Dr Farrukh Saleem
Question: What are our three-biggest economic challenges?
Answer: The out-of-control rate of food inflation, the increasing poverty and the galloping indebtedness.
Imagine, over the past 32 months, the price of wheat flour has gone up by 100 percent. This has never happened before in this country-first time in the past 70 years.
Over the past 32 months, the price of sugar has gone up by 100 percent. This has never happened before in this country-first time in the past 70 years.
Over the past 32 months, the per unit price of electricity has gone up by 200 percent. This has never happened before in this country-first time in the past 70 years.
What’s really behind the current inflationary spiral? To be certain, what we are going through is ‘cost-push inflation’ which is caused by an increase in prices of inputs like electricity, petrol, diesel, fertilizer, pesticides and natural gas.
Will Shaukat Tarin be able to control the rate of food inflation? Ironically, the government itself has jacked up the rate of electricity by a mammoth 200 percent.
A bag of DAP (phosphorus fertilizer) which used to be for Rs3,377 is now selling for Rs5,417.
The real question is: Will Shaukat Tarin be able to reduce the prices of inputs like
electricity, petrol, diesel, fertilizer, pesticides and natural gas?
Here’s the answer: On February 16, the IMF staff and Pakistan reached a ‘staff-level agreement’.
On March 19, the federal cabinet approved the promulgation of an ordinance aimed at preparing a legal path to increase power tariff by a minimum Rs5.65 per unit from now till October to collect a whopping Rs884 billion from consumers.”
Will Shaukat Tarin be able to reduce the prices of inputs like electricity, petrol, diesel, fertilizer, pesticides and natural gas? Answer: The Government of Pakistan has already agreed with the IMF to increase the petroleum levy from Rs510 billion in 2021 to Rs607 billion in 2022.
And, the Government of Pakistan has already agreed to increase the gas tariff by an additional Rs100 billion.
Yes, the Government of Pakistan has already agreed to impose additional taxation in the amount of Rs1,300 billion.
Yes, the Government of Pakistan has already agreed to impose additional electricity tariff to the tune of Rs900 billion.
Will Shaukat Tarin be able to reduce poverty? For the record, over the past 32 months, poverty has increased from 70 million to 90 million.
And, this increase in poverty is the natural consequence of two things: food inflation and a decline in income.
Naturally, if food inflation does not come down and income cannot be elevated poverty cannot be reduced.
Will Shaukat Tarin be able to get us out of the debt-trap? Well, the debt trap is a natural
consequence of the government doling out a lot more than its income.
Over the past 32 months, for instance, the difference between the government’s expenses and its income has been a staggering Rs10 trillion.
Losses in PIA, Pakistan Railways and Pakistan Steel have been on top of those. Losses in the electricity sector have been on top of those.
Will Shaukat Tarin be able to turn the economy around? To be sure, turning around the economy means taking hard decisions.
And-with less than 50 percent of PTI’s tenure remaining-the new finance minister does not have the political calendar on his side.
Shaukat Tarin is short on time, short on an effective team and short on fiscal space (70 percent of FBR revenues will be spent on debt servicing).
Between 2008 and 2010, when Shukat Tarin was the minister of finance, the rate of inflation had hit a high of 20 percent, GDP growth was down to 1.7 percent of GDP and foreign direct investment (FDI) was down to $1.1 billion.
To be certain, Pakistan is not short of resources-we are just short on decisive, capable leadership.
As we are not short of resources, there’s certainly a way out. To begin with, we need to reform the government itself in how it makes policies and how it regulates.
Next, we need to reform the public sector-and cut a trillion rupees worth of wasteful government expenses.
Next, we need to cut the tax rate (both corporate and individual). Next, the only way to get out of the debt-trap is to grow out of it.
So the economy needs to grow-grow at over 7 percent a year, every year. And, in order to grow we need a clear-cut ‘division of labor’: the private sector to produce “goods” and the public sector to produce ‘policies’.