Floods in 2022 are sending havoc in the country. It's a significant humanitarian loss, and it's not appropriate to put a number to hundreds of people who died, including children and millions of displaced people. The life of affected families may change forever.

In addition, the economic loss is enormous. All sorts of numbers are coming from the analysts and research houses estimating the impact on the current account and overall economy.

Different houses estimate the current account deficit (CAD) impact ranges from $1 billion to $5 billion. Many are inflating the losses, and they are not seeing the factor of reduction in rural demand to impact CAD positively. For example, fewer petroleum sales, higher electricity outages, low tractors and cars sales, and overall lower demand in rural areas will dilute the impact on CAD (higher imports and fewer exports) due to crop and infrastructure (buildings and roads) losses. Then the remittances and other current transfers could be higher in the secondary income to lessen the impact of a higher trade deficit on the current account. History suggests that this could happen. In FY11, the year after the 2010 floods, the current account was in surplus.

This article is not attempting to give any number to the loss. Things are fluid and would be more apparent in a week or two to provide reasonable estimates. The comforting news is that the flood's peak is likely to end. These floods are different from 2010. Here, unprecedented rains in Sindh, South Punjab, and Baluchistan have caused flash floods. And the loss of crops is high.

With the met department forecast that the monsoon rains are about to end, the further loss could be less. And with cloud cover ending, the proper assessment of losses can be gauged. As of now, People are using NDMA numbers for the computation of losses. The loss of crops in Sindh appears to be high – affecting the rice exports and would result in higher cotton imports. This space is consciously not giving any number as of now.

Then the houses estimate the loss of crop that is yet to be sown. Such as wheat. The point is that the land would take more than the usual time to dry and delay and reduce the wheat sowing area. That can happen. It happened in 2010-11. However, the yield at that time improved in other regions due to better water availability and higher fertilizer use – especially DAP. And overall, wheat production in 2010-11 was higher than the previous year.

However, one needs to differentiate the impact of two types of floods. 2010 was a river flood, and the river brought silt to improve the soil nutrients. This time it mainly rains flood – especially in central Sindh, which is taking mud out of the soil. In the case of land on the side, the water from Baluchistan could bring nutrients with it. The impact is unpredictable, and it is hard to say what the effect would be.

The overall economic growth would be adversely impacted. This is on top of the slowdown already happening.

The impact of lower cars and other sales would have a limited effect as SBP is already allowing the sector to import half of its needs. However, some slowdowns in oil imports number can happen. Some support from ex-pats and donors can come through a secondary income account to lessen the impact on the current account. The worry is loss of employment in flood-affected areas, inflation across the country, and dealing with urban migration.

Right now, all the focus should be on providing food and shelter to those displaced. Then, once the situation is better (in a few days or weeks), rehabilitation work will start.

Comments

Comments are closed.