Financial impacts: ‘Pakistan at fiscal risk from natural disasters’

WB report says flooding causes up to 4% annual impact on federal budget

ISLAMABAD:

Pakistan faces a major financial challenge arising from natural catastrophes, with flooding causing an estimated annual economic impact of 3 to 4% on the federal budget.

These findings were presented in a report prepared by the World Bank in partnership with the National Disaster Management Authority, the Ministry of Finance, the Securities and Exchange Commission of Pakistan, the provincial disaster management authorities and the provincial finance departments.

The objective of the report was to highlight fiscal impacts of frequent natural disasters on the budget of the Pakistani government and to present options for a national disaster risk financing strategy drawn from best international practices.

Preliminary analysis in this report estimates the annual economic impact of flooding at between $1.2 and $1.8 billion, equivalent to between 0.5 and 0.8% of the national gross domestic product (GDP).

However, simulations show that a major flood event – occurring, on average, once every 100 years – could cause losses in excess of $15.5 billion, which equates to around 7% of the national GDP, equivalent to almost 40% of the federal budget.

In terms of annual probability, there is a 1% chance in any year that a major event of this size could occur.

While the government tries to meet the needs arising from the aftermath of natural disasters, the funding gaps, especially for reconstruction of the affected infrastructure, lead to its deterioration, especially the protective capacity, resulting in additional losses in proceeding disaster events.

This report presents the government with a series of options for consideration that could help increase the administration’s immediate financial response capacity against natural disasters and better protect its fiscal balance.

In Pakistan, approximately 3 million people are affected by natural catastrophes each year, which equates to approximately 1.6% of the total population.

According to an analysis of historical natural disaster data, since 1973 approximately 77% of all the people affected by natural disasters were impacted by flooding events.

Published in The Express Tribune, May 18^th, 2015.