Prime Minister Yousuf Raza Gilani has admitted that the damage wrought by flash floods has pushed the country back many years. The dearth of infrastructural facilities in the country, predating the onslaught of the recent floods, was already a major source of concern not only to individual households suffering from massive daily load-shedding, but also to the productive sectors that were forced to cut down operations and scale back their workforce.
Post-floods, life for the people of this country, for the foreseeable future, looks bleaker still. While the government and international efforts are still focused on relief activities and estimates of the damage are at best sketchy, yet few would challenge the Prime Minister's assessment of the losses suffered. His assessment is supported by the United Nations, which has estimated that the cost to the severely cash-strapped government would be in billions of dollars. The question on everyone's mind is where would the government generate the enormous resources required to enable it to continue relief activities and, on completion, to begin reconstruction and rehabilitation work?
The state of the Pakistan economy in the year ending 2009-10 was disappointing. The budget deficit, according to Finance Ministry sources, was around 6.1 percent - around one percentage point greater than what was envisaged when the budget was presented to the National Assembly. This rise is reflective of a further decline in the appallingly low tax-to-GDP ratio, and considerably lower disbursement, relative to the pledged foreign assistance, due partly to the failure of our government to provide a comfort level with respect to improved governance and partly due to the global recession that compelled many Western nations to divert funds to support their own economies.
On the expenditure side, the government announced a 50 percent rise in the salaries of bureaucrats, which has stymied efforts of the provincial as well as the federal government, to contain the budget deficit. Inexplicably, the government decided to raise the salaries of government servants at a time when they were given two weekly holidays and there was no appreciable increase in their output. Many argue that the government should have delayed the implementation of the increase in salaries by one year and diverted the amount to the flood victims.
Development expenditure, invariably the first casualty whenever the government is strapped for cash, would, no doubt, be diverted to flood relief activities. In addition, there is a need to revisit all current expenditures and begin economies on a scale and depth not hitherto seen in the country. President Zardari, in an interview to a UK newspaper, maintained that he won British backing for a Marshall Plan for rebuilding Pakistan and Afghanistan. The President needs reminding that the European Recovery Plan (ERP) better known as The Marshall Plan was a US 13 billion dollar injection into the war-torn Western European economies at a time when the US had emerged as the largest creditor nation in the world. The US, during World War II, had witnessed the fastest period of economic growth in its history, with American factories supporting both its own war effort and that of its allies; after the war ended these factories made a seamless transition to manufacturing consumer goods, which would have been unable to find a market in Europe without the Plan.
One of the three contingent developments that led to the creation of a special new American project to help Western Europe in the spring of 1947 was the gruelling experience of US Secretary of State George Marshall in the Moscow Conference of Foreign Ministers, dedicated to the future of Germany, in March-April 1947. In marked contrast, the President must be aware that the UK government was considering scrapping free milk to under 5s as part of its austerity measures during the week that he was on a tour of the country - a move that was vetoed by Downing Street as it would have obvious political repercussions.
Realism in financial matters is critical to not only meeting the existing challenges that the economy faces, but in also meeting the needs of the flood victims. The plight of over 4 million affected people requires a mini-budget on an emergent basis. One would sincerely hope that Federal Finance Minister Dr Hafeez Sheikh follows his own pledge, as made repeatedly during the budget speech: to inject realism that would ensure that the needs of the vulnerable are met on an emergent basis. This would require a revisit to the revenue source, and one would hope that he can successfully persuade his government to levy a tax on the income of rich agriculturists, as well as a regular income tax on exporters, instead of a nominal levy on their turnover. In addition to these measures, there needs to be a massive slash in expenditure, both current and development.