The international donors have shown unprecedented generosity in offering credit to
to meet the expenses related to rescue, rehabilitation and reconstruction in the wake of Pakistan's devastating floods. World Bank has offered $ 1 billion and ADB has been even more generous to offer $ 2 billion. But the real question to ask ourselves is whether Pakistan should accept the offers and increase its external loans portfolio which is already at $55 billions. According to some experts, even this amount of external loans is not sustainable for a country which has no hope of any economic growth and which is totally unsure of meeting its fiscal targets. Pakistan
In this situation, will it not be financially prudent to tighten our own belt first and tap internal resources before asking for external loans. An interesting analysis made by a member of Musharraf’s economic management team has appeared in a recent issue of The News in which he has raised certain questions like; are we doing enough to help ourselves? Are we really short of resources to address the challenges of rehabilitation and reconstruction? Should
accept loans from international institutions? Has our debt carrying capacity improved or deteriorated in recent years? Pakistan
Given the horrifying state of debt, should we accept the loan offer of WB, ADB and bilateral countries amounting to billions of dollars? Do we need external assistance for flood-hit areas? As a matter of fact,
The government has allocated Rs.124 billion under 'other development expenditures' which includes Rs.50 billion for the Benazir Income Support Program (BISP) and Rs.45 billion for Internally Displaced People (IDPs). The allocations for BISP and IDPs are meant for the poor and displaced persons, hence Rs95 billion can easily be diverted for flood victims. The government has also allocated Rs30 billion under the "Special Program" which includes the People's Works Program I and II. These can also be diverted for the same purpose. Thus, Rs125 billion is available from the federal budget for flood victims.
Provincial governments can also divert Rs173 billion from their provincial PSDP. The federal PSDP has already been slashed from Rs421 billion last year to Rs280 billion this year – a reduction of 33.5 per cent. On the contrary, the provincial PSDP surged from Rs200 billion to Rs373 billion in the same period, showing an increase of 86.5 per cent. This is the height of financial indiscipline on the part of provincial governments. How can PSDP be increased to such an extent when the country is passing through the most difficult period of its economic history? It appears that the provincial political leadership is totally oblivious to the gravity of the situation.
The analysis goes on to suggest that for the provincial governments, one way to correct their exaggerated budgets is to freeze their PSDP at last year's level, that is, zero growth as apposed to a reduction in federal PSDP by 33.5 per cent. In doing so, the provincial governments can divert Rs173 billion for flood-affectees. By postponing the implementation of the irrational increase in the salary of the government servants, the provincial governments can also save several billions which can be utilized for flood-affectees.
Thus, federal and provincial governments together can divert Rs300 billion from the existing budget for the flood affected people. Postponing the implementation of the pay hike would release additional resources for the purpose. We are not short of resources. What is lacking is the will of the political leadership to tighten their belt. They don't want to disturb the allocations which would 'benefit' them. It is for this reason that they are further cutting the PSDP and are eager to borrow more resources from the international institutions to finance flood-related expenditures. The international financial institutions must study the debt-carrying capacity of the country before committing billions of dollars.