Managing the economic impact of the flood

Nature, for all her fury, appears to have delivered a relatively kind hand to the economy.

Editorial August 22, 2010

With the UN calling for almost $500 million in aid, the devastation caused by the flood has clearly caught the attention of the world and only exacerbated the sense of despair felt by ordinary Pakistanis. As the country continues to reel from the worst flood in over 80 years, most of the thoughts of the government and the public must invariably be towards helping the 14 million of our fellow citizens whose lives have been devastated by this tragedy. But while the impact of this massive flood on the economy will be oppressively negative, the situation is not quite hopeless. Indeed, far from it. Nature, for all her fury, appears to have delivered a relatively kind hand to the economy. Most of the agricultural and industrial heartland of the country has not been affected, particularly in Punjab. And while significant portions of agricultural land – some 1.5 million acres – have been flooded, most of the major national highways are still functional, hopefully ensuring that food supply routes remain unhindered. The rise in food prices is more due to profiteering than a genuine shortage. Most industrial units in Punjab and Khyber-Pakhtunkhwa have had their gas supply cut off as a result of the floodwaters overwhelming the energy infrastructure and that will undoubtedly affect their earnings, their employees’ wages and the government’s tax revenues. But while several industrial facilities have faced temporary closure, none of the major units appear to have been destroyed. It is a small mercy, no doubt, but a mercy nonetheless. So while we will no doubt feel the impact of this flood for some time to come, it appears that the situation is still within our control, should we as a nation and our government choose to keep our wits about us and handle the situation accordingly.

Much has been said and written about the way the government has mishandled the aid to the refugees, but perhaps not enough attention has focused on the government’s likely mishandling of the country’s finances in response to the flood. It is widely expected that the government will be spending billions of rupees on helping the flood victims. Yet given the precarious situation the country has found itself in during the past few months with regard to its financial situation, perhaps it should cut back on some expenses. We would recommend postponing some of the longer-term development projects and redirecting that money towards some of the programmes designed to have a more immediate impact. Reducing overall government expenditure on the privileges of bureaucrats and politicians would seem to be a wholly sensible and appropriate measure to take in these times, but given President Zardari’s callous indifference to calls for him to postpone his trip to Europe, such a recommendation seems akin to howling for the moon.

Such indifference will no longer do. The government must find within its own resources the means to cope with the flood. According to an economic analysis (‘No need to wait for the donors’, Dr Pervez Tahir) which appeared in these pages this past week, the total cost of the devastation is expected to be around $10 billion. By redirecting and reprioritising the federal and provincial budgets, some $5 billion of that can be found within the government’s own existing resources. Another $3 billion has been allocated by the World Bank and the Asian Development Bank in loans for the country, which leaves a gap of about $2 billion. Even if that gap never gets filled, that is still 80 per cent of the job done with resources that are currently within the government’s grasp. Given the magnitude of the disaster, even an 80 per cent success rate at recovery would be satisfactory and certainly more than what previous administrations have managed. But of course, this requires a grasp of the gravity of the situation by our public officials which, alas, seems to elude them at the moment. If they do not find within them the basic human decency to do the right thing, then one fears for the fate of the republic.

Published in The Express Tribune, August 23rd, 2010.


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