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EDITORIAL: The two regulators, National Electricity Power Regulatory Authority (Nepra) and Oil and Gas Regulatory Authority (Ogra), have approved raising electricity and gas rates yet again – Nepra by 3.07 rupees per unit under fuel charges adjustment (with the regulator’s recent finding that all distribution companies overcharged and overbilled consumers by 100 percent with even protected consumers, using less than 200 kWh per month, consistently charged the rate of upper slab users) and Sui Northern Gas Pipeline Limited by 137 percent, over and above the gas rate rise effective from 1 November for all consumer categories with protected consumer charges raised from 10 rupees to 400 rupees, a 3900 percent raise at one go.

While these price upgrades are no doubt a component of the agreed conditions under ongoing multilateral programmes, including the ongoing nine-month 3 billion dollar Stand-By Arrangement of the International Monetary Fund (IMF), with the economically viable objective being full cost recovery.

Yet, what is relevant to note that price upgrades have been the preferred policy decisions of all administrations, civilian and military alike, instead of implementing structural reforms that would reduce sector inefficiencies and thereby the need to pass on the entire onus on to the hapless consumers.

It is relevant to note that while the capacity of the general public to pay the price of full cost recovery was minimised through subsidies in the past, however, the country has reached a point whereby no multilateral or bilateral lender is willing to extend loans without implementing structural reforms – a cessation with an imminent possibility of default.

At the same time, these recent administrative measures come in the wake of a 29.2 percent consumer price index (CPI) for November 2023 – a consistently high rate that has degraded the capacity of low to middle income earners to meet their basic needs requiring sacrifices that have seriously undermined their quality of life.

In other words, the country has reached a point, where there is no relaxation in terms of the country’s lenders, and at the same time, no room in terms of the capacity of the general public to meet the rising cost of utilities.

What is a source of serious concern is the fact that the IMF in the ongoing programme, as in the previous Extended Fund Facility programme approved in July 2019, is insisting on linking the policy rate with the CPI, on the assumption that headline inflation, which includes imported inflation, can thus be better adjusted rather than by linking the policy rate to core inflation (non-food and non-energy) as was the previous practice.

This assumption by the Fund is patently wrong for Pakistan for two reasons: (i) unlike in the developed economies of the West, the policy rate in Pakistan has little if any effect on the general public because their borrowing is severely limited due to lack of collateral or a guarantor.

In addition, the concept of a mortgage is almost non-existent; and (ii) the two main borrowers from the banking sector in Pakistan are large-scale manufacturing sector and the government itself; therefore, any increase in the policy rate raises input costs that, in turn, has a direct negative bearing on productivity and the growth rate and with the government borrowing heavily domestically, this has implied ever-rising debt servicing costs.

The November 2023 Update, released by the Finance Division, noted, “mark-up payments experienced a substantial surge of 44.6 percent, primarily attributable to a higher policy rate.”

Since 2019, no finance minister (seven since then, including the incumbent caretaker) or Governor State Bank of Pakistan (three including the Acting Governor in 2022) has been able to convince the IMF to abandon the linkage between the headline inflation and policy rate as it is simply not relevant in Pakistan’s case.

One can only hope that the IMF staff takes cognizance of this fact and makes appropriate adjustments or else the ongoing inflationary pressures may well lead to pervasive civil unrest and push the economy further into a recession that would make the implementation of the necessary structural reforms all the more challenging from a political perspective.

Copyright Business Recorder, 2023

Comments

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KU Dec 08, 2023 10:52am
We will surely attract investment in the wake of these price rises, SIFC has always been a wonderland dream. Do the Einsteins ever wonder how people and industry are ever going to survive these high costs of utilities?
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Imran Dec 08, 2023 12:44pm
IMF is actually right in linking the policy rate with the CPI because that is the true inflation. The government is supposed to raise money from taxation or save money by curtailing expenditure. Govt of Pakistan is unwilling to do either. Borrowing peoples money to run its inefficient machinery and not paying full interest on it is not an acceptable practice.
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Mohsin Alim Qazi Dec 08, 2023 01:15pm
In Pakistan, the "lingua franca" adopted by writers on energy related issues: (Massive) Corruption is Ineffeciency Structural Reform is raising prices Pakistan is the only country where utility (seller) itself certifies that the meter is correctly tallying up energy usage. There are claims that electricity meters overbill by 21% and gas meters overbill because of low pressure. Perhaps Regulator needs to be regulated (out of deep slumber) Imagine the day when these energy distribution companies will become privately held monopolies.
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Aam Aadmi Dec 08, 2023 02:18pm
Does the IMF tell the government only to raises prices of utilities? Does the IMF tell the government to provide free electricity to all employees of DISCOs and WAPDA? Does the IMF not tell the government to curtail massive and unnecessary expenditure on xxxxxxx at the cost of spending on education and health? Does the IMF not tell the government to undertake structural reforms in economy? Does the IMF not tell the government to raise the living standard of its people? What exactly does the IMF tell the government to do, and what not to do? Please dare publish this all.
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Cool boy Dec 09, 2023 11:33am
That was magic of dar
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Nasrullah Khan Dec 09, 2023 05:29pm
Gas and electricity rates are more than usa but salariers are less than usa. Govt must raise this point with imf ....
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Rehan Jawed Dec 10, 2023 11:04pm
Mean while , the 5 zero rated sector is pushing for a seperate category of electric consumers , under the name Rcet, Since govt is unable to subsidize the 5 zero rated sectors, now their plan is to get themselves cross subsidized from other consumer categories. Rcet will not include cross subsidy , capacity charges nor linelosses/theft. But if such a category is created , all other industrial and residential consumers will be cross subsidizing them. It's about time govt realizes the reality and stops all such plans. Lobbying , legal courses have already started.
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