KARACHI, Oct 12: More than two million people have been displaced and property worth billions of rupees lost due to the earthquake, but some economist and analysts believe that economic growth will remain unhurt.
With each passing day loss of life and property is rising and the situation demands huge spending to support the dying people, while the cost of rehabilitation of the displaced is not estimated. However, economists believed that huge demand for monetary spending would create serious shortage of funds to be resulted into widening of budget deficit, wrapping up of several projects and reduce the spending under annual development plan.
Some economists insisted that the economic growth would remain unhurt as the areas destroyed were insignificant in terms of contribution to the economic growth and the country would achieve 7.6 per cent GDP growth for the year 2005-06.
“Neither any textile mill was damaged nor any harm was caused to the cotton crop,” said a textile mill owner Abdul Aziz. He said the industrial infrastructure was intact while the agriculture also remained unhurt. Textile sector would be able to achieve its production and export targets as it received no damage by the earthquake. Similarly, the auto, engineering, water and power sectors would continue to move smoothly.
Economists said that several industrial sectors would witness enhanced economic activity as a result of reconstruction of the destroyed areas. “The contribution of this region to the country’s economic growth and GDP is minimal,” said Tanvir Abid, head of research at Live Securities.
However, the indirect impact has already started appearing on the common life of the people as millions of people have donated their savings to help their brethren who are facing the devastation of the earthquake. Reports indicate that Eid shopping in the month of Ramazan, which considered the best month for business, has slowed down.
The impact of the jolt in terms of economic losses is yet to be calculated but things are clear about huge burden on government’s spending that would certainly hit a lot of new and ongoing projects. This would be resulted in slowing down of the economy besides increasing budget deficit.
The government has set the budget deficit at 3.8 per cent (Rs263 billion) of the GDP for the year 2005-06. It has been announced by the government that the aid committed by the international community is insignificant, which means that that the government would have to bear the maximum load of spending for the rehabilitation of quake-hit areas.
Analysts estimated that the government would have to spend at least Rs50 billion for the settlement of about over two million displaced people.
However, economists believed that the government spending would be much higher than any initial estimate as it has yet to reach all the areas destroyed. At least a month time requires for calculating the exact loss of lives and property.
The government had allocated Rs5 billion for the relief operations, but most of the analysts said that that it would be a meagre sum for running the operations smoothly.
The government’s volume of spending would depend on the quantity of foreign aids and grants being offered by the countries and donor agencies like IMF, World Bank and Asian Development Bank.
“In the aftermath of the earthquake, substantial forex inflows are expected from abroad in the form of aid receipts,” said Abid.
Muzammil Aslam, an economist at KASB Securities, said that reconstruction would bring higher growth in the cement sector and that would help the economy to reach its GDP target.
