Disaster risk as a fiscal contingent liability: a useful tool for disaster risk management

Abstract

This study presents a methodology to evaluate the disaster risk from a macroeconomic perspective. The proposed Disaster Deficit Index (DDI) represents risk from a macroeconomic and financial perspective in case of possible catastrophic events. This requires an estimation of the critical impact during a given exposure time and the financial ability to cope such situation. The DDI captures the relationship between the demand for contingent resources to cover the maximum probable loss and the public sector’s economic resilience; that is, the availability of internal and external funds for restoring affected inventories. This paper presents the model of the DDI and the results of its application to seventeen countries of the Americas. The DDI can be a guide for economic risk management; these results can be studied by economic, financial and planning analysts who can evaluate the budget problem and the need to take into account these figures in the financial planning.