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Pakistan’s long-term development

As the international aid agencies continue to concern themselves with the distribution of emergency supplies in Pakistan and attending to the immediate needs of 14 million people, governments and banks are beginning to assess the long term impact of the floods.

According to a report by the Asian Development Bank and the World Bank, the cost of all the damage from the floods is around 9.5 billion dollars. In terms of reconstructing the country, the total recovery cost is likely to be around 30 billion dollars. If most of this is funded by aid and foreign grants, or by soft loans, Pakistan’s economy may be able to recover reasonably quickly; is estimated the floods have resulted in a 2% drop in Gross Domestic Product (GDP) in 2010-11 and caused a 10% rise in unemployment. But if a significant portion of the 30 billion dollars has to be raised through borrowed money, this will cause huge problems for economic recovery, with rises in inflation and higher fiscal debts.

As one way to help Pakistan’s economy, the British government is pressing members of the European Union (EU) to open trade access to Pakistan. Letters have been sent to Members of the European Parliament (MEPs) urging them to back a decision to reduce import duties on products from Pakistan with “immediate effect”. In papers issued by the UK’s Department of International Development, political leaders are urged to see this as a “test of the EU’s credibility” because through political agreement and action, the EU can “make a real difference”. If passed, the proposed package covering 75 products could be worth around 200 million Euros in increased exports for Pakistan. However, a ‘yes’ vote is by no means certain, since extra textile imports are seen as a threat to the local industries of protectionist countries such as France, Italy and Portugal.

The proposal could also be derailed by the World Trade Organisation, which represents countries such as India and Bangladesh who already operate preferential trade deals with the EU. A waiver of the WTO rules would be needed for Pakistan to benefit from the UK’s proposal.

Some outsiders are also questioning the ability of the Pakistani government to cope with the financial organisation needed for reconstruction. The government is currently facing many crises, including a spate of suicide bombings from Muslim extremists and increasing political instability. The Muttahida Qaumi Movement, which currently rules in coalition with Mr Zardari’s government, has threatened to leave the coalition after a number of its workers were killed in attacks during a violent by-election.

At this stage, it is unclear whether Pakistan’s government will cope in the long-term with all the massive problems facing the country. For now, like the aid agencies, Yusuf Raza Gilani, the Prime Minister of Pakistan, has said the government is focusing on the immediate needs of the people, such as giving “homes to homeless people” regardless of whatever funds are available in the future.

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