The floods in Pakistan have elicited worldwide sympathy and assistance. They have also inadvertently uncovered the seamier side of Pakistan’s polity. Donors like the United Nations, the United States and the World Bank, which have been tirelessly working to raise millions of dollars in aid for Pakistanis rendered homeless by the floods, now realise that they are doing all the work and collecting all the money while the super affluent oligarchy that rules Pakistan sits back and watches.
The situation is precarious with an estimated 21 million people affected by floods of whom 12 million require emergency food aid. While aid agencies have been working round the clock, the Pakistan government itself seems to have thrown up its hands. The government coffers are apparently empty and there is no money for flood relief.
Pakistan’s rulers have declared that it is the world community’s duty to help them out, an attitude that is not going down too well with an international community already exasperated by the country’s unending financial demands. Washington’s points man for Islamabad, Richard Holbrooke, remarked that other countries could not foot the entire bill for flood relief. Pakistan’s government must do more, he stressed.
Pakistan’s rulers can do much more. For starters they can ask the country’s affluent to start dipping into their vast private coffers to partially fund disaster relief. But that is not happening and the government appears to have given a thumbs down to the United Nations’ proposal to impose a flood tax on the rich.
“It’s unbelievable. We are into the seventh week since the unprecedented flooding began and the government has yet to make up its mind about taxing the rich for the poor,” said a UN official quoted by Karachi’s Dawn newspaper. “When we approach international donors for funds, they want to know if the Pakistanis themselves are donating generously to the cause,” the official was quoted as saying. “This is a question to which we have no answer.”
The problem is Pakistan’s elite, an oligarchy of about a thousand super affluent families and the military, which together have effectively ruled the country for decades. Together they have destroyed, weakened or rendered ineffective every major institution required to run a modern nation state. They have run Pakistan as their fiefdom. And quite successfully too: co-opting or destroying opposing political forces and ensuring that a true grassroots democracy never emerges. This has helped them corner most of the country’s resources. The power of this oligarchy is absolute and not surprisingly they hate paying taxes.
A recent study by the Carnegie Endowment for International Peace said that “A small elite comprised of the military, landowners, and the rising urban upper and middle classes, is loath to give up any of its wealth (some of which is illegally accumulated).” The country’s tax-to-GDP ratio of 9 per cent is one of the lowest in the world. The rich routinely get tax exemptions, which if plugged could generate additional revenue of more than US $10 billion annually according to one estimate.
Profligacy is the main cause of Pakistan’s economic problems. In recent times, Pakistan has spent twice as much on its military during peacetime as it has on education and health combined. The billions of dollars that the United States has poured into Pakistan in exchange for assistance in the war against terror has entirely benefitted the military, leaving little for economic development. And now, without spending much on disaster relief, the government economists claim they are broke.
Multilateral aid agencies since the Asian Development Bank and the World Bank have been urging financial discipline and reforms for years. But Pakistan’s rulers have not been listening. As a result, the country’s economic outlook even before the floods was critical. Pakistan’s central Bank, SBP, had warned in July, much before the floods, that the government’s spendthrift ways were unsustainable and that low tax revenues had become a serious concern because the government was increasingly relying on foreign borrowings to meet rising expenditures. The budget deficit was bloating and inflation soaring.
The most damning comment on the state of Pakistan’s economy came earlier this month from the country’s finance minister, Dr Abdul Hafeez Sheikh, who warned that a ‘complete economic breakdown was inevitable if the government and military authorities did not take steps towards fiscal responsibility. He reportedly told a high-level meeting that the national economy was “teetering on the brink” even before the floods and was now heading for an “abyss” because of the devastation caused by floods. The main cause was unfettered borrowings: Pakistan’s overall debt stood at about Rs 8.75 trillion by middle 2010, a massive increase of 46 per cent in just two years.
Pakistan might be on the edge of insolvency but the country’s powerful oligarchs are not overly concerned. They have been bailed out time and again by the Western powers and China. No reason to believe it could be different this time.
Indranil Banerjie is a defence and security analyst based in New Delhi