I. ENVIRONMENT AND ASSESSMENT OF FLOOD IMPACTS
E. Effects of floods on social and economic conditions
3. Impact of river floods on economy
A comparative study of the cost of flood damage and the total GDP of the country suggests that flood damage/loss as a percentage of the total GDP value was significant during 1987, 1988 and 1995. Loss as percentage of GDP value was 3.04 in 1987, 5.09 in 1988 and 2.60 in 1995. If damage due to major cyclones and storm surges were taken into account, the overall loss as a percentage of GDP would be much higher. The effect of only river flood damage loss on GDP is reported in Table 3. It may be noted that the GDP values are at constant 1985 prices. Estimates of the effect of flood loss on the GDP are based on static absolute figures of flood loss. The structure of the flood damage losses and their relative weightage to total GDP have not been taken into account. However, the estimates provide a notional indication of the impact of flood damage/loss on the economy.
It may be mentioned that floods cause losses both to the GDP and to the capital stock and thus hamper the growth potential of the country. Moreover, these losses also have long-term impacts on the macro-economy. The long-term impacts are twofold:
In addition, there are enormous social losses due to floods, the impact of which on the macro-economy is much more than micro-economic losses in terms of accelerating the growth potential of the economy. However, as yet there is no comprehensive source that provides information/analysis of possible macro-economic impact of flood losses on the Bangladesh economy. Nevertheless, improved protection of capital stock against flood hazards could result in an increase of production per capita of about 1 per cent, a rate significantly higher than the direct cost of damage (Gagey, 1989).
Another study (French Engineering Consortium and BWDB, 1989) suggests that the benefits from flood damage prevention would be: (a) agricultural benefit to the tune of present losses (possibly increasing at the rate of 1.5 per cent per year); (b) indirect benefits equivalent to 2 per cent of the economic growth of the non-agricultural sectors. Considering non-agricultural sector growth rate at 7 per cent on average, the estimated indirect impact on GDP growth comes to around 0.089 per cent. Hence, the overall negative impact on GDP growth due to flood hazards would be the share of direct crop damage to the GDP growth rate plus the indirect losses. The total negative effect as a percentage of the GDP growth rate due to flood damage is not unduly high as shown in Table 4.
* Low values of negative effects are possibly due to under-coverage of the non-crop damages on the basis of which the estimates have been made.
Flood impacts at macro level are actually the net spill-over effects on the economy (agriculture and non-agricultural sectors) and are influenced by the linkages among various sectors. An analysis of a recent study (Islam, 1996) suggests that given the existing linkages in the Bangladesh economy, the macro level impacts of flooding on various sectors of the economy are generally negative, although not so large (only around 5 per cent of output trend) as is often presumed. On the whole, the findings are very much similar to our own estimates (Table 4).