Thursday July 07, 2022

Prudent interventions

May 18, 2022

LAHORE: In times of high food and oil prices, government should either choose temporary high growth at the expense of fiscal cushion or curb consumption and create surpluses for a little slow but sustainable growth.

Most globally respected economists wonder at the skewed approach of consumerism adopted by developing economies like Pakistan to maintain growth that is taking the commodity rates even higher. What surprises them most is that they are doling subsidies despite resource constraints to further boost consumption that triggers higher inflation.

Former Chief Economist IMF Kenneth Rogoff has regretted that to maintain high growth all governments, rich and poor, pass out even more checques and subsidies to keep the boom going. He said Keynesian stimulus policies might help ease the pain a bit for individual countries acting in isolation. But if every country tries to stimulate consumption at the same time, it would be counterproductive and put further pressure on prices.

The ruling elite desperate to sustain their political and economic momentum, take a wide variety of steps to prevent their economies from feeling the full brunt of the commodity price hikes. As a result, higher commodity prices are eating into fiscal cushions rather than curtailing demand. Petrol prices and the subsidies provided on wheat and sugar have devastated the balance of our country.

Government must aim at sustainable growth instead of going for populist programmes that given the level of corruption in the country seldom reach the poor.

They should go for selected low-cost interventions that bring higher benefits to the poor than the programmes the government was aiming at the moment.

One cannot deny that the poor need government aid, but the way that help is provided in Pakistan is adversely impacting the economy. Need is to use less expensive ways to alleviate the sufferings of the poor.

For instance the low quality of food that does not contain essential nutrients is impacting the poor more, affects their health and reduces their productivity. It should be a matter of concern that micro-nutrient initiatives have not been taken seriously by the planners.

The 2004 Nobel Laureate in Economics Finn E Kydland said there would be high benefits from providing micronutrients – particularly vitamin A and zinc – to undernourished children in Pakistan. This fortification would help prevent neonatal death. The cost is tiny: reaching 50 million or so undernourished children would require a commitment of around $30 million annually or Rs5.83 billion, while the economic gains would eventually clear $1 billion a year.

Providing iron and iodised salt is another top investment. Fortifying products with iron costs as little as $0.18 per person, per year. For Pakistan the total iron fortification cost would be $39.6 million or Rs7.6 billion. Iron deficiency leads to cognitive and developmental problems.

With an allocation of around Rs13.4 billion, which is only half percent of current subsidies, we can get iodised salt and fortified basic food items to those in the worst-affected areas, with benefits estimated to be lifelong. Our human resource would be healthy and more productive.