The fourth term, , is the share of disaster payouts spent in year on category . In this formulation, the total disaster risk payout need not be paid out in one year, thus EE ∑ is the tt RReepp<sup>ii</sup> ∗BB SS DD total payout equal to the sum of partial payments made over T years. Finally, the spending and finance TT EE tt=0 tt tt shares must sum to one = 1 and = 1 . BB = BB As modeled, the expenditure adjustment shares are set equal to the share of each observed in 2017. As ∑ffDDnnii<sup>ii</sup> ∑RReeppii<sup>ii</sup> a result, in the absence of risk management spending, in the steady state spending shares will be constant at those 2017 rates. The term determines from what categories of expenditure risk management strategies are paid and in what proportion. To the extent these shares differ from 2017 tt ffDDnn<sup>ii</sup> AA the steady state expenditure shares deviate from 2017 . ii gg ii 4.2. Risk premium in government debt gg To reflect increased risk at higher interest rates, the interest paid on government debt is assumed to rise with the debt-to-GDP ratio in the previous year, ∗ + 0.02 ∗�<sup>D</sup> ∗100 −60�, EE<sup>SStt−1</sup> where is the government interest rate, rrtt = rr ∗ is the estimated interest rate at a 60 percent Debt to GDP tt−1 YY ratio, D EE is the government debt and is GDP. is estimated based on historical data for Jamaica. tt rr rr Governments have debt contracts with contractually agreed interest rates. To approximate the yield SStt YYtt rr<sup>∗</sup> curve, we calibrate the average interest rate on debt using a lag structure. The weights are roughly based on data on the actual debt maturity structure in Jamaica. Thus, the effective interest rate paid on all debt in a given year is calculated as a weighted average of the rates agreed in the previous four years, D D D D D D . tt tt tt tt tt tt 4.3. Financing risk management rr������= 0.1 ∗rrtt tt + 0.1 ∗rrtt−1 + 0.15 ∗rrtt−2 + 0.2 ∗rrtt−3 + 0.45 ∗rrtt−4 All four approaches to risk management require resources to be allocated by the government in advance of a hurricane, be it as adaptation investments, insurance premia, payments to the contingency fund or faster debt repayments. Each risk management strategy has its own strengths and weaknesses. Common to each of them, however, is the need to mobilize resources to make the _ex-ante_ payments.

A first option for mobilizing additional resources is to raise additional debt. Appendix C.2 illustrates how this would affect the long run debt level. However, countries in the Caribbean are already at or near the limit of sustainable debt. Jamaica follows a fiscal rule that puts an upper limit on debt of 60% of GDP. Jamaica has made significant progress in reducing debt. Debt in 2013 equaled 135.9 percent of GDP and has been reduced to below 100 percent in 2019, the lowest level in nearly two decades. While good progress has been made, the country will require additional consolidation efforts to reduce debt below the 60 percent to GDP mark. In addition to the cost involved in increasing the interest rate on debt, many countries are unable to issue additional debt because financial markets are not willing to accept the debt. A second option is to increase government revenue, by increasing taxes. The final option, and the one pursued in this paper, is to reduce government spending. We acknowledge the challenges in reducing government expenditures given committed spending on social protection, education and health care. That choice is motivated by the already high debt levels faced by Jamaica, and the political 10