ISLAMABAD: Finance Minis­ter Shaukat Tarin on Tuesday announced more than 32 per cent increase in the issue price of wheat — from Rs1,475 to Rs1,950 per 40kg — for release to mills and said the government would provide direct cash subsidy to the vulnerable population on four essential commodities — wheat, sugar, ghee and pulses.

Speaking at a news conference, the minister said the government would also launch this year a trimmed-down Kamyab Pakistan Programme (KPP) to support 4-6 million households. The trade deficit, he said, had increased and could put pressure on balance of payment, but there was nothing to worry about because it was manageable.

One reason for higher trade deficit was $400 million worth of vaccine imports, which had been financed by the Asian Development Bank and World Bank, and hence had net zero impact on trade.

Imports by the automobile sector also put pressure on balance of payment. It was manageable, but if it increased, immediate remedial measures would be taken, he said. Responding to a question about power tariff, Mr Tarin said he did not know if these would go up in October and added that he should not be asked questions about electricity tariff.

Finance minister says government to provide direct cash subsidy on wheat flour, sugar, pulses and ghee

The finance minister claimed that wheat flour prices would drop over the next few days, but did not explain how an increase in the issue price of wheat would reduce flour prices. Asked why the wheat release price had been increased, he said Rs650 per 40kg subsidy was simply unaffordable for the government.

He said that even this Rs1,950 per 40kg release price did not suit the government which was still providing about Rs100 subsidy on it as the actual cost worked out to Rs2,040 per 40kg.

The minister, however, hastened to add that the government would launch this month a targeted subsidy scheme to provide direct cash subsidy on wheat flour, sugar, pulses and ghee. This would cater to the needs of 40-44pc population in the lower segments.

“We did not have that sort of targeted subsidy before. The subsidies have so far been limited to electricity and gas,” he said, adding that the direct cash intervention would be made through Ehsaas data which was not available earlier.

Mr Tarin said the government had stopped the issue price for wheat in May this year because of arrival of fresh harvest but was being resumed now. He said the targeted cash subsidy was a short-term measure to protect vulnerable people and would be followed by medium- to long-term measures like creation of commodity warehousing, cold storages and agricultural malls to create a direct link between farmers and customers by removing the role of middlemen.

The finance minister said the global commodity prices had increased much higher than in Pakistan and food inflation had dropped by 5pc and 8pc for urban and rural consumers from 15pc and 18pc to 10pc and 9pc, respectively, since July last year. Besides the impact of global commodity prices, a drastic devaluation of the rupee from Rs104 to Rs167 against the dollar and peak of 13.25pc discount rate under the IMF programme led to limited economic activity, he added.

This resulted in lower income levels and hence the impact of inflation in Pakistan was felt more than other parts of the world, he said, adding that public debt levels suddenly increased by Rs1.5 trillion to Rs2.9tr and in three years from Rs25.7tr in 2018 to Rs39.9tr in FY21 — Rs7.7tr in first year of the PTI government, Rs3.7tr in second year and Rs3.5tr in third year.

But during this time, State Bank’s reserves have increased from $10bn to $20bn. This also included $7bn from the IMF and $4-5bn of Eurobond, he explained.

The minister said the policymakers had always been talking about ensuring international commodity prices for Pakistani farmers to increase production and income levels, but this time this linkage had automatically developed in a convoluted manner as “we had to import sugar, ghee, pulses and wheat and Pakistan became a net food importer. Because of this linkage, the farmers would now enhance agriculture production”.

Moreover, he said, there were certain food crops like onions, potatoes and tomatoes in which Pakistan was well placed as it also exported these besides local consumption, but were impacted by global prices and more significantly because of up to 400pc profit margins by the middlemen.

Mr Tarin said exports of such items could be stopped where prices were rising but some stakeholders believed it would close the markets for “us and won’t be available in future”. “There should be some trade-off here,” he said, but then added that the government was also doing some process re-engineering based on a couple of scientific studies to curtail middlemen’s take through administrative actions and strategic reserves of others to flood the market when prices go up.

He said the past government had ignored the agriculture sector for 15-20 years that destroyed the farmers and Pakistan became a net food importer. “We now have to revive this sector for which we have kept a lot of money in the budget this year, but this will not have a major dent on inflation. We have to enhance production and thereby incomes and then affordability,” he said, adding that the government’s growth strategy was showing results as revenues were improving.

Mr Tarin said the increase in income levels would have a trickle-down effect while the government introduced Kamyab Pakistan Programme within this year to support four to six million households through a bottom-up approach.

Responding to a question, he said the International Monetary Fund had agreed to the revised KPP as it was neither a politicised project nor involved any risk. The size of the programme for first year had been reduced to about Rs156bn from originally envisaged Rs315bn, while the chunk of subsidy had also been reduced from Rs21bn to Rs10-12bn.

The minister said debts were on the declining trend, adding that the net debt stood at 74pc of GDP in FY18, which increased to 86.8pc in Fy19, fell to 85.7pc in FY20 and then dropped to 81.8pc in FY21.

Published in Dawn, September 15th, 2021