Prime Minister Mir Zafarullah Jamali continues to promise relief to the common man and to bring down prices of essential goods and rates of the officially administered services.
And following the 12 paisa reduction in electricity rates per unit announced after the first meeting of the federal cabinet, the second meeting has set up two committees of the cabinet to explore the scope for larger relief.
The first committee comprising the advisor to the PM on finance and economic affairs and the food minister is to come up with relief to the common man. And the second committee comprising the minister for food and agriculture, industries, commerce, labour and the advisor to the PM on finance is to bring relief to the farming community. And the concessions to the farmers have to be of the kind which do not hurt the consumers.
Both the committees have tough tasks at a time when the world price of oil has been going up and is likely to rise further from the current $30 a barrel if the US attacks Iraq. On Tuesday last the price of refined oil products were raised upto 8.4 per cent on an average which means a rise of Rs 1.48 for a litre of petrol. Higher oil prices mean higher cost of production of power, higher transportation costs for goods and human beings which would ultimately increase the industrial prices that would hurt the common man.
A happy development in this area is the falling rupee price of the dollar which came to around Rs58 for a dollar on Wednesday. But the over eight per cent fall in the cost of the dollar has not benefited the consumers in terms of reduced prices of imported consumer goods. The traders find no compulsion to part with that increasing gain.
In the past the people were hit doubly hard by the rise in oil prices and the fall in the exchange rate of the rupee; but now they are affected by only the rise in oil prices which are stiff enough to hit them hard and stoke the fears of the future.
Democratic rule in Pakistan means reaffirmation of the feudal interests. Hence the cabinet committee to bring relief or assistance to the farming community. In addition, the farming sector is to receive top priority in development to accelerate economic growth this sector has been found to have plenty of scope for that. The number of gainers from this sector can also be very large and if properly developed it can provide employment to large number of people and discourage mass migration from the rural areas to the congested urban centres.
On area where it is now easier to help the farmers is agricultural credit. Sardar Yar Mohammad Rind, Federal Minister for Food and Agriculture, wants far more and larger loans to be given to farmers through the Zarai Taraqiati Bank, and at minimum rates of interest. At a time when interest rates are falling fast all around the country following the decisive lead taken by the State Bank of Pakistan it is easy to reduce interest rates on farm loans. And when the interest rates are very low the farmers could want larger loans to invest and develop their farms, particularly through the use of productive agricultural machinery.
The sugar industry along with sugar-cane growers seem to be in a state of crisis most of the time. It is easier for the government to fix Rs43 as price for 40 kg of cane than enable the growers receive that uniformly. Sugar mill-owners are protesting against falling ex-mill price of sugar and the loss they are suffering. Mills in upper Sindh are dragging their feet and paying far lower prices and threatening to close down.
The government talks of encouraging exports and subsidising that. But the subsidy has to be large enough and the IMF would object to that as that would increase the budget deficit.
The PM wants to reduce the prices of food and other essential items at a time when prices of atta, cooking oil, vegetable ghee etc have gone up. He can reduce the prices in such areas if he is willing to come up with subsidies. Already there are federal subsidies to the extent of Rs20.8 billion as against Rs20.6 billion last year. Last year the budgeted figure was Rs20.6 billion but the expenditure jumped by Rs 6 billion. Will that happen this year too?
Almost half the subsidy is earmarked for Wapda and the KESC and the other half for the refineries. Last year the budget deficit budgeted was 4.9 per cent of the GDP but it rose to a high 6.6 per cent. The deficit targeted this year following the stipulation of the IMF is 4 per cent. Will the IMF agree to let the government exceed that figure substantially as we had an election and a new government is in office?
Four missions are coming this month to Pakistan to assess our assistance needs and provide the requisite assistance as they perceive it. They include a World Bank mission which can double its aid to $800 million, and the Asian Development Bank mission which is to provide a billion dollar’s this calender year, and a mission of the Japanese Bank for International Cooperation. And the IMF mission would study our economic performance in the last quarter of 2002 and decide on the next tranche of $109 million. Such enlarged assistance could depend on how Pakistan has adhered to the IMF conditionalities or honoured the agreed economic reforms and strengthened the macro economic structure.
Following the kind of economic problems Pakistan faces because of the situation in Afghanistan, India’s refusal to talk to Pakistan to find a way for settlement of their disputes and the rise in oil prices following the threat of US war on Iraq, Pakistan does now need some relief from the rigid conditionalities of the IMF. And the IMF has to agree to that until this multiple crisis is over or eases.
When it comes to electricity rates the failure of the official machinery is too visible. After four years of military control and administration of the KESC the theft and loss rates remains 40 per cent of its power output. At a time when fuel oil costs as much as Rs12,002 per tonne permitting such vast theft of power is inexcusable. As a result, the honest consumer has to pay heavily for the theft of the dishonest consumer who steals power blatantly.
All that makes the tasks of the Jamali government too tough when it comes to giving concessions to the masses. The final outcome depends on how much of an elbow space the IMF gives to the government to increase the subsidies and raise the budget deficit from the targeted 4 per cent of the GDP. Because of the foreign exchange reserves of$9 billion Pakistan has been able to mobilise, the government can do without the rest of the IMF tranches for the second half of its three year assistance of $1.3 billion under the Poverty Reduction and Growth Facility but the IMF-specified reforms are very important for the World Bank and the Asian Development Bank and other donors including the US and Japan.
So brushing aside the IMF conditionalities will have an adverse impact on the assistance of other donors, particularly the World Bank and the ADB. Hence an agreed reduction of prices and rates of utilities has become imperative despite Mir Jamali’s concern for the poor. And since many of the factors pushing up prices in Pakistan are beyond the control of the government, the IMF has to be helpful in making its economic reforms work in a manner that does rouse the masses against them, as it has done in many other countries around the world.