The World Bank East Asia and Pacific Region Spread of Avian Flu Could Affect Next Year’s Economic Outlook Excerpted from the November 2005 East Asia Update – Countering Global Shocks Full report available at: http://www.worldbank.org/eapupdate The Avian and Human Influenza Threat Box 1. Partners Meeting on Avian Influenza and Last April’s East Asia Update noted the threat to Human Pandemic Influenza. regional and global public health from outbreaks of avian November 7-9. Geneva, Switzerland. influenza A (H5N1) in East Asia. Since then outbreaks among wild birds and poultry have spread to Russia, This meeting is cosponsored by the World Health Kazakhstan, Turkey, Romania and Croatia, while, in East Organization, the Food and Agriculture Organization, the Asia, new outbreaks this year have occurred in Cambodia, World Organization for Animal Health, and the World China, Indonesia, Lao PDR, Thailand and Vietnam. The Bank. The meeting will include members of the confirmed number of human cases reported to the WHO sponsoring organizations, country representatives, donors, since the end of 2003 has increased to 121, of whom just and regional organizations involved in the influenza issue. over half have died. (Table 4). The objectives are: Table 4. Human Cases of Avian Influenza A (H5N1) • To confirm a two-pronged strategy: control avian Cases Deaths % Fatality influenza at source in animals in the short and medium term, and simultaneously prepare for pandemic influenza; Cambodia 4 4 100.0 • To support national plans in line with this Indonesia 7 4 57.1 strategy through commitment at national, regional and Thailand 19 13 68.4 global levels; Vietnam 91 41 45.1 • To discuss shared responsibilities of the Total 121 62 51.2 international community, technical organizations and Cumulative number of confirmed cases reported to WHO. agencies in assisting affected countries and countries at October 24, 2005. risk; • To assess national, regional, and global needs with indications of resources required in the short and While the bulk of human cases so far are thought medium term, and to review current bilateral and to be the result of transmission of the virus from animals multilateral initiatives to avoid duplication and identify to humans, there is great concern that genetic changes will potential synergies; allow the H5N1 virus to achieve the capacity for efficient • To discuss and outline coordination mechanisms and sustained transmission among humans, leading to a necessary at national, sub-regional, regional and global human influenza pandemic, with high levels of illness, levels to ensure effective mobilization of resources and death and other human, economic and social costs in East oversee progress in implementation and impact; Asia and around the world.1 As a result the question of • To identify key next steps based on an agreed-to how to prevent or prepare for such a pandemic is quickly strategy with political support and backing from the vaulting to a top priority for governments around the world. In October alone inter-governmental meetings of international community. officials and policy makers from affected and concerned countries took place in the United States, Canada and Australia, to be followed by a partners meeting on avian Avian flu in East Asia influenza and human pandemic influenza in Geneva on So far, with the principal transmission of the November 7-9. (Box 1). The following comments look virus occurring among poultry and other birds, the main at potential economic impacts and policy responses in economic impacts are occurring in the rural areas of East Asia and the world. several East Asian economies. At the overall macroeconomic level, costs so far have been fairly limited, but could rise significantly going forward, and have already been high for specific sectors and communities. Economic costs that need to be considered include direct costs such as losses of poultry due to the disease and to control measures such as culling birds, with impacts extending not only to farmers but also to upstream and downstream sectors such as poultry traders, feed mills, breeding farms etc. The largest declines have 1 Writing Committee of the WHO Consultation on Human occurred in Vietnam and Thailand, where they were equal Influenza A/H5. “Avian Influenza A (H5N1) Infection in to 15-20% of the stock of poultry. Other but relatively Humans.” New England Journal of Medicine. 353: 1374- smaller losses of poultry have also occurred in other 85. September 29, 2005. -1- economies such as Indonesia, China, Cambodia and Lao While such payment is in the nature of a transfer payment PDR. for the economy as a whole, it can impose a significant fiscal burden on the government. The size of the poultry sector in the national economies of the region before the epidemic ranged from Threat of a human influenza pandemic around 0.6 percent of GDP at the low end in countries like There are great uncertainties about the timing, Vietnam and Thailand, to a high of a little over 2 percent virulence, and general scope of a future human flu in the Philippines, with most countries centering a little pandemic. The WHO observes that “Best case scenarios, over 1 percent of GDP. In an economy like Vietnam, modeled on the mild pandemic of 1968, project global where poultry output is down by around 15 percent, this excess deaths in the range 2 million to 7.4 million. Other part of economic loss is worth about 0.1 percent of GDP estimates that factor in a more virulent virus, similar to or about $45 million. Additional losses have occurred that responsible for the deadly 1918 pandemic, estimate because of lower egg production and reduced activity in much higher numbers of deaths. Both scenarios are distribution channels. On the other hand there have also scientifically valid. The differences arise from the been important substitution effects, especially towards assumptions about the inherent lethality of the virus, production of pork. Combining these effects, the direct which past experience has shown to vary greatly.” 3 cost in Vietnam may be around 0.12 percent of GDP.2 If Other experts go further to argue that “Clinical, similar declines in poultry numbers were to occur in an epidemiologic, and laboratory evidence suggests that a economy like Indonesia where the poultry sector plays a pandemic caused by the current H5N1 strain would be somewhat larger part in the economy, these direct costs more likely to mimic the 1918 pandemic than those that could amount to 0.2 percent of GDP. occurred more recently. If we translate the rate of death These losses, while perhaps limited in overall associated with the 1918 influenza virus to that in the macroeconomic terms, have been severe in the poultry current population, there could be 1.7 million deaths in sector and on associated input and distribution channels. the United States and 180 million to 360 million deaths In economies like Vietnam where the bulk of poultry globally.” 4 production is still by backyard producers, the impact has Interestingly, the most immediate economic been felt by individual rural households, and has only impacts of a pandemic might arise not from actual death partly been offset by government compensation to or sickness but from the uncoordinated efforts of private farmers. Survey data show that in Vietnam the poorest individuals to avoid becoming infected. This at least was quintile of households relies more than 3 times as much the experience during SARS, when people tried to avoid on poultry income than does the richest quintile, so there infection by minimizing face-to-face interactions, are also adverse distributional effects. On the other hand, resulting in a severe demand shock for services sectors in economies like Thailand and Indonesia, where such as tourism, mass transportation, retail sales, hotels production is largely undertaken by industrial and large and restaurants, as well as a supply shock due to commercial producers, the impact may be felt in greater workplace absenteeism, disruption of production unemployment of wage laborers and in corporate processes and shifts to more costly procedures. To these bankruptcies. results of private action could be added economic Secondary or indirect economic costs could also disruption and costs caused by emergency public policy arise, for example, if there is a fall in international tourism measures such as quarantines and restrictions on domestic because of disease fears or travel restrictions. This does and international travel and trade. Obviously, a highly not appear to have occurred so far, with tourist numbers trade dependent economy such as East Asia could be continuing to grow in 2004 and so far in 2005. But this severely affected by these kinds of restrictions. could change, since it is only recently that global media It is no doubt foolhardy to even try and estimate have started prominent reporting on avian influenza. the economic costs arising from such deeply disruptive Finally, the costs of prevention and control also and far-reaching shocks. However one can note that the need to be taken into account, including costs to the disruptions associated with SARS led to an immediate government of purchase of poultry vaccines, medications economic loss of perhaps 2 percent of East Asian regional and other inputs, hiring workers for culling and cleanup, GDP in the second quarter of 2003, even though only surveillance and diagnosis, hire of transportation etc. Governments also face the need to pay compensation to 3 poultry owners, which is important in inducing owners World Health Organization. “Avian Influenza: not to conceal that a bird flu outbreak has occurred. Assessing the Pandemic Threat.” January, 2005. WHO/CDS/2005.29. 4 Michael T. Osterholm. “Preparing for the Next 2 World Bank. “The Costs of Avian Influenza in Pandemic.” New England Journal of Medicine. 352: Vietnam.” Policy Note. Hanoi. October 11, 2005. 1839-42. May 5, 2005. -2- about 800 people ultimately died from this disease. Note of rich countries to poor countries, where health systems that a 2 percent loss of global GDP during a global are much less developed and mortality could be much influenza pandemic would represent around $200 billion higher. Note also that these estimates for the US arose in just one quarter (or $800 billion over a whole year), from a projected mortality rate of less than 0.1 percent of and it is fair to assume the immediate shock during a flu the US population, much lower than the mortality rates in epidemic could be even larger and last longer than SARS. either the US or the world as a whole in the 1918-19 The 1918 epidemic, for example, came in three waves, pandemic. spread over two years. Policy issues There is evidence that during SARS the costs By any account, the benefits of preventing or arising from panic and disruption were magnified by an even mitigating or delaying a global influenza pandemic initial lack of public information, contributing to a large are likely to be large indeed. The FAO, OIE and WHO over-estimation by private individuals of the perceived have set out detailed recommendations on animal and probabilities of infection and death, a fact documented in human health policies and preparations that should be opinion survey data. This could have led to over- implemented at national and international levels to control reactions in the preventive actions taken by the population avian influenza and the danger of a human influenza at large. A key policy question for government is pandemic, including planning, training, surveillance, therefore how to win the trust and confidence of the monitoring and diagnostic systems, public population, minimize panic and disruption and indeed communications, establishment of stockpiles of mobilize the public as a key partner in beating the disease. medications and equipment, preparation of national health Here an honest, transparent public information policy is care systems and facilities, implementation of control likely to be critical. measures (culling, vaccination, use of anti-virals, In addition to these immediate costs of quarantines etc.), compensation and other incentives to disruption, a global flu pandemic would also entail a complement control measures, relevant research etc. 6 sizeable loss of potential world output through a reduction Many affected East Asian countries are still at in the size and productivity of the world labor force due to the stage of preparing national animal and human health illness and death. The effect of disease on the size of the plans. Since in the present crisis animal and human labor force would depend on the virulence and spread of health considerations are closely linked, the response to the disease and on how it affected different age groups, the influenza threat needs an integrated cross-sectoral among other factors. There would also be a general approach, that brings together agriculture, animal health, decline in labor productivity due to illness among the human health, finance and other key agencies and experts, labor force at large, as well as costs of hospitalization and with strong support and leadership at the highest political medical treatment. level. Again, many East Asian countries still have a way There is a dearth of detailed studies of what these to go in developing multi-sector planning and costs of a flu pandemic might amount to at a global level. coordination with top political support. However one 1999 study of the United States calculated There is clearly a priority on curbing avian flu that, based on the disease patterns of post World War 2 “at source”, in the agricultural sector, through pandemics, a new flu pandemic could lead to between implementation of strong animal and human health 100000 and 200000 deaths in the US, together with surveillance, disease control and mitigation measures, 700000 or more hospitalizations, up to 40 million thereby reducing the probability of a far more costly outpatient visits and 50 million additional illnesses.5 The human epidemic. In addition it is also important to strike present value of the economic losses associated with this a balance between short and long term measures. Avian level of death and sickness was estimated at between flu is becoming endemic in parts of East Asia and will $100 and $200 billion for the US alone (in 2004 dollars). require a long effort to suppress. Meanwhile a human If we extrapolate from the US to all high income pandemic may still emerge from some quite different countries, there could be a present value loss of $550 strain of flu virus. Other zoonoses and pathogens continue billion. The loss for the world would of course be to emerge. Thus it makes sense to also undertake broader significantly larger, because of the impact in the long term measures to strengthen the institutional, developing world. Note however that it would be inappropriate to make a simple extrapolation from studies 6 FAO/OIE. A Global Strategy for the Progressive 5 Martin I. Meltzer, Nancy J. Cox and Keiji Fukuda. Control of Highly Pathogenic Avian Influenza (HPAI). (1999). “The Economic Impact of Pandemic Influenza in May 2005. the United States: Priorities for Intervention.” Emerging WHO. Global Influenza Preparedness Plan. 2005. Infectious Diseases. Volume 5, No. 5. Sept.-Oct. WHO/CDS/CSR/GIP/2005.5 http://www.cdc.gov/ncidod/EID/vol5no5/meltzer.htm -3- regulatory and technical capacity of the animal health, human health and other relevant sectors. These will be valuable investments both in the short and long run. Since a human influenza pandemic would rapidly spread all over the world, stopping or controlling avian flu is therefore a true global public good, which all countries have an interest in acquiring. Thus, while country level leadership and engagement is essential for success, it must be backed by global resources. Even though the benefits of containing a pandemic are overwhelming, individual governments may still be daunted by the social, political and economic costs of various policy measures, especially when these measures are in the nature of global public goods that benefit many more than just the people of that nation. -4-