EDITORIAL: The Caretaker government announced its decision to begin implementing the Ramazan package from 4 March, about a week prior to the start of the holy month, to ensure that all subsidised items are available at the Utility Stores. Democrats who would have preferred the decision to be taken by the elected government expected to be in place before 4 March need reminding of two associated factors.
One, it is the norm for Pakistani administrations, civilian and military, to budget a Ramazan package. And second, the budget for the current year passed by the National Assembly on 25 June 2023, after amendments stipulated by the International Monetary Fund (IMF) as preconditions for the staff-level agreement on the 3 billion dollar nine-month long Stand-By Arrangement (SBA) was reached on 29 June 2023. In other words, one can assume that political players in the country as well as lenders supported the budget, barring the Pakistan Tehreek-e-Insaf (PTI) whose members of the National Assembly had resigned en masse.
The budgeted amount for the Ramazan package was 5 billion rupees for the current year, exactly the same amount that was budgeted the year before and disbursed. The Economic Coordination Committee (ECC) chaired by the caretaker finance minister, however, approved a package of 7.492 billion rupees on 19 essential items, 2.492 billion rupees more than was budgeted, to be disbursed to the Utility Stores Corporation to targeted beneficiaries of Benazir Income Support Programme (BISP) (only those families registered with BISP whose score on the poverty index is PMT-60 or less).
The increase in the budgeted allocation was in all probability due to the persistently high inflation, higher than the 21 percent envisaged at the time of the budget, that the country has been experiencing since the start of the current fiscal year in July 2023 – the Sensitive Price Index was 38.6 percent for the week ending 22 February 2024 and a Consumer Price Index of 28.3 percent for January 2024.
It is important to note that previous elected governments, including the sixteen-month-long coalition government as well as the caretakers have laid the blame for a persistently high rate of inflation either on their political adversaries or the IMF programme, particularly the one agreed in 2019 which, like previous programmes emphasised the need to meet full cost recovery of utility companies, but, unlike previous programmes, the Fund refused government’s plea to agree to a more phased approach as Pakistan’s credibility to implement structural reforms that were agreed with the Fund was shot to pieces.
What is disturbing is that administration after administration continues to achieve the objective of a full cost recovery by shifting it onto the hapless public through raising utility rates, as well as imposing heavy taxes on the utilities to meet the revenue requirements set by the Fund, rather than in implementing structural reforms, particularly governance reforms targeted towards reducing corruption and incompetence, a trend that continues to this day. In addition the caretaker government, like its elected predecessors, has relied heavily on borrowing from the domestic market which has led to: (i) crowding out private sector credit borrowing with a consequent negative impact on growth, and also (ii) re-injected the borrowed money back into the economy to meet its current expenditure, not backed by an increase in output, that is a highly inflationary policy.
While one can urge the government to be vigilant in ensuring that the Ramazan package subsidies will remain targeted to the poor BISP beneficiaries and not hijacked by the wealthier segments of society yet a more advisable policy would have been to curtail inflation through slashing current expenditure that would benefit the public by reducing the persistently high prevailing inflationary pressures much more than any Ramazan subsidy has been able to.
Copyright Business Recorder, 2024
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