EDITORIAL: The sensitive price index (SPI), computing the prices of 51 essential items from 50 markets in 17 cities, for the week ending 7 September increased by 0.96 percent week-on-week (WoW) while it increased by 26.32 percent year-on-year (YoY).
This rise is on the back of a 6.28 percent increase in diesel, 5.19 percent surge in LPG, and 5.12 percent hike in petrol – items subject to administered prices, which administration after administration claims comprise of a legitimate adjustment of domestic prices to reflect a change in their international prices (which also takes account of a rupee depreciation) while conveniently ignoring the heavy taxes on these items that are levied in the sales tax mode, an indirect tax whose incidence is higher on the poor relative to the rich.
Fuel cost rise in turn raises transport cost of goods (from productive units/ports to the market) and together with smuggling of staple food items notably bread and sugar accounts for the rise in their price – 117.71 percent for wheat flour and 107.36 percent sugar during the week past.
Gas prices rose by 108.38 percent this week past, an International Monetary Fund (IMF) condition with the salutary objective of bringing it at par with the cost in an attempt to control the rising circular debt in this sector.
What is baffling about the SPI data is the claim that electricity charges for the first quarter declined by 21.96 percent – a claim that does not reflect the visible angst of the general public after receiving the August bills that led to anger spilling out on our streets.
Whatever the methodology used for the calculation of SPI, the stakeholders stated policy, accompanied by immediate action, has been to launch a proactive drive against all those engaged in illegal activities - ranging from currency speculators to smugglers to hundi/hawala operators to electricity theft/losses.
So far, the outcome of this drive has been positive: (i) the rupee has strengthened in the open market vis-a-vis the dollar, thereby leading to a strengthening in the interbank rate (though the decline in the interbank rate has not been as significant, given that the divergence between the two rates had been greater than the IMF-mandated plus/minus 1.25 percent).
Be that as it may, this situation may would be transitory as any medium- to long-term stability in the rupee-dollar parity requires appropriate macroeconomic policies that would strengthen the desired forms of foreign exchange earnings, notably remittances and exports; (ii) the economic incentive for smugglers of currency, wheat and sugar mainly to Afghanistan is due to market conditions prevailing not only in Pakistan, for example extending subsidies, but also in Afghanistan where dollar inflows through legitimate channels have nearly all been eliminated; and (iii) under-recovery of 387 billion rupees and losses/theft of another 201 billion rupees in the power sector will be dealt with the public has been assured.
However, to plug this sector’s leaks would require major policy decisions, including convincing the Chinese that renegotiations of the power generation plants set up under the China Pakistan Economic Corridor would be in interest of both the parties, and Balochistan landlords be forced to pay their share of the cost of running their agri-tubewells.
The Ministry of Finance needs to urgently begin to reform the existing inequitable tax structure - with heavy existing reliance on indirect taxes and mislabelling many as direct taxes – especially as precise recommendations are available in reports by both domestic and international consultants but sadly are gathering dust in the Ministry archives.
Improved policing and administrative control in the absence of sound policies only give dividends in the short term, however, medium- to long-term solutions require appropriate policy measures which, if past precedence is anything to go by, are fraught with politically challenging conditions (especially as they challenge the elite capture and extortion through blackmailing by high nuisance value groups of our budgeted revenue and expenditure) which, one may legitimately argue, should not be the Caretakers’ objective.
Given the overwhelming support of all powerful stakeholders to the Caretakers, negotiations with domestic players should have been prioritised prior to seeking concessions from the IMF. Be that as it may, it is not too late and one can only hope that appropriate policy decisions based on negotiations with domestic players are initiated.
Copyright Business Recorder, 2023
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