The week in focus

The government has indicated that it will slash 50 per cent of the development budget and give funds to flood relief.


Ghazanfar Ali August 16, 2010

The government has indicated that it will slash 50 per cent of the development budget and channel these funds towards flood relief activities, but experts differ on whether this is the only viable option.

Though it cannot be denied that flood-hit people need immediate help, what path the government should take to swiftly provide assistance to its displaced and devastated citizens remains a big question.

According to reports, floods in Punjab, Sindh and Khyber-Pakhtunkhwa, triggered by torrential rains over the Indus basin, have resulted in the death of 1,600 people and displacement of around two million. The World Bank says the deluge has swamped agricultural crops, causing losses of approximately $1 billion.

Besides cutting the development budget, the government is said to be considering imposing a one-off surcharge on all income groups and imports to bag an extra Rs138 billion which will be utilised to fund the cost of rehabilitation. The federal government has also asked the provinces to freeze their expenditures and spare money for reconstruction.

A government official has said that the country may not be able to achieve the economic growth target of 4.5 per cent set for this year. The target may be revised downward to 3.5 per cent.

Giving the possible options, an analyst said that besides reducing development spending the government may borrow funds and call a donors conference.

Uphill task

“The government will have to stop work on new projects and continue only the ongoing ones. The funds thus spared should be diverted to meet the gigantic task of reconstructing the damaged infrastructure and rehabilitating the displaced people,” commented Akbar Zaidi, an economist.

However, he ruled out the possibility of seeking a debt moratorium from multilateral and bilateral donors, like the debt rescheduling Pakistan achieved after September 2001. “There is no need for demanding a debt freeze, what is necessary is a revisit of the taxation policy.”

He said the government should refrain from slapping more taxes on the already oppressed people and should go for bringing under the tax net those who are exempted and others who are evading taxes.

“Non-development expenditures cannot be cut because a major part of those constitute salaries of government employees,” said Kaiser Bengali, advisor to the Sindh chief minister on planning and development.

He said that Chief Minister Qaim Ali Shah, in a meeting on Saturday, issued directives to the high-ups of the province to conduct a survey and assess the damage caused by floods in the province.

Setting priorities

“There is a need for prioritising the envisaged projects. Ongoing projects should continue, particularly those which are related to energy and water,” said MA Jabbar, former chairman of Site Association of Trade and Industry.

He called for diverting Rs70 billion from the Benazir Income Support Programme (BISP) to the agriculture sector. Floods have damaged the crops and farmers will not be able to repay debts, so these funds will help them meet their needs, he said.

Jabbar supported the idea of imposing a surcharge on imports, but said the funds so collected must be monitored and put to use by people of untainted reputation. “Individuals from the public and private sectors with undisputed credentials should be appointed to utilise these extra funds for flood relief activities.”

He also floated another proposal, calling on the government to seek a debt freeze for five years with no piling up of mark-up during the period. During last fiscal year ended on June 30, the government paid $5.6 billion in debt servicing. He said that this amount can be set aside for assisting the flood victims and rebuilding the damaged infrastructure.

the writer is incharge Business desk for the Express tribune

Published in The Express Tribune, August 16th, 2010.

COMMENTS (2)

Aamir G. | 11 years ago | Reply obviously the Kaiser Bengali does not know what he is talking about. Developmental expenditure contributes towards GDP as well as the overall growth of the economy. Where increasing non developmental expenditure only increases inflation, spending on developmental expenditure prudces healthy inflation for the economy. The last year salary increments of government employees of 20% and then 50% this year (nets to about 80%) is ridiculous as this is way above and beyond what our state can afford. To the Chairman of our Shortsighted association of Trade and Industry. Not only ongoing projects should continue but new projects should be launched to create jobs in multiple sectors of our economy. This is the long term solution of the problem. Also by diverting RS 70 billion from the BISP will further effect the social sector of our economy. The BISP gives a mere Rs. 1000 per family per month to those families who could afford buying the registraion form for Rs. 5000. Once again if you divert this money from the Social Sector of our economy you are not thinking long term. Mr. Jabbar, the idea of imposing surcharge on imports is as ridiculous as any of your previous suggestions. Imports should be banned on all luxury items like cell phones, cars, TVs etc. for the upcoming years. No BOP deficit will lead to no begging from IMF and others, which will lead to our economy striving to meet the local demand and increased GDP and reduced debt.
Farhan | 11 years ago | Reply Government will face the toughest financial problems in coming months -to say the least.
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