Economic impact of floods in Pakistan

Floods have inundated 7m hectares out of 22m hectares of total cultivated land which is around 33%

Climate change has become a foremost challenge of the 21^st century. It refers to the changes in weather patterns and shifts in climatic temperatures. Climate change is adversely affecting various countries around the world. It has a profound effect on agriculture and maximises the risk of food security. Pakistan is one of the top 10 countries highly affected by changes in climatic temperatures and weather patterns. The impact is wide-ranging such as a reduction in agriculture production, continuous droughts, coastal erosion, and more than average rainfall. The flood situation in the country today has been one of the major causes of climate change which has devastated thousands of acres of land and displaced millions of people with loss of lives.

As per the preliminary estimates, floods have inundated 7 million hectares out of 22 million hectares of total cultivated land which come to around 33%. Initial assessment as per the data shared by provinces to the Ministry of Food Security and Research reveals damages of Rs298 billion in the agriculture and livestock sector. The agriculture sector contributes 23% of the GDP and 19% to the gross output. The agriculture sector output multiplier is estimated to be around 1.43. This represents the sector’s ability to multiply input of 1% into output by 1.43%. The share of private consumption expenditure for the agriculture sector is 12% which is the fourth highest share of any sector in private consumption expenditure. About 37.4% of the labor force is employed in the agriculture sector.

The floods of 2010 negatively affected the agriculture sector, as major crop production declined by 15%. Agriculture growth dropped to 0.23%, pulling the overall GDP growth to 2.58%. The destruction caused by the recent floods is of a higher magnitude, as it has flooded vast areas of cultivated land. The damage caused to the cotton crop has been irreparable, as it contributes 1% of the GDP. Vegetables, date palms, sugar cane, and rice crops also got badly damaged which can be translated into a 50% production loss. Around 700,000 to 800,000 livestock has been lost, as it contributes 11% to the national GDP. Geographically, 110 districts have been badly affected in all four provinces.

It is safe to estimate that the agriculture sector production loss can be around 25-30% including livestock losses and crop damages. The contraction of 25% can have a far-reaching impact as agriculture has a meaningful contribution to gross output and value addition. According to estimates derived using Leontief’s input-output model, a contraction of 25% in the agriculture sector generates a gross output loss of $21 billion and a gross value addition loss of $14.7 billion which is 3.85% of the current GDP.

An Input-output model presents sectorial linkages through various inputs used by a sector to produce output. Sectorial gross output losses reveal that the agriculture sector will receive the majority of the burden and lose 76% of gross output and 80% of the gross value added. Other sectors that may suffer the highest are food, beverages, tobacco, retail/wholesale, trade and chemicals, rubbers, and plastics. Food, beverages and tobacco may lose 4% of the gross output and 1% of the gross value added; retail and trade may suffer a loss of 9.5% of the gross output and 11% of the gross value added; and chemicals, rubbers and plastics may lose 4% of gross output and 2% of the value added.

The economic impact of this nature can be summarised as a reduction of GDP growth by 3.84%. Next year’s GDP growth shall remain within 1-2% combined with higher inflation and increased unemployment. The government should renegotiate with the IMF to provide relief on the agreed condition of provincial surplus and reduce non-developmental expenditures, to spend more on rebuilding infrastructure. The support price for wheat should be announced as early as possible with subsidies on farm inputs and interest-free loans. Federal and provincial governments should increase the budgetary allocation of social safety nets with immediate effect.

Published in The Express Tribune, September 8^th, 2022.

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