Disaster Risk Management and Fiscal Policy: Entry Points for Finance Ministries

Abstract

This chapter reflects on the benefits of disaster risk management (DRM) in the context of fiscal policy and public investment. Of particular interest is the question of how those in charge of fiscal policy decisions can recognise and realise the economic and broader benefits of DRM. We consider the interplay between public DRM investment and fiscal policy and provide an overview of current debate as well as assessment methods, tools and policy options. Standard practice has been to focus on direct liabilities and recurrent spending, dealing the costs of disasters often only after the fact. Their full costs have thus often not been budgeted for; with a price signal missing, there is lack of clear incentives for investing in DRM. The discussion traces progress by focusing strongly on analytics and current practice. Overall, we identify four steps, being pursued deliberately: (1) assessing the relevance of disaster risk for public finance; (2) protecting public finance through risk-financing-examining insurance-related instruments that support protection of the fiscal position (first dividend of resilience); (3) comprehensively managing disaster risk, including reduction and preparedness as they affect development (second dividend of resilience); and (4) pursuing a synergistic co-benefits strategy of concurrently managing disaster risks and promoting development (third dividend of resilience).