Water Crisis in Pakistan: A Dynamic CGE-Water Model

3 The demand for freshwater is growing rapidly in Pakistan due to rising agricultural cultivation 4 and its intensification. In addition, the fast growing population in the country (almost 2% per 5 annum) and industrial growth are also adding to the rising water demand in the country. 6 Pakistan is expected to face severe water shortage in near future if suitable policy measures are 7 not taken. Around 95% of the freshwater is used by agriculture in Pakistan while the rest is used 8 by the industry and the private households. Therefore, this paper primarily focuses on the 9 irrigation water and how its shortage is going to affect the economic structure of Pakistan. The 10 irrigation water shortage is expected to increase the price of agricultural land temporarily while a 11 permanent increase is expected in the market price of irrigation water. The irrigation water 12 shortage has a direct and an indirect impact on the production of various crops, which ends up in 13 reducing the crop production. Overall, the resulting GDP losses might reach around 3.11% to 14 11.07% till 2040 under different water shortage scenarios. Finally, our simulation results show 15 that the welfare losses are expected to be around USD 3.5to 10.9 billion till 2030. 16


I. Introduction 22
The sub-continent region especially Pakistan inter alia relies heavily on the irrigation water 23 supplies via man-made or natural sources to fulfill the agriculture sector demand. This is 24 however alarming that acute water shortages in the country are observed in recent years e.g. it 25 has been noted that in 2010, per capita availability of water was around 1,040 cubic meters, 26 which is expected to drop to around 500 cubic meters by 2035 (Ministry of Water Resource, 27 Pakistan, 2018).A water crisis is a situation where the available potable, unpolluted water within 28 a region is less than a region's demand. The water scarcity issues are inter alia derived by the 29 climate change including droughts, floods, pollution as well as overuse of water, increase in 30 population and intensive use of water in agriculture (Alam, 2015). Also, the fresh sources of 31 underground water have not been replenished due to the human, agricultural and industrial 32 wastes (World Bank, 2018). According to the Falkenmark Water Stress Indicator discussed in 33 climate change (2001) report, a country or region is said to experience "water stress" when 34 annual water supplies drop below 1,700 cubic meters per person per year. At levels between 35 1,700 and 1,000 cubic meters per person per year, periodic or limited water shortages can be 36 expected. When a country is below 1,000 cubic meters per person per year, the country then 37 faces water scarcity. 38 The current water storage capacity in Pakistan is less than ten percent (about 13.7 million acre 39 feet, MAF onwards) of the total water received (about 145 MAF) every year (Ministry of water 40 resource, Pakistan, 2018). Also, Pakistan has the largest irrigation system of canals and yearly 41 needs 40 MAF but there is an absence of new dams' therein causing 29 MAF waste of water. 42 Therefore, Pakistan is running out of fresh water at an alarming rate, and the country is 43 anticipated to suffer an irrigation water shortage of 31 MAF by 2025. Such a shortfall is 44 devastating for an agriculture-based economy. 45 Notwithstanding, agriculture sector is inter alia major/noteworthy user of water and related 46 concerns discussed before. The country has a large pool of labor force in the agriculture sector 47 and agricultural output/gross-domestic-product (GDP) has almost 19 percent plus share in 48 aggregate GDP of the country (Economic Survey of Pakistan, 2019-20). Also, the country is an 49 exporter of raw material like cotton and rice as well as of ready-made products like milk packs, 50 3 cloths, jackets etc. wherein the dependence on the agriculture sector is pivotal and inevitable for 51 a sustainable trade. Exporting such products provides job opportunities in the local industry, 52 generates economies of scale therein low cost of products as compare to world market prices, 53 raises foreign reserves therein the purchasing power of the domestic currency and overall 54 increases the GDP via multiplier's effect, ceteris paribus. There are also forward-backward 55 linkages of the agricultural production leading towards more job creation and output production 56 in the economy as well. The previous discussion clearly implies that water shortages are harmful 57 to the agricultural sector as well as other sectors of the country both directly and indirectly.

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Considering the role of sustainable water supplies with respect of agricultural and other sectors, transition from a water stressed to a water scarce country. It is important to know that the 68 minimum water requirement is 1,000 cubic meters per capita per year if a country wants to 69 escape water scarcity while it is 1,700 cubic meters per capita per year to escape the water 70 stress condition.

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Pakistan's economy primarily depends on irrigated agriculture, and it consumes more that 95 72 percent of the total fresh water resources in the country, while the remaining balance is 73 consumed by domestic and industrial users (Ministry of Water Resources, 2018). We can figure   74 out how the deteriorating freshwater resources can adversely affect the agriculture in Pakistan.

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Hence, the water shortage in the country would translate mainly to the production losses of 76 irrigated agriculture in Pakistan. Therefore, the prime objective of the study is to understand the 77 potential gains/losses of the water management considering the scenarios described earlier 78 therein for the sustainable economic development of the country. The rest of the study is as follows; section 2 discusses major studies and their research findings 80 therein gaps and modeling frameworks used. Section 3 discusses the economic and econometric 81 models of the present study while section 4 discusses the course of simulation analysis. Section 5 82 presents the simulation results of different scenarios employed, finally, section 6, concludes the 83 research findings.  (Table 1).

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Many of the studies link the water scarcity with agriculture in one way or the other. Chen et al.

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(2012) suggest that water scarcity may be tackled by improving local agricultural practices. Likely,  The present study develops a dynamic CGE water (Gdyn-W) model, which is a multi-region, short-term to medium-run while allowing perfect capital mobility in long-term. The new production structure in Gdyn-W model enables substitution likelihoods between 122 irrigation water and other key factors of production whereas which is missing in the standard 123 GTAP model (Hertel, 1997). Hence, it allows substitution likelihood between irrigation water and 124 irrigable land using a nested CES function at a lower level in, which represent the first nest. The 125 demand for irrigation water (Wtr) along with irrigable land (Lnd) becomes: Where the unit cost of the irrigable land-water composite is: In the second (lower) nest, producers also add capital and energy composite using a CES function.

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The demand for energy and capital composite becomes:

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Unit cost of the capital-energy composite becomes: At the middle level of nest, producers combine the irrigable land-water composite, rainfed land, The demand for water is growing rapidly overtime in Pakistan due to rising agricultural 174 cultivation and its intensification. In addition, the fast growing population in Pakistan (almost 2% 175 per annum) and industrial growth are also adding to the rising water demand in the country.     In our model, economic (equivalent) welfare is derived from the national income allocated 284 between private and government consumption while the rest of it is saved (Hertel 1997   The results also indicate that water shortage reduces the level of welfare in Pakistan under both 321 of our scenarios. Initial impact of water shortage is somewhat similar under both scenarios till 322 around USD 3.5 billion and 10.9 billion in 2030 under the Scenario 1 and Scenario 2, respectively.

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The gap between the two scenarios increase greatly as the welfare losses increase by 12.6 billion 325 and 44.5 billion under the Scenario 1 and Scenario 2, respectively.

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The research findings nevertheless imply for the provision of water conservation methods as well