EDITORIAL: Three major macroeconomic indicators were released end last week that did little to enhance the public’s feel good factor.
The current account deficit registered at 270 million dollars in May 2024 – a deficit on the back of a surplus of 128 million dollars in February, 619 million dollars in March and 499 million dollars in April; thus, giving a surplus for February-May of 976 million dollars.
This indeed is a positive factor that no doubt contributed to stability in rupee-dollar parity and consequently lowered imported inflation that is a component of Consumer Price Index (CPI) though not of core inflation or Sensitive Price Index (SPI).
It is therefore not surprising that even as CPI is on the decline SPI rose by 0.94 percent for the week ending 20 June against the previous week and the main reason for this rise is attributed to the 570 percent increase in gas charges, and above 100 percent increase in tomato and onion, a rise due to seasonal factors.
Transport costs in all probability did not feature as a negative factor in the SPI calculation for the week ending 20 June as price of petrol was cited to have actually declined by 3.76 percent and diesel’s by 0.84 percent in comparison to the SPI for the week ending on 13 June 2024.
However, this raises the question as to the methodology used to determine the decline in fuel prices for the week ending 20 June as they are adjusted fortnightly and were last adjusted for 15 June 2024).
In addition, the price of fuel is not only a pass-through of the prevailing international price but consists of a hefty indirect tax, petroleum levy (whose maximum limit is proposed to be raised form 60 rupees per litre to 80 rupees per litre in the Finance Bill 2025) and whose incidence on the poor is greater than on the rich with a consequent negative impact on its inflationary impact on low income and vulnerable.
And finally, the foreign direct investment (FDI) rose by 15 percent, by 224 million dollars to 1.729 billion dollars in total terms year on year – another positive trend. While there is no doubt that this amount does not put us within the ranks of those countries in the world that are considered attractive to foreign investors yet the percentage rise must be appreciated.
Besides worldwide FDI declined by 2 percent to 1.3 trillion dollars last fiscal year no doubt due to ongoing conflicts (Russia-Ukraine and Israel-Gaza) and hence it will be more of a challenge to attract FDI at this time.
Pakistan, however, is seeking FDI not quite by providing an attractive environment to prospective investors globally, given the fact that the economy remains fragile, but is focused on a few already identified friendly countries and is proactively engaged in diplomacy with their government and private sectors.
To date, there have been pledges and no more than a trickle of FDI inflows; however, it is critical to ensure that the contracts that are signed are vetted by specialist lawyers and the long-term costs to the economy and the general public must be assessed before extending any fiscal and/or monetary incentives to foreign investors.
This is necessary as the country is reeling from the high cost of electricity today due to the contracts signed with Independent Power Producers in the past that included capacity payments and repatriation of profits.
Copyright Business Recorder, 2024
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