World Bank Alarms Over Economic Impact

By Edwin G. Wandah

The World Bank Group analysis finds that if the Ebola 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 could 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,” President Kim stated.

According to the World Bank analysis, two alternative scenarios to estimate the medium-term impact of the epidemic to the end of 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.

An estimated impact on output individually and in aggregate, in the short term (2014) and medium term (2015, Low Ebola), medium-term impact (2015 – High Ebola) with Guinea $130 million (2.1 pp) $43 million (1.0 pp) and $142 million (2.3 pp).

Liberia $66 million (3.4 pp), $82 million (4.2 pp),and $228 million (11.7 pp) while Sierra Leone $163 million (3.3 pp) $59 million (1.2 pp)and $439 million (8.9 pp) the Core three countries, $359 million $97 million $809 million with entries in US dollars (percentage of GDP in brackets).

The analysis estimates the short-term impact on output to be 2.1 percentage of GDP in Guinea, reducing growth from 4.5 percent to 2.4 percent; 3.4 percentages in Liberia which was also reduced at a growth from 5.9 percent to 2.5 percent; and 3.3 percentages in Sierra Leone.

It was also reduced in growth from 11.3 percent to 8 percent, with forgone output corresponding to $359 million in 2014 prices. However, according to the World Bank, if the virus is not contained, these estimates may rise to $809 million in the three countries alone.

Just in Liberia alone, the hardest hit country, the High Ebola scenario sees output hit to increase at an alarming rate of 11.7 percentage in 2015, reducing growth from 6.8 percent to -4.9 percent). But the short-term fiscal impacts will also be large, at $93 million for Liberia (4.7 percent of GDP); $79 million for Sierra Leone (1.8 percent of GDP); and $12 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 speculations.

Although, families are already vulnerable to food price shocks, 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, care-giving, and the associated losses to working days), have contributed immensely, resulting from aversion behavior driven by fear of contagion.

Meanwhile, this 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 underlined 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 worst scenario.

The analysis described four related activities such a response, at least to include Humanitarian support, as desperately needed personal protective equipment and hazard pay for health workers, emergency treatment units, standardized and universally applied protocols for care, etc.

Finally, Fiscal support, 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.

With 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.

With serious attention to the fight, the World Bank Group’s Ebola Response is mobilizing a $230 million financing package for the three countries hardest hit by the Ebola crisis, which will help contain the spread of infections, help communities cope with the economic impact of the crisis, and improve public health systems throughout West Africa. The World Bank Group is supporting country responses in line with the WHO Roadmap, and is coordinating assistance closely with the UN and other international and country partners.

As of mid-September 2014, of the pledged $230 million, the WBG has mobilized $117 million for the emergency response, which includes IDA grants of $58 million for Liberia, $34 million for Sierra Leone, and $25 million for Guinea.