Download Pulling it all together. Macroeconomic effects. Trinidad Wkshop

Economic Commission for Latin
America and the Caribbean
Macroeconomic effects
of damages on the economy
of the affected country
Michael Hendrickson, ECLAC
1
ECLAC Subregional Headquarters for the Caribbean
The ECLAC Methodology
The procedure
Part I
Description
Part II
Assessment
Part III
Rehabilitation and reconstruction
What needs to be
done?
What is it?
How much?
Whom has it affected?
Magnitude?
Where?
What is required to go back
What has been done?
2
ECLAC Subregional Headquarters for the Caribbean
The ECLAC Methodology
The assessment
Part 1
Social and productive sectors, infrastructure and environment
Immovable Assets
Stocks
Damages
Part 2
Macroeconomic effects
Income foregone
GDP
Higher costs
Losses
Fiscal
Accounts
Secondary effects
Balance of
payments
Employment
At the time of
the disaster
Following the disaster
Prices
1 to 5 years
3
ECLAC Subregional Headquarters for the Caribbean
Contents
•
•
•
•
•
Introduction
Stages in damage assessment and evaluation
Measurement and valuation of secondary effects
Summary of general economic effects
Reconstruction scenarios
4
ECLAC Subregional Headquarters for the Caribbean
Introduction
•
Objectives
•
Functions of the macroeconomist
•
Two approaches to disaster evaluation
•
Expected and actual economic performance (Delta)
•
Recapitulation of direct and indirect damage
•
Financial implications and technical cooperation
5
Measuring the damage “delta”
Previous situation
Measurement of direct and indirect damage
on the pre-existing situation (baselines, by sectors)
Differentiation of resulting scenario with the disaster
from that without the disasters
Possibility of several scenarios depending on
reconstruction assumptions
Expected
development in3 –5
years
(without disaster)
Effect of the disaster
In 3-5 years
(ex post)6
Rate of growth of GDP in Antigua and Barbuda
1991 - 2000
Luis and Marylin
(1995)
8
Percentages
6

4
2
0
-2
91
92
93
94
95
96
97
98
99
2000
-4
-6
Years
7
Rate of growth of GDP in Cayman Islands
1999 - 2004
Ivan (2004)
4
Percentages
3

2
1
0
-1
1999
2000
2001
2002
2003
2004
-2
Years
8
Characteristics
•
•


•
Counterfactual exercise
Comparison between
What would have happened with no disaster.
What happened with the disaster taking as a
baseline what could have happened without the
disaster.
Testing for the accuracy of the estimate.
9
Characteristics
Stages in
damage assessment and evaluation
• The pre-disaster situation (TREND PRIOR TO
DISASTER).
•Expected performance of the economy in the disaster year
(BASELINE).
• Situation following the disaster (USING THE BASELINE).
10
Characteristics
•
•
•
•
•
•
Based on national accounts.
Sectorally based : firm-> sector -> economy.
Measurements are undertaken in money value.
The macroeconomist needs money value flows (losses)
from each sectoral expert.
The objective is to obtain value added for each sector and
add the value added to obtain the effect of the disaster on
GDP.
The key conversion parameter is the coefficient of value
added to gross value of production.
11
Characteristics
•
•
The coefficient is used to convert money values to
physical quantities consistent with GDP by value added.
The exercise depends on:
 Sectoral experts to provide estimates (losses).
 Government (Baseline projection).
 Statistical national offices (conversion coefficient).
12
Summary of direct of Impact of Floods on GDP by Sector (G$ millions)
Baseline
Sector
Nominal GDP Conversion
Pre-floods
factor
Loss
Loss
Nominal GDP
Money
V.A.
w ith floods
2006
% change in GDP
2006
2006
Agriculture, Forestry and Fishing
Agriculture
31,378
0.7
2,071
1,449
29,929
-4.62
Sugar-cane
13,864
0.8
24
19
13,845
-0.14
Rice-paddy
6,999
0.6
1,425
Livestock
6,879
0.5
552
Other agriculture
3,636
0.7
69
Fishing
10,270
0.4
10,270
0.00
Forestry
3,244
0.52
3,244
0.00
Mining and Quarrying
11,442
0.44
11,442
0.00
Manufacturing
11,778
0.17
11,778
0.00
Distribution
7,059
0.2
7,059
0.00
Transport & communication
17,007
0.25
Engineering & construction
9,297
0.2
Rental of Dw ellings
6,710
0.75
Financial services
5,721
0.76
5,721
0.00
Government
25,266
0.57
61
Other services (including Tourism)
2,988
0.25
0
0
2,988
Total
142,159
19
66,347
0.00
13
-53.33
495
6
Calculation of Change in GDP
• Change in GDP = Conversion Factor for each
sector x Money value of loss in that sector = Loss
in value added in the sector
• Baseline Nominal GDP before Disaster –
Loss in Value added in sector = Nominal GDP with
Disaster
∆ GDP = (Baseline nominal GDP before disaster Baseline Nominal GDP with disaster/ Baseline
nominal GDP before disaster) x 100.
14
Characteristics
• All assessments also include the expenditure side.
(uses).
• Provides information on what happened to I, G, X-M.
• Policy choices : inevitable questions must be answered.
 Extent of government expenditure effort consistent with
GDP disaster estimates.
 Expected budget deficit with the disaster.
 Level of imports consistent with the disaster estimates and
with a given current account deficit.
15
Characteristics
•
•
•
•
The methodology provides an order of magnitude of
impact.
The information comes from the sectoral estimates and the
information provided by the government and/or relief
(recovery) operations.
There are limited guidelines on how to measure in a
consistent way- need to use knowledge of economy. No
clear guidelines on how to undertake a programming
exercise (to provides policy advice and outline policy
options).
Analysis is essential for designing restoration and
reconstruction programmes and for the orientation of
16
external aid.
Rate of growth of GDP
Effects of Natural Disasters on different countries
Georges. DR
10
Percentages
8
6
El Salvador
4
2
0
-2
93
94
95
96
Luis and Marilyn. OECS
97
98
Years
99
2000 2001 2002
Mitch. Honduras
17
Rate of growth of GDP in States affeced by Ivan
1999 - 2004
10
8
Grenada
Percentages
6
Jamaica
4
2
0
-2
1999
2000
2001
2002
-4
2003
2004
Cayman Islands
-6
Years
18
Gross capital formation
40
35
30
25
Percentages of
20
GDP
15
10
5
0
t-1
t0
t+1
t+2
Honduras
Nicaragua
Countries
DR
19
Revenues and expenditures
Belize (% of GDP)
30
25
Tax revenue
Current expenditure
20
15
10
5
Capital expenditure
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0
20
Central government budget
Grenada
Central government
2001
2002
Current income
Current expenditures
Capital account
Fiscal result
284.85
257.97
-116.90
-90.02
292.52
291.43
-211.26
-210.17
Fiscal result with grants
Fiscal results without grants
-8.40
-12.60
-19.30
-21.50
Pre-Disaster Post-Disaster
2003
2004
2004
In Million EC$
323.60 354.90
280.10
285.10 338.40
334.80
-95.90 -78.30
-91.60
-57.40 -61.60
-145.00
As % of GDP
-4.90
-4.80
-12.00
21
-9.90
-9.30
-18.70
Balance of Payments
Belize (% of GDP)
20
15
Services balance
10
5
Transfers
FDI
0
-5
Current account
-10
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
-15
22
Balance of Payments
Jamaica, 1999-2004
2001
Current account balance
-757
Merchandise balance
-1618
Exports fob
1454
Imports fob
3073
Services balance
383
Income account
-438
Unilateral transfers
916
Financial and capital balance d/ 757
Net foreign direct investment 525
Financial capital
781
2002
-1074
-1871
1309
3180
315
-606
1087
1074
407
1091
Pre-disaster Post-disaster
2003
2004
2004
-765
-722
-757
-1942
-1992
-2103
1386
1588
1541
3328
3581
3644
560
606
576
-571
-651
-632
1189
1315
1402
765
722
757
374
146
….23
765
721
752
Average rate of inflation in the Cayman Islands
1999 - 2004
7
6
5
% 4
3
2
1
0
1999
2000
2001
2002
2003
2004
24
Building a macroeconomic scenario
•



What do we need?
Complete macroeconomic scenario.
Consistent macroeconomic scenario.
Institutionalized macroeconomic scenario.
• .What do we have?
 A national accounts framework from the sectoral side.
•
Use the national accounts (SNA, 1993) approach to
provide the missing part.
26
Building a macroeconomic scenario
•
•
The approach is to delineate a consistent stock-flow
approach.
Stock-flow approach consists of three sub-matrices:
 Transactions matrix.
 Flow of funds matrix.
 Balance sheets or accumulation accounts matrix.
•
The matrices can accommodate the different sectors of the
economy (households,firms, banks, government, external
sector).
27
Households
C
I
G
M
X
T
W
rlb
rtb
rd
Dividends
FB
-C
-Th
+W
+rdDh
FBh
Cash
Demand deposits
Time deposits
Treasury bills
-DHP
-DDd
-DTd
Loans
-Deq
0
S
+HP
+Dd
+Td
+Eq
-V
0
Government
S
External sector
0
0
0
0
0
0
0
+INV
-G
+M
-X
+Tt
+rl
+rtb
-rDt
+rdDf
FBf
Flow of funds
-DHP
+DDd
+DTd
-DTb
+DLf
Capital
Cash
Demand deposits
Time deposits
Treasury bills
Loans
Capital
Foreign assets
Balancing Item
S
Firms
Current
+C
-INV
+G
-M
+X
-Tf
-W
-rlf
Transactions matrix
Banks
Capital
+M
-X
-rtb
0
0
FBg
-CAB
0
-DHP
0
0
0
0
+DTb
-DLb
0
+Deq
0
0
0
Balance sheet matrix
-HP
-Dd
-Td
+TB
-TB
-Lf
+Lf
-Eq
+Fg
+NW
-B+Fg
0
0
0
-Fg
0
0
0
0
0
0
0
28
Building a macroeconomic scenario
• Transactions matrix
 Origins and destinations of all transactions. Every flow
has an origin and a destination. All rows sum up to zero.
• Flow of funds matrix.
 Denotes the excess of total receipts over expenditures.
These balances provide the net assets and liabilities.
• Balance sheets or accumulation accounts matrix.
 The stocks are a resultant from the flow of funds matrix.
29
Building a macroeconomic scenario
Path of nominal GDP pre-disaster, post disaster and post reconstruction measures
7000.0
Natural disaster
The initial effect is to
6000.0
diminish the spending
5000.0
capacity of the
government.
4000.0
This is the external
shock
3000.0
aspect
Path of spending policies required
to bring the level of nominal
income to its pre-disaster level.
This is the policy aspect.
of the disaster.
2000.0
1000.0
0.0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
32
Building a macroeconomic scenario
10000.0
Government Spending
Disaster 
8000.0
6000.0
GDP
4000.0
2000.0
0.0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
-2000.0
-4000.0
Government Deficit
-6000.0
-8000.0
-10000.0
33
Building a macroeconomic scenario
Disaster and reconstruction efforts
120000
Disaster and reconstruction efforts with capital flows
140000
Disaster
Disaster
120000
100000
100000
80000
80000
Debt
60000
40000
Debt
60000
Government
40000
Government
20000
20000
External sector
External sector
0
0
1
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
-20000
-40000
Deficit
-40000
2
3
4
5
6
7
8
-20000
Deficit
-60000
Disaster and reconstruction efforts with increased propensity to import
150000
Disaster
100000
Debt Government
50000
External sector
0
1
2
3
4
5
6
7
8
9
Deficit
-50000
34
-100000
9
Thank You
36