TFM Assignment

By:Kumail Firdous(1035177)

Loss in Floods

According to officials the total loss in flood amounts to $43 Billion. This is equal to the expenses incurred
in the ‘War against Terror’ in the past nine years (The Dawn, 2 September)

Affects on Industries

Leather industry may face shortage of raw materials as several animals have been washed away
(BR 12th August). Another report suggests that 2 million cattle have been washed away in the
floods (GDP shrinks by 2.5%, BR, 21 August).This is a substantial loss for an industry which is
heavily targeted by Chinese materials

Floods along with violence in Karachi reduced sales of traders by 70 %( Violence, floods badly
hit eid shopping, BR, 26 Aug).

The microfinance industry may see a boom. SBP has conducted meeting with several bank
officials and reduced the need for documents which would speed up the process of documents
and ensures that timely loans are given to the farmers. It has also directed banks to increase the
number of agriculture credit officers (SBP streamlines agri lending BR 12th August). President
Zardari has also urged banks to provide farms with loans so proper plantation can be done by the
farmers (Banks asked to help restore business, BR, 26 Aug)

Banks and DFI have faced nominal or no losses due to the floods. NPLs are expected to rise and
there are chances of loans defaults by farmers; however these are still in the manageable region.
(Credit Suisse, 7 September).

The Karachi Stock exchange has been bearish with average daily volumes. Acceding to Muneeba
Saeed the low volumes are due to the damages in the flood. Pakistan which is an agro based
economy has suffered heavily in the recent flood. This has dragged the index down (Index lost,
BR, 16th August).
Although KSE is not completely bearish, there have been ups and downs in the industry,
currently; the 100 index has crossed the resistance level of 10,000 points. However, the piling
figures of losses from all over Pakistan shake the investor confidence.

This trend in the KSE drags and lowers other industries related with it, such as asset management
and mutual funds.

Pakistan railway has suffered a loss of 1 billion with about 80 KM of track washed away (PR
suffers a loss of Rs. 1 Billion, BR 12 August). For an industry already running in heavy losses
this is a terrible blow. This would be a heavy burden on the budget and the industry will take a
long time to recover from the shock.

1.4million hectares of crops lost in Punjab (Pakistan floods 2010: the way forward, business
recorder 12th august)

Up to 40 Km of Indus highway is under water. Estimates show that Sindh has suffered a loss of
35 billion rupees which does not include crops (Pakistan call for cash, BR 12th August)

According to the world bank the country has lost $1 billion in crops (1 billion of crops lost, BR,
14th August). According to another report the total crop losses amount to $2.8billion (crops
losses estimated at 2.8 billion, BR, August 25). A third report estimates a Rs. 250 billion loss
(Flood inflicted Rs. 250 Billion loss, BR, Aug 26)

A report shows 1.1 million hectares of agriculture land in Pakistan is under water (Warming up
towards agflation, BR 13 August). Up to 60,000 tons of wheat has been damaged, while disasters
in Russia have also forced the country to lower exports to the international community.
According to Ibrahim Mughal 500,000 tons of wheat has been washed away (cited in Floods
destroy crops, could cost billions, BR 13th Aug)

Two million bales of cotton have been destroyed. Pakistan is expected to produce 14 million
bales of cotton on the current Fiscal year (cited in Floods destroy crops, could cost billions, BR
13th Aug). According to another report 30-40% less cotton is expected in the current Financial
year (40% decrease in cotton output feared, BR, 15th Aug).
Output of sugar is expected to fall by 500,000 tons (cited in Floods destroy crops, could cost
billions, BR 13th Aug)

Up to 200,000-300,000 tons of rice has been destroyed (cited in Floods destroy crops, could cost
billions, BR 13th Aug)

Fertilizers and Cement sector has been badly affected. The demand for DAP has fallen by 30%
and Urea by 8 %( Credit Suisse, 7 September). However after the floods the demand in both
sectors should rise. Cement will be required for the rebuilding effort and Urea for plantation of
the destroyed crops.

Similarly, steel and other petrochemicals which are used for construction purposes are expected
to see a boom. (Credit Suisse, 7 September).

The OMC growth is also expected to soften in the current years. This is firstly because of
infrastructure damage, secondly, less product throughput due to temporary closure Pak Arab
refinery and finally lost sales due to closure of some IPPS.

The telecom infrastructure seems to be un-hit and undamaged. Therefore there are chances of
little or no loss in the field of telecom (Credit Suisse, 7 September).

Deficits

The country’s trade deficit has increased by 24 %( Index lost, BR, 16th August).This is going to
affect the country in the long run. Currently Pakistan has a heavy inflow of aid, however when
aid stop and if the deficit of the country worsens it will have serious negative impact on the
economy of the country.

Budget deficit is also expected to rise to 6%of GDP due to enhancement in the rebuilding efforts
and provide subsidies to affected areas. Budget deficit along with trade deficit is expected to
bring the rupee value down in the long run Credit Suisse, 7 September).

Affects on GDP

According to the finance ministry the 4.5% growth in the GDP will be missed (cited in Floods
destroy crops, could cost billions, BR 13th Aug). The FBS has put forward a report which shows
that if the target is missed by 1 % it would amount to R.130 Billion and if it is missed by 1.5%
losses will amount to 195 billion. Another report suggests that 2.5% shrinkage has already been
seen in the GDP (GDP shrinks by 2.5pc, BR, 21 August)

Affects on Inflation

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According to SPI, it can be observed that inflation is on the rise. The table shows value of the
percentage corresponding to the same time last year. The figure shows a steady increase on
weekly basis after/during the flood. Right now it is just under 20%. It can be concluded that
inflation has been fuelled after the floods and future SPI reports might show greater increases.

However, Trimmed CPI on monthly basis shows a different image-

The possible reason for CPI showing a different image is the trimmed values disregard the top
20% of most volatile changes. Thus CPI shows a better image of the economy.

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A comparison of inflation measures of August 2010(after floods) with August 2009 shows that
measures are higher and more inflation has been seen this year. The floods can be a major reason
for the increase in inflation rates.