definition

A common way for emerging-economy governments to raise funds after a disaster is to borrow from their central bank reserves or to issue government bonds (Kunreuther H. and Linnerooth-Bayer J., 1999, p.14).

Co-benefits and impacts

Financial preparedness is the major benefit. While the interest on government issued bonds will generally be less than the interest on cat bonds or the premiums on insurance, there are also disadvantages to this form of financing. There may be concerns about transferring the disaster costs in part to future generations who will be burdened by this debt. In addition, issuing bonds or borrowing from central bank reserves will contribute to the budget deficit. This financing instrument may also transfer a part of the burden to the domestic and international investors in these bonds to the extent that the government defaults on its debt. The bond rating will depend on this default risk, which determines the cost to the government of borrowing funds.
(Kunreuther H. and Linnerooth-Bayer J., 1999, p.14)

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Last modified: Sept. 16, 2016, 3:20 a.m.