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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 .Natural disasters such as earthquakes, floods, typhoons, and
hurricanes inflict serious damage and so seem to be bad for the economy. For firms,
natural disasters destroy tangible assets such as buildings and equipment as well
as human capital and thereby deteriorate their production capacity. These adverse
impacts may sometimes be fatal to the firms and result in them being forced to close
down. Natural disasters cause significant budgetary pressures, with both narrowly
fiscal short-term impacts and wider long-term development implications.

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 countrys 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 and overcome the obstacles, to increased coverage of insurance
and capital market tools.

Natural hazard risk management should be integrated into longer-term national

investment policies and development strategies and appropriately reflected in the
allocation of financial resources.

Quality, reliable scientific information is a necessary condition for effective disaster

risk management. The international community should support global and regional
research and information systems on risks. It should also ensure that there are
adequate complementary monitoring and dissemination programs at the national

level. Priorities include climatic variability, regional and national flood forecasting and
geophysical hazards.

Effects of disaster:
There are three types of effects deriving from a natural phenomenon: direct, indirect
and macroeconomic. The main differences between them can be summed up as

Direct damage:
Direct damage refers to the damage suffered by productive assets and stocks (both
final goods and goods in process).The main damage in this category includes the
total or partial destruction of physical infrastructure, buildings, facilities, machinery,
equipment, means of transport and storage, furniture, damage to cropland, irrigation
systems, reservoirs, etc. (In the case of agriculture, any produce destroyed at the
moment of the disaster also has to be considered as direct damage, since it was
ready for harvesting). For calculation purposes, a distinction should be made
between damage to the public sector and damage to the private sector to determine
who will bear the brunt of the reconstruction costs.

Indirect damage:
This refers to the damage done to the flows of goods and services, which will cease
to be provided or produced from the time the disaster occurs and for some time
thereafter, perhaps throughout the whole rehabilitation and reconstruction period.
This time is conventionally capped at five years. This type of damage is a knock-on
effect of the direct damage to the production capacity and social and economic
A list is given below of the main indirect effects of a disaster:

Increase in operational costs due to the destruction of infrastructure and


Fall in the output of goods and services due to the total or partial shutdown of

Costs deriving from the use of alternative means of production or service

provision (transport costs caused by the need of using makeshift means of
communication that are longer, more costly and of lower quality, etc.).

Costs deriving from the post-disaster reshuffling of the budget.

Costs deriving from meeting the needs of the affected population during the
emergency phase and of tackling such situations as health campaigns to preempt epidemics.

Loss of income due to the total or partial inability of providing services (of
electricity, drinking water, etc.).

Knock-on loss of production or revenue (such as the reduction in the activity

of suppliers with no alternative outlet for their products, etc.).

Disaster-derived costs or benefits that are absorbed by third parties not

directly affected (such as the costs of environmental pollution, etc.).

Macroeconomic effects:
These are the effects of the disaster on the behaviour of the main macroeconomic
variables, on the assumption that the authorities of the country do not carry out any
type of emergency adjustment. The main macroeconomic variables are Gross
Domestic Product, Gross Investment and Balance of Payments, Public Finance,
Price and Inflation, Employment.

Although it is true that a major disaster may turn out to be a development opportunity
for the affected area, especially when the reconstruction work introduces
improvements and risk-reduction forms, disasters of a small or medium intensity do
not normally attract additional resources. Quite on the contrary they usually have to
be tackled with the countrys own resources; reconstruction work therefore tends to
be inadequate and makeshift with no measures to reduce the possibility of similar
disasters in the future (Cardona,O.D., 2001). For this reason it is necessary to set up
alternative methodologies based on indicators more in tune with local characteristics
of the areas and settlements where such events usually occur. As well as the cost,
these indicators aim to measure the disasters impact on the different sectors of the