters. To this end, CDRI is committed to undertaking a Fiscal Risk Assessment study to support the development of comprehensive DRF strategy in its member countries. 

Recent catastrophic events have shown that a majority of disaster losses are experienced in the critical infrastructure sectors of transport, power, telecommunications and residential housing. These sectors will be the key focus of the proposed study. 

Expected Outcomes
The Budgetary Analysis and Policy Review Study will analyse the current fiscal exposure of governments to disaster-induced losses, identify post-disaster funding gaps, and review existing DRF tools and practices. It will contribute to policy developments in CDRI member countries by:

  • Providing a detailed assessment of existing and future (expected) fiscal risks and funding gaps. This will act as the first step towards building a comprehensive DRF strategy.
  • Enabling a comprehensive understanding of the existing DRF policies and practices, budgetary arrangements, and standard operating procedures.
  • Identifying and developing suitable DRF solutions. 
  • Initiating a policy dialogue between and among members around the relevance and need for a comprehensive DRF strategy.
  • Paving the way for other projects that explore the viability and efficacy of different DRF instruments like insurance and bonds, especially in the context of under-developed financial markets.

1 Data source: CRED/EMDAT (2020), available at www.emdat.be
2 Source: Based on an analysis Post-disaster Need Assessment (PDNA) studies and Govt. estimates following respective events.