Flood losses may cross $40b
Preliminary report shows that overall loss in GDP growth would be 3.3% to 3.7% due to the floods. photo: file
Pakistan on Monday feared that floods might have caused over $40 billion in economic losses and damages as the National Flood Response Coordination Centre (NFRCC) dismissed the initial assessment of $18 billion.
The $40 billion losses were flagged in a flood response centre meeting during discussion on an interim report titled “An Early Assessment of Flood Impact on Pakistan’s Economy”, presented by the Ministry of Finance.
Planning Minister Ahsan Iqbal heads the NFRCC – a joint civil-military body set up to monitor and coordinate relief and rehabilitation work. “The devastating conditions suggest that the scale of flood losses is in the range of $30 billion to over $40 billion,” said Iqbal, Chairman NFRCC, while talking to The Express Tribune.
It is for the first time that the $40 billion loss estimate has been given, which is three times more than the initial estimate of $10 billion to $12 billion. The new number is even far higher than the $30 billion figure given by United Nations Secretary General Antonio Guterres last week.
“We are going through the process of a comprehensive assessment of flood damages with the help of World Bank, Asian Development Bank, provincial and federal governments,” said Iqbal.
Although a detailed report of losses would be ready in four to six weeks, initial assessment would be finalised by the end of this week, said the NFRCC chairman.
The planning minister said that the finance ministry had presented an initial assessment of flood losses, which was based on predictive analysis but the model’s outcome would depend on what input was fed into it.
“NFRCC has directed the Ministry of Finance to withhold the release of its flood impact report,” he added. “We will wait for the outcome of comprehensive assessment but damages are colossal and even more than $30 billion as suggested by the United Nations secretary general,” said the NFRCC chairman.
He said that major infrastructure had been destroyed in Sindh, particularly Mainline-I Sukkur-Hyderabad section of Pakistan Railways that would now require complete rehabilitation. “The start of ML-I project is now compulsory,” he added.
Pakistan has been struggling since 2016 to begin work on the $7 billion ML-I project with $6 billion in Chinese lending. But the project is not moving forward due to many obstacles, including the limitations imposed on new sovereign guarantees under the IMF programme.
The finance ministry’s initial assessment report showed that economic losses were around $18 billion. Gross domestic product (GDP) growth would drastically slow down in the range of 1.2% to 1.7% in the current fiscal year, it added. Before the floods, the Ministry of Finance had targeted 5% economic growth.
“The loss of $18 billion was our initial assessment, which can now be anywhere up to $30 billion once numbers are firmed up,” said Dr Aisha Pasha, Minister of State for Finance, while talking to The Express Tribune. She said that once complete data was available, the government would be able to quantify the losses.
The IMF will consider any relaxation in Pakistan’s $6.5 billion bailout programme on the basis of a credible assessment of losses.
Over 33 million people have been affected by the floods who immediately require assistance, far more than the initial Rs25,000 cash handout.
The Ministry of Finance’s suggested approach is that the government should immediately start a cash-for-work programme in the affected areas aimed at providing livelihoods to the people, according to a senior government official. It was in favour of giving interest-free loans for crops and livestock.
However, some of the NFRCC members argued that more focus should be on connectivity and reconstruction of bridges. About 246 bridges were destroyed due to flash floods across the country.
If losses increase to $40 billion, it means GDP growth this year can turn negative and inflation may cross 30% due to the complete breakdown of supply chain, according to an official of the finance ministry, who was involved in the preparation of initial assessment report.
The preliminary report showed that the overall loss in GDP growth would be 3.3% to 3.7% due to the floods. But if the losses are revised upwards to $40 billion, the economy will contract, according to the sources.
The interim report showed that about 20% of the PSDP, or Rs218 billion, would have to be diverted towards disaster relief expenditure, resulting in an additional unemployment of 600,000 due to low spending.
In the interim report, the finance ministry reduced the negative impact on trade deficit due to the floods from the initial $4 billion to $2 billion. It did not give a figure of the additional impact on current account deficit, despite earlier giving figures of $4 billion to $5 billion.
“Flood damages to crops, livestock, infrastructure and the expected slowdown in economic activities will have implications for the external sector,” read the report without giving a number.
Pakistan is a victim of global warming, although its contribution is less than 1%. The country expects major support from the developed world during the upcoming UN Climate Change Conference, COP27, scheduled to take place in Egypt in November.
The Ministry of Finance report states that the devastating flood has disproportionately affected the poor and vulnerable segment of society. The declining GDP growth and other losses to the economy would further exacerbate the poverty situation in the country, pushing around 9-12 million more people into poverty,
Published in The Express Tribune, September 13th, 2022.
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