LAHORE - The flooding in north of Pakistan has so far affected around 200 villages mainly hitting areas including Chitral, DI Khan, Layyah, Muzafarhgarh and Dera Ghazi Khan and around 0.3m people have been affected, damaging around 500,000 of cotton bales (4% of cotton production), affecting marginally agricultural output and GDP growth.
So far, key provinces where agriculture and industrial activities are high, like Punjab and Sindh, have not been affected.
According to companies’ officials, located on flood belt, there has been no damage to their installments so far and there has been no major impact that could affect the overall profitability. However, the infrastructure has been hit which could impact supplies by these firms to some extent. The DG Khan Cement and KAPCO management were of the view that flood is far away from the plant in DG Khan and Muzafargarh and plant is safe and working properly.
According to experts, it is too early to predict the exact impact of flooding but if the situation prolongs and affects other areas, it could affect other Kharif crops including rice, sugarcane and maize. Agriculture has 21% weight in GDP and major crops accounts for 5.4% of GDP. Govt. has set real GDP growth target of 5.5% for FY16 and if flood intensity rise, an impact of 0.1-0.2% on FY16 GDP cannot be ruled out.
As intensity of recent flood so far appears much less than 2010 level, it is much comparable with 2014 and 2013 floods in which Pakistan’s economy suffered monetary losses of Rs44b (0.2% of GDP) and Rs196b (1% of GDP), respectively, said Umair Naseer, an expert on economy and floods. According to a recent report by US world resource institute, Pakistan’s GDP is affected by 1% annually due to river flooding, which translates into Rs274b or $2.7b. During last 5 years, Pakistan has been affected by around Rs334b ($3.7b) a year.
Apart from major losses to agriculture sector, transportation sector also gets affected due to floods which disrupt the flow of goods in different parts of the country, which could result in higher food prices. Food inflation has a weight of around 35% in CPI and any uptick in food prices could lead to higher inflation. Govt has set an inflation target of 6% in FY16. Manufacturing facilities are also anticipated to remain affected due to flood related damages. Manufacturing sector would also suffer loss because of infrastructure loss which affect transportation sector. Due to this, industry off take, especially cement and fertilizer would decline in short run while construction activities will slow down due to rains/flooding. If floods pickup intensity, insurance business could also suffer higher claim ratio due to losses, which may affect sector profitability.
Historically floods have affected overall economy depending upon its intensity and which areas are impacted. The flood could primarily affect commodity producing segment of the economy in shape of agriculture loss and low operating activity in manufacturing sector. It could also affect services sector due to slowdown in transportation sector.
Flood in Pakistan are not uncommon as the country has been affected from heavy flooding on various occasions. Monsoon rains and floods in 2014 had affected around 2.5m people and crops area of around 2.4mn. In 2013, monsoon rains had affected around 1.5mn people, 8,297 villages and 1.1mn acres of crop area in 2013. In 2011 and 2012, around 1.2mn and 1.9mn of crop area was affected. However, 2010 floods were the worst in Pakistan’s history that affected 20mn people and 2mn acres crop area.
Pakistan Metrological Department (PMD) predicted further rains in Gilgit (Chitral), upper and Southern Punjab and Eastern Balochistan which could increase the intensity of flooding.
Continuous downpour in Northern areas could also result in flooding in downstream areas of Punjab, Sindh and Baluchistan.