World Bank: Ebola is crippling West Africa’s economy

By Onimisi Raymond

The current Ebola outbreak has killed more than 2,600 people, according to the World Health Organisation. However, the number of cases could end up in “hundreds of thousands”, and estimates from the World Bank indicate that unless the crisis is quickly contained, the financial impact will be devastating.

Reports from the World Bank assess the economic impact of the health epidemic under a variety of scenarios. Food shortages and rising prices are already a reality. Rising poverty and unemployment have quickly joined illness and death as a sad but inevitable consequence of a third-world health epidemic. The World Bank added that Ebola outbreak affects economic wellbeing through two distinct channels. First, there are the direct and indirect effects of sickness and death, which consume health care resources, reduce the labour supply and hurt productivity. Second, there are behavioural effects associated with people’s fear of contagion. For example, people may choose to stop going to work, while governments might close down airports and other forms of transportation.

The first channel is directly affected by the number of people taken ill or who die; the second channel is less sensitive to the number of cases but more sensitive to available information and the perceived threat. Often, it is the behavioural changes that weigh the most on growth.

So far, the three hardest hit countries are Guinea, Sierra Leone and Liberia. Naturally, the estimates discussed below are highly speculative but they highlight the considerable challenge faced by these three countries and the importance of containing the threat as quickly as possible.

The World Bank estimates, the Ebola breakout will shave around 2.1 percentage points from growth in Guinea this year; around 3.4 percentage points from growth in Liberia; and 3.3 percentage points from GDP growth in Sierra Leone. Although output in all three countries will expand in 2014 — and in Sierra Leone, it will rise rapidly — the cost of forgone output is estimated at $ US359 million. Those estimates would be much larger if it wasn’t for a rapid expansion of government balance sheets and humanitarian support.

Fiscal spending is expected to be around 1.2 per cent of GDP higher in Guinea than would otherwise be the case; 4.7 per cent of GDP higher in Liberia; and 1.8 per cent of GDP higher in Sierra Leone. Further out, the costs of the crisis become increasingly speculative. It will largely come down to whether the epidemic can be contained and whether there is contagion among neighbouring countries.

To deal with the uncertainty, the World Bank created two scenarios. A ‘low Ebola’ scenario corresponds to rapid containment within these three countries; a ‘high Ebola’ scenario refers to slower containment and broader regional contagion.

Under the ‘high Ebola’ scenario, growth in expected to deteriorate in each country. Sierra Leone and Liberia are hit particularly hard — owning to a much higher number of infections — while the impact in Guinea is more muted because of its ongoing containment efforts.

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Photo: bbc

Post Author: intern