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Climate change risks may cut Pakistan’s GDP 18-20% by 2050: World Bank

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  • Up to 9% of GDP will likely be lost due to climate change.
  • Irrigation water shortages may dent GDP by over 4.6%.
  • Air pollution could impose a 6.5% per year loss of GDP. 

ISLAMABAD: Increasing climate change risks could contract Pakistan’s annual Gross Domestic Product (GDP) rate significantly in the next 28 years, a World Bank report revealed recently.

“The combined risks from the intensification of climate change and environmental degradation, unless addressed, will further aggravate Pakistan’s economic fragility; and could ultimately reduce annual GDP by 18-20% per year by 2050, based on the optimistic and pessimistic scenarios,” a report recently published by the World Bank said.

Between 6.5% and 9% of GDP will likely be lost due to climate change (in the optimistic and pessimistic scenarios, respectively) as increased floods and heatwaves reduce agriculture and livestock yields, destroy infrastructure, sap labour productivity, and undermine health, the report added.

Additionally, water shortages in agriculture could reduce GDP by more than 4.6%, and air pollution could impose a loss of 6.5% of GDP per year.

The use of water for non-agricultural purposes is likely to increase significantly with climate change. 

Under a high-growth (4.9% per year) and high-warming (3°C by 2047) scenario, water demand is projected to increase by almost 60%, with the highest rates of the increase coming from the domestic and industrial sectors, the report said.

It added that climate warming would account for up to 15% of this increase in demand. This heightened demand will result in unintended consequences that deprive downstream areas of water rights. The competition among sectors will necessitate inter-sectoral tradeoffs that will likely be made at the expense of water for agriculture.

It is projected that, in the next three decades, about 10% of all irrigation water will need to be repurposed to meet non-agricultural demand. 

Freeing up 10% of irrigation water without compromising food security will be a complex challenge that will require substantial policy reforms to incentivise water conservation and increase water use efficiency in the agricultural sector and a shift away from water-thirsty crops as well as better environmental management.

The projected costs of a forced reallocation of water out of agriculture, to meet non-agriculture demands, without such steps, could reduce GDP in 2047 by 4.6%. 

The losses projected here are thus the costs of forced reallocation of water to serve other urgent needs, including allocations for water, sanitation, and hygiene (WASH) and urgent environmental flows to sustain critical ecosystem services.

Damage induced by climate-related extreme events will likely have economy-wide impacts on growth, fiscal space, employment, and poverty. 

Global warming and extreme events affect economic activity through multiple transmission channels: impacts on lives, infrastructure and assets, and livelihoods, which can result in lost economic growth, worsening poverty and longer-term threats to human capital and productivity. 

Existing macro models can help assess the expected scale of such events.

The report added that household poverty is expected to decline over time, but even a 9% decline in GDP by 2050 is enough to stall poverty reduction, with disproportionate impacts on rural households.

By 2030, the urban poverty rate is expected to be half that of rural areas. By 2050, urban poverty is projected to decline further, to 10%, while rural poverty remains in the 25–28% range.

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Moody’s says the IMF programme will increase Pakistan’s foreign financing.

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Moody’s, a reputable international rating agency, has stated that Pakistan’s chances of acquiring funding will increase as a result of the recent agreement with the International Monetary Fund (IMF), which offers dependable sources for that purpose from both friendly countries and international financial institutions.

According to a recent Moody’s analysis on Pakistan’s economy, social unrest and tensions could result from Pakistan’s ongoing inflation. The country’s economic reforms may be hampered by increased taxes and potential changes to the energy tariff, it continued.

Moody’s, on the other hand, agrees that the coalition government headed by Shehbaz Sharif of the PML-N is in danger of failing to secure an election mandate, which may potentially undermine the successful and long-lasting execution of economic reforms.

The government’s capacity to proceed with economic changes may be hampered by societal unrest and poor governance, according to Moody’s.

In order to appease the IMF by fulfilling a prerequisite for authorising a rescue package, the government raised the basic tariff on electricity, which coincided with the most recent increase in fuel prices announced on Monday. This report was released by Moody’s.

Food costs have increased in the nation, where the vast majority is experiencing an unprecedented crisis due to the high cost of living, following the government’s earlier presentation of a budget that included a large increase in income tax for the salaried classes and the implementation of GST on commodities like milk.

The most recent comments were made following Islamabad’s achievement of a staff-level agreement for a $7 billion contract that spans 37 months and is contingent upon final approval by the IMF Executive Board.

It states that Pakistan will need foreign financing totaling about $21 billion in 2024–2025 and $23 billion in 2025–2026, meaning that the country’s present $9.4 billion in reserves won’t be sufficient to cover its needs.

Therefore, according to Moody’s, Pakistan is in an alarming position with regard to its external debt, and the next three to five years will be extremely difficult for the formulation and implementation of policies.

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Base Of bilateral relations: China And Pakistan Reiterate Their Support For CPEC

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China-Pakistan economic corridor is a major project of the Belt and Road Initiative, and both countries have reiterated their commitment to it. It remains a fundamental aspect of their bilateral relations.

Vice Chairman Zhao Chenxin of the National Development and Reform Commission of China and Minister Ahsan Iqbal of Planning and Development met in Beijing, where Ahsan Iqbal made this assurance.

The summit made clear how committed China and Pakistan are to advancing their strategic cooperative partnership in all weather conditions.

The focus of the discussion was on how the CPEC was going, with both parties reviewing project development and discussing how the agreement made at the leadership level will lead to the launch of an enhanced version of the CPEC.

In order to improve trade, connectivity, and socioeconomic growth in the area, they emphasised the need of CPEC projects.

The Ml-I Project, the KKH realignment, and the Sukkur-Hyderabad motorway—the last remaining segment of the Karachi-Peshawar motorway network—were all to be expedited.

Expanding the partnership’s horizons to include technology, innovation, education, connectivity, and renewable energy sources was another topic of discussion.

Specifically in the special economic zones being built under the Comprehensive Economic Cooperation (CPEX), Vice Chairman NDRC emphasised the possibility of China investing more in Pakistan.

In addition to expressing confidence in the ongoing success of the two nations’ collaboration, Zhao Chenxin reiterated China’s support for Pakistan’s development aspirations.

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Pakistani government raises petrol prices

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A recent announcement states that the price of petrol has increased by Rs 9.99 per litre, to Rs 275.60 per litre.

The cost of high-speed diesel has also increased significantly, rising by Rs 6.18 a litre. Diesel is now priced at Rs 283.63 a litre.

Furthermore, kerosene now costs Rs 0.83 more per gallon.

The cost of products and services is predicted to rise in response to the increase in petroleum prices, further taxing household budgets and jeopardizing the stability of the economy.

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