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Debt Sustainability under Catastrophic Risk: The Case for Government Budget Insurance

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  • Eduardo A. Cavallo
  • Patricio Valenzuela
  • Eduardo Borensztein

Abstract

Natural disasters are an important source of vulnerability in the Caribbean region. Despite being one of the more disaster-prone areas of the world, it has the lowest levels of insurance coverage. This paper examines the vulnerability of Belizes public finance to the occurrence of hurricanes and the potential impact of insurance instruments in reducing that vulnerability. The paper finds that catastrophic risk insurance significantly improves Belizes debt sustainability. In addition, the methodology employed makes it possible to estimate the appropriate level of insurance, which for the case of Belize is a maximum coverage of US$120 million per year. International organizations can play a role in assisting countries to overcome distortions in insurance markets, as well as in helping to relax internal political resistance to the purchase of insurance policies.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6847.

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Date of creation: Jun 2007
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Handle: RePEc:idb:brikps:6847

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Keywords: Disasters; Economics; WP-607;

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Citations

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Cited by:
  1. C. Grislain-Letrémy, 2013. "Natural Disasters: Exposure and Underinsurance," Documents de Travail de la DESE - Working Papers of the DESE, Institut National de la Statistique et des Etudes Economiques, DESE g2013-12, Institut National de la Statistique et des Etudes Economiques, DESE.
  2. Makena Coffman & Ilan Noy, 2009. "In the Eye of the Storm: Coping with Future Natural Disasters in Hawaii," Working Papers, University of Hawaii at Manoa, Department of Economics 200904, University of Hawaii at Manoa, Department of Economics.
  3. Ilan Noy, 2012. "Natural Disasters and Economic Policy for the Pacific Rim," Working Papers, University of Hawaii at Manoa, Department of Economics 201201, University of Hawaii at Manoa, Department of Economics.
  4. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters - A Survey," Working Papers, University of Hawaii at Manoa, Department of Economics 200919, University of Hawaii at Manoa, Department of Economics.
  5. Eduardo Cavallo & Ilan Noy, 2010. "The Aftermath of Natural Disasters: Beyond Destruction," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 11(2), pages 25-35, 07.
  6. Makena Coffman & Ilan Noy, 2009. "A Hurricane’s Long-Term Economic Impact: the Case of Hawaii’s Iniki," Working Papers, University of Hawaii at Manoa, Department of Economics 200905, University of Hawaii at Manoa, Department of Economics.
  7. Grislain-Letrémy, Céline, 2013. "Natural Disasters: Exposure and Underinsurance," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/13276, Paris Dauphine University.
  8. John Pollner, 2012. "Financial and Fiscal Instruments for Catastrophe Risk Management : Addressing Losses from Flood Hazards in Central Europe," World Bank Publications, The World Bank, The World Bank, number 9381, February.
  9. Céline Grislain-Letremy, 2013. "Natural Disters : Exposure and Underinsurance," Working Papers, Centre de Recherche en Economie et Statistique 2013-15, Centre de Recherche en Economie et Statistique.
  10. Ilan Noy & Tam Bang Vu, 2009. "The Economics of Natural Disasters in a Developing Country: The Case of Vietnam," Working Papers, University of Hawaii at Manoa, Department of Economics 200903, University of Hawaii at Manoa, Department of Economics.
  11. Ugo Panizza, 2008. "The External Debt Contentious Six Years after the Monterrey Consensus," G-24 Discussion Papers, United Nations Conference on Trade and Development 51, United Nations Conference on Trade and Development.

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