Jeanette Fernández & Borja Santos Porras

The frequency and severity of extreme events are escalating, hindering sustainable development progress in many regions and countries. These events not only destroy infrastructure and assets, but also have a profound and prolonged impact on people and their livelihoods.

The increasingly intense nature of climate change effects is clear for all to see. Droughts are affecting agriculture and energy sources, high temperatures are exacerbating forest fires, and torrential rains are causing severe floods that damage transportation and agriculture. In addition, hurricanes, volcanic eruptions, earthquakes and tsunamis continue to affect countries worldwide.

According to Munich Re, the earthquakes that hit southeast Turkey and Syria in February 2023 were the most devastating and costly events of the entire year, claiming 58,000 lives and causing an estimated US$50 billion in economic losses.

This year has been no different, with 2024 bringing new disasters, including earthquakes in Japan, floods in Brazil and the United States, and hurricanes in the Caribbean, while the catastrophic flooding in Spain has captured global headlines.

How is the economic and human impact of a disaster calculated? What does reconstruction cost? How long will affected communities need to return to normality? What factors should be considered to recover from floods, wildfires and earthquakes?

The EU, the World Bank and the United Nations use a harmonized, internationally recognized methodology known as “Post Disaster Needs Assessment” (PDNA) to estimate these costs. Governments, affected communities, and national and international stakeholders are involved in its implementation.

From 2008 to 2020, 76 PDNA assessments were conducted in 57 countries, averaging four to six assessments per year. More recent PDNAs have included Pakistan: floods 2022, Haiti: earthquake 2021, Saint Vincent and the Grenadines: volcanic eruption 2021.

The five-step method analyzes the gap between the pre- and post-disaster conditions, focusing on infrastructure, goods and services, governance, and added risks. The costs of repairing and replacing damaged assets are estimated, as is the loss of income from reduced production. Additional expenditure for maintaining service continuity, especially in essential areas like water, health, education, housing and transportation, is also calculated.

The assessment considers the social and human impact on the hardest-hit communities, focusing on gender equality, food security, livelihoods, living conditions, and social inclusion. The macroeconomic impact is analyzed using key variables, including GDP, fiscal situation, balance of payments, and inflation.

Finally, a sectoral recovery strategy is developed and integrated into a national action plan, prioritizing the most affected sectors and geographic areas.

Economic and social sectors are organized according to the System of National Accounts. The Social Sector includes health, education, housing and culture; the Productive Sector covers agriculture, tourism, industry and trade; and the Infrastructure Sector encompasses water and sanitation, transport, energy and telecommunications.

Costs and impacts across seven sectors

  1. Social. This sector estimates the costs linked to impacts on health, education, housing, culture and nutrition. It assesses damage to infrastructure and physical assets, as well as human and macroeconomic effects.
  2. Infrastructure. This includes costs related to water and sanitation, community infrastructure, energy, transportation and telecommunications. Disasters often severely damage buildings, transportation routes, telephone lines and power supplies which all require repair or reconstruction. These disruptions generate indirect costs by halting production, limiting access to humanitarian aid, and affecting economic sectors such as tourism.
  3. Productive. This sector covers agriculture, livestock, fisheries, trade, industry and tourism, sectors that sustain vulnerable families whose welfare may be severely hit.
  4. Macroeconomic. It is key to assess fiscal deficit and trade balance impacts in the months and years after a disaster, as economic losses are not always directly reflected in GDP. For example, after the earthquake in Chile, reconstruction efforts led to increased public and private investment which boosted GDP in the following years. Thus, reconstruction expenditure can contribute to economic output, while distorting economic activity measurements.
  5. Finance. It is essential to assess the impact on banking and non-banking financial institutions. Stock market operations are often suspended in crisis situations due to significant losses. After the 2023 earthquake in Turkey, the stock market fell by 16%, equating to a €32.6 billion loss in capitalization.
  6. Cross-cutting concerns. This encompasses collateral impact, such as governance, environment and gender issues. Disaster effects on governance can be profound, influencing elections and triggering conflicts. For instance, the 2010 earthquake in Haiti caused a humanitarian crisis, but also undermined the country’s political stability, with government inefficiency and corruption in the management of humanitarian aid generating social discontent. This affected the 2011 elections by diminishing trust in institutions and leading to low turnout.
  7. Human development. Analyzing the economic effects on human development and poverty is essential, as the most affected regions are often also the poorest and least resilient. In these areas, disasters can trigger a crisis within a crisis, further exacerbating inequalities. A significant example is Hurricane Maria, which devastated Puerto Rico in September 2017. This disaster caused massive damage to infrastructure and left millions, especially the most vulnerable communities, without access to electricity and drinking water.

Embedding these sectors in reconstruction plans is critical to ensuring rapid and inclusive recovery for all those affected.