The efforts required for rescue and relief operations as well as for rehabilitation and reconstruction, given the scale of the calamity, are neither easy nor inexpensive. It was hoped that the international community would come to the rescue in a big way but both Pakistan and the UN authorities are thoroughly disappointed at the poor response of the donors at the Geneva conference where they pledged only $0580 million against a requirement of $5 billion.
The outcome of the high profile November 19th conference in Islamabad, to be attended by the UN Secretary General, Kofi Annan, may also be not very encouraging for various reasons, including donor fatigue.
Apparently, in a situation like this, Pakistan would be left with no option but to raise domestic resources amounting to about Rs 275 billion for the reconstruction process in Azad Kashmir and NWFP. Of course, the government would not need this money in one go but resources would have to be mobilised according to the speed of reconstruction.
It seems that the economic managers have already started thinking seriously on these lines and according to reliable sources, a committee has been formed to undertake an exercise on the reprioritisation of the current Public Sector Development Programme (PSDP) for the purpose. On the directions of the Prime Minister, representatives of the Planning Commission and Ministry of Finance are reported to be engaged in the reprioritisation process and are meeting almost on a daily basis to complete the job as early as possible.
The review is being carried out to evaluate financial resources likely to be available for current year's development programme and what portion of it could be diverted for rehabilitation of the quake-affected people and reconstruction of the damaged infrastructure.
Obviously, some portion of the amount earmarked for PSDP during the year must have already been disbursed to the concerned departments for development projects and this would not be available for allocation.
Besides, the committee is reported to be looking into budgetary allocations for non-development expenditures with a view to diverting a part of these funds for development and reconstruction in quake-hit areas although main expenditures under the heads like defence, debt repayment and salaries of the staff are, more or less, inelastic and, therefore, hard to trim.
Keeping in view the overall situation now prevailing in the quake-affected areas, there seems to be no choice but to initiate such an exercise at the earliest. Foreign donors can afford to be indifferent or miserly but we have to find resources, come what may, to undertake the gigantic task of rehabilitation and reconstruction lying ahead as soon as possible.
After the earthquake, the government is obviously facing a different situation altogether and now its first priority is to divert maximum funds for rehabilitation and reconstruction work to have basic infrastructure such as roads, communication, schools and hospitals in place in the affected areas to restore normalcy.
In our view, the reprioritisation exercise initiated by the government is both very timely and relevant to the situation.
However, while the exercise is welcome, its actual implementation should be taken in hand after consulting all the stakeholders, particularly the provinces, in order to avoid political bickering in future. Opposition parties should also not try to politicise such a sensitive and humanitarian issue.
At the same time, it is very important to undertake projects according to the resources available and avoid deficit financing, otherwise inflationary pressures in the economy will accentuate further. Also, random announcements for allocation of funds should not be made and everything should proceed according to a set plan.
It also needs to be emphasised that poverty alleviation programmes of the government will receive a set-back as more resources will have to be channelled into the quake affected regions. Limited resources will force the authorities to choose between competing demands.
The dilemma that the government faces is very real. It would like to develop a comprehensive response to the calamity that has befallen Pakistan without sacrificing the growth momentum and poverty reduction efforts but certainly choices will have to be made.
The country must be prepared and the public must be educated to accept the need for austerity and loss of privileged consumption that the huge reconstruction effort would obviously entail. One way to share the burden equitably would be a rapid movement towards a fair tax system. Notwithstanding a very strong GDP growth and continuing efforts to strengthen the tax machinery in the last two years, the tax to GDP ratio has fallen, implying that reasonable elasticity of the tax system is far from assured.
Hopefully, in the spirit of the national response to the tragedy, the progress towards a more responsive and fair tax system can be accelerated. The rich must be asked or forced to contribute more by way of taxes irrespective of their sources of income and if the constitution needs to be amended for this then so be it, because the burden of taxation on them remains low and this distorts even the distribution of benefits of growth.
At the same time, priorities of spending must also be revised. Expansion of budget deficit and increase in government borrowings should be considered only if it does not jeopardise monetary and exchange rate stability. It needs to be remembered that even in the best case scenario, the government has a very tough job to undertake and every section of society, particularly the rich, has a huge responsibility to extend all possible support at this critical juncture.