COMMENT: We must keep the economy afloat —Muhammad Aftab
We expect larger inflows of home remittances from the overseas Pakistanis, who would like to help their flood-hit families to rebuild homes and buy household equipment. The volume of imported inputs on this account, and to help industrial revival and infrastructure development is also likely to rise substantially. But, everyone needs to jump on board
We must do everything to keep the economy afloat. By this I mean business, industry, farmers, the people, and the government — not the government alone. This is essential because the flood havoc, fifth week into devastation, has hit the entire economy. It is eroding the projected GDP growth of 4.5 percent, and left one in every 10 Pakistanis a destitute.
But the hope for business revival, including the expected performance of the financial and trade sectors, is still strong. Farming may be slow to revive, but all efforts are needed to make it so. Otherwise how will we survive?
This is a bad beginning for FY 2011 that started July 1 with hopes of carrying forward the business and economic recovery, recorded in outgoing FY 2010. The floods have left a fifth of the country under several feet of water, more than 1,600 dead, 20 million plus people homeless, destroyed the irrigation system, roads and bridges, transport, electric power stations and distribution network, telecommunications, schools, and hospitals. The overall value of losses is placed in the range of $ 12-15 billion.
Based on initial information, Economic Advisor’s Wing of the Ministry of Finance (MoF) estimates “the overall GDP growth can be zero percent in FY 2011 in real terms — a deviation of negative (-4.5 percent) from the target.”
Its report ‘Pakistan Floods 2010: A Preliminary Look at the Macroeconomic Impact’, also indicates a galloping inflation of 25 percent in FY 2011, as against the projection of 9.5 percent. The actual inflation in FY 2010 was 12.5 percent.
Sakib Shirani, Principal Economic Advisor to MoF, says, “The calamity will have a full spectrum effect on macroeconomic environment impacting economic growth, inflation, the fiscal position, balance of payments, employment, incomes and livelihood, and poverty.”
The floods have badly damaged the cotton crop, which will hit the textile industry, the country’s biggest employer and exporter, and rice and sugarcane crops, which will reduce food availability. The telecom sector alone has suffered Rs 1.8 billion damage. The farm sector has suffered “complete destruction or extensive damage to crops over 4.25 million acres (1.72 hectares),” Food and Agriculture Minister Nazar Mohammad Gondal says.
But Finance Minister Abdul Hafeez Sheikh disagrees with the damage assessment of his Economic Adviser’s Wing. “Zero GDP growth means complete devastation of crops and industry and breakdown of the government and economic machinery, which is not the case at present,” says Sheikh.
However, private economists estimate the GDP target of 4.5 percent to be slashed by half, food inflation to be more than 20 percent, contraction of the economy by one percent, exports reduction of $ 3-4 billion, widening of the trade deficit, and a substantial depreciation of the rupee. Tonnes of problems!
Economists estimate, too, Pakistan will need foreign assistance of $ 8-10 billion to rebuild the shattered infrastructure, cover the loss of exports and farm crops and to avoid another balance of payments crisis.
“Over $ 1.0 billion have, so for, been committed as pledges and direct donations for Pakistan’s flood relief,” John Holmes, head of the UN Humanitarian Agency says.
Asian Development Bank has offered $ 2.0 billion and World Bank $ 1.3 billion assistance, mostly for flood-related spending. Jeddah-based Organisation of Islamic Countries (OIC), and Friends of Democratic Pakistan (FoDP) have promised help. Finance Minister Sheikh is currently in Washington, discussing financial help and emergency relief from the IMF.
Dismal scenario. But there is a good deal of hope.
The equity market, bourses and bankers appear upbeat, nourishing the hope for portfolio investment to grow and will help reduce external account pressures. Portfolio investment in July was $ 46 million, compared to just $ 4.4 million in the like month of FY 2010.
We expect larger inflows of home remittances from the overseas Pakistanis, who would like to help their flood-hit families to rebuild homes and buy household equipment. The volume of imported inputs on this account, and to help industrial revival and infrastructure development, funded from foreign and domestic resources, is also likely to rise substantially. But, everyone needs to jump on board.
The writer is an Islamabad-based journalist and former Director General of APP