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PEPP Seminar: Fiscal Rules and Targets Incorporating Natural Disasters and Climate Change (June 26)

2019/06/05

Title: Fiscal Rules and Targets Incorporating Natural Disasters and Climate Change

Presenter: Dr. Ryota Nakatani, Economist in the Fiscal Affairs Department of the International Monetary Fund (IMF)

Date: Wednesday, June 26, 2019

Time: 16:45- 18:15

Venue: 3K Building, Room 311 (Central Area)

Coordinator: Prof.Hisahiro Naito

Abstract:

A big challenge for the economic development of small island countries is dealing with external shocks. The Pacific Islands are vulnerable to natural disasters shocks, climate-related changes, commodity price changes, and uncertain donor grants. The question that arises is how should small developing countries formulate a fiscal policy to achieve economic stability and fiscal sustainability when prone to various shocks? We study how natural disasters affect long-term debt dynamics and propose fiscal policy rules that could help insulate the economy from such unexpected shocks. We empirically analyze the debt-growth nexus in the Pacific Islands and formulate fiscal rules to address these shocks and uncertainties by using the example of Papua New Guinea.

Our study finds the advantages of expenditure rules, especially a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This paper contributes to the literature and policy dialogue by theoretically analyzing the impact of natural disasters on debt sustainability and proposing cutting-edge fiscal rules against natural disasters and climate changes. Our fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of natural catastrophes and climate-change shocks. Our hands-on rule-based fiscal framework is crucial for sustainable and countercyclical macroeconomic policies to build resilience against devastating natural hazards.

 

Dr. Ryota Nakatani is an Economist in the Fiscal Affairs Department of the International Monetary Fund (IMF). During his 11-year career as an economist at the IMF and the Bank of Japan, Dr. Nakatani has abundant experience; his responsibilities include economic analyses and forecasts of more than 20 countries and a leader of the central bank’s main macroeconomic model team. He has published seven peer-reviewed journal articles in the areas of financial crisis, monetary policy, and firm performance. Dr. Nakatani earned his Ph.D. in economics from the University of California and a M.P.P. from Hitotsubashi University.

 

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