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Climate change risks may cut Pakistan’s GDP 18-20% by 2050: World Bank

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  • 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.

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IMF board to meet on Jan 11 for Pakistan’s first review approval

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  • Pakistan’s case not included in board meeting agenda for Dec 1-15. 
  • Ongoing SBA programme is going to expire on April 14, 2024.
  • Pakistan, IMF reached agreement on first review last month.

The International Monetary Fund’s Executive Board will take up Pakistan’s first review on January 11 next year for approval that will unlock $700 million under the standby arrangement (SBA), Bloomberg quoted the lender’s spokesperson as saying on Friday.

Last month, Pakistan reached a staff-level agreement with the IMF under the $3 billion SBA and is awaiting the board’s approval to receive a second tranche.

Earlier this week, The News had reported that Pakistan’s first review for approval was not included in the IMF’s Executive Board meeting agenda for the 1-15 December schedule

The publication reported that the IMF did not firm up its exact schedule because the Fund’s team was busy securing re-confirmation from all multilateral and bilateral creditors to meet the financing requirements of $24.9 billion for the current fiscal year.

This delay surfaced in discussions among the policymakers that the IMF might kick-start parleys on the second review probably after the general elections and takeover by the elected government.

The IMF programme was initially scheduled to kick-start parleys for a second review from Feb 3, 2024, but if the elections were scheduled to be held on February 8, 2024, then the possibility of holding talks might be done in the last week of Feb or early March 2024.

The ongoing SBA programme is going to expire on April 14, 2024.

A day earlier, IMF Executive Director Bahador Bijani noted an overall improvement in the economic situation, saying, the “Pakistani authorities have delivered”.

He made these remarks at an event hosted by Pakistan’s ambassador to the US in honour of friends of Pakistan from International Financial Institutions including IMF, International Finance Corporation (IFC), World Bank (WB), and Multilateral Investment Guarantee Agency (MIGA), at Pakistan House in Washington.

“I think the future for Pakistan is very bright. Pakistan is not just any country. It’s one of the most important countries in the region and in the world. Pakistanis deserve much more,” the IMF executive director was quoted as saying in an official statement.

Nathan Porter, IMF Mission Chief to Pakistan, also expressed satisfaction over the recently concluded staff-level agreement. He said that the actions and policies of the current government reflected its commitment to steer the country towards stabilisation.

Pakistan is reeling from Asia’s fastest inflation, has about $1 billion in dollar-denominated debt due next year and is scheduled to hold elections scheduled in February.

Interim Finance Minister Shamshad Akhtar said after the staff-level deal in November that the country may seek an additional loan from the IMF, describing the economy as “still fragile.”

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PSX hits new milestone as KSE-100 surges past 66,000 mark

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KARACHI: Bulls maintained their grip on the Pakistan Stock Exchange (PSX) as the benchmark index shot past the 66,000 mark on Friday by gaining over 1,000 points. 

According to the PSX website, the KSE-100 index gained 1,302.45 points or 2.01% to reach 66,020.52 points at 11:39am during the intraday trading.

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Raza Jafri, who is the head of equities at Karachi-based Intermarket Securities, said that the banks and energy sector lead the rally at the bourse as cheap valuations and a reasonably settled environment help flows remain strong as foreign and local buys continue to invest.

“The MPC (Monetary Policy Meeting) next week should set the tone for near-term trading. While unchanged interest rates are widely expected, investors will look for clues in the text of the monetary policy statement to gauge how much interest rates can come down by next year,” he added. 

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Pakistani authorities have ‘delivered’ on economic front, says top IMF official

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  • IMF official says Pakistan ‘important’ country in the world.
  • “Our country is destined to succeed,” says Masood Khan.
  • Nathan Porter hails actions and policies of Pakistani govt. 

WASHINGTON: Bahador Bijani, an Executive Director of the International Monetary Fund (IMF), has noted an overall improvement in the economic situation, saying, the “Pakistani authorities have delivered”.

He made these remarks at an event hosted by Pakistan’s ambassador to the US in honour of friends of Pakistan from International Financial Institutions including IMF, International Finance Corporation (IFC), World Bank (WB), and Multilateral Investment Guarantee Agency (MIGA), at Pakistan House in Washington.

“I think the future for Pakistan is very bright. Pakistan is not just any country. It’s one of the most important countries in the region and in the world. Pakistanis deserve much more,” the IMF executive director was quoted as saying in an official statement.

The meeting took place as Islamabad awaits the IMF board’s meeting to approve a staff-level agreement on the first review of a $3 billion bailout, which will unlock $700 million in funding for the country.

Addressing the event, Ambassador Masood Khan observed that the past year was difficult for Pakistan. “We have passed through a wrenching transition and we are moving toward a new phase of stability,” he added.

“Have faith in Pakistan. Our country is destined to succeed,” he said.

“Our confidence stems from the people of Pakistan. We have a growing middle class and our human capital is increasing at a very fast pace,” he added.

Addressing a gathering of over 40 guests from the IFIs, the ambassador said that we were grateful to IFIs for their steadfast support in navigating through a difficult economic period.

Nathan Porter, IMF Mission Chief to Pakistan, speaking on the occasion, expressed satisfaction over the recently concluded staff-level agreement. He said that the actions and policies of the current government reflected its commitment to steer the country towards stabilisation.

“With that base, hopefully, we can build on and be able to move forward to reforms to build a stronger, prosperous and inclusive Pakistan,” he said.

He also appreciated the cooperation and the policies pursued by the State Bank of Pakistan for ensuring fiscal stability in the country.

Athanasios Arvanitis, Deputy Director Middle East and Central Asia Department IMF, also spoke on the occasion and expressed the hope that the elections in Pakistan would usher into a new beginning of undertaking a reform process that the country needed to make progress and address some of its structural issues.

Thanking them for their strong support, Ambassador Khan observed that the digitisation of Pakistan’s economy was creating new opportunities in the country for its youth and professionals taking the lead role in steering the country towards a bright future.

Lauding the professional achievements of Pakistanis working in the IFIs, the ambassador observed that Pakistani professionals have proved their mettle and have made the entire nation proud of their accomplishments.

“We are a nation of talented people. If you can make it, Pakistan will also make it,” observed the ambassador.

Syed Ali Abbas, Advisor Mission Chief UK, European Department IMF, in his remarks, expressed the hope that with the successful completion of the electoral process in Pakistan, the country would move towards a long-term and more durable approach which would change the trajectory of Pakistan.

Aftab Qureshi from the World Bank and Sidra Rehman from the IMF also spoke on the occasion and assured their continued cooperation.

The ambassador thanked the members of the IFIs and said that the country looked forward to working with its development partners.

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