South Asia Features

Pakistan grapples with rising import bill, food shortage

Apr 16, 2008, 15:22 GMT

Karachi - After five years of solid growth, Pakistan's economy is facing an import payment crisis and an acute food shortage to feed its ballooning population of 170 million. Pakistani men fill sacks with Wheat grains after the crop is crushed in a machine on the outskirts of Hyderabad Pakistan 15 April 2008. EPA/NADEEM KHAWER

Pakistani men fill sacks with Wheat grains after the crop is crushed in a machine on the outskirts of Hyderabad Pakistan 15 April 2008. EPA/NADEEM KHAWERThe country's newly-elected economic czar, Finance Minister Ishaq Dar, last week revised the country's expected growth rate to 6 per cent from 6.5 per cent. Pakistan has witnessed phenomenal annual growth rate of around 8 per cent since 2002, thanks in part to billions of dollars in US aid to fight Islamic extremism after 9/11. According to local reports, Pakistan has received close to 11 billion dollars of such aid since the twin tower attacks in New York in 2001. 'The new government needs to clear the mess by the military government. It is no doubt a daunting task which may have social and political implications for the new set-up,' Hari Ram Lohano, a senior economist at the country's premier think tank - Social Policy and Development Centre (SPDC) - told Deutsche Presse-Agentur dpa. Pakistan's new democratic government, a patchwork of political alliances formed to oppose military rule, headed by premier Yousuf Raza Gilani, has promised to end food shortages and work to eradicate poverty. Commerce Minister Khaqan Abbasi said this week Pakistan would face at least a 16-billion-dollar deficit in fiscal year 2007-08, which will end on June 30. Meanwhile, former finance minister Salman Shah painted a gloomier picture, telling the media Pakistan would face a trade deficit of 18-19 billion dollars in 2008-09. Given the country's fragile foreign exchange reserves of around 14 billion dollars, this places Pakistan's balance of payment task to a crisis level amid rising international oil and agricultural commodities prices and an acute wheat shortage across the country. Wheat is Pakistan's staple food. 'The government has to design innovative policies to fight with this twin devil (balance of payments and food shortages) and protect consumers at the same time,' says Lohano. Lohano said the government must adopt stringent disciplinary policies in terms of its current account deficit, which mainly involves debt servicing, oil imports and the defence budget. The country has over 40 billion dollars in external debt and over one-third of its imports consist of crude and refined oil products. According to sources in the Ministry of Finance, the country's total oil import bill will be about 11-12 billion dollars as the fiscal year ends on June 30. Pakistan's oil import bill rose by a phenomenal 30 per cent to 6.338 billion dollars in the July-February period of the current fiscal year from 4.741 billion dollars over the corresponding period last year, according to the figures complied by Federal Bureau of Statistics (FBS). A hefty spike in global oil prices, which topped 114 dollars per barrel on Tuesday's international trading, is the chief reason for this increase. Dar on April 9 at a press conference announced an emergency programme to pull Pakistan out of crisis and mobilize 2.5 billion dollars from various sources to plug in current account deficit. This may also include 500 million dollars in support already announced by China recently. On top of the balance of payments problem, an almost 40-per-cent increase in international wheat prices had led Pakistan's bulk wheat to be smuggled to neighbouring Afghanistan and India. The illegal trade has created massive shortages in the domestic market and near-riot situations in many cities, especially in the restive North-West Frontier Province (NWFP), which is also undergoing a civil war between Islamic militants and the government, and central Punjab province. Paramilitary forces have been deployed to oversee wheat and flour distribution, as the World Bank has expressed concern about Pakistan's agriculture shortages in its spring report released this week. The World Bank cited 'insecurity and past floods' for food shortages in Pakistan, putting the country among the 36 countries which require urgent international aid to avoid any further flare-ups. The government recently increased wheat's support price to encourage private flour mills to supply flour in the local markets instead of smuggling the staple food across the border. However, long queues outside the state-owned stores and other shops tell a different story. 'It will take time till the situation improves or gives us any direction to predict,' says Ansar Javed, former president of Pakistan Flour Mills Association.