Major natural disasters can and do have severe negative short-run economic impacts. Disasters also appear to have adverse longer-term consequences for economic growth, development and poverty reduction. But, negative impacts are not inevitable. Vulnerability is shifting quickly, especially in countries experiencing economic transformation – rapid growth, urbanization and related technical and social changes.
In the Caribbean and Bangladesh there is evidence of both declining sensitivity to tropical storms and floods and increased resilience resulting from both economic transformation and public actions for disaster reduction. The largest concentration of high risk countries, increasingly vulnerable to climatic hazards, is in Sub-Saharan Africa. Risks emanating from geophysical hazards need to be better recognized in highly exposed urban areas across the world because their potential costs are rising exponentially with economic development.
Natural disasters cause significant budgetary pressures, with both narrowly fiscal short-term impacts and wider long-term development implications. Reallocation is the primary fiscal response to disaster. Disasters have little impact on trends in total aid flows.
Public policy implications
A full reassessment of the economic and financial impact of a major disaster should be made 18 to 24 months after the event that is then taken into account in reviewing the affected country’s short-term economic performance and assistance strategy.
Governments need appropriate risk management strategies for future disasters that include medium-term financial planning for 8 – 10 years. The basis of funding has to be broadened, applying a combination of mechanisms at different layers of loss coverage to help overcome the obstacles to increased coverage of insurance and capital market tools.