Name: DIGNAD (Debt-Investment-Growth and Natural Disaster)
Type: DGE
Institution: IMF Research Department
Documentation: Website; User manual
Geographic coverage: Single country (multiple)
Description: DIGNAD is used within the IMF to study the macro-fiscal impacts of climate risk from natural disasters and the potential for investments in climate-resilient infrastructure to mitigate these risks in lowerincome countries. It can be tailored to country-specific scenarios, macroeconomic context, and country-relevant policy considerations.
Questions to be answered/variables considered: The model is designed to evaluate the impact of a one-off natural disaster on the economy via four channels: damages to public or private capital, temporary productivity loss, decline in public investment efficiency, and loss of creditworthiness. The size of the impact and the relative importance of the channels are calibrated using historical data on economic losses and by the user, respectively. The government can rebuild public capital, incurring fiscal costs. Private sector investments can rebuild private capital. Two types of infrastructure, standard and climate-resilient, are reflected. The latter is more durable (lower depreciation rate), suffers smaller damages from natural disasters, and has a higher rate of return, but is more costly. The trade-offs of building fiscal buffers can also be considered via the model. Questions the model can help consider concern the impact of natural disasters on key macroeconomic variables such as GDP, fiscal deficit, and so on, and on debt sustainability, and how the impact varies with the mode of financing. The relative costs and benefits of ex-ante investment in climate-resilient infrastructure versus ex-post rebuilding of the capital stock and potential complementary policies, such as increasing efficiency of public spending, can also be considered.
Strengths: DIGNAD can be calibrated and used via an entirely Excel-based interface. This means coding skills in MATLAB and Dynare are not required to use the model.
Limitations: Although the model can be access via Excel, MATLAB does need to be installed on the user’s computer.
Use: There have been over a dozen applications of the DIGNAD model in Article IV staff reports and Selected Issues papers, as well as in flagship publications such as the IMF’s External Stability Report and also working papers. The DIGNAD toolkit and user manual, launched online in 2023, are hosted at the IMF Climate Change Dashboard. The IMF’s Research Department, in collaboration with the Institute of Capacity Development, delivers training, workshops, and webinars to IMF economists and external participants in its use.
Development: Work is underway to add new modules to the toolkit, including an Energy Resilience Module. This incorporates energy production and consumption and endogenous dynamics in the energy sector. This will enable study of the interaction between building resilience to natural disasters and energy resilience, and the fiscal implications of alternative financing schemes.