Macroeconomic Impact of Floods
Floods affected 33 million people and more than 1,730 lost their lives. They are particularly impacting the poorest and most vulnerable districts of Pakistan.
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A new assessment on post-disaster needs in the aftermath of recent flash floods in Pakistan, released by the Ministry of Planning, Development and Special Initiatives, has determined total damages to exceed USD 14.9 billion (PKR 3.2 trillion). The Planning Ministry led the Post-Disaster Needs Assessment (PDNA), which was conducted jointly with the Asian Development Bank (ADB), the European Union (EU), the United Nations agencies with technical facilitation by the United Nations Development Programme (UNDP), and the World Bank.
According to this comprehensive report:
The floods are expected to have a substantial negative impact on Pakistan’s economy. Overall damages are estimated at PKR 3.2 trillion (USD 14.9 billion), equivalent to 4.8% of FY 22 gross domestic product (GDP). Among the economic sectors, the agriculture and industry sectors are estimated to each incur around one-quarter of the damages, and the services sector is bearing close to half of the total damages. Recovery and reconstruction needs are projected to be sizable at 1.6 times the budgeted national development expenditure for FY 23.
More Poverty
Preliminary estimates of the PDNA suggest that the national poverty rate will increase by 3.7 to 4 percentage points, pushing between 8.4 and 9.1 million people into poverty, due to the floods.
Multidimensional poverty will increase by 5.9 percentage points, which means that an additional 1.9 million households will be pushed into non-monetary poverty. Beyond the national average, poverty in Sindh would increase by between 8.9 and 9.7 percentage points, and in Balochistan by between 7.5 and 7.7 percentage points.
Decline in GDP
As a direct impact of the floods is projected to be around 2.2% of FY 22 GDP. Among the major sectors, the agriculture sector value added is projected to decline the most at 0.9% of FY 22 GDP, with floods causing the most losses to cotton, dates, sugarcane, and rice crops.
Agricultural Losses to Spillover and Compound Other Losses
Damage in the agricultural sector is expected to have spillover effects on the industry and services sectors. Flood-related cotton losses are expected to weigh on the domestic textile industry, as local cotton constitutes about half of the industry’s required cotton input. Textiles account for around one-quarter of total industry output and more than half of goods exports. Similarly, the local food processing and slaughtering industries will be negatively impacted by the expected reduction in food harvests and limited supply of livestock. Industry sector value added is consequently expected to shrink by 0.7% of FY22 GDP.
Lower agricultural and industrial activities are likely to weigh on wholesale and transportation services activities, which account for around half of the service sector output. In addition, transportation challenges arising from the loss of critical infrastructures, such as roads and bridges, are expected to disrupt supply and further dampen overall economic activity. Services sector value added is consequently projected to decline by 0.6% of FY 22 GDP.
Increase in Inflationary Pressures
Inflationary pressures are expected to continue being elevated on account of rising food prices and the weaker exchange rate. With the hike in government-administered energy prices, headline CPI inflation soared to 27.3% and 23.2% in August and September 2022, respectively.
Inflation could increase further as food prices rise in response to crop damage, loss of livestock, and the disruption of transport infrastructure critical for supplying agricultural output to markets.
GRAPHICS OF THE DAY
Region-Wise Breakdown of Damage, Loss, and Needs
Sindh has suffered the most due to the recent floods, total damage is estimated at PKR 3.2 trillion, total loss at PKR 3.3 trillion, and total needs at PKR 3.5 trillion. The provinces of Sindh and Balochistan account for approximately 50% and 15% of recovery and reconstruction needs, respectively
Sector-Wise Breakdown of Damage, Loss, and Needs
The sectors that suffered the most damage are housing at PKR 1.2 trillion, agriculture & livestock at PKR 800 billion, and transport and communications at PKR 701 billion. The transport and communications sector has the highest reconstruction and recovery needs at PKR 1.1 trillion, followed by agriculture & livestock, and fisheries at PKR 854 billion, and housing at PKR 592 billion
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