Sky-high prices of oil and food items have badly affected the economy, adding to the economic woes of the citizenry in general and the poor households in particular. If the current trend persists, the ramifications will be more severe, both for the economy and the society.

This price surge may turn out to be a strong destabilising factor due to its deep impact on major macro-economic variables like inflation, balance of payments, growth, poverty and distribution of income.

Our economy is energy-intensive and we are heavily dependent on imported oil. Total demand of oil (petroleum products) is about 19 million tons. According to estimates, only 13 per cent demand is met through local resources while the balance 87 per cent is imported in the form of crude oil, high speed diesel and furnace oil etc. During 2007-08, the import bill was around $11.5 billion. High import bill has impacted seriously on balance of payments position. It not only puts heavy strain on foreign reserves but also restricts policy options to counter external economic shocks.

The most severe impact of rise in food and oil prices is in the form of acceleration in inflationary pressures on the economy. In such a situation controlling the inflation becomes unmanageable. We are experiencing double - digit inflation mainly due to increase in prices of food items and oil.

Surge in oil and food prices has substantial redistribution impacts also. Although rise in prices has affected all, but the impact varies in scale and intensity depending upon the economic position of individuals. Increase in prices generates a phenomenon where income flows from the consumers to producers and manufacturers with the result that consumers are badly hit and their purchasing power is reduced.

Furthermore, redistribution impacts of income are more pronounced and negative in a society where inequities are sharp. Viewed in this backdrop, chasm between different economic classes and segments of the society is widening with soaring prices of food and oil.

According to a World Bank study, increase in food prices between 2005 and 2007, increased poverty the world over by an average of three percentage points. In case of Pakistan, it is estimated that a 10 per cent increase in food prices means that 7.05 million more people are added to the poverty web with a rise of 0.39 per cent in ‘gini co-efficient’.

This deepening inequality has serious implications for growth prospects. There is consensus among international development theorists and practitioners that high or growing inequality retards the economic growth. Growing inequality points to the fact that growth is not broad-based and relatively poor or disadvantaged sections of society are either drawing fewer benefits or their participation is restricted in the growth process. Thus growing inequality may cause deterioration in social cohesion and quality of institutions, which ultimately reduces the prospects of growth.

The situation warrants a comprehensive and well – coordinated strategy to mitigate the negative impact of rise in prices, especially those of food items. It is imperative that social protection programmes like ‘school feeding’, ‘selective grain / bread subsidies’, ‘cash - based transfer’ and ‘provision of food stamps and vouchers’ are initiated on urgent basis to target the poor and vulnerable segments. The institutional arrangements also need to be strengthened for effective implementation of these programmes. Ensuring household food security through targeted safety nets should be the top priority of our economic policies.

In order to ensure food security on long - term and sustained basis, a ‘comprehensive agriculture reforms and incentives package’ is highly important. Timely announcement of wheat support price by the government is a welcome step. Increase in fertiliser prices and rising cost of fuel for irrigation has raised the cost of wheat production.

Provision of quality seeds and subsidised fertilisers for the current wheat planting season can go a long way in stimulating an ‘agriculture supply response’ to overcome the issue of food security. Pakistan being an agricultural country requires that agriculture should be our primary focus. It is only through agriculture – focused policies that farming can become a vehicle of development.