The floods in 2025 seem much less devastating compared to the crisis the country faced in 2022. However, they are severely straining fragile economic stabilization, with macroeconomic implications that are multifaceted, impacting inflation, growth, employment, fiscal balance, and the external account.
These floods are unusual. Their timing is off, arriving at the tail end of the monsoon season. Punjab has been hit the hardest, with the last similar impact occurring in 1988.
To protect cities, authorities have diverted water toward villages, affecting around 4,000 villages and 4 million people. It is still too early to assess the full extent of crop damage, as the water may recede before completely ruining the harvest. So far, the worst effects are seen on rice crops and livestock.
Farm income is already under pressure due to the government’s move away from supporting wheat prices, deliberately allowing prices to fall through imports and stock releases in the last two harvesting seasons. Floods add another layer of strain that could test farmers’ resilience.
While rice appears to be the most damaged crop, reports of 60 percent loss from international media are likely grossly exaggerated. Since rice is not a staple food in Pakistan, the political impact may be limited, and it will not directly fuel inflation. However, any reduction in rice production will lower exports and add pressure to the already stressed external account.
The greater concern lies with livestock, which holds the largest share of agriculture’s GDP contribution. Even if animals are not lost, those in impacted areas are under stress, reducing milk yields. Since dairy has the highest weight in the food inflation basket, this could challenge inflation targets set by the State Bank of Pakistan (SBP), which aim to maintain inflation within 5 to 7 percent.
Additionally, the costs of rehabilitation and reconstruction may threaten fiscal consolidation and make it difficult to achieve the primary fiscal surplus target, especially as tax collection is already slipping.
Agriculture, which was expected to rebound this year after a 13.5 percent dip in major crops last year, may not reach desired growth levels due to flood impacts. This will worsen poverty levels, which are already rising alarmingly, and keep rural employment depressed.
Analysts are predicting government wheat imports this year as stockpiles dwindle. If flood damage affects the sowing of the next crop or damages reserves, wheat imports could increase further. Combined with reduced rice exports, this will widen the food trade deficit.
Supply chain disruptions and crop damage are already reflected in weekly inflation readings. Fiscal slippages will add further pressure on inflation and the external account. Overall, the country’s macroeconomic stability is at risk.
The frequent recurrence of climate-change-related disasters calls for a focus on building climate-resilient infrastructure. Yet media coverage remains limited, focusing mostly on urban areas and provincial government efforts at evacuation and aid distribution.
Mainstream media is losing credibility as people turn to social media for news, where unverified, anecdotal reports often spread panic. Coordination between provinces is lacking. Officials appear more interested in competing for better publicity than in collaborating effectively.
As a result, attention to necessary development is missing. Instead, debates focus on controversial mega projects such as large dams and canals. But these are not the answer to such floods. What is urgently needed is incremental development of climate-resilient infrastructure.
The country received its first warning in the 2010 floods. The real question is: what have we done since then? The immediate priority must be to build resilient infrastructure downstream, where the floods cause the most damage. Focusing solely on large upstream dams, though important, does not address the rising flood risks in Punjab and Sindh.
If floods keep testing Pakistan’s patience and pockets, maybe it is time to stop debating bigger and start building smarter—because when it comes to climate resilience, baby steps beat giant splashes every time.
Copyright Business Recorder, 2025
Ali Khizar is the Director of Research at Business Recorder. His Twitter handle is @AliKhizar
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