Islamabad: Finance Minister Shaukat Tarin said on Tuesday that the government would be providing targeted cash subsidy on wheat, sugar, ghee, and pulses from this month as part of the bottom-up approach to protect 40 percent population against inflation, adding that inflation is an “international phenomenon”.
Later, talking to media, the finance minister disclosed that the size of Kamyab Pakistan Programme (KPP) has been reduced to Rs156 billion from Rs315 billion for the current fiscal year and cost of subsidy would be Rs10 billion as compared to previous Rs21 billion.
Earlier, speaking at a press conference, along with Minister of State for Information Farrukh Habib and Special Assistant to Prime Minister (SAPM) on Food Security Jamshed Cheema, the finance minister acknowledged an increase of Rs14.9 trillion in the country’s debt during the last three years and blamed devaluation of rupee and increase in discount rate, after going in the International Monetary Fund (IMF) programme, as primary factor for increase in debt.
About debt, Tarin said that when the present government came to power, it was compelled to take the IMF programme and consequently, there was devaluation of exchange rate and increase in discount rate that contributed to increase in debt servicing from Rs1,500 billion to Rs2,900 billion.
Additionally, he said the foreign currency debt was also increased in terms of rupee and the total debt was increased from Rs25.7 trillion to Rs39.9 trillion during the last three years, Rs7.7 trillion in the first year followed by Rs3.7 trillion in the second year, and Rs3.5 trillion in the last fiscal year.
To tackle food inflation, Tarin announces cash subsidies for low-income segment
He said that one of the reasons of increase in debt was that some money was also used to increase foreign exchange reserves of the State Bank of Pakistan (SBP), which were increased over $20 billion. Around $4 to $5 billion was added in the SBP reserves, he added.
The minister said that the total net debt was 74 percent of the GDP and it increased to 85 percent of the GDP in 2020 and now it has come down to 81 percent, reflecting a decline of around three percent. He expressed the hope that if growth remains five percent in the ongoing fiscal year, debt-to-GDP ratio would decrease.
The finance minister said that the government would provide cash subsidy to the low-income group on the basis of Ehsaas programme data as it is available and the purpose of the interaction is to protect the low-income group from inflation by providing cash subsidy for specific items – sugar wheat pulses, electricity etc.
He added that the inflation was an international phenomenon owing to Covid that led to low productivity and disruption of supply chain. Yet, he said, the government did not pass on full impact to the consumer, as there was an increase of 48 percent in sugar price in the international market but the government passed on 11 percent to the consumers, while increase in palm oil price was more than 50 percent, however, the government passed on only 33 percent to the consumers.
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The minister further stated that there was an increase of 32 percent in the prices of wheat in the international market but only 15 percent was passed on the domestic consumers.
Tarin said sugar price has increased from $303 per ton to $430 per ton during a year in the international market, wheat from $188 per ton to $225 per ton, soybean from 775 per ton to 1,436 per ton.
The minister said that crude oil prices have increased over 58 percent but the government passed on only 9.4 percent to the consumers and absorbed the remaining increase by using petroleum levy. Now there is very little PL and decline in PL would entails budgetary risk as the government estimated a collection of Rs600 billion from petroleum in the current fiscal year.
The finance minister insisted that Pakistan was better in terms of prices compared to other regional countries. He hoped that the price of flour would come down as the government would be releasing wheat stock. He said that the government would release wheat at Rs1,950 per 40kg.
The minister said that the inflation has declined to 8.9 percent last fiscal year from 10.74 percent a year before, and is expected to remain at eight percent for the current fiscal year.
The consumer price index (CPI) was 4.58 percent in 2018 and increased to 6.8 percent in the subsequent fiscal year and then 10.74 percent in the fiscal year 2019.
He said that increase in local production would not make any difference because of country linkage with the international market owing to import of commodities.
Therefore, he said that the focus would be to reduce the profit margin, which is huge from farmers to market level and the government was working on a scientific methodology (price engineering) to determine how much profit was being made by various elements and eight to 10 products would be targeted initially.
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He said that now the government focus is to increase production of the agriculture sector.
At the long and medium run, the minister said that the government would have to set up cold storages, commodities warehouses, and agriculture malls to lessen the role of middle man and to do away with exploitation of farmers. He said that 500 agri malls have been planned in the current fiscal year. The minister said that middle man can benefit from the USC.
He emphasised the need to increase income of the people, so as to strengthen their affordability and stated that benefits of growth strategy could be seen in the form of increase in revenue and imports. With increase in imports, economic activity would also pick up and in turn people would have more money in hand to spend.
Tarin said that Kamyab Pakistan Programme (KPP) will also be launched this month and it would be a complete package to support the low-income group through a bottom up approach. He said Sehat Saulat cards programme is a big initiative of the present government as this is a complete package.
The minister said that before 2018, the SOEs were in profit, however, in 2018, these SOEs have turned into losses and now their losses have been reduced. He said that a board was being established in the Privatisation Commission, which would turn around eight to 10 SOEs including the PIAC, QESCO, Pakistan Railways, LESCO, PESCO, MEPCO ZTBL, PSM, SEPCO, and then to privatise them. The minister said that he had stated that trade with Afghanistan may be done on rupee and Pakistan has to help Afghanistan and if it required goods, Pakistan may export them. He said that trade volume with Afghanistan is nominal and not very significant.
Copyright Business Recorder, 2021
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