Macroeconomic indicators

EDITORIAL: Four unexplained, albeit bafflingly un-synchronised, data was recently uploaded on the Pakistan Bureau of Statistics (PBS) website.

First, Consumer Price Index (CPI), which includes imported inflation, declined from 28.3 percent in July to 27.4 percent in August while the rupee eroded in value from 281 rupees to the dollar in July 2023 to 294 rupees to the dollar in August 2023 (as per data released by the PBS on August trade statistics).

Second, administrative import restrictions were partially lifted as per the agreement under the Stand By Arrangement (SBA) with the International Monetary Fund (IMF), which led to a rise in imports from July 2023 total of 3.7 billion dollars to 4.48 billion dollars in August.

Third, core inflation year on year, non-food and non-energy, remained constant at 18.4 percent in July and August 2023 even though the month-on-month urban core inflation rose from 1.21 to 1.8 percent while rural rose from 1.2 to 2.8 percent. And finally, the Sensitive Price Index (SPI) for the week ending 31 August 2023 over the week ending 1 September 2022 as per the PBS website reveals a decline in electricity charges for the first quarter at negative 21.96 percent – a claim that is not backed by actual data.

This is very disturbing, as accurate data is a prerequisite for taking informed policy decisions; thus if the issue is one of competence then one would hope for immediate induction of some qualified statisticians but if it was a deliberate attempt to show a performance not backed by ground realities then the obvious fallout of this may well be widespread anger whereby the situation could well exacerbate, spiraling out of control.

Be that as it may, there is overwhelming evidence that the economic impasse is not only continuing but is becoming deeper with the passage of time.

One can attribute blame on the Dar-led finance ministry (for implementing patently flawed policies ranging from controlling the rupee-dollar parity at a time when the country’s foreign exchange reserves were insufficient to meet even a month of imports which led to plummeting remittance inflows from official channels and raising current expenditure by 21 percent from what was budgeted for the year). His predecessor, Miftah Ismail, succeeded in reaching a staff-level agreement with the IMF in August 2022 as did his predecessor Shaukat Tarin for successfully reaching a staff-level agreement on the sixth review in January 2022 – only three months prior to the vote of no-confidence against the then prime minister, Imran Khan.

Be that as it may, there is a need to consolidate the gains made by the outgoing Prime Minister Shahbaz Sharif in securing the SBA with the IMF that not only led to the disbursement of pledged loans of over 5 billion dollars from friendly countries but also, importantly, helped the country successfully avert sovereign default.

There is obviously very limited fiscal space available to the Caretakers mainly because the budget for the current year envisages a further 26 percent raise in current expenditure from the revised estimates of last year – from 10.52 trillion rupees to 13.3 trillion rupees - which required a very tight fiscal policy envisaging 9.4 trillion rupees tax revenue against the revised estimates of 7.2 trillion rupees for the outgoing year - a 28 percent rise that is unlikely in one year if past precedence is anything to go by without a mini-budget.

Given the fact that the FBR relies heavily on indirect taxes to generate revenue, to the tune of over 80 percent, and the recent electricity bills as well as the raise in petroleum prices the capacity of the general public (as opposed to those on the government payroll) to withstand any additional price rise stands severely compromised.

The outgoing government budgeted a raise in salaries of state employees by 30 to 35 percent, which may allow them to have an income whose purchasing power capacity is equal to last year’s; however, the majority of the workforce is employed in the non-government sector and they are not only experiencing a wage freeze due to the ongoing economic impasse but many industrial units are closing down due to lack of demand for their products, which is fueling unemployment pushing thousands of families under the poverty line.

To rely on the Fund’s approval of proposals on electricity bills indicates no out-of-the-box potential of the current cabinet.

Decisions which can be made by the Caretakers without recourse to the IMF for starters, include slashing current expenditure, negotiating with domestic stakeholders to implement much needed and long deferred reforms and levy income tax on those who are currently not filing their returns (traders) and compel the provinces to tax their rich landlords at the same rate as the salaried class.

Copyright Business Recorder, 2023