KARACHI: Pakistan’s central bank warned this week recent torrential rains and flooding could weigh on the country’s fragile economic recovery by straining public finances and hurting farmers’ ability to repay loans.
The State Bank of Pakistan (SBP), in its mid-year review of the banking sector, said while inflation had eased and the currency had stabilized, the impact of climate shocks was now a major concern.
“Recent torrential rains and flooding could pose some challenges to the economic recovery, and may exert pressures on the fiscal account,” the report said.
The floods, which have swamped parts of Punjab and Sindh provinces, are expected to hit the agriculture sector hardest. Farmers dependent on seasonal harvests face the greatest repayment risks.
“The recent heavy floods may weaken the repayment capacity of agri borrowers,” the SBP said, though it noted agriculture loans form a relatively small share of bank lending.
Despite these risks, the central bank said the overall financial system remains strong, pointing to stress tests showing that large, systemically important banks could absorb even severe shocks over the next two years.
“Accordingly, the earning as well as solvency position of the banking sector is likely to remain steady,” the report said, citing “adequate capital cushions” and improving business confidence.
Pakistan has faced repeated climate disasters, most notably the 2022 “super floods” that inundated a third of the country and caused more than $30 billion in damage. T
This year’s floods have again highlighted the country’s vulnerability to climate shocks, even as it implements a $7 billion International Monetary Fund (IMF) program requiring fiscal consolidation.
