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EDITORIAL: The CPI (Consumer Price Index) rose by 11.53 percent in November 2021 compared to 8.3 percent in November 2020 — a rate that contrasts unfavourably with India’s October rate of 4.48 percent, Bangladesh’s 5.7 percent, US’ 6.2 percent, UK’s 4.2 percent and European Union’s 4.9 percent (data for November not yet available for these countries/region). This differential in the rate of interest is one of the reasons for the continuing rupee erosion that was marginally arrested by 0.27 percent in the interbank market on Monday, subsequent to the signing of the agreement between the Saudi Development Fund and the State Bank of Pakistan to park 3 billion dollars for a period of one year with rather stringent strings attached as reported in the media and not contradicted by the ministry of finance or the State Bank of Pakistan.

This is not to state that this is the only reason for the rupee erosion as other factors also play their due role, including interest rate (recently raised to 8.75 percent), economic growth (which is likely to be negatively impacted as and when the agreed contractionary fiscal and monetary policies under the recently concluded sixth review with the IMF are implemented), the balance of trade (steadily worsening as imports are rising at a faster pace with the rupee erosion held partly responsible and the country’s debt level (rising at an astronomical level). The question is, that with a CPI of 11.53 percent how much pressure would be on the SBP to raise the discount rate given that the Monetary Policy Committee has, during the duration of the ongoing IMF programme (barring the time during the pandemic onslaught), linked the discount rate to CPI instead of the previous practice of linking it to core inflation which was estimated at 7.6 percent urban and 8.2 percent rural for November 2021?

The foregoing focuses on the implications of the CPI on macroeconomic indicators and policy which, in turn, will have severe implications for household incomes. However, the impact of inflation rate on the general public is direct, not requiring confirmation from data released by the Pakistan Bureau of Statistics (PBS) as each householder knows the value of each rupee he or she has on arrival in the market.

It is, however, evident that inflation will be further fuelled in days and weeks to come as the IMF’s prior conditions, acknowledged by Shaukat Tarin, the de facto finance minister and Hammad Azhar, Minister for Energy, during a recent press conference, include (i) a rise in the petroleum levy by 4 rupees each month which for the first fortnight of December means that the decline in the international price of oil will not be passed onto consumers; (ii) withdrawal of exemptions to the tune of 330 billion rupees through a money bill, yet to be presented to parliament, which if past precedence is anything to go by, may well be passed on to consumers; and (iii) a rise in the irreversible base tariff of electricity, over and above the fuel adjustment charges, which can be reversed if the price of fuel declines in the international market.

The honeymoon period of the Khan administration is well and truly over and its recent decisions to acquire loans with an extremely heavy price payable by the general public exhibits the dire straits that the economy faces. The situation demands that we immediately begin implementing reforms through a massive cut in current expenditure rather than raising it to ridiculously high levels in all three budgets presented which would have reduced the pressure on ending exemptions/raising taxes thereby providing some relief to the public and mercilessly dealing with sectoral issues that are identified in several reports gathering dust in ministries and dealing with incompetence (flawed policies) that led to a loss for the treasury at par with corruption.

Copyright Business Recorder, 2021

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