Regressive update

By Editorial Board
September 23, 2022

If one looks at the Asian Development Outlook (ADO) Update 2022, it seems the Asian Development Bank (ADB) did not get the memo on the magnitude and scale of devastation wrought by monsoon flooding in Pakistan. The one per cent cut it has applied to the nation’s growth forecast has been attributed to curtailed economic activity because of “ongoing stabilization efforts to tackle sizable fiscal and external imbalances”. They are lucky to have business as usual in these times. For Pakistan, this monsoon put an end to business as usual. How can a country indulge in such a luxury when millions are besieged by hunger, disease, and stagnating floodwaters, under the open sky, at the mercy of the elements. A disaster of this scale has the potential to bring a booming developed economy to its knees. For a struggling economy likes Pakistan’s, it is a potentially crippling blow.

Take for instance, the country’s agriculture and food security. The flooding waters have washed away not only the stored food grains, but also standing crops. What’s more, waterlogging of farmlands almost certainly means soured prospects for the coming crops. Food inflation has already skyrocketed in the wake of the floods, but it is clearly going up throughout the fiscal and beyond because of the need to import commodities. The long and short of it is that the toll of this epic disaster on Pakistan’s economic growth this fiscal year is likely to be higher than one per cent of GDP – and it is a wonder the ADB has chosen not to take this into account in its fresh outlook update.

This is not to say the world has not noticed the disaster that has struck Pakistan, or where it is rooted. The UN Secretary-General António Guterres rushed to the flood-hit regions to witness the disaster firsthand and to highlight its significance. His appeal for ‘massive’ global support for Pakistan as well as tougher action on climate change has been consistent, as has been his call for lenders to consider debt reduction mechanisms such as debt-climate adaptation swaps. The US and France too have offered help and support.

Yet, the ADB sees none of those good intentions translating into concrete action over the current fiscal. Is it because the ADB knows how slow on its feet the Bretton Woods financial system is to issues and events of the periphery countries, or that initiatives like climate swaps or debt relief are non-starters, at least in the near term? Does it mean Pakistan is on its own dealing with the colossal tasks of rescue, relief, and rehabilitation? Pakistan cannot wait – which is precisely why the government is engaged in probably the boldest diplomatic offensive lobbying world leaders on the sidelines of the 77th Session of the UN General Assembly. However, clearly, the financial component of the UN system has yet to wake up to its responsibilities towards nations like Pakistan. This includes not just the mobilization of the funding already committed to climate action but also creation of new instruments of action to thin out the impact of the unfolding climate disaster.

Up until now, Pakistan has taken the high road in meeting its obligation towards the global financial system, hewing to the line drawn in consultation with the IMF for the FY23 budget. But it will be unrealistic to expect the country’s struggling economy to overcome its deep structural distortions within the same resources after such an epic disaster. Neither Pakistan nor the IMF want the economy to return to square one at the conclusion of the current programme. The only way to avoid that eventuality is to add more resources to the mix not just to help with economic stabilization but also to avert the colossal human catastrophe brewing in the wake of the floods. The onus to pull those feats off remains on the World Bank Group – including the IMF. This is basically why the ADO Update assuming zero mobilization of such resources over the whole of the coming fiscal comes off as jarringly regressive.