EDITORIAL: Federal Finance Minister Muhammad Aurangzeb while addressing a think-tank in Washington DC stated that inflation has come down from 38 to 20 percent. While consumer price index registered 38 percent in May 2023, the time when the then finance minister Ishaq Dar’s flawed policies were in force – artificially controlling the rupee-dollar parity as well as extending a 110 billion rupee electricity subsidy to exporters – yet this decline is perhaps reflective of the success of the contractionary monetary and fiscal policies that are by and large being dictated by the International Monetary Fund (IMF), though fiscal reforms seeking to tax the rich/elite have been initiated but have not borne fruit.
Independent economists claim that the CPI is understated by between 2 to 3 percentage points, a claim backed by the fact that the statistics-gathering machinery, notably the Pakistan Bureau of Statistics (PBS), is opting to take the lowest subsidised utility rate applicable on the vulnerable and poor rather than an average rate and that the price of essential consumer items are those available at the subsidised Utility Stores only and not in the open market.
Be that as it may, the general public’s reaction to the decline in the inflation rate has also not been positive for two reasons. First; to check inflation, the government would need to engage in reducing the budget deficit, not by borrowing domestically or from abroad and injecting the money right back as current expenditure into the economy, a highly inflationary policy, but through curtailing the components of the non-development expenditure.
And secondly; the rise in the price of petrol effective 16 of April by 4.53 rupees per litre and 8.14 rupees per litre on diesel will significantly raise the transport costs of households, irrespective of whether they have their own transport or use public transport.
The CPI however gives 5.91 percent weightage to transport though one would be hard pressed to acknowledge that with the significant rise in transport costs in recent months the actual percentage of a low income household spending on transport may well be a lot higher requiring some sort of sacrifice on another household expense which recent surveys show could well be education.
The Punjab government led by Maryam Nawaz recently announced its decision to keep the support price of wheat at the same rate as last year, in spite of the inflationary spiral that without doubt has hit the farmers as well, and additionally announced that it would halve its procurement of wheat compared to last year. These measures, the Punjab government reckons, would reduce the price of roti/naan significantly by a little over 4 rupees.
While this populist policy may help garner public support for the party in general and the Chief Minister in particular yet by upsetting the existing market mechanism, there is, however, a real danger that distortions may surface as in the past.
In addition, the farmers have given the Punjab government an ultimatum of two days, starting from the Monday past, threatening province-wide protests until and unless measures to ensure that their input costs are met.
The federal government is currently engaged in seeking the next IMF package and has little leverage in either extending a subsidy to the poor, other than under the auspices of the Benazir Income Support Programme, a federal subject, or in allowing a provincial government to extend a subsidy which is operating under a contractual pledge to generate a stipulated surplus that would in turn reduce the federal government’s budget deficit.
The leverage to extend subsidies is no longer available to either the federal or the provincial governments, given the ongoing economic impasse that is continuing to hit the poor man much more than the rich and the sooner this realisation is accepted by all the quicker will the remedial measures be taken.
Copyright Business Recorder, 2024
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