The ECC decisions

The Economic Coordination Committee of the Cabinet, under the chairmanship of the Adviser to the Prime Minister on Finance Dr Hafeez Sheikh, has raised the support price of wheat to rupees 1,365 per maund (40 kilos) in an effort to make the commodity, which is a staple diet in Pakistan, affordable to low income groups. The latest figure for the Sensitive Price Index (SPI) as released by the Pakistan Bureau of Statistics is 20 percent, with 70 percent food component, a better reflection of the impact of inflation on the middle and lower income groups relative to the Consumer Price Index (CPI).

Inflation as per the productive sectors can be sourced to a rising cost of inputs, including energy, transport costs (associated with an undervalued rupee that is contributing to higher petroleum prices domestically), and a high discount rate is contributing to high cost of doing business. The State Bank of Pakistan has not provided any rationale for an undervalued rupee, by 6.5 percent at last count, which is also contributing to a rise in the government's debt servicing/repayment obligations. The justification trotted out for the high discount rate is the need to keep the real interest rate adjusted for inflation around 3 percent. This argument too stands compromised because of reduction in the rates of return on National Savings schemes to stem the arbitrage that was taking place.

The cost of production of wheat in Pakistan is estimated at 1,349.57 rupees per 40 kg in Punjab, and 1,315.72 rupees per 40 kg in Sindh against the world wheat price of 1,450 rupees per 40 kg, excluding duties. This situation required the government to take some remedial measures on an emergent basis, including raising the support price of wheat that it did otherwise there was a distinct possibility of farmers considering reducing the acreage under cultivation of the wheat crop in favour of a more lucrative crop that would create severe shortages of our staple diet in future. In this context, it is relevant to note that the rise in sugarcane production with a commensurate decline in cotton production is now a source of serious concern considering that the cotton and related products are a major source of export revenue for the country.

The ECC also decided to declare five zero-rated sectors as export-oriented sectors; however, the list of issues identified by exporters indicate that many of the incentives relating to tariffs, electricity and gas, are not being implemented and their input costs remain too high to allow them to compete with regional countries. Thus the government needs to focus on ensuring that its policies are being implemented in a timely fashion.