According to a research report, the unusually heavy monsoon rains and devastating flash floods have cost the cash-strapped Pakistani economy more than $4 billion in the current financial year as the calamity has severely damaged the agricultural activities in Sindh and Balochistan.
Although it is still early to assess the real impact, Pakistan, where agriculture accounts for 23% of gross domestic product (GDP), may remain highly vulnerable following floods that have killed nearly 1,000 people and injured and displaced thousands more. since mid-June.
The monsoon season, which began in June, has hit Pakistan with particularly heavy rains this year and rescuers have struggled to evacuate thousands of stranded people from flood-hit areas. The crisis forced the government to declare a state of emergency in parts of the country.
The repercussions of the flash floods could include increased imports, compromised exports and higher inflation, which will undermine the government’s efforts to combat macroeconomic headwinds, The Express Tribune newspaper reported.
“Based on our preliminary estimates, the current account deficit could increase by $4.4 billion (1% of GDP) – assuming no countermeasures are taken, while around 30% of the basket of the CPI (consumer price index) is exposed to the threat of higher prices,” the daily reported, citing a report by JS Global Research.
The situation could force the government to make additional imports of cotton worth $2.6 billion, wheat worth $900 million and the country will lose textile exports of around $1 billion. dollars. This represents approximately USD 4.5 billion (1.08% of GDP) for the current fiscal year 2022-23. Due to the flash floods, consumers are expected to face a shortage in the supply of household food items such as onion, tomato and chilli, according to the report.
The most affected crop is cotton. Farmers produced 8 million bales in the previous financial year but will again have a poor harvest like in previous years amid heavy rains in Sindh. “Cotton seedlings would have been destroyed to a large extent (in Sindh), he said. import bill will likely top $4.4 billion (+144% yoy) in FY23.
On the other hand, any unavailability of imported raw cotton or other unprocessed textiles will negatively impact the country’s textile exports,” the research house said.
Rice is another crop expected to suffer massive damage from the ongoing floods. It is one of the rare crops whose cultivated area has increased significantly in the recent past (+20% in two years). It contributes USD 2.5 billion to annual exports. “The damage to rice crops will lead to a loss of exports, in addition to a slight reduction in GDP growth and higher CPI inflation.” As the flash flood water is expected to take two to three months to disappear, the consequences are likely to delay the planting of wheat and edible oilseeds. The delay in planting wheat will be a double whammy as many farmers have already switched from growing wheat to growing edible oilseeds. In addition, the post-flood situation is also expected to have a negative impact on the yield of future wheat crops. With delayed planting and rising wheat import prices, importing 15% of wheat demand of 30 million tonnes could raise its import bill to USD 1.7 billion over the next year. exercise 23.
In addition to crops, more than 500,000 head of cattle are believed to have perished in the floods. This will increase the burden on rural populations, already reeling from rising diesel and fertilizer prices, and lead to a shortage of milk. In addition, the shortage of livestock, coupled with the likelihood of disease outbreaks among livestock, can also lead to the shortage of meat. Moreover, tomato prices have already started to rise due to the monsoon.
These products, together with wheat, edible oil, milk and meat, represent 18% of the weight of the CPI basket. It presents the risk of high food inflation (at 28%; highest in 13 years). “Any food security risks, shortages and bottlenecks in the supply chain will cause our current FY23 CPI estimate to increase by 21%. We expect fertilizers , banks, tractors and oil marketing companies are among the sectors that will be negatively affected by flash floods,” the report states.