Post-flood economy

Published September 24, 2022

WITH a third of the country — especially Sindh and Balochistan — under water, over 33m people displaced, and homes, roads, rail tracks, bridges, crops, livestock and livelihoods washed away, it is improbable that the economic targets set by the government for the present fiscal will be met.

No wonder, the government has slashed its budgeted economic growth target of 5pc to just 2pc; the climate calamity has hit the country at a time when the economy was already in a tailspin as the government struggled with one of Pakistan’s worst balance-of-payments crises, piling debt and soaring inflation.

Many believe that even the revised growth projections are too optimistic in light of the devastation wrought by a deluge of epic proportions that will leave the country with little or no growth at all this year.

Hyperinflation, a weakening rupee, and fiscal and monetary tightening under the IMF package had already been affecting economic growth when the torrential monsoon rains and melting glaciers drowned large parts of the country. It, therefore, isn’t surprising to see the catastrophic floods curtail whatever modest growth we were expecting to achieve and push the nation to the brink.

Finance Minister Miftah Ismail has rightly pointed out that “the path to solvency was narrow; it has gotten narrower”.

Early flood-related economic losses are estimated to be almost $30bn; the calls for debt relief for Pakistan are growing louder as Islamabad desperately looks towards the developed world to help it in a big way — and quickly.

With a large number of affected people still awaiting rescue services and relief, and the rehabilitation and recovery phase yet to begin, UN Secretary General António Guterres has sought to draw global attention to the crisis in Pakistan, pointing out that the country was “drowning not only in floodwater, but also in debt”.

Read more: Pakistan default fears spike on report of UN debt suspension advice

A UN policy memo suggested that Islamabad should suspend international debt repayments and restructure loans with creditors after the recent floods exacerbated the financial crisis. It states that the country’s creditors should consider debt relief so that policymakers can prioritise financing its disaster response over loan repayment.

So far, the report has only spiked fears of a default as Pakistan’s sovereign bonds slumped to just half their face value, despite Mr Ismail’s statement a few days earlier that the country would “absolutely not default on its debt payments in spite of the floods”. The only silver lining is the indication from the IMF that it is willing to ease the conditions under the bailout programme in a changed post-floods economic situation and increase the amount Pakistan would receive in the next tranche, subject to a “lot of negotiations” in the coming weeks.

Chances are Pakistan will secure some additional multilateral financing. But that isn’t the solution to the current crisis. It’s time the world stepped forward to provide debt relief to prevent the economy from collapsing.

Published in Dawn, September 24th, 2022

Opinion

Editorial

Retracted offer
04 Dec, 2022

Retracted offer

WITH so many U-turns under his belt, it was hardly surprising when on Saturday, PTI chairman Imran Khan decided to...
Embassy attack
Updated 04 Dec, 2022

Embassy attack

The Taliban should have enhanced the existing security arrangements.
Smog season
04 Dec, 2022

Smog season

FOR the past week, major cities of Pakistan have been among the top most polluted cities in the world. Lahore ranked...
Fleeting good news
Updated 03 Dec, 2022

Fleeting good news

Indeed, there is no other option to get out of the economic mess we have created in the last few years.
Battle for spoils
03 Dec, 2022

Battle for spoils

THE spectacle playing out inside a London courtroom shines a light on the struggle for control of the assets of the...
CM Bizenjo’s complaint
03 Dec, 2022

CM Bizenjo’s complaint

BALOCHISTAN Chief Minister Mir Abdul Qudoos Bizenjo’s claim that his province is facing a financial crunch due to ...