The flood catastrophe

Reportedly, around 33 million people stand affected by the most intense and devastating floods in the history of Pakistan. A recent Economist published article ‘Pakistan has been hit by its worst floods in recent memory’ pointing out the deep severity of these floods indicated: ‘Over 1,100 people have been killed, and early estimates put the costs at $10bn. One-third of the country is underwater; the government has declared 72 out of 160 districts to be disaster zones.’

At the back of unprecedented heatwave, primarily as a consequence of climate change – towards which Pakistan has little contribution but remains as among the top ten countries in terms of getting affected by its devastating consequences – the country received a heavy rainfall, which came pouring well before the usual start of monsoon.

The same article pointed out the following: ‘The volume of rainfall is staggering. Some 700mm (28 inches) have been dumped on the south-eastern province of Sindh, nearly six times the 30-year annual average. Balochistan, a vast, arid province normally untouched by the monsoon, has received five times its annual average.’

Added to this, the heatwaves accentuated the already rising pace of glacier melting under the climate change assault – global temperatures have risen by 1.2 degrees centigrade over the pre-industrialization period – which also contributed to the flooding.

A September 1 article ‘The Himalayan glaciers are melting and Pakistan is drowning’ published by Bloomberg pointed out the impact of heatwaves and glacier-melting as: ‘Unprecedented heat waves that swept the planet this summer are melting snow and ice not just in Europe’s Alps but in the iconic Himalayan range, where the mountains shelter the largest reserve of frozen freshwater outside the North and South poles. Global warming is accelerating the loss of Himalayan glaciers much faster than scientists previously thought, destabilizing a fragile system that’s helped regulate the earth’s atmosphere and key water cycles for millennia. …The impact is most acute in Pakistan, where floods have submerged farmland and cities… .’

Moreover, an August 29, Bloomberg published article ‘Pakistan flood death toll passes 1,000 in “climate catastrophe”’ quoting Anjal Prakash, who contributed to Intergovernmental Panel on Climate Change (IPCC) report, pointed out: ‘The impact of warming on Himalayan glaciers, which are retreating very fast, is much faster than we earlier thought.’ Prakash said ‘the high temperatures across the subcontinent that warmed the oceans are very very sharply interlinked to the glacial melt in the Indus river systems in the Himalayas, which have caused the flooding across Pakistan.’

Added to the causal impact of climate change, the acute extent of devastation caused by these floods owes also to low level of gross capital formation over the years, which, for instance, has not allowed from upgradation of barrage systems, cleaning and building of dams, to overall build-up of much more resilient and deep social infrastructure.

An August 31, Bloomberg published article ‘Pakistan could have averted its climate catastrophe’ rightly highlighted these institutional and governance-related deficiencies as significant causes, in addition to climate change, towards the flood catastrophe at hand.

It indicated in this regard: ‘Some of the most important lines of defense against floods are colonial-era projects such as the vast Sukkur Barrage – a system of dams and canals that divert the waters of the Indus’s to irrigate the arid southern Sindh Province. Many are in a poor state of repair, thanks to years of underinvestment in maintenance; corruption; and disputes between Pakistan’s four provinces about the allocation of water and funds.

The Tarbela and Mangla reservoirs on either side of Islamabad have become so choked with silt sweeping down from the Himalayas that they’re losing their ability to swallow up floodwaters and prevent inundation further downstream. Just 57% of Tarbela’s storage capacity is now available, and increased silting may clog it altogether, a government committee was told earlier this month.’

Poor public sector capacity – which saw further deterioration under the neoliberal assault of shrinking the role of government, and also increase in outsourcing diminishing technical capacity of public sector to properly regulate and deliver – has not allowed making good use of both domestic resource mobilization, and foreign aid while country’s external debt burden has soared over the years. With regard to lack of capital formation in the country over the years, the same article pointed out: ‘The underinvestment that has led to this state of affairs is chronic.

Among the world’s top 20 economies by population, only Egypt has a lower rate of gross capital formation than Pakistan — a sign of a country that’s unable to build the infrastructure it needs to support a growing population.’

Having said that, the issues of low revenue mobilization, and lack of fulfilment of commitment on providing any reasonable level of climate finance by rich, advanced countries – when most climate change has been a consequence of fossil fuel usage there – have also continued to persist. Hence, given the scale of primarily climate change caused by severe flooding, it is important that rich countries immediately come true on their commitment to providing $100 billion climate finance annually to developing countries. A reasonable level of allocation in this regard should immediately be made for Pakistan by G-7 countries, for instance.

Here, it needs to be pointed out that while the UN Secretary General calls the current climate catastrophe in Pakistan as being caused by ‘monsoon on steroids’, only a $160 million flash appeal has been made – while even initial estimates indicate $10 billion in losses, and millions of people are in extreme vulnerability of shelter and hunger. And this is on top of the likely general rise in poverty during the pandemic, and the lack of finances available with the country, as it is fighting a very difficult balance of payments situation. The same goes for the recent bilateral/multilateral commitment for floods at $500 million, which is indeed very little.

There have been calls for immediate cancellation of reportedly $38 billion in external debt that the country owes for 2022. This call needs to be taken very seriously, because even before the floods, pandemic-related recession, global commodity supply shock accentuating imported inflation component -- CPI has increased to more than 20 percent on year-on-year basis for instance, while sensitive price index is much higher – especially in the wake of the war in Ukraine, and the country being downgraded by rating agencies, and a sharp rise in credit default swap (CDS) risk leading to high default risk. Up till now, since the start of the pandemic, there has been little debt moratorium/relief provided by the country.

In addition, while the country on one hand stands to benefit from the recently released tranche of $1.17 billion under its on-going programme with the International Monetary Fund (IMF), yet the strong pro-cyclical/austerity-oriented programme has been putting a heavy damper inflationary consequences, but will also likely usher in a deep recession.

Noted economist from Harvard University, and the author of ‘The meddlers’, Jamie Martin, for instance, highlighted this concern in his recent tweet as ‘Unlike Sri Lanka, Pakistan turned to the IMF in time to avert default. But demanding austerity while the country faces catastrophic flooding isn’t likely to help the IMF’s reputation there -- or among other possible borrowers.’

In addition, given the scale of the climate catastrophe, the case of fresh release of special drawing rights (SDRs) to the tune of $650 billion – the maximum limit that the IMF can release, and for which the US Treasury just needs to give a nod of approval, and not require any legislative allowance from US Congress – and unlike such release last year when Pakistan could only receive $2.75 billion, this time the allocation is not made with regard to usual practice of a particular country’s contribution to IMF resources, but on the basis of needed reserve build-up to reduce imported inflation, and flood catastrophe related spending requirements.

At the same time, the IMF should immediately announce cancellation of its notorious ‘surcharge’ on loan policy, whereby it puts financial penalty on late debt repayments to it by programme countries. This is essential for countries like Pakistan and Ukraine, and also in view of the fact that countries have been suffering from the onslaught of pandemic, war, and very high food import costs.

Here, it needs to be mentioned that while there have been voices to approach IMF financing window in the shape of Rapid Financing Instrument (RFI) for urgent balance of payments support to countries under stress, for instance, due to ‘natural disasters’, like the one Pakistan is facing in the shape of flood catastrophe, there are certain shortcomings in this regard, and which makes it a far less attractive pathway than IMF providing enhanced SDR allocation, as discussed above.

Firstly, RFI is a loan facility, which will add to already high debt burden that the country is facing. Secondly, the loan facility is limited given as per IMF ‘with access limits of 50 percent of quota in any 12-month period and 100 percent of quota on a cumulative basis, and (ii) a Large Natural Disaster (LND) window, for cases where the damage suffered as a result of a natural disaster is assessed to be 20 percent of GDP or more, with access limits of 80 percent of quota in any 12-month period and 133.33 percent of quota on a cumulative basis’ than the large financing requirements facing the country currently. Having said that, although highly sub-optimal than enhanced SDR allocation, this option may still be looked into and possibly tapped if the SDR allocation is not carried out, given the large financing needs facing the country, especially after the floods.

Given the fast-unfolding climate change crisis globally, and the huge financial support needed for instance, in the case of flooding catastrophe in Pakistan, and with more frequent and intense incidents globally of for instance, severe heatwaves, droughts, faster melting of glaciers, acute flooding, and rising sea levels, it also makes sense that the suggestion given by Barbados Prime Minister, Mia Mottley, who called for climate change related SDR allocation by IMF on an annual basis, is given meaningfully serious consideration without further delay.

In a December 4, 2021 Reuters published article ‘Barbados' Mottley says IMF must help finance the fight against climate change’ pointed out in this regard: ‘Financing from multilateral lenders such as the IMF will be critical to mitigating the effects of climate change that pose grave threats to the future of small island nations, Barbados Prime Minister Mia Mottley said on Friday.

Last month, Mottley at the UN Climate Summit in Glasgow called for $500 billion in annual issuance of Special Drawing Rights, an IMF currency, to finance a transition to renewable energy and limit the rise in global temperatures.’

Copyright Business Recorder, 2022