Release price of wheat to flour mills jacked up

ISLAMABAD: In the name of introducing targeted subsidy, the government has granted approval to jack up the release price of wheat to flour mills from Rs1,475 to Rs1,950 per 40 kg, so the price of flour is expected to further go up by Rs10 to 12 per kg for urban consumers.

Federal Minister for Finance Shaukat Tarin announced on Tuesday that the release price of wheat had increased from Rs1,475 to Rs1,950 per maund for the domestic market. With this decision, the government has withdrawn approximately Rs90 billion to Rs100 billion subsidies and the price of atta (flour) is expected to be increased for urban consumers. The minister for finance said the government would introduce cash-targeted subsidy under its bottom-up approach, whereby 40 percent population would be able to buy essential food items. The Ehsaas data will be used to provide cash subsidies to the beneficiaries.

“We did not pass on the full prices that prevailed in the international market related to the POL products and commodities to domestic consumers,” Federal Minister for Finance Shaukat Tarin said while addressing a news conference here at the PID centre. The finance minister insisted that Pakistan was better off in terms of prices compared to other regional countries and expressed his hope that the price of flour would come down as the government would be releasing wheat stocks.

Flanked by Minister of State for Information Farrukh Habib and Prime Minister’s Special Assistant on Food Security Jamshed Cheema, Shaukat Tarin said the sugar prices would not be allowed to increase up to Rs130 per kg and it would hover around at the existing levels. When asked about the possibility of hiking electricity rates in October, he said he did not know about it.

He said the total public debt went up by Rs14.9 trillion in the last three years as it increased from Rs25 trillion in FY2018 to Rs39.9 trillion in FY2021. The minister blamed the devaluation of rupee against the dollar and surge in the discount rate as primary reasons for increasing public debt after signing a deal with the IMF.

He said when the government had come into power, it was left with no other option but to get an IMF loan. So, the devaluation of rupee against the dollar and increase in discount rates doubled debt servicing obligation from Rs1,500 billion to Rs2,900 per annum. The external debt, he said, also went up sharply and the total debt jumped up by Rs3.7 trillion in the second year and Rs3.5 trillion in the last fiscal year. He said one of the reasons for the increase in debt was that some money was also used to increase the foreign exchange reserves of the State Bank of Pakistan (SBP), which rose to over $20 billion. Around four to five billion dollars were added to the SBP reserves, he added.

The minister said the total net debt was 74 percent of the GDP and it increased to 85 percent of the GDP in 2020 and now it has come down to 81 percent, reflecting a decline of around three percent, and expressed the hope that if the growth remains five percent in the ongoing fiscal year, the debt-to-GDP would decrease.

The minister said the government would provide cash subsidy to the low-income group on the basis of Ehsaas data. The government will provide cash subsidy for specific items such as sugar, wheat, pulses, electricity, etc.

The inflationary pressure was an international phenomenon owing to the Covid-19 pandemic that led to low productivity and disruption of supply chain. He said the government did not pass on the full burden to consumers as there was an increase of 48 percent in sugar price in the international market but the government passed on 11 percent, while the increase in palm oil price was more than 50 percent and the government had passed on only 33 percent to the consumers.

The minister further stated that there was an increase of 32 percent in the prices of wheat in the international market but only 15 percent was shifted on to domestic consumers. The sugar price has increased from $303 per ton to $430 per ton during a year in the international market and wheat price from $188 per ton to $225 per ton.

The crude oil prices have increased over 58 percent but the government passed on only 9.4 percent to the consumers and absorbed the remaining increase by using the Petroleum Levy, said the minister.

Now, there is very little Petroleum Levy (PL) and decline in the PL would entail budgetary risk as the government had estimated collection of Rs600 billion from petroleum in the current fiscal year.

The minister said inflation had declined to 8.9 percent last fiscal year from 10.74 percent a year before and was expected to remain at eight percent for the current fiscal year. The Consumer Price Index (CPI) was 4.58 percent in 2018 and increased to 6.8 percent in the subsequent fiscal year and then 10.74 percent in the fiscal year 2019. He said increase in the local production would not make any difference because of the country’s linkage with the international market owing to import of commodities.

He said there will be focus to reduce the profit margin, which is huge from farmers to market level and the government was working on a scientific methodology (price engineering) to determine how much profit was being made by various elements and eight to 10 products would be targeted initially. He said now the government’s focus was to increase the production of agriculture sector.

In the long and medium run, the minister said the government would have to set up cold storages, commodities warehouses, and agriculture malls to lessen the role of middlemen and to do away with exploitation of farmers. He said 500 agri malls have been planned for the current fiscal year. The minister said the middlemen can benefit from the USC.

The finance minister emphasised the need to increase the income of the people so as to strengthen their affordability and stated that benefits of growth strategy could be seen in the form of an increase in revenue and imports. With the increase in imports, economic activity would also pick up and in turn the people would have more money in hand to spend.

Tarin said the Kamyab Pakistan Programme (KPP) will also be launched this month and it would be a complete package to support the low-income group through a bottom-up approach. Sehat Sahulat Cards program is a big initiative of the incumbent government as this is also a complete package.

The minister said he had stated that the trade with Afghanistan may be done on rupee and Pakistan has to help Afghanistan and if it required goods, Pakistan may export them. He said the trade volume with Afghanistan was nominal and not very significant.

The minister said the Kamyab Pakistan Program (KPP) was scaled down from Rs350 billion to half, while its soft launch would be done in two smaller provinces and then implemented into the remaining two larger provinces from the next calendar year, which would help utilise Rs100 billion only in the current fiscal year. The subsidy amount, he said, was reduced from Rs22 billion to Rs10 to 12 billion only and added that no one could term it a politically-motivated program because it would use Ehsaas data to provide the loans.