EDITORIAL: Pakistan Bureau of Statistics (PBS) estimated a 0.34 percent decline in the sensitive price index (SPI), comprising of 51 essential items, for the week ending 23 May compared to the week before - with 12 items witnessing a rise in prices and 18 showing a decline – while there was a year-on-year increase of 21.31 percent.
The weekly decline is attributable to a decline in basic food prices, notably garlic by 7.87 percent, flour by 4.66 percent, chicken by 5.92 percent, onion by 1.9 percent and LPG by 3.23 percent; however, the rise was in milk fresh (0.06 percent), beef (0.49 percent), mutton (0.25 percent), and yogurt by 0.11 percent.
Prices of petrol and products remained unchanged during the week ending 23 May, which in all probability contributed to the SPI decline; however, it is relevant to note that as petrol’s and products’ prices are notified every fortnight therefore the second week shows unchanged prices of these critical products with a commensurate favourable impact on the inflation rate.
It is relevant to note that effective 16 May 2024 the government approved a massive cut in fuel prices, 15.39 per litre for petrol and 7.88 rupees per litre for HSD, which should have had a major negative impact on prices and SPI for the week ending 16 May declined by 1.06 percent sourced to a decline in the prices of products transported from farms to market notably tomatoes (31.38 percent), onions (21.84 percent), garlic (7.76 percent).
Prices of fuel are subject to a petroleum levy of 60 rupees per litre and it is a major source of federal government revenue that is not shared with the provinces as it is not a component of the divisible pool. Given that this levy is imposed in the sales tax mode, which is a component of the divisible pool, placing the levy under other taxes is seen as a deliberate attempt by the federal government to appropriate the entire collection, which was budgeted at 869 billion rupees for the current year.
One would hope that instead of appropriating revenue that should by rights be shared with the provinces the federal government would consider devolution of all devolved subjects as per the 18th Constitutional Amendment dated 2010, 14 years ago, and further slash current expenditure particularly freeze salaries of government employees (constituting about 7 percent of the entire labour force paid for at the taxpayers’ expense) and freeze all public procurement for a couple of years to ensure that the country not only weathers the ongoing economic impasse but also increases its leverage vis-a-vis multilateral donors to minimise the impact of measures that have eroded the incomes of those operating in the private sector.
The year-on-year SPI figure remains a source of concern, given the rise of 570 percent in gas charges (attributed to donor conditions) and which accounted for a year-on-year increase of 21.22 percent for the week ending 16 May and 21.31 percent for the week ending 23 May.
In addition, the government’s heavy reliance on borrowing, domestically and whenever available internationally, has eroded the rupee value by upping the interest charges on debt, which is a rising component of current expenditure. There has been much talk of tightening of the government belt since more than a decade and yet domestic debt has been rising exponentially, especially after the IMF’s insistence that the discount rate be kept at a high of 22 percent since the middle of last year.
It is important to note that the onus of rising inflation rests partly with the Fund, given its underlying economic logic of achieving full cost recovery but the major brunt of responsibility rests with the government for not taking politically challenging mitigating measures to increase its own leverage with donors through taking out of the box informed decisions.
Copyright Business Recorder, 2024