Estimation of Probabilistic Seismic Losses and the Public Economic Resilience—An Approach for a Macroeconomic Impact Evaluation

Abstract

The Disaster Deficit Index (DDI) measures country risk from a macroeconomic and financial perspective, according to possible catastrophic events. The DDI captures the relationship between the demand for contingent resources to cover the maximum probable losses and the public sector’s economic resilience; that is, the availability of internal and external funds for restoring affected inventories. For calculating potential losses, the model follows the insurance industry in establishing a probable loss, based on the critical impacts during a given period of exposure, and for the economic resilience the model computes the country’s financial ability to cope with the situation taking into account: the insurance and reinsurance payments; the reserve funds for disasters; the funds that may be received as aid and donations; the possible value of new taxes; the margin for budgetary reallocations; the feasible value of external credit; and the internal credit the country may obtain. Access to these resources has limitations and costs that must be taken into account as feasible values according to the macroeconomic and financial conditions of the country. This article presents the model of DDI and proposes it as a simple way of measuring a country’s fiscal exposure and potential deficit—or contingency liabilities—in case of extreme disasters to guide the governmental decisionmaking from economic, financial, and disaster risk reduction perspectives.