We must keep the econ­omy afloat

The Pak Banker - - Editorial - 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 gov­ern- ment - 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 re­cov- ery, 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 gov- ern­ment 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.

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