Pakistan becomes most expensive country in S Asia

[Neo]

Pakistan becomes most expensive country in S Asia

ISLAMABAD, July 03: A shocking disclosure was made in the Economic Coordination Committee of the Cabinet (ECC) last week that Pakistan had become the most expensive country in the South Asian region after the highest rise in the prices of essential food items and the “highest inflationary pressure” compared to its neighbours like India, Bangladesh, Sri Lanka and others.

The fresh evaluation of prices of food items done by the government revealed that India, Bangladesh, Sri Lanka and other neighbouring countries were less expensive than Pakistan. But the official papers placed before the ECC were mysteriously silent on an important aspect of inflation, as Afghanistan is also much cheaper than Pakistan.

Apart from others, two most essential food items — fresh milk and sugar — have registered a huge rise in their prices and have gone much higher than the neighbouring countries. The price indicators revealed that overall Pakistan was facing the worst pressure of inflation as compared to its neighbours.

The sources said that in the ECC meeting presided over by Finance Minister Dr Hafeez Sheikh, some of the ministers expressed their shock over the sudden rise in the prices of sugar and other essential items. The sources said that the quality of data on the basis of which sugar consumption and import policies were being framed also came under fire in the meeting when some ministers lashed out at the authorities responsible for the sudden rise in the prices of sugar.

However, as usual, Commerce Minister Makhdoom Amin Fahim, who was being held responsible for the sugar crisis in the country for failing to import the commodity on time, was once again missing from the meeting. He had earlier skipped his cabinet meeting on Wednesday, which too had discussed the sugar crisis. The sources said that Makhdoom Amin Fahim was presently on a foreign trip when the country was heading towards a major sugar crisis — thanks to his ministry’s poor decision at the time of award of sugar import contracts to some bogus firms, which failed to meet their import contracts, leading to a serious price hike within a month.

Earlier, it was also disclosed that in the last financial year 2009-2010 just ended, the direct foreign investment had registered a drastic fall by 39 percent as against the corresponding year of $3.3 billion, the figure had come down to $2.2 billion.

The sources said during the briefing on the economic indicators to the ECC members, the ministers were warned that for the last few months, inflation was on the rise.

The official documents revealed that the prices of fresh milk went up by 17.1 percent and sugar alone registered a rise of 12 percent in the month of May 2010 when compared with May 2009 and these two items consumed the purchasing power of common man. The prices of wheat flour, tea and vegetable ghee also went up during the last one month.

The major price gauge i.e. Consumer Price Index (CPI), Sensitive Price Index (SPI), and the Wholesale Price Index (WPI) for the month of May 2010 showed estimated rise of 13 percent, 17.3 percent and 21.2 percent respectively.

Welcome to The Pakistani Newspaper

[vinod2070]

I think we should have a near free market for essential goods (like food items) in South Asia (Of course after making sure that domestic demand is met first).

There is no good reason for huge price differences in prices of essential food items within South Asia when the majority of the population is poor.

[A1Kaid]

^ I don't think that is going to resolve the problem in Pakistan.

The problem in Pakistan is not necessarily a supply problem (the free trade of basic food argument your making seems to imply this) it is mostly inflation, where the prices of basic foods have sky rocketed. Incorporating free trade in So.Asia of all basic foods such as rice, flower, sugar, milk, bread, eggs, and other essential foods may help to lower prices by a little if there were tariffs in place resulting in higher prices...However, what it seems to me is it is not tariff's causing a spike in prices it is mainly inflation, because even domestic produced foods are expensive (so the free trade point becomes moot here). Hence Government and Economist must tackle the inflation (there are several economic protocols Government's normally take along with Banking institutions and the Treasury that I will not get into right now)

That is the key here, and GoP must absolutely must lower inflation.

[A1Kaid]

By the way one should also realize inflation has also increased in many other countries, Pakistan is not facing it alone. However, considering the purchasing power parity and average income in Pakistan of the impoverished and less developed classes who are most vulnerable to inflation the impact of inflation is more severely felt then in other some other countries...

If the problem get's even worse, then it would probably be wise for Government to temporarily subsidize partial cost of basic foods to alleviate the pain and economic hardship felt by many people.

[DarkStar]

This is all hogwash. Is this not the same parliament which is beholden to the sugar mill mafia, who sit on the benches and in the cabinet, creating false shortage crises, exporting sugar illegally to places like Afghanistan, hoarding when there is abundant supply only to sell when the prices have risen, ending up with importing sugar again at astronomical prices.

It's like a return to the pre-partition days of Kaala Bazaari.

[A1Kaid]

Originally Posted by DarkStar

This is all hogwash. Is this not the same parliament which is beholden to the sugar mill mafia, who sit on the benches and in the cabinet, creating false shortage crises, exporting sugar illegally to places like Afghanistan, hoarding when there is abundant supply only to sell when the prices have risen, ending up with importing sugar again at astronomical prices.

It's like a return to the pre-partition days of Kaala Bazaari.

Welcome back,


That may explain why sugar prices may be higher locally, however how do you explain the collective prices of almost all basic foods such as rice, flower, bread, milk, eggs being higher? Are you suggesting the same thing that happens to the sugar happens to all these other goods?

Corruption in the agricultural business is certainly a criminal issue and must be resolved by law enforcement and judiciary most certainly.

However, we must also tackle the prices of higher food from the economic point of view which the primary culprit is inflation and the depreciation of the PKR, which reduces PPP and in combination with inflation just adds on more of a burden...


I have heard of this illegally exporting Pakistani agricultural produce to Afghanistan and such, but I don't think it would account for the higher prices the nation is facing altogether.

[DarkStar]

Pakistan is exporting huge quantities of rice, while Bharat usually has a ban on rice exports. Same thing with apples, mangoes, cherries, strawberries, mandarin, etc. The main reason why some fruits are even hard to locate is because they are being exported to the middle east, south east asia, even Europe.

We also have the same thing with our wheat flour, and cotton happening. Pakistan's garment factories are standing idle, while raw cotton is being sold to countries like China. Instead of being a value-added economy, we're going towards a resource-exporting one, a sure death-knell for stability and growth.

Pakistan should stop all exports of agri products, like many poor countries have done. It's about time we started thinking of exporting things other than food, or we'll end up starving to death.

Another factor is the amount of taxation on cng, petrol and diesel, which has a direct inflationary effect on all things transported, which includes foodstuffs. This is the reason why many food items are selling for as much as 10 times the price that the farmer gets for his produce, with everything going into the black hole of government fuel tax.

Pakistan collected 300 Billion rupees tax from fuel related taxes, out of a total tax collection of 500 billion rupees, in 2009. You do the maths.

And that's a huge gravy train, considering the taxes on fuel were only introduced a couple of years ago, ostensibly as a carbon tax to save the environment. How did we survive before the introduction of the said tax? Is our budget balanced now that we have all this extra money? The answer is NO.

Thanks for the welcome, A1kaid bro.

[A1Kaid]

Originally Posted by DarkStar

Pakistan is exporting huge quantities of rice, while Bharat usually has a ban on rice exports. Same thing with apples, mangoes, cherries, strawberries, mandarin, etc. The main reason why some fruits are even hard to locate is because they are being exported to the middle east, south east asia, even Europe.

We also have the same thing with our wheat flour, and cotton happening. Pakistan's garment factories are standing idle, while raw cotton is being sold to countries like China. Instead of being a value-added economy, we're going towards a resource-exporting one, a sure death-knell for stability and growth.

Pakistan should stop all exports of agri products, like many poor countries have done. It's about time we started thinking of exporting things other than food, or we'll end up starving to death.

Another factor is the amount of taxation on cng, petrol and diesel, which has a direct inflationary effect on all things transported, which includes foodstuffs. This is the reason why many food items are selling for as much as 10 times the price that the farmer gets for his produce, with everything going into the black hole of government fuel tax.

Pakistan collected 300 Billion rupees tax from fuel related taxes, out of a total tax collection of 500 billion rupees, in 2009. You do the maths.

I really agree with you on lowering exports of certain foods, but is it really a supply issue? Perhaps in some parts of Pakistan (in some markets), but altogether inflation is still the main culprit here. Inflation is what is driving up the prices.

We also have the same thing with our wheat flour, and cotton happening. Pakistan's garment factories are standing idle, while raw cotton is being sold to countries like China.

I don't think Pakistan's garment factories are standing idle, and I'll tell you why. Recently and in fact for the past several months I have seen a large influx of "Made in Pakistan" clothes in US (brand names), at many up-scale malls. Something almost unseen a decade ago, trust me the garment factories must not be idle because I am seeing more and more "Made in Pakistan" clothing here in US...That is a positive sign.

Another factor is the amount of taxation on cng, petrol and diesel, which has a direct inflationary effect on all things transported, which includes foodstuffs. This is the reason why many food items are selling for as much as 10 times the price that the farmer gets for his produce, with everything going into the black hole of government fuel tax.

What is the current amount of taxation on CNG, petrol, and diesel? If you have the numbers then it will help us understand what is and what is not the MAIN driver of higher prices. Whether it is exports of foods leading to shortage of supplies causing food prices to go higher, or overall economic inflation and the depreciation of the PKR lowering the PPP.

Have there been a new set of taxes that have caused a spike in food prices? Anyways, this taxation of petro seems like a secondary problem to me..

Edit: Are you in favor or removing all taxation on Petro or partial?

[A1Kaid]

Originally Posted by DarkStar

Pakistan is exporting huge quantities of rice, while Bharat usually has a ban on rice exports. Same thing with apples, mangoes, cherries, strawberries, mandarin, etc. The main reason why some fruits are even hard to locate is because they are being exported to the middle east, south east asia, even Europe.

We also have the same thing with our wheat flour, and cotton happening. Pakistan's garment factories are standing idle, while raw cotton is being sold to countries like China. Instead of being a value-added economy, we're going towards a resource-exporting one, a sure death-knell for stability and growth.

Pakistan should stop all exports of agri products, like many poor countries have done. It's about time we started thinking of exporting things other than food, or we'll end up starving to death.

Another factor is the amount of taxation on cng, petrol and diesel, which has a direct inflationary effect on all things transported, which includes foodstuffs. This is the reason why many food items are selling for as much as 10 times the price that the farmer gets for his produce, with everything going into the black hole of government fuel tax.

Pakistan collected 300 Billion rupees tax from fuel related taxes, out of a total tax collection of 500 billion rupees, in 2009. You do the maths.

And that's a huge gravy train, considering the taxes on fuel were only introduced a couple of years ago, ostensibly as a carbon tax to save the environment. How did we survive before the introduction of the said tax? Is our budget balanced now that we have all this extra money? The answer is NO.

Thanks for the welcome, A1kaid bro.

Pakistan collected 300 Billion rupees tax from fuel related taxes, out of a total tax collection of 500 billion rupees, in 2009. You do the maths.

Well I'm not 100% sure about the numbers, however if I take your word for it this also means tax on petro is providing necessary revenue for the Government. Government must have revenue for national services and programs and projects. Increasing the tax net, regular income tax on high income groups must also be set. I understand many people in Pakistan are not paying taxes, unfortunately the Government is corrupt and neglectful so much of the money even if they had paid taxes probably would not be spent properly well anyways, back to square one...good grief.


So we have identified several culprits

1. Inflation in combo. with depreciation of PKR (poss. excessive printing of money both legal and counterfeit)

2. Large amounts of exporting of basic foods (legal & illegal)
3. Agricultural corruption
4. Taxation on Petro

[DarkStar]

Exporting has a direct correlation with prices, because as exporters will get higher prices abroad, they end up paying more in the local markets to buy the goods. A classic case of supply effecting the price of a commodity. This is one of the elementary principles of economics.

The depreciation of the rupee will lead to higher prices in imported goods, such as fuel, cooking oil, tea, etc. while making Pakistani exports cheaper, which again will stimulate export of agri products, creating more supply shortages, thus affecting the price of agri products.

So depreciation does effect the price, but only due to secondary effects like higher fuel costs, and making our exports cheaper, but the two reasons that i mentioned above are still valid.