The Damage and Needs Assessment (DNA) report on the floods isn public yet. But according to media reports, the DNA puts the loss, to the public and private sector, to the tune of $9.5 billion. Reportedly, the numbers are estimated to be based on historic cost; however, rehabilitation and reconstruction expenditure is going to be incurred at market prices, which is going to be in the vicinity of $25-30 billion.
Earlier, some seasoned economists expected the loss to GDP to be around $7 billion, and with the historic capital-to-output ratio at 4x, the capital loss was estimated to be around $28 billion. So the DNAs initial estimates are not far from the numbers earlier quoted in this section. Nonetheless, the DNA calculations are much lower than the estimate of $43 billion earlier cited by the prime minister.
The break-up of losses presented to government officials by the World Bank is as follows: $5 billion in crops losses, damage to roads and bridges and houses to the tune of $2 billion each, and the rest of $0.5 billion lopped off due to loss of public buildings, including schools and hospitals.
Nonetheless, sources close to WB told BR Research that the DNA is not complete and the process is ongoing, which is likely to be finalised by the end of the month. The presentation given to the Planning Commission was only to help the governments economic managers present their case to the Friends of Democratic Pakistan (FoDP) officials in a high level meeting scheduled today.
Still, the final DNA numbers are likely to be around the current estimates. Hence, to spend about $25-30 billion (Rs2.1-2.5 trillion), both the federal and provincial governments and donors are required to collectively spare Rs500-600 billion a year, at least, for the next four years for rehabilitation and reconstruction work.
The government is planning to slash the federal portion of the PSDP allocated for FY11 by Rs84 billion or 30 percent and has asked provinces to seal their development expenditure at previous years level. Together, this can result in budget savings of Rs257 billion, or 40 percent.
On the revenue generation front, the government is planning to impose a one-time flood tax. But, according to leading tax experts, flood tax being a provincial subject, the amount proposed to be collected in this regard will be peanuts.
So with government spending seen at around Rs250-300 billion a year, a similar amount ought to be raised from foreign multilateral and bilateral sources. In this manner, the government might be able to complete reconstruction work and take the economy back to the pre-floods level in 4-5 years time.
The plan to divert 40 percent of each years development expenditure on floods reconstruction is going to be tabled in the FoDP moot today where economic managers are hoping that the forum will deliver on its promised commitments in due course.
But as Hillary Clinton aptly said, Pakistan has to do more on taxes. The IMF has been pushing our economic managers on this issue for the last two years. Lately, the World Bank and the Asian Development Bank have pegged their financial assistance to fiscal and power sector reforms. Its a no-brainer that the FoDP might just repeat the same lecture in todays moot.
And yet, no consensus has been formed between the provinces and the federal government on the imposition of reformed GST. The implementation of reformed GST from November 1, 2010 is in serious jeopardy and so are IMFs next tranches and the materialisation of FoDP pledges.
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