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EDITORIAL: The Sensitive Price Index (SPI) for the week ending 12 January 2023 rose by 31.75 percent year-on-year against 30.60 percent year-on-year for the week ending 5 January 2023 with the economic team leaders pointing to external factors - the impact of the devastating 2022 floods on farm output, the harsh upfront International Monetary Fund (IMF) conditionalities, envisaging a rise in electricity rates/petroleum levy as pledged in the seventh/eighth review dated end August 2022, and the rise in the international prices of oil and products attributed to the ongoing Russia-Ukraine war though the price of crude plummeted to 72.8 dollars per barrel on 4 January 2023 but rose to 79 dollars per barrel on 16 January - as key reasons for the rise in food prices in Pakistan.

Two observations are in order. First, to claim that the rise in SPI has been contained to 0.44 percent in the week ending 12 January as opposed to the week before is not going to provide a comfort level to the public as the weekly rise is very steep at 31.75 percent which is over and above the rise the week before.

And secondly, electricity charges for the first quarter, gas charges up to 3.3719 MMBTU, prices of petrol super and high speed diesel remained unchanged this year and hence the IMF conditions relating to reforms remain unmet to this day.

Three policy decisions approved during the tenure of the 11-party coalition government contributing to inflation are being ignored.

First and foremost, the three prevalent dollar rates in Pakistan – there is a widening difference estimated at over 35 rupees per dollar between the controlled interbank rate, the open market rate at which the dollar is not available and the open market (black market) rate at which the dollar is available.

While administrative measures are in place to curtail unnecessary imports yet those imports that are categorised as essential are also facing delays in opening letters of credit due to paucity of reserves.

There are reports that the interbank rate is not available to meet the import needs of essential items, thereby causing severe supply shortages in the market and with demand unchanged prices of essential commodities including medicines and manufacturers reliant on importing raw materials are skyrocketing.

Additionally, the three prevalent rupee-dollar rates are strangling the inflow of remittances through official channels, a desired form of foreign exchange inflows, and the hundi/hawala system that during the pandemic had all but vanished has resurfaced.

This is reflected by the decline in remittance inflows from 2.52 billion dollars in December 2021 to 2.04 billion dollars in December 2022 and the July-December 2021 remittance inflows of 15.807 billion dollars to 14.052 billion dollars in the comparable period of the current fiscal year. It is inexplicable from an economic perspective as why these rates are allowed to continue especially as they strengthen the possibility of default.

Second, the government has announced and not yet withdrawn the 110 billion rupee unfunded electricity subsidy to exporters, opposed by the IMF as a regressive measure, while cuts are being made to the Public Sector Development Programme, which is negatively impacting on the projected growth rate this year that, in turn, has serious implications on tax revenue.

In other words, the government is moving further away from meeting the Fund structural reform time-bound conditions and given the linkage of rollovers/additional loans by friendly countries to the successful completion of the IMF’s ninth review pledges that the government will go back on the Fund programme are clearly at odds with continuing flawed policy decisions.

Additionally, it seriously challenges the government’s claim that it is taking economic policy decisions that are rendering it politically unpopular.

And finally, no effort is being made to curtail current expenditure with the budget deficit, a highly inflationary policy, reaching the same unsustainable levels as during the Khan administration of more than 7.5 percent.

Subsidies are not being targeted to the poor and the vulnerable, which is causing ever-rising angst not only amongst Pakistan’s general public but also the international donors.

It is hoped that better sense will be allowed to prevail and decisions that allow the prevalence of economic over political considerations.

Copyright Business Recorder, 2023


Comments are closed.

KU Jan 17, 2023 07:41pm
Although our political history has little to show for it, the current political fiasco is one of the finest moments for our politicians to benefit themselves and ignore the perils that our country finds itself.
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