Pakistan economy teetering after flood

ISLAMABAD, Pakistan — Even before this summer's catastrophic floods, Pakistan's economy was teetering on the brink. The government's debt had ballooned to $55 billion. The anemic tax base could hardly replenish it, and a third of the population fell below the poverty line.

Now, in the aftermath of the flooding, officials face the daunting task of fending off complete fiscal collapse. Pakistan's economic bulwark, agriculture, has been ravaged by the surging waters, which submerged nearly a quarter of the country's farmland.

Experts doubt that the situation will improve in time for the fall wheat-sowing season, which if missed would trigger massive food shortages in 2011.

In affected areas, floodwaters have swept away 70 percent of the roads and bridges. More than 10,000 schools and 500 hospitals have been destroyed or damaged.

Millions of Pakistanis who were barely scraping by before the floods now find themselves homeless and unsure how to regain the means to provide for their families.

Analysts fear an economic meltdown could seed waves of unrest that the current government, led by President Asif Ali Zardari, would struggle to contain.

"The likelihood of public protests and a degree of anarchy does exist — these are genuine fears," says Hafiz Pasha, a former commerce minister and now an analyst at the Institute for Public Policy in Lahore.

So far, flood victims have suffered largely in silence, though small, impromptu protests have broken out periodically in places where supplies of food, drinking water and medicine have been inadequate. However, the prospect of extended economic stagnation, joblessness and sky-high food prices could spark a collective anger that would threaten Pakistan's stability.

The United States and other countries have poured hundreds of millions of dollars into flood-relief efforts. Washington has said it probably will have to redirect toward post-flood recovery a portion of its five-year, $7.5 billion nonmilitary aid package to Pakistan — money that was supposed to troubleshoot the country's electricity and water crises.

It's expected that Pakistan will need even more. Prime Minister Yousuf Raza Gilani said the losses from the flood could reach $43 billion. As borrowing increases, inflation, which before the floods was projected to reach 9.5 percent in 2011, now is expected to climb as high as 20 percent. Economic growth may plunge from a projected 4.5 percent rate this year to 2.5 percent in 2011.

Finance minister Hafeez Shaikh warned that in two months, the government may not have enough money to pay its employees. The economy, Shaikh declared, was "heading toward the abyss."

How well Pakistan survives the worst natural disaster in its 63-year history will depend largely on how soon farmers get back to work. Agriculture accounts for 43 percent of the country's jobs but a fifth of Pakistan's irrigation infrastructure, livestock and crops have been destroyed. Hundreds of miles of irrigation canals must be cleared of silt, seed and fertilizer lost in the floods needs to be replaced, and hundreds of thousands of homes and silos have to be rebuilt.

Experts say the biggest priority is the wheat crop, which takes 80 percent of the farmland in the upcoming sowing season.

If farmers can't work the land this fall, their first post-flood harvest would come in August 2011, which would mean a full year without income. Faced with the prospect of no farm or home to return to, many of the 7.5 million Pakistanis displaced by the flooding and now living in camps in cities such as Karachi could choose to stay. That, says Pasha, could strain already overpopulated urban areas, and ultimately stoke the kind of widespread discontent that fuels unrest.

"That's already happening to some extent in Karachi," Pasha says. "Once they congregate in one or two big locations, you have a flash point. If we can't provide for rehabilitation down the road, you may see a large scale exodus to the cities. And that could increase the potential for a breakdown."