Floods; Corporates’ initial impression
Pakistan is encountering the worst of natural disasters in its history in the shape of
seemingly unending floods since July 22nd, 2010. Various agencies, including
USAID, IFIs, UN, and Pakistan’s National Disaster Management Authority
(NDMA) have yet to estimate the extent of the national loss incurred as a result of
this. However, initial estimates suggest that over 13.8mn people have been
affected from this calamity. We opine, this will have notable negative
consequences on the government’s budgetary estimates and may risk running a
higher fiscal deficit than earlier estimated which in turn will lead to increased
government borrowing. Despite this gloomy picture, we believe, the country’s
major economic activity areas (industrial & agricultural) are safe from significant
destruction and work is continuing as usual. This was verified by several major
corporates whom we contacted, and barring a few exceptions, a relatively better
situation was portrayed by them than initially feared by all (details to follow). As
fore-mentioned, the flood flow is not over yet, and thus an increased risk to our
initial assessment cannot be ruled out, as there is forecast of further rainfall to
occur in the country.
---------- Post added at 12:19 PM ---------- Previous post was at 12:19 PM ----------
2010 floods impact; taking the 1992 floods as a reference pointBrief history - 1992: As highlighted above, it is too early to ascertain the macro
impact of the ongoing flood situation, but we are taking the September 1992
floods as a case point for estimation purposes. In 1992, Pakistan witnessed
record floods (also classified as one of the worst floods in the world at that point in
time) and the country witnessed massive infrastructure and agricultural losses.
Approximately half a million people were displaced, over 5 million acres of land, 3
million acres of crops, 200,000 Kacha-area mud houses and about 100,000
houses in other areas were destroyed.
As per the economic survey of 1993, record agricultural losses were witnessed,
e.g. cotton production came in at 9.33mn bales vs. the target of 12mn bales, rice
output was recorded at 3.08mn tons vs a target of 3.48mn tons, and sugarcane
harvested came to 36.5mn tons vs the target of 39.7mn tons. On the macro front,
GDP was reported at a meager 2.1% (from 7.7% in FY92), with the dip primarily
caused by a 5.3% contraction witnessed in the agricultural sector, the current
account deficit surging to 7.2% of GDP (from 2.8% in FY92) and the fiscal deficit
coming in at 8.1% (from 7.5% in FY92). Interestingly, inflation tapered off at 9.8%
(from 10.6% in FY92) and the policy rate was reduced to 15% from 17% in the
previous fiscal year. The stock market since the floods hit in 1992, provided a
record return of 67% within a span of 15 following months.
Flood impact – 2010: As highlighted in the USAID map on Page 3, the
agricultural loss is likely to be less severe than caused by the 1992 floods. It is
estimated that a total 1.48mn acres of agricultural land has been affected with the
majority cotton producing area safe from the calamity. The national highways are
still operational and hence, the supply of essential foods item is not likely to be
significantly handicapped, as opposed to what was witnessed in 1992.
Pakistan is encountering the worst of natural disasters in its history in the shape of
seemingly unending floods since July 22nd, 2010. Various agencies, including
USAID, IFIs, UN, and Pakistan’s National Disaster Management Authority
(NDMA) have yet to estimate the extent of the national loss incurred as a result of
this. However, initial estimates suggest that over 13.8mn people have been
affected from this calamity. We opine, this will have notable negative
consequences on the government’s budgetary estimates and may risk running a
higher fiscal deficit than earlier estimated which in turn will lead to increased
government borrowing. Despite this gloomy picture, we believe, the country’s
major economic activity areas (industrial & agricultural) are safe from significant
destruction and work is continuing as usual. This was verified by several major
corporates whom we contacted, and barring a few exceptions, a relatively better
situation was portrayed by them than initially feared by all (details to follow). As
fore-mentioned, the flood flow is not over yet, and thus an increased risk to our
initial assessment cannot be ruled out, as there is forecast of further rainfall to
occur in the country.
---------- Post added at 12:19 PM ---------- Previous post was at 12:19 PM ----------
2010 floods impact; taking the 1992 floods as a reference pointBrief history - 1992: As highlighted above, it is too early to ascertain the macro
impact of the ongoing flood situation, but we are taking the September 1992
floods as a case point for estimation purposes. In 1992, Pakistan witnessed
record floods (also classified as one of the worst floods in the world at that point in
time) and the country witnessed massive infrastructure and agricultural losses.
Approximately half a million people were displaced, over 5 million acres of land, 3
million acres of crops, 200,000 Kacha-area mud houses and about 100,000
houses in other areas were destroyed.
As per the economic survey of 1993, record agricultural losses were witnessed,
e.g. cotton production came in at 9.33mn bales vs. the target of 12mn bales, rice
output was recorded at 3.08mn tons vs a target of 3.48mn tons, and sugarcane
harvested came to 36.5mn tons vs the target of 39.7mn tons. On the macro front,
GDP was reported at a meager 2.1% (from 7.7% in FY92), with the dip primarily
caused by a 5.3% contraction witnessed in the agricultural sector, the current
account deficit surging to 7.2% of GDP (from 2.8% in FY92) and the fiscal deficit
coming in at 8.1% (from 7.5% in FY92). Interestingly, inflation tapered off at 9.8%
(from 10.6% in FY92) and the policy rate was reduced to 15% from 17% in the
previous fiscal year. The stock market since the floods hit in 1992, provided a
record return of 67% within a span of 15 following months.
Flood impact – 2010: As highlighted in the USAID map on Page 3, the
agricultural loss is likely to be less severe than caused by the 1992 floods. It is
estimated that a total 1.48mn acres of agricultural land has been affected with the
majority cotton producing area safe from the calamity. The national highways are
still operational and hence, the supply of essential foods item is not likely to be
significantly handicapped, as opposed to what was witnessed in 1992.
