SBP fears major damage to economy

State finance minister says flood devastation far higher than Rs2 trillion

ISLAMABAD:

Satellite images have revealed that at least 118 districts of Pakistan have been inundated by floods, higher than the number earlier reported by the government, and unlike the 2010 super floods, this time around high economic activity areas have been affected.

A representative of the State Bank of Pakistan (SBP) on Thursday shared initial findings in a meeting called to finalise estimates of the impact of floods on the economy and people.

Minister of State for Finance Dr Aisha Ghaus Pasha chaired the meeting, which was also attended by Ministry of Planning representatives. The central bank and the Ministry of Finance shared their initial assessments amid divergent views on the impact of floods on the economy.

The central bank briefed that as against earlier estimates of 110 districts impacted by the floods, satellite images showed that the destruction had been caused in at least 118 districts, Pasha told The Express Tribune.

Prime Minister Shehbaz Sharif had earlier said that at least 33 million people in 110 districts had been impacted by the floods. During the 2010 floods, about 78 districts had been affected, underscoring that this time around damages were far higher than the super floods, which are feared to unleash a wave of hyperinflation.

She said that high economic activity areas were affected by the recent floods and the central bank’s assessment suggested significant damages to the economy. Pasha did not quantify the extent of damages but said the first briefing showed that the damages were far higher than Rs2 trillion. She added that according to the SBP economic growth had slowed down to around 2% but the central bank would further update its initial estimates.

The Ministry of Finance assessed that against the target of 5%, the economic growth may slow down to just 2%, shaving 3% off the growth rate, during the current fiscal year. The central bank worked out its estimates based on the projected 4% growth. The finance ministry has estimated overall economic losses at Rs2.5 trillion, or over $11 billion, but the central bank did not give a firm figure on Thursday.

Due to the 2010 super floods, the economic growth had slowed down by 2% and the economic losses had been estimated at $9.7 billion.

Read In a boost to dwindling forex reserves, SBP receives $1.16b IMF tranche

The minister of state said that the central bank was of the view that in the short term the inflation rate would go up but the overall inflation may remain around its earlier forecast of close to 20%. Initial assessment by the Ministry of Finance showed that due to supply chain disruptions, average inflation could also sharply accelerate from 24% to 26%.

Pasha instructed the Planning Commission to study the impact of supply chain disruptions on inflation. Inflation in August soared to 27.3% - the highest in 47 years. “The government wants to give a credible figure of economic losses from the floods so that everyone owns it, including the international development partners,” said Pasha.

Pakistan is also considering seeking emergency loans from the International Monetary Fund (IMF) and other lenders.

Finance Minister Miftah Ismail told The Express Tribune on Thursday that it was too early to contact the IMF, particularly when the global lender just approved a $1.1 billion tranche for Pakistan. “Once initial flood loss estimates are ready, the government may approach the IMF,” he added.

In April 2020, the IMF approved $1.4 billion in emergency financing for Pakistan under the Rapid Financing Instrument (RFI) to help the country deal with the aftermath of Covid-19 pandemic.

Ismail said that either the RFI or the Large National Disaster (LND) Window could be accessed to secure emergency financing from the IMF.

Read more Govt mulls taking another IMF loan for floods

Under the ongoing Extended Fund Facility (EFF), the IMF is committed to providing another nearly $3 billion to Pakistan in one year, subject to the successful completion of remaining reviews.

The Ministry of Finance also presented its initial assessment of damages to the economy. Agriculture sector growth may shrink 1.8% as against the pre-flood target of 3.9%.

Major hit is coming from the important crop side, which will see a contraction of 18% over the growth rate of previous fiscal year.

Growth in the livestock sector is also estimated at only 2% as against the original target of 3.7%. Over 900,000 animals died in the floods.

Output of cotton, rice and maize crops has been severely affected by the flood and it is feared that the sowing of sugarcane and wheat will also take a hit.

As against annual production target of 11 million bales, it is now estimated that 5.4 million bales of cotton can be produced, indicating severe damages to the cash crop.

Rice output is expected to reduce to 7.8 million tons as against the target of 8.6 million tons. Maize production could be 5.4 million tons, compared with the target of 7.2 million.

Similarly, sugarcane production may reduce to 70.9 million tons against the annual target of 78.6 million tons. Wheat output may remain at 25.1 million tons compared to the target of 26.3 million tons.

Published in The Express Tribune, September 2^nd, 2022.

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