Floods 2025: Pakistan faces $1.4bn economic loss, agriculture hit hardest

The ongoing devastating monsoon floods of 2025 are set to inflict heavy losses on Pakistan’s delicate economy, with initial estimates putting the total cost at Rs409 billion, i.e. $1.4 billion, amounting to 0.33% of GDP, said Arif Habib Limited (AHL) in a report.

The country’s agriculture sector is expected to bear the brunt of the destruction, with damages of Rs302 billion ($1 billion).

“This accounts for nearly three-fourths of the total and about 0.24% of GDP, reflecting the sector’s acute vulnerability to climate shocks and the risks these events pose to food security and rural livelihoods,” read the report.

The floods have submerged 1.3 million acres of farmland in Punjab, Pakistan’s key agri hub, wiping out vital cops including rice, sugarcane, cotton, and maize. “The latest floods have submerged millions of acres of farmland across the country, crippling output and threatening livelihoods,” read the report.

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The fallout is expected to dent Pakistan’s economic recovery, as AHL revised down its FY26 GDP growth projection to 3.2% from 3.4%, with agriculture forecast slashed from 2.2% to just 1.1%.

“Media reports suggest that agricultural output in affected regions may fall by 15–20%, translating into a 0.5–1.0% drag on national GDP growth in the current fiscal year.

“Beyond the immediate destruction, secondary repercussions such as soil salinity, disruptions in irrigation systems, and breakdowns in supply chains are expected to intensify the strain, potentially pushing food inflation higher by 20–30% and raising import needs for essential commodities like wheat and cotton by 10–15%, according to preliminary estimates,” said AHL.

The country’s trade sector is also expected to suffer. The trade balance could weaken by $1.9 billion in FY26, as cotton imports surge by over $1 billion to meet textile industry demand. At the same time, export earnings from key crops are projected to fall sharply — rice shipments may fall by $278 million, sugar by $283 million, and textile exports by around $300 million.

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On the inflation front, as risks to crop yields and food security take shape, inflation is expected to face further upward pressure.

Shortages in key items, including meat, rice, vegetables, and sugar, are likely to fuel a price spike, “which could lift our annual average CPI forecast for FY26 to 7.2%, compared with the pre-flood estimate of 5.5%,” read the report.

Analysts caution that while the headline figure of 0.33% of GDP may appear modest from a macroeconomic perspective, this is only an initial assessment. As both direct and indirect repercussions become clearer in the days ahead, the final damage estimate is likely to be higher.