Floods could shrink Pakistan's GDP growth to 2.49% in FY23: AHL

Ravaged by floods, Pakistan's economic growth could shrink to 2.49% in FY23 against an earlier estimate of 2.97%, said brokerage house Arif Habib Limited (AHL). The estimates are a far cry from the originally-envisioned GDP growth target of 5% set by the government for the ongoing fiscal year.

Record-shattering rains have caused devastating floods in both the north and south of the country, affecting more than 33 million people and killing more than 1,000 while causing massive damage to the infrastructure.

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The calamity could cause “GDP growth to shrink to 2.49% in FY23 against the earlier base case assumption of 2.97%,” and a "rebound is expected next year with GDP to settle at 4.4%", added the AHL report.

“Our initial assessment suggests that these floods will debilitate the Pakistan economy with losses estimated at $5.3 billion (1.48% of the GDP),” it said.

The brokerage house noted that the primary hit will be for the housing sector, which is estimated at a mammoth $3.0 billion (0.83% of the GDP).

“This will be followed by the destruction of agricultural crops; we project a cumulative impact of $1.8 billion (0.50% of the GDP). Moreover, loss of transportation and communication (mainly road and bridges damaged) will set back the economy by $371 million (0.10% of the GDP). Whereas, perished livestock will translate to a loss of $101 million (0.03% of the GDP),” it added.

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Talking to Business Recorder, Tahir Abbas, Head of Research at AHL, said the impact would also trickle down to the industrial sector.

“The slowdown would remain until September,” he said.

Meanwhile, the report added nearly 3.4% of the total crop area has been declared calamity-hit, estimated to be around 2 million acres out of the total cultivated area of 59.5 million acres.

“This is a key cause of concern as agriculture contributes close to 19% to the GDP of Pakistan, employing nearly 42% of the workforce,” said the report.

Being an agricultural country, Pakistan heavily relies on monsoon rains for its crops and to replenish lakes and dams, but it can also bring destruction.

The loss in key crops could increase full-year current account deficit by $2 billion.

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Moreover, the shortage of these agricultural products will cause a spike in prices, “which can take our annual average CPI reading for FY23 to 19.7% against our prevailing estimate of 18.6%”.

Furthermore, AHL expects a temporary setback in KSE-100 listed companies in terms of offtake, particularly for sectors such as cement, steel, fertilizer, automobile, and OMCs, whose sales may witness a dip this quarter.