Is the PTI government failing the poor?
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In Pakistan, an increase in prices was recorded at 14.6 percent in January 2020 – the highest in 12 years. Ongoing efforts to put breaks on consumer prices is not paying off as the price level witnessed an increase of almost 2 percent over December 2019. Key items that are witnessing price growth are those which impact the welfare of the poor, namely edible oil, pulses, sugar, rice, wheat, flour, fruits, vegetables, chicken, meat, milk, and LPG. The complete years’ forecast for inflation is also in the double digits. An estimation by the Sustainable Development Policy Institute puts this at 12.5 percent for the ongoing fiscal year.
Public unrest over prices is growing. On various television shows, the question is asked: Does the government really understand what is wrong with the prices? We are informed that the Prime Minister is chairing meeting after meeting to understand the inflation dilemma. The central bank’s response is to keep a tight monetary policy with high rates of interest, knowing full well that it cannot be a remedy for food, oil or even energy prices. In fact, January’s monetary policy statement gave discomforting news that further increases in the prices of food and utilities was on the cards.
Inflation is now also pushing the cost of doing business higher and hurting job creation. There are cost-push factors at play - increased prices of raw material, electricity, gas, higher taxes, rise in compliance costs for tax payers, and rising import prices on the back of devaluation. No wonder one observes falling growth levels in industries which are major employers in Pakistan, namely iron and steel, food, beverages, chemical, fertilizers, pharmaceutical, leather, and automobiles. Another reflection of this falling dynamism in the economy is the sharp fall of 77 percent in private sector borrowing.
Going forward, it is now clear that the government’s own thesis of keeping economic growth subdued and expecting prices to come down is not working! The urgency to roll out social safety nets under the Ehsaas program is well intentioned but will never be able to make up for the damage incurred to the disposable incomes of the poorest of the poor.
The mechanisms to forecast demand and prices of essential food has gaps – something which has cost the government dearly in the form of recent wheat shortages.
Dr. Vaqar Ahmed
My own view is that government will need to urgently negotiate some fiscal ease with IMF authorities and seek relaxation in the commitments against which Pakistan will be evaluated in the coming reviews. Keeping taxes high, continuous pushing to seek additional non-tax revenues, allowing further rise in energy prices will continue to exacerbate the pressures on the poor.
Secondly, the government will need to address loopholes in its price monitoring systems. The mechanisms to forecast demand and prices of essential food has gaps – something which has cost the government dearly in the form of recent wheat shortages. The public sector remains a weak manager of buffer stocks in wheat and sugar due to a lack of robust coordination across provincial governments. It is not clear why even in this time of high prices, the National Price Monitoring Committee is not meeting on a weekly basis!
Third, hoarding and cartelization in agriculture markets has gone unchecked. While some of this calls for the strengthening of laws, a bigger problem is to address the weaknesses in regulatory bodies responsible to protect consumers, including Competition Commission of Pakistan (CCP). In the recent past, the regulator had asked for action against banks, cell phone companies, enterprises in cement, LPG, sugar, refinery, steel, jute, and fertilizer sectors. However, there is no evaluation if such action has in fact been fully implemented and if this resulted in enhancing consumer welfare.
Fourth, an independent evaluation is desired as to why Susta bazaars and Itwar bazaars set up throughout the country and subsidized through taxpayers’ money are not able to deliver adequate supplies at affordable prices. In fact, the poor quality of food items being served at these outlets including Utility Stores Corporation have been a cause of concern for the general public. In this regard, it is not clear if the Ministry of National Food Security & Research has so far been able to implement the price control report prepared by the CCP. Furthermore, evidence is required to see whether or not provincial governments who had spent billions to put in place online market complaint apps have actually made any progress towards assessing why these complaints are recurring.
Fifth, managers at the helm of economic affairs need to understand the detrimental effects which abrupt border closures (for example, at Torkhum and Wagah) have on trade with neighbors, supplies of essential items and prices.
Apart from the above, a reduction in the cost of living for the poor will eventually require slashing the number and rates of indirect taxes, employers respecting ‘minimum wage’, and the government guaranteeing that Ehsaas Programme targets the informal sector labor, farm labor, disabled and vulnerable. A failure to take action in this direction could result in further challenges for the poor as the holy month of Ramadan approaches.
– Dr. Vaqar Ahmed is an Economist and author of ‘Pakistan’s Agenda for Economic Reforms’ published by the Oxford University Press.
Twitter: @vaqarahmed
