Bad governance leading to food inflation

Good times are not easy to come by, especially if you happen to be a Pakistani. With every passing day, one witnesses one sector or the other being faced with immense challenges that are becoming difficult to cope with. It is definitely an alarming situation to come across financial figures about India’s profitability in different industrial sectors against those in Pakistan.
The recent provisional date published by State Bank of Pakistan told us that the country’s food import bill has increased around 50 per cent during the 11 month fiscal year 2011, as compared to the same period last year. Share of edible oil and lentils in the total food import stood at 40 per cent and 50 per cent percent respectively. Moving forward, we find dairy products with a 91.88 per cent increase, leading the inflating food bill. According to an official estimate, 35 per cent of yearly milk production is wasted mainly due to poor infrastructure.
Despite being the fifth largest milk producing country, we could not support our domestic consumption even to a bare minimal level. This rise in import bill implies more inflation which is already in double digits, hovering around 14.1 per cent with food inflation even higher at 18.4 per cent. An Asian Development Bank study, quoted in the Economic Survey of Pakistan 2010-2011, showed that a 20 per cent rise in food inflation can push up the percentage of those living below the $1.25 a day line by as much as 4.5 percentage points. However, poverty incidence in Pakistan is accompanied by another equally potent evil which is unequal distribution of income, increasing the gap between the rich and the poor.
It is of high consequence that Pakistan has an uneven income distribution pattern. As is usually the case, poverty with its wide tentacles and income inequality has seeped down to every level. The case of providing equal opportunities remains a puzzle without any definite solution for real growth. It has been argued time and again that economic development, as far as the figures depicted by gross national product (GNP) are concerned, has little relevance if the fruit of economic development in terms of equal distribution of resources is not enjoyed by every segment of the society. The lack of equitable income distribution eventually leads to a social chaos. Poverty has its own system of persuasion that comes directly from the sense of deprivation fed on the assumption that the top few are the real culprits. We have seen that happening in Sudan, Zimbabwe and the Arab. Poverty alleviation coupled with equal distribution of income has been on the agenda of every Pakistani government summon to rule the roost. This however has never occurred.
It has been increasingly reported, besides many other remedies, that entrepreneurship has the muscle to pull the country out of the poverty and unequal income distribution syndrome. When more people get to join the workforce by means of business opportunities available in the form of small business, larger sum money is available for each household to improve its living standard. However, for this to happen entrepreneurs need investment and banks happen to be the right spot to provide it. However, with a 22 per cent real mark up, the to-be entrepreneur’s is discouraged. As the feasibility report advances, costs of production, the energy crisis and political instability and if one happens to be in Karachi, the extortion money further act as deterrents to entry. Normally such a situation, when lesser people are opting to start a business, becomes worrisome for commercial banks. However, this worry makes no sense when banks are already lending to government on a safer bet. According to the report published by SBP on Strategic Framework for Sustainable Microfinance in Pakistan, Pakistan has one of the lowest financial penetration levels in the world with 56 per cent of adult population being totally excluded and another 32 per cent being given informal financial services. Interestingly, the report reveals that since its inception in 2000 under the auspices of SBP, the microfinance sector has even failed to reach the target of 3 million borrowers. The current outreach is only seven per cent of the potential market. Among the reasons cited in the report for a low borrowing ratio, the conspicuous ones were; limited funds at the disposal of microfinance banks, risk averseness of commercial banks which causes them to be reluctant in lending funds, high inflation, governance crisis, and law and order situation of the country. If an institution like SBP has been unable to expand the entrepreneurship base in the span of 11 years, what else can reform this sector? Thus, the combination of rising costs of investment, high costs of production, uncertainty, the ever growing energy crisis and bloated government expenditure nullifies the chance of eliminating poverty through entrepreneurship.
Reducing the incidence of poverty can come through another policy door, the reduction of inflation. Inflation has risen in Pakistan by 66 per cent during the June 2007-October 2010 period. Though reasons for the inflation hike are many but some of them have had overarching effects. In its three years governing tenure, Pakistan People’s Party has had four governors for the State Bank of Pakistan. On every occasion when the sitting SBP Governor chose to resign, the independence of SBP has come to be the contentious issue, whereby the government of Pakistan is reluctant to detach itself from the workings of the central bank. The bank is supposed to be an independent body even by its statutory requirement. Inflation is closely linked to the monetary policy stance of the State Bank of Pakistan. State Bank is the authority that prints money. By rule, the more money printed by any country, the more it faces inflationary pressures. According to a report by SBP, currency circulation has increased by 82 per cent from 2007 to 2010, while bank deposits have enhanced only by 40 per cent. With a greater amount of currency in the market, inflationary pressures also magnify and cause more cleavages in the economic structure for incidences of poverty to surface. State Bank of Pakistan, with the Secretary of Finance Division, a member of the Pakistani Government, a permanent voting member on the monetary committee, could do little to prevent inflation from hitting the poor man. This direct intervention has caused the State Bank to be of little use to address the actual economic troubles of the country. The idea to print more money out of the minting press is to fund various developmental projects undertaken by the government or to manage its running expenses. In a perfect environment, this money should either have come through foreign investment, taxing the elites and the non-taxed sector, doing away with the projects unless a palpable financial situation is at hand and curbing government expenditure on non essential items. Thus, the combination of the slaved State Bank of Pakistan, excess circulation of money, foreign investment contracting by 74 per cent since 2007, reluctance to tax the elites and a myopic developmental vision has led inflation to further worsen the poverty-stricken in the country.
According to the report of SBP on monetary policy decisions, the inefficient production processes and low technological proficiency, untrained and at times uneducated human resource and supply chain disruptions have also been significant causes of price hikes of goods and services, without any real change in the cost of production. Similarly, high fuel prices and the poor law and order situation have added fuel to the situation. Pakistan’s economic growth has remained at 2.5 per cent for the year ending June 30, which is insufficient to create enough jobs for the 2 million new job seekers entering the market each year. The IMF says that Pakistan needs an eight per cent annual economic growth rate to create enough employment opportunities. India’s economy, by comparison, in the year ended March 31 grew by 8.5 per cent. With a fiscal deficit of six per cent of gross domestic product (GDP), the government is hardly in a position to restructure the economic situation, especially when Pakistan has to start repaying the IMF loan of $7.6 billion loan in eight instalments, starting from February 2012 to 2014, based on repayment amount on Special Drawing Rights (SDR).
Economists strongly suggest that sustainable economic growth of more than 5 per cent could ease the pressure off the ordinary Pakistani in the wake of a 2 per cent rise in annual population growth rate. Sustainability is the key and for that the government needs to incorporate consistency into its policy decisions and make Pakistan an investor friendly country by improving law and order, and redesigning the regulatory framework to reduce entry barriers for businesses. Pakistan also needs to work on impression management through media networking. As it is said that perception is stronger than reality, the image of Pakistan as a terrorist state depicted especially in western media needs to be taken care of by a parallel international image restoration campaign. For all these efforts to bear fruit, we need to start putting our house in order utilising more domestic resources rather than external short-lived leverages.

The writer is a freelance journalist based in Lahore and can be reached at [email protected]