The Impacts of Disaster Risk on Sovereign Asset and Liability Management
Implicit contingent liabilities, such as those generated by natural disasters, are often not quantified in the government balance sheet. However, when they materialize, they place pressure on government finances that may raise interest expenditures...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/undefined/303611630572516822/The-Impacts-of-Disaster-Risk-on-Sovereign-Asset-and-Liability-Management http://hdl.handle.net/10986/36256 |
| Summary: | Implicit contingent liabilities, such as
those generated by natural disasters, are often not
quantified in the government balance sheet. However, when
they materialize, they place pressure on government finances
that may raise interest expenditures and financial risks.
Understanding the impacts of disaster risk on sovereign
assets and liabilities plays a key part in understanding the
potential impact of sovereign disaster risk finance
strategies which allow governments to reduce the costs and
risks of disasters using prearranged financing and insurance
methods. Applying the Sovereign Asset and Liability
Management (SALM) framework is a new and comprehensive way
of looking at the potential impact of a disaster on the
public sector balance sheet through assets and liabilities.
This paper introduces a framework that identifies three
channels through which natural disaster will impact SALM.
This framework is applied in three case studies, Peru,
Serbia and New Zealand to derive lessons about the potential
impact of natural disasters on the sovereign balance sheet
and highlight the importance of accounting for disaster
impacts across public sector balance sheets. The application
of SALM can increase countries’ resilience to financial
shocks posed by disaster risk through improved understanding
of the impacts of disaster risk on both sides of the
sovereign balance sheet. Going forward it could even be used
to define a country’s risk tolerance to disaster risk,
monitor changes in this position and help to inform policy
design on disaster risk and where needed support the
introduction of financial instruments to manage disaster risk. |
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