From 2017-2020 there was a sharp increase in the number and size of exogenous shock response PBOs to address the adverse impacts of natural hazard events. The exogenous shock response PBL is intended to ensure that economic and social gains from the country’s reform program are protected as the country recovers from a crisis. In addition, the instrument seeks to ensure that macroeconomic stability is maintained, and long-term fiscal and debt sustainability is preserved. Hence, some of the reforms in exogenous shock response PBOs focus on establishing a sound macroeconomic framework prior to the crisis. The first exogenous shock response PBO was approved in 2018 in the aftermath of hurricanes Irma and Maria.

The reform agendas supported by the exogenous shock response PBOs have broadly resembled those of the macroeconomic PBOs but have also included reforms concerned with disaster management and resilience building. Some of the key reforms supported in the four exogenous shock response PBOs thus far have focused on disaster risk insurance (in the case of Anguilla, Bahamas, and the Virgin Islands) as well as the legislative and institutional framework for disaster planning and response. Reforms connected with social protection and social resilience were evident in the PBL to Saint Lucia (in response to COVID-19), and in the PBOs to the British Virgin Islands and Anguilla. For example, the Saint Lucia PBO supported proxy means testing to improve targeting of poor households so social assistance for immediate COVID-19 relief could be scaled up. As for the macroeconomic PBOs, debt sustainability is an important consideration in the appraisal of an exogenous shock response PBO. This is evident in the PBOs for Anguilla, The Bahamas, and Saint Lucia, where the instrument incentivized primary balance targets, revenue and expenditure reforms as well as policy frameworks such as fiscal rules (Saint Lucia).