2021-12-07-ADB-Building_Back_Better_in_Small_Island_Developing_States_in_the_Pacific_Initial_Insights_from_the_BinD_Model_of_Disaster_Risk_Management_Policy_Options_in_Fiji_25页_1mb

Summary of ADBI Working Paper: Building Back Better in Small Island Developing States in the Pacific

Authors: Nepomuk Dunz, Hajime Tanaka, Nagisa Shiiba, Junko Mochizuki, and Asjad Naqvi
Publication: December 2021, Asian Development Bank Institute, Working Paper No. 1290

This study addresses the vulnerability of small island developing states (SIDS) in the Pacific, with a focus on Fiji, to climate change and natural disasters. Building on historical data, the paper analyzes how disasters like cyclones combine with pandemics, such as COVID-19, impose significant economic strains on resource-constrained economies.

Context and Problem:
Fiji, a SIDS, faces frequent disasters including cyclones and floods, which are worsened by climate change. The economy depends heavily on imports and tourism, leading to high vulnerability to external shocks. The 2020 compound disaster of Cyclone Harold and COVID-19 caused severe economic damage, highlighting the need for effective disaster risk management (DRM) policies. Existing literature lacks analysis of such interactions.

Methodology:
The research utilizes a simplified version of the BinD model, a demand-driven macroeconomic framework that incorporates savings, fiscal, and foreign sector constraints. This model assesses the impacts of disasters and policy responses, considering dynamics in capital formation and economic recovery under scenarios where demand and supply are constrained. Data sources include Fiji-specific statistics and international databases, calibrated for the base year 2017.

Results:
The simulations show that targeted government spending is beneficial for recovery, but financing methods yield contrasting outcomes:

• Debt-financed recovery, through foreign borrowing, allows faster, less painful recovery but requires quick access to external funds.
• Tax-financed recovery compensates for foreign borrowing gaps but results in smaller GDP increases and reduced private consumption in the short term due to lower aggregate demand.
  In scenarios with compound shocks (e.g., cyclones plus COVID-19), debt-financed policies perform better, while tax-based approaches delay recovery.

Conclusion and Recommendations:
The paper emphasizes the critical role of foreign capital in post-disaster recovery for fragile economies like Fiji. Debt-financed policies are recommended for immediate recovery, but long-term sustainability depends on credible debt repayment plans. It suggests further research on other financing mechanisms, such as sovereign insurance, and their distributional effects. The study underscores the need for international cooperation to enhance access to donor funding and resilience-building policies.