Pakistan Flooding 2010If you are a underwater (deeply in debt) country, or person for that matter. The coming of disaster is not necessarily going to help you much. Reneging on loans (bankruptcy) is really only a helpful alternative if you have a cash flow that will meet your needs going forward. If you are short on cash flow before the disaster, you are not likely to much better off afterward.
Pakistan has limited options because in a country where the typical person earns about $1/day, it's budget deficit runs in excess of 5% of GDP and have 13% inflation even in "normal" times. So they cannot afford to spurn creditors, and countries are cautious about lending money.
Traders oppose imposition of any new tax
By Moonis Ahmed
KARACHI: The business community has strongly opposed the government’s move to impose new taxes in the country in the wake of floods.
The businessmen said that this imposition of new flood tax would ultimately increase the inflation and would double the prices of commodities… criticizing the government for taking unwise and anti-nation decisions said that the nation was already heavily burdened due to various taxes, massive price hike, joblessness, frequent power tariff increases and dwindling exports. No further tax would be accepted by the people and the trade and industry, they added.They said that the best and most practical option for the government is to seek writing off foreign loans to the tune of $46 billion as the country is not at all in any position of debt servicing due to massive catastrophe in which over 25 million people have been displaced after losing all their assets.
They further said that a loan of $450 million by the International Monetary Fund (IMF) is a total failure of the government as it was a general loan and IMF gives it without any effort to any country in any circumstances (and neither] have given Pakistan any kind of favor or assistance at this hour of need and the government should dimly convey its position to both the institutions as well as Paris Club to write off loans immediately.However, sources told Daily Times that the government has finalized its policy to impose some five percent flood surcharge to widen the tax net to provide relief to the flood affectees. The government is facing a scarcity of funds in relief work, as international aid is also less than expected, they added.