The economics of floods we keep forgetting

By Dhananath Fernando

Natural disasters and national emergencies do not arrive every day. But when they do, if we are unprepared, the damage can shape our lives for years. As floods intensify across the country, we hope our readers and all Sri Lankans are safe. Our thoughts are with everyone affected.

A familiar pattern repeats during every crisis. In the middle of the emergency, there is no shortage of commentary, ideas, and expert panels. Yet once the water recedes, our attention recedes with it. Reports gather dust, committees dissolve, and we wait for the next disaster to teach the same lesson again.

But natural disasters have an economic side that we rarely discuss. Managing them is not a simple Government-versus-private sector debate. It requires everyone – State, private sector, communities, and individuals – to play a part.

The first pillar is identification and prevention. This lies mainly with the Government. Investing public funds in proper disaster management systems is essential, not optional. A modern system must include accurate weather forecasting, river and reservoir monitoring, rapid communication tools, and tsunami alert networks.

With climate change intensifying extreme weather, Sri Lanka must prioritise floods, landslides, and coastal hazards. The encouraging news is that many global partners stand ready to help, if we can present a credible plan and maintain continuity in implementation.

The second pillar is understanding risk and preparing people. After the 2004 tsunami, Sri Lanka built some capacity: drills, awareness programmes, and clear guidance in risk zones. These efforts are not perfect, but they show we can act when we learn from tragedy.

We now need the same commitment for floods, landslides, and droughts. Risk maps must be updated regularly, zoning laws enforced, and evacuation routes rehearsed. But identifying risks alone does not guarantee safety.

The Koslanda landslide is a painful example. The area had been identified as high risk and equipment had been issued, yet the system failed. Telling people to evacuate is easy. Convincing them is difficult. Many fear theft, losing their valuables, or damage to their homes.

In every major flood near the Kelani River, we see hesitancy to leave, even when the danger is clear. For a family with limited assets, their home is everything. Walking away without assurance of security feels impossible.

This is where community-level solutions matter. Secure storage points, community-managed watch systems, and support from local Police can give people confidence to evacuate early. Temporary safe locations must be identified, tested, and publicised long before an emergency. These systems do not require large budgets, only coordination and trust.

The third pillar is insurance as a financial buffer. In Sri Lanka, the first responders are the armed forces, Government officers, and volunteer groups. Their role is essential. But in a well-prepared system, insurance absorbs a significant part of the financial loss.

Insurance is not only about payouts. When insurers assess a property, they analyse its disaster risk. This creates clear price signals. High-risk zones face higher premiums, discouraging settlement in vulnerable areas. Better data allows insurers to price risk accurately, which encourages investment in monitoring and early-warning systems. It creates a virtuous cycle where good information has real economic value.

Sri Lanka’s insurance penetration is low, and it is unrealistic to expect every household to be covered. But even partial coverage builds resilience. Insurance spreads risk, supports recovery, and funds the very information systems that reduce future losses.

Disaster management, the rule of law, and proper regulation are core responsibilities of the State. When government performs well here, the whole country benefits. Unfortunately, over successive administrations, the State has often done what it should not do, and failed to do what only it can do. Unlike many other areas of governance, disaster management has no private sector substitute.

Ignoring the economic logic of disaster preparedness is itself a silent disaster. If we continue to treat floods and landslides merely as humanitarian events, and not as recurring economic shocks that can be managed and reduced, we will keep paying the price in lives, in property, and in opportunities lost.

Disasters may be natural. Their impact, however, is shaped by the choices we make long before the rains begin.

In dealing with disaster, the state has a critical role

By Ravi Ratnasabapathy

Originally appeared on the DailyNews

Sri Lanka braces itself for yet another round of floods; the third in as many years. As floods and droughts become regular occurrences, how should the nation respond?

The impact of this year’s floods is not yet known but likely to be heavy. In May 2017 floods and landslides affected 15 of the 25 districts of Sri Lanka. The drought in 2016 and 2017 affected 1,927,069 people across 17 districts, many of them poor.

“Approximately 12 per cent of those affected were poor, nearly twice the national average of 6.7 per cent. In the case of the landslides, this is because the 11 affected Divisional Secretary (DS) Divisions tend to be poorer than the national average. Those affected by the floods overall were also disproportionately poor, with an estimated poverty rate of 8.7 per cent.” (World Bank)

If the poor are disproportionately affected by natural disasters it has a negative impact on poverty and therefore has the highest level of priority for policymakers.

Little can be done about the weather but proper risk management can minimise its impact. The Government needs to move from the unplanned and ad-hoc reaction when disaster strikes to a proactive, systematic management of risk, something that may be illustrated by the example of Chile.

The earthquake that rocked Chile in 2010, one of the largest in history that wiped out roughly 18% of the country’s GDP – a massive impact. (The impact Sri Lanka’s 2017 floods was only 0.4% of GDP.) Yet Chile demonstrated a miraculous recovery. Most countries that suffer catastrophes of that magnitude take years or even decades to recover. Chile did it quickly, how did it do so?

Several factors contributed overall to the low casualty rate and rapid recovery.

The Government had decided to prioritise the role it played in managing disasters. First, in minimising damage, because of its history with natural disasters, Chile’s Government had developed a strong building code and ensured it was properly enforced. In particular, Chile had a law that held building owners accountable for losses in a building they built for 10 years. Furthermore, while not legally required, almost all homeowners in Chile had earthquake insurance because banks required it in order to get a loan to buy a house.

Second, the disaster response had been well-planned- the number of fires after the earthquake was limited due to the immediate shut down the electricity grid and the local emergency response was very effective. The third factor was education: the overall high level of knowledge about earthquakes and tsunamis by much of the population that helped them respond more appropriately after the event.

After the disaster, any government faces the question of how reconstruction will be paid for. Did Chile wait for aid to arrive? No.

Following the quake, because of the sheer size of the disaster, Chile was compelled to increase taxes temporarily. But the policies that ensured that a large part of the homeowner market was insured paid off – it minimised the amount the Government needed to finance. Together these contained the financial ramifications from the earthquake and put Chile quickly on the road to recovery.

Although Sri Lanka never experienced anything like the devastation in Chile, natural disasters in Sri Lanka take a heavy toll on resources and people. Apart from the human cost they disrupt agricultural output (which may affect exports) and increase food inflation. The contraction of economic activity negatively impacts government revenue while simultaneously creating new budget pressures in the form of disaster relief. In the four months of 2017, the government reportedly incurred LKR 1,397 million for the provision of disaster relief (World Bank).

How can risk be managed?

Small risks may be managed by households and slightly larger ones at the level of the community but for largest risks governments have a critical role, providing an enabling environment for shared action and responsibility and channelling direct support to vulnerable people.

The problem needs to be tackled across three fronts:

1. Preventive measures that minimise the impact of disasters.

2. Early warning systems and evacuation plans that allow people to leave disaster zones to safer areas.

3. Managing the financial risks from natural disasters.

Preventive measures

1. Floodplain zoning

A flood zoning authority must be created and floodplains (the water channel, flood channel and low land susceptible to floods) must be surveyed. The survey forms the basis of establishing floodplain zones, including delineation of the areas subject to flooding and classification of land with reference to the relative risk of flood.

Specific activities and uses (settlement and economic) in designated areas should be subject to administrative permits and building/land use codes. Eg. Building and design standards must protect against inundation. Restrictions and prohibitions should be based on risk assessments.

The public should be made aware of the dangers of floods and the need to restrict use.

Information about restrictions on construction in flood areas should be easily accessible and information about risk assessments should be easily understood, for example, clear flood maps and, where appropriate, information based on geographic information systems (GIS) should be distributed. Mandatory disclosures of risk could be included for property transfer or rental in areas of risk.

2. Conservation of wetlands

Wetlands are natural sponges that trap and slowly release surface water, rain, groundwater and flood waters. They are important in both flood and drought management so as far as possible natural wetlands and retention areas in the river basin should be conserved, and where possible restored or expanded.

3. Modifying the flood flow: Engineering measures

Diversions, reservoirs, channelisation (increasing the capacity of the channel), bank protection (to prevent bank erosion), dams and floodplain restoration (creating washlands that can safely take overflows) will play a role in minimising impact. Engineering measures must be in harmony with the landscape and nature conservation. A holistic approach covering the whole river basin is needed as localised flood protection measures can have negative effects both downstream and upstream.

Early warning systems and education

Forecasting and early warning systems should be established and guidelines issued on how populations are to act during floods.

Education on measures that can be taken at the level of individual households to either limit the damage when flooding occurs or prevent inundation is needed, eg. elevation of structures, elevated curb stones to prevent water entry from smaller events, reinforcement of foundations to avoid structural damage, moving building contents (and particularly electrical installations) above flood water levels (either temporarily or permanently), dry flood proofing to make areas below flood water levels watertight and temporary or permanent flood walls (ranging from sandbags to free-standing concrete barriers).

Forecasts and related information must be easily accessible and real-time media coverage ensured.

Managing financial risks of natural disasters

The GoSL exposure to disaster risk is through the costs of relief/recovery, reconstruction of public assets, compensation and (re)insurance schemes that provide coverage for disasters.

Several tools are available:

i. Insurance, GoSL already has some cover with the National Insurance Trust Fund but premia can be reduced through risk reduction – eg. land-use planning, flood defences etc. which will also support private insurance, which can top-up overall compensation.

ii. Risk pooling - insurance coverage for a pool (or its full portfolio) of Government assets. Insurance arrangements that cover a broader pool of assets facing more diversified risks can have cost advantages over insuring the assets in a flood zone.

iii. Multi-country pooling (done by several Pacific, Caribbean, African nations) provide small countries with improved access to international insurance markets based on their ability to merge a set of (less) correlated risks.

iv. Catastrophe bonds: bonds where the principal or interest payments are delayed or lost to investors in the event of a disaster.

v. Contingent credit lines with multilateral development agencies can bridge short-term shortfalls.

These are some possible options, careful assessment of the relative costs and benefits of different approaches is necessary. Once zoning is complete, the Government could lead the way in the relocation of some public assets away from areas of risk.

Rethinking agricultural policy

Agriculture is being affected by social, economic and environmental pressures. Current policies which encourage domestic agriculture need to be reviewed in the light of changing the climate, society- fewer people wish to take up agriculture, labour shortages and pressures on land use.

Policies that encourage risky production choices in flood zones or increase vulnerability to droughts and floods should be avoided. Allocation of water rights should reflect sustainable use and will help mitigate the impact of droughts. The Government must understand the impact that disasters have on poverty and recognise the proper role it must play in managing these risks. Ad-hoc responses grab headlines but working strategically to minimise long-term risks-a harder and thankless task, is the way to go.

The author is a resident fellow at the Advocata Institute.