LAHORE, Oct 12: Pakistan’s finance managers insist that the devastation caused by Saturday’s earthquake will have no negative impact on the economy or budgetary targets. Independent economists just do not agree, although, they say, it is difficult to tell the exact extent of the impact of the tragedy at this point in time.

“It is difficult to tell the extent of the likely impact of the earthquake on the economy as we don’t yet know the exact magnitude of the damage, and how much will rehabilitation and reconstruction effort cost,” says economist Dr Faisal Bari. “But the colossal tragedy will definitely affect economy and the government’s budgetary targets.”

The unprecedented earthquake is reported to have killed more than 40,000 people so far, and rendered more than 2.5 million homeless, razing the entire cities to the ground in the NWFP and Azad Jammu & Kashmir. Thousands, including women and children, are yet to be rescued from the debris of the collapsed buildings.

Dr Ashfaque Hasan Khan, adviser to the federal finance ministry, said that the disaster would have no impact on the government’s budgetary targets.

“The effect of the disaster on the economy and the budget would be limited if the world at large is generous in doling out financial aid to Pakistan for providing relief to the victims, rehabilitating them and reconstructing the affected areas. But the impact on the economy can be tremendous if Pakistan doesn’t get enough financial assistance from the international community and if the government is forced to finance rehabilitation and reconstruction from its own resources,” says Dr Bari.

Although he says it is too early to forecast the extent of the economic impact of the disaster, he doesn’t rule out the possibility of the economy being affected even in the short-term.

“The government should divert its development budget for rehabilitation and reconstruction effort in the earthquake hit areas,” he suggests.

Former Punjab finance minister Shahid Kardar says inflationary pressures in the economy will soon be felt. “The prices of items needed for immediate relief effort are already soaring. And there are chances that essential items like flour, cooking oil, etc., disappear from the market shortly. This is definitely going to add to inflationary pressures in the economy,” he says.

Further, Kardar says, the prices of cement, steel and other items required for construction will also shoot up when reconstruction of the disaster-hit areas gets under way. “What is the solution? Local producers should enhance production or the government must allow import of these items. If the government allows import, the local producers are sure to protest against it. If import is not allowed, inflation will go up.”

In addition to causing inflationary pressures in the economy, he fears that the “amount of funds required for undertaking reconstruction effort in the affected areas will widen the fiscal deficit from the budgetary target of 3.8 per cent as well as enlarge trade deficit.

Dr Bari agrees that the inflation and interest rates can go up if the government is forced to finance the entire rehabilitation and reconstruction effort from its own pockets. “We don’t yet know how much money will be required and how much shall we get from the international community. But if the government is forced to finance the entire reconstruction activity by printing notes, it sure is going to increase inflation and interest rates,” he says.