Climate change risks may cut Pakistan’s GDP 18-20% by 2050: World Bank
- 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.
APCC to meet today to decide budget outlay, targets
- APCC will meet at the Ministry of Planning today.
- Govt considering allocation for Diamer Basha Dam in budget.
- Total PSDP size would be proposed at Rs1,000bn.
ISLAMABAD: The Annual Plan Coordination Committee (APCC) is likely to recommend around Rs900-1,000 billion macroeconomic framework and size of the federal development outlay for the upcoming budget for the next fiscal year 2023-24, The News reported Friday.
In the federal budget, against the revised estimates of Rs111 billion in the outgoing financial year, the government is all set to recommend a Rs90 billion proposed allocation for the controversial Sustainable Development Goals Achievement Programme (SAP) for parliamentarians.
Now the arrangements are underway for further jacking up the allocation of the SDG Achievement Programme from Rs111 billion to Rs116 billion for the outgoing fiscal year.
Well-placed sources in the Cabinet Division told The News that parliamentarians belonging to Balochistan and Sindh provinces largely presented flood-related schemes under the SDG Achievement Programme in the current fiscal year.
The World Bank and Asian Development Bank (ADB) were also providing $3 billion in loans for flood-related schemes in the aftermath of the severe floods, so at least there should be some kind of mechanism to avoid overlapping at the cost of the national exchequer.
There were 50 to 60% of small development schemes in Sindh and Balochistan related to floods in the outgoing financial year.
There are reports that one political party, which is one of the major allies of the ruling coalition at the federal level, placed a condition that all funds on behalf of their parliamentarians should be handed over to the political leader, who would disburse their share to each parliamentarian belonging to the party.
All major allies of the Pakistan Democratic Movement-led government are beneficiaries of this SAP programme, as its funding has gone up from Rs68 billion at the initial level to Rs116 billion in the ongoing financial year.
The APCC, which is scheduled to meet in the Ministry of Planning today (Friday), will consider approval of the macroeconomic framework, including a real GDP growth rate of 3.5% and CPI-based inflation at 21% for the upcoming budget 2023-24.
According to the working paper prepared by the Ministry of Planning on Thursday, the Ministry of Finance gave an indicative budget ceiling for the Public Sector Development Programme (PSDP) to the tune of Rs700 billion for the next budget for 2023-24 but the Minister for Planning hoped that it would be jacked up to Rs800 billion under the directives of Prime Minister Shehbaz Sharif.
Now that the government has proposed an allocation of Rs200 billion for the Viability Gap Fund (VGF) executed through public-private partnerships (PPP), the total PSDP size would be proposed at Rs1,000 billion at the federal level for the next financial year.
The share of the National Highway Authority (NHA) in the proposed PSDP would be reduced, ranging from Rs90 billion to Rs100 billion for the next budget, mainly because the NHA remained unable to utilise the major chunk of the total allocated amount in the ongoing financial year.
The government is all set to propose allocations for flood mitigation and reconstruction efforts in the coming financial year. The government is also considering making an allocation for the Diamer Basha Dam in the coming budget for 2023-24.
Is Pakistan launching digital currency?
KARACHI: After making impressive progress in digital banking, the State Bank of Pakistan (SBP) is planning to launch a digital currency in the future, The News reported Friday.
Central Bank’s Digital Financial Services Group Additional Director Shoukat Bizinjo said that a large number of central banks around the world, including Pakistan’s, are studying CBBCs (callable bull/bear contracts) in order to launch digital currency in their respective countries.
Bizinjo — while speaking at the 16th international conference on Mobile Commerce 2023 — said: “Pakistan’s central bank is reviewing and consulting with other central banks in this regard (CBBCs and digital currency).”
They are leveraged investments that track the performance of the underlying assets without requiring investors to pay the full price required to own the actual assets. Bizinjo said that the SBP is also in consultation with local industrial players to introduce digital currency.
He said that Electronic Money Institutions (EMIs) have made remarkable progress in e-banking through the launch of e-money wallets for consumers and merchants, and other digital payment instruments such as prepaid cards and contactless payment instruments.
Currently, the country has four live commercial EMIs, including NayaPak, Finja, CMPECC, and Sada Tech Pakistan. EMIs have an outstanding e-money balance of Rs2 billion, managing 1.6 million e-money wallets and 2.4 million payment cards as of March 31, 2023.
There are around 12 EMIs at different stages of acquiring licenses from the central bank. There are also dozens of companies that are in constant talks with the SBP to become EMIs.
Pakistan rules out Plan B rumours in case of IMF programme failure
- Budgetary framework has been shared with IMF, says minister.
- Dr Pasha says IMF did not accept external financing gap of $4.5bn.
- Adds there is a trust deficit because of PTI govt.
ISLAMABAD: Minister of State for Finance Dr Aisha Ghaus Pasha has ruled out any possibility of contemplating upon any other option — Plan B — in case Pakistan fails to woo the International Monetary Fund (IMF) to revive the stalled loan programme, The News reported Friday.
“Let me say with clarity there were no other options that we are contemplating upon under Plan B in case of no revival of the Fund programme as the government was committed to reviving the IMF programme by completing the pending ninth review,” she said.
During a briefing of the National Assembly Standing Committee on Finance at the Federal Board of Revenue (FBR) headquarters, MNA Ali Pervez Malik questioned Dr Pasha about Plan B in case of failure to revive the IMF programme and said that there was talk about a dollar amnesty scheme to improve dollar liquidity.
The minister further revealed that the Fund did not accept the external financing gap of $4.5 billion assessed by Pakistan.
Dr Pasha disclosed that the IMF was still sticking to its projection of a financing gap of $6 billion for the ongoing financial year against Islamabad’s assessment of $4.5 billion on which assurances extended to the IMF by multilateral as well as bilateral creditors.
She went on to say that the government has shared the budgetary framework for the next fiscal year to satisfy the IMF. However, Pakistan has been waiting for the IMF’s response to share its recent steps to bridge the gap between interbank and open market rates on exchange rates, and assurances on external financing gaps.
It should be noted that a broader agreement on these three major conditions could only pave the way for striking a staff-level agreement.
The minister clarified that the sharing of budgetary numbers is not the part of ninth review as it will be part of the 10th review but Prime Minister Shehbaz Sharif has decided to share the numbers for the revival of the Fund programme.
A senior official of the State Bank of Pakistan informed the NA panel that the permission granted for credit cards from exchange companies to interbank rate would require $70 million to $100 million on average on a monthly basis and recommended the FBR for raising taxes on transactions through credit cards in foreign exchange in the upcoming budget to compress demands for increased foreign exchange requirements.
Dr Pasha said that there was a trust deficit, not because of the incumbent regime, but blamed the last PTI-led government for breaching the IMF agreement by doling out un-targeted fuel and electricity subsidies just before leaving the government in the last financial year.
She said that Saudi Arabia had granted assurances of $2 billion in additional deposits, while $1 billion have been committed by the United Arab Emirates (UAE).
The World Bank committed $450 million through the RISE-II programme loan and $250 million through Asian Infrastructure Investment Bank (AIIB).
The remaining are expected through Geneva pledges in the aftermath of flood assistance.
Pakistan, she said, secured financing assurances of $4.5 billion. Initially, it was planned that out of $6 billion, the government would get assurances on $3 billion before signing the staff-level agreement. She said that the government paid back $3 billion to commercial banks with the understanding that it would get re-financed these loans once the SLA is done.
“We also expect that after the revival of the IMF programme, other avenues of securing dollars will also open up” she added.
The ongoing IMF programme is going to expire on June 30 therefore the time is limited for completion of the pending 9th review under the $6.5 billion Extended Fund Facility (EFF).
If the staff-level agreement is reached by evolving a broader consensus on three contentious issues including external financing, budgetary framework, and sticking to the free market exchange rate then the programme will be revived otherwise the programme will be met with failure.
However, the sources said that Pakistan would be left with no other option but to seek another IMF programme next fiscal year keeping in view debt external repayments of $25 billion.
It does not include the current account deficit and if it is projected in the range of $7-8 billion for the next fiscal year then the total external financing requirements will be stretched up to $32-33 billion in 2023-24.
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