Amid the government’s earsplitting ballyhoo that economy has been stabilised, Pakistanis are losing their minds over one of the highest-ever spikes in food inflation that doesn’t take advanced economics to be pinned on the policymakers, doing a pathetic job, and a terrible coordination among the provinces and the center.
The real victims are low-, middle- or fixed-income groups, especially salaried ones and pensioners, as well as daily wage earners. The Consumer Price Index- (CPI) based inflation slightly receded this month but is expected to increase next month, owing to a variety of reasons, including rising Sensitive Price Index- (SPI) based inflation on weekly basis and increasing utility prices, particularly electricity.
As advised by his economic team, Prime Minister Imran Khan in a number of his speeches declared that the economy had been stabilised. The claim was based mainly upon a reduction in the current account deficit (CAD) after which the exchange rate also stabilised.
However, the economists and all those who understand the intricacies of the “stabilisation of economy” can easily smell that abrupt reduction in CAD was not totally a good sign for the economy that is largely dependent upon imports mainly in the shape of machinery and raw materials. This type of reduction slows down the economic activities and has far-reaching negative impacts on overall performance of the economy and gross domestic product (GDP) growth. Although, the government claimed to have surpassed the GDP growth target of 3.3 percent for the current fiscal year, this level of low growth would not serve any purpose in terms of creation of jobs for new entrants.
The government also took steps on account of fiscal stimulus by increasing borrowing limit for exporters to the tune of Rs300 billion at fixed markup rate, while it was also announced that the subsidy for differential of interest rate would be borne by the state. The government as well allocated additional Rs30 billion for providing subsidy for housing sector under PM’s Naya Housing Scheme. The finance division is doing all this in a bid to spur economic activities that have slowed down owing to higher discount rate of 13.25 percent. That said, State Bank of Pakistan’s (SBP) is also reluctant to reduce the policy rate when the inflation is picking up.
On the fiscal side, the government has performed well during the first review period of International Monetary Fund (IMF) but there was a revenue collection gap on Federal Board of Revenue’s (FBR) part and it was bridged through non-tax revenues. The economists are projecting FBR’s revenue collection at Rs4,400 to Rs4,500 maximum so the projected shortfall is feared to fall in the range of Rs1,000 to Rs1,100 billion. In this situation, the government will not be able to close this gaping hole through non-tax revenues, so slippages on the fiscal front are likely inevitable in the coming months and quarters of this fiscal year.
But the most worrisome development for the common man has been rising inflationary pressures, especially food prices over the last couple of months.
After exclusion of reviewing of prices from the agenda item of every Economic Coordination Committee (ECC) of the Cabinet meeting, prices of different sensitive food items have witnessed unprecedented escalation, primarily because of lack of proper management both at federal and provincial levels.
This ‘mismanagement’ is playing havoc as there are reports the policymakers were allegedly not provided with accurate data, so they took more time to come up with right prescription.
Wheat export to Afghanistan was banned after a certain lapse because the policymakers were furnished with different data at different points of time. In the meanwhile the prices of wheat flour went up in the domestic market.
The ECC has abandoned the practice of taking up prices as first agenda item of the meeting for many last few months and it can be said that this factor, among others, led the food prices go through the roof. The sealing of borders with India in the aftermath of Pulwama attack also resulted in hike in vegetable and food prices.
The lack of management is a hallmark of the incumbent regime as price hikes have become a major issue on the economic front. It’s a unique model as the discount rate increased manifold and the CPI-based inflation, especially the food inflation followed this trend.
The PM recently sought a briefing from Chief Statistician of Pakistan Bureau of Statistics (PBS) but it seems he was not aware of the fact that the slot had been lying vacant for the last two years. The PBS was handed over to Ministry of Planning so the Secretary Planning has been briefing the PM on prices of different items lately.
It was the Planning Ministry who raised the red flag of sensitising the government that the country was heading towards wheat flour crisis as national average price of flour went up Rs200/20 kg bag from Rs750 to Rs950 in the country. However, in the market, the price of pure fine flour at flourmills stood in the range of Rs1200/20 kg.
The ECC of the Cabinet approved releasing 650,000 tons wheat few days ago and now the government expected that the prices would be normalised. The center also blamed the Sindh government for not procuring wheat. The National Accountability Bureau (NAB) has started an investigation into wheat procurement so Sindh could not procure wheat. The federal government claims that both the center and provinces possessed wheat stocks of almost 9 million tons, sufficient to meet domestic requirement.
However, the Punjab government had imposed a ban on inter-provincial movement of commodity so the prices of wheat flour are increasing in Sindh. It is yet not known as to how much of the available 9 million tons of wheat stocks was fit for consumption because the grain was lying outside in the open under the sky without proper arrangement.
Tomato prices also witnessed new heights in recent days, escalating to Rs250/kg in twin cities. In Karachi tomato went up to Rs350/kg. An unusually longer monsoon that brought extra rainfall has affected the tomato crop and its prices would come down after the arrival of new produce from Sindh and Balochistan in a few days.
The seasonal impact could have been rectified if the government had planned things prior to the eruption of the crisis by improving the supply mechanism through different avenues.
The writer is a staff member