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Floods’ impact: CAD levels may increase to $4.4bn

The Current Account Deficit levels may increase by US$4.4bn (1% of GDP) due to the impact of rains that have turned into flash floods this year.

This US$4bn impact is higher than estimated imports in FY23 while a possible slowdown in exports from absence of cotton and partially rice is very likely.

The repercussions may include higher imports, compromise on exports and higher inflation; wiping out efforts of the government to stabilize recent macro headwinds.

Pakistan, being an agri country, with direct agri contribution to GDP of 23%, could reach a vulnerable position in the aftermath of these floods.

These floods may give a Déjà vu of the damage witnessed during 2010-2011 catastrophic flash floods.

Also, inflation may face threats of higher prices from crops, livestock and textile-related goods that cumulatively hold 30% weight in the CPI.

This is a high risk to the already sticky food inflation (at 28%; 13-year high) and high WPI (at 38.6%; all-time high).

Besides, unplanned expenditures for relief, restoration and subsidies to affected segments may exert fiscal pressure in a year where Pakistan would already be under strict IMF targets.

To recall, during the 2010-2011 floods, Pakistan received a cumulative support of US$4.5bn from IMF, UN, World Bank and ADB; whereas a ‘flood surcharge’ of 15% was announced for Tax year 2011 on all taxable income in a way to fund the additional costs born regarding relief, restoration and any prospective subsidies to the affected segments.

Pakistan, against average annual rainfall of 125mm, received three times more rains in the current season so far. Sindh and Balochistan have reportedly received the most damage with five to six times more rains as compared to their respective annual averages, and higher than the magnitude recorded during flash floods of 2010-2011 for these provinces.

This has severely impacted lives, health, animals, crops, infrastructure and more. Sindh and Balochistan have 30%/8% share in the agricultural GDP, respectively.

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