moderate and severe storms increase the debt-to-GDP ratio, although only the former is statistically significant.

Cabezon et al (2016) estimated the fiscal impact of natural disasters in five Pacific Island countries using a VAR covering years between 1970 and 2013. Disasters are scaled in terms of intensity (deaths and number of people affected relative to total population). Natural disasters which cause damages and losses equivalent to one percent of GDP cause an average fall in GDP of 0.7 percent in the year of the disaster and a deterioration in the fiscal balance of 0.5 percent of GDP (also in the year of the disaster), with tax revenues falling by 0.2 percent of GDP and spending rising by 0.7 percent of GDP (the impact on the fiscal balance is mitigated by a rise in grants).

In the following analysis, we use an event study methodology to examine the impact of hurricanes which caused large damages on islands in the Pacific and the Caribbean, on GDP growth, general government revenues and expenditures, the overall fiscal balance and (where data are available) public debt. The events we study are tropical cyclones that caused the largest damages in the 2010s; hurricanes Erika and Maria in Dominica, in 2015 and 2017 respectively, hurricane Irma in Antigua and Barbuda in 2017, cyclone Evan in Samoa in 2012 and cyclone Pam in Vanuatu in 2014.<sup>10</sup> The source of the data is the World Economic Outlook (WEO) database. For each tropical cyclone disaster, we compare the outturns in the affected country in the two years following the tropical cyclone with a counterfactual. The counterfactual we use is the projected outturn for these variables which was made just prior to the disaster, as shown in the applicable vintage of the WEO database. Hence, for example, the projection for outturns for Dominica before it was struck by hurricane Erika at the end of August 2015 are taken from the April 2015 WEO database. For each variable, we show the deviation of the outturn, after the disaster, from the projection made just before the disaster. As a control group, we use the similar deviations of outturns from projections for the other SIDS in the same region.<sup>11</sup> For Caribbean countries, cyclone disasters all occurred towards the end of the third quarter of the calendar year. As we are using annual data, we construct outturn variables composed of one quarter of the value of the variable in the calendar year in which the disaster occurred and three quarters of the value of the variable in the following year and similarly for the subsequent year. Cyclone Evan struck Samoa in December 2012, so we examine the economic outturns in the 2013 and 2014 calendar years. Cyclone Pam struck Vanuatu in March 2015, so we construct 12-month outturns for 2015/16 and 2016/17 from the calendar year data.

Table 3.A shows the impact of hurricane Erika, which struck Dominica in August 2015 and caused damages estimated at 89 percent of GDP (table 2). Compared to pre-disaster projections, real GDP growth was slightly lower in the first 12 months after the disaster and substantially lower in the second 12 months. There was a large increase in government expenditure in both periods (a combined 30 percent of GDP) presumably to pay for the costs of repair and reconstruction, but this was more than offset by even higher government revenues and, as a result, fiscal balances improved and gross public debt fell in the first 12 months, although it was at a roughly similar level by the end of the second 12 months to that which had been

> 10 We do not include hurricane Dorian in the Bahamas in 2019 or cyclone Harold in Tonga in 2020 because the impact of these disasters is likely to be masked by the negative effects of the COVID-19 pandemic.

> 11 Not all of the SIDS in Oceania are included in the control group because of missing data for some countries.

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