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TSUNAMI: IMPACT AND RECOVERY

The tsunami which hit Maldives on 26 December, 2004 was a nation-wide disaster which caused
severe damage to the physical infrastructure of many islands. The tsunami has set back the high
levels of social progress and prosperity achieved in recent years. Total damages are estimated to
be US$470 million, 62% of Gross Domestic Product (GDP). Of these losses, direct losses are
$298 million, or about 8% of the replacement cost of the national capital stock. Severe damage
was caused to houses, tourist resorts, boats and other fishing equipment, schools, health facilities,
transport and communication equipment, water and sanitation, and electricity infrastructure.
There has also been substantial damage to agricultural crops and perennial trees. Farms,
homestead plots, and aquifers have been salinized. The physical damage has led to severe human
suffering inasmuch as large segments of the population have lost their dwellings, lifetime assets,
savings, and sources of livelihood. About 7% of the population is now living in temporary
shelters or with relatives.

The total damage estimate of US$470 million does not, however, include a very real and critical
cost that would demand additional financing, namely the cost of environmental damage and
substantial soil erosion on many affected islands that to a great extent rely for their livelihoods on
agriculture and home based market gardening; these costs could not yet be quantified as detailed
surveys are still under way.

The transmission of the physical damage into an economic shock occurred to a large extent via
contraction of the tourism and fisheries sectors, which sustained the largest losses. Lost tourism
and fisheries income will cause GDP growth, employment, and government revenues to contract
this year. The revival of the Maldivian economy depends critically on how fast the two leading
sectors, tourism and fisheries, recover. Public financing for the reconstruction of lost or damaged
assets and infrastructure, and for providing temporary income support to the affected, will be
critical.

In terms of impacts on the Government’s long-term development strategy, the tsunami has
reinforced the established policy of encouraging voluntary population movements to less
vulnerable islands, which has now assumed even greater urgency than in the past. This policy
aims to mitigate the risks of future tsunamis and rising sea levels, help realize economies of scale
in the provision of public and private services in the atolls, strengthen service quality in the atolls,
improve welfare, and help retain the population in the atolls.

The government has made a commendable effort to provide swift relief to the affected and is now
engaged in planning and executing a reconstruction program. Reconstruction of public assets and
restoring lost government revenue will require financing of $364 million, most of which will need
to come from external sources in grants and highly concessional loans. This document spells out
in some detail the physical damage and human suffering caused by the tsunami, the recovery
strategy, and financing needs. A set of accompanying annexes discuss impacts of the tsunami on
individual sectors in greater detail.

DOCUMENTS
Tsunami: Impact and Recovery (PDF)