Identified Areas of Damage as of 17 August 2010:
Cotton: This is the worst hit crop, as according to initial estimates we have lost as much as 2 million bales. This may lead to more imports of cotton by the value added sector, adding further pressure to the Current Account Deficit and thereby causing further devaluation in the exchange parity.
Wheat: Wheat plantations were also damaged by flooding. At this point, we do not have any estimate of the damage. Given that we had a small surplus last year, we expect that the surplus will be lost for this year.
Rice: Pakistan may not be able to meet its target of rice export this year, as we expect losses on this front as well. We will lose the opportunity to earn foreign exchange therefore causing a widening current account deficit.
Sugar: We have estimated a loss of 500,000 tons of sugar cane, approximately 2 – 3% of the sugar cane demand. We believe this will have a minimal impact on the availability of refined sugar.
Many Schools, hospitals, bridges, roads, highways, electricity and gas networks have been affected or destroyed mainly in KP, and some areas of Punjab. All these will have to be rebuilt to facilitate economic activity. According to the government’s initial plans, 50% of the current year’s planned PSDP will be reallocated towards reconstruction. However, these projects will take place over a long term horizon.
Government’s relief effort needs to be carried out on an urgent and top priority basis.
According to initial estimates, around 800,000 – 1 million houses have been destroyed. Small scale businesses have suffered large losses due to loss of infrastructure and inventories (damage to the crop and livestock included). Rehabilitation will need to involve monetizing affected persons through subsidies for rebuilding of houses, businesses and working capital in the near term. Government has not announced such a plan as yet, and although this will be difficult to implement logistically and transparently, immediate resolution is required as any delays will compound the problem.
On a positive note, some field experts are of the opinion that agriculture will benefit in the long run as the flooding, will make the soil more fertile due to renewal of soil, and natural removal of salts thus decreasing its salinity.
The expected import of goods for relief purposes will widen the Current Account Deficit. However, Foreign Aid will help reduce the deficit ifreceived in time. Foreign Aid in the form of debt will help in the short term, but will constrict the amount of PSDP available with the financial cost burden in the future. A Current Account Deficit will cause devaluation of the currency, which is beneficial for sectors withexports.
If the above devastation is not addressed fast enough, we expect an elongated slowdown of economic growth because agriculture, which is the hardest hit sector, accounts for as much as 20% of the GDP.