Manohar Sharma Vulnerability significantly compounds hardship in hardship and deepen the severity of hardship for the Pacific. More than 20 percent of people in most many others. The impacts of import price shocks are Pacific Island Countries (PIC) live in hardship, particularly severe in the small atoll nations that rely meaning they are unable to meet their basic food and heavily on imports for staple foods and fuel. For nonfood needs. The incidence of hardship is highest example, in Kiribati, simultaneous spikes in the prices in Papua New Guinea, where 40 percent of the of rice, wheat, and oil are estimated to have the population lives in hardship. In addition, people in potential to push 6 percent of the country’s entire the Pacific are uniquely vulnerable to aggregate population into hardship. This impact of a commonly economic and natural shocks because of their occurring set of shocks (20 to 30 percent price countries’ combination of small size, isolation, and increases, with a likelihood of about 33 percent in any other geographic features. The location and given year) is close to the estimated impacts of the topography of PICs exposes them to a 2007 global food and fuel crisis on 20 of the worst disproportionate number of natural shocks, and affected countries in the world. several are among the most vulnerable countries in the world in terms of relative natural disaster losses. Commonly occurring price shocks to commodity imports and exports also increase hardship substantially. People in the small countries of the Pacific are highly exposed to high and volatile global commodity prices. Fuel and food imports, tourism, remittances, and international aid all contribute to the well-being of Pacific islanders and help countries overcome the limitations on development caused by geography. However, PIC economies are still small and undiversified, any negative shocks to these external flows can have very large impacts. Microsimulation analysis for Kiribati, Papua New A young boy in Taremb, Malekula Island with one of his Guinea, and Tonga finds that shocks to the prices of family's chickens. Photo: Tom Perry / World Bank imported food and fuel, agricultural commodity exports, and remittances push many people into The growing epidemic of non-communicable addition, cultural and social pressures can require diseases (NCDs) is an aggregate health shock with greater generosity than many households feel they significant consequences for the well-being of can truly afford. At the same time, traditional systems people in the Pacific. NCDs reduce productivity and cannot insure against the many aggregate shocks quality of life and are very expensive to treat. Increase that are common in the Pacific. Governments in NCDs has already eroded life expectancy in Tonga. therefore have a role to play in supplementing Most PICs are facing this epidemic while also dealing traditional systems in reducing and managing risks. with continued threats from communicable diseases and maternal and child mortality. With limited fiscal Households have limited access to market resources, trying to manage this “double burden” of instruments that can help them manage risks. In disease is a major challenge for Pacific governments. particular, access to formal financial instruments is limited in most PICs. Evidence from household In addition to aggregate shocks, people in the surveys shows that a minority of households hold Pacific face many idiosyncratic and local shocks, savings accounts, loans, or insurance policies. but little data is available to identify their Without access to these risk management tools, frequency and impacts. Crop failure, job loss, households are likely to resort to drawing down violence, and many other idiosyncratic or localized assets in the aftermath of shocks—for example, by shocks are likely to occur in the Pacific, as they do drawing down on productive assets such as livestock around the world. Some striking evidence on the or reducing investments in human capital. At the prevalence of domestic violence and unwanted same time, growth in financial access without pregnancy shows that these types of personal shocks effective regulation and consumer education can are much more common in the Pacific than in potentially lead households into excessive debt, neighboring East Asian countries. However, existing which is a concern in some countries including Fiji. national household surveys are not designed to capture information on the full range of shocks that Governments provide little social insurance, but occur or their impacts. Much more could be learned some programs show promise within country if future surveys were specifically designed to elicit constraints. Across the Pacific, Fiji is the only country accurate information on shocks. with a national hardship-targeted cash transfer program. However, many other countries provide transfers or subsidies to small groups of people identified as being in need. Broader measures to support those in hardship or experiencing shocks are While traditional systems are strong, they do not generally not in place because of fiscal and capacity eliminate hardship and can provide only partial constraints, as well as lack of information on insurance. Although traditional systems of resource intervention tools, particularly in the smaller islands. sharing are important to the well-being of many Two types of programs that have been tried by some Pacific islanders, hardship and vulnerability are still governments and development partners in the Pacific major challenges. Traditional systems do not reach are funds for the elderly and cash for work schemes. everyone, and evidence from household surveys These show promise in part because of their lower suggest that those in deepest hardship may be the information requirements for targeting participants. least likely to be part of gift-sharing networks. In Government funding for basic services is under managing associated risks or urbanization. fiscal pressure because of rapidly rising costs of Strengthening ties and coordination between coping with NCDs. Health care expenditures in the government bodies responsible for infrastructure Pacific largely go to coping with health shocks: provision and building codes and those responsible curative, palliative, and rehabilitation care absorbs 80 for disaster risk management and climate change to 90 percent of national health expenditures. This adaptation is one important step in this area. In focus on coping is fiscally unsustainable because of addition, given the importance of land in the social, NCDs, which are spreading quickly and are costly to cultural, and economic life of people in the Pacific, treat. Greater emphasis is needed on knowledge and governments can aim to support good land protection measures to slow their increase, and also management, including enabling communities to use on changing people’s behavior. it as a resource to manage the risks they face. Managing aggregate economic shocks mainly Development partner activities should also factor through ex-post coping actions has limited in risks and seek to reduce rather than add to effectiveness, and more protective measures hold volatility. Flexible funding arrangements that are promise. Few ex-post responses to economic shocks responsive to changed expenditure priorities in the in the Pacific have proven to be effective in reducing light of major shocks can help. PIC governments with the negative impacts on households while also being stretched implementation capacity would also fiscally sustainable. Ex-ante measures that provide benefit from a focus on the practicalities of protection or insurance against shocks need to be implementation support following natural disasters. explored as shocks will continue to be part of the In this context, the Pacific Catastrophe Risk Pacific landscape. In this context, some of the most Assessment and Financing Initiative (PCRAFI), a joint important actions governments can take are to initiative of SOPAC/SPC, World Bank, and the Asian pursue prudent macroeconomic policy, including Development Bank, provides Pacific Island Countries building up savings in good times and actively (PICs) with disaster risk modeling and assessment mobilizing revenue in order to have resources to tools. PCRAFI also provides Pacific Island countries deploy during shocks. integrated financial solutions for the reduction of their financial vulnerability to natural disasters and to climate change. The initiative is part of the broader agenda on disaster risk management and climate change adaptation in the Pacific region. Good government policy in all areas should factor in risks. For example, urbanization in the Pacific is changing risk profiles and presenting new Manohar Sharma, Senior Economist, World Bank’s challenges, as well as opportunities. Active planning Poverty and Equity Global Practice (GPV), can help to address the challenges by identifying and msharma5@worldbank.org This note series is intended to summarize good practices and key policy findings on Poverty-related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank, its board or its member countries. Copies of these notes series are available on www.worldbank.org/poverty Number of disasters by type reported in the Pacific islands (1980-2009) 110 100 90 80 70 60 50 40 30 20 10 0 Tropical Earthquake Flood Volcanic Landslide Drought Epidemic Wildfire cyclone and/or eruption tsunami Annual average economic losses from cyclones, earthquakes, and tsunamis (as a % of GDP) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 -