Impact on industry

Published September 2, 2022

THE economic picture emerging in the midst of the extensive devastation caused by this year’s unprecedented monsoon rains and flooding in vast parts of the country is very similar to the one seen during the Covid-related restrictions in 2020.

While the demand destruction may not be as intense or across the board as the one induced by the global pandemic, the deluge triggered by climate change shows that the economy is going to slow down significantly in the near to medium term. That carmakers, tractor manufacturers and steel producers are already ‘temporarily’ shutting down their plants because of shrinking demand is just one sign of how the economic landscape is shaping up.

The impact of the reduction in demand will not remain confined to large industries; it will soon spread to small and medium-sized industries and other businesses too.

Torrential rains and flash floods have ravaged the country at a time when the economy was already facing strong headwinds and the government was taking measures to stabilise it under IMF oversight and putting curbs on imports including industrial raw material and spare parts to close the burgeoning trade gap and hold down the expanding current account deficit.

With over 5,000km of roads and bridges swept away by floodwaters across the country, the damaged communication infrastructure has made it even harder for companies to transport their goods for delivery from one place to another. Flood-related crop losses, which many analysts expect to be massive, are going to dampen demand and retard growth prospects further during the present fiscal year.

As the economy struggles to recover from the liquidity crisis, the huge contraction in both public and private investment, together with the economic losses caused by the floods, is likely to delay the revival of growth for a period longer than initially anticipated.

Read: How current calamity compares to 2010 floods

On top of that, it is feared that the recession building up in developed economies will put further pressure on our deteriorating economic situation. The impact of these factors on the economy is expected to be across the board, with industry, agriculture and construction taking the bigger hit.

The reduction in the output of large-scale industry and major Kharif crops will also significantly affect both small manufacturers and the services sector.

During the pandemic, the IMF as well as other multilateral lenders had stepped up to help poor nations like Pakistan and generously financed them to protect their economies and people from the impact of the global lockdown. At the same time, the government and central bank here had implemented several initiatives to help business stay afloat, save jobs and encourage investments.

The possibility of the world, including multilateral agencies, lending a hand in the rehabilitation of flood-affected populations might be a reasonable expectation. But will the IMF allow the government to digress from the conditions of its recently restored loan facility? Not likely.

Published in Dawn, September 2nd, 2022

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