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Economic Consequences of Natural Disasters Among Pacific Island Countries

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Economic Consequences of Natural Disasters Among Pacific Island Countries PACIFIC ECONOMIC BULLETIN Economic consequences of natural disasters among Pacific island countries Teo I.J. Fairbairn This paper explores some of the economic consequences of Te'o Fairbairn is an natural disasters among Pacific island countries, especially in economic and financial relation to damage caused to social and economic infrastruc- consultant specialising in ture and the productive base. It draws on the experience of the development problems Fiji, Samoa (formerly Western Samoa) and Papua New of small island countries. Guinea, each of which has recently suffered exceptionally heavy economic losses from disaster events. The analysis concludes with a few observations on major mitigation policies required to minimise economic losses. Pacific island countries are exposed to a post-disaster relief and emergency needs range of natural disasters, particularly in while neglecting broader economy-wide the form of tropical cyclones, tsunamis, repercussions, both short and long term. flooding, volcanic eruptions and Moreover, few attempts have been made earthquakes. These disasters can have a to incorporate disaster risk and mitigation considerable impact on a country’s strategies in the overall policy and productive capacity and impose a heavy planning framework. financial burden on national governments. Significant financial and macroeconomic Disaster vulnerability instability can result while the capacity to achieve accelerated and sustainable The vulnerability of Pacific island development can be seriously impaired. countries to natural disasters is associated Pacific island countries have with their location, geological structure, generally failed to account properly for physical size, climatic characteristics and the economic aspects of natural disasters, geographic configuration. Vulnerability particularly on their longer-term growth to destructive cyclones is particularly prospects. Typically, governments have high for those countries that are located tended to focus on tackling immediate within the so-called tropical cyclone 54 ECONOMIC CONSEQUENCES OF NATURAL DISASTERS AMONG PACIFIC ISLAND COUNTRIES zone, that is, the ocean zone around Guam expansion in government expenditure for and the Northern Marianas in the North post-disaster relief and rehabilitation Pacific and those around Tonga, Fiji and work invariably gives rise to high and Vanuatu in the South Pacific. The unsustainable fiscal deficits and rising importance of size combined with the debt levels. A country’s external financial physical diversity of the landmass is situation can deteriorate significantly demonstrated by Papua New Guinea under the twin pressures of disaster- which, being large and physically diverse, related damage to export crops and rising is vulnerable to a wide range of natural import demand—a situation that usually hazards including volcanic eruptions, results in a significant run-down in floods, land slides, tsunamis, drought, foreign reserves. Disaster events can also frost and coastal inundation. This have marked effects on the domestic price contrasts with the situation of the low- level, money supply, and the rate of lying coral islands where (apart from the capital formation and, ultimately, a possibility of rising sea levels over time) country’s capacity to achieve continuous tropical cyclones and drought are the development and economic growth. main threats. In these cases a cyclone can The ‘index of disaster proneness’ devastate the whole country and cause recently compiled by the United Nations severe and widespread economic losses. covers a wide range of disasters several of Tropical cyclones are the most which are not natural disasters as usually common form of natural disasters in defined (such as epidemics and civil strife, Pacific island countries, and the main but excluding disasters of a political source of destruction and economic loss. nature) (UNDRO 1990; see also Briguglio Such cyclones can wreak heavy damage 1995:44).1 The index applies to the to existing infrastructure, such as roads, experience of 56 ‘disaster prone’ port facilities, power, commercial developing countries—mostly small buildings and housing. The agricultural insular states—over the period 1970 to sector can suffer enormous losses—both 1989, and provides a ranking of countries in the monetised and subsistence according to the degree of exposure to sectors—as a result of the destruction of disaster events. Mainly because detailed standing crops and basic infrastructure, data for other Pacific island countries were while considerable damage can be not available, the index includes only Fiji, inflicted on reef fishing zones and forestry. Tonga and Vanuatu and shows that each Losses in other productive sectors, of these countries ranked well above the including manufacturing and tourism, median score for the whole group. Vanuatu can also be extensive, although such earned the dubious distinction of being losses are usually less severe and more ranked number one (the most vulnerable), short term compared with agriculture. while Tonga and Fiji were ranked eleventh The destruction of standing crops, basic and twenty-seventh respectively. social and economic infrastructure and the capital base in general can have An economic perspective severe negative economy-wide effects, especially in terms of exports, productive Natural disasters can be viewed as investment, employment and GDP. exogenous factors that cause internal At the macroeconomic level, disaster shocks, with potentially significant damage and associated rehabilitation economy-wide effects both on the supply efforts can be highly destabilising. The and demand side (Benson 1997:1). 55 PACIFIC ECONOMIC BULLETIN Depending on the severity of the disaster SPDRP 1997:20–21). Direct loss potential event, the impact on the supply side can refers to that resulting from the damage be dramatic and carry considerable or destruction of physical and social economic costs, both in the short and infrastructure and its associated repair longer term. In the short term, the and replacement costs. It also covers destruction of basic infrastructure and damage to crops, loss of productive assets standing crops can be severe while in the and natural resources. Indirect loss longer term, damage to productive assets potential relates to the impact on lost can result in serious loss of production production, vital services, employment and reduced economic growth. The extent and various income-earning activities. of the damage and associated economic Secondary effects apply to costs in terms consequences will depend on a variety of of inflation and related macroeconomic factors including agriculture’s share in aspects, income disparities and economic GDP, degree of structural diversification growth. From a practical policy viewpoint, achieved, resource endowment, inter- estimates of direct and indirect losses can sector linkages, progress made in disaster be used to design possible disaster preparedness and the overall policy frame- alleviation measures, taking into account work. For small Pacific island countries the estimated cost of relief and recovery with a high dependence on agriculture action and mitigation measures required and limited sector diversification, the (Asian Development Bank 1991:37). economic effects of these disasters are At the formal level, it is apparent that likely to be the most serious. a major disaster will cause productive On the demand side, heavy damage capacity to contract, principally due to to commercial crops can result in a damage to a country’s capital stock as significant loss of cash income for farmers well as the destruction of crops. The effect and thus a loss of purchasing power with on productive capacity can be immediate consequent adverse effects on the overall and can mean a dramatic collapse in the level of demand for goods and services. level of economic activity, as reflected, Disruption to industrial activity caused for example, in export production, GDP by damage to basic services such as power and employment. Economic recovery may and transportation can lead to reduced be a long, drawn-out process, depending, levels of employment and income and, in among other things, on the availability of turn, aggregate demand. (However, funds for reconstruction purposes, higher spending on relief and rehabilitation external aid support and the vulnerability measures during the post-disaster period of agricultural crops. At worst, full will tend to boost demand and this may, recovery may take from eight to 10 years at least for a while, offset the induced with some aspects of the economy decline in demand to a significant degree.) unlikely to recover altogether (as with Any diminution in the level of demand export production of cocoa in Samoa and will tend to reinforce supply-side effects passionfruit cultivation in Niue). A more on the level of economic activity and GDP. favorable scenario can be expected where In analysing the economic a Pacific island country has access to consequences of natural disasters (and adequate external assistance for the hence vulnerability), it is possible to rebuilding of infrastructure and related distinguish three kinds of potential losses, capital items. In such a case, recovery can namely direct, indirect and secondary or be fairly speedy and virtually complete ‘knock-on’ effects (UNDP/UNDHA and over a period of four to five years. 56 ECONOMIC CONSEQUENCES OF NATURAL DISASTERS AMONG PACIFIC ISLAND COUNTRIES Recent natural disaster damage financial
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