Economic Affect of Flooding on the Pakistan Economy Essays

Economic Affect of Flooding on the Pakistan Economy Essays Economic Affect of Flooding on the Pakistan Economy Essay Economic Affect of Flooding on the Pakistan Economy Essay The floods in Pakistan have amounted to an economic disaster for the country. The scale of the human tragedy is enormous. To put it in some perspective, the flood waters have submerged one-fifth of Pakistan; roughly an area the size of Florida culminating in 1600 dead, about 20 million people displaced and 17 million acres of farmland destroyed. Pakistan’s towns, villages, crops, livestock, personal possessions and infrastructure have been completely washed away. Beyond the obvious social and political fallout is the economic consequence. There inevitably will be economic fallout from the evolving situation. In a country where a quarter of the economy is dependant on agriculture for food and jobs, it is obvious that economic growth will be effected. The scarcity in food and textile supplies for both internal use and exporting is the biggest impact on the economic growth potential of Pakistan. An impact to the Pakistan economy will be the shortage of agricultural goods. With large scale damage to agriculture and billions of dollars worth of crops and livestock destroyed, the economy took a major hit. The results of such a catastrophic event will shape the countries supply and demand chain. The supply of food will decrease which will drive up demand. Price of goods and services will begin to increase; consequencely, resulting in an increase in inflation rates. The income effect will decrease the quantity demanded lowering the purchasing power of consumers. This will cause a decrease in quantity supplied which will have a snowball affect on manufacturing. . The scarcity of resources in the country will largely affect manufacturing and exports in Pakistan. The flood waters destroyed the countries infrastructure like bridges, irrigation canals, homes, roads and railway tracks and six power plants that supply electricity to factories. Pakistan will have to borrow in order to finance the reconstruction which will add to the fiscal deficit which will only increase inflation due to the expansion of the money supply. The affect on manufacturing or the lack of resources to supply companies will impact the countries GDP. The reconstruction may increase GDP slightly but the destruction of physical assets needed for producing will decrease the growth rate more than any small growth will be noticed. Manufacturing and export will also be affected by the floods, since a portion of the annual cotton crop was wiped out. Textiles and apparel account for a large percent of Pakistan’s total exports. The loss of manufacturing will lower exports which will lower GDP even more. In fact, the inevitable increase in the import of food will add to the trade deficit in Pakistan. Another consequence is in unemployment since 40 percent Pakistan’s manufacturing jobs have been lost among farm workers and factory workers. This economic loss will translate into massive job losses affecting incomes of thousands of families further affecting the supply and demand chain. Most countries were already straddled with a budget deficit due to recovering global economy. The rehabilitation of Pakistan will put them behind in economic growth due to the shortage in goods and services, affecting GDP, inflation, and exporting. This decrease in growth rate will significantly affect Pakistan and the slowdown in the global economy will make the rebound a slow process. Reviving this industry is critical to Pakistan’s hopes for future stability and prosperity.