PAGE Blog Business Weekly Magazine
Strategies need to be inclusive of forward thinking macro economic policies
By now almost all the advanced nations have been at guard to avert disaster caused by natural calamities, but climate change has enhanced the frequency of terrific cyclones, typhoons and tsunami like storms ravaging entire socio-economic life of the effected countries. This has compelled the countries to undertake forward looking strategies to combat ill effects of climate change, which mainly is the outcome of pollution caused on the globe particularly by emerging and developing economies for lack of safe guards undertaken by their governments relating to pollution management particularly for disposal of industrial waste. This concern has rightly been voiced by one of the senators (Lover Legarde) of Philippines’ Senate in the words ” we may not pollute the world, yet we are victims of extreme weather and climate change”. This feeling prevailed during UN talk on climate held in Warsaw Poland last year as such talks were marred to some extent due to bitter quarrel occurred between rich and poor nations attending the conference as the world is well aware of shocking disaster caused by Philippines’s recent typhoon.
Rich nations like Philippines despite colossal damage caused to it’s energy sector due to typhoon Haiyan in 2013 could cope with this calamity due to its effective disaster management strategies, but countries in South East Asia affected by tsunami in 2004 took long to settle down both on social and economic fronts. Similarly, devastated areas of Pakistan due to earthquake of 2005 are still not able to restore their lost socio economic status.
In addition to loss of life and property, the status of poverty has worsened in almost all disaster affected developing countries.
Climate change has exacerbated the frequency of natural calamities like cyclones, earthquakes, floods and drought-like conditions in developing countries and according to World Bank’s findings in this regard natural disasters are more frequent in low and middle income countries and since 1960 about 99 percent of people affected by natural calamities lived in developing economies and 97 percent of all disaster related deaths also occurred in these countries. The said report also reveals that economically rich countries encountering even sever natural disasters were able to absorb cost of disaster due to their having arrangements for private insurance, higher domestic savings and market financing.
Developing countries on the other hand are generally lacking in emergency coping mechanism and secondly due to higher percentage of people in the grip of absolute poverty live in high risk areas of their countries where infrastructure is lacking recovery process is usually very slow.
Since majority of developing countries have agrarian economies there frequency of floods and droughts is very high.
In Pakistan almost after every two years heavy damage is done to crops either due to heavy floods or drought particularly in provinces of Sindh and Punjab. Recent famine like condition experienced in Thar area has caused not only loss of life, but also physical assets of poor population stand totally wiped off. So far relief measures undertaken by federal and provincial governments are inadequate to restore normal life in affected area due to absence of necessary infrastructure like proper roads and means of transportation etc.
Generally in all developing economies poor segment of population are the major victim of natural disasters. They due to lack of propensity to save are found devoid of meeting their current consumption needs and accordingly they are forced to divert their limited capital stock mainly livestock to meet their immediate needs. Hence they are trapped in vivacious circle of poverty due to reduced producing capacity and lack of labor skill sand limited alternate job opportunities due to lack of mobility. Accordingly overall economic output is adversely affected and these countries already encountering fiscal deficit are entangled in a worsened fiscal state.
Generally after going through a disaster shock overall economy of the effected country recedes for a while and then starts recovering, but it’s impact on manufacturing and agriculture sector results in drastic reduction in export of goods and services hence balance of payments as a whole goes into deficit state for quite a long time.
According to World Bank’s findings on an average a developing nation faced with a natural disaster experience reduction in economic growth by 0.7 percent in the first year after disaster with a cumulative output loss three years after disaster of about 1.5 percentage over and above the immediate direct loss. The report also reveals that developing countries experiencing any kind of natural calamity were found to suffer per capita real GDP reduced by 0.6 percent on an average and by 1 percent in low income developing countries in particular.
After a major disaster governments need to divert resources to provide economic relief to affected families and rebuilt damaged infrastructure. However, generally nations suffering from natural calamities resorted to external borrowings to support domestic economy if government’s own resources are not enough and funding by aid giving agencies is not adequate to cope with the situation and preserve macro economic stability. This ultimately results in steep rise in debt to GDP ratio, which persists for quite a long time and worsen fiscal deficit position. A recent study undertaken by World Bank shows that measures to be taken for regaining economic stability in shortest possible time countries need to develop skilled workforce and better institutions like local bodies government, health services and rule of law and security condition and government’s preparedness for high spending to mitigate the economic cost of disaster faced. But unfortunately low income developing countries who already have large debt overhangs are found incapacitated to arrange for higher spending to meet even devastated infrastructure losses. However emergency aid and financial assistance can be helpful, but experience has shown that for low and middle income developing countries such liberal financial assistance are rare.
During Pakistan’s earthquake of 2005 government had received several pledges of financial assistance from different countries, but hardly 50 percent of the promised assistance was received.
As such particularly for developing countries planning ahead is essential. Rational macro economic policies need to be formulated with a budgetary provision of funds for such setbacks/natural shocks and particularly for developing infrastructure like dams for ensuring continuous water supply for farms and arid areas besides means of transportations, crop storage facilities at government level particularly in countries having agrarian economies.
Besides above taxation policy and government spending strategies need to be rationalized. These policies should be flexible enough as to ensure immediate diversion of funds from public spending to areas where needed in emergency. Further governments need to invest in insurance and self insurance to cover all risks emanating from natural disaster.
