Pakistan has announced a series of incentives for cash-strapped farmers as Islamabad faces the end of an International Monetary Fund programme that kept spending under tight control.
Analysts say the decision to slash prices of fertiliser by 15-20 per cent and agriculture-related electricity tariffs by more than 30 per cent is an effort to win votes ahead of elections in 2018.
Farmers’ incomes have fallen more than 25 per cent in the financial year to the end of June, according to projections by the country’s central bank. While partly due to a global plunge in commodity prices, critics say the problem has been exacerbated by the failure of Prime Minister Nawaz Sharif’s government to step in with support, and that the latest incentives for farmers are inadequate.
Meanwhile, the volume of Pakistan’s cotton crop has crashed by almost 30 per cent, spurring the first contraction in the value of the country’s agricultural output for more than two decades. At least 60 per cent of Pakistan’s 200m people rely directly or indirectly on farm incomes.
“The main issue has been a major drop in prices of crops,” Abida Hussain, a farm owner and former MP, told the Financial Times. “To stabilise agriculture, a way has to be found to deal with that fundamental issue.”
One western economist in Islamabad, who declined to be named, warned that a degraded irrigation network and dysfunctional research community was also hampering Pakistan’s agricultural sector.
“The irrigation system in places is so bad that farmers haven’t received even a drop of water from a canal just a few miles away,” he said. “The management is terrible”.
The focus on farm incomes comes just ahead of the conclusion of an IMF programme this year and despite an economic recovery that has seen gross domestic product growth rise to a forecast 4.7 per cent this year, up from an annual average of about 3 per cent during the five years to 2013.
Helped by a global drop in oil prices and increases in domestic electricity and gas tariffs, Sharif’s government is expected to bring its annual fiscal deficit to about 5 per cent of GDP this financial year, down from 8.8 per cent when the government took charge in 2013. But analysts warned that the budgetary discipline enforced by the IMF may be jettisoned when the loan programme ends in September.
“The government has some of the right numbers for the moment,” said Sakib Sherani, a former adviser to the finance ministry. “But the budget could change after September and the government could adopt populist measures ahead of 2018.”
Sharif’s position has recently weakened after revelations of substantial offshore wealth belonging to his three children, including properties overlooking London’s Hyde Park, drew widespread public criticism.
Sharif travelled to London last week days before the budget for heart surgery, which raised doubts over his ability to undertake tough reforms and even to continue leading the country beyond the short term.
Political experts have warned of a potential leadership void.
“Pakistan’s challenges are so large that you can’t have a day-to-day economic policy,” said Hasan Askari Rizvi, a commentator on political and security affairs. “You have to have a firm leadership to deal with long-term challenges. Can Nawaz Sharif provide that?”