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The coronavirus pandemic caused serious social and economic impacts around the world. Governments implemented massive fiscal stimulus and protection packages to counteract these severe consequences which lead them into weak fiscal positions and elevated debt. This affects the fiscal risk to natural hazards governments are exposed to as well. To shed light on this issue we compare fiscal risk due to natural disaster events pre-Covid and for today to indicate the magnitude of change. This is done by applying the so-called CatSim model which combines natural disaster risk and corresponding losses a government is exposed to with financial resources it has available to finance them. While only indicative due to data limitations our results can be interpreted as a warning call to not underestimate disaster risks that can realize any moment and that will be much more difficult to be efficiently responded to compared to the pre-Covid era. Especially the poor are now in a significant weaker position than before. We suggest some possible ways forward how to enable a more integrated perspective and to track progress of fiscal risks over time.

The coronavirus pandemic caused serious social and economic impacts around the world. Governments implemented massive fiscal stimulus and protection packages to counteract these severe consequences which lead them into weak fiscal positions and elevated debt. This affects the fiscal risk to natural hazards governments are exposed to as well. To shed light on this issue we compare fiscal risk due to natural disaster events pre-Covid and for today to indicate the magnitude of change. This is done by applying the so-called CatSim model which combines natural disaster risk and corresponding losses a government is exposed to with financial resources it has available to finance them. While only indicative due to data limitations our results can be interpreted as a warning call to not underestimate disaster risks that can realize any moment and that will be much more difficult to be efficiently responded to compared to the pre-Covid era. Especially the poor are now in a significant weaker position than before. We suggest some possible ways forward how to enable a more integrated perspective and to track progress of fiscal risks over time.

Disaster risk is increasingly recognized as a major development challenge. Recent calls emphasize the need to proactively engage in disaster risk reduction, as well as to establish new partnerships between private and public sector entities in order to decrease current and future risks. Very often such potential partnerships have to meet different objectives reflecting on the priorities of stakeholders involved. Consequently, potential partnerships need to be assessed on multiple criteria to determine weakest links and greatest threats in collaboration. This paper takes a supranational multi-sector partnership perspective, and considers possible ways to enhance disaster risk management in the European Union by better coordination between the European Union Solidarity Fund, risk reduction efforts, and insurance mechanisms. Based on flood risk estimates we employ a risk-layer approach to determine set of options for new partnerships and test them in a high-level workshop via a novel cardinal ranking based multi-criteria approach. Whilst transformative changes receive good overall scores, we also find that the incorporation of risk into budget planning is an essential condition for successful partnerships.

Disaster risk is increasingly recognized as a major development challenge. Recent calls emphasize the need to proactively engage in disaster risk reduction, as well as to establish new partnerships between private and public sector entities in order to decrease current and future risks. Very often such potential partnerships have to meet different objectives reflecting on the priorities of stakeholders involved. Consequently, potential partnerships need to be assessed on multiple criteria to determine weakest links and greatest threats in collaboration. This paper takes a supranational multi-sector partnership perspective, and considers possible ways to enhance disaster risk management in the European Union by better coordination between the European Union Solidarity Fund, risk reduction efforts, and insurance mechanisms. Based on flood risk estimates we employ a risk-layer approach to determine set of options for new partnerships and test them in a high-level workshop via a novel cardinal ranking based multi-criteria approach. Whilst transformative changes receive good overall scores, we also find that the incorporation of risk into budget planning is an essential condition for successful partnerships.

This paper, part of IDMC's thematic series "The ripple effect: Economic impacts of internal displacement", estimates the fiscal gap that governments of countries affected by internal displacement may face because of future displacement crises. In 2018, IDMC partnered with the International Institute for Applied Systems Analysis (IIASA) to produce the first assessments of the economic impacts of internal displacement. The methodology used for this new paper build upon IIASA's previous work on Catastrophe Simulation modelling and on IDMC's estimates of the economic impacts of internal displacement and model displacement risk in the context of sudden-onset disasters and Disaster Displacement Risk Model. One of the main objectives of this research is to inform budget and development plans by anticipating contingent liabilities associated with internal displacement.

This paper, part of IDMC's thematic series "The ripple effect: Economic impacts of internal displacement", estimates the fiscal gap that governments of countries affected by internal displacement may face because of future displacement crises. In 2018, IDMC partnered with the International Institute for Applied Systems Analysis (IIASA) to produce the first assessments of the economic impacts of internal displacement. The methodology used for this new paper build upon IIASA's previous work on Catastrophe Simulation modelling and on IDMC's estimates of the economic impacts of internal displacement and model displacement risk in the context of sudden-onset disasters and Disaster Displacement Risk Model. One of the main objectives of this research is to inform budget and development plans by anticipating contingent liabilities associated with internal displacement.

While ageing-related costs are perceived as the major drivers of fiscal pressure in the EU, concerns over climate-related public expenditures have received comparatively little attention in securing the EU's long-term fiscal sustainability. Using the Shared Socioeconomic Pathways (SSPs) scenarios as bridging concept for linking the assessment of public cost of demography- and climate-related expenditures, this study proposes a climate risk mainstreaming methodology. We apply a stochastic debt model and assess the potential flood risk in Austria to the public debt and the national disaster fund. Our results indicate that public debt under no fiscal consolidation is estimated to increase from the current level of 84.5% relative to GDP in 2015 to 92.1% in 2030, with macroeconomic variability adding further risk to the country's baseline public debt trajectory. The study finds that the estimated public contingent liability due to expected flood risk is small relative to the size of economy. The existing earmarked disaster risk reduction (DRR) funding will likely reduce the risk of frequent-and-low impact floods, yet the current budgetary arrangement may be insufficient to deal with rising risk of extreme floods in the future. This prompts the need for further discussions regarding potential reforms of the disaster fund. As many EU member states are in the early stages of designing climate change policy strategies, the proposed method can support the mainstreaming of climate-related concerns into longer-term fiscal and budgetary planning.

While ageing-related costs are perceived as the major drivers of fiscal pressure in the EU, concerns over climate-related public expenditures have received comparatively little attention in securing the EU's long-term fiscal sustainability. Using the Shared Socioeconomic Pathways (SSPs) scenarios as bridging concept for linking the assessment of public cost of demography- and climate-related expenditures, this study proposes a climate risk mainstreaming methodology. We apply a stochastic debt model and assess the potential flood risk in Austria to the public debt and the national disaster fund. Our results indicate that public debt under no fiscal consolidation is estimated to increase from the current level of 84.5% relative to GDP in 2015 to 92.1% in 2030, with macroeconomic variability adding further risk to the country's baseline public debt trajectory. The study finds that the estimated public contingent liability due to expected flood risk is small relative to the size of economy. The existing earmarked disaster risk reduction (DRR) funding will likely reduce the risk of frequent-and-low impact floods, yet the current budgetary arrangement may be insufficient to deal with rising risk of extreme floods in the future. This prompts the need for further discussions regarding potential reforms of the disaster fund. As many EU member states are in the early stages of designing climate change policy strategies, the proposed method can support the mainstreaming of climate-related concerns into longer-term fiscal and budgetary planning.

Climate-related disaster risks pose a threat to sustainable development today and in the future. Major global agendas, such as the Sendai Framework for Disaster Risk Reduction and the Sustainable Development Goals, address ways of developing effective management strategies for tackling such risks. Risk management is increasingly focusing on low probability but high impact events, next to the more traditional attention on expected losses. We focus on urban riverine flood risk across 200 countries for today, 2030, and 2080, and develop a risk-threshold approach for identifying whether a country is exposed to risk of extreme events and, if so, when and how much. Furthermore, we apply a risk-layer approach to delineate the kinds of risk reduction or financing instruments that may be needed to manage emerging risks at the national level. Based on these country-level results, we analyze the macroeconomic consequences of setting up a global fund as one international option for coping with floods today and in the future. An additional macroeconomic analysis of different funding schemes for capitalizing the global fund provides insights into linking national risk management efforts with global efforts to manage risks. The global fund could be capitalized according to different equality principles. Our results provide an argument for an equity-based capitalization principle rather than a risk-based one, as the former makes damages at the local level a global responsibility.

Climate-related disaster risks pose a threat to sustainable development today and in the future. Major global agendas, such as the Sendai Framework for Disaster Risk Reduction and the Sustainable Development Goals, address ways of developing effective management strategies for tackling such risks. Risk management is increasingly focusing on low probability but high impact events, next to the more traditional attention on expected losses. We focus on urban riverine flood risk across 200 countries for today, 2030, and 2080, and develop a risk-threshold approach for identifying whether a country is exposed to risk of extreme events and, if so, when and how much. Furthermore, we apply a risk-layer approach to delineate the kinds of risk reduction or financing instruments that may be needed to manage emerging risks at the national level. Based on these country-level results, we analyze the macroeconomic consequences of setting up a global fund as one international option for coping with floods today and in the future. An additional macroeconomic analysis of different funding schemes for capitalizing the global fund provides insights into linking national risk management efforts with global efforts to manage risks. The global fund could be capitalized according to different equality principles. Our results provide an argument for an equity-based capitalization principle rather than a risk-based one, as the former makes damages at the local level a global responsibility.

This paper explores sovereign risk preferences against direct and indirect natural disasters losses in industrialized countries. Using Australia as a case study, the analysis compares expected disaster losses and government capacity to finance losses. Utilizing a national disaster loss dataset, extreme value theory is applied to estimate an all-hazard annual loss distribution. Unusually but critically, the dataset includes direct as well as indirect losses, allowing for the analysis to consider the oft-ignored issue of indirect losses. Expected annual losses (direct, and direct plus indirect) are overlaid with a risk-layer approach, to distinguish low, medium and extreme loss events. Each risk layer is compared to available fiscal resources for financing losses, grounded in the political reality of Australian disaster financing. When considering direct losses only, we find support for a risk-neutral preference on the part of the Australian government for low and medium loss levels, and a risk-averse preference in regard to extreme losses. When indirect losses are also estimated, we find that even medium loss levels are expected to overwhelm available fiscal resources, thereby violating the available resources assumption underlying arguments for sovereign risk neutrality. Our analysis provides empirical support for the assertion that indirect losses are a major, under-recognised concern for industrialized countries. A risk-averse preference in regard to medium and extreme loss events recommends enhanced investment in both corrective and prospective risk reduction in relation to these risks level, in particular to reduce indirect losses.

This paper explores sovereign risk preferences against direct and indirect natural disasters losses in industrialized countries. Using Australia as a case study, the analysis compares expected disaster losses and government capacity to finance losses. Utilizing a national disaster loss dataset, extreme value theory is applied to estimate an all-hazard annual loss distribution. Unusually but critically, the dataset includes direct as well as indirect losses, allowing for the analysis to consider the oft-ignored issue of indirect losses. Expected annual losses (direct, and direct plus indirect) are overlaid with a risk-layer approach, to distinguish low, medium and extreme loss events. Each risk layer is compared to available fiscal resources for financing losses, grounded in the political reality of Australian disaster financing. When considering direct losses only, we find support for a risk-neutral preference on the part of the Australian government for low and medium loss levels, and a risk-averse preference in regard to extreme losses. When indirect losses are also estimated, we find that even medium loss levels are expected to overwhelm available fiscal resources, thereby violating the available resources assumption underlying arguments for sovereign risk neutrality. Our analysis provides empirical support for the assertion that indirect losses are a major, under-recognised concern for industrialized countries. A risk-averse preference in regard to medium and extreme loss events recommends enhanced investment in both corrective and prospective risk reduction in relation to these risks level, in particular to reduce indirect losses.

This paper examines recent experience with insurance and other risk-financing instruments in developing countries, informed by experience in developed countries, to provide insights on the effectiveness of insurance for reducing economic insecurity. Insurance and other risk financing strategies are viewed in the overall context of risk management, including the prevention of losses as well as financing the recovery process through risk pooling and transfer strategies. Specific examples of public-private insurance programs for households/businesses, farms and governments are described, including their limitations, especially in light of recent post-Katrina experience in the US. By examining the costs, benefits and risks of public-private risk-financing programs, insights are provided on the effectiveness of insurance as a mechanism for providing economic security to vulnerable communities and governments.

This paper examines recent experience with insurance and other risk-financing instruments in developing countries, informed by experience in developed countries, to provide insights on the effectiveness of insurance for reducing economic insecurity. Insurance and other risk financing strategies are viewed in the overall context of risk management, including the prevention of losses as well as financing the recovery process through risk pooling and transfer strategies. Specific examples of public-private insurance programs for households/businesses, farms and governments are described, including their limitations, especially in light of recent post-Katrina experience in the US. By examining the costs, benefits and risks of public-private risk-financing programs, insights are provided on the effectiveness of insurance as a mechanism for providing economic security to vulnerable communities and governments.

Droughts pose a significant challenge to farmers, insurers as well as governments around the world and the situation is expected to worsen in the future due to climate change. We present a large scale drought risk assessment approach that can be used for current and future risk management purposes. Our suggested methodology is a combination of a large scale agricultural computational modelling -, extreme value-, as well as copula approach to upscale local crop yield risks to the national scale. We show that combining regional probabilistic estimates will significantly underestimate losses if the dependencies between regions during drought events are not taken explicitly into account. Among the many ways to use these results it is shown how it enables the assessment of current and future costs of subsidized drought insurance in Austria.