Macroeconomic implications of natural disasters on small economies

Transcription

1 Macroeconomic implications of natural disasters on small economies Sebastian Acevedo IMF Western Hemisphere Department Central Bank of Curaçao and Sint Maarten March 22, 2018 Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

2 Small states and natural disasters Vulnerability of small states Frequency Damages Growth impact Climate change What can small states do?

3 Source: NOAA.

4 Before After

5 Vulnerability to disasters

6 Caribbean countries are more vulnerable compared to the rest of the world Higher frequency of events per km 2 Larger damages as a share of GDP More detrimental to growth Significant human and economic costs

7 Frequency

8 US 25 / year China China 25 / year 25 / year 12,000 times larger than the median Caribbean country Caribbean 1 / 2 years

9 Natural Disasters in The Caribbean, Other 9% Epidemic 4% Drought 5% Flood 27% Hurricane 55% (528 events in 27 countries/territories) Source: EM-DAT; and IMF staff calculations.

10 Damages

11 Average Annual Natural Disaster Damages (% of GDP) Caribbean 2.4 Small states 1.8 World 0.4 Source: EM-DAT; and IMF staff calculations.

12 Hurricane Irma Barbuda Florida Source: CIRA.

13 Dominica (hurricane Maria) Source: NOAA.

14 Ivan (Grenada) Katrina (US) 1 % of GDP Damages (billions) 125 Source: EM-DAT; and IMF staff calculations.

15 Hurricane Disasters with Information on Damages in the Caribbean No 43% Yes 57% Source: EM-DAT; and IMF staff calculations.

16 Model damages as function of storm characteristics (wind and distance) Source: EM-DAT; and Acevedo (2016).

17 Contour of the surface chart H5 H4 H3 H2 H1 TS

18 Caribbean: Hurricane Avg. Annual Damages, (% of GDP) Reported damages 1.6 Including missing damages 2.5 All hurricanes 5.7 Source: EM-DAT; and Acevedo (2016).

19 Barbuda Antigua 100 miles Source: NOAA.

20 5 disasters with reported damages Source: NOAA.

21 6 disasters without reported damages Source: NOAA.

22 6 hurricanes not even included as disasters Source: NOAA.

23 17 hurricanes in total Source: NOAA.

24 Impact on growth

25 Cumulative Effect on Real GDP of an Avg. Hurricane After 7 Years -4.4 Caribbean -2.5 Small states -0.9 World Source: EM-DAT; and Acevedo (2017).

26 The impact of disasters on tourism is deep and lasting Antigua and Barbuda Months The Bahamas Months Grenada Months Source: Acevedo et al (2016).

27 Climate change

28 Climate science literature Landsea (2004): tropical cyclones can be thought of as engines that require warm, moist air as fuel Emanuel (2005): strong correlation between potential destructiveness of hurricanes and warmer sea surface temperature (SST) Tropical cyclones need a deep layer (50 meters) of warm SST above 26.5 C to form

29 Climate science literature (contd.) No agreement on exact effects of climate change on TCs, sometime conflicting results (Knutson et al, 2010) However, consensus between theory and models predict an increase in mean intensity of TCs 2%-11% This will result from a higher frequency of the most intense TCs At the same time global frequency of storms is expected to decrease between 6 to 34 percent Effects vary by basin and model used; in the North Atlantic 10 models show an increase in storm frequency and 13 show a decline (Knutson et al, 2010)

30 Disasters caused by tropical cyclones appear to be on the rise in the Caribbean Disasters 5-year moving avg Sources: EM-DAT; NOAA; and author's calculations.

31 But tropical cyclone activity in the 50s, and 60s was higher than the disasters show Disasters Tropical clyclones Sources: EM-DAT; StormCarib; NOAA; and author's calculations.

32 The SST and tropical cyclone link in the Caribbean year moving avg. SST 5-yr moving avg. (right axis) Sources: CHN; NOAA; and author's calculations.

33 Estimated Damages (% of GDP) Climate change 7.1 Now 5.7 Source: EM-DAT; and Acevedo (2016).

34 Cumulative Effect in Small States Real GDP of a Hurricane After Climate change -2.5 Now Source: EM-DAT; and Acevedo (2017).

35 What can small states do?

36 It is essential to build resilience to natural disasters Does it Pay to Prepare/Prevent? Break-even point Benefit-cost ratios Vaccinations Improved water and sanitation Early warning systems Nutritional interventions Earthquakes Floods Tropical storms Sources: World Bank; and IMF staff calculations. Measures to reduce damage from:

37 Policy recommendations Build buffers Account for annual expected damages Better preparedness (comprehensive risk management strategies) Insurance Resilient infrastructure Build to adapt to climate change Soft adaptation Building codes and zoning laws Enforcement

38 The international community could help Capacity building and risk management to design contingency plans Insurance and financial instruments to share risk CCRIF; Cat- Bonds; Natural Disaster clauses in loan agreements

39 Thank you!