Working Paper Assessment of the Potential Impact of Natural Hazard Events on Debt Sustainability of Armenia, Kyrgyzstan, and Tajikistan
The Eurasian Fund for Stabilization and Development (EFSD) has prepared a new Working Paper titled Assessment of the Potential Impact of Natural Hazard Events on Debt Sustainability of Armenia, Kyrgyzstan, and Tajikistan. Due to their geographical location, relatively small territory and highly concentrated economies, disaster risks can have a significant impact on the macroeconomic performance of these states.
The research includes country profiles with systematised information on geography, climate, demography and economy, as well as a compilation and analysis of data on past disasters. Based on the analysis of historical data, it is concluded that earthquakes and droughts pose the main threat to the economic sustainability of Armenia, and earthquakes and floods pose the main threat to the economic sustainability of Kyrgyzstan and Tajikistan.
EFSD experts developed an algorithm that can be used to assess the impact of natural hazards on macroeconomic indicators and debt sustainability of various countries. The algorithm has several steps: (1) selection of the natural hazard type for analysis, (2) assessment of the supply shock affecting economic activity, (3) application of general equilibrium models to assess the impact that such supply shock may have on various macroeconomic indicators, and (4) stress testing within the framework of the debt sustainability analysis.
"The presented approach and assessments can be used to develop fiscal strategies and natural hazard mitigation strategies to reduce the vulnerability of the countries to potential adverse events. This, in turn, will contribute to a more effective financial risks management and ensure a stable economic development", — says Sergey Ulatov, Deputy Managing Director — EFSD Chief Economist.