EDITORIAL: The much trumpeted relief package announced by Prime Minister Imran Khan on Wednesday in a televised address lacked basic economic logic on two counts. First, a 120 billion rupee additional subsidy, additional to what was budgeted, would be for 20 million households. Other budgeted expenditure items remaining the same, this additional subsidy will raise current expenditure (not backed by a rise in productivity therefore the injection itself would be inflationary) to 7,643 billion rupees (from the budgeted 7,523 billion rupees) which in turn would raise the fiscal deficit, a highly inflationary policy. Disturbingly, unsustainably high budget deficits, in excess of 7 percent, have been evident since 2018-19 though their contribution to prices has been largely ignored from a policy perspective.
The Prime Minister also needs reminding that: (i) poverty estimate was 40 percent for Pakistan which constitutes 12.8 million households out of a total of 32.21 million households and not 20 million. However, a statement issued by the Prime Minister's Office later clarified that each of the 20 million families will get 1000 rupee per month as subsidy for purchase of three items - flour, pulses, ghee. At present, 15 million families are enrolled in Benazir Income Support Programme with 200 billion rupees earmarked for this purpose out of the total 246 billion rupees budgeted for Ehsaas programme in the current year.
The question is if these families will receive an additional 1,000 rupee per month and the time required to register the remaining 5 million families under this subsidy package targeted to include all those with income less than 31,500 per month and those with a poverty score of less than 39 (who would need to be registered).
Ehsaas, the statement argued, has developed a digitally enabled mobile point of sale system with NBP to serve beneficiaries through a network of karyana stores and the use of a digital platform will help track utilisation of the subsidy; and (ii) if one adds 6 billion rupee subsidy to the Utility Stores Corporation (where prices of the items to be subsidised were raised hours before the announcement of the relief package by the Prime Minister raising questions about undermining the package before it was announced), 8 billion wheat subsidy to Gilgit-Baltistan total food subsidies for meeting the kitchen expenses of the 20 million families comes to 378 billion rupees or an estimated 18,300 per family per year. This is hardly sufficient to meet the kitchen budget of a poor household for one year.
Secondly, the Prime Minister acknowledged that the issue of inadequate revenue remains and warned that price of petroleum and products would rise, to ensure that the budgeted 610 billion rupees under the petroleum levy is realized by the end of the year, electricity tariffs will rise, the gas shortage this winter will surface (though he did not mention his government's responsibility in delaying the import of RLNG, a major factor in the impending gas crisis, second year in a row).
Economic theory dictates that a persistent and indeed an extremely concerning revenue shortfall must be tackled by reducing current expenditure (instead of increasing it) or raising revenue not by taxing the already taxed, or relying on the low hanging fruit (petroleum levy) but on widening the tax net (which remains pending).
Relying on borrowing either from the domestic market or externally to meet a government's political compulsions is a highly inflationary policy whose negative impact is a lot higher than the relief meted out to the public as the persistently high inflation in the country for the past three years adequately reflects.
Lack of economic rationale aside, the Prime Minister's address lacked acknowledgement of his own administration's failure to proactively seek the return of ill-gotten wealth by his two political rivals - notably the Sharif and Zardari families - and his claim that in the event that they return the money he will reduce prices by half is widely dismissed as political bravado that not even a military dictator can deliver.
The Prime Minister's argument that prices are cheapest in Pakistan has generated anger as members of the public have pointed out that incomes are a lot less here than in regional countries.
He must also warn his team that the general public is well informed about inflation and unemployment, the two indicators that directly impact on them, and hence the Deputy State Bank of Pakistan Governor's statement to the parliamentary committee that inflation is not linked to the rupee depreciation (given that cooking oil, wheat, sugar and petroleum and products consist of over a quarter of the country's import bill) only serves to fuel public ire.
Copyright Business Recorder, 2021
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