More than £300 million in foreign aid for victims of the 2005 Pakistan earthquake has been diverted by President Asif Zardari's government to other causes, officials have told The Daily Telegraph.
Dean Nelson in Islamabad
They now fear that the alleged diversion of funds will deter donors from giving further aid after the country's devastating floods.
According to senior officials, schools, hospitals, houses and roads planned with money given by foreign governments and international aid groups remain unbuilt almost five years after the earthquake which killed 80,000 and left four million people homeless.
International donors gave £3.5 billion to rebuild vast swaths of Pakistan's Kashmir and Khyber-Pakhtunkhwa provinces after the earthquake destroyed the region's infrastructure.
However, senior Pakistani officials yesterday said more than £300 million given in aid has yet to be handed over to the country's Earthquake Reconstruction and Rehabilitation Authority (ERRA).
Nawaz Sharif, Pakistan's opposition leader, last night said suspicion among potential donors was hampering the fund-raising effort to help more than 14 million people displaced by the floods which have swept away buildings, bridges and roads in Khyber-Pakhtunkhwa, Sindh and Punjab provinces.
"There's reluctance, even people in this country are not giving generously into this flood fund because they're not too sure the money will be spent honestly," he told The Daily Telegraph.
Mr Zardari has already been criticised for his handing of the floods after failing to cancel his foreign trip, which included a meeting with David Cameron at Chequers, despite scale of the disaster. So far 14 million people need help and 1,600 have died, making it the world's worst humanitarian disaster, according to the UN.
Mr Zardari has now failed to cancel a trip to Russia next week but has scaled it down from a two-day visit to a one-day visit.
Earthquake reconstruction directors were first told their budgets were being cut in March 2009 when 12 billion Pakistan Rupees (£90 million) was diverted from their budget to other government projects. They were told: "When we have the money we will pay you," said one senior official. "All the money was given by Western governments, but they said 'we have so many other problems,'" he added.
In June this year, ERRA staff were told their 2010-2011 budget of 43 billion Pakistan Rupees (£322 million) had been but down to just 10 billion Rupees (£75 million).
In Balakot, where 5,000 of the town's 25,000 people were killed in the earthquake, thousands of families were told their entire town would be rebuilt six miles away because it stood directly in the 'red zone' directly above the fault line.
But despite promises that the new town would be completed by last month, not a single new road has been completed nor a building construction begun on the site of "New Balakot". When the Telegraph visited the "new town" this week mechanical diggers stood rusting and security guards said there had been no work on the site for more than a year. Officials said contractors had not been paid since April and were still owed £22.5 million. Kamal Nawaz,30, of Gairlat Village, where families of 14 are living in tiny two room temporary huts, said:"they told us they could build three new Balakots but we're still waiting for one." A minute of an ERRA meeting to discuss the funding crisis earlier this month decided there would be "no further work on all on-going projects," while an internal letter dated August 6th explained that as a result of the "rationalization exercise" several offices would have to be closed and assets auctioned. Plans have also been made to cut its 3000 staff down to 800.
Officials said as all the earthquake reconstruction projects had been identified and budgeted for with funds donated by foreign governments and aid agencies, there was no justification for the cuts.
Pakistan's finance secretary Salman Siddiq said the government had rejected requests for extra funds because of the country's fiscal deficit but denied any foreign aid funds had been diverted. "No cuts were imposed last year," he said.