Transcript Global Direct Losses (1985

The Economic Impacts of Natural Disasters on
Developing Countries
Authors: J. L. Bayer and R. Mechler
2.1
The Economic Impacts of Natural Disasters on
Developing Countries
Direct
Loss of capital stock
Economic
Disaster
Impacts
Humanitarian
Ecological
Macroeconomic
e.g. loss of GDP
Indirect
e.g. business interruption
Global losses are increasing
Source: Munich
Re 2004
Global Direct Losses (1985-1999)
Economic Losses (USD 896 billion)
Austral.
2%
N. America
38%
Asia
45%
S. America
1%
Europe
13%
Africa
1%
Source: Munich Re (2000)
Developing countries with over 1 billion USD natural disaster
losses over the period 1980-2000
IIASA chart by L. Martin 2001
Data sources: Munich Re 1998; Munich Re 1999
Impacts of disasters in developed and developing countries
Fatalities per event
Major natural disasters 1985-1999
200
180
160
140
120
100
80
60
40
20
-
187
Direct economic losses as % GDP
Major natural disasters 1985-1999
13.3%
14.0%
12.0%
10.0%
8.0%
5.0%
6.0%
45
4.0%
5
2.5%
2.0%
High income
Middle income
Low income
Per capita income country groups
0.0%
High income
Middle income
Low income
Per capita income country groups
Source: Munich Re 2000
Macroeconomic consequences of disasters
Real GDP
8000
7500
million USD
7000
6500
6000
5500
5000
4500
4000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
year
Original projection
Projection incorporating catastrophic exposure
Source: IIASA (Freeman, Martin, Mechler, Warner with Hausmann 2002)
Who bears the losses?
Estimated Direct Losses by Sector in Percent
100%
90%
80%
Agriculture
70%
Residential
60%
50%
Public
40%
Commercial/Industrial
30%
20%
10%
0%
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Sources: IIASA (Linneroth-Bayer et al. 2003)
Public infrastructure losses
• Can be a significant proportion of losses;
• Without timely reconstruction can cause long-term
reductions in economic growth;
• Need improved financial planning for assuring postevent funds
• Financial hedging
instruments available
Kobe (Source: EQE)
Importance of mitigation
Mitigation can bring about large benefits in terms of saving lives
and preventing economic losses. Scattered evidence exists in
• The Philippines
• Jamaica and the Dominican Republic
• China
• Worldwide
Loss sharing and risk transfer
Victims
Households
Businesses
Agriculture
Public Sector
Informal sector
Family, neighbors
Government
Collective loss
sharing
Private
Market
Risk Transfer
Donors and Lenders
Domestic and International
assistance
International Financial
Institutions
Global insured losses (1985-1999)
Insured Losses (USD 170 billion)
Asia
10%
Austral.
3%
Europe
18%
N. America
69%
Africa
0%
S. America
0%
Source: Munich Re (2000)
Government assistance
Government financed housing reconstruction
after the 2001 floods in Hungary
Source: IIASA, Linnerooth-Bayer and Vari, 2003
Family, friends and donors
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
80
70
60
50
40
30
20
10
0
19
[billion constant 2000
USD]
Official Development Assistance (ODA)
Year
Source: Mechler 2003
Macroeconomic management issues
• How can catastrophe risk management be part of general
macroeconomic management?
• How can sufficient domestic and foreign financial resources be
mobilized?
• How can relief and reconstruction needs be combined with prudent
macroeconomic management (inflation, reserves, deficit,
indebtedness)?
From the standpoint of macroeconomic policy, the key question is how much
and how rapidly can the government afford to borrow to finance the
reconstruction costs, while keeping fiscal policy on a sustainable path.
(IMF & WB staff assessment of the macroeconomic effects of the earthquakes in El
Salvador 2001)
Microeconomic management issues
Who should bear the responsibility for disaster risks
facing households and businesses?
Efficiency argument: Disaster risks should be mainly the responsibility of
those who are located in high-risk areas to discourage settlement in
these areas and to encourage individual mitigation measures.
Equity argument: Many persons living or working in high-risk areas are
poor and unable to take loss-reduction measures, purchase insurance
or relocate to safer areas. There is a need for social solidarity with
disaster victims.
Woman who lost her home in
the 2001 Hungarian flood