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

2. According to the WHO, evolutions in influenza viruses cannot be predicted. This makes it difficult to know if or when a virus such as H5N1 might become easily transmittable among humans. Hence, it is also impossible to say when another pandemic will arise, whether it will involve H5N1, or another strain, or whether it will be mild or severe. However, the WHO considers that, once a virus mutates into a form that allows for efficient human-to-human transmission, a pandemic could occur. Because of high global mobility and interconnection, illness could spread quickly, and, if the virus has a high fatality rate, threaten millions of lives around the world. The pandemic might emerge in repetitive waves with varying intensity, including durations beyond 6 weeks, as was the case with past pandemics.

3. The WHO indicates that accurate predictions of mortality cannot be made before a pandemic virus emerges and begins to spread.³ All estimates of the number of deaths are purely speculative. The WHO has used what they characterize as a relatively conservative estimate—from 2 million to 7.4 million deaths—because it provides a useful and plausible planning target. This estimate is based on the comparatively mild 1957 pandemic. Estimates based on a more virulent virus, closer to the one seen in 1918, have been made and are much higher. However, the 1918 pandemic was considered exceptional.

4. Against this backdrop of considerable uncertainty about the nature of the pandemic, this note aims at providing a preliminary assessment of the risks and potential impact to the global economy and financial system from a possible avian flu pandemic. It must be underscored that there is also substantial uncertainty about the economic impact of a pandemic of any given severity. It is difficult to extrapolate predictions about behavior from previous pandemics into today’s world. Global integration with rapid transport and mass communication may increase some risks, while better public health systems and drugs may act in the other direction. This note further discusses the Fund’s role in helping members prepare their economic and financial systems for the possibility of an avian flu pandemic. The policy recommendations in this area focus on the need to mitigate risks that might arise in a severe pandemic with high absenteeism, even though some commentators consider that the most probable scenario would feature significantly less economic dislocation. In a less severe pandemic, many of the same issues seem likely to arise, albeit at a lower intensity. Attached to the note is a distillation of what is emerging as the common elements of business continuity planning in the financial sector for pandemic risks. This document will be updated on a periodic basis. Nevertheless, Executive Directors are encouraged to share this draft with their capitals as soon as possible. The appendix provides a collection of information that can be found on the global web on avian flu.