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Close view of Pakistan’s economy

Close view of Pakistan's economy

After the long phase of COVID-19 crisis, Pakistan’s economy is expected to grow by only 2% in the current fiscal year ending June 2023 where, slower growth will reflect damages and disruptions caused by catastrophic floods, a tight monetary stance, high inflation, and a less conducive global environment. Recovery will be gradual, with real GDP growth projected to reach 3.2% in fiscal year 2024.Poverty in the hardest-hit will likely worsen in the context of the recent flooding. Preliminary estimates suggest that without decisive relief and recovery efforts to help the poor; the national poverty rate may increase by 2.5 to 4%, pushing between 5.8 and 9 million people into poverty. Macroeconomic risks also remain high as Pakistan faces challenges associated with a large current account deficit, high public debt, and lower demand from its traditional export markets amid subdued global growth.

The recent floods are expected to have a substantial negative impact on Pakistan’s economy and on the poor, mostly through the disruption of agricultural production. The Government is striving to create a balance in managing extensive relief and recovery needs, while staying on track with overdue macroeconomic reforms. It will be more important than ever to carefully target relief to the poor, constrain the fiscal deficit within sustainable limits, maintain a tight monetary policy stance, ensure continued exchange rate flexibility, and make progress on critical structural reforms, especially those in the energy sector. Relief measures are needed to cushion the impacts of flooding, it will be critical to ensure that these are targeted towards those most in need. Government of Pakistan has previously resorted energy subsidies, but such measures disproportionately benefit better-off households, while imposing unsustainable fiscal costs so, priority needed to tame inflation through sound macroeconomic policies accompanied by measures to provide targeted relief to those hit hardest by rising prices through expanded social protection programs in order to address the distortions that discourage trade and productivity.

Pakistan’s economy remains dependent on the export of cotton textiles, with little investment in diversification. The literacy rate stands at 52%, the lowest in South Asia, resulting in an unskilled labor force that migrates primarily to the Gulf and sends remittances back. Pakistan’s ratio of taxes to gross domestic product (GDP) is one of the lowest in the world and key segments of the economy, such as agriculture and some military-run corporations, are exempt from income tax. Instead of raising revenue through taxes, governments have preferred to keep giving subsidies to avoid political and social unrest.

This vicious cycle will be difficult to break, even more so at a time when the global economy is recovering from the dual blows of Covid-19 and Russia’s war on Ukraine but where there is a will there is a way. Flooding has always been an issue in the Indus basin. Monsoon rainfalls are the main source of floods in the basin. High flows are experienced in summer due to the increased rate of melt water and monsoon rains. The nature of flooding varies according to geography. Fluvial floods in the Indus plain prove most devastating, as the terrain is flat, densely populated and economically developed. Hill torrents (flash floods) are the second most destructive type of flood. Projected climate changes are expected to increased variability of monsoon and winter rains and glacier melting which can increase the inter-annual and intra-annual variability of river flows resulting in serious floods in future. In order to be prepared for this situation, Pakistan needs to work on both structural and non-structural measures for flood protection. Pakistan must increase its storage capacity to mitigate the effects of super floods. The role of two major reservoirs Tarbela and Mangla in reducing peaks of floods during 2010 has been enormous. Construction of small dams can help in small scale irrigation schemes but would not be able to play their effective role in hydropower generation and flood management. In addition to these structural measures, we need to give equal emphasize on nonstructural measures. We need to enhance our flood forecasting and flood warning capacity which is currently very weak. Restoration of existing wetlands, proper planning of urban development, improving preparedness and relief services and increasing coordination between different provincial and federal departments involved in water management and flood protection are few steps that can significantly improve our capacity to protect and manage floods in the country.


The Author is MD IRP/ Faculty Department of H&SS, Bahria University Karachi

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