POINTS TO PONDER JUNE 2023!
With Pakistan’s annual budget being announced in June, it is a difficult month for the working class of the country. In essence, the difficult economic situation of the past months results in a feeling of trepidation, knowing the budget will only exacerbate the crisis being faced in the previous months. Unfortunately, the budget did create further hardship for the entire country as it entertained harsh conditionalities set by the International Monetary Fund (IMF), especially increase in taxes. According to the Finance Minister, Ishaq Dar the taxation aims to generate PKR 215 billion (approximately $750) and cut spending by PKR 85 billion in the next fiscal year. The IMF conditionalities include increasing interest rates by 22%, which is to dampen demand as well to ease the burden on foreign exchange reserves. (However, high interest rates also dampen investor interest in investing in the country). In addition, the government has further hiked fuel and power tariffs, withdrawal of subsidies, market-based exchange rate and higher taxation.
It is important to note that the IMF staff-level agreement with the government is only a nine-month Stand-by Arrangement (SBA) for about $3 billion. This is the amount which had been expected to be released last year but was stalled by the IMF as the government of Pakistan had not met the various stipulations set by the Fund. The IMF had demanded that Pakistan should secure external financial commitments for $6 billion from other sources based on which Pakistan had secured $4 billion, mostly from Saudi Arabia and UAE. A day before the annual budget was to be released, the IMF Resident Representative stated that the draft FY24 budget ‘misses an opportunity to broaden the tax base in a more progressive way, … reduced the fairness of the tax system.”
No doubt, the IMF is to be harshly critiqued for forcing the government to accept conditionalities which will push people into extreme poverty, at a juncture when the impact of the monsoon floods in 2022 are still leaving their mark on the country’s economic and social system. According to the World Food Program (WFP), and Food and Agriculture Organization (FAO), in the 84 districts of Pakistan impacted by floods, there is an average severe acute malnutrition rate of 12 percent affecting over 3.5 million children. Country’s exports as well as remittances have shown a negative trend. Federal government borrowing from domestic and external resources rose by 22.5% during the first 10 months of the fiscal year. Debt has soared to PKR 58.6 trillion by end of April 2023, an increase of PKR10.76 trillion from June 2022. According to the State Bank of Pakistan, total external liabilities stood at $125.7 billion by March 2023.
Apart from the gloomy domestic scenario, the Ukraine war is also affecting food prices negatively. The World Bank has projected Pakistan’s economic growth by only 2 percent in the next fiscal year as there is slowing down of industrial production due to limited foreign exchange reserves to pay for imports of food, energy and intermediate inputs.
However, only the IMF cannot be critiqued as elite sections of society are being protected from the IMF conditionalities. Consistent refusal to tax the most prosperous class, the feudal and rich landlords is a case in point. According to a prominent economist Kaiser Bengali, if the agriculture sector is to be taxed it will not generate much revenue as the number of large landholders is small: this is a point of view which needs to be contested. According to the State Bank of Pakistan, there is 42.6 million acres of cultivable land, of which about 45 percent of cultivated area is based on farms with less than 12.5 acres each. This would mean that small farmers collectively hold about 19.1 million acres of land. According to Dr Bengali, 13,500 farms are operating on more than 150 acres of land each, and are collectively based on 1.5 million acres and hence would generate a small revenue from agriculture tax; the figures themselves are incorrect, as dividing 1.5 million acres by 13,500 farms does not give even a minimum average of 150 acres per farm. In addition, these figures do not tally with Government of Pakistan 2013 data, which stated categorically that only 5 percent farm households own 64 percent of total agricultural land. No land reforms have taken place in the last decade and the 2010 agricultural census shows further land concentration; in essence rich landlords, especially the feudal class should not be shielded from the tax net. The extremely powerful feudal elite in the country is able to pass on the burden of IMF imposed taxation on the working class, which endorses Pakistan being a semi-feudal, semi-colonial state.
The food security situation is also a matter of grave concern. At the National Assembly, the issue was raised: a report on Pakistan from the WFP and FAO has indicated that 8.5 million people will face acute food insecurity later in the year. The Federal Minister for National Food Security and Research, Tariq Bashir Cheema disputed the UN report, as farmers have been able to produce a bumper wheat crop of 28.5 million tons. However, the rejoinder to his remarks was that the issue was high food inflation, making food unaffordable for the people. This is indeed a matter of extreme concern, as the past months have shown escalating inflation, which in May rose to 38 percent, the highest annual rise in prices on record driven by sky rocketing cost of food, house rent, electricity and gas bills and transport.
Various aid agencies are active in the country. For instance, KfW, a German Development Bank has provided €27 million to the Benazir Income Support Program (BISP) to combat poverty and provide aid to flood victims. Similarly, US Agency for International Aid (USAID) is providing $445.6 million for socio-economic uplift of the country and for so-called climate resilient economic growth, as well as another $16.4 million for providing among other help, nutrition supplement to flood-affected communities. South Asia is highly vulnerable to climate crisis, and while the western countries are providing a patchwork aid to those affected, one needs to remember that it is these industrially advanced countries with their addiction to fossil fuel production that are responsible for the climate-related havoc created in our countries.
According to the Deputy USAID Administrator, the US has been investing in Pakistan’s economy for many years, but real difference would come based on the reform agenda of the Pakistani government. The USAID administrator has made a very important point: all aid is tied aid where the aid providers do have particular political and economic interests. No doubt, providing micronutrient food supplements are further exacerbating the debt held by the country, it is certainly not eradicating the basic structural fault. The answer lies first in genuine land reforms and in adopting agroecology-based production systems not only as a holistic response to hunger and malnutrition but also climate crisis. It is also important to question the loans being provided by international financial institutions and international government agencies –where are these loans and aid taking the country? Obviously with a debt that has crossed a hundred billion dollars, while all economic indicators are still nose-diving, a policy orientation other than based on neoliberalism should be tested.
Moving on to agriculture production, concerns have been raised with respect to cotton ginners in Sindh. Initially, PKR 10,000/40 kilogram of cotton was being paid to farmers, dropping down to PKR 6,000, even though the federal government had fixed the rate at PKR 8,500. The Sindh Chamber of Agriculture (SCA) has demanded that the Federal and Sindh government should take action.
The agriculture sector faces serious water shortage for irrigation with nationally, 27 percent water scarcity, and in Sindh 37 percent water shortage.
According to the Trade Development Authority of Pakistan (TDAP), the European Union (EU) has been raising alarm and rejecting Basmati rice being exported to Europe based on detection of Aflatoxin and pesticide residues. The TDAP plans awareness raising campaigns with farmers. This is indeed ironic that our authorities are concerned about toxic chemicals in food products being exported while there is lack of concern for the farmers, rural society and consumers in the country. Toxic pesticides are heavily sprayed on not only rice but a host of other food crops and vegetables and remains a highly unregulated sector. On the other hand, dairy products, especially fresh milk is being scrutinized and destroyed by government authorities where it seems the beneficiaries are monopoly dairy corporations, and not the consumers.
On a more positive note, the Lahore High Court has struck down a decision by the interim government of Punjab to hand over 45,000 acres of land in three districts to the army on a 20-year lease, as the mandate was beyond both parties.
A key government initiative “Agriculture Revolution 2.0” has been launched which sets agriculture growth target at 3.5 percent. According to the Federal Minister for Planning and Development, Ahsan Iqbal has emphasized adopting latest techniques and technology so that the country could be self-sufficient in food. In order to facilitate the process, there is withdrawal of duties on import of seeds, and duty exemption on import of combine harvesters, and suggestions for removal of duties on rice planters, seeders and dryers. PKR16 billion have been set aside for concessional loans and tax relief for agro-based industry.
In the new budget for FY 2024, PKR 2,250 billion will disbursed for agricultural loans, an amount that has been increased by 25 percent from last year. From this amount, PKR 6 billion is for providing subsidies on imported urea, and PKR 10 billion for loans to small farmers; in other words, in a country where 45% of cultivated area is tilled by small farmers, a mere 0.5 percent of loan allocation to this class of farmers is testimony to government’s lack of attention to the most vulnerable sector of the rural economy. It has been rightly pointed out that these policies are to benefit a small group of large growers and the main cause for rising rural poverty and food insecurity.
The Senate Committee has recommended to the National Assembly that super tax on banking companies should be waived, as well as establish tax free zones for foreign direct investment (FDI). The government has also provided five export-oriented sectors with a gas subsidy for two months. Clearly, there is more and more policy orientation toward promoting and protecting trade liberalization and corporate agriculture.
In terms of geo-political situation, Pakistan is strengthening ties with Russia and China. Russia has cleared 19 rice mills in Pakistan for receiving rice exports, and China has also opened its market for meat exports.
Ministry of Commerce has announced a list of 57 products for barter trade with Afghanistan, Iran and Russia to save on foreign exchange reserves. Pakistan, for its first government-to-government import of discounted Russian crude paid in Chinese currency, which is a significant shift in its US dollar-dominated export payment policy.
Pakistan and Azerbaijan have agreed to enhance trade and energy cooperation. The Transit Trade and Preferential Trade Agreement (TTPTA) was implemented earlier this year which may result in trade between the two countries to be enhanced greatly. It can be said that the shift is quite positive, especially if South-South cooperation in trade is pursued.
The dilemma of exporting meat, rice, vegetables and food crops raises the question whether it would lead to food shortage at home? As long as the government is hinged on taking loans that keep piling further debt on the people, the situation will remain precarious. An example is that Pakistan was only able to earn $235 million through vegetable exports as the prices in the world market fell. We import combined harvesters, and other capital intensive, expensive technologies hoping to increase our productivity and earnings, but in more than 60 years of pursuing agro-chemical agriculture production, the economy has not been able to raise its exports. At the same time, agriculture land as well as water courses are getting more and more intoxicated with chemical fertilizers, pesticides impacting ecologies, biodiversity including human health. It is quite interesting to note that Engro, a corporate entity which not only pollutes the environment through its fertilizer production, fossil fuel extraction as well as pushing environmentally hazardous tetra packs are asking to take measures against plastic pollution. Please note South Asia has very poor air quality, resulting in many respiratory diseases. Corporate entities are the most accountable for all forms of pollution, including air pollution.
Mechanization has also resulted in consistent increase in unemployment. Panacea is not neoliberalism, relying on corporate agriculture but to go towards self-reliance in not only in food and agriculture production but across all sectors. Following a trade liberalization agenda where our base remains agrarian which is vulnerable to market fluctuations leaves the country faced with expensive imports and cheap exports.
A key pursuit of course is to ensure building up an industrial sector that would allow self-sufficiency in manufacturing sector as well as in agriculture and this would not only increase our productivity but also stop our reliance on imperialist countries and institutions who no doubt provide assistance based on their self-interest as well as to control over productive and natural resources of countries like Pakistan.