In this webinar we discuss how natural disasters can exacerbate fiscal vulnerabilities and trigger sovereign defaults. Focusing on seven Caribbean economies that are subject to hurricane risk, we show that natural disasters reduce governments' ability to issue debt and depress welfare. Climate change further weighs on governments' ability to issue debt. “Disaster clauses”, which allow governments to suspend payments when the economy is hit by natural disasters, are effective at improving market access and mitigating the impact of climate change. This is especially true when such clauses allow for debt forgiveness.

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