IDB estimates economic impacts of El Niño in Bolivia

"The Andean countries are particularly vulnerable to ENF, and the 2015-16 phenomenon could be the most important since 1998, and its greatest effects will be felt mainly through the second quarter of 2016," says the IDB report, prepared by Lucia Martin.

Usingeconometric models to estimate the effect on productive activity and prices, the IBD warns that a normal to extraordinary ENF could subtract between 0,6 and 1,7% of the Andean countries’ GDP, highlighting that “the most affected countries would be Peru and Ecuador, with an overall impact on GDP higher than 1,5%, while in the case of Bolivia and Colombia, the effect would be around 0,5%”.    

In the South American region, El Niño is manifested by extensive flooding in coastal areas of Ecuador, northern Peru and eastern Bolivia, while at the same time droughts occur throughout the Bolivian-Peruvian highlands and deficits rains in Colombia and Venezuela, in the latter case already causing serious problems in electricity generation.

History in the region, the IDB reports, shows a negative and statistically significant impact of ENF on the GDP growth of Bolivia, Colombia, Ecuador and Peru.

Thus, in the last 60 years, on average, the years with both normal and strong ENF in Bolivia, Colombia and Peru have lowered growth of their economies in between 0,6 to 1.7%. In the case of Ecuador, the presence of strong El Niño events has reduced 1,6% to GDP growth during the same period.

El Niño will increase inflation

Furthermore, “in the Andean countries the ENF coincides with increases in the price levels, ranging between 1 and 5 percentage points in the year”, states the IDB report.

Using autoregressive models, the presence of a normal or extraordinary ENF was found to add around 1,7% to the annual increase in prices in Colombia, whereas in Bolivia the additional effect on inflation could be 1,97%. In Ecuador, in case of an event, the impact is greater: the ENF would contribute 5% to the annual inflation.

Historically speaking, in the case of Bolivia, "the average inflation in years without a phenomenon was 8,01%, while in years with the presence of El Niño was 8,68%. The difference is statistically significant. Similarly, and in line with previous projections, in Colombia this difference amounts to 2,3%, ranging from 14,38% without a phenomenon to 16,68%, and in Ecuador the difference amounts to 3,6%, " the report says.

Agriculture and infrastructure are the most severely affected

In the Andean Region, agriculture sector takes the hardest hits during episodes of ENF: “Losses in agriculture occur both by rainfall that destroyed crops that were ready for harvest, conducive to the spread of diseases and pests, causing damage to irrigation infrastructure, as well as droughts that affect the physiological development of the crop".

The report notes that in Bolivia the most affected crops could be barley, potatoes, quinoa, corn, peas and lima beans. In the case of livestock, drought would bring losses of cattle mainly from the Chaco areas, where there would also be risks of wild fire, particularly in Tarija.

Thus, damage to the Bolivian agricultural sector could represent about 11.7% of the agricultural GDP and a 1.5% of national GDP.

The main repercussion in Bolivia regarding infrastructure "are apparent in road, rail and waterway transport sector, which play a crucial role in the economy given its status as a Mediterranean country. Rainfalls, river floods and mudslides affect roads in major sections of the main highways in the Eastern and Northern areas of the country. "

All this is intensified by the lack of paved roads, with stronger occurrence in secondary and local roads.

The IDB report notes that the damage to the transportation infrastructure as a percentage of GDP in Bolivia can reach 3,08%, 0,06% to housing infrastructure  and 0,01% to energy infrastructure. 

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El BID estima los impactos económicos de El Niño