If the budget is to have any relevance for the people of Pakistan it must address the twin problems of deep recession and high inflation, which together are causing acute distress to a large proportion of the population. With per capita GDP growth having become negative, poverty and unemployment are rising rapidly. At the same time the 25 percent food inflation rate is putting the impoverished population into desperate straits. As much as 74 percent of the population is food insecure. The challenge in the short run is that under tight budgetary constraints fiscal space must be found to provide at least Atta to the poor at an affordable price. The challenge in the medium term is to revive the economy and place it on a new growth path that is both equitable and sustainable. Let us see how the short term objective can be achieved in the next fiscal year.
Last year the peasantry produced a food surplus and yet food grain slipped out of the grasp of the bottom 30 percent of small farmers who are net buyers of grain and a large proportion of the non-farm rural and urban population found it difficult to buy wheat flour. It is likely that a significant proportion of the food grain that the government procured last year was lost in storage. The government is envisaging export of the 6 million tons that remains in its possession at a price that is now lower than the price at which it was purchased last year. It is a poignant paradox that the government is thinking of exporting food grain at a time when the majority of the population is food insecure.
It would be better economic logic to supply the surplus food grain to the poor population at an affordable price and thereby insulate them to some extent from the ravages of food inflation. This can be done by issuing plastic ration cards to each poor household that has been identified in the recent World Bank survey of poor households. This card would entitle the household to acquire 40 kilograms of wheat flour per month from utility stores at a fixed, subsidized price of about Rs.800/- for one 40 kg bag per month. (The current market price in Lahore of 40 kg of wheat flour is Rs.1280/-). The total cost to the government of this subsidy to 60 million poor households would be a maximum of Rs.108 billion. This can be financed by reducing the subsidy on fertilizers which predominantly goes to the large farmers who in any case enjoyed last year a sales price of Rs.950/- per 40 kg bag which is higher than the world price. While the cost of the wheat flour is modest the human welfare resulting from protection of the poor from inflation would be immense.
In the medium term the government can find the fiscal space to stimulate the economy through four measures: (i) I have estimated that Rs.91.5 billion can be saved by reducing the unnecessary and overlapping government departments and ministries. The government needs to right size itself, instead of spending tax payers’ money in “accommodating” its political allies and redundant government officials (ii) Restructure and privatize public sector entities which are currently generating Rs.140 billion losses which have to be financed by the government. (iii) Reduce the existing 343 billion rupees of badly targeted subsidies and refocus them to benefit the underprivileged sections of the population. (iv) The government ought to stop trading in commodities for which it has neither the storage capacity nor the marketing skills, but on which it spent Rs.450 billion last year.
The government needs to drastically cut down its wasteful expenditures on an oversized government, prevent corrupt and mismanaged public sector enterprises from haemorrhaging the exchequer, pull out from trading activities which are better done by the private sector and reduce unnecessary subsidies. This will provide the fiscal space for stimulating economic growth in the medium term and providing succour to the poor in the short term. The cry of the hungry citizens, who have no voice in the market, must be heard by the government which purports to represent them.