EDITORIAL: Consumer Price Index (CPI) for January 2024 declined by 1.4 percentage points against the previous month — from 29.7 percent in December to 28.3 percent in January.
The average July-January national CPI 2023-24 was calculated at 28.73 percent against 25.24 percent in the comparable period of the year before, a differential of 3.33 percentage points, which indicates further deterioration in the quality of life of the general public - a decline was sourced to a 0.7 percent year on year for urban and 0.9 percent for rural CPI.
The feel good factor of this decline is therefore hardly likely to be felt at the grassroots level and may well be limited to that of the incumbent government claiming some success in reducing the rate and, at the same time, lend credence to the International Monetary Fund’s (IMF’s) argument that following the policies as dictated under the ongoing Stand-By Arrangement (SBA) will reduce inflationary pressures. However, Pakistan’s case is in marked contrast to Sri Lanka’s as after it went on an IMF programme, inflation in the island country plummeted from nearly 50 percent in 2022 to 4.2 percent in December 2023.
The caretakers in Pakistan would no doubt argue that the reasons for sustained high inflation are the administrative measures agreed by the Shehbaz Sharif-led government under the SBA, particularly with reference to upping the price of utilities with the economically viable objective of achieving full-cost recovery and raising petroleum levy to generate additional income for the government to narrow the budget deficit. Two observations, however, are in order. First, that a programme with the IMF was critical to averting the looming threat of default, especially as the bilaterals/friendly countries had refused to extend pledged assistance unless the country was on a rigidly monitored Fund programme or else default, which of course would have exacerbated the inflationary spiral. Be that as it may, it is relevant to acknowledge that the administrative measures agreed with the Fund are not the root cause of the persistently high inflation today, as conveniently and alarmingly ignored is the fact that there has been record borrowing by the caretakers, of a whopping 4 trillion rupees, from the domestic banking sector (1 July-19 January) which is a highly inflationary policy as this amount is being re-injected into the economy as fast as available to fund current non-development expenditure. Development expenditure with a potential to up the growth rate was slashed, as has been the usual practice during previous administrations.
In contrast, the Sri Lankan government’s way forward has been to restructure debt — external and domestic alike. On 19 January 2024, Breuer, senior IMF mission chief to Sri Lanka, stated that debt restructuring (external and internal) is ongoing and added that “to reach agreements in principle with the commercial creditors where the bondholders are, of course, a significant proportion. So our understanding is that negotiations are ongoing, proposals are being exchanged, and it is important for that process to continue and be completed as quickly as possible.” Pakistani finance ministers, both Ishaq Dar and Dr Shamshad Akhtar relied heavily on borrowing domestically as and when budgeted external funding became unavailable — the suspended Fund programme from November 2023 to June 2024 that stopped bilateral and multilateral pledged assistance inflows during Dar’s tenure and the inability to access the 6.1 billion dollar by the caretakers budgeted from commercial banks and issuance of Sukuk/Eurobonds as Pakistan’s rating remains unchanged.
This newspaper has invariably proposed to administrations, past and present, to slash expenditure in general and current expenditure in particular, which would require major sacrifices from the influential recipients as well as reforming the taxation structure from the current inordinate reliance on indirect taxes, estimated at contributing over 80 percent of government revenue today, whose incidence on the poor is greater than on the rich, to direct taxes based on the ability to pay principle rather than imposed in the sales tax mode as at present. A slash in government current expenditure would not only reduce inflation but would also increase leverage with the IMF in terms of harsh upfront conditions that, in turn, may be used for the benefit of the general consumers.
Copyright Business Recorder, 2024
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