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EDITORIAL: The Federal Finance Minister, Shaukat Tarin, during a press conference cited the prevalent price of essential items in regional countries and concluded that Pakistan not only had the lowest prices but was going to further reduce them through subsidies. Three observations are in order: First, Pakistan has the lowest per capita or the capacity of the public to absorb higher prices compared to other countries within the region. World Bank data indicates that Pakistan's GDP per capita was 1193, India's 1900 and Bangladesh's 1968 dollars. Petrol prices in Pakistan, no doubt, are the lowest in the region, as stated by Jamshed Cheema during the press conference as India imposes the heaviest taxes on petroleum and products in the world. However, this does not provide a comfort level as taxes on fuel are still quite high in Pakistan relative to incomes (with the petroleum levy budgeted to generate a high of 620 billion rupees this year) and equally important is the fact that the incentives provided by the Indian government to its productive sectors are far higher than in Pakistan. New Delhi's approach to POL products' prices has therefore implied lower general price level in India compared to Pakistan.

Thus, secondly, the rate of inflation which measures major consumer items was not cited during the press conference. In 2021, Pakistan had the highest inflation rate at 8 percent with India registering 4.6 percent, Bangladesh 5.9 percent, Sri Lanka 4.6 percent and Nepal 4 percent.

And finally, Tarin's pledge to artificially bring down prices through subsidies which, one may assume, was not budgeted would therefore either imply even higher current expenditure than the budgeted amount, a source of concern as this is a highly inflationary policy, and/or slashing development expenditure to maintain the budgeted deficit which would have negative implications on growth. Higher subsidies than budgeted may well become another source of concern to the International Monetary Fund (IMF) in the forthcoming sixth review talks, reportedly scheduled for 4 October which, many contend, indicates that this was perhaps not the right time to hold a press conference on this matter.

It is also important to note that the finance minister has also stated that the power sector will be taking the centre stage in talks with the IMF. In this context, it is relevant to note that the government has yet to approve the Comprehensive Circular Debt Management Plan (CDMP) that it pledged to submit to the World Bank, the lead entity in this sector rather than the IMF, and reportedly it is the Prime Minister who has refused to entertain a rise in base rates - a view that was supported by the Finance Minister soon after he assumed the portfolio. However, as per a Business Recorder exclusive news item, Tarin agreed to raise the base rates in writing to the World Bank. It is doubtful if the sixth review talks would be conclusive unless the government proposes a CDMP which has the capacity to achieve its objective without a raise in tariffs - a rather unlikely situation.

The Finance Minister, however, appears very confident about a successful conclusion of the sixth review talks as he believes he can sell his argument of higher growth being the overarching objective that necessitates a more phased approach to implementing the contractionary monetary and fiscal policies that were earlier agreed by the PTI economic team led by Dr Hafeez Sheikh. We of course wish him success.

Copyright Business Recorder, 2021

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