People gather next to a section of a road damaged by flood waters following heavy monsoon rains in the Madian area in Pakistan’s northern Swat Valley on August 27, 2022. – Thousands of people living near flood-swollen rivers in Pakistan’s north were ordered to evacuate on August 27 as the death toll from devastating monsoon rains neared 1,000 with no end in sight.
Following severe floods, Pakistan prepared a preliminary report on economic losses, estimating that economic activities suffered major damage in 118 districts and the country suffered an economic loss of over Rs2,000 billion.
The country’s GDP growth is expected to fall by 2% and hovers around 3%, compared to the initially projected growth rate target of 5% in the budget for the fiscal year 2022-23.
The massive economic losses may worsen as the SBP’s model is estimated to calculate losses based on disrupted economic activities in all districts and tehsils in flood-affected areas. With the help of satellite imagery of Suparco, the SBP has been able to calculate the full extent of agricultural industry losses. Also, Google has offered its services to the government of Pakistan so that they can calculate the full extent of the damage to the country’s agricultural and physical infrastructure.
Inflation is expected to average 20% per year, with a temporary spike expected in the next few months. The annual inflation rate in August 2022 was 27.3%, which was the highest rate since 1975. In the coming months, inflation as measured by the CPI could reach 29 percent.
While the 2010 floods affected 78 districts, the recent floods have affected 118 districts, including many that are economic centers. The government will also assess how much the catastrophic flood influenced already high poverty and unemployment levels in Pakistan.
Using its model, the State Bank of Pakistan calculated that this time the floods hit the areas of the country with the most significant economic activities. The preliminary assessment of economic losses was prepared at a high-level meeting on Thursday led by Minister of State for Finance Aisha Ghaus Pasha and attended by representatives from the Ministry of Finance, the Ministry of Planning, the State Bank of Pakistan, the Federal Board of Revenue, and others. Preliminary projections indicate that the country’s GDP will decrease by 2% as a result of the flood, bringing it down to 3% instead of the 5% target for the current fiscal year 2022-2023. Recently, the IMF predicted a GDP growth rate of 3.5 percent. A forecast of the CAD has been requested from the SBP.
When asked, the state minister for finance told a small group of reporters that preliminary estimates were being calculated and that, once finalized, they would be made public. She promised that donors would be informed of the economic damage assessment. The federal government has also ordered the relevant agencies to produce a risk assessment forecasting any potential increase in bad loans.
For this fiscal year, the government projected a growth rate in agriculture of 3.9 percent. Based on this preliminary analysis, the agricultural sector’s contribution to GDP growth will fall from 2.4% to 2%. In comparison to the planned goal of 5.1 percent for the current fiscal year, the services sector will be at 3.1 percent by the end of the year. The chief economist at the SBP has been acting as a catalyst in assessing the losses, but the planning ministry has been largely inactive despite the fact that macroeconomic projection is within its purview.
In an interview with reporters on Thursday, Federal Minister for Finance Miftah Ismail said that international donors were providing funds outside of the budget to help flood victims. He stated that while the government had not yet contacted the IMF, plans were being considered to do so under the Large National Disaster Window, which would allow the country to receive 80% of its quota share. As soon as the government had finalized its precise estimates of the losses the economy would suffer as a result of the floods, he said he would formally contact the IMF.
According to sources, another possibility for obtaining IMF financing is the Rapid Financing Instrument (RFI). Pakistan may request a modification of the stringent structural conditions and benchmarks imposed by the current Extended Fund Facility (EFF), but only if the government provides precise loss estimates.
