WB: Ebola economic impact may "catastrophic”

A World Bank Group analysis of the Ebola epidemic released Thursday finds that if the virus continues to surge in the three worst-affected countries – Guinea, Liberia, and Sierra Leone – its economic impact could grow eight-fold, dealing a potentially catastrophic blow to the already fragile states.

However, the analysis finds that economic costs can be limited if swift national and international responses succeed in containing the epidemic and mitigating “aversion behavior” – a fear factor resulting from peoples’ concerns about contagion, which is fueling the economic impact.

World Bank Group President Jim Yong Kim said, “The primary cost of this tragic outbreak is in human lives and suffering, which has already been terribly difficult to bear. But our findings make clear that the sooner we get an adequate containment response and decrease the level of fear and uncertainty, the faster we can blunt Ebola’s economic impact.”

“We have seen in recent days a serious scaling up on the part of international donors to contain the Ebola epidemic. Today’s report underscores the huge potential costs of the epidemic if we don’t ramp up our efforts to stop it now,” said Kim.

The analysis uses two alternative scenarios to estimate the medium-term impact of the epidemic to the end of calendar year 2015. A “Low Ebola” scenario envisions rapid containment within the three core countries, while “High Ebola” corresponds to the upper ranges of current epidemiological estimates.

The analysis estimates the short-term impact on output to be 2.1 percentage points of GDP in Guinea (reducing growth from 4.5 percent to 2.4 percent); 3.4 percentage points in Liberia (reducing growth from 5.9 percent to 2.5 percent); and 3.3 percentage points in Sierra Leone (reducing growth from 11.3 percent to 8 percent). This forgone output corresponds to $359 million in 2014 prices. However, if Ebola is not contained, these estimates rise to $809 million in the three countries alone. In Liberia, the hardest hit country, the High Ebola scenario sees output hit 11.7 percentage points in 2015 (reducing growth from 6.8 percent to -4.9 percent).

The short-term fiscal impacts are also large, at $93 million for Liberia (4.7 percent of GDP); $79 million for Sierra Leone (1.8 percent of GDP); and $120 million for Guinea (1.8 percent of GDP). Slow containment gaps would almost certainly lead to even greater financing gaps in 2015, the analysis finds.

Inflation and food prices were initially contained but are now rising in response to shortages, panic buying, and speculation. Those families already vulnerable to food price shocks are becoming increasingly exposed. Exchange rate volatility has increased in all three countries, particularly since June, fueled by uncertainty and some capital flight.

The analysis finds that the largest economic effects of the crisis are not as a result of the direct costs (mortality, morbidity, caregiving, and the associated losses to working days) but rather those resulting from aversion behavior driven by fear of contagion. This in turn leads to a fear of association with others and reduces labor force participation, closes places of employment, disrupts transportation, and motivates some government and private decision-makers to close sea ports and airports. In the recent history of infectious disease outbreaks such as the SARS epidemic of 2002-2004 and the H1N1 flu epidemic of 2009, the analysis notes that behavioral effects have been responsible for as much as 80 – 90 percent of the total economic impact of the epidemics.

The findings of the analysis underline the need for a concerted international response. External financing is clearly needed in the three core countries, and the impact estimates suggest that containment and mitigation expenditures as high as several billion dollars would be cost-effective if they successfully avert the worse scenario.

The analysis describes four related activities such a response should include:

Humanitarian support: Such as desperately needed personal protective equipment and hazard pay for health workers, emergency treatment units, standardized and universally applied protocols for care, etc.

Fiscal support: The fiscal gap, just for 2014, is estimated at around $290 million. Increased injections of external support can strengthen growth in these fragile economies.

Screening facilities at airports and seaports: Policies are required that will enable the flow of relief and encourage commercial exchange with the affected countries.

Strengthening the surveillance, detection, and treatment capacity of African health systems: Weak health sectors in Africa are a threat not only to their own citizens but also to their trading partners and the world at large. The enormous economic cost of the current outbreak could be avoided by prudent ongoing investment in health system strengthening.