EDITORIAL: The Caretaker government has not passed on the benefit of a decline in the international price of oil and products as well as the strengthening of the rupee-dollar parity to the general public for the next fortnight (1 to 15 November).
The objective, no doubt, is to create fiscal space and thereby provide a comfort level to the International Monetary Fund (IMF) team scheduled to begin the first review of the Stand-By Arrangement (SBA) from today.
The jury, however, is out as to whether keeping fuel prices unchanged would be less inflationary than containment of the budget deficit. The Finance Division’s Monthly Update and Outlook for October 2023 uploaded on its website estimated the quarterly Consumer Price Index (July-September) at 29 percent – a rate not likely to decline by more than a percentage point for October if there is no reduction in petroleum and products prices.
An unsustainable budget deficit is a highly inflationary policy and in this context it is relevant to note that while in July 2023 the deficit was 225.3 billion rupees against 210 billion rupees in July last year yet the deficit rose by a whopping 17.6 percent July-September 2023 in comparison to the comparable period of the year before or in total terms from 819 billion rupees in the first quarter of last fiscal year to 963 billion rupees in July-September, 2023.
Disturbingly, the rise in the deficit this year is sourced to a massive rise in current expenditure – a fact clearly revealed in the Update and Outlook for October which notes a 29.3 percent decline in Public Sector Development Programme (PSDP) July-September 2023 against the same period in 2022 with negative implications on growth.
And what is even more worrisome is that the rise in the deficit is in spite of a 25 percent rise in Federal Board of Revenue collections this year compared to last year and a 114.7 percent rise in non-tax revenue (with petroleum levy a significant contributor, to the tune of 29.3 percent of total budgeted non-tax revenue collections for the current year – second only to State Bank of Pakistan profits budgeted at 37.5 percent of total non-tax revenue collections for the year).
The caretaker economic team leaders have expressed satisfaction at the significant rise in FBR and non-tax collections however, it is relevant to note that these collections are in an environment of stifled economic activity.
True that the Outlook and Update notes large-scale manufacturing (LSM) rise of 0.5 percent July-August 2023 yet given the low base of negative 1.2 percent in July-August 2022 the rise during the first two months of the current year should be a source of serious concern.
The report also projects a 2.5 percent growth for 2023-24, which is significantly higher than the negative 0.2 percent cited for last fiscal year (though this does not tally with the negative 10.3 percent cited for 2022-23 noted in the August 2023 Update).
To take the appropriate advantage of the fiscal space that would be generated by keeping POL prices unchanged for this fortnight the government needs to reduce current expenditure.
Their contribution to the country’s economy would be long extolled if they can engage with all the stakeholders who are major recipients of current expenditure, other than the beneficiaries of the Benazir Income Support Programme (BISP), who have been budgeted a mere 3.2 percent of total current expenditure, and seek voluntary reduction in their procurement budgets for the current year as well as launch the unpopular, from a political standpoint, pension reforms to ensure employee contributions rather than placing the entire reliance on the taxpayers.
one can only hope that the fiscal space created by keeping petrol and products prices unchanged can, through the implementation of appropriate policies, lead to lower inflation through containment of the budget deficit which, in turn, has the potential of lowering the general price level to the benefit of the general public.
Copyright Business Recorder, 2023