Karachi, August 26, 2022 (PPI-OT): Floods – An initial assessment of the calamity

Against average annual rainfall of 125mm, the ongoing season has received 3x more rains so far. Sindh (30% of Pak’s agri) and Balochistan (8% of Pak’s agri) have been worst hit, exceeding the magnitude of rains recorded during the catastrophic 2010-11 flash floods, severely impacting lives, health, animals, crops, infrastructure and more.

While too early to accurately quantify, our preliminary estimates suggest that repercussions may include more than US$4bn, higher than estimated imports in FY23 and a possible slowdown in exports from absence of cotton and partially rice.

Inflation may face threats of higher prices from crops, livestock and textile-related goods that cumulatively hold ~30% weight in the CPI. This is a high risk to the already sticky food inflation (at 28%; 13-year high) and high WPI (at 38.6%; all-time high).

Unplanned expenditures for relief, restoration and subsidies to affected segments may exert fiscal pressure in a year where Pakistan would already be under strict IMF targets. To recall, a one-time 15% ‘flood surcharge’ was imposed for tax year 2011 to fund flood costs. Already facing brunt of higher super tax, any such move would further strain corporate profits.

From listed space, we expect Fertilizers, Tractors, OMCs and Construction to witness declining near-term demand. Moreover, 25% of banks’ lending book comprises of Textiles and Agri segments, which could face some asset quality pressures.