Water Crisis in Pakistan: A Dynamic CGE-Water Model

Abstract

The demand for freshwater is growing rapidly in Pakistan due to rising agricultural cultivation and its intensification. In addition, the fast growing population in the country (almost 2% per annum) and industrial growth are also adding to the rising water demand in the country. Pakistan is expected to face severe water shortage in near future if suitable policy measures are not taken. Around 95% of the freshwater is used by agriculture in Pakistan while the rest is used by the industry and the private households. Therefore, this paper primarily focuses on the irrigation water and how its shortage is going to affect the economic structure of Pakistan. The irrigation water shortage is expected to increase the price of agricultural land temporarily while a permanent increase is expected in the market price of irrigation water. The irrigation water shortage has a direct and an indirect impact on the production of various crops, which ends up in reducing the crop production. Overall, the resulting GDP losses might reach around 3.11–11.07% till 2040 under different water shortage scenarios. Finally, our simulation results show that the welfare losses are expected to be around USD 3.5to 10.9 billion till 2030.