EDITORIAL: The Sensitive Price Index (SPI) computed on weekly basis to assess the price movement of 51 essential commodities collected from 50 markets in 17 cities of the country rose by 41.54 percent in the week ending 23 February 2023, reflecting a rise of 2.78 percent from the week before.
The SPI rise can be attributable to the decision effective 16 February to raise gas rates by a whopping 124 percent with domestic consumers using up to 100 cubic metres slapped with a 16.6 percent raise, fertilizer sector with a 46 percent raise, cement sector by 17.46 percent raise to be effective from 1 January 2023 onwards.
This decision no doubt accounts for a steady rise in the price of all perishable commodities produced in the country, including onion, by 372 percent in the week past. The rise in the budget deficit through post-October 2022 policy of extending unfunded electricity subsidies to exporters and cheaper credit to the farm sector (without stipulating that this be given only to the subsistence farmers) contributed massively to inflation.
However, the SPI rise is not attributable to three recent administrative decisions taken by the Shehbaz Sharif-led government in an attempt to revitalize the stalled International Monetary Fund’s (IMF’s) ninth review — a prerequisite for the disbursement of the next tranche as well as to unlock the pledged assistance from friendly countries as their implementation post-dates 23 February.
First, the Cabinet has also approved an additional surcharge of 3.39 rupees per unit, additional to the existing surcharge of 0.43 paisa per unit, applicable from March to June 2023; from July 1 onwards the government’s intent is to impose a surcharge of 1 rupee per unit plus the existing 0.43 paisa per unit surcharge.
This is reportedly a major lacuna in the stalled ninth review with the Fund insisting that the surcharge applicable from March to June be extended into next fiscal year and the government reportedly insisting on a phasing out of this surcharge.
It is important to note that the government has little if any leverage with the Fund, based on successive administrations’ sustained failure to implement the harsh structural reforms required and agreed during most of the previous 22 IMF programmes that account for the current economic impasse. In any event this measure would also have serious implications on what each rupee can buy but its impact would be from 1 March onwards.
Second, the 170 billion rupees mini-budget was approved by parliament on 20 February and signed by the President on 23 February, envisaging an across-the-board rise in the standard sales tax — from 17 to 25 percent on all luxury items and to 18 percent on non-luxury items — a tax which is not only inflationary but whose incidence on the relatively less well-to-do would be greater than on the rich, increase in federal excise duty on cigarettes, sugary drinks and cement.
The impact of these measures would be evident by the end of the current week and hence the rise in the price of cigarettes by 164.71 percent in the week ending 23 February is inexplicable.
Third, petroleum levy had been maxed out since November last year at 50 rupees per litre and in this context the rise in the price of petrol effective 15 February by 22.20 rupees per litre is due entirely to the rupee erosion subsequent to the de-control of the local currency effective 26 January 2023.
Had this disastrous policy of controlling the rupee’s external value not been in effect since October the rise in the price of petroleum and products would have been more gradual and perhaps more acceptable. As a consequence of which, transport costs would increase further and those goods transported from farm to market naturally witness a major rise.
Inflation would rise by at least 7 to 10 percentage points by the end of this week when these IMF-demanded measures become effective and in the event of any further delay in the ninth review, pressures would rise further driven by the rupee erosion due to declining foreign exchange reserves.
Copyright Business Recorder, 2023
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