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June 1, 2020

We deserve better


June 1, 2020

A few days back, the Sugar Inquiry Commission report was made public, as mandated by a law passed in 2017. Whether the commission was formed due to infighting within the PTI, to protect some and discredit others, or for more mundane reasons I cannot say. But the PTI must be appreciated for forming the commission and making the report public.

In 2016, the Supreme Court ruled in the Mehtab Impex case that the federal government is defined as prime minister and the federal cabinet and therefore “decisions” taken by ministries or cabinet committees are considered recommendatory only and have to be approved by the full cabinet chaired by the prime minister to become government policies. Indeed the cabinet often turns down recommendations by ministries or cabinet committees. The commission however decided to only go as high as the ECC to inquire about why permissions were given or not given for exports and did not go all the way to the cabinet, where the real authority lies.

Had the commission interviewed the prime minister we would have learned whether the prime minister actively participated in decisions that led to the sugar price hike or not, and whether he even read the summaries sent to the cabinet for approval. Moreover, if the prime minister selected not to read the summaries, does that mean he’s not responsible for approvals granted?

The commission was mainly formed to find out why sugar prices have skyrocketed since the current government came to power. But the commission also rightly looked at sugar exports and subsidies during the last few years.

When the PML-N came to power in June 2013, the price of sugar was Rs53 per kg. After five years when it left the price was still Rs55, and although the price did fluctuate during the five years, it remained range bound. In the year 2015-16, Pakistan’s sugar production reached a peak of 7.1 million tons and a year later Pakistan production was 6.6 million tons.

As Pakistanis’ income grew and prices remained stable, our consumption of sugar kept increasing. But it was still a little more than five million tons in those years and hence there was an obvious surplus to export. In fact, throughout the PML-N years, we did give permission to export and even offered subsidies for it. But we allowed exports in smaller quantities, kept a check on local prices as a result of exports, and gave subsidies only when local cost of production was higher than international prices.

After the PTI came to power in August 2018, within two months it allowed exports, in one go, of one million tons. This was done even before sugarcane had been harvested and much before the mills had started, so the government didn’t know how much cane and sugar would be produced. A minister told the commission the permission of such a large quantity was done as the country really needed foreign exchange. (Alert readers may recall that even after exporting a large quantity of sugar and devaluation of 40 percent, the PTI actually managed to decrease exports by $500 million compared to the PML-N’s last year. But I digress).

Then again two months later in December, the government allowed another 100,000 tons of exports. This was ostensibly done because, as one minister said, the government was being “threatened” by mill owners. (And I thought the PTI was supposed to be the party of fearless, anti-mafia, super-smart leaders. But here too I digress.) This blackmailing is a bit puzzling because people owning over half of Punjab’s sugar capacity were sitting in the cabinet.

Unfortunately even after the government gave all these concessions to the industry, Pakistan had its lowest sugar production in three years – less than 5.3 million tons and less than local consumption in prior years. Moreover, after exports and subsidies were granted by the PTI government, sugar prices really took off and climbed to over Rs71 in June, a 27 percent increase in six months.

The commission was not impressed by the answer given to it by a minister when asked why the exports were not stopped in the face of escalating sugar prices as mandated by the ECC and the cabinet. It would be unfair to single out one or two ministers as the whole cabinet knew that sugar prices were increasing fast. (Prices of major commodities are presented to the cabinet and the ECC on a regular basis.) Yet it is puzzling, to say the least, that throughout 2019 the cabinet or the ECC did not revisit their decisions even as the price of sugar in the local market reached as high as Rs90 per kg.

Once the federal government undertook the approval process, verbal information was supposedly given by someone in the federal government to the Punjab government to offer subsidy to sugar exporters. The Punjab cabinet duly approved the subsidy, albeit against the recommendation of both the provincial finance secretary Hamid Yaqoob Sheikh and the young finance minister Hashim Jawan Bakht. However, even before the cabinet had met, the decision to give a gift to sugar barons of Rs3 billion had already been taken by the Punjab government in a small meeting chaired by the chief minister.

It seems the ‘verbal information’ was more like verbal instructions. Unfortunately, it turns out that the chief minister of Punjab is not only a man of few words but also a man of limited memory as he had no recollection of that meeting when he met with the commission. The commission noted that this awarding of subsidy was completely unnecessary for exports. Truth be told, the Punjab government was only obliging the industry.

In a remarkable twisting of political narrative, the ruling party is now trying to paint the sugar crisis as – yes – the PML-N’s fault. Ministers are doing press conferences claiming that the PML-N was wrong to allow export subsidy during its tenure. They forget the fact that Pakistan had bumper production of cane and sugar during the PML-N’s tenure, local prices remained steady, subsidy was only allowed when international prices of sugar were lower than the local production cost, cane support price was as high as $1.7 (Rs180) per maund and the dollar was at Rs105 – and hence the industry was getting less for exports. Moreover, the subsidy allowed was on a sliding scale, so as international prices went up, the subsidy rate came down.

Compare this to last year when sugar production was the lowest in four years, international prices were firm, the rupee had already been devalued to Rs140 and was sliding down, the cane support price had decreased to $1.36 (Rs190) and local sugar prices were rising rapidly.

A lesson from this rent-seeking that resulted in Pakistani consumers paying an extra Rs100 billion to the sugar industry in the last two years is that this government needs to start acting with humility, integrity and competence. From the exponential rise in the prices of medicine, to the rise in the price of flour, to the increase in the number of polio patients, to Taftan, to Peshawar metro, to the unprecedented increases in circular debt, budget deficits and public debt, to the confusion over a Covid-19 policy, this government has been letting us down. Pakistan deserves better.

The writer has served as federal minister for finance, revenue and economic affairs.

Twitter: @MiftahIsmail