This paper, prepared by a working group of IMF staff, provides a preliminary assessment of the risks and potential impact to the global economy and financial system from a possible avian flu pandemic, discusses the IMF’s role in helping member countries prepare their economic and financial systems for such a pandemic, and summarizes common elements of business continuity planning in the financial sector
1. There is growing concern about the possibility of an avian flu pandemic (AFP) and its implications for humans and the global economic and financial system. While such pandemics are not new—the last one occurred in 1968—health experts are particularly concerned about the current strain of the virus (H5N1). This strain has spread quickly in bird populations, caused high mortality among poultry, and occasionally infected humans, with about half of the cases proving fatal. But human infections remain rare as the strain has not been spreading easily from birds to humans, nor has it been spreading from person to person.2
5. If the pandemic is severe, the economic impact is likely to be significant, though predictions are subject to a high degree of uncertainty. The severity of a pandemic will, inter alia, depend on its attack and fatality rates,4 its duration, and the behavior and preparedness of households and firms, as well as the capacity and preparedness of health care systems. A pandemic similar to the 1918 Spanish flu could result in high levels of illness and death, and a sharp but only temporary decline in global economic activity (Box 1). Economic disruptions on the supply side would come directly from high absenteeism, as people may be asked to stay at home, or may choose to do so to care for sick relatives or because of fear of being exposed themselves. There may also be disruptions to transportation, trade, payment systems, and major utilities, exposing some financially vulnerable enterprises to the risk of bankruptcy. Moreover, demand could contract sharply, with consumer spending falling and investment being put on hold. Financial repercussions could further exacerbate the economic impact.
12. The need to help prepare for a pandemic is becoming an important focus for many governments and international organizations, including the Fund. At the Beijing International Conference, US$1.9 billion was pledged to support efforts at all levels to help fight avian flu and prepare for a possible human flu pandemic. The World Bank, the World Health Organization, the Food and Agriculture Organization, and the World Organization for Animal Health are taking the lead in preparing a global coordinated response strategy on the possibility of an avian flu crisis, and helping members improve surveillance and control capacity and to develop national action plans that focus primarily on human and animal health.
There is widespread concern about the possibility of an avian flu pandemic and its implications for humans, and for the global economic and financial system. While the H5N1 virus cannot transmit efficiently from human to human in its present form, a mutation allowing such transmission could lead to a pandemic that might have high costs. Accordingly, the Fund has been active in raising awareness about the potential economic and financial risks of a pandemic, and in helping member countries to undertake contingency planning in their financial sectors.