Economic effect of 2010 Flood & Rains

       Reports said that floods had cost more than 5.3 million jobs, stating that:

            "productive and labor intensive job creation programmes are urgently needed to lift millions of people out of poverty that has been aggravated by flood damage" . 

             Forecasts estimated that the GDP growth rate of 4% prior to the floods would turn to -2% to -5% followed by several additional years of below-trend growth. As a result, Pakistan was unlikely to meet the International Monetary Fund's target budget deficit cap of 5.1% of GDP, and the existing $55 billion of external debt was set to grow. 

            Crop losses were expected to impact textile manufacturing, Pakistan's largest export sector. The loss of over 10 million head of livestock along with the loss of other crops would reduce agricultural production by more than 15%. Toyota and Unilever Pakistan said that the floods would sap growth, necessitating production cuts as people coped with the destruction. Parvez Ghias, the chief executive of Pakistan's largest automotor manufacturer Toyota, described the economy's state as "fragile". Nationwide car sales were predicted to fall as much as 25%, forcing automakers to reduce production in October–2010 from the prior level of 200 cars per day. Milk supplies fell by 15%, which caused the retail price of milk to increase by Pk Rs 4 (5 US cents) per liter.

Some pictures of the flood areas:

Flood and rains in 2010

         The 2010 floods killed about 2,000 people and made 11 million homeless in one of Pakistan's worst natural disasters. One-fifth of Pakistan was then submerged in water, and the government faced a $10bn bill to repair damage to homes, bridges, roads and other infrastructure. The Islamabad government faced another major setback as floods caused heavy damage to the vital agriculture sector.

         

          Pakistan lost up to two million cotton bales, or about 13 per cent of its estimated crop, due to heavy monsoon rains during harvesting in Sindh,  as said by the government. Aid workers expressed fears over possible outbreaks of diseases linked to the new floods, especially among children which spread very fastly there in 2010.

         

          As a result of the floods in 2010 Pakistan faced major economic downfall as the prices of the commodities gone up due to shortage of production of crops creating misery for the homeless people. According to some reports, people who had migrated from such flooded areas are still homeless. Sigh....

Strong inflow of Remittances

      The flow of workers’ remittances to Pakistan has more than quadrupled in the last eight years and it shows no sign of slowing down, despite the economic downturn in the Gulf Cooperation Council (GCC) and other important host countries for Pakistani workers. This paper analyses the forces that have driven remittance flows to Pakistan in recent years. The main conclusions are: 

1. the growth in the inflow of workers’ remittances to Pakistan is in large part due to an increase in worker migration; 
2. higher skill levels of migrating workers have helped to boost remittances; 
3. other imporant determinants of remittances to Pakistan are agriculture output and the relative yield on investments in the host and home countries.

The Economic History:

The Economic History:

 

          The economy of Pakistan is the 47th largest in the world in nominal terms and 27th largest in the world in terms of purchasing power parity (PPP). Pakistan has a semi-industrialized economy, which mainly encompasses textiles, chemicals, food processing, agriculture and other industries. Growth poles of Pakistan's economy are situated along the Indus River; diversified economies of Karachi and Punjab's urban centers coexist with lesser developed areas in other parts of the country. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy.

 

        GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06 due to economic reforms in the year 2000 by the Musharraf government. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable. 

 

           Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.

Economic history:

•  First five decades

                When it gained independence in 1947 from UK. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade. 

 

        During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing. Many countries sought to emulate Pakistan's economic planning strategy and one of them, South Korea, copied the city's second "Five-Year Plan" and World Financial Center in Seoul is designed and modeled after Karachi. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth. In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers.

• Recent decades

            This is a chart of trend of gross domestic product of Pakistan at market prices estimated by the International Monetary Fund with figures in millions of Pakistani Rupees. 

 

Economic resilience:

•  Background

              Historically, Pakistan's overall economic output (GDP) has grown every year since a 1951 recession. Despite this record of sustained growth, Pakistan's economy had, until a few years ago, been characterized as unstable and highly vulnerable to external and internal shocks. However, the economy proved to be unexpectedly resilient in the face of multiple adverse events concentrated into a four-year (1998–2002) period —

1. the Asian financial crisis;
2. economic sanctions — according to Colin Powell, Pakistan was "sanctioned to the eyeballs";
3. The global recession of 2001-2002;
4. a severe drought — the worst in Pakistan's history, lasting about four years;
5. heightened perceptions of risk as a result of military tensions with India — with as many as 1 million troops on the border, and predictions of impending (potentially nuclear) war;
6. the post-9/11 military action in neighboring Afghanistan, with a massive influx of refugees from that country;

         Despite of these adverse events, Pakistan's economy kept growing, and economic growth accelerated towards the end of this period. This resilience has led to a change in perceptions of the economy, with leading international institutions such as the IMF, World Bank, and the ADB praising Pakistan's performance in the face of adversity.

 

•   More recent reports of resilience

               Additional confirmation that the country's economy is not as weather-sensitive as had been previously perceived comes from a 2008 analysis that 

      

        "examined 68 countries, quantifying their sensitivity to fluctuations in weather, using figures on GDP by industry sector and the sensitivity of particular sectors to given weather variables."

 

           The analysis found that of the 68 countries, the 

 

           "least weather-sensitive country was Pakistan."

 

        After the highly destructive 2005 earthquake, Pakistan's economy kept expanding, growing by over 7% in the twelve months ending June 30, 2006.

 

        Pakistan emerged as one of the best performers in the wake of the global financial crisis, even as the country waged a costly war against militants. Its domestically-driven economy was minimally affected and its banking sector boasted surplus liquidity while remaining unharmed. However the impact was seen for export sectors which shrank as a result of lower external demand.

 

 Macroeconomic reforms in Pakistan:

     According to many sources, the Pakistani government has made substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are the best in nearly a decade.

 

       Government revenues have greatly improved in recent years, as a result of economic growth, tax reforms - with a broadening of the tax base, and more efficient tax collection as a result of self-assessment schemes and corruption controls in the Central Board of Revenue - and the privatization of public utilities and telecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improving ports, roads, electricity supplies and irrigation projects. Islamabad has doubled development spending from about 2% of GDP in the 1990s to 4% in 2003, a necessary step towards reversing the broad underdevelopment of its social sector.

 

        Liberalization in the international textile trade has already yielded benefits for Pakistan's exports, and the country also expects to profit from freer trade in agriculture. As a large country, Pakistan hopes to take advantage of significant economies of scale, and to replace China as the largest textile manufacturer as the latter China moves up the value-added chain. These industries play to Pakistan's relative strengths in low labor costs.

 

       Growing stability in the nation's monetary policies has contributed to a reduction in money-market interest rates, and a great expansion in the quantity of credit, changing consumption and investment patterns in the nation. Pakistan's domestic natural gas production, and its significant use of CNG in automobiles, has cushioned the effect of the oil-price shock of 2004-2005. Pakistan is also moving away from the doctrine of import substitution which some developing countries (such as Iran) dogmatically pursued in the twentieth century. The Pakistani government is now pursuing an export-driven model of economic growth successfully implemented by South East Asia and now highly successful in China.

 

       In 2005, the World Bank reported that

"Pakistan was the top reformer in the region and the number 10 reformer globally — making it easier to start a business, reducing the cost to register property, increasing penalties for violating corporate governance rules, and replacing a requirement to license every shipment with two-year duration licenses for traders."

 

 Doing Business

 

          The World Bank (WB) and International Finance Corporation's flagship report Ease of Doing Business Index 2010 ranked Pakistan 85 among 181 countries around the globe. Pakistan comes highest in South Asia but also ranks higher than China, Russia and India which is at 133. The top five countries are Singapore, New Zealand, the United States, Hong Kong and United Kingdom.

 

          The Government of Pakistan has granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade-plus tax holidays, zero duties on computer imports, government incentives for venture capital and a variety of programs for subsidizing technical education, are intended there.