In its latest report, the World Bank has advised the Pakistan government to withdraw subsidies on wheat, and also warned that half of the country's 160 million people may soon be unable to buy food because of rising prices.
"The poverty impact of the surge in food prices could be high and in some areas it could wipe out years of gains in poverty reduction," said the Bank's report on global development finance.
The report also warned that Pakistan's slower growth outcomes would compress government revenues and make further consolidation more difficult, reported the Dawn.
The World Bank also said that continued smuggling of wheat to the neighbouring countries could also lead to an acute shortage of food, causing unrest and instability. "Given tight domestic supplies, a poor crop year could sustain or reignite inflationary pressures and put remote regions at particular risk," it said.
The Bank warned that rising inflationary pressures, particularly for food, will reduce the purchasing power of the urban poor in a number of South Asian countries, including Pakistan.
According to the paper, at two recent seminars in Washington, Pakistani and American economists also urged Pakistan to review its policy of subsiding wheat to feed its urban population. They noted that such policies do not benefit the majority which lives in the villages and causes smuggling of wheat to India and Afghanistan where prices are higher.
They advised the government to consider new measures, such as issuing food stamps, to feed its urban populations instead of subsiding wheat.
But, they also acknowledged that the new Pakistani government did not have the political strength to take such measures. They conceded that withdrawing subsidies would cause a sudden rise in wheat prices which could lead to food riots as witnessed in some other countries.