Foreign vs local

At this moment, foreign aid is the lifeline of flood relief efforts along with the local resources

By Ather Naqvi

Devastation caused by the floods across the length and breadth of Pakistan has left experts struggling to gauge the exact level of damage caused by the unprecedented catastrophe. For now, one assessment comes from Prime Minister Syed Yousaf Raza Gilani who told the cabinet on Wednesday Sept 1 that the damage caused by the floods to the country's economy is something about $43 billion. In economic terms, that is likely to translate into a budget deficit of something about 4.5 percent while economic growth is likely to drop to 2.5 percent down from the estimated 4.5 percent in the current financial year.

At this critical economic juncture, one view is that foreign aid supporting the rehabilitation and reconstruction efforts in the country seems to hold the key. Still, there is a view claiming we can cope with the enormous crisis solely on our own. Given the fact the foreign aid has stalled for now according to the UN and the financial crunch that we remain mired in, does this assessment make much sense?

According to the finance ministry, Pakistan has so far received $150mn aid and relief goods against the total foreign aid commitments of $991.8 million for the assistance of flood victims. Add to it, the IMF's latest commitment of $450mn. In view of the unfolding disaster, the World Bank has raised its funding to Pakistan to $1b to ameliorate the worsening situation in the shape of epidemics and lack of shelter for the displaced people. This is in addition to the $25mn aid pledged by India, still considered by some as our next door arch rival.

In this backdrop, experts do not believe that at this moment in time we can do without foreign aid. Asad Saeed, a senior economist makes a distinction between the use of local as well as foreign funding, "Foreign funding is important for state-related issues, that is in the reconstruction efforts which requires huge amount of capital while the money generated locally usually goes into relief and rehabilitation efforts at the district and community level," he says adding, "Funds raised at the local level are not enough to build infrastructure which require financial assistance from donor countries."

Saeed does not minimise the role of the state in making things better, "State funding is very important at the immediate relief stage. Now the question is what role the state can play in rehabilitation and reconstruction efforts?" he asks replying in the same breath, "Coordination is very important at this stage between local and foreign relief workers. Various government departments can do that in ensuring that the aid in cash and kind is properly utilised. The devastation is so big that relief and rehabilitation work cannot be smoothly handled in any way. Imagine the water is twenty times more than what flows during the whole year," he adds.

Haris Khalique, a public policy advisor, seconds Saeed when he says that we should take a long-term view to realise the centrality of foreign aid, "If we take a short-term view, which says we can take care of ourselves amid this colossal disaster, we will neither be able to save lives nor build homes, that is if we do not accept foreign aid at this particular stage." Haris says, "The private sector or the local funding can help people at their doorstep but it cannot take upon itself the task of undertaking bigger tasks such as building roads and laying rail tracks, etc."

There are others who say that the idea of facing it alone is not entirely impractical but it is only possible under certain conditions. S Akbar Zaidi, renowned economist, takes a slightly different view when he says that there are examples of countries that said no to foreign aid in times of crisis, "India said no to foreign aid when tsunami struck its shores in December 2004. Malaysia also resisted foreign aid during the economic crisis in South East Asia in the late 1990s. So that is not entirely impossible but given our fragile economic situation we cannot simply afford to make a false image of being in a position to deal with the crisis on our own," he says, adding, "If we are so vary of foreign aid we should ask ourselves why there is so much reliance on foreign aid." Zaidi gives his recipe of moving away from dependence on foreign aid, "We can get rid of World Bank and IMF in the long run by broadening our tax base, which includes agriculture tax, by removing tax exemptions, and ending indirect taxation on the poor people."

Another seasoned voice on economic policy issues, Shahid Kardar, sees a direct link between local relief efforts and foreign funding, "It is not a matter of local or foreign. Since it is clear that we cannot dismiss foreign aid, it should be taken into view that unless we show our sincere efforts in relief and rehabilitation efforts to the donor it will not turn up for our help," he says adding, "The donor will be ready to help us, it now depends on us if we are able to give a positive signal to the outside world. As far as local funding is concerned we can for now raise our resources by diverting some of our development funding to the reconstruction efforts."