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KARACHI         - 021 LAHORE          - 042 ISLAMABAD    - 051 FAISALABAD   - 041 MULTAN          - 061 PESHAWAR    - 0521 CANADA          - 1 KUWAIT           - 965 INDIA               - 91 IRAN                - 98 U.K                   - 44 U.A.E                - 971 U.S.A                - 1

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  ECONOMY WATCH

Selected by Zeeshan Ahmed Khan
Oct 17 - 23, 2005

EARTHQUAKE: IMPACT ON THE ECONOMY

The most destructive earthquake in Pakistan's history has given us an agonizing loss of thousands of people. There is no doubt that the massive loss of lives and property has shaken the roots of the country. Here I'll approximate the monetary impact of this earthquake on the economy.

GOVERNMENT OFFICIALS' CLAIMS: Advisor to Prime Minister on Finance, Dr. Salman Shah, has vividly mentioned that earthquake will not affect the economy. The reason he gave was that economy growth rate and growth in revenue collection (expected to be Rs.690 billion this year; and Rs.100 billion more than last fiscal year) will absorb the shock. Another government official, Asfaque Hasan Khan, head of debt management and adviser to the finance ministry said that "There will be some adverse impact on the budgetary targets, but the growing economy, resulting in higher revenue collection, will absorb this shock."

INFRASTRUCTURE: The quake has destroyed the northern region of the country where infrastructure was already very poor. Most of the strategic installations are in middle Punjab and Sindh, which remain unharmed. The dams also remained unaffected. However, government has to restore the highways and road networks. After the early rescue operation will be finished, government shall have to rehabilitate the affected people which will require some re-allotment of government's budget. International community is expected to contribute in this regard. World Bank has already extended a fund of $40 million to help the victims of earthquake. More aid is expected as entire world has become very sensitive on the issue after a series of calamities like Tsunami and Katrina.

INDUSTRIAL SECTOR: The major industrial setup, present in Sindh and Punjab, is not affected. The industrial sector may experience a shortage of manpower in short run because a proportion of labor force belongs to northern areas. Such labor have already taken leaves and left for their homes to help their relatives.

SHORT-TERM IMPACT: 25% reduction in Eid shopping, which is the mega event of the year and record peak shopping, is expected.

BANKING AND INSURANCE SECTOR: These sectors are working in mostly urban areas. Northern areas are deprived of well-established banking network. Moreover, usage of banking facilities is also uncommon. Thus banks have not faced any threat by destruction. Like banking sector, insurance is also not a familiar thing in affected areas. Insurance sector will not face any claims and remain unaffected. It is interesting to note that insurance companies are paying bulk claims in USA after Katrina to cover losses.

TELECOM SECTOR: Again, this sector is also not very active in affected areas. In fact, few mobile companies have not yet started their operation in northern areas. Few small telecom installations are damaged while fiber optic remained unhurt. The sector will bear the loss of damage wires and have to re-install them.

OIL AND GAS: The oil and gas installations are situated in Balochistan and Sindh, which are not affected. Sui Northern Gas Company (SNGPL) is operating in the affected areas. Any damage to gas pipelines, if found, will be acknowledged by the corporate insurance cover. The petroleum retail outlets are reported to have damaged. Once again, damages will be covered by insurance.

CEMENT SECTOR: Dewan Hattar, Kohat Cement, Fauji Cement and Bestway Cement have plants in the affected areas. No losses are reported from these companies yet. Thus, it is assumed that they remain unaffected. Moreover, after early rescue-operation, a new era of development will start in the affected region. For rehabilitation purpose, new housing units will be built with the government and international community assistance. Therefore, cement sector will get boost in coming times rather than getting any adverse shock.

IMPACTS ON LOCAL ECONOMY: It is obvious now that GDP will absorb the shock and growth of economy would continue as affected areas are not considerably contributing towards GDP. But if we consider the local economy of affected areas, it will blow up the minds. The complete destruction in the area implies that most families have lost their financial supporters; the survivors have lost their local jobs because whole business setups are destroyed. It means millions of people are now at high risk from monetary point of view. One can imagine how people will keep with their autonomous consumption in absence of jobs on such large scale. Where they will get food and shelter. Thus we predict that poverty will increase in the country in future where already one-third of population is living under poverty line.

CONCLUSION: We expect that the GDP of the country will not be affected in any way by the earthquake. The development expenditures and re-habilitation cost will be financed by the growth of revenue and foreign aid. But it implies that the development growth will slow down next year as the money expected to finance few of the future mega projects will be utilized in financing of current development. If the hike in oil prices continues, an adverse effect will be experienced by the economy. In the mean time, I want to request Dr. Shah and Asfaque Hasan Khan to consider issues of local economies of the affected areas. We cannot live happily only over the news that Pakistan's economy will absorb the shock; we must do something to revive the local businesses of affected areas. Government should create job opportunities for families who have completely lost their financial shelters. This time can come to anyone! Including us. 

 
 

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