Pakistan’s new coalition government has delivered a big business budget that slashes subsidies for food, fuel oil, electricity, and fertilizer by more than one-quarter—112.2 billion Pakistani Rupees, or US $1.6 billion. The Pakistan People’s Party-led government has also pledged to gradually do away with all price subsidies, except possibly on food.

The World Bank pressed for the subsidy cuts, reportedly making them a condition for a possible $500 million emergency loan. Praful Patel, the World Bank’s vice president for South Asia, said earlier this month that Finance Minister Naveed Qamar had provided assurances the government “will pass on price increases in commodities, especially oil, to consumers.”

Pakistan is also in negotiations with the Bush administration, which has repeatedly called for the all but complete deregulation of Pakistan’s economy, to purchase 500,000 tons of wheat under a US food assistance program.

The subsidy cuts will drive up the prices of essential commodities—and this under conditions where Pakistani toilers are already reeling under the impact of sharp food and fuel price increases. Data released last week showed that consumer prices in May were on average 19.3 percent higher than 12 months ago, the highest annual inflation rate since 1975. According to a May 13 report in The News, the price of wheat flour, the country’s principal staple, rose 26 percent in a one-month span earlier this spring, while transport costs increased more than 14 percent.

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