Economic losses of floods

ByAsrar Raouf

Former Civil Servent

Dated

September 16, 2022

Asrar Raouf looks at the prevailing economic issues

The floods have caused havoc in the country and their economic costs are just staggering. According to tentative estimates the losses incurred by the country in this context could range between $15 billion to $20 billion as the government fears up to 12 million more people will slip into poverty, underscoring the need for immediate and major global financial assistance. It is now reported that even though these estimates are far higher than earlier projected estimates of $10 billion to $12 billion, but it is now feared that they could ultimately outstrip the revised figures also. According to the current break-up, there are direct $12 billion losses to the economy, the $6 billion damages to the housing infrastructure and $4 billion was the cost of livestock losses.

Most of the estimates of the economic losses are based on data compiled up to up to 5 September, provided by the National Disaster Management Authority (NDMA) but the number is still subject to revision. The estimates also showed that the floods could further widen the trade deficit by $4 billion and the additional impact on the current account deficit is also estimated in the range of $4 billion to $5 billion. The authorities claim that they will come up with more firmed-up assessment of damage after a thorough exercise of the damage assessment as the relief efforts are badly hampering most of the activities of the official machinery.

The estimated assessment takes into account that 77.7% of the informal labour in rural areas constitutes of women, with six out of ten employed young women concentrated in agriculture sector. Most of the work in agriculture out of need and without a choice, with only 19% in paid employment in agriculture and overall 2.5 times more unpaid work and care than men. Since most of these women have also been care-takers for their livestock and therefore suffering precarious outcomes while trying to save their livestock during the floods, or surviving with the same in challenging living arrangements. This level of losses is difficult to recoup as only long time efforts can possibly rectify the current state of affairs.

Moreover all economic estimates have gone haywire after the floods as against earlier estimates of still achieving over 2% Gross Domestic Product (GDP) growth, the revised estimates give that the growth rate may slip to below 2%. Many economic experts however believe that even this figure is highly optimistic as the prevailing conditions are far more grave than expected. With one-third of the country under water it is not expected that any healthy economic activity may take place. The situation is indeed dire and the country may take considerably long time to recover from the current travails. The gross impact on the current account deficit could range from $4 billion to $5 billion but about $1.5 billion impact is expected to be offset due to additional inflows from workers’ remittances and aid and grants-related inflows.

It is reported that the authorities may be compelled to repurpose about 20% of the PSDP or Rs.218 billion towards disaster relief expenditure resulting in and additional unemployment of 600,000 due to low spending. The loss in growth of the industrial sector will be 3.5% to 4%. Its growth for the current fiscal year is expected to be 1.9% to 2.5%. The loss in growth of the services sector will be 1.8% to 2.3%. Its growth for FY 2023 is expected to remain at 3.5%. The figures reported are simply harrowing as initial reports point out that as many as 604,212 small businesses have been impacted that are connected to livelihood of 6.55 million people who are without jobs and earning opportunities now. The government estimates point out that the trade deficit could further widen by $3 billion to $4 billion due to reduced exports especially cotton and cotton value added products.
The loss in growth of the agriculture sector will be 3.5% to 4.5% and its growth may remain negative by up to 2.1% for the current year. The exports of fruits & vegetables, tobacco, oil-seeds & nuts, meat, tents & canvas, leather & leather footwear, and cement are expected to reduce significantly.

On the other hand, imports of raw cotton, wheat, pulses, sugar, construction machinery, and medicines may increase. The Food and Agriculture Organization (FAO) early estimates suggest that over 4.5 million acres of crop land have been affected by the recent floods increasing the risk of food insecurity. Only in Sindh 3.5 million acres crops are affected by the floods, causing 78% of the total losses. In Punjab, crops standing at 639,000 acres of land were affected. The cotton, rice, maize, and sugarcane are largely affected by the flood and their growth is expected to remain negative by 14% to 15.4%. The growth in other crops is also expected to remain negative by up to 15%. The growth in livestock is expected to remain 2% to 3% as another $4 billion losses are estimated on account of livestock. The assessment showed that 750,000 livestock have been lost, 5,735 kilometer roads and 246 bridges have been destroyed.

The gross impact on the current account deficit could range from $4 billion to $5 billion but about $1.5 billion impact is expected to be offset due to additional inflows from workers’ remittances and aid and grants-related inflows. It is reported that the authorities may be compelled to repurpose about 20% of the PSDP or Rs.218 billion towards disaster relief expenditure resulting in and additional unemployment of 600,000 due to low spending. The loss in growth of the industrial sector will be 3.5% to 4%. Its growth for the current fiscal year is expected to be 1.9% to 2.5%. The loss in growth of the services sector will be 1.8% to 2.3%. Its growth for FY 2023 is expected to remain at 3.5%.

The damages to housing infrastructure are estimated at $6 billion. Out of 1.7 million damaged units, as many as 1.5 million are in Sindh, followed by 87,772 in Khyber Pakhtunkhwa and 63,068 in Balochistan. In Punjab 59,000 housing units are estimated to be destroyed by the floods and 1,678 in Gilgit Baltistan and Azad Kashmir. The damages to housing infrastructure are estimated at $6 bn. Out of 1.7 million damaged units, as many as 1.5 million are in Sindh, followed by 87,772 in Khyber Pakhtunkhwa and 63,068 in Balochistan. In Punjab 59,000 housing units are estimated to be destroyed by the floods and 1,678 in Gilgit Baltistan and Azad Kashmir.

In the power sector, initial estimates show that at least Rs.3.3 billion are required to get things operational again, while the true assessment of damage will only be clear once access is restored to all areas. Sindh and Balochistan has faced the most losses. In Sindh, 554 transformers, 486 High tension structure and 47 civil structures destroyed, costing Rs.1.6 billion. The Railway network across Pakistan is disturbed by the floods, especially the railway track linking Quetta to Taftan in Balochistan and Quetta to Sibbi to Habib Kot from Balochistan to Sindh. The track connecting Punjab to Sindh from Hyderabad to Rohri to Multan is also blocked due to floodwater. TW

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