Self-reflection before financial assistance?

Failure to successfully address immediate challenges of relief and rescue risks metastasizing into long term tragedies that could rock the foundations of rural economy for years to come.

Earlier this week, an early impact assessment study by FinMin placed economic loss from floods between $15 to $20 billion. Meanwhile, the central bank also shared its own impact assessment, forecasting that the damage from floods could shave at least two percent off GDP growth during FY23. While the output loss – in particular, loss to agricultural output in Sindh and Balochistan – is no doubt staggering, far too much attention seems to be placed on short-term economic fallout. The ‘financial loss syndrome’ seems to have infected both the policy making circles and the media, at the risk of losing sight of long-term human tragedy and breakdown of traditional structures in affected regions.

Put crudely, economic output or GDP is essentially like a firm’s annual income statement outturns. As the world witnessed during Covid-19, both firms and nations – can and do – recover from loss of revenue during one season or a year. Consider how the pandemic delivered financial shocks to travel and hospitality industry globally. No doubt the revenue losses were massive, but not only did these industries return to business, many are on road to robust recovery some 2.5 years later. But what if those industries could not return to normalcy at all post-Covid?

The flood victims, particularly in Sindh, face similar existential concerns today. While the output loss from floods will indeed be crippling for economic growth during the ongoing fiscal, the short-term losses should hardly be the greatest concern of policy circles. Instead, it is the medium to long term impact of floods on rural economy and societal structure that should keep decision makers up at night. The crop losses for one season are indeed terrible, but what if the rural economy in Sindh or Balochistan simply fails to return to pre-floods normalcy altogether? More importantly, should it revert to things as they were?

Failure to successfully address immediate challenges of relief and rescue risks metastasizing into long term tragedies that could rock the foundations of rural economy for years to come. In particular, three crises currently facing small hold and landless rural population – namely, permanent displacement, disease outbreak, and livestock loss – could create a drag on economic productivity that may set Sindh and Balochistan back on poverty and development indicators in ways that are hard to quantify today.

Suffering is often classist in nature. The rural communities most affected from floods are either those who are already landless laborers, share-croppers, or very small landholders. Even in good times, the economic contribution of such subsistence level farmers or whose cattle size is no bigger than 5-8 livestock is negligible, at best. And the floods have left as many as three million such households in Sindh displaced in its wake. Financial restitution alone can neither compensate nor prepare them for what they face next.

First, unless those displaced are immediately rescued, the disease outbreaks could damage long term health and productivity of survivors. Two, for subsistence/landless peasants, livestock death not only represents loss of (often) the only productive asset held by the household, but could also lead to malnutrition as access to home-based dairy becomes scarce for millions such families. But most of all, the floods have laid bare the perpetual vulnerability of these households to environmental disaster, as the once-freak-now-frequent extreme weather events render their native lands uninhabitable. This raises the specter of renewed pressure on rural to urban migration, a crisis that policymakers are ill-equipped to handle.

As with previous natural calamities, it is important to remember that financial assistance trickles in sooner or later in some shape or form. Eventually – and hopefully –governments and donor agencies shall announce compensation packages for the damage to crops, to be made available to those with pakkatitle deeds. This is not just because the large-hold farmers exercise more influence, but mainly because financial loss is easier to quantify where land ownership records are available, along with historic data for average productivity and cropping patterns. Of course, ideally these compensations should be disbursed well in time for farmers to receive much needed liquidity/cashflow before the beginning of next crop season. But even if state fails to bail them out in time, one salient difference will remain: unlike the millions of subsistence-based displaced families, commercial and large landholders have only suffered loss of income (crop) not asset (cultivable land).

Even so, it may be simplistic to accuse state assistance of being skewed towards the traditionally endowed (or local elites). The obsession with infrastructure rehabilitation demonstrated by policymakers in the aftermath of tragedy shows they may not only fail the poorest, but also the commercially oriented. Despite the scale of damage, little to no conversation has been initiated to wean agriculture away from disaster-prone practices. Consider, for example, if extreme weather events become ever-more frequent, will farmers remain willing to plant flood-prone cotton and rice year after year?

Historically, farmer behavior has proven to be extremely sticky and path dependent, despite tail risk events. In absence of markets and value chains for other resilient crops, will growers now finally be ready to switch to substitutes? Are our markets prepared? Is the supply chain capable of handling mass exodus of farmers in Sindh away from cotton or rice next year? Should it happen before disaster strikes again next monsoon? Is Pakistan’s trade balance capable of handling loss of rice exports permanently? How would the IDPscoup up with livestock loss? What medium term strategy does the state have in place to address subsistence family’s nutritional outcomes post loss of cattle once relief and rescue is over?

By not asking big picture questions, policy gurus and decision makers are not only betraying lack of imagination on their part, but also leaving the economy exposed to the seismic – and yet to be foreseen – shifts that might result from the ongoing massive humanitarian displacement. One, which could potentially become a recurring event in coming monsoons.

The easiest thing for GoP right now would be to secure donor money or raise PSDP allocations and rebuild roads, highways, or even small dams. But if the concrete structures are going to be washed away each year, what good exactly international financial assistance in the name of climate justice or reparations can serve?

Source: Business Recorder

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance

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