Howimportantisagriculture?

Thecountry,whichistheworldssixth-largestbypopulation,isthefourth-biggestproducerofcottonandmilk,andtenthbiggestwheatproducer。

Otherbigcropsincludesugarcane,wheat,chickpeas,mangoesandapricots。

Whatsmore,two-thirdsofthepopulationisdependentonagricultureforemployment,eitherdirectlyorindirectly。

Themainmanufacturingsectors–apparelandothertextiles,accountingfor60%ofexports–relyonthecottoncrop。

Thefearnowisthatinaneconomythatalreadyhasdouble-digitratesofinterest,inflationandunemployment,thedevastationwroughtbythefloodswillleadtoafull-scaleeconomiccollapse。

Whatstheworst-casescenario?

Pakistanfacesanimmediate-termeconomiccrisis:bothexportsanddomesticconsumptionareallbutcertaintocrashintheaftermathofthehistoricfloods。

SomeanalystsexpectPakistansdecentgrowth(4。

1%lastyear)tobecutinhalf;othersthinkitmayfalltozero。

ThequestioniswhetherthiswillsendPakistanintoadownwardeconomicspiral。

Renewedsocialandpoliticaldislocationmaytriggerunmanageablemassmigrationfromthecountrysidetothecities。

AnupsurgeinsupportforIslamistandseparatistmovementsisexpected,especiallyinthenorthwest。

Moreover,manycommentatorshavespeculatedthatafurthercollapseinstateauthoritycouldonceagaintipthemilitaryintoseizingpower。

Whatwillstopthat?

Pakistanhasbeenbuildingupitsdemocraticinstitutions?

albeitslowly。

Optimistspointto?

thefree,flourishingnewsmediaandastrongjudiciary。

IthaslowerlevelsofhungerandchildmalnutritionthanneighbouringIndiatoo。

ButPakistanalsosuffershugeinequality。

Incrediblewealthexistsinthecountry;therearesuperbprivateschools,forexample。

Butmanyareashavenoschoolsatall。

Andthestatehasneversucceededinpersuadingitselitetopaytheirwaywhenitcomestotax。

NawazSharif,theformerPMandoppositionleader,isoneofthecountrysrichestmen,yethepaidnexttonoincometaxlastyear。

Currently,taxcollectionamountstoapaltry10%ofGDP。

AsauthorMohsinHamidrecentlyarguedintheFT,ifPakistancouldincreaseitstaxtaketoIndias17%,orSriLankas15%,theadditionalmoneyraisedwouldfarexceedalltheforeignaidthecountrycurrentlyreceives。

Whatdofinancialmarketsthink?

Broadly,theyexpectPakistantocopeinthemediumterm。

ThespreadonPakistanfive-yearcreditdefaultswaps(ie,thepremiumpaidtoinsureagainstadefaultorrestructuringofthecountryssovereigndebt)isveryhigh,comparedtobigWesterneconomies。

Butevenasthefloodsgatheredmomentuminrecentweeksthatspreadhasremainedsteady。

ThatsasignthatfinancialinvestorsbelievefreshsupportfromtheInternationalMonetaryFund(IMF)andtheUnitedStateswillworktopreventaseriousfiscalcrisisinPakistan。

Earlierthisweekthespreadonfive-yearswapswasaround1,100basispoints,inlinewithotherhigh-riskissuers,suchasVenezuela,butwellbelowearly-2009highsofmorethan2,100basispoints。

Meanwhile,themainstockindex,theKSE-100,isdown7%sofarinAugust。

Butoverthecourseof2010itisup4%,broadlyinlinewithotheremergingmarketindexes。

ThePakistanrupeehitarecordlowagainsttheUSdollarof85。

85on2August,butsincethenithasrallied。

ThatspartlybecausecurrencymarketsexpecttheinflowsofhardercurrenciesfromPakistanislivingabroadtoincreaseashelpissenttofamiliescopingwiththefloods。

Inrecentyearstheseremittanceshavecontributedahefty10%ofGDP。

Whatsthebiggestrisk?

Inflation。

Evenbeforethefloods,therateofinflationinPakistanstoodat12。

3%inJuly。

Sincethen,foodpriceshavemorethandoubledinmarketsacrossthecountry,andlooklikelytorisestillfurther。

Ifinflationtakesoff,thatwillputfurtherpressureontherupee。

Suchascenariowouldmakeitharderforthecountrytoserviceitsdebts,including£11bnowedtotheIMF。

Isamilitarytakeoverlikely?

Onlyifthestateprovesunabletocontainthetensionsthathavebeenexacerbatedbytheflooding。

Thesignsarenotgood。

Sofar,PresidentZardawishandlingofthecrisishasntimpressedmanypeople。

Andnationalunityhasbeenshreddedbecausethefloodshavedevastatedthepoorestandleastliterateareasofthecountry。

ReligiousextremiststhriveinKyberPakhtoonkhwa,southernPunjab,northernSindandBalochistan。

Bycontrast,wealthyareas(centralPunjab,Karachi)haveescapedthedisaster。

AttheforefrontofmanymindsinPakistanistheprecedentof1970-1971。

Then,ahorrificcyclone–andtheWestPakistangovernmentscallousresponsetoit–hastenedthebreakawayofEastPakistanasanindependentBangladesh。

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