ISLAMABAD: After excluding the UNDP from the assignment of conducting the Post Disaster Need Assessment (PDNA) Exercise along with other international donors, the government has prepared an assessment of economic losses ranging from $10 billion to $12.5 billion and got a recommendation to seek financial support from all possible avenues.
The United Nations Development Program (UNDP) has been excluded from the assignment of the PDNA exercise and now the World Bank (WB) and the Asian Development Bank (ADB) would conduct an exercise to reconcile figures on the exact assessment of losses and requirements to rehabilitate or reconstruct the flood-affected areas.
When Federal Minister for Finance Miftah Ismail was contacted for seeking comments regarding any consideration for seeking debt restructuring or making a request to the IMF for additional funding, he replied: “We are neither approaching the IMF for additional funding nor are we considering debt restructuring”.
However, top official sources confirmed that the high-powered committee for assessment of economic losses estimated that the unemployment numbers increased and it was initially estimated that the unemployment rate might be increased by 1 to 1.5 per cent and would be standing at 6 per cent to 7 or 7.5 per cent in the post-flood scenario. The prevalence of poverty has also gone up as 8 to 11 million people slipped into the trap of poverty. The high-powered committee finalized that the poverty increased in the range of 9 to 11 per cent as it stood at 21.9 per cent, so in the post-flood situation, it might go up to over 30 per cent. The Planning Commission had initially estimated that poverty might go up in the range of 4.5 to 6 per cent.
When Minister of State for Finance Aisha Ghaus Pasha was contacted on Monday, she said the work on ascertaining economic losses was under way and hoped that this exercise would be accomplished soon.
According to a summary of exact losses shared with the high-powered committee, stating that Pakistan’s economy was passing through the phase multiple challenges – including the Balance of Payment (BoP) crisis, heavy debt burden and solvency-related issues. “The devastations of floods have further intensified the crisis. The sectoral and overall targets set at the time of formulation of the annual plan have become irrelevant,” it stated. Inflationary pressures are still persistent and with supply glitches due to communication failures will further aggravate. Despite approval of the IMF programme, the external sector woes are not yet over and liquidity position needs to be strengthened with the help of friendly countries and development partners.
Due to severe damages to crops in Sindh, Balochistan and KP, the agriculture sector growth is expected to decelerate by 0.7% (against actual projected (AP) target of 3.9%), while the industrial sector growth is estimated to come down to 1.9% from AP target of 5.9% and the post-flood growth of the services sector is expected at 3.5% (against AP Target of 5.1%). “The overall GDP growth for FY23 is projected at 2.3%. The Real GDP will decrease by Rs 1,064 billion due to recent floods. In nominal terms, this loss is equivalent to Rs 2022 billion ($9.3 billion).”
Agriculture Sector: the worst-hit is the crops sector where cotton, rice and sugarcane crops have suffered significant losses. The cotton crop of Sindh has completely wiped out and 70% of the rice crop has been damaged. Expected delay in wheat sowing due to inundated lands is expected to take toll in the form of lower output. Therefore, Important Crops GVA is expected to reduce by 10.5%. Minor crops like chilies, tomato, onion etc. have also faced floods and are assumed to be contributing 5% lesser value added to GDP during FY23.
Livestock in Balochistan, Sindh and South Punjab has been hit hard by floods and almost one million large and small animals have died. Therefore, the anticipated growth of 3.7% is lowered to 1.6%.
Industry Sector: Due to lower availability of the domestic cotton and high global prices growth in the textile sector is expected to drop. Moreover, due to lower demand, the automobile and fertilizer sectors are also expected to be affected. Therefore, the growth in the industry sector is expected to come down to 1.9% against the earlier estimates of 5.9%.
Services Sector: wholesale & retail trade services will be major victim of drag on commodity producing sectors and the WRT growth will drop from 6.5% to 3%. Similarly, due to damages to crops and livestock along with affected road networks, transport & storage services will come down from the envisaged growth of 4.5% to 3%. Hoteling and tourism-related services and education services will also be among the sufferers. Overall, the services sector growth is anticipated to drop from 5.1% to 3.5%.
Inflation: Inflationary pressures are expected to further intensify due to supply glitches and shortage of perishable items. However, with appropriate import decisions and rehabilitation, these are expected to dissipate and the average inflation for FY23 is expected to remain in the range of 25-27%.
External Sector: flood damages to crops, livestock and infrastructure and the expected slowdown is expected to impact the external sector also. 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, the imports of raw cotton, wheat, pulses, sugar, construction machinery and medicines will increase significantly. The overall impact of this restructuring of trade is expected to widen the trade deficit by $3 billion to $3.5 billion. The global slowdown and anticipated recession in the export markets are expected to suppress the demand for Pakistani exports, to the tune of $3 billion. In this case, the gross impact on CAD would range from $3.5 billion to $4.5 billion. The deficit is expected to partially off-set by $1billion to $1.5billion inflows from worker remittances and aid/grants-related inflows.
In such a situation, Pakistan will need to provide an additional cushion to the export industry to keep it competitive and be able to meet the export targets and earn foreign exchange. This would require additional financial requirements on the local front. Owing to the humongous damages spread over a vast area, it is imperative that Pakistan seek deferments in the repayment of loans and interest payments from bilateral and multilateral partners. Pakistan may also seek expanded market access from the export markets like the EU and the US, it concluded.
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