Ramazan relief
Although the new government hit the ground running in its efforts to claw back inflation by rejecting a fuel price hike, the recently-announced reduction of flour and sugar prices will probably be more impactful as it pertains to the poor, who are hardest-hit by inflation. Flour prices were slashed by over 27%, coming down to Rs400 per 10 kg bag from the previous rate of Rs500. Sugar prices were reduced from Rs75 per kg to Rs70. However, it appears that the price cuts will initially only apply in Punjab, and the new sugar price will reportedly only be made effective at all Utility Stores and Ramadan Bazaars till Eidul Fitr. However, the prime minister has reportedly asked all provinces to make efforts to follow suit and also improve food supply management. He also asked the Punjab government to support the governments in AJK and Balochistan in replicating the price cuts.
While a good starting point, food inflation is hitting hard across the board. The previous government failed to reign in prices due to several reasons. While some of these, such as the impact of international price fluctuations, were unavoidable; economic mismanagement, ineffective food policies, hoarding, and the ineffectiveness of price control committees were also to blame. Concerted efforts are required to ensure that these issues are addressed and commodities are actually available at the reduced prices. For a start, this means making price control committees effective and improving supply management. On the same note, several economists have noted that the fuel price freeze, while popular, will place an unsustainable drain on the national exchequer.
It may be wise to opt for a more managed approach where priority is placed on keeping the prices of essential food items stable, while diverting funds from other subsidies that are less beneficial to the poor, for whom a 10% increase in prices may well mean having to skip a meal. Unfortunately, the fragile nature of the government makes every decision carry an unusually high amount of risk, and the potentially high price tag of expanded subsidies may deter some coalition partners who are afraid to share the blame for deficit spending.
Published in The Express Tribune, April 21st, 2022.
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