EDITORIAL: Prime Minister Shehbaz Sharif has announced two relief packages, read subsidies, for the poor and vulnerable. First, free wheat flour to the poor and vulnerable during Ramazan, a package to be kick-started in Punjab.
There is no doubt that with the Sensitive Price Index of 45.64 percent in the week ending 16 March 2023 coupled with a decline in farm output (including cotton) due to the devastation caused by the floods as well as the raise in utility rates due to pressure from the International Monetary Fund (IMF) and a sustained slump in the large-scale manufacturing output (registering negative 4.40 percent at last count) growth prospects for the economy are extremely dismal.
With a decline in Gross Domestic Product (GDP) unemployment is on the rise leading to ever-growing number of families being pushed under the poverty line. Sadly, the selection of the province to start the subsidy raises serious questions about the political considerations at work, given that Punjab was the least-affected by the floods with Sindh as the most-affected (accounting for 70 percent of all losses) followed by Khyber Pakhtunkhwa and Balochistan.
Punjab without doubt is projected as the political battleground in the elections scheduled for 30 April between Pakistan Muslim League-Nawaz and Pakistan Tehreek-e-Insaf, a fact that may well have been the key element in starting this particular subsidy from there.
Second, the federal government has announced that it would extend 50 rupee per litre subsidy on petrol to the low income defined as those with a motorcycle, rickshaw or 800cc car. Critics of the government are arguing that the definition does not include the vulnerable and poor as they do not own their own transport with others asking how this subsidy would be targeted, a major IMF demand, as it cannot be channeled through Benazir Income Support Programme (BISP) with its sole beneficiaries being women who generally do not own personal transport though other family members may.
One way out of this dilemma may well be to add an additional column in the BISP application on assets held by other family members (including the name under which an electricity connection was taken that would ensure that the subsidy to life line consumers would be targeted) as BISP beneficiaries and their families, verified periodically, are fully supported to receive subsidies. It is relevant to note that the IMF agreed to raising BISP allocation by 40 billion rupees for the current year from the budgeted 360 billion rupees and hence additional subsidies for BISP beneficiaries would be possible.
It is unclear however whether the announced Ramazan subsidies for general consumers would be adjusted in the budgeted 5 billion rupee Ramazan package or whether additional funds would be required for implementation. While the IMF has indicated time and again that it would not support unfunded subsidies yet it has indicated that it fully supports targeted relief for the poor and vulnerable.
In this context, it is relevant to note that the Economic Coordination Committee (ECC) on 5 March 2023 approved the following: (i) 1.5 billion rupees for BISP beneficiaries to include 100 rupee per kg on ghee, 52 rupees on wheat flour with a 10 kg bag available at 400 rupees and 30 rupees on sugar at 70 rupees per kg; and (ii) general consumers would receive a subsidy of 25 rupees per kg on ghee to be available at 490 rupees per kg, 27 rupees per kg on wheat flour (10 kg of flour would be available at 648 rupees) and 11 rupees per kg on sugar to be available at 89 rupees per kg.
This indicates that the two recent relief packages, i.e., free wheat flour and petrol subsidy are not included in the ECC-approved Ramazan package and would have to be adjusted elsewhere. It is also not unclear as to how much additional subsidy would be required to meet these packages and whether that would get the IMF approval.
It is indeed surprising, nay shocking, that the federal government did not engage with the IMF on this matter of fuel subsidy and the Fund came to know about it from the media. Consequently, as news reports suggest, it has inquired about the source of financing of this fuel scheme and the mechanism to be employed for its implementation.
The 85 plus members of the federal cabinet must realise that irrespective of their concerns for the growing numbers of poor; giving unbudgeted subsidies is not supported by lending agencies and Pakistan has no leverage to negotiate a phasing out of upfront extremely harsh prior conditions.
Copyright Business Recorder, 2023