Typhoon Haiyan, or Yolanda as it is known locally, looks like it will be a disaster on an unprecedented scale – but a human one rather than an economic one.
The latest estimates suggest as many as 3,000 people could have lost their lives after the most powerful recorded storm ever to make landfall slammed into the central Philippines at the weekend.
So far, about 10 million people have been affected by the storm, which brought sustained winds of about 250 kilometres per hour and virtually erased entire towns from the map, including Tacloban, which stood almost directly in Haiyan’s path.
Only time will tell exactly how much damage has been wrought, and how many people have died but analysts say the positive economic story that this year earned the Philippines an investment grade credit rating from Standard & Poor’s, Moody’s and Fitch is still intact.
“As tragic as this event is, we think it does not change the fundamentally strong macro picture that is making the country a regional standout,” wrote Euben Paracuelles, an analyst at Nomura, in a report.
That macro picture is striking. GDP grew at 6.8% in 2012 and is projected to grow 7% this year and 6.1% in 2014, according to the Asian Development Bank.
The local stock market so far appears to be backing the idea of a resilient economy. Although the Philippine stock exchange dropped 2.5% in the hour after the open on Monday, the first trading day since Haiyan struck, it has since come back to close just 0.5% down on the week.
Eastern Visayas, the area most hit by the typhoon, contributes a mere 2.2 per cent of the country's nominal GDP, according to the Nomura report, which added that, together with indirect effects, the impact is unlikely to exceed 5% of GDP. By comparison, Metro Manila, the country’s capital, contributes 35% of GDP, according to HSBC.
The four main industries of Eastern Visayas are sugarcane, corn and rice production and fishing.
HSBC estimates that 3.5% of the country’s total rice output could be wiped out by the storm, representing about 0.1% of the Philippines' total GDP. The production loss from all four of Eastern Visayas' main industries will likely hit $324 million, equal to just 0.2% of GDP, HSBC adds.
“We do not foresee any impact on our sovereign rating on the Philippines (BBB-/Stable),” said Agost Benard, associate director, Standard & Poor’s Sovereign Ratings. “Mainly because areas affected by typhoon Haiyan are not significant to the overall economy, and the cost of reconstruction is unlikely to have a material effect on the country’s fiscal and debt metrics.”
Fitch declined to comment and Moody’s could not be reached for comment.
Another stabilising factor is that remittances from Filipinos working overseas, which make up about 8% of the country's economy, could provide a small fillip to the clean-up and rebuilding process.
“Remittances could rise substantially in two phases: money that comes in for immediate help and the funds sent to aid the rebuilding effort,” Nomura’s Paracuelles told FinanceAsia.
He expects this to continue on a sustained basis. “People can either get a loan from a bank or of course receive money from overseas,” he said.
Even so, people only have so much to give. “Remittances should be strong in the next two months anyway as people will send money home for Christmas. However, people can only do so much. They do not have that much money to send home,” Trinh D Nguyen, an economist at HSBC, told FinanceAsia.
The robust health of the Philippine economy affords the government some breathing space to reassign funds to help deal with the tragedy, which is just as well considering its disaster fund is running low with only about 1 billion pesos left in the pot.
President Benigno "Noynoy" Aquino III has stated that about 23 billion pesos will be made available to aid the relief and rebuilding process: 16 billion pesos from agency savings, 6 billion pesos from the president’s social fund and the 1 billion pesos ($22.9 million) from the disaster fund.
Aid is also pouring in from across the world, with the UN on Tuesday night launching a $301 million appeal, adding to the millions of dollars pledged by governments, individuals, banks and charities.
But the country is no stranger to natural disasters and the disaster fund was dipped into as recently as October, following the earthquake that hit Cebu, killing more than 200 people. In addition to earthquakes, the Philippines tends to be hit by as many as 20 typhoons each year and is prone to flooding and regional disputes that often lead to armed conflict.
A key issue, therefore, is: how does the Philippines’ government ensure it has the funds and resources to deal not just with Haiyan but with future disasters without derailing growth? As HSBC’s Nguyen puts it: “the main thing is that the Philippines needs to focus on contingency planning for the next disaster”.
Unfortunately, investing in both a countrywide framework that ensures timely preparation and warning, and in infrastructure with a view to minimising damage, is costly.