Beyond the damage: probing the economic and financial consequences of natural disasters
Edward Clay, Senior Research Associate, ODI, who will present the report's main findings and recommendations for actions to reduce disasters.
J. M. Albala-Bertrand, Queen Mary, University of London, a well-known sceptic about the economic effects of disasters, and
Tom Crowards, Macroeconomist, DFID, who has investigated the effects of natural disasters in the Caribbean, will both comment on the report.
1. In 1990s, major catastrophes reported losses averaging US$66bn a year. The number of people affected has increased threefold between the 1970s and 1990s. Such figures have triggered a growing awareness of the potential damage caused by natural hazards. But there is still limited knowledge of their wider economic significance or of the problems posed for development. This final report on a study, which received financial support from DFID's CHAD, looks behind the loss figures, drawing on studies of Bangladesh , Dominica and Malawi to examine the short and long-term economic and financial impacts of disasters, and factors that contribute to underlying sensitivities; it identifies opportunities for improving the management of hazard risk and disasters as they unfold.
2. Edward Clay introducing the report focused on four issues
- Natural disasters can have severe economic consequences, and we need to understand better when severe impacts are likely to occur.
- The vulnerability of developing economies is highly dynamic - as shown in the three countries since the early 1980s, declining in Bangladesh and Dominica but sharply increasing in Malawi. These rapid changes can be insidious, as in Malawi when for the first time abnormally high rainfall rather than drought triggered a food crisis in 2002.
- Public finances: falling revenues and relief expenditure requirements are likely to produce severe budgetary pressures, and some of the worst disasters have been compounded by budgetary chaos - Bangladesh's famine in 1974 and Hurricane David in Dominica in 1979. However, both governments of affected countries and aid agencies most typically respond by reallocating already committed resources. This and an earlier study found that low income Sub-Saharan African economies, with a weak revenue base and high aid dependence, are the important exception, with climatic disasters often having destabilising budgetary impacts, The brunt of reallocations, often crudely made in a crisis, appear to fall on capital expenditure and social sectors, with negative development implications.
- Disaster reduction policies need to be more hazard specific, taking into account the distinctive ways in which the two broad categories of hazard, hydro-meteorological (flood, drought, tropical cyclones) and geophysical (earthquake, volcanic eruption) are likely to impact on economies and social systems. A more hazard specific approach requires closer multi-disciplinary collaboration between scientists, to understand risks hazards, and social scientists, to explore vulnerabilities.
3. Tom Crowards, who has investigated the effects of natural disasters on small Caribbean economies, felt the study makes an important contribution to our economic understanding of disasters in demonstrating the diversity of hazard risks, and that vulnerability must not be treated as a static process. The study provokingly hypothesizes a Kuznets-type relationship, in which disaster impacts may initially increase with development, as structural change reduces vulnerability, but expanding linkages and integration within an economy make impacts more widespread. He felt more complementary research was needed on the poverty implications of natural disasters, and, from a policy perspective, on understanding how low income countries were to genuinely take account of disasters risks in PRSPs, planning for poverty reduction. On public finance, the study has drawn attention to the complex, sensitive relationships between aid allocations, governance and disaster vulnerability.
4. Jose Miguel Albala Betrand, a well-known sceptic about the economic effects of disasters , suggested that the study's most interesting result was to confirm that 'stable development' is the main factor in reducing hazard vulnerability. But this can take too long to cater for the most vulnerable people and activities and well focused development (hazard) policies are required. In understanding the macro-economic effects of disasters he suggested that it was helpful to distinguish between situations when hazard events are likely to be 'localised' or 'widespread' in their impacts in a two dimensional sense, contrasting geographical effects and also events whose impacts are only sectoral or affecting the whole economy.
5. In discussion, there appeared to be a generally shared concern about the close association between the severest disasters and budgetary chaos, and that the public financial and aid dimensions needed closer consideration. There was, the chair suggested in closing, a shared recognition that the report is raising important, difficult and complex issues that merit further debate and investigation.
This meeting launched the report by Charlotte Benson and Edward Clay 'Understanding the Economic and Financial Impacts of Natural Disasters' published by the World Bank.In 1990s, major catastrophes reported losses averaging US$66bn a year. The number of people affected has increased threefold between the 1970s and 1990s. Such figures have triggered a growing awareness of the potential damage caused by natural hazards. But there is still limited knowledge of their wider economic significance or of the problems posed for development. This report looks behind the loss figures, drawing on studies of Bangladesh, Dminica and Malawi to examine the short and long-term economic and financial impacts of disasters, and factors that contribute to underlying sensitivities; it identifies opportunities for improving the management of hazard risk and disasters as they unfold.
We are grateful to DFID for funding this meeting.