Impact Analysis of 2022 Floods in Pakistan

Pakistan is in the midst of a humanitarian crisis caused by massive flooding in one-third of its territory. Over 33 million people have been displaced, one-seventh have lost their homes and the mortality count is over 1,300. Pakistan is facing an estimated PKR 4.7 trillion ($20 billion) worth of damages and possibly more in a base case scenario, as data continues coming in through organizations involved in rescue and rehabilitation. This amount consists of damages to the crops, houses, livestock and other infrastructure.

The government expects GDP growth to be 2% against a target of 5% and inflation to be around 20% (in August it stood at 27.3 per cent, the highest in 47 years) on an annual average basis. In the aftermath of the 2010 floods, SBP raised the policy rate by 100 bps, and 50 bps each in August and November to curb the inflationary pressures. This was effective as inflation peaked in Q2FY11. Similar measures cannot be expected this time round as SBP has decided to maintain the current policy rate as of August 2022. Any further hike may be counterintuitive, as the impact of floods would have already triggered demand destruction, and any increase in prices of essential commodities would be supply-shock driven.

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