The current state of the economy in Pakistan is not in a good shape. Global inflation, monetary tightening, Covid-19 restrictions, and the Russia-Ukraine conflict have contracted global GDP growth in the second quarter of 2022. According to the World Economic Outlook (July 2022), global GDP is expected to grow by 3.2 percent in 2022 from 6.1 percent in 2021. Global commodity prices eased in July 2022. Overall, the energy prices fell by 1.3 percent, led by crude oil (-10.0%), while European natural gas gained more than 8.9 percent. Agricultural prices dropped by 7.4 percent, food prices declined by 8.5 percent, fertilizers eased by 3.7 percent, metals plunged by 13.4 percent and precious metals declined by 6.6 percent. The external debt in Pakistan crossed USD 130 billion in the second quarter of 2022 from 128 USD billion in the first quarter of 2022.
Due to climate change and the global warming phenomenon, the torrential floods during the month of July and August have adversely affected the standing Kharif crops, specifically the cotton crop. Assessment of the crop damages is in progress by the provinces; however, significant losses can be witnessed. The present situation depicts water-inundated cotton fields mostly in Sindh, Balochistan, and the southern districts of Punjab. During FY2022, Pakistan’s large-scale manufacturing (LSM) posted a growth of 11.7 percent as compared to 11.2 percent in FY2021.
The fiscal deficit FY2022 was recorded at 7.9 percent of GDP. The primary balance posted a deficit of Rs. 2,078 billion. During FY2022, Money Supply (M2) witnessed an expansion of Rs. 3,283.3 billion (growth of 13.5 percent) as compared to an expansion of Rs. 3,389.7 billion (growth of 16.2 percent) in FY2021. During July FY2023, the current account deficit was recorded at $ 1.5 billion.
Global and domestic uncertainties are still impacting Pakistan’s economic outlook:
• June and July 2022 witnessed a significant increase in inflation on a YoY (year-on-year) basis due to the higher international commodity prices and depreciation of PKR. The inflationary pressure may continue in August 2022, even if there would be no further MoM (month-on-month) increase in inflation, as prices of essential items are significantly higher than the last year.
• The Composite Leading Indicator (CLI) in Pakistan’s major export countries continues to follow a downward trend due to supply chain bottlenecks and geopolitical tensions. The economy of Pakistan is also witnessing a slowdown in growth. However, overall economic growth in Pakistan remains positive due to a continuing high growth path of potential output.
• The trade balance on goods and services improved significantly in July compared to June, and it is anticipated that this trend will continue. It is anticipated that remittances will reach around $3 billion in the coming months. Thus, taking into consideration the anticipated trajectory of the balance on goods and services as well as the other components, the current account balance may gradually approach equilibrium in the coming months.
• The fiscal deficit surpassed its target and was recorded at 7.9 percent of GDP due to an increase in total expenditure amid higher grants and subsidies. For FY2023, the government is confident of achieving the financial sector targets through resource mobilization and prudent expenditure management.
Due to climate change, the glaciers melted rapidly, and extraordinary rains and additional water released by India into Pakistani rivers caused heavy floods. India usually stores water in the drought season and releases it to Pakistan when it is excessive. But, this year, the volume of water released by India was also too much.
According to global data, Pakistan is not responsible for climate change. Since G-20 is responsible for up to 80 percent of global warming, it is its moral obligation to contribute towards the adversely affected countries like Pakistan.
Flooding and land-sliding caused by heavy rains and glacial lake outbursts since mid-June affect an estimated 35 million people directly, resulting in the deaths of at least 1,500 individuals, as the GOP leads search and rescue and relief operations.
Initial estimates show 1,569 people died, including 555 children, and an additional 12,860 were injured. 546,288 people are living in temporary camps because of the floods. These are the deadliest floods in Pakistan since 2010 when nearly 2,000 died in the flooding. Sherry Rehman, the Minister for Climate Change, said in August that ‘one-third’ of the country was underwater, and there was ‘no dry land to pump the water out, adding that it was a ‘crisis of unimaginable proportions.
Agricultural fields were devastated by the water; destroyed crops, drowned cattle, and normal life was disturbed. The worst-hit areas of Pakistan include Balochistan, Sindh, KPK, Gilgit-Baltistan, South Punjab, and Azaad Jammu and Kashmir.
With no food, medicines, electricity, fuel, transport, or communication means, people are suffering water-related diseases like malaria, dengue, and other seasonal diseases.
Civilian and military establishments have reached the flood-hit areas, visited the front lines, met the local communities, showed solidarity, and implemented action plans. Many NGOs, philanthropists, and welfare organizations are also on the site engaged in relief operations.
The government’s limitation of resources is a big hurdle. While the effort of the private sector is commendable, yet much more is required. Floods of such a magnitude cannot be endured by a country alone. It requires the international community to fight against a disaster.
Pakistan’s state economy was already fragile, and managing sudden disasters like this one is beyond their capacity. The Government of Pakistan is already in touch with the international community and is seeking help. Some of the friendly nations have already extended humanitarian assistance.
The priority is to rescue human lives and provide relief to the victims. However, the next stage will be rehabilitation, which will be a mega project, and may require huge funds. After the water is drained, the estimates of damages may be possible. Initial estimates by the Planning Minister were around USD 10 billion. The Secretary General of the UN, António Guterres, visited the flood-hit areas and was told the estimated damages might be around USD 30 billion. The actual damages are much more than this and the amount required for rehabilitation might reach USD 100 billion or more.
The UN and donor nations have extended their help to Pakistan. The rescheduling of Pakistan’s foreign debt is under consideration too. It is time for the Government of Pakistan to make comprehensive estimates of damages, and plan a perfect rehabilitation and restoration of infrastructure and competent and honest people must be deputed to run these tasks. Incompetent, and corrupt people must be kept away from such projects of restoration, and rehabilitation of flood-hit areas and people.
The disasters must be transformed into opportunities, and with appropriate planning, the restoration of infrastructure, and the rehabilitation of flood victims, the fate of these areas can be changed permanently. Comprehensive planning and policies may be formulated to avert any such mishap in the future. The ruling elite should think above political or personal agendas and serve the people, and victims of the floods with sincerity.
Reference Link:- https://www.bolnews.com/oped/flash-floods-alter-pakistans-economy/