Taking an economic direction
Both the federal and provincial governments have looked to use targeted subsidies on various occasions to try and mitigate some of the worst effects of inflation on the poorest segments of society. This is done through reducing the prices of staple items such as wheat to allow for households to be able to make basic food, at the very least.
In this time of rapid inflationary trends, this may not seem like much, but the queues of people lining outside utility stores to get a bag of flour indicate a wholly different story. And it is not just the new allied government relying on this strategy. The PML-N did this while in power the last time, as did the outgoing PTI government. In fact, the use of subsidies through the utility store but releasing state-bought produce is an age-old practice, one employed by successive governments.
The problem however, arises if or when the government is unable to extend even this small relief to the general public. And this may be a very likely possibility if we are to go by the troubling numbers of the ongoing wheat harvest this year. Judging by the collections so far, Pakistan may be falling well short of its target of 28.9 million tonnes of wheat this year; by a whopping two million tonnes. This is no small gap.
If we are unable to increase our yield up from our expected 26.9 million tonnes, Pakistan will have to go back to the import markets, something it can scarcely afford to do; even with the government’s import ban on ‘luxury items’ the current account deficit is likely to remain high with costly fuel imports. The global market of wheat is also facing a shortfall; Ukraine has naturally been unable to harvest its crops—a key part of the global wheat market—while France has, like Pakistan, been hit by a heatwave with devastating effects on its wheat yield.
But wheat is just one of Pakistan’s problems. The new government has committed to making the hard decisions, but there has yet to be any indication of what these will be. What we know for now, is that the extremely problematic fuel subsidy—a landmine left behind by the previous government, according to the new cabinet—will be continued. Why this is the policy going forward when the Finance Minister has himself admitted that this is bleeding us dry is anyone’s guess.
Moving forward, there are two options for the current government. On previous occasions, PML-N cabinets have preferred going the spending route. Increase government spending, allow for more investment and work on facilitating business to bring about growth. If this entails taking a vast amount of loans in the process, so be it.
But things may not work the same way on this occasion. The lack of financing options has put us and the new government in a corner. All eyes are on the IMF to see if it can provide the government with some much-needed breathing space. Even if it can however, inflation and shortages will continue to be on the cards for the general public. This means that belt tightening and cutting down on spending might be the only option left. Basically, there are no good options at this point. The government might as well make the hard decisions and try to get us out of this mess in the medium term; the short term is all but lost.