The Asian Development Bank, assessing flood damage and Pakistan’s needs along with the World Bank, said last week economic growth could be three percent. The finance ministry said the country would miss this year’s 4.5 gross domestic product growth target, but did not give another figure.
Sakib Sherani, a senior adviser to the finance ministry, said there was a whole range of growth estimates which would be revised once the actual impact of the floods became clear. “We think zero percent is the lower bound of these estimates,” Sherani told Reuters, adding that this was his own estimate, and not an official figure from the finance ministry. The economy grew 4.1 percent last year. He said the zero growth estimate was based on the economic impact of the damage caused to key crops and livestock, adding an estimated 25 percent of the cotton crop has been affected.
The textile industry, which accounts for more than 50 percent of total exports, depends on the cotton crop. Drastically lower economic growth would be a major cause of concern for the Pakistani government and the United States, which wants its ally as stable as possible because it is a frontline state in Washington’s war against militancy.
Inflation could soar
The International Monetary Fund will review Pakistan’s budget and macroeconomic prospects following catastrophic flooding during talks with senior Pakistani officials in Washington starting on Monday.
The meetings are set to focus on the future of Pakistan’s $10.66 billion IMF program agreed upon in 2008. If the IMF agrees to ease the program’s targets, or extends the repayment period that would ease the government’s financial burdens.
Reconstruction is likely to cost billions of dollars, burdening an economy that was already fragile before the waters raged from the northwest to the south, destroying villages and key infrastructure and making more than 4 million homeless. Sherani said inflation could reach as high as 25 percent, compared with the 2010/11 target of 9.5 percent. Higher costs and food shortages could enrage people who had lost everything in the floods and who are already angry at their government for its slow response to the disaster.
