The most awaited Damage and Needs Assessment has come out as the joint team of the World Bank and the ADB has completed the task of assessing the cost of reconstruction resulting from the disastrous flood earlier this year. The overall damage, as previously expected has been estimated at $10.05 billion, half of which is attributed to the losses in agriculture sector.
The DNA report has estimated $6.79 billion, as the amount needed for reconstruction, which makes up nearly one-third of the budgeted FY11 tax revenues. The assessment report has also highlighted two other options to meet the requirements over and above the bare minimum basic level (see table).
Which option will the government decide to sell to the donors will largely depend on how it prioritises different sectors and the overall mood in the donors camp. The financing of nearly $7 billion will nevertheless remain a tall task as the authorities will have to explore sources of financing such a huge sum.
The most obvious choice is to look around for aid. But it will be too optimistic to expect multibillion dollar aid to flow to Pakistan in these circumstances, given the perception of corruption that has largely tarnished the countrys image. The FoDPs case is a perfect example of how lacklustre has the response of donors been in the recent past, when it comes to aid for Pakistan.
A more realistic and probably the natural alternative is going back to loans. This is what the donors might still be willing to offer, given how badly the county needs the money to remain afloat. And the loans, for sure, will come with different set of stringent conditions, all of which may not be that easy for the government to swallow.
Pakistans current debt-to-GDP ratio currently stands at an already high 56 percent, pouring a small matter of billions of dollars in the loan basket will only worsen the ratio, with a high risk that Pakistan will breach its fiscal responsibility laws that do not allow the debt-to-GDP ratio to exceed 60 percent.
The Interior Minister, Rehman Malik, has other ideas though, as he has urged the world to be lenient and write-off Pakistans loans of over $50 billion. He seems too keen on improving the financial indicators it seems, but little does he know that if ever it happens, it will push Pakistan further back to the list of Least Developed Countries.
The Finance Minister, however, has given a saner statement, ensuring the rest of the world that "Pakistan will not seek aid without self-support". As plausible as it is, but the reality is that there is little consensus in the parliament on tax reforms and the new tax measures if implemented would not add more than $765 million, according to the finance minister, barely 10 percent of what is estimated for reconstruction.
So where does the government go now? There is not much room for aid. More loans will worsen the indicators. Tax reforms are not likely and not adding much anyway. Maybe it is time to hand the matters over to MQM who proposed the government with a plan as an alternative to the RGST - that will generate $11.6 billion. Thats more than what the country needs at the moment. Any takers?
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DAMAGE NEEDS
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$ (mn) Option 1 Option 2 Option 3
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Irrigation 278 427 427 982
Housing 1,588 1,483 1,690 2,206
Agriculture 5,045 257 670 1,049
Transport & communication 1,328 2,356 2,356 2,356
Energy 309 106 106 106
Livelihoods support 0 683 683 683
Private sector 282 102 102 129
Education 311 505 505 505
Health 50 49 49 49
Water & sanitation 109 74 74 94
Governance 70 58 58 58
Financial 674 463 463 463
Environment 12 209 209 209
DRM 0 27 27 27
Total 10,056 6,799 7,419 8,916
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Source: DNA report WB/ADB
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