Food and Energy Shortages Stoke Inflation, Anxiety in Pakistan

[Aarwaa]

Food and Energy Shortages Stoke Inflation, Anxiety in Pakistan

By Candace Rondeaux
Washington Post Foreign Service
Tuesday, March 11, 2008; A16


ISLAMABAD, Pakistan -- The line for cooking oil was nearly a block long, just a few miles from the Parliament building. Saida Bibi, fistful of rupees in hand, elbowed her way to the front of the angry crowd shoving its way into the government food shop.

She had waited in the line seven times for seven hours over the course of a week and left empty-handed every time. But with the price of cooking oil at most markets nearly double what it was at government-subsidized food shops, she couldn't afford to do anything but wait.

"I'm a poor woman. I cannot purchase this from the open market for 140 rupees a kilogram," Bibi said. "They should do something for us. First, it was a flour crisis. Then it was cooking oil prices. What are we supposed to do next?"

With consumer prices for basic goods hitting new highs in Pakistan, anxieties about the country's economy are also on the rise. After seeing five years of strong gains under the government of President Pervez Musharraf, officials are scaling back expectations for growth in the face of wrenching food and energy shortages.

The crisis has taken a severe toll on Musharraf politically -- public frustration with rising prices helped the opposition win big in parliamentary elections last month. Now those parties, the Pakistan People's Party and a faction of the Pakistan Muslim League led by Nawaz Sharif, must confront the unpleasant task of managing the crisis. Economists here say a surge of foreign investment and export growth are needed.

The economic downturn has hit poor Pakistanis hardest. But at the same time, the middle class, which has prospered under Musharraf's government, is feeling the pinch, particularly in the country's all-important flour industry.

Qasim Ali Khan, who owns a flour mill in the northwest frontier town of Charsadda, said wheat shortages have put a dozen mill owners out of business in his district alone. He blames Musharraf's government for the crisis.

"There is a lot of wheat in our country. The government gave all the surplus wheat to foreign countries," he said. "If there is a problem with wheat, it's in Islamabad, not the northwest. The government has robbed us."

Sakib Sherani, chief economist for ABN Amro Bank Pakistan, blames years of "bad administration and bad governance" for the situation. He said overblown government projections of a bumper wheat crop are just one example of the Musharraf government's missteps. Smugglers are increasingly taking wheat from Pakistan to Afghanistan, where it is in even shorter supply.

"There's a very clear incentive to smuggle wheat at this stage," Sherani said. "If you can get four or five times the price across the Afghan border, why not try it?"

Salman Shah, Pakistan's finance minister in the caretaker government, acknowledged that wheat smuggling and skyrocketing consumer prices have become serious problems. But he blamed increases in global prices for food and oil for much of the crisis. He pointed to strong gains on the Karachi stock market, the country's largest, as a sign that the post-election economy is as viable as ever.

"The market is sensing that there is going to be a kind of grand reconciliation and consensus in Parliament. Things will start moving toward stability soon," Shah said. "On the other hand, if you end up in a conflict situation in Parliament, then I think the markets don't like confrontation and that could throw things off balance."

Pakistan's economic recovery efforts could be further complicated in the long term by widespread energy shortages, according to some analysts. Blackouts occur several times a day even in some of the most affluent areas of major cities. Late last week, more than 15 million people were plunged into darkness for hours in Karachi, Pakistan's largest city and its main commercial hub. The blackout was caused by a dispute between the private electric utility and the government-owned utility administration over payments.

From Karachi to Islamabad, meanwhile, the rattle of backup diesel generators has become the theme song of nearly every commercial enterprise that can afford one. That tune is unlikely to change while demand for power continues to outpace supply from the country's overburdened energy infrastructure.

"For the next two to three years this will be a serious problem. It will be very dramatic for the economy because factories will have to shut down. It is certainly affecting business," said Kaiser Bengali, an independent economist based in Karachi. "It has become a shortage economy here. Everything is short."

Power shortages have crippled many factories and textile manufacturers across the country and shut down dozens of mills, exacerbating the problem of flour shortages.

Riazula Khan, owner of the Khan Flour Mill on the outskirts of the garrison city of Rawalpindi, said electricity prices for his family-owned mill have nearly doubled in the last year.

A recent supply of government-subsidized wheat has offset some of the mill's overhead, Khan said. But the mill has been plagued by constant power outages in the last year. Over two days last month, the power went out 28 times, he said.

"We are not getting any profits for our business because everything has increased," Khan said. "The price of electricity has gone up, the price of labor has gone up, the price of transport has gone up."

Shah, the finance minister, acknowledges that consumer demand for electricity has far outpaced supply in recent years. The government has extended electricity to about 56,000 rural villages under Musharraf's direction, but it has had difficulty keeping pace with the growing sophistication of Pakistan's energy consumers.

"The assumption was that everyone in these villages would have a light bulb and a fan, but what happened was that everyone wanted a washing machine and a television," Shah said. "It's true that for the consumer there is a shortage, but it can be managed."

http://www.washingtonpost.com/wp-dyn...002480_pf.html