Preparing for extreme weather scenarios in Cambodia

For decades, weather extremes have disrupted lives and livelihoods in Cambodia. Yet, despite the increasing frequency and severity of floods, storms, and droughts, the models used to estimate their economic impacts remain underdeveloped. While we can estimate long-term warming trends, the exact impacts of acute disasters remain uncertain. This uncertainty makes it crucial to prepare not just for what is expected, but for what might happen.

Cambodia's vulnerability is compounded by its limited resilient infrastructure, underdeveloped early warning systems, and gaps in disaster preparedness. These challenges mean that when a severe crisis hits, the country may face cascading impacts that amplify the damage. Here, we summarize those risks and outline measures that can prepare Cambodia for a plausible worst-case scenario.

Environmental conditions are shifting in ways that are long-term, global, and driven by rising temperatures, shifting rainfall patterns, and more frequent extreme events. These changes produce two types of impacts. Chronic effects, such as declining crop yields due to rising temperatures, develop gradually but are hard to reverse. Most people may not notice them in daily life; they slow economic growth over time. Acute effects, on the other hand, are sudden events like storms, floods, and droughts. These already occur, and changing weather patterns are making them more frequent and severe.

The policymaker's perspective

Acute disasters are unpredictable, making them difficult to model. To estimate their economic impacts, economists often use 'average annual losses'-calculating the expected damage from disasters over time and spreading it out evenly across years. While useful for long-term planning, this method has drawbacks. First, it smooths out the impact of rare but catastrophic events, making them seem less severe than they really are. Second, it presents sudden disasters as gradual losses, like long-term environmental trends, rather than highlighting their immediate and potentially devastating consequences. As a result, the true economic and social risks of extreme events are underestimated.

This weakens the message to policymakers. If models show only slightly slower growth, it might seem like nothing to worry about and that things might be fine. Of course, if that's the case, then they also might not.

Policymakers care about risk. Risk is the reason we have emergency services. Many countries build detailed scenarios of potential future crises and possible public responses. If changing weather patterns affect these scenarios, policymakers need to know. Cambodia is no different.

When one disaster leads to another

It gets worse. Increasingly, we are seeing multiple crises at once-either because two random events occur simultaneously (which changing environmental conditions make more likely) or because one crisis causes another. Low-income countries in particular lack the resources to handle multiple crises.

We developed a worst-case plausible scenario for Cambodia, where one disaster triggers another, leading to cascading crises (Figure 1). It is only one possible outcome, but one that environmental shifts will make more likely.

Changing environmental conditions will make Cambodia's floods worse. Although previous floods have not led to disease outbreaks, this has happened in other countries and warmer temperatures may increase the chance. At the same time, flooded hospitals will treat fewer people.

Pakistan has shown how severe flooding can lead to financial instability. Cambodia's situation is different, but with a highly dollarized economy and a managed exchange rate, financial risks remain. It's all about risk-each event in the scenario increases the chance of the next occurring.

What would this mean for the economy?

Severe floods and disease would lead to loss of welfare and potentially loss of life. There would also be a substantial economic impact, although the uncertainty makes precise estimates impossible.

Flood impacts depend on location, severity, and supply chain resilience. Basic modeling suggests that GDP losses of 10% are possible, and if unprepared, a severe flood could push losses to 20% of GDP.

The COVID-19 crisis showed how a disease outbreak could wipe out 10% of GDP, though Cambodia is now better prepared. A 5% loss in a future outbreak is highly plausible. Meanwhile, historical data from the 1997 Asian financial crisis suggests that a 10% GDP loss is plausible in a financial crisis, with 15% possible. Total economic losses in the worst-case scenario are shown in Figure 2. Some impacts would be one-off shocks, but others would have lasting effects.

How could the worst case be avoided?

This level of economic damage would be devastating for Cambodia, but strategic investments in resilience can help prevent the worst outcomes. Smart development choices that prioritize climate adaptation and disaster preparedness are essential to strengthening the country's ability to withstand extreme weather events.

The Cambodia Country Climate and Development Report outlines key actions the government can take to reduce exposure of people and assets in high-risk flood areas and improve drainage and flood mitigation. Investing in resilient infrastructure, including the strengthening of key parts of supply chains-like power networks-could reduce the impact of floods. Keeping emergency stockpiles of essential goods and ensuring trade remains open can also help businesses keep running during a crisis.

More general adaptation measures to reduce flood impacts would not only reduce flood damage but also help prevent disease outbreak. Maintaining capacity to repair and rebuild quickly after a flood would further limit economic and social costs.

Improvements to sewage and sanitation are development priorities anyway but become particularly important in floods. Ensuring adequate health provision and protecting health centers from floods could also yield substantial benefits in a crisis.

While Cambodia's low debt levels and strong reserves offer some protection against external shocks, the riel's managed peg to the US dollar could threaten exchange rate stability during environment-related disruptions. Insurance mechanisms like the Southeast Asia Disaster Risk Insurance Facility (SEADRIF) could provide rapid liquidity in the face of cascading crises. Disaster risk finance instruments, like catastrophe bonds, parametric insurance, and risk pools may help ensure timely access to funds, supporting faster recovery.

Conclusion: The need to bring environmental factors into risk thinking

Although it is 30 years since economists started estimating the economic impacts of environmental changes, methodologies remain underdeveloped. Strengthening these tools is essential to help countries like Cambodia prepare for future shocks, protect development gains, and adapt in ways that support continued poverty reduction and economic growth. To do that, we need to change focus from what we expect will happen to what might happen.

Most of the risks of environmental changes are already well known; disasters will become more frequent and severe. But with the right planning, their worst impacts can be managed. By integrating environmental risks into existing disaster response systems and collaborating with engineers, health specialists, and other experts, economists can help policymakers build a more resilient Cambodia-one that is better prepared for future challenges.