Gone with the wind

Assessing Hurricane Costs in the Caribbean

Hurricanes are a fact of life in the Caribbean. Every year there are, on average, 12 storms that pass through the region, of which about half reach hurricane force winds (winds above 119 kilometers per hour). Hurricanes are the leading cause of natural disasters in the Caribbean, making the region one of the most vulnerable in the world. Yet, only 62 per cent of disasters caused by hurricanes have recorded data on economic damages, as the information is difficult to collect.

A man walks amongst trees damaged by Hurricane Matthew in Les Cayes, Haiti, on October 5, 2016. Photo: Reuters

In my new paper, I look at the relationship between maximum wind speeds and the damages hurricanes cause to estimate the missing data for the Caribbean, and to calculate the potential costs that climate change would have in the region. I find that damages in percent of GDP increase by about three per cent with an increase in wind speed of one per cent.

The international disaster database shows that between 1950 and 2014 hurricanes caused 238 natural disasters in the Caribbean. Of those storms, the database only recorded damages for 148 hurricanes, which caused roughly $52 billion (in 2010 constant US dollars) in damages. This is equivalent to an average of 1.6 per cent of GDP in damages every year in each island.

My findings show that the remaining disasters could have caused damages of about 0.9 per cent of GDP every year, bringing the average destruction of hurricanes to 2.5 per cent of GDP a year.

Even then, this figure might still underestimate the costs of hurricanes in the Caribbean, given the number of under reported disasters in the 1950s and 1960s and the restrictive classification for defining a disaster. So, if we assume that all storms with hurricane strength winds that passed within 60 miles of the islands caused damages (a total of 335 storms including the 238 disasters), the average island in the sample would have sustained annual damages of 5.7 per cent of GDP over the past 65 years.

Climate change is expected to increase the intensity of hurricanes, as warmer sea surface temperatures will create the right environment for large storms to form and strengthen. If temperatures were to increase by 4.3°C by 2100, then average damages in the Caribbean would increase by about 34 per cent as the frequency of the most intense storms would increase. Even if temperatures were to increase only by about 3°C by the end of the century, which is close to what the November 2016 Paris Agreement on Climate Change would achieve without further target increases according to independent experts, the increase in damages would still be close to 24 per cent.

Given the large costs that hurricanes already cause in the Caribbean and the potential for significant increases in damages with climate change, it is important for governments to take more actions to be better prepared. They will need to implement soft adaptation measures, such as improved early warning systems and better building codes, as well as hard adaption measures, such as investments in resilient infrastructure. Governments will also need to build fiscal buffers to cover the recurrent costs of disasters, and insurance (for example, the Caribbean Catastrophe Risk Insurance Facility) will also be crucial to spread risks.

(Sebastian Acevedo is an economist in the IMF’s Western Hemisphere Department, and works on the Ecuador desk. At the IMF, he worked for six years in the Caribbean covering topics related to natural disasters, economic growth, productivity, tourism, debt, and exchange rate regimes, with a particular focus on small islands.)

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