IMF Survey: Natural Disasters Hitting More People, Becoming More Costly

IMF News, October 10, 2012

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Over the past two years, 700 natural disasters were registered worldwide affecting more than 450 million people.
Damages have risen from an estimated $20 billion on average per year in the 1990s to about $100 billion per year during 2000–10.
The upward trend in disaster costs is expected to continue due to the rising concentration of people living in areas more exposed to natural disasters, and climate change.
A new IMF working paper, “Natural Disasters: Mitigating Impact, Managing Risks,” was released to coincide with a Sendai conference organized by the World Bank and the Japanese government.
The Sendai conference and related reporting coincide with high-level visits and discussions, including IMF Managing Director Christine Lagarde’s visit to the Sendai region and participation in meetings ahead of the Annual Meetings of the IMF and World Bank in Tokyo.

Japan estimates the direct economic cost of the 2011 disaster at 16.9 trillion yen ($210 billion) or 3.6 percent of 2011 GDP.
The disaster resulted in more than 15,000 people dying and thousands being made homeless.
The government allocated 18 trillion yen (3.8 percent of GDP) to reconstruction.
Key reconstruction expenses include:
- temporary housing,
- public works,
- support for small businesses,
- transfers to affected local governments and individuals,
- employment benefits and subsidies.
Most roads and railways have reopened and local schools have resumed classes, while reconstruction of some 190,000 damaged buildings is ongoing.
More than half of the victims were aged 65 or over.
Infrastructure disruptions included power, gas, and water supplies and damage to roads, railways, airports, schools, and other infrastructure.

Natural disasters often lead to lower economic growth and a worsening in fiscal and external balances; they can also have a significant impact on poverty and social welfare.
Developing countries, and their most vulnerable populations, are especially at risk.
The IMF plays a small but vital role in disaster recovery by providing emergency financing and policy support to help governments design policy responses that lay the foundation for economic recovery.
IMF support often unlocks external assistance from other sources.
Recent reforms to IMF lending facilities have increased the accessibility, predictability, and speed of financing; several of these can be used in response to a wider range of emergencies, including for natural disasters.
The IMF could continue considering ways to enhance the availability of suitable financing for disaster-related needs.
The IMF paper draws on a sample of seven countries to review financing and policy support provided by the IMF to countries experiencing natural disasters and to explore ways countries can reduce risks and mitigate impacts.

Early warning:
- Identify the probability of disasters and integrate these risks explicitly into economic planning frameworks.
- Provide guidance on how much countries should “self insure”, and how much scarce resources to allocate to capital spending to strengthen defenses.
Flexibility:
- Ensure sufficient room and flexibility within fiscal frameworks so governments can redeploy spending rapidly and mesh existing investments into an overall recovery plan.
Coordination:
- Improve coordination between multilateral institutions, donors, the authorities, and civil society, especially in countries where administrative capacities are limited.
- Improve international coordination to consider ways to use donor assistance for risk reduction, which is likely to have a higher return than emergency assistance after the event.
Transparency:
- Ensure transparency in the allocation of disaster financing to bring about the most effective use of assistance and limit imbalances and contingent liabilities to the state.
Growth:
- As part of reconstruction and recovery, take the opportunity to accelerate broader growth-enhancing structural reforms.

IMF Survey: Natural Disasters Hitting More People, Becoming More Costly — October 10, 2012