Explicit commitments by governments to provide post disaster financial assistance vary widely. In some economies legal frameworks and policies clearly stipulate what central governments finance in terms of post disaster costs, while in others governments make a more general commitment to provide financial assistance, but without being specific.
Damage to public assets, such as public buildings and infrastructure is the largest disaster-related liability for central governments. Publicly owned buildings and infrastructure make up the majority of disaster costs incurred by central governments. To better control the level of these costs several governments have implemented measures such as asset registries, which allow for better monitoring of asset exposure, and public asset insurance, which reduces their liabilities in the event of a disaster.
The liabilities most difficult to control for central governments are those that stem from damages to assets and infrastructure owned by subnational governments. These damages become a central government liability where rules about the responsibility for associated costs are unclear or where financial capacity constraints at subnational level lead central governments to assume responsibility for these costs. To limit these liabilities, a number of governments have implemented clear rules for sharing costs between levels of government for disaster damages. To further minimise such costs some central governments have strengthened incentive mechanisms, for example through co-financing agreements, to encourage subnational governments to invest in reducing their assets’ vulnerabilities.
Governments have actively implemented rules limiting financial support for disaster damages incurred by state-owned enterprises. Most, but not all, governments have established rules obliging state-owned enterprises to manage exposure to disasters on their own, by purchasing insurance or creating the necessary emergency reserves.
Various measures are financed by central governments to provide post-disaster assistance for individual households. All studied governments provide immediate relief assistance to households, such as temporary shelter or food, without reference to household income. Additional support for the rehabilitation or reconstruction of houses is provided by some governments, while many make such aid dependent on the household’s income.
Governments have supported post disaster assistance for businesses to limit the prolonged negative economic impact of disasters. This includes safety-net programs, such as interest-free loans, to help balance temporary cash-flow problems and avoid potential business closures.
The share of implicit disaster-related contingent liabilities rises when extreme events occur. Implicit liabilities tend to be higher still for governments that have made limited or vague commitments about what they are going to pay for prior to a disaster. Such liabilities arise in the form of an ad-hoc expansion of rules for financial assistance defined prior to a disaster. They tend to increase when political pressure to assist is high or when there is a risk for prolonged economic suffering.
Systematic quantification of disaster-related contingent liabilities remains limited despite significant information available to estimate their overall size. The case studies show that governments have significant information on the sources and potential level of disaster-related contingent liabilities. This information, however, is often stored in a scattered way and rarely collated to support financial planning.
Governments acknowledge the value of incorporating disaster-related contingent liabilities in fiscal risk assessments, however, in practice governments do not often take this step. Most governments do not count disaster-related contingent liabilities as part of fiscal risks or government liabilities. Some governments report such liabilities in a qualitative reference in their budget statements, while others point to a specific number, such as is the case for government-backed disaster insurances.