INFLATION

Inflation means sharp upward movement in the price level. Inflation is generally associated with the abnormal increase in the quantity of money resulting in the abnormal rise in the prices.

Causes of Inflation

Two types of inflation

• Demand Pull Inflation
  
  • High monetary expansion
    
  • Increase in population
    
  • Deficit financing
    
  • Hoarding
    
  • Natural Clamities
    
• Cost Push Inflation
  
  • Increase in price of raw material
    
  • Increase in wages
    
  • Increase in indirect taxes
    

 

Preface

At the request of the Government of Pakistan, a mission led by the Asian Development Bank (ADB) and the World Bank conducted a preliminary damage and needs assessment. This assessment estimates the damage and reconstruction costs of the October 8, 2005 earthquake that struck areas of the North West Frontier Province (NWFP) and Azad Jammu and Kashmir (AJK) in Pakistan.

Effects on Inflation

Hence, there will be a need for a monetary policy geared towards containing inflation, in the absence of which average inflation in FY06 could reach double digits, hurting the poor excessively.

 

Earthquake Effects on different sectors

• Social Infrastructure
  
  • Housing
    
  • Health
    
• Physical Infrastructure
  
  • Transport
    
  • Energy, power and fuel
    
• Economic Sectors
  
  • Agriculture and livestock
    
  • Industry and Services
    

Pakistan earthquake:

Housing. Damage – Rs. 61.2 billion (US$1.03 billion). Across AJK and NWFP, the earthquake destroyed 203,579 housing units, while 196,573 were damaged to various degrees. These include 116,572 destroyed and 88,368 damaged in AJK, and 87,007 destroyed and 108,205 damaged in NWFP. Losses to the housing sector represent 84 percent of the total housing stock in the affected Districts of AJK, and 36 percent of housing stock in the five affected Districts of NWFP. The affected houses are predominantly rural, with urban units accounting for only 10 percent of the total.

Reconstruction needs and strategy – Rs. 92.2 billion (US$1.55 billion). The reconstruction strategy for the housing sector is underpinned by the following nine principles: (i) promote hazard-resistant construction standards and designs; (ii) rebuild in-situ; (iii) ensure rebuilding is owner-driven; (iv) rebuild with familiar methods and easily accessible materials; (v) relocate settlements only when necessary; (vi) ensure urban replanning is limited and strategic; (vii) offer uniform assistance that is not compensation-based; (viii) coordinate multiple reconstruction initiatives and standards for equity; and (ix) link housing to livelihoods and infrastructure rehabilitation.

Inflation Effect.
Inflation effected very badly to housing industry due to high price level of house construction items and material such as cement, steel, sand and machinery. If we take a look as a producer point of view the producers are taking much benefits after earthquake because of widely increasing demand of construction related material and instruments. Due to increase in the price level of all construction items, consumers are also affected.

 

Health. Damage – Rs. 7.1 billion (US$120 million). The immediate need is to treat the more than 70,000 people with injuries. The earthquake's impact on the health sector also includes severe damage to health infrastructure and health systems. About 574 health facilities have been partially damaged or destroyed. Moreover, health management was paralyzed at the central level in AJK, district, and at the facility level. These losses have resulted in a complete breakdown of the health system and a total disruption of both secondary and primary care service provision.

Recovery needs – Rs. 18 billion (US$303 million). The immediate focus needs to be on the revitalization of the primary health care system, the provision of services in tented villages and for the newly disabled and psychological care for survivors and health care workers. The estimated short term cost is Rs. 7.2 billion. In the medium term, all levels of health facilities, including secondary care hospitals, will need to be reconstructed and re-equipped. The health system management should be strengthened and the disabled should experience community-based rehabilitation. The estimated cost of the medium to longer term recovery plan is Rs. 10.8 billion.

Inflation Effect. Medical staff and medical instruments has been consumed heavily to injurious peoples, thus the shortage has occur. The production of medicines and surgical instruments and all related material is increasing but this ratio is not so sufficient. Thus the average price of these items is being increased gradually.

 

Transport. Damage – Rs. 20.2 billion (US$340 million). Damage to the mountainous roads in AJK and NWFP is largely due to landslides precipitated by the earthquake, but the intensity of the damage varies. In AJK, it is estimated that 2,366 km roads were damaged. Of this 203 km are major roads, 761 km are other paved roads, and 182 km are unpaved shingled roads for a total of 1,146 km representing 45 percent of all Public Works Department (PWD)-managed roads. These include the Neelam Valley road, and to a lesser extent the Jehlum Valley road, which are the primary transport arteries in AJK. Another 1,220 km of local unpaved roads are damaged, representing 44 percent of the total Local Government and Rural Development (LGRD) roads in the affected districts. Damage in AJK is estimated at Rs. 9.2 billion (US$155 million). In NWFP, 2,063 km of roads were damaged, representing 31 percent of the total road network in the affected Districts. Of this amount, 652 km comprise provincial highways managed by FHA, 1,016 km are paved provincial roads that were devolved to the Districts, 367 km are unpaved district roads, and 27 km are urban roads managed by municipal agencies. The estimated damage in NWFP is about Rs. 7.49 billion (US$124 million). The damaged length of the three national highways that provide main access to the northern areas of NWFP is about 194 km, representing 72 percent of the total length. The estimate of assessed damage to the national highways is Rs. 3.5 billion (US$59 million).

Recovery needs – Rs. 24.7 billion (US$416 million). Immediate needs include: (i) the removal of landslide debris and the reopening of roads to traffic; (ii) restoration of roads and bridges; (iii) stabilization of road embankments to withstand the oncoming snow; (iv) comprehensive condition surveys of all damaged roads to plan and prioritize the reconstruction and recovery works; and (v) reconstruction of unpaved local roads using labor-based appropriate technology methods employing communities and individuals to create livelihood opportunities. Short term activities include: (i) planning and engineering design; (ii) bidding of the priority damaged paved roads; and (iii) mobilizing for construction. A total of Rs. 5.1 billion, or US$86 million, will be needed for this phase. Medium to longer term recovery efforts include: (i) continuation of the bidding for the remaining damaged paved roads; (ii) supervision and monitoring of the ongoing reconstruction works; (iii) stabilization of the roadside slopes damaged by landslides and potential landslide areas; and (iv) review and improvement of design standards. A total of Rs.19.6 billion, or US$330 million, will be required for this phase.

 

Energy. Damage – Rs. 744 million (US$13 million). Damage to the four energy sub-sectors—power, petroleum and gas sectors, and subsistence fuels (wood and dried dung)—consists primarily of destroyed operational buildings, staff quarters, equipments in the power sector, and damage to retail stations and related inventory in the fuels sector (petroleum, liquefied petroleum gas (LPG), and natural gas). In addition, ten hydropower generation stations have been partially damaged and will require repairs to return to full operational status. The bulk of power and fuel supply was restored within days of the earthquake, and power is being supplied to all accessible urban and rural areas. For the most part, the initial repairs are temporary and will need to be revisited to establish permanent technical and building structures for continuous energy supply.

Recovery needs – Rs. 2.4 billion (US$40 million). For the recovery of the energy sector, two immediate priorities include the electrification of the tent villages and restoration of electricity supply to the customers whose services have not yet been restored. In the short-term, the repair and rehabilitation of existing damaged distribution lines, transformers, and service connections is needed. The sufficient provision of electricity must be an integral part of the planning and implementation process to ensure that new service connections are in place to supply power to newly constructed houses. The cost estimates have incorporated technological upgrading of the equipment to ensure improved efficiencies and quality of services, which will benefit the area through increased economic activity. A major additional cost related to the reconstruction of the energy sector is caused by the moratorium on electricity payments. In order to ensure financial sustainability, payment for power and fuels will have to be made to protect the distribution companies and fuel retailers.

 

Industry and Services. Damage – Rs. 8.6 billion (US$144 million). Due to the lack of any major industry or manufacturing in the affected areas, the damage to the private sector is largely restricted to trade activities. All eight affected districts have a substantial number of trade-related activities comprising retail, restaurants, and wholesale warehousing. Mansehra district in NWFP, which contains the tourist towns of Kaghan, Naran, and Balakot, also sustained significant damage to its tourism infrastructure. Similarly in Muzaffarabad district in AJK, the handicraft sector was substantially damaged. Direct damage to assets in the private sector comprises building façades of commercial enterprises, which are mainly restricted to retail shops. The capital damage indicates losses to the goods,.Pakistan: Preliminary Damage and Needs Assessment 18 inventories, and other working capital. These establishments also suffered indirect losses, which refer to output lost due to business interruption caused by the earthquake.

Recovery needs - Rs. 9.2 billion (US$155 million). The reconstruction needs for the trade sector are attributed to the reconstruction of the damaged and destroyed buildings and the replacement of lost capital assets. In the short term, the aim should be to restore the abilities of medium, small-scale and even unregistered businesses to restock basic supplies and to re-engage in commerce, which is central to the livelihoods of people living in affected areas. Restoring basic infrastructure and facilitating access to financial resources—from domestic and foreign remittances, microfinance institutions, and banks—is an essential first step. The Government will have a key role to play in helping entrepreneurs rebuild their businesses quickly and returning commerce to normalcy in the affected regions.

 

Agriculture, Livestock and Irrigation. Damage – Rs. 13.3 billion (US$223 million). Based on data from the UN FAO team and information from concerned government officials, the earthquake severely damaged crops, livestock and irrigation subsectors in both AJK and NWFP. Direct damage to crops includes loss of harvested and standing crops, disruption of terraces and soil conservation structures, spoilage of stored grains and animal feed, and structural damage and destruction to extension and research buildings amounting to Rs. 4.0 billion (Rs. 3.2 billion in AJK, Rs. 0.75 billion in NWFP). The indirect damage of Rs. 712 million (Rs. 529 million in AJK and Rs. 183 million in NWFP) represents value of wheat productivity losses in the coming rabi season and amortized value of fruit production. The direct damage to the livestock sub-sector equals about Rs. 9 billion, which is accounted for by the loss of large and small ruminants and poultry, animal sheds, and damage to extension and research buildings. The indirect losses to the livestock sector, mainly loss of milk productivity, are estimated at Rs. 6 billion (US$102 million). The main damage to the irrigation sub-sector has been to the water channels, diversion structures, water lifts, spillways, and water tanks, amounting to Rs. 324 million (Rs. 240 million in AJK and Rs. 84 million in NWFP).

Recovery needs – Rs. 18.5 billion (US$311 million). The immediate requirements in the next month are for winter crops, mainly wheat cultivation, construction of temporary animal sheds for protection from severe cold, and repair of water channels. If support for wheat cultivation is not extended in time, the affected persons will be unable to grow wheat, which is their main staple. Similarly, if shelter for animals is not provided immediately, there will be substantial loss of the remaining livestock inventory. These needs would require an immediate support of Rs. 3.3 billion (US$56.5 million). In the short term, Rs. 1.9 billion would be required for the restoration of the relevant line agencies' buildings and rehabilitation of irrigation facilities. In the medium term support would be needed for replanting fruit trees, rebuilding terraces, replenishment of livestock inventory, rehabilitation of productive infrastructure, and reconstruction of laboratories, offices of extension and research for agriculture, livestock, and irrigation departments. Over the longer term the focus should be on restoring livestock inventories and. Pakistan: Preliminary Damage and Needs Assessment 15 rehabilitation of terraces and soil conservation infrastructure that have been severely damaged. It is necessary to reestablish the agricultural sector in a sustainable manner through strengthening institutional capacities and providing support services.