Publication Date

8-26-2023

Description

First of all, let me thank Tariq Ikram and Hassan Tariq for providing me this opportunity to share my thoughts with you this morning and I’m very impressed by the presentations of the panel who are specialists in their own fields. So I won’t repeat very much what we heard this morning in the first session and also from my fellow panelists but I would pick up on the point which Atif left at the end. People don’t realize that beginning of the inflation in Pakistan is not solely externally induced through the pandemic, the supply disruptions, the price hikes, the China lock down--all these external factors did contribute to inflation and now Russia-Ukraine war , our own internal imbalances arising from the system of administrative prices, sharp depreciation of currency and rising interest rates have also contributed to inflationary pressures. Price of wheat which is the large component of the food basket of an average household is fixed by the Government both at the producer as well as consumer level . . Who are the beneficiaries of the government procurement of wheat at controlled price--it’s the big farmers who are able to capture most of the gains from that subsidized government controlled price as they have marketable surplus. When it comes to the consumers , controlled prices of atta are displayed by the retailers but the ordinary consumer is not able to buy at that price and they are forced to buy at a much higher black market price and that adds to the inflationary pressures. Nowhere in the world 84 per cent of residential consumers of electricity are subsidized .The industrial , commercial and agricultural sectors have to pay much higher prices for electricity as they have to bear the cost of the cross subsidy to the residential consumers. . Nowhere in the world piped natural gas is dissipated on households, and not allocated to the industry which can really be a source of competitive advantage and can increase the domestic supply of goods and reduce the inflationary pressures. Nowhere in the world the retail pump prices of petroleum products are regulated by the government and the market forces of supply and demand are not allowed to set the prices. In the field of healthcare it was suggested that DRAP should not have any role in fixing the prices of medicines across the board. Only 99 molecules of essential drugs prescribed by the WHO should be fixed and let the competition decide what the price of other drugs should be . DRAP is under the ministry of health which is always keen to handle prices of drugs while the ministry of commerce and ministry of finance consider that liberalized trade can be a potential source of export earnings. McKinsey has done a study which shows that Pakistan’s competitive advantage lies in pharma. We still don’t have an FDA certified laboratory in this country because incentive structures for the pharma are so distorted .

Notes

Address delivered at a seminar on Inflation organized by Humanex on August 26, 2023 at Karachi

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