Calibrating Fiscal Rules: A Consideration of Natural Disaster Risks

This technical note assesses how large shocks from natural disasters are a key source of vulnerabilities for public finances. It extends the International Monetary Fund (IMF) Fiscal Affairs Department calibration toolkit by developing a methodology to calibrate fiscal rules in the event of natural disaster shocks and the possibility of implementing climate adaptation and mitigation measures.

The features incorporated in this technical note would allow the calibration of a prudent medium-term fiscal anchor as well as annual budgetary limits that ensure the sustainability of public finances. The note is accompanied by a set of toolkits that provides instructions on calibrating a medium-term debt anchor and corresponding operational rules in the presence of natural disaster risks, accounting for climate investment and other mitigation mechanisms.