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Costs of a natural disaster


Summarizing the cost of a natural disaster into a dollar estimate eliminates the mental, emotional, and human costs of a natural disaster. It is easy to calculate the economic costs, but it is impossible to assess the psychological or emotional cost of people who have been displaced, who have lost a loved one or who have lost all their capital in a flood or other natural disaster.

The 2022 floods caused the kind of destruction the country had never seen, eclipsing the 2010 floods. Over 30 million people were displaced, while over a million homes were completely or partially destroyed. This effectively means that one million households have nowhere to live and have lost their principal capital.

The areas affected by the floods are already among the most economically backward areas of the country. A natural disaster acting as an economic shock effectively wiped out the little capital that more than a million households had. Hundreds of thousands of animals died in the floods, and in a region where livestock are not only a source of income but also a source of nutrition, such a loss can prove fatal.

Flood-affected areas are also those with low financial inclusion, where most savings are in the form of gold, silver, houses or livestock. As the rain wiped out all these assets indiscriminately, it will be impossible to estimate the loss of private wealth of an already economically vulnerable group. Such losses can potentially have a negative effect on the psychological health of the household, potentially scarring them for life.

Another very ignored facet is that of education. Hundreds of schools have been destroyed and it will be some time before any reconstruction begins, let alone be completed. School enrollment in the country is already extremely low, even compared to comparable economies. With more than 30 million people displaced, almost half of them children and young adults, access to education was permanently impeded until the end of reconstruction. The loss of school days, or even a year, sets an entire generation back – a cost that can never be quantified.

There may be hundreds of thousands of people with serious health conditions, conditions or special needs. Their suffering from the disaster would be magnified in the absence of dedicated medical facilities, as all attention would be diverted to immediate relief. Their suffering would be drowned in a larger crisis, while individuals would continue to suffer.

Households have lost thousands of hectares of crops, orchards and vegetation which were not only a source of income but also a source of subsistence. A complete annihilation of agricultural production means a significant impact on household income while eroding the availability of capital that could be used for planting in the coming crop cycle. The economic and psychological impact of losing a source of sustenance cannot be captured in the mind by a dollar estimate.

More than 5,000 kilometers of roads have been ravaged, straining supply chains in the process and driving the movement of goods from one part of the country to another. Such constraints would potentially lead to higher commodity prices as demand exceeds supply. In a scenario where much of household wealth has been wiped out and incomes have eroded, the limited supply of even the most basic staples is leading to runaway inflation in the affected areas.

The economic loss that can be attributed to households is staggering. As the devastating floods destroyed over a million homes, it is estimated that there was a potential erosion of wealth of over $1.6 billion. Nearly $1.2 billion of this was the erosion of wealth in Sindh, the highest of any province. Rebuilding these homes is estimated at around $2.5 billion, implying a huge cost for households that have already lost a substantial portion of their wealth and capital. Similarly, crop and livestock losses are estimated at over $2.5 billion. Indeed, the country’s most vulnerable economic segment has seen more than $5 billion of its private wealth wiped out and now remains at the mercy of the state and donors.

The country needs a reconstruction plan, and it needs it fast. The reconstruction must be sustainable. No lessons were learned from the 2010 floods, with catastrophic consequences. If lessons are not learned and infrastructure is not developed to withstand climate shocks, such destruction could become a recurring feature that not only takes a heavy toll on the economy, but also on people’s mental and physical health.

The state must intervene, otherwise a few additional economic and climatic shocks would completely neutralize the sovereign’s ability to operate or care for its inhabitants. It is time for the human cost to be considered paramount and for reconstruction to be done by prioritizing humans over donors or contractors.

The author is an independent macroeconomist.