EDITORIAL: Federal Finance Minister Ishaq Dar held a virtual Economic Coordination Committee (ECC) meeting from London and approved: (i) a summary put forth by the Cabinet Division for release of 17 billion-rupee technical supplementary grant to finance schemes for deprived areas under the Sustainable Development Goals (SDGs); (ii) 3.2 billion rupees for Ministry of National Food Security and Research (MFS&R) for procurement of wheat seed to flood-affected farmers; and (iii) additional funds of 3.4 billion rupees to MFS&R will be made available with 50 percent funds to be provided by the federal government and 50 percent by the provincial governments.
First and foremost, none of these decisions is of an emergent nature especially in light of the recent World Bank report titled “Macro Poverty Outlook for Pakistan”, revealing, among other things, that the national poverty rate in Pakistan may well increase from between 2.5 and 4 percentage points as a direct consequence of the floods.
Further, disturbingly though not surprisingly, the report adds that high inflation too will adversely impact on the poor and in this context it is relevant to note that during the finance minister’s attendance at the IMF/World Bank annual meeting (10 to 16 October) where one would assume he interacted with the mission leader of the ongoing Extended Fund Facility programme, petroleum levy was raised to 47.26 rupees per litre effective 16 to 31 October (close to the 50 rupees per litre agreed with the Fund) from 32.42 rupee per litre effective 1 October to 15 October.
However, petroleum levy on diesel has been reduced by 5.44 rupees per litre to 7.14 rupee per litre perhaps in an effort to support the badly affected agriculture sector as well as contain the rise in transport costs for the general public.
While this maybe the government’s intent, however, the general price level which is above 20 percent is likely to continue to impact on transport costs. And needless to add, if the negotiations with the Fund on the ninth review, expected to commence in the last week of October to early November, continue on the same pattern as in the previous reviews notably sixth and seventh/eighth reviews where the Fund has been resistant to any attempt to phase out or ease the tight monetary and fiscal policy conditions agreed with the Pakistan authorities the situation is likely to become dire with the percentage rise in poverty considerably higher than projected by the World Bank.
Secondly, it is unclear that the ECC decision to split the disbursements for MFS&R with provincial governments has been agreed with all the provinces, particularly Punjab and Khyber Pakhtunkhwa not administered by the eleven-party coalition government.
And while one would fully support the federating units to support and strengthen the federal government’s efforts to jointly deal with myriad issues facing the country yet given the extent of political polarization in the country today, it appears unlikely that provinces under the control of the Pakistan Tehreek-e-Insaf would be supportive.
Additionally, it is relevant to note that Ishaq Dar during his previous tenure as the finance minister (2013-2017) was unable to forge a consensus on the National Finance Commission (NFC) award that was due for an update after 2015 – a period when political polarization had not reached the levels it has today. In other words, there is an urgent need to try to forge a consensus with all provinces before approving a package that is contingent on support of all provinces.
And finally, while one cannot but fully support any disbursement for the achievement of laudatory SDGs yet given the scale and extent of the damage wrought by the recent floods one would have hoped that the government had begun a more meaningful exercise whereby current expenditure was slashed to contain the deficit (which would reduce inflation) and some of it diverted for flood relief activities because it is not likely that the required assistance would be disbursed, as has been the case in the past.
This is particularly so at present as major donor countries are suffering from politically challenging inflationary spikes that require extending subsidies to their public in the aftermath of the Russia-Ukraine war and climate calamities in other countries – drought in Somalia and floods in Nigeria – requiring their assistance.
Copyright Business Recorder, 2022
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