Financing flood relief and reconstruction (The News)

Who will foot the cost of flood relief, rehabilitation of the affected millions and reconstruction of the damaged houses and infrastructure? The provinces are looking towards the federal government. The federal government is looking up to the international donors and lending institutions. And is pondering whether it should raise additional revenue by increasing taxes. The man on the spot is the Federal Finance Minister Dr. Hafeez Shaikh.

His misfortune is that he had inherited the economy which had just come out of the intensive care unit and was beginning to stabilise. But then the most devastating floods in the history of Pakistan washed away the little comfort level he might have felt before the floods. There are various estimates floating around about the money required for meeting the three “Rs” — relief, rehabilitation and reconstruction. Prime Minister Yousuf Raza Gilani has claimed that Pakistan needs $43 billion to meet the “3-Rs.”  Now it is not clear how the PM came up with such an exaggerated figure. As it is the country’s image is pretty bad internationally, such rash claims further damage our credibility. If the government is thinking that they can get a lot of financial support by over-stating the damages figures, it is sadly mistaken. And such hopes would not gear it up to look inward and consider what can we do for our country.

A safe estimate is that Pakistan needs at least Rs 650 billion – around $8 billion. Some government officials say that it would be in the region of around Rs1000 billion — $11.7 billion. But I would rather go with the former conservative estimate. In any case the bureaucracy and the politicians have a tendency to exaggerate.

Before looking out for international donations and loans, which many Pakistanis think is their birth right, we should not forget that we do not have a very good image abroad. I would consciously not use the word ‘perception’ here because many among us try to project that there is nothing wrong with us it is only that we have a negative perception abroad. Perception about us, a leading communication guru Harold Burson once said, is based on our behaviour. The world has a right to know what we are doing for ourselves.

So let’s day-dream what we can do to raise the Rs650 billion. Late Dr. Mahbubul Haq, one of the finest economists this country has produced, had once said in the mid eighties that Rs40 billion can be saved if the corruption is controlled in the country. I asked him how he arrived at that figure. He said it is just a guesstimate based on the fact that what percentage of taxes is evaded with the connivance of tax collectors and the development expenditure pilfered by the bureaucracy. I worked it out again with him and the figure doubled, which was then reported by me in Dawn quoting Dr. Haq. If we apply the same formula and control the taxation department’s corruption the government can raise another Rs270 billion. To be conservative this figure is based on revenue receipts of 2009-10.

According to some MNAs and retired bureaucrats in Sind almost 60% of the development budget is shared by the politicians and bureaucracy.  Market reports are that the ratio of corruption varies from province to province. But Balochistan and Sindh top this list and in that order. So even if the federal and provincial governments manage to control the leakage by 20 per cent it can save at least Rs160 billion.

Tightening of the non-development expenditure can yield another Rs100 billion at least. There is lot of wasteful expenditure and misuse of the official facilities is rampant which leaves room for saving. If the nation cannot tighten the expenditure when it is faced with the worst-ever calamity, then it would never be able to do it. So by controlling tax evasion and corruption the government can have access to over Rs530 billion – $6.2 billion. This calculation is not based on an idealistic notion that corruption and tax evasion would be eliminated completely. Substantial amount can be raised by levying a 10% one time flood surcharge on the luxury items and income of the companies and individual earning above Rs1.2 million. The difference can be met from the one billion dollars donations that have been pledged. In this I have not taken into account the billions of rupees raised by the NGOs for the relief from within Pakistan and abroad.

It’s easy to take the budget books and calculate how the required funds should be raised through improvement of economic governance. But the real problem is to gather political courage to implement the strict economic discipline. This is where the federal and provincial governments are deficient. The general feeling is that economic management is not at the top with these governments. At the centre Dr. Shaikh is not getting cooperation from other cabinet colleagues. It is this political lobby which has always given a tough time to all technocrat finance ministers like Sartaj Aziz, Mahbubul Haq, Shaukat Aziz, Salman Shah and Shaukat Tarin.

The government should also realise that in a cash-strapped country the finance minister’s position should be re-designated as an economic minister having a status of the deputy prime minister. Most economic decisions of other ministries are actually taken in the committees headed by the finance minister, so why not institutionalize this office. (

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