The week in focus

The government’s rejection of dictates by international donors has come as a surprise to many, leading to a raising of eyebrows from some and at the same time a source of joy for the nationalists.

In a bizarre move last week, Minister of State for Finance and Economic Affairs Hina Rabbani Khar announced that the government will not give out monitoring and evaluation rights of rehabilitation and reconstruction work being carried out after the recent floods.

Moreover, she rejected the donors’ plans to divert funds from ongoing projects towards flood relief activities.

Earlier, the Asian Development Bank and World Bank had pledged $3 billion for relief and rehabilitation work – most of which were to come from loans pledged for different development projects.

Since the flood aid started pouring in, there has been continuous talk about its transparent utilisation and that probably has been the reason that most of the assistance has been routed via humanitarian organisations instead of the government.

On its part, the government has been insisting that it will ensure transparency and that the money will reach those in need.

Nevertheless, it is a positive sign, particularly for the national and religious parties which have been calling for breaking the shackles of foreign debt, that the government has opted to rely on its own resources for undertaking reconstruction.

However, how it will get the funds when tax evasion is rampant, corruption is endemic and investment is drying up leaves a big question mark.

According to estimates, Pakistan loses Rs796 billion in tax evasion every year. Last year, the Federal Board of Revenue (FBR) failed to meet the revenue collection target of Rs1,380 billion – falling short by around Rs50 billion. It is likely that this year’s collections target will be missed as well.

“The government is only posturing and strict monitoring of loans by independent bodies is required,” said an analyst. It has very limited options for generating finances, including the proposed flood tax and reformed general sales tax regime.

The federal government has been talking about the flood tax for quite some time now and Sindh has already approved the levy. “Impact of the flood tax will be limited,” commented the analyst.

He said that the imposition of new taxes proves negative for the economy as it drives away investors. Foreign and local investment has already slowed down in the country in the wake of the uncertain security situation.

According to the most recent figures, foreign investment in the first quarter (July-September) of the current fiscal year fell 28 per cent (compared with the same period last year) to $455 million.

Before imposing more taxes, the FBR should itself put its own house in order by eliminating corruption among its ranks and widening the tax net by bringing in tax dodgers and the influential who are either exempted or do not pay their share.

“The government has no choice but to opt for loans from the donors since in the short to medium term it may not be able to make available finances itself,” said another analyst.

He suggested taking austerity measures like cutting the size of the government and controlling excessive expenditures. “There is a need to take right decisions at the right time.”

the writer is incharge Business desk for the Express tribune

Published in The Express Tribune, October 25^th, 2010.