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A bolt from the blue

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Recent heavy rains in Pakistan, particularly in Sindh, and consequent flooding in large parts of the country is definitely an unmitigated disaster, likely to affect both the economy and the welfare of people. The extent of damage could be partly gauged from the statement of the Chairman of National Disaster Management Authority (NDMA) which has confirmed that so far four to five million people in Sindh have been affected, death toll has reached 132, nearly 700,000 houses will need to be refurbished to make them livable and standing crops on 1. 7 million acres have been destroyed. As the calamity is not yet over, the losses could mount in the coming days and weeks.

A glimpse into the likely impact of the disaster on the economy could be had from a news item in the Business Recorder on 7th September, 2011, affirming that cotton production target of 15 million bales for the current year is likely to be missed by about 2-2. 5 million bales because of massive damage to the crop during the ongoing rains.

According to Ghulam Rabbani, Director, Karachi Cotton Association (KCA) who is on a tour of interior Sindh to estimate the losses to cotton crop from rains and flood, cotton crop in over 20 districts of Sindh has been badly damaged, the province is likely to achieve only 50-60 percent of its target and the provincial production is not expected to exceed 3 million bales. Government is expected to revise cotton production target sometime in October after collecting details of cotton crop losses and there is likelihood that it will be set at 12-13 million bales.

It is more than obvious that the said misfortune is a bolt from the blue and will have highly negative consequences for the economy which is already tottering under the influence of worsening economic indicators. As is well-known, cotton is the main cash crop of the country which contributes significantly to national economy in terms of value addition in agriculture sector and GDP, employment and exports, etc. About two-thirds of country s exports originate from cotton and its products while a large part of formal and informal employment revolves around and is dependent on the vibrancy of this sector. Cotton prices have already soared to around Rs 7,000 per maund in the local market due to the reports of damage to the standing crop and this is going to reduce the level of our exports because cotton crop in other parts of the world is expected to be nearly 11 percent higher this year, prices in the international market have slumped in the recent past, and it is going to be difficult for our exporters to compete at the global level. Some of the minor crops have also been badly affected. According to a rough estimate, losses to Kharif crops in Sindh could be as high as Rs 256 billion. Though it is very difficult at this stage to estimate the precise impact on the economy, yet the recent rains and floods would certainly depress the growth rate, reduce the level of exports significantly, worsen the budget deficit further due to lower tax receipts and increasing claims for rehabilitation, increase unemployment and spur inflationary pressures on the economy. A considerable weakening of the Pak rupee and sharp increase in the prices of vegetables and fruits in the last few days could be an indication of the negative developments likely to unfold in the near future.

We feel that the government needs to move fast on at least two fronts. Although, the NDMA was established with high hopes but unfortunately, it failed to deliver due to a variety of factors, including a lack of needed resources and disaster management expertise. As the tragedy is likely to be of recurring nature, some credible institutional arrangement needs to be established without losing more time to lessen the effects of such calamities in future. Also, the government must devise a proper mechanism to calculate the total impact in quantitative terms, revise almost all the original estimates and come up with a proper policy response to meet the challenge. For instance, fiscal policy has to be readjusted to take care of the new developments and keep the inflationary pressures in check. Besides, players like the lobbies of agriculturists, ginners and Aptma must not be allowed to take undue advantage of the situation by twisting the facts on the ground. A fresh strategy may also have to be adopted to approach the IMF if the current account balance of the country comes under pressure due to a significant decline in exports. In short, while nature has its own ways to manage the affairs of the universe, mankind should also strive to contribute its little bit by being more imaginative and energetic.

 

Courtesy: Business Recorder


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