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Livestock & crop insurance — An effective tool to avert flood losses

Published on 15th Sep, Edition 37, 2014

 

The flood and the deluge has caused heavy losses in the form of human life, crop, livestock, property and infrastructure, which are preliminary estimated at US$200 million, however, exact number of losses would be quantifiable when the process of restoration will start specially in Punjab.

However, the flood ravages this year are much less compared to the flood devastations, which had cost over US$10.1 billion in 2010. It is a matter of serious concern that flood and heavy rains is a regular natural phenomenon in monsoon season, which essentially call for effective pre-cautionary measures to save millions of people from this natural calamity hits the country if not every year but within a span of two-three years. The ongoing flood season, however, seems much less severe in terms of intensity and scale, relative to recent floods; though a complete picture will likely emerge within a few days.

Among the precautionary measures if of paramount importance is to save human life, livestock and of course the standing crops by construction small and big dams alongside the river course to break the intensity of flash waters on one hand and to store water for our irrigation purposes for the rest of the year. It means if the proper precautionary measures are taken we can turn this serious challenge to economy and threat to human life into an opportunity. It is unfortunate that most of the governments in our country spend their time and energy to protect their own existence rather than putting their efforts for the good of the county or the people.

On the economic front the spillover effects of the floods are sure to be observed by oil & gas exploration, banks, cement, automobile, fertilizer, textile and food gains, however, the heart rending effects would be on human life, livestock and loss of precious standing crops which might affect GDP as well at least by 5 percent.

Pakistan being an agriculture economy is the fifth largest producer of fresh milk, which itself speaks about the size of livestock population in Pakistan yet it is unfortunate that the relevant authorities in the previous governments as well as in the present set up are still in the process of finalizing plans for crop and livestock insurance policies.

Once this much needed insurance cover for crop and livestock is materialized this would provide much sought after protection to the faming community on one hand and bring a lot of boost to rural economy in Pakistan.

Meanwhile, the consequences of flood devastation are not confined to agriculture of livestock only the natural calamity of floods and rains is feared to have an adverse effect near-term on inflation which is likely to spike towards 8 percent on higher food inflation (34 percent weight in CPI basket).

While on the financial front it may cause fiscal deficit of 4.9 percent for financial year 2015 and likely to face double whammy from combination of lower revenue collection from flood affected areas and possible diversion of fund/overspending for relief and rehabilitation efforts.

A Rs50 billion relief package could mean up to 20bps upside in fiscal deficit, while risk to trade deficit from higher import is also tangible.

However, politically speaking the government’s performance in handling the crisis relief and reconstruction efforts would be in the limelight and would likely lead to more populist measures ahead.

Apart from IMF conditions, we cannot ruled out the possibility of government offering subsidy on fertilizer, seeds and agri chemical, subsidized loans for house reconstruction and taking up interest/principal portion of outstanding agri loans in flood affected areas.

 

Govt Borrowings

On-going flood relief activity and expenses in Waziristan operation for which the government swiftly requires funds leaves no option but to go for more borrowings from the State Bank of Pakistan.

Latest data indicates borrowing from SBP has increased in last two weeks by Rs85 billion to Rs2.43 trillion as of 29 August 2014. It will not be out of place to mention that the government’s plan to privatize at least six enterprises and float a Eurobond and Sukuk bond worth $1 billion ($500 m each) imply greater reliance on external financing. However, any delay in materialization of these plans will need to be compensated by increased pressure on domestic sources of financing such as SBP, banks, and NSS.

Informed sources were of the view that the government in an effort to mobilize resources domestically may move to levy a new tax, but likely in latter half of FY15 when political temperature reduces. Source, however, feels that potential external aid in the wake of recent flashfloods may serve to ease pressure off domestic sources.

Currently, the slippage against September target of government borrowings stands at Rs336 billion. The slippage in end-June target, which was easily waived off by IMF in ongoing review talks, was smaller at Rs88 billion, sources said. As a result in near term, the government will likely need to seek waiver or revision in end-Sep target for quarterly borrowing from SBP.

It is important to note that the latest PIB auction as saving grace to some extent, where the government managed to raise Rs152 million against maturity of Rs10 billion and target of Rs100 billion.

On the back of these development on the financial front there is higher possibility of continued status quo in discount rate in 2014, given IMF pressure amid delay in ongoing fourth review conclusion, and increased risk of delays in structural reforms in backdrop of political uncertainty and ongoing floods.

Conclusion: The losses in the form of human life, livestock, agriculture besides fiscal implications are common outcome of the monsoon rains and floods more or less every year. The situation calls for knowledge-based planning to cope with such happenings by finding the permanent solutions. One of the essentially needed solution is the construction of small and big reservoirs alongside the river banks right from Khyber Pakhtunkhwa, Punjab and Sindh to store the flood waters to make them a boon from the bane.

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