EDITORIAL: The Sensitive Price Index (SPI) for the week ending 7 December 2023 against the week ending 30 November 2023 was a high of 42.68 percent year on year and a rise of 1.16 percent from the week before.
The Consumer Price Index (CPI) for November 2023 registered at 29.2 percent, lower than the SPI because of a dramatic strengthening of the rupee-dollar parity as a consequence of the crackdown on speculators in the foreign exchange market starting 7 September 2023 – a trend that was reversed just prior to the arrival of the Fund team on 3 November for the first review of the 3 billion dollar Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) approved by the Board on 12 July 2023.
The obvious comparison of Pakistan’s inflation has to be with Sri Lanka’s which experienced similar concerns with respect to the performance of key macroeconomic indicators due to the implementation of persistently flawed executive policy decisions, prompting the two governments to seek a loan whose conditions are politically extremely challenging.
Sri Lanka succeeded in securing a 3 billion dollar 48-month long IMF loan on 20 March 2023 and inflation in the country declined significantly from 35.3 percent in April to 25.23 percent in May. By November this year, the rate had plummeted to 3.4 percent, a slight rise from the October figure of 1.5 percent.
This is in sharp contrast to Pakistan, which registered a 29.4 percent headline inflation in June 2023, a decline to 28.3 percent in July, rise to 31.4 percent in September and 26.8 percent in October. SPI, on the other hand, registered on average 26 to 27 percent level till mid-September, but then shot up to 38.66 percent in the week ending 21 September and continued to rise each subsequent month to the current level due mainly to an increase in utility prices, particularly those of electricity and gas (at par with policies during the previous twenty-three Fund programmes to pass on the onus of sectoral inefficiencies onto the general public to meet the economically sustainable objective of full cost recovery) and maximizing the levy on petroleum products to create the direly needed fiscal space.
The last updated World Bank report on Pakistan was on 4 October 2023 and states that: “high inflation due to increasing domestic energy prices and continued depreciation of the PKR is likely to keep economic activity subdued.
Recovery in private investment and exports will be marginal in the absence of broader reforms….a more robust recovery will require an ambitious medium term reform agenda focused on fiscal consolidation and enhancing competitiveness supported by strong political ownership and commitment.
The reforms would include measures to increase revenues by broadening the tax base, including from closing exemptions and tapping increased revenue from agriculture, retail, and property.
It would also entail measures to rationalize fiscal expenditures, such as by reducing wasteful and regressive subsidy spending, and to restore private sector confidence through business regulatory reform and reforms to state-owned enterprises, and to address inefficiencies and high costs in the energy sector.”
And perhaps even more disturbing were the views expressed by World Bank’s visiting regional vice president for South Asia Martin Raiser that “almost 40 percent children in Pakistan suffer from stunted growth, more than 78 percent of Pakistan’s children cannot read and understand a simple text by the age of 10. These are stark indicators of a silent human capital crisis that needs priority attention.”
It is and has been abundantly clear for quite some time that without meaningful structural reforms in all sectors the current impasse could well continue and reliance on foreign direct investment in this current economic imbroglio may only be forthcoming at the cost of contracts that would further burden a Pakistani average consumer as was and still is the case under take or pay agreements signed with independent power producers (IPPs).
Copyright Business Recorder, 2023