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Hit by floods - Lahore_Real_Estate - 08-12-2010 11:45 AM

Thursday, August 12, 2010
By Saad Hasan

KARACHI: Domestic and multinational companies prepare for the worst possible economic situation in the wake of devastating floods, which affected millions of people, creating shortages of raw material and food items.

While the government says actual assessment of the damage could take weeks, experts say that the country’s agriculture sector ñbackbone of the economy — has taken the worst hit. And it is not just the agriculture sector, which has suffered due to one of Pakistan’s worst ever floods, manufacturers also foresee a cut in production.

“There will be an across the board hit on all sectors of economy,” said Hamad Aslam, Head of Research at BMA. “IMF will push for another interest rate hike as it appears that the fiscal deficit will widen.”

He said that at least 5 percent productivity of agriculture and large scale manufacturing sectors has been wiped off. “Foreign exchange reserves will deplete fast if fertilizer and wheat are imported.”

Wholesale giant Makro’s Chief Executive Officer Jamal Mustafa said that there has been a surge in the prices of basic commodities across the board. “But the real question mark hangs on the availability of vegetables, meat and fruits.”

Makro has not yet witnessed a shortage of edibles because it stocked up its five outlets ahead of Ramazan, he said. “Food supplies coming from the northern parts have been cut off. Prices are rising, as is the case with frozen potatoes, which now cost Rs40 per kg from just Rs12-13 a few days back.”

Entire villages in Sindh and Punjab have been submerged. While according to initial assessments, the Taliban-infested Kyber Pukhtunkhwa has lost a major part of its road, telecommunication and electricity infrastructure.

Mustafa said the country has lost a large share of its livestock, which is slowly becoming scarce. “The government has to ensure that our domestic (food) resources are used with utmost care. Export of wheat and rice should be banned immediately.”

Pakistan will need to import livestock, vegetables and pulses from India and Iran, he said, insisting that import duties should be waived.

National Foods CEO Abrar Hasan said the damage to crops has coincided with shortages among neighboring countries India and China. “We were already expecting food inflation to surge by 25 percent. Now, the situation looks even more severe.”

However, more than inflation, availability of commodities could become a nagging issue if crops are damaged on a large scale, he said. “We do not have enough foreign exchange to import everything. The government will be in a fix since farmers have to be provided with subsidies as well.”

Economic Advisor to Sindh Chief Minister, Kaiser Bengali said it is premature to ascertain the total cost of damage sustained by infrastructure, but said reconstruction would spread thin government finances.

“I think relief costs will bust the fiscal deficit limit of 6 percent of the GDP. Tax revenues of the government might also tumble.”

Authorities need to mobilise funds fast to deal with the ‘super-flood’ that has caused destruction — the kind last witnessed in the 1970s, he said. “The provincial governments will bear the army’s additional cost, which has to be paid twice its normal salaries for carrying out relief work.”

Senior officials of Colgate Palmolive and Unilever Pakistan said the distribution network has snapped in some rural areas, where these companies had worked hard in the past few years to create a presence.

Overseas Investors’ Chamber of Commerce and Industry (OICCI) President Ameena Saiyid said members are extremely concerned about the situation as the economic outlook for the first half of 2010/11 looks grim.

“Multinational companies like Coca Cola are contributing wholeheartedly to relief efforts. The company has donated half a million dollars,” she said. “Almost all member companies are in touch with their respective head-offices to seek more help.”

Nevertheless, Ashfaque Hassan, former advisor to the finance ministry, said the government can manage relief work by revisiting its budget allocations. “Approximately Rs124 billion have been put aside for the Benazir Income Support Programme, Internally Displaced People and Fertiliser Subsidies. All this can be used to help flood victims.”

Expecting help from the international community would be wishful thinking unless the government tries hard to bring in assistance, he said.

“The European Union is already suffering from its debt crisis and then there is the syndrome of general donors’ fatigue. They are tired of us seeking help all the time.”