Prime Minister Imran Khan, during the cabinet meeting held on Tuesday, expressed displeasure at the rise in the prices of roti and naan as a consequence of the raise in the gas tariffs for tandoors and directed that they be sold at the previous rate. To implement his directive would require three extremely challenging decisions that may not be possible given that the country is on an International Monetary Fund (IMF) programme.
First, gas tariff subsidy to tandoors is unlikely to be supported by the IMF, given its stated opposition to untargeted subsidies; notwithstanding this position the IMF in the ongoing Extended Fund Facility programme agreed to raise total subsidies from last year's revised estimates of 254.9 billion rupees to the current year's 271.5 billion rupees - a raise of 6.4 percent. Additionally, tariff subsidies earmarked in the budget 2019-20 include subsidy (i) to Wapda/Pepco of 191 billion rupees (comparable to the 189.8 billion rupees in the revised estimates of last year); (ii) 59.5 billion rupees for K-Electric (up from 40.5 billion rupees in the revised estimates of last year); and (iii) subsidy to LNG sector for providing gas at lower rates to industry (24 billion rupees).
The Fund would no doubt argue that the rise in the social sector development programme, Imran Khan's signature Ehsaas programme, would enable the poor to pay for the higher price of roti and naan. Two observations are in order: (i) the Benazir Income Support programme, which has since been subsumed in the Ehsaas programme, disbursed 118 billion rupees last year, envisaging an amount of 2,000 to 2,500 rupees per month for the entire family which only partially met the needs of the vulnerable; in the current year the number of families in Ehsaas programmes have dramatically increased, inclusive of health cards, while the allocated amount is only 200 billion rupees - not enough to ensure that a raise in the monthly stipend would enable the existing BISP beneficiaries to meet the challenge posed by a 13 percent inflation rate; and (ii) private sector salaries have not risen (though the government has raised salaries of lower staff of civilian and military administrations) and as the Fund's bailout package has begun to put the brakes on the productive sectors - large-scale manufacturing as well as small businesses - unemployment has been rising with those pushed out of the job market not eligible for the Ehsaas programme.
Secondly, the government would need to reduce the price of flour given that millers have raised their price by 25 percent per 80 kg bag due to a surge in electricity tariff, interest rate as well as increase in import price of packing material.
It is worth noting that subsequent to the budget 2019-20 price of fine atta increased from 3,350 to 4,200 rupees per 80 kg and price of normal quality flour increased from 2,800 to 3,350 rupees per 80 kg. Needless to add, the price of electricity and a rise in interest rate is due to IMF conditions and in this context, it is relevant to note that the government has agreed to further raise electricity tariff in September.
And finally, as the international price of oil is rising due to external factors, the government has been passing on the raise to domestic consumers. While previously the government would adjust the taxes on these products to provide some relief to consumers, it is doubtful if the government would be able to engage in the same policy given that the overambitious Federal Board of Revenue's target is not likely to be met.
To conclude, the Prime Minister must be made aware that his directive, if implemented, would entail a change in policies at odds with the IMF conditions that his economic team accepted without regard to their socio-political fallout.