Finally, we look at the impact of Cyclone Pam on Vanuatu, shown in table 3.E. This was a large disaster, causing damage estimated at 60 percent of GDP. In terms of the damage caused as a share of GDP, it was by far the largest cyclone disaster in Oceania in the last three decades. Real GDP growth was lower than had been projected before the disaster in the first 12 months after the cyclone hit, but recovered partially in the following 12 months. There were large increases in government expenditure, cumulatively amounting to 30 percent of GDP in the 24 months after the disaster, but this was matched by higher revenue, so that over the course of the two years, the fiscal deficit was no larger than had been projected before the disaster. Despite this, government debt was almost 18 percentage points of GDP higher in 2017 than had been projected before the disaster.

Any conclusions drawn from this very limited sample of cyclone disasters must be treated as very tentative at best, but one point in particular stands out. The three large cyclone disasters— Erika, Maria and Pam—were all followed by a very large increase in government expenditure in the following 24 months. Specifically, government expenditure increased by 30, 47 and 30 percentage points of GDP respectively over the 24 months combined, relative to the pre-disaster projections. This was most likely because of the need for relief operations and repair and reconstruction. In fact, the rise in total government expenditure masked the extent of the post disaster recovery spending, because there were significant reallocations of expenditure from non-disaster related items to help fund the recovery efforts.<sup>13</sup> The two smaller disasters, Irma and Evan, did not lead to a large increase in total government spending.

For the three largest disasters, the increase in government expenditure was accompanied by increased government revenue, and only in one of these disasters, Maria, did the increase in government spending exceed the increase in revenue over the 24 months combined, leading to a reduction in the fiscal balance and a rise in public debt. The increase in government revenue is most likely attributable to inflows of grant aid to fund post disaster recovery expenditures, as there is no reason why other components of government revenue, such as taxes, should have risen so steeply following the disasters.

None of the cyclone disasters had a major impact on real GDP growth, with the partial exception of Erika, when growth was lower by six percentage points in the second year after the disaster. In the two other large disasters, Maria and Pam, real GDP growth was lower in the first year after the disaster but rebounded in the second year, probably because reconstruction activities boosted the economy. This finding is in accord with that of World Bank (2021), which, focusing on SIDS in the Caribbean, found that although natural disasters cause a lot of damage to infrastructure assets, especially housing, the negative impact on GDP is relatively short lived and the economy quickly rebounds. Caribbean economies have developed a high degree of economic resilience to natural disasters through a variety of mechanisms, including the preparation of disaster preparedness plans by governments and private sector firms, investments to reduce the vulnerability of productive assets to damage, and access to remittances from abroad by households to smooth consumption.

> 13 In Dominica, following hurricane Erika in 2015, non-reconstruction government capital expenditures fell sharply and were depressed below pre-Erika levels for several years (Guerson, 2020, p12).

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