EDITORIAL: Pakistan Bureau of Statistics (PBS) has estimated the March 2024 Consumer Price Index (CPI) at 20.7 percent year-on-year against the 35.4 percent in March 2023. This requires an explanation as in March 2023 the then finance minister Ishaq Dar’s violation of the agreement with the International Monetary Fund (IMF) to allow a market-determined rupee-dollar parity had made imports artificially cheaper though it cost the country 4 billion dollars in lost remittance inflows through official channels.
In addition, Dar’s resistance to implement the agreed administrative measures to up the price of utilities, particularly gas and electricity, to meet the economically viable full cost recovery criteria, was another factor that would have stayed inflation.
Four observations are critical. First, independent economists challenge the recent PBS inflation data on the grounds that (i) the lowest gas and electricity rates that are subsidised were taken and not the average which would have better reflected the price of manufactured items in the country; (ii) the recent rate rise in gas was understated by more than a 100 percent from one month to the next; and (iii) there is a lack of synchronicity between complementary products; for example, the inflationary impact of cement and rent prices was not synchronised.
Second, the feel good factor of a decline in inflation is negated by the fact that the sensitive price index for July-March rose from 30.50 percent in 2022-23 to 31.26 percent in the comparable period of this year. In the week ending 28 March 2024 the SPI was a high of 29.41 percent. In addition, the July-March CPI average for last fiscal year was 27.26 percent against the comparable period of this year’s 27.06 percent.
Third, bafflingly, the urban CPI in the current year rose by 27.13 percent from 25.04 percent last year and rural CPI declined from 30.56 percent last year to 26.97 percent this year – a decline perhaps on the back of improved crop output this year, the natural outcome after a flood year; however, it is relevant to note that crops are under 10 percent of total GDP, which is why improved crop output was unable to jack up the GDP for the second quarter, which registered a poor 1 percent against 2.5 percent in the first quarter of the current year.
The opposing trend between the urban and rural inflation rates may also be attributable to the rise in transport costs due not only to the eroding rupee value after the market-based rupee-dollar parity was adopted but also because of the all-time high of the prevalent petroleum levy - 60 rupees per litre for petrol and high speed diesel.
And finally, wholesale price index is estimated to have declined from 34.15 percent July-March 2022-23 to 23.43 percent in the comparable period of this year. This decline in the wholesale price is not supported by the industrial sector that is lamenting the rise in input costs – electricity, gas and availability of credit, which declined by a whopping 54.1 percent July-February 2004 against the comparable period of the year before.
Be that as it may, the balance of trade has improved - from negative 22.68 billion dollars July-March 2022-23 to negative 17 billion dollars in the comparable period of this year. This decline does contribute to the lower GDP growth as raw material imports declined.
However, exports rose by 8.93 percent and accounted for 57 percent of all imports against 48 percent in the period of last year, yet this improvement was on the back of continuing import controls that, as per the first SBA review documents released by the IMF, may remain effective till the end of the programme period.
A source of continuing concern is the net outflow of all foreign inflows (trade imbalance and external borrowing costs), which accounts for the declaration by the newly-elected government that it will seek another IMF programme, which is critical to meeting the country’s financial obligations.
It is, however, suggested that instead of focusing exclusively on raising domestic tax revenue, external and domestic borrowing, and foreign investment inflows to also seek to slash current expenditure through voluntary sacrifices by the major recipients of the budget as well as implement reforms, particularly pension reforms whose rising budgeted allocations are no longer economically unsustainable.
Copyright Business Recorder, 2024
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