WASHINGTON, United States (CMC) — The International Monetary Fund (IMF) says that in addition to permanent damages to public and private capital, natural disasters cause temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the country’s creditworthiness.

In a study that explored the macroeconomic impact of natural disasters, the authors of the IMF Working Paper titled “Building Resilience to Natural Disasters: An Application to Small Developing States”, note that small developing states like those in the Caribbean are frequently hit by natural disasters that tend to leave long-lasting scars in the economy.

So far this year, several Caribbean islands, namely Dominica, Antigua and Barbuda, the British Virgin Islands, the Turks and Caicos Islands, Anguilla and St Martin, have been devastated by Hurricanes Irma, and Maria.

In addition several other countries such as The Bahamas, Haiti and St Kitts-Nevis have suffered extensive damage as a result of the Category 5 storms.

In the working paper, the authors, Ricardo Marto, Chris Papageorgiou, and Vladimir Klyuev, argue that in addition to deaths of a non-negligible fraction of the population, natural disasters destroy public and private infrastructure needed for the economy to function, disrupting economic and social activities with long-lasting effects.

“They also put considerable strains on government finances, frequently demanding a swift reconstruction of major infrastructures—yet with limited room to raise additional revenues or curtail transfers and other expenditures.”

The paper assesses two main policy issues, namely if the government were to fully rebuild the public infrastructure destroyed by the cyclone in less than a decade, what additional resources would the donor community have to pitch in to ensure fiscal and debt sustainability over the medium term?; and secondly if the government were to invest in resilient infrastructure and save financial resources in a contingency fund, how fiscal and debt sustainability would be improved after the disaster?

Using the Pacific island of Vanuatu, severely hit by Cyclone Pam in March 2015, the authors noted that the country could not face damages alone and that grant-fathering is key for debt sustainability.

“In spite of the moral hazard issues linked with such a strategy, bi and multilateral partners would have to significantly scale up their financial contributions following the cyclone if the donor community wants to ensure a smooth recovery.

“Second, the government can, and should, invest in resilient infrastructure and build fiscal buffers that would attenuate the impact of the disaster. However, these initiatives imply some policy choices head-on: the government would need to create fiscal space – raising taxes or reducing other expenditure — or resort to borrowing.

“Finally, and more importantly, donors can help make these investments. This would help reduce the need for their financial contributions post-disaster”