EDITORIAL: Inflation data released on Friday by the Pakistan Bureau of Statistics (PBS) should have been the focus of government attention in general and the economic team in particular but perhaps no longer inexplicably the weekend activity of the eleven-party coalition was to call a meeting on the Punjab-Khyber Pakhtunkhwa elections case hearing in the Supreme Court on Monday (yesterday) while Finance Minister Ishaq Dar pledged all out support to Hajj pilgrims – a pledge that, as in previous years, should have been handled by the relevant federal minister Abdul Shakoor.
What is more important to note is the fact that Consumer Price Index (CPI) for March registered 35.4 percent – a 3.9 percent rise from February and a 7.8 percent rise from January. Two observations are extremely relevant. First, CPI in August was 27.9 percent, in spite of the aftermath of the devastating floods that the country was experiencing at the time, while in September the CPI declined significantly to 23.2 percent.
The reason: the staff-level seventh/eighth review agreement with the International Monetary Fund was reached mid-August and the tranche released on 2 September spreading a comfort level amongst other multilateral and bilateral lenders and domestic markets.
However, since Dar took oath as the Minister for Finance on 27 September his increasingly belligerent stance with rating agencies and lender entities while continuing with his economically flawed measures and anti-poor policies (examples include control of the rupee without the foreign exchange reserves to intervene in the market thereby generating a grey market as well as extending a 110 billion rupee subsidy to exporters at a time when many of the 33 million flood affectees were living under open skies) account for the delay in the ninth staff review agreement originally scheduled for 3 November 2022.
To argue that the fault lines are with friendly countries that had pledged but have yet to disburse agreed rollovers and additional loans does not cut any ice largely because there appears to be no policy measure in place or under debate that would provide a comfort level to the gullible general public leave alone the international donor agencies that the country is indeed embarked on a well thought-out programme able to take the country out of its economic impasse – a programme that may well take more time if the Fund doesn’t come through but which does show a light at the end of a tunnel.
And second, core inflation, the major determinant of the discount rate, was 18.6 percent for urban in March 2023 (up 1.5 percent in February) but with rural core inflation at a high of 23.1 percent in March the average core inflation for March is estimated at close to 21 percent.
On 2 March the Monetary Policy Committee (MPC), chaired by the Governor State Bank of Pakistan, raised the discount rate by 300 basis points to 20 percent as in February core inflation urban was 17.1 percent and rural 21.5 percent.
This accounts for predictions of between 200 to 300 basis points rise in discount rate in the next MPC scheduled for 27 April though this may be brought forth in the increasingly unlikely event that the agreement with the Fund becomes imminent.
This high rate would contract private sector credit still further with a consequent impact on large-scale manufacturing sector growth (in the negative at present) with a direct impact on job losses.
The blame game of who is responsible, or more pertinently who is more responsible, should now be a moot point.
One fact that has been patently evident is that the four recurring finance ministers – Ishaq Dar (thrice), Dr Hafeez Sheikh (twice), Shaukat Tarin (twice) and Dar’s short-term replacement Miftah Ismail (twice) - have been unwilling or unable to shift the focus of reforms from passing the buck onto the general public by raising utility tariffs instead of improving governance and raising reliance on indirect taxes whose incidence on the poor is greater than on the rich, instead of ushering bold out of the box reforms.
When facing criticism for such anti-poor policies they continue to hold lender agencies responsible though none of the four have taken any informed economic decisions with the capacity to set the country on the right path towards stability.
True that expectations were higher for Dr Hafeez Sheikh as the only qualified economist amongst the four (Ismail is also a qualified economist however with next to zero clout within his own party with Dar reportedly constantly undermining him his actual potential remains unknown) however his two-time performance was disappointing as his lack of empathy with the poor and vulnerable in the ongoing Fund package, at a time when there was little danger of default, defies basic economic sense.
One would hope that better sense prevails within the corridors of power and those who directly contributed to the current appalling state of the economy need to be sidelined in favour of a panel of economists, preferably respected academicians attached to globally renowned universities, for this is urgently required by the people of this country. Let the end be in sight – be it with or without the IMF package, be it four years from now or five.
Copyright Business Recorder, 2023
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