Shrinking the financial fallout of natural disasters
TOKYO, 9 December 2013 (IRIN) - Relief will be more easily and quickly available, and the economic fallout much more manageable, if governments project and plan fiscally for potential natural disasters and their human and economic toll well in advance, experts say.
The UN Office for Disaster Risk Reduction (UNISDR) has calculated that since 2000, economies have lost as much as US$2.5 trillion due to natural hazards. In 2011 Thailand lost around 5 percent of its gross domestic product (GDP) to floods, and Japan lost some 4 percent of its GDP to the earthquake and tsunami.
The latest major disaster in the region, Typhoon Haiyan in the Philippines, is likely to cause losses of around $12.5 billion, or 5 percent of the 2012 GDP in this lower middle-income country, Margareta Wahlstrom, the Special Representative of the UN Secretary-General for Disaster Risk Reduction, told IRIN.
The death and destruction in the Philippines is the worst since 1991. Up to 9 December 2013, the typhoon, which struck on 8 November, had affected more than 12 million people, killed nearly 6,000 and left almost 1,800 more missing.
“It is vital that finance ministers and policymakers understand the simple truth that investing in reducing disaster risk, protecting critical infrastructure, such as schools, hospitals and transport systems, pays rich dividends,” Wahlstrom said.
Venkatachalam Anbumozhi, a specialist in capacity building at the Tokyo-based Asian Development Bank Institute (ADBI), told IRIN that natural disasters and changing climate patterns have significantly disrupted economic growth and development work globally over the last decade, but governments are still slow to plan for them financially.
“There are no annual budgetary outlays for climate change [impact] or natural disasters,” he said. “If finance ministries could look into how much a country is incurring due to such risks, then we can better target allocations.”
Anbumozhi said if the impacts of potential disasters are factored in when annual growth predictions and fiscal allocations are made, countries can avoid, to a certain extent, sudden economic upheavals. If allocations are not spent during a given period, they can be rolled over into the next finance period.
Annual global weather-related losses have quadrupled from about $50 billion in the 1980s to around $200 billion in 2013, the World Bank said, citing data by reinsurance group Munich Re.
In recent years the Bank has promoted climate resilient developmental policies in order to protect its investments. “At the World Bank Group, we are putting disaster risk management at the forefront of our agenda. We know there is a lot we can, and must, do to reduce the impact of disasters,” Rachel Kyte, the World Bank’s vice president of sustainable development, said at the recent launch of a report on integrating climate and disaster risk into development planning.
Wahlstrom said poorer nations with the most to lose may be the ones with the least resources to plan ahead. “Naturally, countries that lack the financial resources to absorb the losses from severe weather events will experience lower GDP growth in the years that follow, compared with the estimated growth that would have occurred without storm impacts.”
Most vulnerable, but ill-prepared
The East with its bulging urban populations is especially at risk. A recent ADBI report, citing data from UN Department of Economic and Social Affairs, projected that 67 percent of Asia’s population will be living in cities by 2050.
Unbalanced urban development has made Asian mega-cities ill-prepared to face increasingly erratic weather, resulting in perennial and worsening urban floods in some parts. Disregard for buildings codes in Bangladesh’s capital, Dhaka, for example, increases the risk of massive destruction and death in the event of an earthquake.
The Asia-Pacific region bears most of the economic losses from natural disasters - the nearly $300 billion price tag in 2012 was 80 percent of the global total - and 2013 has been no different.
In June, South Asia’s annual monsoon moved faster than usual, leaving a trail of destruction from the southern coast of Sri Lanka, across Sindh province in eastern Pakistan, to the Punjab in western India, and up into Uttarakand state in northeastern India. More than 6,000 lives were lost and close to 2.2 million people were stranded, mostly in India.
In early October, the category 5 Typhoon Phailin slammed into the east Indian states of Andhra Pradesh and Orissa. The Indian government estimated 50 deaths from the typhoon, while local authorities said 12 million people had been affected and nearly half a million evacuated.
Sri Lanka’s Finance Secretary, Punchi Banda Jayasundera, recently said a severe drought in 2012 caused hydropower production to fall by up to 40 percent, forcing the country to spent $2 billion on purchasing fuel for power generation – 55 percent of its oil imports.
Central bank governor Ajith Nivard Cabraal said such impacts have prompted the Sri Lankan government to keep a close eye on weather patterns.
ADBI’s Anbumozhi says governments are still “reluctant” to consider climate induced risks and plan ahead for them, even though planning could minimize economic losses and keep money readily available to help save lives. Experts warn that short-term savings can mean long- term losses.
Recent examples in India have shown that planning for a disaster can drastically reduce deaths, Wahlstrom said. In 1999, when another cyclone on the scale of Phailin struck in Orissa, more than 10,000 people died. Mass evacuations in 2013 reduced fatalities to a double-digit figure, but she stressed that despite reducing loss of life, authorities worldwide have been unable to do the same for economic losses.
“Clearly, more work needs to be done, in particular addressing the underlying drivers of risk, the main ones of which are weak governance, poor planning and land use, poverty and lack of protection of ecosystems, particularly in coastal areas and floodplains.”
Anbumozhi suggests a focus on low-carbon policies. According to ADBI, Asia’s lower- and middle-income countries will lose as much as 6 percent of their GDP if global warming continues at an annual rate of 2 degrees Celsius.
“There has been lots of work done on early warning in the region in the last decade,” said Gulam Rasul, Pakistan’s chief meteorologist. “The next step is to plan ahead to absorb the damage and impact of disasters.”
But planning is no panacea. The Philippines and Bangladesh – two of the world’s most disaster-prone countries – have also pursued disaster risk reduction through legislation, cyclone preparedness and “building back better”, said Wahlstrom.
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