Economic cost of floods-2010

S M Hali It is rather early to calculate precisely the economic cost of the devastating floods in Pakistan at this stage as a second wave of floodwaters have brought more death and destruction and still more may follow. Till the waters recede, the exact magnitude of the havoc wreaked cannot be estimated. An approximation has been attempted to get some idea of the economic impact. Indeed, the human misery far exceeds the material losses, although Pakistan has been lucky that the number of deaths occurring directly due to the deluge have been far less than in similar conditions elsewhere. However, the trauma of facing death, losing ones near and dear ones, seeing ones crops trampled by the rushing floods, livestock being helplessly washed away, and being deprived of ones meagre belongings is likely to leave indelible imprints. The deadliest floods in Pakistans history and the worst natural calamity to strike planet earth currently; have left the country in tatters and its economy in ruins. Apart from the human loss, the devastation is assuming ominous proportions while threatening to disrupt the economy. So far the government officials have offered only wild conjectures which range from $10 to $15 billion, which the country will have to spare for rehabilitating and reconstructing of the infrastructure. One would like to see organisations like the World Bank, the Asian Development Bank, and the UN to make independent attempts at gauging the economic impact of the floods. In this context, let us commence with the power sector. One major gas field and six power plants have been shut down, compounding the consumers misery by adding another 1500 MW to the already 4500 MW of power shortfall. Other power plants have been threatened but saved at the last minute due to the timely diversion of the floods. In the bargain, villages were destroyed, bringing criticism to the Disaster Management Authority. The total number of bridges, roads and railway tracks washed away, which will be reconstructed, are yet to be calculated since the worst is not over. The second wave of floods has taken fresh toll of the communication infrastructure for which a dollar figure for rebuilding is currently impractical. Besides the destruction of infrastructure, a lot of damage has been done to agriculture; almost 17 million acres of farmland has been flooded and billions of dollars worth of crops and livestock destroyed. For a country, where 22 percent of the economy is dependent on agriculture and two-thirds of the 164 million people are in agriculture related work, the impact on the economy will give financial planners nightmares. For starters, early estimates indicate that growth will be stinted and may be reduced by 50 percent, i.e. instead of the projected 4.5 percent it will be less than 2.5 percent. Pakistans poor economic conditions have led it to resort to obtaining external debts, to the tune of $55 billion. Consequently, the floods will make the IMF target of capping the budget deficit at 5.1 percent of the GDP hard to meet. Debt servicing, which takes away 23 percent of export earnings, is set to grow adding to the already declining economic situation. Financial pundits are predicting a massive drop in exports and an increase in food imports, further adding to the trade deficit because at least 1.4 million acres of crops were destroyed in Punjab. The flooding has caused massive damage to crops and also to the reserves that people had in their houses. Khyber Pakhtu-nkhwa, with its myriad terror related problems already faced food scarcity prior to the floods, now is likely to face near famine conditions unless food is urgently imported. Many more crops were destroyed in southern Punjab and Sindh. Sugarcane, rice and cotton crops have been badly damaged. Agriculture experts indicate that farm production in Pakistan, Asias third-largest grower of wheat and the fourth biggest producer of cotton may, decline by 20 to 30 percent. The losses to agriculture and livestock would have a spill-over effect on industry and commercial activities to a great extent. This is because agriculture continues to play a central role in the national economy. Damages, on the one hand, are likely to affect raw material supplies to the downstream industry that contributes to the export sector and, on the other hand, reduce the demand for industrial products like fertilisers, tractors, pesticides and other agriculture implements. This handicap occurs at a juncture when agricultural productivity has been declining over the years. Since the flooding has been widespread, the damages to cotton crops may not be verifiable at this stage. Cotton, being a non-food cash crop, contributes significantly to foreign exchange earnings. It accounts for 8.6 percent of the value of agriculture and about 1.8 percent of GDP. Likewise, sugarcane is a major crop, which is an essential item for industries like sugar, chipboard and paper. Its share in the value of agriculture and GDP is 3.6 percent and 0.8 percent respectively. Another cash crop, rice, adversely affected by the floods, is one of the main export items; accounting for 6.4 percent of agriculture and 1.4 percent of GDP will take a dip. To further complicate matters, the destruction of crops is likely to jack up food prices and in turn accelerate inflation. There is no doubt that the floods in Pakistan are an unmitigated disaster, necessitating a global challenge. It will require a Herculean effort for recovery. Whereas the government is seeking external help and the begging bowl is out, the economic challenges of the floods provide the government on opportunity to take some hard decisions about tightening its belt, shedding wasteful expenditures and enhancing the tax rates for the opulent. Help from our friends will only be forthcoming, if we help ourselves and ease the economic impact. The writer is a political and defence analyst.

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