FINANCE - WARNING FROM FRIENDS OF PAKISTAN.
Foreign Minister Makhdomm Shah Mahmood Qureshi who co-chaired the third ministerial meeting of Friends of Democratic Pakistan at Brussels last week to decide the quantum of financial assistance for Pakistan's post flood rehabilitation program, had to face some plain talking and tough questions from most of the participants in the meeting who did not appear satisfied with Pakistan's own efforts in generating funds internally. They specially asked probing questions about the contribution of Pakistan's rich class in the program launched to alleviate the miseries of over 20 millions flood affectees.
Leading world powers told Pakistan that post flood aid was a part of a two-way deal and Pakistan was also required to pay its share. Speaking on the occasion, US Secretary of State Hillary Clinton said that Pakistan's wealthy class needed to dig into their own pockets to match international efforts to aid the flood- ravaged nation's long-term recovery. 'It is absolutely unacceptable for those in Pakistan not to be doing their fair share to help their own people while tax payers in Europe, the United States and other contributing countries are all chipping in.'
Clinton said that the most important step Pakistan could take was to pass to meaningful reforms to expand its tax base. The government must improve its taxation system to ensure that all pay taxes according to their income and quantum of wealth. She said that what Pakistan badly needed was an overhauling of its outdated taxation system full of evasions and corruption. Taxation and fiscal reforms were, however, not the only questions put before foreign minister during a 90-minute grilling.
The ministerial level session of the Friends of Democratic Pakistan-set up in 2008 and having 26 nations and international bodies-is to look at the impact of flood devastations in Pakistan. They will meet again in Pakistan next month to finalise their financial pledging.
The World Bank representative, participating in the discussion, said that Pakistan needs funds at least for one year for reconstruction, but in turn, it must assure donors that it will revamp tax and subsidy regimes. The World Bank wants assurances from Pakistan that it will put in place macroeconomic reforms, revamping its fiscal regime and cutting subsidies. There is a demand from the international community the Pakistan has to do its bit in mobilising its own resources and before it expects donors to step in Pakistan must tax the rich who are not paying taxes at the moment.
German foreign minister advised Pakistan 'you can harvest as much money as you want, it would not be enough at the end of the day if there is no reform.' An adjustment in the equilibrium between rich and poor in Pakistan was a fundamental requirement. British foreign secretary who said London had already pledged about 134 millions pounds aid into its former colonial territory, also underlined that reforms are urgently required in Pakistan with priority of a meaningful widening of tax base.
Sometimes friends have to tell each other harsh truths and facts and unhappily for Pakistan the Friends of Democratic Pakistan have decided that now is the time for tough messages. What is, however, more unfortunate that many of the messages given by the group are the ones the government should already have taken. Four broad areas of reforms have been recommended:
1- transparency and efficiency in the use of foreign flood aid,
2- meaningful tax reform that widens the tax base,
3- Rationalisation of non-flood related expenditure to keep the budget deficit from exploding,
4- Power sector reforms and laws to strengthen the independence of the State Bank, which is currently being forced to make highly inflationary loans to the government. These are all necessary to save the economy from the total collapse. But there seems to be no urgency in the government circles to attend to these serious problems. Will there be any movement after a sort of warning from the friends? Perhaps, some eventually. But, it is still difficult to predict how and how soon.