Introduction
Unexpected shocks may tip countries with elevated fiscal vulnerabilities into default. The literature has emphasized the role of macroeconomic and financial shocks, such as a decline of commodity prices (Reinhart et al., 2016) or banking crises (Baltenau and Erce, 2018) in shaping sovereign risk. However, other types of shocks, such as political events or natural disasters, are equally important.
2 Extreme weather events appear especially salient in light of the key role played by natural disasters in recent sovereign default episodes (i.e. Grenada 2004, and Antigua y Barbuda 2004 and 2009), the climate crisis, and the recent emphasis on incorporating natural-disaster risk as a component of macroeconomic risk management. In particular, the increase in the frequency and intensity of natural disasters, has led several economists and policy makers to advocate in favor of adopting disaster clauses that allow for a temporary debt moratorium when countries are hit by catas