The price of 250ml packaged milk has gone up from Rs75 to Rs95 and that of a one litre from Rs295 to Rs360. Welcome to the new world of high inflation!
The government has set an inflation target of 12 per cent for this fiscal year. But skyrocketing of prices from the beginning of the year from July 1 indicates that meeting this target would be difficult.
In the last fiscal year, consumer inflation averaged 23.4pc thanks to low economic growth and the State Bank of Pakistan’s (SBP) tight monetary policy.
In June, the SBP eased interest rates from 22pc to 20.5pc, but it may have to wait months before further easing. Energy price hikes took effect in June, with further planned increases from July. The recent rise in petrol prices and possible hikes in the future due to the imposition of a petroleum levy would make it difficult to curtail rising prices.
In the FY25 budget, the government has withdrawn tax and energy subsidies from all sectors and ruthlessly taxed the entire spectrum of production and consumption, leaving just the sacred cows of agricultural income and income from property transactions by civil and military officers.
In several cases, it has introduced new taxes — and to ensure that non-filers of income tax returns become filers, 210,00 sims have been blocked so far. All these measures are aimed at meeting a tax target of Rs13 trillion.
In the coming years, Pakistan is expected to play a role in the evolving story of Asia Rising. In October, it will host the next meeting of the Shanghai Cooperation Organisation. Apparently, the West is not bothered if Pakistan remains within the US-led Western circle of influence.
Electricity users are being forced to pay ridiculously high amounts of money for even a single unit of power they use beyond each slab
Nevertheless, Islamabad does realise that balancing its relationship with the West and rising Asia will require it to become more open about its anti-terrorism policy. It also thinks that the state will have to become more assertive (read repressive) to meet this objective.
That is why the current hybrid regime continues to act in manners that frustrate 241m Pakistanis in general and true democracy lovers in particular. This may continue, however, whether we like it or not.
This explanation makes it easier to understand why, on the one hand, Islamabad is meeting all tough International Monetary Fund (IMF) conditions to secure upwards of $6 billion to stabilise the faltering economy and why, on the other hand, its reliance on China and Saudi Arabia is growing for receiving billions of dollars in investment.
It also helps us understand why the economy looks stalled despite some encouraging positive developments in the last fiscal year including growth in exports and remittances.
Continued energy reforms (overpriced gas and electricity for ordinary households and businesses) aim to compensate for the losses caused by years of massive corruption and unforgivable inefficiency. However, these painful reforms should have been undertaken many years ago to contain the fiscal deficit.
Skipping these reforms is not an option now because that will further balloon our fiscal deficit, and the IMF will refuse to give new loans. Besides our partners in the story of Asia rising would also not tolerate it. They are working together to meet a broader objective that requires all story characters to play their part responsibly.
And what is that responsibility? Create a state where there is no room for terrorism and extremism and make economic policies sound and “transparent”.
In coming months, we may see inflation elevated, joblessness persisting, and the gulf between the elite and the ordinary citizens intact
But the dilemma is that for Pakistan eliminating terrorism becomes increasingly difficult amidst low economic growth, widespread unemployment and a widening gulf between the ruling elite and the common man.
In coming months, we may see inflation elevated, joblessness persisting, and the gulf between the elite and the ordinary citizens intact due to energy price hikes, withdrawal of tax subsidies and imposition of new taxes and the elite’s stubborn indifference towards the issue of social injustices.
Due to the seemingly cruel formula of accumulating maximum energy and tax revenue, electricity users are being forced to pay ridiculously high amounts of money for even a single unit of power they use beyond a ‘slab’; food items including packaged milk and infant milk formula have become expensive and a new wave of general inflationary pressure is building up across the entire economy.
Political parties in the Opposition are protesting, ordinary Pakistanis are protesting, and businesses are protesting, too.
However, their protests and planned sit-ins may not earn any major net relief because there is no room for it. Even if policymakers reluctantly agree to offer relief in energy pricing (which itself will be against the IMF conditions), they will have to reduce spending somewhere by an equal amount.
So, what is the way forward? From people’s perspective, the way forward lies in slashing the government expenses on itself — astronomically high expenses of the public office holders, their untaxed air travels, colonial-era expansive accommodations, untaxed luxury vehicles, thousands of free units of electricity for the residence and hundreds of litres of free petrol for their SUVs.
The widening gulf between “the haves” and “the have-nots” must shrink now.
Published in Dawn, The Business and Finance Weekly, July 8th, 2024
