EDITORIAL: Sensitive Price Index (SPI) rose by 0.11 percent for the week ending 5 October 2023 registering a disturbing 37.07 percent year-on-year with the largest contributory factor being the rise in the price of two utilities - electricity by 118.16 percent and gas by 108.38 percent - whose pricing decisions are taken by the government and are therefore referred to as administered prices.
To raise utility prices to achieve full cost recovery was a prior condition agreed in the staff-level agreement (SLA) on the Stand-By Arrangement with the International Monetary Fund (IMF) reached on 29 June 2023.
The rationale for the SLA provided by the then government was credible: without the Fund loan pledged assistance from friendly countries had also dried up and with default looming large on the horizon the projections were of an inflation rate of 75 to 100 percent with severe shortages of key items including fuel and cooking oil.
However, it is unfair to put the entire blame on the Fund conditions for the rise in administered prices for two reasons. First, appallingly poor governance in these sectors accounts for a circular debt of 2.6 trillion rupees today and administration after administration has opted to pass on the buck onto the consumers rather than on improving governance.
While the crackdown on electricity theft is a step in the right direction yet the amount recovered after more than a month of the crackdown is around 11 to 12 billion rupees – less than 0.5 percent of the total circular debt.
Thus, concurrently, efforts to improve governance are required. And second, the tax component in the prices charged on electricity and gas is significant and sadly instead of relying on widening the tax net by taxing the rich farmers, the real estate sector, retailers and wholesalers, successive governments have relied on indirect taxes whose incidence on the poor is greater than on the rich to generate almost 80 percent of total revenue.
The Consumer Price Index (CPI) for September rose by 31.4 percent against 27.4 percent the month before. This is baffling because the crackdown on speculators operating in the foreign exchange market was launched on 6 September resulting in the rupee (interbank) strengthening from 307 to the dollar on 5 September to 287.74 to the dollar by 30 September while the open market fell by a lot more – from 327 rupees to the dollar on 5 September to 289 rupees to the dollar on 30 September. And in spite of the significant rupee strengthening inflation rose by 4 percentage points in September against the previous month.
What is also relevant to note is that CPI rose significantly in July-September 2023-24 as opposed to the same period in 2022-23 for urban (3.32 higher) and rural (4.75 percent higher) while data released by the Pakistan Bureau of Statistics indicates that SPI for July-September 2022-23 declined from 30.23 percent to 29.75 percent in the comparable period of this year and even more incredibly Wholesale Price Index declined from 39.55 July-September 2022-23 to 24.61 percent in the comparable period of 2023-24.
There is a need to rationalise data and PBS needs to ensure that not only is data synchronised but that it resists all pressure from members of the Cabinet to manipulate data that reflects badly on their performance for it is accurate data alone that will compel a sitting administration to take the appropriate measures.
The caretakers are fast-tracking the privatisation process by arguing that it was supported by all previous governments. One would sincerely hope that the caretakers, with no stake in the country’s politics, use this same argument and initiate energy and tax sector reforms that have been agreed in the past three previous Fund programmes during the tenure of all three major national parties — the PPP (2008-13), the PML-N (2013-18) and the PTI (2018 to 2022).
Copyright Business Recorder, 2023
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