The monsoon season, which began in June, has hit Pakistan with particularly heavy rains this year, and rescuers have struggled to evacuate thousands of stranded people from flood-affected areas. forced the government to declare a state of emergency in parts of the country.
Impacts from the flash flood could include higher imports, compromised exports and higher inflation, which could undermine government efforts to tackle macro headwinds, the Express Tribune reported. .
“Based on our preliminary estimates, about 30% of the CPI[consumer price index]basket is at risk, while assuming no action, the current account deficit is US$4.4 billion. (1% of GDP) could increase because of the threat of inflation,” the daily reported, citing a report by JS Global Research.
The situation could force the government to import an additional US$2.6 billion worth of cotton, US$900 million worth of wheat, and the country would lose about US$1 billion worth of textile exports. This amounts to approximately US$4.5 billion (1.08% of GDP) in the current fiscal year 2022-23. Consumers are expected to face supply shortages of household groceries such as onions, tomatoes and chilies due to flash floods, according to the report.
The most affected crop is cotton. The farmer produced his 8 million bales in the previous financial year, but heavy rains in Sindh will again reduce yields as in previous years. “Cotton sowing has reportedly been largely destroyed (in Sindh). Assuming the country needs cotton imports to meet 80% of its demand this year, import bill will probably exceed US$4.4 billion (+144% year-on-year) FY23.
On the other hand, the lack of availability of imported raw cotton and other unprocessed fibers will adversely affect the country’s textile exports,” the research firm said.
Rice is another crop that is expected to withstand extensive damage from ongoing flooding. He is one of the few crops whose cultivated area has increased significantly in recent years (+20% in two years). The annual export value he has is US$2.5 billion. “Rice damage will lead to export losses, in addition to slightly lower GDP growth and higher CPI inflation.”
Flooding is thought to take two to three months to clear, potentially delaying the planting of wheat and edible oilseeds. A delay in wheat plantations would be a double blow as many farmers have already switched from wheat to edible oilseed cultivation. Moreover, post-flood conditions are expected to negatively impact future wheat yields. Importing 15% of the 30 million tonnes of wheat demand could bring the value of imports to US$1.7 billion in FY23 due to delays in sowing and higher wheat import prices.
Alongside crops, more than 500,000 livestock are reported to have died in the floods. This will add to the burden on rural populations already reeling from diesel and fertilizer price hikes, and will lead to shortages of milk supplies. In addition, livestock shortages, combined with the possibility of disease outbreaks among cattle, can lead to meat shortages.
Together with wheat, cooking oil, milk and meat, it accounts for 18% of the CPI basket weight. It poses a high risk of food inflation (28%; 13-year high). “Risks to food security, shortages and bottlenecks in supply chains will drive the existing FY23 CPI estimate to rise by 21%. We anticipate there will be more than one due to flash floods,” the report said.