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Friday May 20, 2022

Comparing apples with oranges

January 25, 2022

LAHORE: The debate on the economy should be based on how it benefited the public at large and not on comparing the difficulties faced by the general population in affluent countries, because it amounts to comparing apples with oranges.

It is true that Pakistan cannot shield itself from the ups and downs being experienced in the global economy. Price hikes around the globe should not be limited to two years of Covid-19. We should also consider the situation before the pandemic. The global economy was serene immediately before the onset of the pandemic.

However, in Pakistan the prices, particularly food prices, were spiralling up rapidly. Sugar rates doubled before pandemic to over Rs100, and the wheat prices shot up from Rs40 per kg to Rs70 per kg. Rates of mutton, chicken, beef, pulses, and other edibles registered hefty increases.

So, we entered Covid-19 with a very high base price. Rates started increasing globally six months after Covid-19 hit the world. It also impacted the prices in Pakistan. But the difference was that the prices in affluent economies increased from a low base price, while ours increased from a high base.

An item that was available in Pakistan for instance at Rs10 before this government assumed power, was priced Rs20 a year later. From this high base, prices, even if they increased in line with global rates (30-40 percent), had a devastating impact on consumers. In affluent economies, the price of an item, which was available for Rs10 (Pakistani equivalent) in 2018 shot up by approximately 30-40 percent. It did hurt the consumers, but to a lesser extent than in Pakistan.

There is another major difference in the way the consumers allocate their resources for different purposes. In affluent economies, the weight of food in their total spending is 6-10 percent. In Pakistan, food accounts for over 35 percent of the total income of consumers.

For the poor, it accounts for 70 percent of their monthly earnings. In affluent economies, the number of poor is nominal, while in our country, poor account for 40 percent of the population.

One can imagine the impact of higher food prices on general consumers in Pakistan and on the poor. The incomes during the last four years have not increased, but even if the government’s claim that incomes have increased is accepted, the rise was not enough to compensate for the hefty increase in edible prices.

We have not conducted fresh surveys, but in the current scenario, the average expenses of Pakistanis must have shot above 50 percent of their monthly income. For the poor, even the monthly earnings would not be enough to bear their food expenses.

Consumers in developed economies would have to make some adjustments in their spending pattern to cope with the increasing prices. Their per capita income is also 40 to 50 times higher than average per capita income of Pakistanis.

They may have to postpone buying new cars or going for a new house mortgage till things settle down, but they will not starve. Forty percent poor in Pakistan would be left with no resources to spend on other necessities of life like health care, education, travel, and shelter. Even paying the utility bills would be an uphill task for them.

The middle-class families though can postpone their plans of buying a new car or bike or a TV set till their incomes increase. Chances of edible prices going back to 2018 or even 2020 level seem impossible. In fact, it is very rare that once increased prices of wheat, sugar, edible oil, milk, or medicines, ever come down.

People of Pakistan are in deep trouble. They are facing the brunt of ever declining rupee value. The government takes devaluation as an opportunity to generate more revenues. The least the government could have done was to charge the same duties and levies (in monetary terms) on import of edibles like edible oil that it was collecting before devaluation.

For instance, if the cumulative duties and taxes were Rs40 per litre when the rupee was valued Rs124 in August 2018, it should collect the same amount now instead of charging it on a percentage basis.

This would drastically bring down the edible oil rates and rates of many essential items like spices and pulses. The government can curtail its subsidies to offset the revenue thus lost. It will bring more relief to the masses than the translucent way the subsidies are doled out.

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