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

Eduardo Cavallo, Patricio Valenzuela and Eduardo Borensztein

No 1955, IDB Publications (Working Papers) from Inter-American Development Bank

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.

Keywords: WP-607 (search for similar items in EconPapers)
JEL-codes: G15 G22 H30 Q54 (search for similar items in EconPapers)
Date: 2007-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Debt Sustainability Under Catastrophic Risk: The Case for Government Budget Insurance (2009)
Working Paper: Debt Sustainability Under Catastrophic Risk: The Case for Government Budget Insurance (2008)
Working Paper: Debt Sustainability under Catastrophic Risk: The Case for Government Budget Insurance (2008)
Working Paper: Debt Sustainability under Catastrophic Risk: The Case for Government Budget Insurance (2007)
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