Aside from trying to cope with that direct damage, the government may face total recovery costs of $30 billion, Finance Ministry officials said, although they had not seen the report.
If that figure proves correct, it will likely disappoint the government, which had estimated damage at $43 billion and needs all the aid it can secure.
Pakistan may not be able to manage billions of dollars of financial support needed for reconstruction, a reality that worries the United States, which wants stability in an ally seen as vital in its war on militancy.
The government is often preoccupied by one crisis after another, from feuding politicians to waves of Muslim militant suicide bombings to showdowns with the powerful Supreme Court.
If aid money does not reach millions of flood-victims soon, unpopular Pakistani leaders will lose more credibility, and Taleban insurgents may capitalize on hardships to gain recruits.
At the heart of Pakistan’s latest turmoil is an amnesty law that allowed some politicians to return after years of exile but which was thrown out in December 2009 by the Supreme Court.
If the Supreme Court rejects a government appeal against the overturning of the law, which is likely, that could open the door to attempts to prosecute government leaders, including President Asif Ali Zardari.
Maria Kuusisto, an analyst at the Eurasia Group, said the government was weighed down by a familiar set of problems.
Structural tensions between the civilian leadership, the bureaucracy and the military, were exacerbated by the floods. An inherent lack of institutional capacity because of different political agendas. A tight budget. Endemic corruption.
“The government is not very focused,” she said. “It’s constantly dealing with political tensions. And it doesn’t have adequate resources.”
The floods, which began in late July, left more than 10 million people homeless and affected 20 million, and devastated an economy that was already fragile before one of the country’s worst natural disasters.
The first challenge will be dealing with $9.5 billion in direct damage one of the ministry officials said was reported in the assessment, due to be presented at a Friends of Democratic Pakistan meeting in Brussels on Thursday.
The cost of rehabilitation will likely push the 2010/11 fiscal deficit to between 6 and 7 percent of the gross domestic product against an original target of 4 percent.
Asad Iqbal, chief investment officer at Faysal Asset Management Ltd, said while reconstruction may stimulate the economy, much will depend on the mode of funding.
“If it’s borrowed money, then rebuilding that creates a higher deficit will, of course, cause inflation to rise further and the common man is likely to see delayed benefits,” he said.
“But if the rebuilding is funded by foreign grants or soft loans plus government resources, then that would result in a quicker impact on the economy.”
Richard Holbrooke, US special representative for Afghanistan and Pakistan, has said Islamabad’s allies can only do so much to rebuild the country after the floods, so the government must raise tens of billions of dollars itself.
