Recent floods to adversely affect Kharif crops, warns Pakistan's finance ministry

The Ministry of Finance warned on Thursday that recent floods/torrential rains during July and August have adversely affected the standing Kharif crops, specifically cotton, which may impact economic outlook through agriculture performance.

“Recent floods driven by exceptionally heavy monsoon rains have reduced the potential output of both main and minor Kharif crops, thereby tempering the positive outlook of the agricultural sector,” said the ministry’s Economic Adviser’s Wing in its Monthly Economic Update & Outlook for August.

"Assessment of the crop damages is in progress by the provinces; however, significant losses can be witnessed. The present situation depicts water inundated cotton fields mostly in Sindh, Balochistan and southern districts of Punjab," it added.

Pakistan has been ravaged by torrential rains that have resulted in hundreds of deaths, while causing large-scale infrastructure damage.

July's national rainfall alone was almost 200% above average, Sardar Sarfaraz, a senior official at the metrological office told Reuters earlier, making it the wettest July since 1961.

Addressing a press conference on Thursday, Federal Minister for Climate Change Sherry Rehman added that Pakistan had witnessed 784% higher rainfall than average so far this year.

She said devastating floods accompanied by the monsoon rains have substantially damaged infrastructure in Sindh, Balochistan and Khyber-Pakhtunkhwa, noting that the level of inundated water was far higher than during the 2010 floods. She also stated that over 900 people have been killed due to the monsoon rains across the country since June this year.

Meanwhile, the Ministry of Finance, in its report, added that the economic outlook also remains shrouded by global and domestic uncertainties.

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“Geopolitical tensions remain unabated, worldwide inflation remains high, interest rates show tendencies to rise, and the US dollar strengthens. Pakistan’s external environment is therefore facing increasing challenges,” said the report.

The report highlighted that government measures taken to comply with the International Monetary Fund's (IMF) requirements have further increased inflation, but also have a positive effect of alleviating external financing constraints.

“This opens room for further implementation of supply-side policies that should elevate Pakistan’s potential growth rate to a higher sustainable level,” said the report, adding that for this to happen a drastic increase in Pakistan’s propensity to invest is needed.

The report noted that Pakistan’s economic growth remains positive.

“But restrictive demand management and high inflation may cause Pakistan’s cyclical position to deteriorate in the coming months,” it said.

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The report said cooling off may bode well for the trade balance and, by extension, current account balance, official reserves, and the exchange rate.

The report also predicted that current account balance is expected to improve considerably in the coming months.

The monthly update said inflation has accelerated in recent months, on the back of supply shocks that have created very significant monthly impulses on the CPI level.

“If these monthly impulses can be contained to more normal levels in future months, inflation may start to decelerate. But even then, YoY inflation may stay in double-digit for rest of the current FY,” said the report.