Flour, sugar prices to shoot up, per capita income may fall to $990
Sunday, April 12, 2009
The governments claim that inflation will come down to single digit during July-August period in 2009-10 fiscal does not match the ground realities in the back drop of steep increase in prices of flour.
By July-August the domestic wheat crop with issue price of over Rs1,000 per 40 kg will hit the market and poor masses for the first time in Pakistan will consume the bomber crop of wheat that will be 40 percent more expensive than the international price.
The country will enter next fiscal with per capita income of about $990 for 2008-09 against $1,085 in 2007-08. It shows that real purchasing power will tumble manifold in next fiscal.
Sugar at Rs45 per kg in the open market is also prone to increase further as the available stock are not enough to cater to countrys needs. The house rents in cities like Islamabad, Karachi and Lahore will not provide any ease to masses.
The transportation cost has not dwindled even by passing 35 to 40 percent relief in POL prices on to end consumers. The ex-mill price of flour has now increased to Rs450 per 20 kg bag in the current month from Rs410 per 20 kg bag in last month of March. The open market rate is around Rs470 per 20 kg.
Flour will be available in retail at Rs35 to Rs40 per kg when mills start grinding wheat purchased at issue price of over Rs1,000 per 40 kg. This will have adverse impact on the inflation particularly in food inflation.
The claim of chief economic manger Shaukat Tarin to bring down inflation to single digit in July-August period from existing 19.1 percent seems impossible as the ground realities at that time will be quite averse.
Chances are bright that masses will challenge the government statistics and the government will not be able to defend its single digit inflation. The dispute over the inflation may trigger a controversy about the government controlled FBS inflation figure.
It is high time to come up with some rational steps to bail out the poor masses. Otherwise the pro-poor government with a mandate of Roti, Kapra Aur Makan (food, clothing, housing for every one) will have no right to rule the country.
The government had increased the wheat support price to Rs950 per 40 kg from Rs625 per 40 kg to allure the farmers to cultivate maximum wheat and set the target of 25 million tones.
However, there are strong indications that achieving the target of 25 million tonnes of wheat has never been on radar screen of the government, which is dominated by feudal lobby. The powerful lobby has used the target to justify the Rs950 support price.
Under the plan, masses were fooled by saying that the government will not be able to achieve the wheat target of 25 million tonnes of wheat in the month of February. In the month of March, masses were told that the government would achieve the wheat target of 24 million tonnes and now in April, FCA (federal committee on agriculture) informed the masses that the target has decreased down 23.3 million tones. But when the crop would start entering the market, it is strongly believed that the government would say that actual wheat produced in the country would further be reduce to 22.5 million tonnes of wheat. Then question arises, was it justified to increase the support price to Rs950 per 40 kg to get the 22.2 million tonnes yield. This shows that the whole drama has been staged by feudal both in opposition and treasury benches to fleece the masses.
Apart from the said expected miseries of the masses, next fiscal will be toughest year for Pakistan since its emergence as the horrifying monster of debt servicing will eat off Rs750 billion, 42 percent of projected revenue of FBR.
Pakistans external debt will alarmingly swell to $51.5 billion by the end of ongoing fiscal 2008-09 with growth in debt of 16 percent if compared with foreign debt of $46.5 billion in last fiscal. And next year Pakistan will have to spend huge amount of Rs750 billion just on debt servicing the loans.
The incumbent regime will have $8.078 billion loan in the current fiscal, which will be the highest one in Pakistans 60 years history.
Pakistan is to get $4.780 billion from IMF under the $ 7.6 billion bailout package, $ 1.8 billion from World Bank, ADB $ 1.2 billion, $ 0.5 billion from IDB and $0.5 billion from China.
Getting the loan is not bad, but massively attaining the credits is beyond wisdom particularly when the country does not have the capacity to pay back the huge loans as the economic growth in the country is touching lowest ebb.
If 42 percent of the next years revenue is consumed in debt servicing, then Pakistan will have nothing to spend on development schemes, as the remaining 58 percent of the revenue will easily be consumed to cater to needs of defense expenditures which will be over Rs300 billion up to 2.9 percent of the GDP.
When there exists no economic activity in the country because of the high discount rates of 15 percent, the economic growth is being feared at 1.5 to 2 percent provided the country witness the 4.5 percent growth in agriculture depending upon the wheat crops production, which is not likely to meet the target of 25 million tones.
If the massive slow down in growth continues in the next two to three years, the countrys debt sustainability capacity would alarmingly deteriorate.
Qaiser Bengali, an eminent economist says the government is recklessly borrowing only to provide ease to itself, as the future governments and people of Pakistan would have to suffer a lot for retiring the non-development loans.
He said that next year remittances would fall sharply due to return of large number of expatriate Pakistanis that have lost jobs particularly in Middle East due to global recession.
The government should concentrate non-debt creating inflows, which can only be ensured if the maximum foreign investment is allured to the country.
