The 2010 floods in Pakistan started late in July, following heavier than normal monsoon rains in Balochistan, the Punjab, Sindh, Pakhtunkhwa and the Khyber; in fact the whole Indus River Basin was affected.
At one stage nearly 20 percent of Pakistan’s land area was covered with water, a total of some 307,374 square miles (796,095 square kilometres). According to the Pakistani government the floods affected nearly 20 million people, mostly as a result of destroying infrastructure, property and crops. The death toll was nearly 2,000.
Initially, Ban-Ki-Moon, Secretary General of the UN, asked for emergency relief amounting to some $460m, noting that he had never seen a flood of this magnitude before. By August 15 only 20 percent of these funds had been received, which was a huge concern for the UN. The World Health Organisation reported, at the time, that 10 million people had no other choice but to drink polluted water.
The damage to the already frail Pakistan economy was immense. Infrastructure damage was calculated to be in the region of $4bn; wheat crops to the value of $500m were destroyed by the floodwaters and the total crop loss was estimated to be in the region of $1bn, much higher according to Pakistan’s own calculations. The impact on the country’s economy could well have been as high as $43bn.
More than 100,000 animals died during the floods and 17 million acres of agricultural land was submerged by the raging waters.
The last thing Pakistan needed was a disaster of this magnitude; the country’s economy was already extremely fragile and depended on a support package of some $11.3bn from the IMF. Even before the floods, the government was finding it difficult to adhere to the fiscal discipline required by the package. The country has an oversized public sector, a relatively small tax base and perpetual problems with its balance of payments.
Pakistan’s Finance Minister, Abdul Hafeez Sheikh, said in an interview with TIME magazine, “Now, it alters all the calculations, all the projections, all the scenarios. It is still too early to assess the full impact of the disaster, but the damage is colossal, it’s still unfolding. It will run into billions and billions of dollars.”
Aid donors did not come forward with the help that was needed, which forced the Pakistani government to take up a World Bank loan of $900m. This only added to the country’s already huge debt burden of $55.5bn and will make it even more difficult for the government to balance its budget in future.
Moody’s subsequently downgraded its rating of Pakistan government bonds, causing interest rates on them to increase even further. Standard & Poors affirmed its B-rating for long-term Pakistan government debt on November 15 last year.
Financial institutions, such as Nomura, UBS and Morgan Stanley, have warned that Pakistan will not be able to service such a large debt indefinitely, especially taking into account the high interest rates involved.
