Pakistan’s Water Crisis Is Maintained by Its Political Economy

Millions of Pakistanis remain water insecure despite the country having abundant water resources. Elite interests tied to water-intensive agriculture have stymied necessary reforms in the political economy. International lenders have also failed to prioritize water security when providing external assistance to Pakistan for decades. Pakistan’s reliance on cotton-based goods perpetuates the problem due to the crop’s high water footprint with little economic benefit. As climate change impacts worsen, addressing structural issues in the agricultural sector becomes paramount to safeguard Pakistan’s collective water security and avert broader regional instability.

As political instability, economic uncertainty, and climate shocks consume Islamabad’s policy bandwidth, another long-term challenge remains neglected–Pakistan’s water crisis. Unequal access to clean water is deepening existing socioeconomic disparities and holds the potential to catalyze civil unrest amid macroeconomic instability. Aging infrastructure, weak water governance, and the unpredictable impact of climate shocks could solidify water security as a threat multiplier for the state and society.

Elite interests tied to water-intensive agriculture stymie the reforms necessary to address structural fault lines in the political economy that perpetuate water insecurity. Also complicating reform efforts are uncertain political timelines and a lack of policy continuity from one government to the next. International lenders, meanwhile, have failed to prioritize water security when providing external assistance to Pakistan for decades. As a result, existing agricultural policies are geared toward maintaining the status quo by borrowing resources–both economic and water-related–from current and future generations.

A confluence of domestic and international factors suggests the current moment may offer an opportunity to address these enduring challenges. Water insecurity is likely to gain increasing domestic political salience as the impacts of climate change are felt by vast swaths of the country, which were seen most dramatically in the aftermath of the devastating floods in 2022. International financial institutions and foreign investors, meanwhile, are demanding demonstrable policy changes and greater accountability.1
Pakistani policymakers can improve domestic water security through policies that incentivize intersectoral transfers within Pakistan’s water-intensive agricultural sector, increase export competitiveness in nonagricultural industries, and revisit the colonial Canal and Drainage Act (1873)to equitably tax water usage. International financial institutions and bilateral lenders can also incentivize such policy changes through adopting environmentally conscious lending, trade, and investment practices. International financial institutions can channel donor states’ voluntary Special Drawing Rights (SDRs) based on demonstrated progress on environmentally focused Sustainable Development Goals (SDGs).2 Bilateral partners seeking to invest in Pakistan’s agricultural sector through the recently created Special Investment Facilitation Council (SIFC) can choose to channel resources into non-water-intensive crops.3
Without meaningful structural changes in Pakistan’s agricultural sector, the water crisis will likely become one of the country’s most consequential domestic challenges going forward, with implications for broader regional stability.

Pakistan has enough water to meet the needs of its population many times over, yet millions of Pakistanis remain water insecure (Figure 1). According to the World Health Organization, 50 to 100 liters of water per person per day enables conditions for a human to live a dignified life.4 Based on Pakistan’s population, the country requires between 3.5 and 7 million acre-feet (MAF) of water to meet its collective domestic demand every year.5 While estimates range, Pakistan’s collective annual water availability roughly amounts to 193 MAF.6
Pakistan’s water crisis relates to equity, access, and intersectoral distribution–not a Malthusian notion of water scarcity.

The United Nations estimates that 40 percent of all annual excess deaths in Pakistan can be directly or indirectly attributed to an insufficient supply of clean water.7 Less than 40 percent of households have access to piped water in Karachi, the world’s seventh most populous city.8 Drought conditions are endemic in rural Balochistan and Sindh, constituting a push factor for increasing rural-urban migration.9 Meanwhile, Pakistan is seen as a booming market for water-intensive urban beautification and horticulture projects as a result of a surge in upscale private housing societies across the country.10 Pakistan’s water crisis relates to equity, access, and intersectoral distribution–not a Malthusian notion of water scarcity.

Agriculture and the Water Crisis

As one point of comparison, Jordan’s per capita water availability is roughly 140 cubic meters per person (whereas Pakistan’s is 1,000 cubic meters per person).11 In other words, Jordanians have roughly seven times less available water per person than Pakistanis. Instead of growing water-intensive crops, 30 percent of Jordan’s agricultural output is tomatoes, a far less water-intensive product.12 To produce 1 kilogram of tomatoes requires 180 liters of water while producing 1 kilogram of cotton requires 9,800 liters of water.13

The helpful but inexact concept of virtual water helps illuminate the water used in a product’s production cycle (Figure 3).1415 Pakistan devotes almost three-quarters of its water supply to cultivating its water-intensive crops: approximately 23 percent for wheat, 21 percent for rice, 19 percent for sugar cane, and 14 percent for cotton (Figure

Existing policies encourage the cultivation of water-intensive crops primarily because water is not priced into the agricultural cost of production. Pakistan’s Canal and Drainage Act (1873) enables consumers of canal irrigation to pay an annual abiana (water tax) charge for water usage.17 Under the Act, the Government of Punjab, for instance, charges flat fees ranging from Rs. (Pakistani Rupee) 400-550 ($2-3) per acre of farmland for a year of effectively unlimited water use.18 By comparison, households in Karachi without municipal water supply typically pay more than Rs. 3,300-4,500 ($12-16) for a standard water-tanker service every week.19

Toward Agricultural Reform

Policy prescriptions in the agricultural sector require nuance to reflect the importance of individual crops. Rice and wheat (roti) are essential crops because they are food staples in the national diet. The government’s stated policy is to prioritize maintaining sufficient stocks to ensure food security, either through domestic production or imports.20 Conflict in Ukraine and recent global supply shocks have increased the domestic focus on ensuring food security through local production.21 While policymakers could consider importing greater quantities of rice and wheat to alleviate domestic stresses on water security, such a policy is not realistic given Pakistan’s foreign exchange shortfall.22 Instead, Pakistan’s cash-crop sector represents a riper target for reform efforts. Pakistan’s primary cash crops, sugar and cotton, collectively consume almost a third of its water resources.23 A recent analysis found that sugar cane alone consumes about 42 percent of the total annual household water demand in Pakistan.24

Pakistan’s primary cash crops, sugar and cotton, collectively consume almost a third of its water resources.

Of the two crops, reforms within the sugar sector are more challenging because Pakistan’s sugar barons wield significant political influence. Sugar mills partly bankroll all of Pakistan’s mainstream political parties. A study found that around 40 of Pakistan’s 89 sugar mills are owned by the political elite and their families,25 whose corporate farming practices have helped Pakistan become the fifth-largest sugar producer in the world.26 Sugar cultivation is entrenched in Pakistan as a result of decades of favorable government laws and policies, such as subsidies and price fixing, which reward uncompetitive practices and artificially prop up sugar’s domestic profitability.27 Phasing out sugar production would inevitably encounter severe pushback from the political elite because of the crop’s importance to their businesses and political stature.28

Beginning reform efforts in the cotton sector could minimize political resistance, while catalyzing a much-needed policy debate about the salience of broader agricultural reforms down the line. Like sugar, cotton is a nonessential, water-guzzling cash crop. State incentives to produce cotton could be feasibly phased out over time in favor of export alternatives–such as high-value goods, services, and information technology–that are more sustainable for Pakistan’s long-term economic and water security.29

Exporting Water

Pakistan’s reliance on water-intensive cotton exports has made it the largest exporter of virtual groundwater in the world, ahead of the United States and India.30 Pakistan roughly exports 13 MAF of its total water supply through cotton-based textiles annually.31 In other words, Pakistan exports between two or three times the amount of water it needs to satisfy domestic demand yearly

One key challenge to reining in cotton production is the outsized role the crop plays in Pakistan’s overall exports. The cotton industry contributed to almost 60 percent of the country’s total exports, making cotton an important source of foreign exchange amid recurring challenges to the balance of payments (Figure 6).32 Despite cotton’s importance in generating foreign exchange reserves, the cotton industry constituted only 0.3 percent of Pakistan’s gross domestic product, indicating that the country’s exports are of extremely low value both domestically and internationally.

Recent macroeconomic challenges and low foreign exchange reserves have fueled policy impulses to double down on cotton and agricultural production. Pakistan plans to double cotton production by 2025 to increase exports and generate foreign exchange reserves.34 The military has launched corporate farming schemes in a partial bid to seek external assistance from the Gulf states.35 Punjab’s government recently announced cash rewards for cotton producers and related government departments.36

Pakistan’s reliance on water-intensive cotton exports has made it the largest exporter of virtual groundwater in the world.

Successive administrations have sought to increase Pakistan’s exports.37 International financial institutions have also pushed for market-determined foreign exchange rates to incentivize cheaper exports and increase competitiveness.38 Export-oriented policies should retain their primacy because they help increase cumulative exports and reduce stress on diminishing foreign exchange reserves. However, increasing exports while maintaining the current range of cotton-based goods will severely drain Pakistan’s water resources.

Navigating Challenges

While there are no easy fixes, Pakistan could minimize its reliance on cash crops and work toward long-term economic and water sustainability through forward-looking strategies that prioritize export diversification. The state can consider targeted initiatives, beginning with the cotton sector, to move away from the abiana levy and to price water into the cost of agricultural production. Targeted water pricing would create disincentives for producing cotton, while simultaneous incentives in other export sectors could help boost alternative high-value sources of foreign exchange reserves in the long term.

This could also help address exploitative formal and informal markets that limit domestic access to water. Costly water-tanker services already fill the supply void in water-stressed cities like Karachi, where municipal water lines are not reliable water-supply sources. Pricing water for nonessential cash crops such as cotton and sugar–instead of indirectly pricing water at exorbitant rates–can help limit the potential for civil unrest amid growing inflation.3940

Agricultural reforms, like all reforms, generate winners and losers. There are four key hurdles to instituting agricultural reforms in Pakistan: (1) pressure on the country’s foreign exchange reserves; (2) the impacts of reforms on national food security; (3) elite interests in cash-crop sectors; and (4) the impacts on farmers’ livelihoods. All these concerns, while valid, are not insurmountable, especially through a phased, iterative approach to specific cash-crop reforms.

First, the challenge with Pakistan’s foreign exchange reserves is not the import bill, but rather low export receipts. Policies focusing on increasing exports through Pakistan’s current basket of cotton goods do not offer a viable solution for Pakistan’s long-term economic or water security. Cotton, the largest export product, has intrinsically low value in domestic and international markets but demands exceedingly high costs for Pakistan’s water security. At the same time, export quality has been improving in the services sector, according to the World Bank. Knowledge-intensive exports grew from 10 percent of all service exports in 2010 to 50 percent in 2020, which is now almost equal to all of Pakistan’s vegetable sectors combined.41 Policies incentivizing the trend of exporting high-value goods, services, and information technology should continue to be encouraged–rather than policies geared toward the export of knitwear, bedwear, or towels.

Policies focusing on increasing exports through Pakistan’s current basket of cotton goods do not offer a viable solution for Pakistan’s long-term economic or water security.

Second, differentiating between essential and nonessential water-intensive crops is important when delineating where the onus of reforms should fall. Cash crops do not significantly impact Pakistan’s food security. Like rice and wheat, sugar cane (importantly, not sugar) is a critical component of food security, too. Sugar cane’s high fiber content makes it a key component of diets in rural Pakistan. However, once sugar cane is processed into sugar, it becomes a cash crop. Policies related to agricultural reforms should not impact goods that contribute to Pakistan’s food security. Rather, they should seek to substitute the value generated by cash crops through long-term export diversification strategies.

Third, encouraging export diversification as an alternative to cotton production could partly assuage inevitable pushback from elite interests. Iterative reforms in the cotton sector would increase domestic water availability in the short term while giving policymakers time before initiating reforms in the more politically divisive sugar sector in the medium term. Simultaneous export diversification incentives for high-value goods and services would also attenuate stresses on Pakistan’s water sector while generating more foreign exchange reserves than current cotton-based exports.

Fourth, it is important to distinguish the impact of reforms on subsistence farming and corporate farming. Agricultural elites largely use corporate farming techniques that do not require subsistence labor, reducing the human impact of reforms relative to subsistence farming.42 Highly mechanized sectors such as cotton require relatively fewer labor inputs from small-scale subsistence farmers. Nevertheless, farmers have historically protested increases in production costs.43

A two-pronged approach might help mitigate economic risks to potentially vulnerable subsistence farmers through pricing water for cash crops. Deploying cash transfers could mitigate the immediate, short-term losses of farmers moving away from cultivating cash crops. Next, cash transfers could be coupled with land grants and voluntary training programs to ensure farmers could grow other crops. A recent survey indicated that more than 60 percent of farmers were willing to change their farming practices.44 Such flexibility was evident in responses to the 2020 locust attacks, which pushed farmers to adjust and explore alternative crop options, albeit through natural phenomena and not policy dictates.45 In addition, Pakistan should learn from other countries with similar climates and economies to seek less water-intensive crops more conducive to safeguarding collective water security.

Looking Ahead

Uncertain political timelines have historically dissuaded policymakers from engaging in structural reforms. Policymakers have relied on international economic assistance instead of instituting reforms to foment ostensible economic stability while protecting their political capital. Given perennial political resistance to reform implementation, the international community can play a role in incentivizing needed changes in the agricultural sector.

By guiding investment dollars toward more sustainable agricultural practices and rewarding reforms with additional external support, international donors and lenders can partner with Pakistan in mitigating its growing water scarcity. This should be a key objective of the U.S.-Pakistan Green Alliance given its focus on climate-smart agriculture, renewable energy, and water management in service of climate resilience, energy transformation, and inclusive economic growth.46 Pakistan’s Gulf partners have also reportedly expressed notional interest in investing $6 billion in military-run corporate farms over the next five years.47 Should Pakistan’s international partners choose to invest in water-friendly farming practices with a focus on less water-intensive crops, their investments could pay dividends in incentivizing water-conscious agricultural practices domestically.48

Given perennial political resistance to reform implementation, the international community can play a role in incentivizing needed changes in the agricultural sector.

International financial institutions assisting Pakistan often neglect the environmental impact of their policies, particularly those promoting the expansion of cotton-intensive exports, which harms Pakistan’s water security. Recent developments, such as the voluntary reallocation of IMF Special Drawing Rights (SDRs) in response to the COVID-19 pandemic, present opportunities for positive change.

The International Monetary Fund’s (IMF’s) SDRs are reserve financial assets that supplement foreign exchange reserves, with advanced economies receiving most of the SDR allocation.49 In 2022, G20 finance ministers supported voluntarily channeling their IMF SDRs through international financial institutions to countries facing liquidity challenges.50 However, there has been a lack of leadership in redistributing SDRs through international financial institutions, which, if addressed could create new opportunities going forward.51

The United Nations and the World Bank are well-positioned to allocate SDRs based on countries’ progress in achieving water-related Sustainable Development Goals. This approach could incentivize countries like Pakistan, facing liquidity challenges, to implement essential policy changes and adopt water-conscious practices in anticipation of progressive lending strategies.

Civil unrest, economic challenges, political fragility, and transboundary water disputes already plague Pakistan. Water insecurity, if left unaddressed, could exacerbate any or all of Pakistan’s existing challenges as a threat multiplier with dangerous downstream implications. The alternative is for Pakistan’s policymakers to center the public, not cash-crop-producing agriculturalists, as the primary beneficiary of the country’s ample water resources through iterative agricultural reforms.

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