Subsidies on key USC items withdrawn

ECC decision to impact prices of flour, sugar and cooking oil

ISLAMABAD:

The federal government has decided to increase prices of wheat flour, sugar and cooking oil in the range of 19% to 53% at the Utility Stores Corporation (USC) by reducing subsidies for the poor, taking a second major administrative decision in as many days that will further fuel inflation.

The Economic Coordination Committee (ECC) of the cabinet on Friday increased the sugar prices to an amount even more than what the Ministry of Industry had recommended in its summary.

Despite the claimed sugarcane bumper crop, the ECC meeting – chaired by Minister for Finance Shaukat Tarin – also approved to import 200,000 metric tons more sugar, taking the total quantity to 300,000 metric tons within three weeks.

“The ECC also approved the revision in prices of three essential commodities namely atta (20 kg bag) to Rs950, ghee (per kg) to Rs260 and sugar (per kg) to Rs85, owing to an increasing gap between the subsidized prices offered by the USC and the prevailing market prices,”  said the finance ministry.

The wheat flour prices were increased by 19% or Rs150 per 20 kg to Rs950. The market price is Rs1,235, according to the Ministry of Industry.

The ECC decided to increase ghee prices by 53% or Rs90 per kg to Rs260. The market prices have increased to Rs330 per kg due to wrong taxation policies and surge in prices in the international market.

The sugar prices were proposed to be increased from Rs68 to Rs80 but the ECC decided to increase it to Rs85 per kg –an increase of 25%. The summary stated that the market prices were Rs104 per kg.

In the budget, the government changed the mode of taxation on sugar from wholesale to retail price, which has given a shock of Rs7 per kg increase in the prices.

The move is likely to fuel inflation in the country, particularly after Prime Minister Imran Khan increased petrol price to a record Rs118.5 per liter. This was because the government increased custom duties and sales tax on the import of the crude oil.

Prime Minister Imran Khan had announced a Rs50 billion relief package to provide essential food items at subsidized rates but the government never released the full amount.

Against Rs50 billion PM’s Covid package announced in April last year for the USC to provide five essential items at subsidized rates, only Rs7.7 billion had been provided for spending as of the third week of June this year, indicating a gap between political promises and actual delivery on the ground.

The PM’s USC package had been offered till June last year but due to the USC failure to utilize the funds and low allocations by the finance ministry, the package remained largely unutilized.

The ECC was informed that the Enterprise Resource Planning system, currently being installed in the USC may not be operational prior to the end September 2021.

In this situation, the PM’s Relief Package 2020 may be extended from July 15 to September 30 or the introduction of the targeted subsidy regime, whichever is earlier, at an estimated cost of Rs3.1 billion.

The ECC also approved a summary moved by the Ministry of Industries and Production for importing 200,000 metric tons of sugar to build strategic reserves and minimize the role of speculative elements in the domestic market. In case of need, more reserves will be built through import, the ECC decided.

The ECC also allowed procuring 200,000 cotton bales through the Trading Corporation of Pakistan to promote cotton production and bring stability in the domestic market.

The ECC also approved the formation of the Cotton Price Review Committee (CPRC) with a mandate to review market price and propose intervention on a fortnightly basis. The ECC decided to link the domestic cotton prices with the CotLook-A Index and set it at 90% of the index.

The government will intervene in the cotton market only when the cotton prices would fall below Rs5,000 per 40 kg.

The cotton production has dropped to just below 7 million bales during the third year of the PTI government, mainly due to decline in crop cultivation area in Punjab and thin profit margins, the ECC was informed.

The ECC also approved the amendment in its earlier decision dated 19-02-2021 regarding the “Prime Minister’s “fiscal package for Agriculture in the wake of Covid-19 Kharif”.

The package offered a subsidy on DAP at the rate of 1,500 per acre for cotton and rice crops, during the Kharif Season 2021. Now according to the amendment, the farmers can avail subsidy on any phosphatic fertilizer according to their choice.

Non-cash settlement

The ECC approved a summary tabled by the Power Division regarding non-cash settlement for Power Sector re-lent loans against subsidies payable by Government of Pakistan equal to Rs116 billion.

The National Transmission and Dispatch Company (NTDC), Wapda, Pakistan Atomic Energy Commission (PAEC) and Neelum Jhelum hydropower company owe Rs273 billion as of May this year and their receivables were Rs347 billion as of June last  year.

The PAEC had given consent for settlement of Rs16 billion dues, Wapda Rs41.4 billion, NTDC Rs31.8 billion and Neelum Jhelum Company Rs15 billion, bringing the total to Rs104.2 billion. However, the finance minister asked to increase the non-cash settlement amount to Rs116 billion.

The circular debt is estimated at Rs2.4 trillion as of end June this year. The government has now started settling the debt from the budget but has not yet been able to improve efficiency to reduce the debt build up.

The ECC approved “Kamyab Pakistan Programme for provision of low cost housing loans to 4 million households at the lowest strata.

Loans worth Rs500,000, Rs150,000 and Rs200,000 will be provided through micro-finance providers like the Kamyab Karobar and the Kamyab Kissan at 0% markup, said the Finance Ministry.

The third component of the scheme is introduction of a new tier in the Naya Pakistan Low Cost Housing Scheme wherein loans of Rs2.7 million (for NAPHDA) and Rs2 million (for Non-NAPHDA) projects will be given at subsidized rates.

The salient features of the Kamyab Pakistan Programme include loan size of Rs.150,000 (per crop) for purchase of agricultural inputs. The commutative disbursement under the programme would be Rs1.6 billion over the period of 3 years. It shall benefit 30,00,000 families.

The ECC also approved the Draft Policy Directives related to Auction of Next Generation Mobile Services (NGMS) in Azad Jammu and Kashmir (AJK) as submitted by the Ministry of Information Technology and Telecommunication before the committee.

This is the first time that the NGMS will be auctioned in the AJK and it will improve mobile broadband services in the region. Moreover, the ECC also decided that for the payment of the Auctioned licence fee, the method in-vogue in the earlier auction processes will be followed.

The Ministry of Maritime Affairs presented a summary regarding award of Engineering Consultancy Service contract for upgrading of the Port Qasim Authority (PQA) amounting to Rs86.6 million. The ECC approved the execution of the project.

The ECC allowed the PQA, the Karachi Port Trust and the Gwadar Port Authority Boards to transfer their marine assets to the Pakistan Marine and Shipping Services Company Private Limited (PMSSC), a subsidiary of the Pakistan National Shipping Corporation.

The maximum rates to be charged by the PMSSC from the public sector ports and harbours shall be determined from time to time by the Ministry of Maritime Affairs through a notification in the official gazette.