After the receding flood waters from hell, the GOP is now waiting anxiously for ‘manna from heaven’ from heavenly western countries and/or the rest of the developed and resource rich world. Let me state that this ‘manna’ is in addition to the on-going exercise under various nomenclatures to reduce and stagger the burden of debt and interest payments to stabilize the current account deficit. The present discussion is related to how to recuperate the loss from floods amounting to between USD 20-30 billion estimated by GOP, not withstanding, that the lenders are demanding a revisit to these numbers. Although new buzzwords such as ‘climate justice’ and ‘loss and damage’ have been added to existing catchy phrases ‘debt for climate swaps’ and ‘humanitarian relief’, ideally ‘manna from heaven’ translated as ‘beg, borrow and steal USD’ in our context is landing of the entire loss in our begging bowl as a grant in one go, no questions asked. It is equivalent to a discovery of oil or gas field that will support 25% of our energy import bill for the next five years. The hope from this ‘manna’ in USD is to eliminate the political loss by appreciating the rupee, distribute more freebies and invest in grandiose projects in urban areas to win urban votes and push ‘pseudo’ growth of GDP in the shortest possible time. Unfortunately, from the structural reform perspective, floods from hell have bestowed this country another ‘trump card’ from geo-climatic angle that will be played for another 3-4 years to put the structural reforms once again on the back burner. Already the new cycle of “waivers” for stabilization reforms is appearing on the horizon.
From COP27 deliberations and even before the COP27, the ‘manna from heaven’ of the above type will not be coming. Donors conference expected to be held here or in some Middle Eastern country by the end of the year will most likely be a face-saving exercise with small commitments (grants) staggered over the next 5-10 years. Some other reasons for ‘manna from heaven’ to be a long wait or not even show up are as follows:
In spite of holding COP27, the international political will to accept ‘climate change’ as a stark reality is weak and even weaker to accept responsibility to compensate vulnerable countries. If at an individual level there is political pressure, the countries are first answerable to their own voters and spend the tax money on schemes for adaptation and mitigation in their own country rather give grants at the risk of being squandered. Even if the SOPs, criteria and structure (in terms of contributions) of ‘Loss and Damage Fund” (LDF) may be a softer version of the IMF, it is unlikely to be operationalized before the next two years. So the manna from heaven may not be coming before the next episode of climatic disaster in Pakistan. The word ‘financing’ with LDF when operationalized may contain surprises if ‘unconditional grants’ are expected. For countries like Pakistan who are likely to remain on brink of default for some time, does LDF financing mean more debt or ‘no question’ asked grants? There are two examples that indicate gaps between commitments and delivery at the international level. Under MDG 8, each country in the DAC committed to providing 0.7 percent of GNI per year as ODA during the MDG period. The average for all DAC countries turned out to be 0.31 percent with only 3 countries reaching the target. Secondly, since the floods, UN appeal for flood response of USD 814 million although voluntary, made in early October, has yet to be surpassed (just 3.4 percent of the amount needed) and we continue to beg for USD 30 billion with gong ho on yet to be operationalized LDF.
The commitments by international community, specifically western world even on humanitarian grounds are closely linked to business cycle. Currently, the expected recessionary conditions in many developed countries due to the Russia-Ukraine War and inflationary commodity cycle are predicted to last well into the next year. Similar level of commitments made under MDG 8 failed to materialize when the “Great Recession” of 2008 struck many countries of the world and affected Pakistan in terms of stagnant growth of exports. Thus the ‘manna from heaven” expected from Donors’ conference will most likely come in shape of droplets down our begging bowl till the developed countries’ growth rate is on a pre-war footing. Many of the donors 3-year country programmes are being repurposed towards the rehabilitation of flood affected, so in essence there is no net addition to the foreign commitments.
Lastly, the trust deficit between donors whether local or international and GOP has widened with regard to effective and timely utilization of donors’ money since the evidence based on experience of earthquake of 2005 and floods of 2010. The floods of 2010 affected nearly 20 percent of the total land area and 20 million people. Damage to structures was estimated to exceed US$4 billion, and wheat crop damages were estimated to be over US$500 million. Compared to 2010 floods, the recent floods affected 33 million people and combined damage to housing, agriculture and livestock is estimated to be USD 9.3 billion. A summary report prepared after Flood 2010 states, “Federal Flood Commission documents show that numerous projects were initiated, funded and completed, but reports indicate that little work has actually been done due to ineffective leadership and corruption.” However, the evidence of 2005 earthquake, where loss of human life was horrendous compared to floods, indicates that trust deficit was smaller partly due to ‘quasi’ political government and widespread presence of international and local NGOs. The response of Pakistan’s population to recovery and rehabilitation efforts in the quake 2005 including funds was exemplary also partly due to booming economy and rising incomes in that period. Both type of NGOs acted as a trustworthy conduit relative to GOP to channel donor’s money and its effective and honest utilization for those affected by the disaster. However, even after lapse of 17 years, the rebuilding of few schools in far flung villages of quake-affected areas remains to be completed. Thus in addition to the severe dent in trust deficit post-2010, the institutional dynamics of both local and international NGOs have considerably weakened and inflation running at 25 percent has considerably debilitated the capacity of local population to donate, except that now donation of USD of Overseas Pakistan buys a lot of PKR.
In summary, it will be unlikely that ‘manna from heaven’ is bestowed to the nation, unless it is willing to sacrifice its unsustainable living standards backed by low income tax-to-GDP ratio (fiscal policy), flourishing casino economy (monetary policy), rent seeking through ‘Khanchas’ (weak laws), poor governance (bureaucracy and mafias), low productivity (skills), dependence on remittances and pampering of remitters (consumption).Dr Sajjad Akhtar, "Waiting for ‘manna from heaven’," Business recorder. 2022-11-30.
Keywords: Economics , Interest payments , Climate justice , International community , Income Tax , Monetary policy , Federal flood , International political , Russia , Ukraine , Pakistan , GDP , USD , NGO , PKR , DAC , LDF , SOP , MDG