Pakistan’s economy, which has been on an IMF-supported stabilization program, has shown signs of stabilization in recent years.
However, its economic recovery has been dealt a setback. Since July, relentless rains have flooded Punjab, Khyber Pakhtunkhwa, and Sindh provinces, including urban centers like Lahore and key crop-producing regions. The damage caused by the floods has worsened vulnerabilities in agriculture, infrastructure, and human capital that have already been under stress for years.
Hundreds of lives have been lost and millions displaced across the country. Besides, millions are at risk of falling into poverty due to the ongoing monsoon flooding.
The agricultural sector in Pakistan has suffered catastrophic losses. The sector contributes to about 24 percent of GDP, accounts for half of the country’s employed labor force, and is the largest source of foreign exchange earnings. In Pakistan’s breadbasket of Punjab, flash floods have reportedly destroyed 60 percent of rice crops, 30 percent of sugarcane, and 35 percent of cotton fields, according to the Pakistan Business Forum (PBF).
The floods have not only severely disrupted food security but are also set to further erode the country’s export revenues during the current fiscal year. For example, last year’s climate change-related extreme weather caused Pakistan’s rice crop to suffer due to quality issues. This situation left Pakistan in a very difficult position when competing with Indian Basmati rice in the international market, particularly in Europe.
Farmers and millers in Punjab province were expecting a good crop this year. However, the devastation caused by the floods has wiped out hopes for an abundant harvest. “The hoarders are already preparing to buy rice, which will make the supply difficult for those engaged in the export market,” Abdul Waheed, a rice miller in Punjab’s Kasur district, told The Diplomat.
The crop shortage caused by flood-related destruction could both raise prices domestically in the coming weeks and make it more difficult for the country’s exporters to offer competitive prices internationally. “No one can reliably confirm the crop losses at this stage, but publishing reported numbers suggesting heavy losses is indicative of a difficult year for export revenue again,” Waheed warned.
Satellite images indicate that thousands of acres of cropland have been affected nationwide as of early September. These losses are likely to inflate food prices in the coming weeks and months, potentially causing inflation to spike again.
It is important to note that the disaster has slammed Pakistan at a time when inflation had decreased significantly. Officials now expect inflation to rise again, with food shortages already pushing prices higher.
Moreover, widespread infrastructure destruction across the country is crippling logistics and trade and has amplified supply chain disruptions. The disaster has damaged over 661 kilometers of roads, hundreds of bridges, and washed away thousands of villages. According to Punjab’s Disaster Management Authority, over 3,300 villages and 3.36 million people have been affected by severe flooding in the Ravi, Sutlej, and Chenab rivers.
The escalating humanitarian crisis is going to undermine social stability, even in urban centers across the country. In Lahore, floodwater from the Ravi entered posh housing societies and forced people to vacate their houses and neighborhoods. This is unprecedented and was inconceivable a few weeks ago. Thousands of houses have sustained significant damage and may not be inhabitable henceforth due to structural issues.
Fiscal pressures from relief operations are expected to strain government resources further. There are growing calls for compensation from people who have lost homes, livelihoods, crops, livestock, and farms. While the government has promised to accelerate rehabilitation efforts, fiscal constraints make any such efforts difficult.
There is a major challenge when it comes to the government moving from immediate rescue efforts to fully or even partially compensating flood-affected people. Any such effort, if launched at a massive scale, will likely contribute to delaying the ongoing IMF-mandated economic reforms.
It seems the long-term stability in Pakistan is at the mercy of climate change-related disasters. Clearly, the scale and pace of climate-related disasters have increased in recent years. Pakistan is currently facing the second most devastating flood in a span of three years.
The crisis has the potential to expose Pakistan’s governance failures as it can cripple the economy and pose a direct threat of agricultural collapse. Additionally, expected reconstruction costs are estimated to be in the billions of dollars, and Pakistan will have to divert funds from productive investments to be able to spend that amount of money. This could prolong recovery timelines of projects.
It is expected that emergency aid demands from Pakistan are likely to inflate the budget deficit in the medium to long run. This essentially means that the country’s reliance on international donors will grow more amid rising debt.
Pakistan’s climate crisis is not just approaching quickly, but it has already arrived, and the country doesn’t seem to be prepared for it. Pakistan needs to declare a climate emergency, which will require bringing all political and institutional stakeholders together to chalk out a comprehensive plan to deal with the crisis on a war footing.
Pakistan’s 2025 floods underscore the urgent need for climate-resilient infrastructure, diversified agriculture, and global support to safeguard its economic trajectory.
Without these, the cycle of disaster and stagnation will persist.