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From Shamim Ahmed Rzivi, Islamabad
Feb 14 - 20, 2000

After increase in prices of petroleum products and levy of general sales tax on electricity and gas another wave of inflation is likely to hit the general public as the government is seriously thinking an upward revision of gas and drug prices.

A source in the Ministry of Petroleum and Natural Resources told this correspondent that the government was all set to carry out an upward revision of gas prices. He said that after new agreements were reached with gas exploration companies on pricing, the upword revision by about 10 percent in the sale prices of gas had become inevitable. Similarly the Health Minister told APP that a seven to 10 per cent increase in the prices of medicines was likely. The argument advanced by the Minister is that there had been no increase in drug prices since 1996 despite the government's agreement to allow an annual upward revision.

Technically the Minister may be right but the position on the ground is quite different. Prices of drugs have continued to rise from time to time despite a much-trumpeted freeze. There is said to have been an overall increase of 400 per cent since the policy of deregulation was announced in 1993. The previous government had even made the shocking revelation that manufacturers had illegally raised prices of some 100 medicines by 100 to 2,000 per cent. A fresh increase in view of the unhealthy practices prevailing at the retail end would most certainly spell further difficulties for the already hard-pressed citizens.

To put pressure for a rise, pharmaceutical companies have come out with their well-known position that since 1996 the dollar value against the Pakistani currency has gone up by 100 per cent, while devaluation, enhancement in various taxes, increase in utility bills and higher prices of raw material have reduced profitability. They can claim price adjustments to remain in business, but it would be hard to justify increases simply on the routine pretext of inflation and higher cost of production. The consumer price index which takes into account the prices of a large number of daily use items reportedly grew by around 69 per cent during the period between 1990 and 1995, while the prices of drugs during the same period rose by 113 per cent. Indications also are that the industry has made substantial profits since deregulation.

Recurrent and arbitrary price increases—Pakistani drugs are reckoned to be among the most expensive in the region—stem from the absence of an indigenous manufacturing capacity. Most of the raw material, including semi-processed drugs and medicines, are imported from the manufacturers' principals outside the country. Increases in input rates and inflation are additional factors, but there is also the problem of price manipulation and recourse being taken to malpractices allegedly for increasing profit. Some firms were importing raw material at very high rates and the health ministry had earlier identified about two dozen local and foreign companies inflicting a loss of about Rs. 1 billion in foreign exchange on Pakistan by over invoicing of raw material. Reports have also alleged that some multinational companies, licenced to manufacture different drugs, were instead importing these from abroad, causing foreign exchange losses. Prices are also said to be manipulated through artificial shortages and other dubious practices.

Last month the Minister for Petroleum and Natural Resources, announced that the government has decided not to resort to gas management or load-shedding during this winter as additional gas will be pumped into the system. Its major thrust is to discover more gas fields and bring the proven reserves on production line to substitute the imported fuel by local gas. He said with the pumping of the new gas in the system the overall supply will be increased by 50 per cent. So far so good. However, the announcement that the price of natural gas would go up as the government reaches agreement with as exploration companies goes not augur well for the consumers, especially the domestic consumers.

Electricity charges have already gone up. The government has just this month increased the prices of petrol and petroleum products. The latest gas bills being paid by consumers include the General Sales Tax of 15 per cent. These increases in fuel charges have enhanced the prices of all goods and services raising the general cost of living and the most pressed under its burden are the middle and lower middle in come groups and the poor, who together make up majority of the population. These segments of population have already been suffering acutely from the problems and difficulties arising out of the ongoing economic crisis, slump in business activity and rising unemployment in the country. A further rise in gas prices in this critical situation could prove a hard blow to their living conditions.

It is generally believed that all these price hikes are being enforced at the demand or to meet the conditionalities of IMF and the World Bank. Even if it is not the whole truth, it is a fact that the purse-strapped government does need revenue and has to generate it from the existing sources until new sources of its income are created. However, it should avoid taking recourse to such measures as might add to the miseries of the poor who are already hard-pressed. With some thought, ways and means can be evolved for generating the needed revenue by sources other than taxing the already overtaxed.