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EDITORIAL: Fawad Chaudhary, Minister for Science and Technology, and Hammad Azhar, Minister for Industries and Production while briefing the media on cabinet decisions revealed a historically high Ramazan package of 7.8 billion rupees for the current year. The Ramazan package in previous years had hovered from 2 to 3 billion rupees with budget documents for 2020-21 indicating that the Ramazan subsidy disbursed last year was 2.5 billion rupees with 3 billion rupees budgeted for the current fiscal year.

The objective of the one-month Ramazan subsidy package was originally to ensure that profiteering by the private sector during the holy month is minimized through sale of essential items, particularly food items, at lower than the market rates. There was thus an element of the Utility Stores Corporation (USC) having procured items at rates well below those prevailing in the retail market during Ramazan. The more than doubling of the Ramazan package is a clear acknowledgment by the government that the prevailing market prices are a lot higher than envisaged in June 2020 when the budget was formulated on the back of: (i) failure to check the sensitive price index (SPI) in spite of weekly meeting of the price monitoring committee headed by the federal finance minister. From putting the onus on provincial governments for failure to check prices to blaming the ‘mafia’ operating in the market (sugar and flour mafia to the wholesalers/middlemen and retailers) it is about time the government began to look at its own policy decisions contributing to inflation notably a rising budget deficit, the highest ever reliance on domestic debt (from 16.5 trillion rupees inherited by the government to 23.7 trillion rupees on September 2020) and foreign borrowing (from 95.5 billion dollars inherited to the current 118 billion dollars with 17 billion dollars earmarked for loans incurred by previous administrations and 5 billion dollars procured to meet the primary surplus target agreed with the International Monetary Fund) and a high dependence on taxes that are easy to collect but highly inflationary, for example, tax on electricity and POL and its products; (ii) mismanagement and failure to deal with the causes behind the shortage of sugar and wheat flour in the market, including delays in importing the commodities, even after the damning inquiry reports almost a year ago that, in turn, accounted for hefty imports and subsidies pre-Ramazan – factors that have accounted for a widening of the trade as well as the budget deficits. In this context, the statement during the press conference that the government would import in time must be appreciated. Presenting half truths to the Prime Minister is a dangerous game with serious political repercussions on credibility of the ruling party.

Two major problems have been associated with channeling subsidies through USC in the past and one would hope that the government takes appropriate mitigating measures to ensure that they are dealt with appropriately. First, subsidy to USC is not targeted as anyone can purchase from its outlets. The Prime Minister set up a subsidies cell which pointed out that subsidies account for around 2 trillion rupees per annum, 4.5 percent of GDP, and 58 percent of current budget (excluding interest payments but including guarantees provided to state-owned entities, cash transfers/Ehsaas programme and national savings) and in September 2020 recommended a phased approach covering initially subsidies to power, food and national savings. This is a step in the right direction and one would hope that the process to consolidate and target subsidies is fast tracked.

And second, USC management and staff have in the past sold subsidised items – for example sugar - in bulk to private sector bakeries/hotels which has led to shortages; in addition, consumers have recently complained that the wheat flour being sold at USC at the government controlled price is not fit for human consumption. The 160 percent unprecedented rise against the budgeted amount and 212 percent rise in comparison to last fiscal year should be a source of serious concern to the Prime Minister in particular and the economic team leaders in general, underscoring the need for announcement and implementation of appropriate measures.

Copyright Business Recorder, 2021

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