Pakistan has recently been hit by one of its worst floods, which has caused loss of life, and has resulted in damages to the rural economy, including crops and livestock. Although it is too early to precisely indicate the losses, initial estimates indicate the large-scale extent of devastation, as pointed out by a recent article ‘Pakistan’s flash floods damage rice, sugar in key areas’ published by Bloomberg.
The article pointed out in this regard ‘Flash floods in Pakistan have destroyed thousands of acres of crops in Punjab, the country’s largest producer. About 60 percent of the province’s rice crops and 30 percent of its sugarcane have been lost, while cotton production is expected to decline by 35 percent compared to its production target for the year, according to preliminary assessments by the Pakistan Business Forum. “Such destruction in Central Punjab due to flooding has never been witnessed before,” Ahmad Jawad, chief organizer at the forum, said in a statement on Monday. “A major economic upheaval is already emerging, along with a humanitarian crisis.” …Flood-related damages may worsen fiscal pressures and disrupt food supplies, the finance ministry warned in its latest monthly economic report. Wheat harvests stored in Punjab’s warehouses have also been damaged and may lead to the need for additional imports… Prices of the crop have gone up by 20 percent in the past few weeks due to lower output, supply chain disruptions brought by the rains and lack of government controls…’
A reduced interest rate will allow greater fiscal space, which would cushion efforts of the government to support farmers, and others impacted by floods, both in terms of possible provision of grants, and subsidized loans. At the same time, the government should come up with a mission-oriented, purpose-driven plan to both reduce impact of global warming, for instance, by initiating a massive tree planting activity, and by actively doing advocacy at the international level, and by erecting multiple small reservoirs, and large dams
The floods– just like the catastrophic flooding in 2022, which saw one-third of the country get inundated by floods– have been strongly influenced by the climate change crisis, which is fast-unfolding, and has caused both very heavy rainfall, even a couple of cloud bursts. Global warming, in addition, has also enhanced the pace of glacier-melting, which are in large quantities in the country’s north.
It is therefore, of utmost importance, that global warming is kept below the threshold of 1.5°C on a long-term basis on average. Having said that, already alarm bells should be raised, given that threshold did get broken during 2023-2024, as pointed out by BBC’s 8 February 2024 report ‘World’s first year-long breach of key 1.5C warming limit’ as ‘For the first time, global warming has exceeded 1.5C across an entire year, according to the EU’s climate service. The period from February 2023 to January 2024 reached 1.52C of warming, according to the EU’s Copernicus Climate Change Service.’
Moreover, a ‘Nature Climate Change’ published article ‘Twelve months at 1.5 °C signals earlier than expected breach of Paris Agreement threshold’ in February pointed out in this regard ‘As noted in the June 2024 Berkeley Earth temperature update, although the parties of the United Nations Framework Convention on Climate Change have “set a goal to limit global warming to no more than 1.5 °C above the pre-industrial, it must be noted that this goal refers to the long-term average temperature. A few months, or a couple years, warmer than 1.5 °C does not automatically mean that the goal has been exceeded”.’
Given the immense impact of climate change on Pakistan– which while is a highly climate change vulnerable country, has a global carbon footprint of less than one percent– in recent days it is important that a significant amount of climate finance is provided. At the same time, the country should adopt adequate monetary, and fiscal policy responses.
Monetary policy should be loosened, and therefore, the policy rate should be drastically reduced; which should not be much of a problem anyways since currently there is a large level of positive real interest rate, that is at 8 percent. This needs to be done, given on one hand, the inflationary pressures generated by the floods will primarily come from the aggregate supply-side shock. On the other hand, a reduced policy rate will help generate a significant amount of fiscal space by the government, on the back of much lower interest payments on debt. Moreover, lower interest rate will allow farmers– who are the main victims of the flood– to have cheaper loans to support their farm economy, in terms of rehabilitation, and operational costs.
Having said that, such support for farmers is also important so as to improve food security in the country. For instance, lack of government support in terms of not procuring wheat from farmers this year, in addition to not even providing them with an indicative price, resulted in market buying from farmers at prices well below their costs. At the same time, now that the price of wheat in the wholesale market is reportedly rising, the government has not much strategic reserves of wheat to enhance market supply, and provide a reducing effect on prices. Moreover, floods reportedly destroying a significant portion of stored wheat in storage places of both government and private sector, may generate importing needs, putting in turn pressure on foreign exchange reserves.
On the fiscal side, as indicated, a reduced interest rate will allow greater fiscal space, which would cushion efforts of the government to support farmers, and others impacted by floods, both in terms of possible provision of grants, and subsidized loans. At the same time, the government should come up with a mission-oriented, purpose-driven plan to both reduce impact of global warming, for instance, by initiating a massive tree planting activity, and by actively doing advocacy at the international level, and by erecting multiple small reservoirs, and large dams.
