The catastrophic floods that have afflicted more than a third of the country have only exacerbated Pakistan’s economic woes.
Inflation is breaking all records and setting new ones, increasing the cost of construction and slowing down the growth; the projected rate is expected to fall from 6 per cent in FY22 to 2.3 per cent in FY23.
The flood-hit agriculture sector estimates losses of around $13 billion. The closure of textile units means that exports from that sector will decline by at least 20pc. Reports also suggest that the automobile industry is working at half its strength.
Meanwhile, the dollar is climbing to new highs — on Thursday it further appreciated to close around Rs236 in the inter-bank market. Although this is still below the record peak of Rs239.5, achieved at the end of trading on July 28, most pundits did not expect such highs after the long-awaited injection from the International Monetary Fund (IMF).
The currency market is inextricably tied to the country’s financial health, and experts say that one must take a holistic view to understand why and how the economy — and the rupee’s competitiveness against the dollar — is in a downward spiral.
While Pakistan has been advised to seek climate-based reparations, experts say there is no mechanism to do so at the moment
While the Fund has come through, poor inflows from other credit sources have yet to materialise. This includes the support from ‘friendly countries’ that Miftah Ismail often refers to.
In simple terms, the country requires $32 to $34bn in the current fiscal year to honour its foreign payments, mostly debt servicing and liabilities. The trade deficit has started to widen again, following the lifting of a ban on the import of luxury items under pressure from lenders, who are averse to such protectionist measures.
Then, of course, there is the current account deficit, which had been estimated to remain lower than last year’s $17.3 billion. But the drop in exports is pushing it up again. This is a Catch-22: exports depend on imported constituents and the instability in dollar rates keeps most exporters from executing their deals with any degree of confidence.
“More than the IMF, right now Pakistan needs help from the World Bank and its International Bank for Reconstruction and Development (IBRD). It was this institution that initially helped Pakistan construct dams and barrages,” says Rashid Masood Alam, a senior banker associated with a World Bank-affiliated body in Karachi.
He says that infrastructure projects like highway, road, dam and bridge-building would require billions of dollars. These projects are essential to restore the severed connections necessary to keep Pakistan’s economic wheels turning, but at present, the country has no means to finance such mega projects.
“The European central bank, IBRD and World Bank should conduct a survey and help Pakistan with the procurement of machinery and expertise to plan better in order to avert a crisis-like situation,” he added.
Carbon emissions and reparations
In the immediate aftermath of the floods, there was talk of a climate-induced disaster and how Pakistan, while being one of the lowest carbon emitters, was facing the consequences of the actions of big polluters such as the US, China and Europe.
In a recent and oft-quoted interview with BBC News, University of Notre Dame academic Maira Hayat had raised the issue of reparations. “There are certain questions that citizens of [the] global north need to be asking their states. For example, what is the responsibility of the global north in the kind of devastation that we are seeing in Pakistan today?”
“In climate policy parlance, this is called loss and damage. The reason loss and damage historically has not been formally made part of climate policy and climate politics is due to the resistance of the most-wealthy and… the most culpable nations, like the US and the EU,” she said.
This view is echoed by Mr Alam. “Pakistan is surrounded by two major carbon emitters, i.e. China and India. Its 7,000-plus glaciers have already started melting at an alarming pace and if this phenomenon is not stopped, it might create havoc in the region and cause sea levels to rise, which could result in coastal cities being submerged,” he said.
If global warming trends are not arrested, he warns, a country which has a 0.7pc global carbon footprint would be deprived of agriculture, livestock and human resources at an unprecedented level.
According to the UN Environment Programme, the world’s wealthiest one per cent emits more than twice the emissions of the poorest half combined.
It was in view of this sobering statistic that developed countries were supposed to establish a fund to help developing countries adapt to climate change, he said, but nothing came of it.
So even though Pakistan’s cause is now being championed by none other than UN Secretary General Antonio Guterres, there is just no provision for Pakistan to ask for compensation from countries producing the largest amount of greenhouse gases, says climate expert Ali Touqeer Sheikh. “The Kyoto protocol nor the Paris convention have any provision or agreement to pay for the losses suffered by countries hit by climate change.”
He also stresses the need to look inwards. “It has been known since the early 1990s that climate change has increased recurrent floods and will be more aggressive in the coming years, but our governments never paid attention to this serious issue. Instead, they have been trying to hold climate change fully responsible for these massive losses.”
He suggested that the government should not allow the reconstruction of houses built in the path of perennial streams and rivers, which were washed away by torrential rains.
On the whole, the situation calls for the development of a solid plan to ask the developed world to recoup our nearly $30bn in losses, and the UN flash appeal of $160 million is like peanuts when compared to the quantum of damages.
These losses will ultimately create joblessness, increase inflation, reduce economic growth, slash exports and keep the dollar dominant against the rupee, sealing the fate of the country that may see a default if the overall economic decline continues.
Published in Dawn, September 17th, 2022