This paper reviews the literature on the macroeconomic impact of natural disasters and presents the IMF’s role in assisting countries coping with natural catastrophes. Focusing on seven country cases, the paper describes the emergency financing, policy support, and technical assistance provided by the Fund to help governments put together a policy response or build a macro framework to lay the foundation for recovery and/or unlock other external financing. The literature and experience suggests there are ways to strengthen policy frameworks to increase resilience to natural disaster shocks, including identifying the risks and probability of natural disasters and integrating them more explicitly into macro frameworks, increasing flexibility within fiscal frameworks, and improving coordination amongst international partners ex post and ex ante. The occurrence of natural disasters has increased in frequency across the globe over the past 50 years. Estimates of the economic and financial losses from natural disasters have also risen. While the reporting of natural disasters has improved, these upward trends are due primarily to a documented rise in the number and intensity of climactic disasters, and to an increase in the concentration of people and physical assets in areas more exposed to disasters. Research has found that natural disasters have a significant negative impact on growth and poverty. The impact of disasters on an economy will depend on many factors like the nature of the shock, the size and structure of the economy, population concentration, per capita income, financial depth, governance, and openness.

In the short term, disasters typically result in a contraction in economic output and a worsening in external and fiscal balances. The impact is sometimes alleviated by an increase in transfers from abroad. Natural disasters can also have a significant negative impact over the long term on poverty and social welfare. The poor have limited savings and access to credit, so are not able to supplement their incomes following a crisis. This can drive households into “poverty traps” with negative health and social effects (Hallegatte and Przyluski, 2010). Indeed, disasters have been found to have long-lasting consequences on psychological health and cognitive development (Norris, 2005; Santos, 2007).