Abdul Ghani

Pakistan’s external sector has come under severe strain following the 2025 floods, with export earnings declining, import requirements surging, and pressure mounting on foreign exchange reserves, according to the government’s Preliminary Assessment of Flood Damages Report.

The Ministry of Planning, Development and Special Initiatives warned that extensive damage to crops, livestock, and infrastructure is expected to widen the trade deficit in FY2026. “The combined effect of reduced export earnings and increased import spending is likely to put additional pressure on the country’s balance of payments,” the report said.

In FY2025, Pakistan exported 5.8 million tons of rice worth $3.35 billion, but the floods destroyed a large portion of the crop. The Federal Committee on Agriculture had projected production of 9.5 million tons for FY2026; however, actual output is now expected between 8.3 and 8.9 million tons, slashing exportable surplus to 4.6 million tons—a drop of 1.2 million tons. Consequently, rice export earnings are forecast to fall by about $450 million.

The losses extend beyond rice. Damage to cotton, sugarcane, and maize will affect textile exports and food processing industries, while power outages and transportation disruptions have slowed industrial shipments. “The floods have reduced exportable capacity and increased logistics costs, weakening competitiveness,” the report stated.

Meanwhile, Pakistan faces rising import needs to fill production gaps and support reconstruction. The report anticipates higher imports of raw cotton for textile mills, wheat and pulses for food supplies stabilization, and construction materials and machinery for infrastructure rebuilding. These additional imports, coupled with lower exports, are projected to widen the trade deficit by hundreds of millions of dollars in the current fiscal year.

Economists cited in the document said that the external-sector shock could temporarily offset gains achieved through earlier current-account consolidation. “Flood-related import demand will coincide with reduced export volumes, thereby exerting pressure on reserves and the exchange rate,” one official assessment warned.

Pakistan’s foreign exchange reserves, already strained by global price fluctuations, may face renewed pressure if export receipts remain subdued. The report urged authorities to adopt a two-pronged strategy—short-term stabilization and long-term diversification of export products.

“While immediate needs demand import financing for reconstruction, medium-term measures must focus on restoring agriculture, resuming industrial exports, and encouraging value-added sectors,” the Planning Ministry emphasized.

The ministry also cautioned that inflationary trends—driven by higher food imports and transport costs—could erode trade competitiveness further. “The delay in Rabi sowing and the shrinkage in cotton and rice supplies are likely to push up domestic prices and reduce export margins,” it said.

As global food markets tighten due to extreme weather, Pakistan may face higher import bills for staples such as wheat and pulses. The report called for exploring concessional import arrangements with friendly countries and international financial institutions to prevent balance-of-payments stress.

In the long term, the Planning Ministry recommended structural reforms to reduce dependency on climate-sensitive commodities. “Diversification of exports into IT services, engineering goods, and processed food is essential to buffer future shocks,” the report suggested. It also proposed developing crop insurance schemes and disaster-financing mechanisms to protect exporters and farmers from losses caused by floods and droughts.

According to analysts, the 2025 floods have exposed how closely Pakistan’s external stability is tied to its agricultural performance. “This disaster reinforces the link between climate resilience and trade sustainability,” the report observed. “Unless the agriculture and industrial bases are climate-proofed, the balance of payments will remain vulnerable.”

The ministry reaffirmed the government’s commitment to rebuilding export capacity through climate-smart reconstruction, improved logistics, and international cooperation. “Pakistan’s recovery depends not only on domestic resilience but also on maintaining confidence in global markets,” it said.

With the flood damage estimated at Rs822 billion, policymakers are now focusing on balancing reconstruction spending with fiscal discipline. “Protecting external stability during recovery is crucial for restoring investor confidence and sustaining growth,” the document concluded, urging strategic partnerships with development banks and multilateral lenders to support post-disaster financing needs.

Credit: INP-WealthPk