Key findinds from and OECD & World Bank Study on Contingent Liabilities, "Boosting Fiscal Resilience to Natural Disasters". For more information see: http://www.oecd.org/gov/fiscal-resilience-to-natural-disasters-27a4198a-en.htm

1. BOOSTING FISCAL RESILIENCE TO
NATURAL DISASTERS: LESSONS FROM
COUNTRY EXPERIENCES
OECD, May 2019

2. Significant disaster risks facing APEC region
Source: OECD calculations based on insured losses and total damages reported for natural disasters (floods, storms, earthquake, droughts/fires/heat
waves and other natural disasters) in Swiss Re sigma annual reports on natural and man-made catastrophes (2006-2016).
0%
10%
20%
30%
40%
50%
60%
0
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Insured share of total losses
Total losses (USD billions)
Disaster losses in APEC economies, 2006-2015
Total losses Insured losses (share)
Annual average losses: USD 120 billion
30% of losses insured, hence a large share of recovery costs
shouldered by government;

3. In the context of increasing pressure
on public finances …
…. where balance sheets have been eroded in many APEC economies by
the global financial crisis
-12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0%
United States
Thailand
Singapore
Russia
Peru
Japan
Chile
Canada
Australia
Change in general government balance: (share of GDP) 2006-2015
Source: OECD calculations based on APEC economies covered in the IMF Government Finance Statistics in 2006 and 2015 (net borrowing/lending by general
government as a share of GDP).

4. • The costs of disasters often represent a contingent liability for
governments – both on the expenditure side and the revenue side of
national budgets:
• Governments often expected to fund reconstruction of public assets, post-
disaster relief for citizens and businesses (as a result of both explicit and implicit
commitments made prior to disasters)
• Any disaster-related disruptions to economic activities can have negative
implications for government revenues
• Major disasters, although rare in occurrence have potentially high
financial and economic impacts, and are often difficult or impossible
to predict - making these kinds of costs challenging to incorporate
into traditional budgeting frameworks
• Different approaches to managing these contingent liabilities will
create different incentives for risk reduction across other levels of
government and the private sector
Disaster-related contingent liabilities:
the challenge for governments

5. Sources of a government’s disaster
related contingent liabilities
Source: Gamper et al. (2017). Managing disaster-related contingent liabilities in
public finance frameworks, OECD Public Governance Working Paper
http://dx.doi.org/10.1787/a6e0265a-en

6. I. APEC’s Cebu Action Plan suggests to:
• Improve the availability of disaster data
• Promote disaster insurance (including micro-insurance)
& deepen insurance penetration)
• Support governments’ efforts to respond to disasters:
How to enhance financial resilience to
disasters? – some international guidance
II. OECD Recommendation on the Governance of
Critical Risks suggests governments
“plan for contingent liabilities within clear public finance
frameworks by enhancing efforts to minimise the impact
that critical risks may have on public finances and the
fiscal position of a country.”
III. OECD Recommendation on Disaster Risk
Financing Strategies suggests governments
“manage the financial impacts of disasters on public
finances” by evaluating exposures and developing plans
for managing those exposures.

7. A joint OECD-World Bank cross-country study has aimed to:
• Strengthen countries’ understanding of governments’ disaster and
climate related contingent liabilities
• Enhance countries’ management of such liabilities within public finance
frameworks and within their fiscal risk assessment processes
• Emphasise the importance of a good understanding of contingent
liabilities to inform effective risk reduction actions
• Share emerging good practices in managing disaster-related contingent
liabilities
Participating countries: Australia, Canada, Colombia, Costa Rica,
France, Japan, Mexico, New Zealand, Peru
Country progress in implementing
international guidance: an OECD-World Bank study

8. Policy evaluation framework
The policy evaluation framework underpinning the analytical study
approach:
Source: Gamper et al. (2017). Managing disaster-related contingent liabilities in
public finance frameworks, OECD Public Governance Working Paper
http://dx.doi.org/10.1787/a6e0265a-en

9. MAIN STUDY FINDINGS
9

10. Overview of common explicit
government liabilities
10
• Explicit commitments for post disaster financial assistance vary widely
across countries
• Japan: wide range of explicit commitments versus limited in Peru
Central govt.
to finance
disaster
response &
recovery
Cost-sharing
arrangements
to finance
disaster
response &
recovery
Central govt.
to
reconstruct/
maintain
central
government–
owned public
assets
Central govt.
to finance
rehabilitation
&
reconstructio
n of private
assets
Central govt.
for other
expenses
incurred by
subnational
govts.
Govt.
guarantees for
losses
incurred by
public
corporations
& PPPs
Japan      
Peru X   X X X

11. Overview of common explicit
government liabilities (ctd.)
11
• Across studied countries, an important liability arises from damages to
government building assets and public infrastructure – some
countries have actively sought to limit them:
• Mexico’s FONDEN rules on repeated infrastructure damage claims
• Post-disaster assistance for individual households is often provided
independent of any preventative measures taken – all countries provide
relief assistance, a number also provide support for the rehabilitation of
private assets:
• Australia: support for demolishment and rebuilding of houses provided
• New Zealand: support provided by the EQC
• Peru: such supported is limited to poorest population strata

12. Overview of common explicit
government liabilities (ctd.)
12
• Governments’ financial support for damages incurred by state-owned
enterprises has been actively limited
• New Zealand: exceptions made for exceptional hardship
• Post-disaster assistance for businesses has been recognised as a key
factor in limiting the wider and prolonged negative economic impact of
disasters; measures include:
• Concessional interest rate loans, interest rate subsidies, wage subsidies

13. Common sources of implicit disaster
related contingent liabilities
13
• Implicit government disaster related contingent liabilities rise when
extreme events occur
• Japan: GEJE increased central government share of financing
relief
• Mexico: issued zero coupon loans, without a prior commitment
basis, to subnational governments
• Australia: “Category D” measures under the Natural Disaster
Relief and Recovery Arrangements
• Implicit liabilities are greater where explicit, ex ante commitments are
fewer
• Peru, Colombia

14. Quantification and integration in fiscal
risk frameworks
14
Contingent liabilities can be quantified using two main methods: direct
estimation or estimation through probabilistic modelling
Type of disaster-related expenditure What gets recorded
Relief spending Temporary housing, medical care, waste disposal, dispatching of Self-Defence Forces, etc.
Spending for the reconstruction of damaged public
infrastructure and assets
Recovery/reconstruction of infrastructure assets, public schools, government buildings, etc.
Spending for the reconstruction of damaged private
assets
Financial support for livelihood recovery of disaster victims, provision of disaster condolence
grants, support for the reconstruction of agricultural facilities, etc.
Spending on increased social transfers due to a post-
disaster economic slowdown
May include items such as school attendance support, tuition support, expansion of job creation
programs and unemployment assistance
Expenditures due to guarantees issued to public or
private entities suffering disaster losses
Earthquake reinsurance claims, disaster risk insurance for agriculture and fishery, credit
guarantee for small and medium enterprises
Post-disaster payments to subnational governments Subsidy to disaster-affected subnational governments
Reduced tax collections
General changes in tax revenue are published in the highlights of the general account budget
document and in the accompanying documentation on Japan’s fiscal condition
Disrupted operations of public corporations Not included
Disrupted operations of private corporations Not included
Deterioration in the terms at which the government
can in the short term refinance public debt or raise
additional debt
Not included
Sources for directly estimating liabilities in Japan:

15. Quantification and integration in fiscal
risk frameworks (ctd.)
15
Dedicated disaster risk funds can be a useful source of information for
estimating the size of potential liabilities:
Economy Types of funds1
Australia
- Natural Disaster Relief and Recovery Arrangements (NDRRA) provide financial assistance from the central government, reimbursing
up to 75% of eligible expenditure on relief and recovery payments made by subnational governments.
Canada
- Disaster Financial Assistance Arrangements (DFAA) provide financial assistance from central government, reimbursing up to 90% of
eligible expenditure on relief and recovery payments made by subnational governments once a minimum expenditure threshold has
been met.
Costa Rica - National Emergency Fund (Fondo Nacional de Emergencia, NEF) provides funding for disaster recovery measures.
Colombia
- National Disaster Risk Management Fund finances knowledge generation about risk, risk reduction, risk management, recovery and
financial protection activities.
- National Adaptation Fund is dedicated to financing disaster risk prevention.
France
- Emergency relief fund finances assistance for immediate disaster relief
- Relief fund for overseas territories (FSOM) finances Assistance for the reconstruction of uninsured private assets, uninsurable
subnational assets, and for immediate disaster relief
- National guarantee fund for agricultural disasters (FNGRA) finances compensation for uninsurable crop losses due to natural hazards
or disease outbreak
- state-guarantee to the CATNAT insurance scheme
Japan - Annual Reserve for Disaster Recovery
Mexico
- FONDEN (Fund for Natural Disasters) finances ex post disaster risk management measures.
- FOPREDEN (Fund for Disaster Prevention)
- Fund to Support the Rural Population Affected by Climate Hazards
New Zealand - Natural Disaster Fund
Peru
- FONDES (Fund for Interventions to Face Natural Disasters) finances both ex ante and ex post disaster risk management measures.
- FONIPREL (Promotion Fund for Regional and Local Public Investment) may also be used for financing disaster risk management
measures.
- The Fiscal Stabilization Fund can be used to finance national emergencies that affect Peru’s fiscal stability.

16. Estimating fiscal impacts of disaster
related contingent liabilities
16
• To estimate fiscal impacts:
• Sensitivity analysis calculating the impact of a disaster on the forecast of
public debt or fiscal deficit, e.g. Philippines
Philippine national government debt-to-GDP scenario analysis
Source: Republic of the Philippines, 2013
Objective: Increase visibility in the fiscal policy making process

17. Mitigating contingent liabilities
17
Mitigation strategies for governments could include all or a mix of the
following four lines of action:
• The definition of clear cost-sharing mechanisms across levels of
government;
• Setting incentives for both subnational governments and non-
governmental stakeholders to reduce disaster risks ahead of
disasters
• The consideration of a ceiling on disaster recovery costs the
government;
• The development of financial strategies to cover for residual risks

18. POLICY
RECOMMENDATIONS
18

19. Policy recommendations
• Design clear framework rules for a government’s post disaster financial
assistance and, to a maximum extent possible, spell out their details
• Establish clear cost sharing mechanisms across levels of government.
• Include the assessment of disaster related contingent liabilities in fiscal
risk management frameworks
• Make risk reduction part of the framework conditions for financing post
disaster needs
• Make provisions for managing residual risk
Based on the survey of country practices, following guidance
proposed for governments to better control and limit disaster
related contingent liabilities:

20. For further information
20
Please contact:
- Catherine Gamper, OECD Public Governance Directorate,
catherine.gamper@oecd.org
- Benedikt Signer, World Bank, bsigner@worldbank.org