Abstract:
This paper examines the financing of disaster risk management. Future climate and disaster risks are predicted to impose increasing financial pressure on the governments of low-lying atoll nations. The aftermath of a disaster, such as a cyclone, requires financial means for quick response and recovery. We quantify the appropriate levels of financial support for expected disasters in Tuvalu and Kiribati by building on the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) calculated likely costs for disasters. To these, we add estimates of the potential effects of distant cyclones, droughts, sea level rise, and climate change, as they are predicted to affect low-lying atoll islands. This paper focuses on the potential contribution of the sovereign wealth funds (SWFs) of Tuvalu and Kiribati in reducing reliance on foreign aid for ex-post disaster risk management. We forecast the future size of SWFs using Monte Carlo simulations and an Auto-Regressive Integrated Moving Average model. We examine the long-term sustainability of SWFs, and the feasibility of extending their mandate for disaster recovery.
