Fiscal Resilience and Building Back Better: A Global Analysis for Disaster Risk Reduction Strategies

Abstract

Recent global assessments dealing with extreme event risks linked to geophysical and hydrometeorological variability have emphasized the imperative of disaster risk management as a core element in the public sector and business investment strategies. While a disaster is by definition a devastating shock to any risk bearer or affected system, it can also represent an opportunity in terms of a window for “Building Back Better” (BBB) and thus reducing risk in the longer term. Such strategies are associated with many constraints, of which lack of finance ranks high. This chapter presents a methodology as well as monetary estimates of the costs and benefits of such an approach from a global perspective. The specific question pursued is to examine how governments are fiscally prepared to build back better and provide adequate ex-post support to private sector losses. This is based on a fiscal stress testing methodology, which is extended for a BBB policy and compared to a policy strategy of rebuilding the status quo. The approach computes the return period of fiscal gaps, i.e., insufficient resources to recover from a disaster event and determines annual funding requirements needed for capitalizing a multi-hazard global fund which would absorb these gaps, either for all return periods or certain risk layers. It is found that building back better could considerably reduce future disaster risk, especially for the most at-risk countries. Beyond the quantification, the methodological approach provides a stepping stone for systematic assessments of building back better strategies for reducing long-term risk, which is a precondition for the achievement of many sustainable development goals and is part of two of the four pillars of the Sendai Framework for Risk Reduction.