EDITORIAL: The year-on-year (YoY) increase in the Sensitive Price Index (SPI) remained worryingly high at 29.65 percent though there was a decline of 0.33 percent for the week ending 26 October 2023 compared to the week before.

Data released by the Pakistan Bureau of Statistics indicates that: (i) the income quintile 1 of up to 17,732 rupees experienced a YoY SPI of 28.66; (ii) income quintile 2 from 17,732 to 22,888 rupees experienced 28.67 percent; (iii) income quintile 3 from 22,888 to 29,517 rupees with 30.09 percent; (iv) income quintile 4 from 29,517 to 44,175 rupees at 29.97 percent; and (v) income quintile 5 above 44,175 rupees experienced SPI of 29.61 percent. The combined SPI for the week past was 29.65 percent.

Three observations are in order. First, while all income groups suffered more or less equally yet it is baffling that those earning above 44,175 rupees per month suffered less, though marginally less at 29.61 percent relative to those earning from between 22,889 and 29,517 rupees per month with SPI at 30.09 percent.

Needless to add, income quintile 3’s capacity to meet its kitchen budget was most severely compromised requiring prioritisation of expenditure with many lamenting the fact that after payment of their August electricity bills, raised as part of the International Monetary Fund conditions under the Stand-By Arrangement programme, there was no money left for payment of school fees.

This data substantiates the World Bank report that notes a rise to 40 percent in poverty levels in this country and one would hope that this group may be targeted for support through targeted subsidies.

Second, lower income quintiles, earning less than 22,889 rupees per month, indicate a lower SPI rate by about 1.4 to 1.42 percentage points that may reflect no ownership of a motorbike that would necessitate purchase of fuel with a current petroleum levy of 50 rupees per litre on petrol.

And finally, it is also relevant to note that the differential in the SPI between quintiles 3, purchasing mainly domestic products, and 4 and 5 also purchasing imported items (that have witnessed a steady rise in prices due to the rupee erosion) favours the higher income quintiles indicative of quintile 3 the most hard hit in terms of inflation.

It is worth noting that there was no raise in utility charges during the week ending 26 October over the week ending 19 October and hence the small decline in SPI of 0.33 percent can be laid at the doorstep of seasonal adjustments (due to supply) in the price of perishables with tomatoes, potatoes, eggs, salt, garlic, mutton registering an increase while chicken, onions, rice, bananas, pulse Masoor and sugar showing a decrease in prices.

SPI remains high and this is in spite of very successful crackdowns in multiple markets – foreign exchange, commodities including sugar and atta and on electricity thieves who contribute to the circular debt which, in turn, accounts for donor agencies insisting on full cost recovery, which Pakistan’s administrations have traditionally complied with by passing on the entire buck to consumers, an inflationary policy. There is therefore a need to look at other options to reduce the SPI that is prohibitively high.

Business Recorder has been consistently supported calls for reducing the budget deficit through slashing current expenditure (as opposed to development expenditure, which is routinely overstated in the budget for political reasons and slashed mercilessly at the end of the year to bring the deficit down to sustainable levels with severe repercussions on the growth).

It is, therefore, hoped that the Caretakers take appropriate measures and proactively engage with recipients of current expenditure for voluntary reductions for the current year and the next to get out of the current economic impasse and usher reforms where needed; for example, pension reforms that envisage contributions by employees, as in other countries, rather than meeting the rising unsustainable pension bill out of the taxpayers’ account, thereby further narrowing the fiscal space.

Copyright Business Recorder, 2023