EDITORIAL: In response to a query from a member of the Treasury benches, Tahira Aurangzeb, the Ministry of Finance replied in writing that “under the International Monetary Fund (IMF) stabilisation programme, the government has increased the long due utility prices (electricity and gas)” – gas prices rose by 520 percent in November 2023 and an additional 319 percent in February 2024 while electricity charges rose by 35 percent in November 2023 and 75 percent in February 2024.
And this unprecedented increase ultimately jacked up the overall inflation in fiscal year 2024. While this information was generally well known yet the diction used by the ministry generates three disturbing observations.
First, the reluctance to raise electricity or gas charges for political considerations has been the hallmark of all governments. It may be recalled that in 2018 the then newly-installed government was forced to raise utility tariffs by over 100 percent as a condition for an IMF loan because the previous PML-N government had not raised tariffs.
It may also be recalled that in 2022, the PTI-led government kept tariffs constant even as the international prices of gas and fuel were rising in the aftermath of the Russia-Ukraine war, again for political reasons. From March 2022 to mid-August 2023 the Pakistan Democratic Movement (PDM) government was in place and given that the written statement of the ministry pertains to the increase in rates from November 2023 to February 2024, the politically challenging decision was taken during the tenure of the caretakers.
The lesson to be learnt for all political parties is obvious: delays simply raise the cost to the consumer with much greater political fallout unless of course the economy is stable and not reliant on donor assistance.
Secondly, over decades, spanning civilian and military administrations, sustained failure to implement structural reforms in the power, fuel and tax sectors, a visible decline in governance in all areas of activity, and a steady rise in non-development expenditure necessitating ever-rising reliance on borrowing, both domestically and internationally, has led to a state of the economy today that remains extremely fragile.
The result is that structural infirmities and the yawning gaps in external financing account for the rigidity of donor programmes today, and their refusal to entertain any attempt to negotiate a phasing out of raising consumer tariffs to meet the economically appropriate target of full cost recovery.
The Pakistani negotiators could of course argue that they would effect a massive decline in the budgeted non-development expenditure (raised by 21 percent for the current year) that, in turn, would reduce the ambitious unachievable target of a 40 percent rise in tax collections this year, thereby increasing their leverage with the Fund to phase out the tariff increases.
Sadly, however, this administration has followed the same modus operandi as previous administrations notably passed on the buck to the general public whose capacity to withstand any rise is severely compromised, given that as per World Bank data 41 percent Pakistanis are now languishing below the poverty levels.
Thirdly, the tariff rise accounts for high inflation as per the ministry’s written response. One would have hoped that the response would have indicated that other budgeted measures that led to a rise in inflation, including over 90 percent allocation for current expenditure funded through borrowing that led to slashing development outlay (growth fuelling outlay) were also major contributors to inflation.
It is evident that inflation is an outcome of policy decisions taken by the government – whether they constitute donor conditions (accepted because of the economy’s fragility fourth year in a row - the outcome of successive government policies) or due to failure to formulate and implement in-house reforms (a failure that continues to this day in spite of pledges to the contrary).
Copyright Business Recorder, 2024